The frequent question – how to do business legally? – might seem simple.
There are several answers-options: from the registering as an individual entrepreneur (in Czech OSVČ – osoba samostatně výdělečně činná, also commonly used as živnostník), through buying the ready-made company, to – forming of a new corporations – among most popular are – the Limited Liability Company (LLC or ltd, in Czech s.r.o. – společnost s ručením omezeným), or joint stock company (a.s. – akciová společnost).
- What are the main differences between the individual entrepreneur (IE) and the LLC?
The procedure of registering in the Czech Trade Office as IE is relatively easy. You do not need to go to a notary, to spend money on drawing up the notarial record, and the registration itself is relatively cheap – without expenditures for the notary or the lawyer.
It is worth to note, that IE, in contrast to LLC, is not burdened by mandatory shareholders’ meetings, and it is not obliged to spend income for the organization needs and wait for the dividends after paying the taxes. In opposite, IE can use the income on its discretion, including the personal use.
However, it should be taken into account that, the responsibility of the individual entrepreneur is not limited. Whereas LLC is responsible for the debts in the amount of the company property assets, on the IE lays the complete property responsibility for liabilities. That is not the only point why the individual entrepreneurship is not lucrative for some people. These are other minuses of the IE:
- Lack of relative anonymity : the name of IE in the various documents (vs. title of company on documents)
- Image and strong (psychological) position of the company (vs. image of the sole person)
- Share of risks and interests in company, which is quite impossible for IE (which, however could be “replaced” on some point by contractual basis)
- Higher tax burden of IE
- Complexity for IE of the business sale
- And also some business activities are not available for the IE
- Let’s consider what is better to register the new company or to buy the “ready” made one?
Limited liability company is the most common form of business, as for small, so for the large ones. LLC in the Czech Republic can be registered even with a sole – shareholder (společník) and director (jednatel) in one person.
The process of company registration in the Czech Republic is quite simple:
- Choose the name / title of the company (název/firma)
- Specify the legal address (sídlo) – the address, that will appear in all official documents of the company, as well as in the public register, and will be a contact address of the company to which will be sent all official letters.
- Subject of business activity – and related license in the Czech Trade Office (Živnostenský úřad)
- Not the least one – to think who will be the partners in business, and who will lead the company
- Amount of registered capital (základní kapitál)
- Should be considered related costs: notary fees, fees for a license, fees for registration company and/or for certificate of incorporation
As a result, armed by and with following documents, just wait for incorporation (from 5 working days):
- Notary record of incorporation
- License from the Trade office
- Statement of the director (jednatel) on possibility to perform its functions (according to par. 6 (2) and 8 of the Trade Licensing Act (No 455/1991 Coll), and par. 63-65 of Business Corporations Act(No 90/2012 Coll))
- Statement of the responsible person (správce vkladu) of the registered capital deposit
- Confirmation from the bank on registered capital deposit
- Consent of the owner for provision of the legal address for the company.
Thus, gathering all necessary documents, getting all necessary confirmation, can be spent for the registration of company – from one week up to month.
The process of purchasing the ready-made company is also associated with a visit of the related official institutions.
While purchasing a ready-made company, should be kept in mind following information:
- The name/title of company – whether to change of leave it same?
- The legal address – keep it or change it?
- Business activity- same or different direction? Expand the field of business activity of narrow it?
- Changing persons of shareholders and directors also should be made by a notary.
In the end, changes at notary, changes in public registers will result in same amount as the registration of the new company (about 18-25 thousand Czech crowns). Period of incorporations in the public register – also from 5 working days, however, the process may be delayed due to some additional changes.
What are the advantages and disadvantages of purchasing a ready-made company?
- Lack of transparency running a company, and as a result – hard to follow the exact history of the company before purchasing
- High possibility of purchasing the company with hidden debts, despite the obligation of publishing the annual reports, inquiries of tax and other official authorities.
- Already taken on commitments or obligations of previous members of the company towards to the third parties
- Hard definable, often hidden costs while purchasing the company
- Relative quickness in acquiring the company, in case of zero changes in its documents.
- Already registered/acquired license for business activities
- Already paid registered capital
- Possibility to act immediately on behalf of the company.
Relevant legal Acts: The Civil Code of the Czech Republic (No 89/2012 Coll), Business Corporations Act (No 90/2012 Coll), Trade licensing Act (No 455/1991 Coll).
Disclaimer about the nature of the information contained in this article.
The information provided in this article is the general information, and does not constitute legal advice, and may be not valid in a particular situation. To obtain qualified legal consultancy, you should contact a lawyer with the provision of the necessary documents regarding the case. For example, by email: firstname.lastname@example.org.
This article was prepared on the basis of an analysis of legislative regulations for year 2016. Therefore, while using such information, should be considered the changes to be made to the legislation after that. This is translation of the article, which was published the first time on November 24, 2016, on the web page www.juristpraha.cz