Czech Republic - Company Incorporation

Czech Republic Company Incorporation

The Czech Republic is situated in the centre of Europe, bordering Germany, Poland, Slovakia and Austria. The Czech Republic does not have controls on share ownership of Czech Companies, but has strict controls on ownership of property by non-nationals. The Czech Company is therefore an ideal vehicle for purchase and holding of property in the country.

There are two types of company entity:

  • Limited Liability Company - společnost s ručením omezeným - s.r.o.
  • Joint Stock Company - akciová společnost - a.s.

These two corporate entities are most commonly used by foreign company operations in the Czech Republic. The joint stock company and the Limited Liability company are the corporate forms most commonly used for the operations of foreign companies in the Czech Republic.

Joint Stock Company - Akciova spolecnost

  • The Government for joint ventures prefers this type of company.
  • The shares of this company may be freely traded, depending on the company's Articles of Incorporation, without registration in the Companies Register. Therefore, a joint stock company has an advantage as the shares are expected to be publicly traded.
  • The accounts must be filed annually.
  • Two advantages of this company is extreme confidentiality for beneficial owners and there is no liability of its shareholders.

Limited Liability Company - Spolecnost s Rucenim Omezenym

  • This type of company cannot trade on the stock exchange
  • The rights and duties of this type of company and it’s participants are regulated by the Commercial Code.
  • The benefits include extreme confidentiality for beneficial owners.
  • Annual filing of accounts must be completed.

Similarities

Shareholders in both types of company are protected from the company's creditors by a corporate veil. A shareholder in a joint stock company is not liable for the company's liabilities. A shareholder of a limited liability company is liable jointly and severally with the other shareholders of the limited liability company up to the sum of the unpaid contributions of all shareholders as recorded in the Commercial Register. However, if the contributions of all shareholders of the limited liability company have been paid up in full, the shareholders are no longer liable for the company's liabilities.

In both cases, a company may be established by a single person. However, in the case of a joint stock company, that person must be a legal entity (rather than an individual). Furthermore, a limited liability company consisting of only one shareholder is not allowed to be the sole founder or sole shareholder of another limited liability company. Moreover, an individual is only allowed to be the sole shareholder in a maximum of three other limited liability companies.

In order for each form of company to be registered in the Commercial Register

1, a trade license must be obtained

2/3. Both forms must also maintain a reserve fund (which is principally a bookkeeping entry) to cover losses. A joint stock company is required to contribute 5% of its net profit annually to the reserve fund (20% of its net profit in the first year of reaching profit, but not in excess of 10% of the registered capital) until it reaches 20% of the company´s registered capital. A limited liability company is required to contribute 5% of its net profit annually to the reserve fund (10% in the first year of making a profit, but not in excess of 5% of the registered capital) until it reaches 10% of the company's registered capital. A reserve fund can only be used to settle a company's loss if such a loss does not exceed 10% of the registered capital in the case of a limited liability company, or 20% of the registered capital in the case of a joint stock company.

Differences

A joint stock company issues share certificates, while the shares of a limited liability company are not represented by share certificates. The shares of a joint stock company may be listed on the Prague Stock Exchange under the rules determined by the Securities Act and other relevant laws. Those laws also set the framework for dealing with share transfers. The ownership interests of a limited liability company may be transferred under the terms and conditions of the Commercial Code and the founder's contract of the company.

The minimum capital requirement for the establishment of a joint stock company is CZK 2,000,000 (when founding a company without a public offer of shares) and CZK 20,000,000 (when founding a company through a public offer of shares). The minimum capital requirement for the establishment of a limited liability company is CZK 200,000.

A joint stock company must have both a board of directors and a supervisory board. The company's employees elect one-third of the supervisory board members if there are more than fifty full time employees at the time of election. The supervisory board may be delegated certain approval rights, but is generally only supervises the operations of the company. Members of the board of directors and supervisory board are, in principle, elected by the shareholders' general meeting.