Establishing a Limited Liability Company (“Společnost s ručením omezeným”; s.r.o.) in the Czech Republic is a rather demanding and lengthy process, which is mainly influenced by the “speed” of procedure by the authorities.
Establishing such a company requires much more time, procedures and money than establishing a business license for a physical person (i.e. “Živnostenské oprávnění“ – trade licence for a self-employed person). The bureaucratic process involves a notary, notarized signatures and visits to several government offices. Many future directors therefore authorize the setting up process of an s.r.o. to their lawyers or specialized firms.
One option is to buy an already existing company. The advantage of buying a ready-made one is the fact that you can buy a company with higher capital and a longer history. The reality is, however, that a ready-made company only solves part of the problem and doesn’t save time. In case the new director wants to change the company name or apply for a special trade license, you will have to change the number of directors/shareholders to the number that your new company has, and this process would take just as long as starting a new company from nothing.
This guide will explain how you can do most of the necessary steps yourself without any outside help. At the same time, this manual cannot address specific cases and situations, but it can provide sufficient guidance on establishing a limited liability company at a general level. However, you will probably end up in the hands of a professional anyway; someone, who will be your guide or will handle the whole process for you with a power of attorney.
Can a foreigner start a company?
Foreign entrepreneurs, regardless of whether they are EU, EEA or so-called third-country residents, have the possibility to establish an s.r.o company based in the Czech Republic.
The function of a partner or director may be exercised by the foreigner regardless of whether he/she resides in the Czech Republic. Both a foreign legal entity or a natural person who is a foreigner may be an associate. To be a partner, such a person does not have to have a residence permit issued in the Czech Republic or a visa. Likewise, a foreigner can be a company director. A residence permit or visa is not required.
Foreigners who establish a limited liability company in the Czech Republic, which they manage from abroad, may authorize Czech lawyers and tax advisers to communicate with the Czech authorities. Thus, they do not have to learn all of the Czech laws and regulations. At the same time, they are confident they will not come into conflict with the authorities just because of the misconceptions of our authorities’ requirements.
The steps for setting up a company
- Firstly, you need to go to a notary where you will write up the notarial record of the founding of the company.
- Subsequently, you will secure the consent of the owner of the property with the location of the registered office,
- and you will request a license to perform the business at the Trade Licensing Office.
- Then you can go to the bank where you open an account and deposit the share capital or a part thereof.
- Finally, you file an application for registration in the Commercial Register
- and, after the registration in the Commercial Register, you file a registration for the corporate tax at the local tax authority.
Step 1: The founding document
You can either compose the founding charter or the deed of association.
If you have already encountered the concepts of a Deed of Association or a Founding Charter in association with a limited liability company, then you know that it is basically the same document. The only difference can be that the term ‘Deed of Association’ is used if there are at least two partners, while the ‘Founding Charter’ is used if the company only has one partner. For ease of reference, only the term ‘Founding Charter’ will be used in the text below.
The Founding Charter is the basic document of the company which determines
- how the company will be named (a business company),
- where the company will have its registered office,
- what will be the subject of the business,
- who will be the company’s directors,
- how the profit will be divided between the shareholders,
- and other things stipulated by law or agreed between the partners.
The specific compulsory requirements are laid down in the Commercial Code, which means they can change during the company’s existence. The Founding Charter of an s.r.o. must be written in the form of a notarial record, which means that if we want to establish an s.r.o., the first thing we need to do to start our company is to visit the notary.
The Founding Charter can be written by any notary. It’s not a difficult document for them to draft.
Useful terms to Know
- Společník – associate, owner, partner, shareholder
- Jednatel – agent, (managing) director
- Společenská smlouva – Deed of Association is a founding charter for more owners
- Zakladatelská listina – Founding Charter in case of one owner
The contents of the founding document
Every notary has their favourite template of a Founding Charter/Deed of Association which they fill up for your needs.
There is also the option to bring your own version of the charter to the notary. However, this can prolong the process as the notary must examine the charter in detail, thus this option cannot be particularly recommended.
For the drafting of the charter, all of the associates (or a person authorized by a power of attorney where the signature of the absent member must be officially certified) must be present with the notary. If a partner does not speak Czech, the presence of a sworn interpreter is required.
In drawing up the Founding Charter or the Deed of Association, we recommend that you specify the following:
- the transfer of a business share to another partner or a third party is not subject to the consent of the General Meeting
- determine the seat of the company only by the name of the municipality (e.g. Brno, Znojmo, Blansko, etc.)
- include all the business operations that the company will want to carry out, even in the future
These ‘deviations’ will be particularly helpful if one or more shareholder wishes to transfer their business shares to either other partners or to outside persons; or in a situation where you would like to obtain an authorization for an activity that you will only want to start doing later (e.g. “stone processing”, “operating a travel agency”, etc.); or if you move your company office to a different address in the same municipality, it will save you not only the money for filing the notarial record but also the time and other duties.
