In this article, our colleague from Gurcan Partners Czech Republic Office, Att. Matěj Grödl will mention Company Registration in the Czech Republic. Which steps must be taken? What are the differences in the process for foreigners?
COMPANY REGISTRATION IN THE CZECH REPUBLIC
The Czech Republic is one of the most developed eastern-central Europe Countries. Last 15 years, Czech Republic attracts quite high foreign direct investment.
The Czech Republic is one of the most popular locations for foreigners as well. Around half a million foreigners choose to live in the Czech Republic.
One another advantage of the Czech Republic is quite low inflation. In March 2020, the inflation rate is 3,4 % (Source: The Czech Statistical Office)
WHY IS GOOD TO DO BUSINESS IN THE CZECH REPUBLIC?
- One of the Most Strategic Geographical Locations (4 Borders with Germany, Poland, Austria, and Slovakia)
- Excellent Infrastructure (Rail and Transportation Infrastructure)
- Skilled and Good Educated Work Force
- Low Labor Cost (Minimum Wage is 574 Euro in March 2020)
TAX RATES IN THE CZECH REPUBLIC
Tax policy in the Czech Republic is similar to other EU countries. But professional services, goods, accountancy, solicitors, virtual office, etc. are very keenly priced. We will be more than happy to take care of your accountancy needs or help you with any services that you require.
The VAT rate is 21%, corporate tax is 19%, and individuals income tax 15% in the Czech Republic
Among other processes, businesses must liaise with the Czechpoint Offices, the Trade Licensing Office, and the Regional Commercial Court.
The two most common legal entities in the Czech Republic are:
- Limited Liability Company (in Czech: „Společnost s ručením omezeným“ or shortly „s.r.o.“)
- Joint-Stock Company (in Czech: „Akciová společnost“ or shortly „a.s.”).
The biggest difference between these two types of companies is mainly in the form of their governance, scope of responsibilities of the shareholders, and in the amount of the minimum registered capital needed for their incorporation.
Let’s take a closer look at the main benefits and drawbacks of doing business with each of these two types of companies in the Czech Republic – including their incorporation costs.
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LIMITED LIABILITY COMPANY REGISTRATION IN THE CZECH REPUBLIC
One of the major advantages of a limited liability company in comparison to a joint-stock company is primarily the cost of its incorporation. Considering the costs of the incorporation process and preparation of all the necessary documents, which in case of both of these two types of companies move within the range of hundreds (in case of a limited liability company) or lower thousands (in case of a joint-stock company) of Euros, the most substantial difference will lie mainly in the minimum statutory amount of the registered capital.
Even though for a limited liability company, the law prescribes a minimum amount of registered capital of approximately 0.05 EUR, in the case of a joint-stock company it is 80.000 EUR, which is a significant difference between the two.
In effect, this means that establishing and incorporating a limited liability company can be relatively cheap compared to a joint-stock company, which already requires a considerable amount of registered capital for its incorporation.
Shareholders of a limited liability company are jointly and severally liable for the company’s debts up to the number of their unpaid deposits, at the time when they were asked for performance by a creditor.
Therefore, if the shareholders’ deposits are not fully paid up, they all remain guarantors for the company’s liabilities jointly and severally.
Even if only one shareholder does not pay up the deposit in full, all of the shareholders provide a guarantee for the company’s debts up to the unpaid amount. Shareholders of a joint-stock company, on the other hand, are not liable for the company’s obligations at all, which is undoubtedly a huge advantage.
As for the joint-stock company, the law also provides for two possible options with regards to the model of its governance – either a so-called dualistic or monistic model of corporate governance – which is usually designated upon the incorporation of the company.
The costs of setting up a limited liability company have sharply declined over the past few years, mainly as a result of an amendment of the Court Fees Act, which has introduced the possibility to register a limited liability company in the Register of Companies also by a notary, without having to pay the regular incorporation fee of approximately 250 EUR, provided that the company’s Articles of Association encompass only mandatory requirements prescribed by the law.
This has significantly contributed to the reduction of the total cost of incorporation of a limited liability company in the Czech Republic, even though the aforementioned statutory condition placed on the Articles of Association can sometimes be quite limiting – especially in case the founders wish to prepare the Articles of Association tailored to their own specific needs.
THE COST OF INCORPORATION IN THE CZECH REPUBLIC
Generally, one should account for approximately the following expenses associated with the incorporation of a limited liability company:
- Drawing up of a notarial deed of the Articles of Association,
- Notary’s fee for direct registration of the company in the Commercial Register or eventually the court’s fee for the registration of the company in the Commercial Register (in case the statutory conditions for registration by a notary are not fulfilled)
- Administration fee for the establishment of a trade license. The total amount of the aforementioned statutory fees and expenses amounts to approximately 200 EUR – this is, however, the ultimate minimum and usually it will be higher.
Furthermore, this sum still does not include the fees associated with e.g. verifying of signatures, obtaining an excerpt from the criminal register (where necessary), tax registrations, social security registrations, or attorney’s remuneration for setting up the company.
THE COST OF JOINT STOCK COMPANY REGISTRATION IN THE CZECH REPUBLIC
The costs of incorporation of a joint-stock company will be substantially higher to that of a limited liability company and will in most cases move within the range between 1.500 to 2.000 EUR. Sometimes, however, it will be necessary to invest in the incorporation of a joint-stock company, since it offers many features which a limited liability company is not able to provide.
The founders of a joint-stock company can choose between two forms of management of the company (i.e. so-called monistic or dualistic form of governance), as opposed to a limited liability company, which of course provides more space for establishing a tailor-made corporate governance structure.
This usually results in higher professionalism and overall quality of the company’s management. Another advantage of a joint-stock company is undoubtedly a substantially higher business prestige and a stronger negotiating position.
Last but not least, the transferability of shares is usually much easier and faster than the sale of a business share in a limited liability company.
In addition, the shareholders do not provide any guarantee for the debts of the company at all, compared to a limited liability company.
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The differences between a joint-stock company and a limited liability company are obviously quite notable and differ in the costs of incorporation, as well as in the levels of a minimum statutory registered capital.
A joint-stock company is definitely more suitable for larger businesses, where the prestige and credibility of the legal entity plays an important role. Highly professional management is needed and the higher costs of incorporation do not represent such an obstacle. On the other hand, a limited liability company is certainly a more beneficial option for small and medium enterprises.
Incorporation is just the first step of doing business in the Czech Republic. However, post incorporation registrations are also quite important. Our professional team is ready to help for the all steps of Company Formation in the Czech Republic.
Company Registration in the Czech Republic
Att. (Mgr. BSc.) Matěj Grödl
All rights reserved. All rights of the Company Registration in the Czech Republic article belong to Gurcan Partners International Law Firm. The author has no responsibility for the information in this article. This article is prepared just to inform.
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As Gurcan Partners International Law Firm, we provide services with our office in five EU and five non-EU countries. Please find our articles below.
Company Formation in the Czech Republic
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Mergers and Acquisition in Czech Republic
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