Whether you’ve been dreaming of starting your own business or simply wish to be the master in your own house, there are several different options to consider. One of them is a limited liability company (s.r.o. or “společnosti s ručením omezeným” in Czech). For the average person lacking business acumen, the process of starting a new company from scratch can be difficult. In this article, we’ll take you through the necessary steps that will help you on your way toward building a successful business.
What makes limited liability companies different from other types?
All types of companies/organisations are defined in detail in the Commercial Corporations Act. They are:
- Joint-stock companies
- Collective partnership
- Limited partnerships
- Non-profit organisations
- Limited liability companies
Of all the above-mentioned types, limited liability companies are the most popular and widespread across the Czech Republic. And it’s no wonder considering the fact that they have a significant advantage over all other types of companies: the executives of the company are not liable for their financial obligations with all their assets, but only up to the number of unpaid deposits.
In other words, if your business goes bankrupt, the risk of foreclosure is lower. However, the members of the company’s bodies (executives) cannot be released from liability if it is proven that they violated the law during the administration of the company and they were responsible for the bankruptcy of the company themselves.
Before you start
In order to be able to start your own business, you have to meet certain criteria which depends on the type of activity you want to pursue.
The individual types are specified in more detail in the Labor Code, but in principle prospective business should take note of the following:
- To get an unqualified notifiable trade licence one must be over 18 years old with no criminal record.
- For a craft or a regulated trade licence, you will have to meet even more conditions, usually comprehensive proof of professional competence.
- The last type is a licensed trade that can only be operated on the basis of a concession.
Before starting your own business in the Czech Republic, it is important to be aware of the fact that if you must have permanent residence or a temporary residence permit here. The type of residence depends on your country of origin and is mostly differentiated between EU and non-EU countries. In addition to that, if any of your documents are written in English or another language, you need to have certified translated versions of these documents.
All roads lead to a notary
Once you’ve met all of the previous criteria, the very first thing you’ll need to do when setting up a limited liability company is to visit a notary. Of course, one can’t visit them with empty hands – for the first visit, it will be necessary to have the following essential documents and information ready:
- Name of the company.
- Residence of the company.
- Scope of business.
- Information about you as the executive – name, surname, date of birth, permanent residence according to your identity card (if the company is to have more executives, then it is necessary to provide data for all of them).
- Your identity card, according to which all personal information will be verified.
Providing you have given all of the correct information, the notary will create a so-called notarial record based on them. This is, however, just the beginning of your journey: as soon as this notarial record is made, it will be necessary to provide the notary with a trade license for limited liability companies, proof of registered office and a bank account statement.
And what then?
The trade license for limited liability companies, which is one of the things that the notary will require after the creation of the notarial record, cannot be obtained just anywhere. It can only be issued at the trade licensing office. You don’t have to go there in person – instead, you can send the application electronically or by post via the single registration form. After paying the 1,000 CZK fee, you will receive an extract from the trade register.
Immediately after it is issued, you also need to go to a bank, which will check whether you are creditworthy, have no debts and so on. The conditions can differ depending from one bank to another. One thing is the same in all cases, though; as a foreigner, you will have to wait a while for verification by the bank. This verification can take up to several weeks, which makes it the longest part of the process.
This is when having a well structured business plan comes in handy. Once the process is complete, you will be issued a bank account and together with that, confirmation that a bank account for legal entities has been established for you.
With these two documents (that is, the confirmation of establishing a bank account and the trade license) you will revisit the notary who will require your criminal background document. You don’t have to concern yourself with that, because this is something they can make themselves on the spot. Besides that, it is necessary to produce proof of address for the registered office of the proposed company, which should contain the consent of the property owner for doing business at their premises in cases where you are not the owner.
One more important thing. The minimum initial capital required in the case of limited liability companies is 1 CZK in the Czech Republic. It is, however, advised to deposit at least 1,000 CZK. Some experts even recommend depositing 50,000 CZK. If there are multiple executives, it is also recommended to deposit an amount that is easily divisible by their number in order to facilitate transfers and changes of shares.
One last thing
Once everything is successfully settled, it is necessary to return with all the essential documents to the notary, who will make an entry in the Commercial Register. After visiting the notary, it is vital to go to the tax office, where you will be registered for business taxes. You can do this electronically via a data box. You can set up the data box at any CzechPoint and fill in the registration form electronically on the financial administration portal.
This completes everything and we can only wish you a lot of success on your business venture.
Foreigners – relocation agency based in Prague, Brno and other three Czech cities