Note: An s.r.o. can have multiple owners and multiple directors. None of the directors/shareholders need to reside in the Czech Republic, and there is also no need for a company secretary or a local resident to be a director. A director (‘jednatel’) does not need to have shares, he/she can have 0% shares, but in that case there must be one or more shareholders that together have 100% of the shares. Shares can always be re-divided at a later stage (for example, for an investor).
The simplest s.r.o. configuration has 1 director with 100% of the shares.
How much should I pay for the notarial record?
The price for obtaining a notarial record is determined by the relevant legal regulations, so it is not important which notary you decide on to write the Founding Charter. However, it is much more important how many copies of the original or certified copies you will take away with you.
The attitude of various authorities to the Founding Charter differs, while one Trade Licensing Authority will want to keep the copy of the notarial record, another may be sufficient to submit a copy together with the original, and the original will be returned to you. Therefore, for example 3 originals and 1 copy (2 copies for the court, 1 copy for the Trade Licensing Authority, 1 copy is kept by the company) seems to be the ideal option.
The bank, where you will open a special account for the lodging of the registered capital, usually makes just a photocopy of the notarial record and is happy with a copy obtained from the original. In the aforementioned situation, the price for the notarial registration of the company is ca. 5.000 CZK; it always depends on the number of pages from which the price for the original, resp. copies, is calculated.
Note: By writing up a Deed of Association or a Founding Charter, a limited liability company is actually founded. Beware however, this does not mean creating a company. The company is established and acquires legal status only on the date of its registration in the Commercial Register.
Step 2: An address
Every legal entity needs somewhere to reside. The official address of legal entity in a flat has been fully authorized since January 2014.
If you are not the direct owner of a particular real estate where the company will reside, or you do not want to place the company’s registered address in your own property for whatever reason, it is necessary to obtain the agreement of the property owner with the placement of the company’s registered office, with an officially signed signature of the owner (lessor or a person authorized to dispose of the premises) and enclose an extract from the Land Register “katastr” not older than 3 months.
We recommend that these documents be obtained in two copies, because one copy is kept by the Trade Licensing Office, and the other will be submitted to the Registry Court.
Step 3: A permit to operate
If you have your company founded (the company is established only after registration in the Commercial Register, it is now only at the start-up stage) and you have a proper residence address, your next steps will take you to the Trade Licensing Authority.
Here it is necessary to obtain a permit to perform the activities that the company will focus on. At present, “general” business is greatly facilitated by the so-called free trade, which includes 80 business disciplines. The exact name of the free trade is “production, trade and services not listed in annexes 1 to 3 of the Trades Licensing Act”. It can be logically inferred from the title that other activities that can be operated are listed in annexes 1 to 3 of the TLA, but there are also activities that are a business activity, yet they are not included, for example, the activities of a lawyer or a doctor. See the list of the free trades in the Annex No 4 to Act No 455/1991 Trade Licencing Act.
If you want to operate a free trade business, you do not need any special documents to do so, the presence of the director and a copy of the notarial record of the establishment of the company is sufficient. The administrative fee is CZK 1.000, irrespective of the number of trades. For the sake of completeness, it is necessary to add that if the company deals with a so-called “regulated trade”, the presence of a responsible representative (or the consent of the responsible representative to perform a specific activity for the company with an officially signed signature of the responsible representative on a special form) and documents proving their entitlement to the responsible representative (education and evt. experience).
An application for a trade must also include an extract from the criminal record. Foreign police clearance of every director is absolutely required if you are not a Czech citizen or do not have permanent residence in the Czech Republic or if you don’t have the Temporary residence card for EU family member. As a foreigner, you will need to get it from the country that you have a passport / long-term residence permit of, and of all countries you have stayed more than 6 months in within the last 3 years.
The police clearance from your home country needs to have either an apostille stamp or super legalization. Getting the police clearance and apostille stamp / super legalization may take weeks and some countries require you to visit the authorities personally. Note that you can get the foreign police clearance from most (but not all) EU countries through the Czech system (CzechPoint at any post office) along with the Czech police clearance. A police clearance cannot be older than 3 months the day it will be filed at Court. The police clearance must have an attached court-translation into Czech.
The speed of processing your application by the Trades Licensing Authority is relatively brief, it usually takes 3-4 days. The deadline for issuing a decision is 5 business days.
The necessity to file a request for registration in the Commercial Register within 90 days is also valid if the company is established for the purpose of doing business, which does not require acquiring a license, but the deadline is counted since the establishment of the company (date of notarial registration).
