Setting Up a Company in the Czech Republic

Foreigners are allowed to conduct trade activities, including acquisition of real estate property, under the same conditions and to the same extent as Czech entrepreneurs. They may become founders or co-founders of a company, or may join an existing Czech company.

Foreign companies may operate in the Czech Republic, either by establishing a branch office registered in the Czech Republic or by establishing a Czech company. There are four different legal forms of companies, most commonly used are limited liability companies (s.r.o.) and joint-stock companies (a.s.).

We can set up the company for you, please download our pricelist which will give you more details. 

BRANCH OFFICE

A branch office of a foreign company is not a Czech legal entity, but functions as the representative of a foreign company and incurs obligations on the foreign company's behalf. Branch offices must fully list their planned activities in their application for registration in the Commercial Register, as they are
only allowed to engage in the listed activities. A director, who may be either a Czech person or a foreigner with a valid Czech residency permit, must be appointed to head the branch office. The law under which the branch's parent entity was founded also applies to the branch's internal dealings. If start-up losses are anticipated, the selection of a branch office may permit the deduction of such losses against the foreign company's income in its home jurisdiction.

From January 2002, there is no restriction on acquisition of real estate property by branch offices of foreign companies in the Czech Republic.

LIMITED LIABILITY COMPANY – SPOLECNOST S RUCENIM OMEZENIM (s.r.o.)

A limited liability company is common only used for small and medium-sized businesses. It may be established either by (i) a founder´s deed by one entity (whether an individual or a legal entity) or (ii) by a memorandum of association concluded by a group of entities. However, a limited liability company with one shareholder cannot establish or become the sole shareholder of another limited liability company. Both the founder's deed and the memorandum of association must be executed in the form of a notarial deed. The incorporation document also determines whether or not a limited liability company will issue its articles of association.

A limited liability company does not issue shares. The ownership interest of each shareholder is the proportion of his/her/its contribution to the basic capital of a company. Minimum basic capital is CZK 200,000 (GBP 4,600, EUR 6700). Non-monetary contributions must be fully settled before the company's registration in the Commercial Register. The founder's deed or memorandum of association must specify the non-monetary contribution and its value which is determined by an expert appointed by Court. At least 30% of subscribed monetary contributions must be paid up before registration of the company in the Commercial Register.

Corporate governance is simpler than that of a joint stock company. A limited liability company does not have a board of directors. Its statutory body is made up of one or more executive directors. The law does not restrict their number. The executive director is appointed by the general meeting, the supreme body of the company, or by the sole shareholder exercising powers of the general meeting. Each executive director acts on behalf of the company independently, unless the founder's deed or the articles of association stipulates otherwise. A foreigner can only become the executive director if he/she already has a visa. The law does not require the limited liability company to establish a supervisory board; however, the supervisory board can be established provided the founder's deed or memorandum of association stipulate so. The supervisory board consists of at least three members elected by the general meeting.

The ownership interest in a limited liability company is not as easily transferable as the shares in a joint stock company. It requires a written agreement and if memorandum of association stipulates so, the approval of the general meeting must be obtained.

JOINT-STOCK COMPANY - AKCIOVA SPOLECNOST (a.s.)

A joint-stock company is used for large-sized companies. It is established by a founder´s deed by one shareholder, being a legal entity, or by a memorandum of association by more shareholders (whether individuals or legal entities). Both the founder´s deed and the memorandum of association must be executed in the form of a notarial deed. A joint stock company is obliged to issue its articles of association.

Bearer shares are freely transferable while transfer of registered shares may be subject to certain conditions specified in the articles of association. If the registered shares are book entered shares, their transfer is carried out through registration of the new owner in the Securities Centre.

Minimum basic capital is CZK 2,000,000 (EUR 6,700) or CZK 20,000,000 (EUR 67,000) if the company is founded through a public offer of shares. Non-monetary contributions must be fully settled before the company´s registration in the Commercial Register. At least 30% of subscribed monetary contributions must be paid up before registration. The statutory body of a joint-stock company is the board of directors consisting of at least three members. Its members are generally elected by the general meeting or by the supervisory board if the articles of association stipulates so. The board of directors decides on all matters that are not reserved to the general meeting. Joint stock companies with one shareholder may decide to appoint one member of the board of directors only. Foreign members of the board of directors need to acquire a visa.

Each joint-stock company must establish a supervisory board which controls whether business activities of the company are conducted in compliance with Czech law. The supervisory board consists of at least three members. If the company has more than 50 full-time employees, the latter elect one-third of the supervisory board's members. The articles of association may determine that employees can obtain company shares under better conditions than other shareholders. However, the total amount of emission or purchase price
which is not subject to payment by employees may not exceed 5% of the company´s basic capital at the time of decision.

TRADE LICENSES AND REPRESENTATION

Before registration in the Commercial Register (please see below), all companies need to obtain a trade license corresponding to activities they intend to perform. For this purpose, they must appoint an authorised representative (odpovedný zástupce. in Czech) who represents the company before the trade license office and is responsible for the company´s compliance with the conditions of trade licences. An
authorised representative must be designated for each activity performed by the company; however, one authorised representative may cover all the trades of the company. Foreign authorised representatives need to acquire a visa for doing business in the Czech Republic and must have adequate knowledge of the Czech language.

A company formed for the purposes of owning real estate in the Czech Republic does not require any form of Trade License. Hence such companies do not require an authorised representative (odpovedni zastupce).

LIABILITY

Shareholders of a joint-stock company are not liable for its activities. Shareholders of a limited liability company are jointly liable only up to the amount of their non-paid subscribed contributions according to the registration in the Commercial Register. Once the shareholders pay up the subscribed basic capital in full and once the payment of the full amount is registered in the Commercial Register, the shareholders cease to be liable for the company´s obligations.

REGISTRATION OF A COMPANY IN THE COMMERCIAL REGISTER

A company comes into existence through registration in the Commercial Register held by the competent Regional Court. Consequently, it may commence its business activities only after its registration. Before then it may only perform activities related to the incorporation of the company (e.g. leasing premises for its registered office).The statutory body of the company must apply to the Commercial Register for the registration of the company within 90 days from the date (i) when the company was founded or (ii) when the company´s trade licences were issued.

The following documents must be attached to the application:
documents showing the valid incorporation of the founder and the power of its representatives to act on its behalf not older than three months;

• incorporation documentation, i.e. founder's deed or memorandum of association;
• specimen signatures of directors;
• evidence that the company's basic capital was fully paid up (usually shown through a bank statement);
• residency permits [visas] of foreign directors;
• a statement of trustworthiness signed by each director and member of supervisory board (if applicable);
• extracts from the criminal register for each proposed director and supervisory board member;
• company's trade licences (if applicable);
• evidence of a title (ownership right or lease agreement) for the premises where the registered office of the company will be situated;
• powers of attorney for any person to be registered in the Commercial Register in relation to the incorporation of the company (e.g. executive directors).