Note: Be careful, the company requires a trade license on the date of its registration in the Commercial Register, within the scope of the registered business subject. I.e. you cannot start your business before the company is registered in the CR. However, if you cannot file a request for registration in the Commercial Register within 90 days of receiving the trade license (i.e. the extract from the Trade Register or a Concession), the Trades Licensing Authority decides that you have not fulfilled the conditions for the creation of a trade license and you will have to request it again.
Step 4: The capital
We now have a registered company, a registered address, and a right to perform business, thus leaving only the opening of an account in a bank and the lodging of the registered capital.
The administrator of the deposit (the person designated in the Deed of Association, the bank in charge of managing the contributions of individual partners or a third party) shall come to the selected bank with a copy of the notarial record of incorporation of the company where they will open an account for the company where they will subsequently deposit the share capital or its proportionate share. The bank shall provide the depositary with a confirmation that the account has been established and that the share capital or part thereof has been deposited.
Since January 2014, the minimum amount of the registered capital is CZK 1, unless the Deed of Association stipulates otherwise. The amount of each partner’s contribution must always be at least CZK 1. Therefore, it is only recommended that even with a single-member company, the registered capital should be at least CZK 10, so that should the sole shareholder wish to invite other shareholders, there is no need to increase the registered capital.
The obligation to establish a special account in the bank for the purpose of lodging the registered capital is not tied to amount of capital, and thus even with the registered capital of CZK 1, this obligation remains unaffected. If you want to set up a company and invest non-cash deposits (real estate, a car, know-how, or other assets), we recommend using the services of a lawyer specialising in the Commercial Code.
Note: A frequent mistake is linked to the assumption that capital is inviolable and can not be handled. It is not true, and once your company is registered in the Commercial Register (thus officially founded and acquiring legal status), you can freely handle your deposits and assets.
Step 5: Commercial Register
The request for registration in the Commercial Register is submitted on a special form, which can be found on the website of the Ministry of Justice www.justice.cz.
The court fee is paid by sticking special revenue stamps on the printed form, the amount is currently 6,000, – CZK.
The so-called direct registration of the company through a notary is very advantageous. In the case of a simple wording of a Founding Charter that does not deviate from the law, the court registration is free of charge. In case the social contract governs relations differently from the legal standard, the court fee for registration of the company is 2.700, -. The notary usually charges from several hundred crowns to about 1.500, – CZK for his work on the registration.
The request for entry in the Commercial Register must be filed no later than 6 months from the date of the finding of the company, i.e. from the date of writing up the notarial record of incorporation; otherwise, it is assumed that the founder has abandoned their intention.
Note: Attach all required attachments to the request for registration and have it signed by all associates and have their signatures officially verified.
Attachments to the request for entry in the Commercial Register:
- passport copies of the director(s) and shareholder(s),
- 2x notarial record of incorporation
- 1x owner’s consent with location of the company’s registered address,
- 1x extract from the property register regarding the registered address of the company,
- proof of the owner’s / shareholder’s residence address,
- 2x declarations of the director that he / she fulfils the conditions for the performance of this function;(usually written by a notary, templates can be found on the Internet, but they cannot be guaranteed);
- 1x court-translated foreign police clearance for each director with apostille or super legalization,
- 1x deposit manager statement (confirmation of receipt of deposits from partners),
- 1x bank confirmation of depositing the registered capital,
- 1x extract from the Trade Register (it is not necessary to provide proof if you fill in the RZP ID number in the lower left corner of the trade register form)
Note: The requirements of individual registry courts to document recorded facts vary from time to time, hence the list and number of documents should be taken as indicative.
Step 6: Taxes
If the company is registered in the Commercial Register, the obligations of the entrepreneur do not end there.
The first place to be visited by the directors with the statement in hand will undoubtedly be a bank which, since the entry in the Commercial Register, will allow for the handling of the funds forming the share capital, but immediately after that it is the tax authority, where it is necessary to register the company for corporation tax (and optionally for VAT and employees) within 15 days from the date of registration in the Commercial Register.
Registration for corporation tax is done via a relatively simple form, thus the only complication may be the time when to get to the local tax authority. While the company address does not play a role for the trade licensing office, the jurisdiction of the tax office is governed by the location of the company’s headquarters.
A company must file a corporate income tax return each year, even if the company has had no activities.
S.R.O. bookkeeping is always double-entry, because it is a legal entity registered at the Commercial Court.
This makes it very difficult for somebody who is not an accountant to do the accounting and tax returns. It is highly recommended to hire a professional accountant for the purpose.
When can I start doing business?
If the registry court rejects a request for registration of a company, it is assumed that the company never came into being.
Otherwise, you may start your business on the day of entry in the Commercial Register.