Ltd in the Czech Republic: Basics
The equivalent of an Ltd. in the Czech Republic is an S.R.O. Let’s have a look at what it stands for.
One of the forms of business corporations is an s.r.o. (společnost s ručením omezeným), created for the purpose of conducting business and achieving profit. It is regulated by Act No. 90/2012 Coll. The name of the company must contain the designation "společnost s ručením omezeným" or the abbreviation "s. r. o." or "spol. s r. o.”
The main characteristics of an s.r.o. are:
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establishment by the memorandum or articles of association,
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formation by registration in the commercial register,
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legal obligations related to accounting and taxes.
Establishment of the company
The company is established by an associate (Společník) = owner of the company. The associate contributes monetary or non-monetary assets to the company, which constitute the basic capital. The basic capital is mandatory, however the legal minimum amount is only 1 CZK. In case of multiple associates, their share in the company is determined according to the ratio of their contributions to the basic capital. The associate(s) have a right to the payment of a share from the company's profits.
In case of a single associate, the company is established by a memorandum of association. In case of multiple associates, by articles of association. The memorandum or articles of association determine: The name of the company, the object of the company's business, its registered office, the amount of contribution of individual associates to the basic capital, the administrator of associates' contributions, the manner of acting of directors, etc.
The most common way of concluding the articles of association is to visit a notary or a law company specialized in the establishment of s.r.o.’s. In case a notary doesn’t speak the language, a certified interpreter needs to be hired to translate. The associates and the directors don’t have to have a permanent address in CZ.
Company bodies:
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General Assembly (Valná hromada) – it is the supreme body of the company, of which all associates of the company are members. The General Assembly has the competence to decide on changes in the basic capital, electing and dismissing directors, approving the distribution and payments of profits, etc. The General Assembly must be convened by the director at least once a year.
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Director / statutory body (Jednatel) – is legally responsible for the company’s operations and may represent it in all matters, especially in dealings with business partners, potential employees and third parties. Every company must have at least one director, but there can be more. In case of multiple directors, the associates determine the scope of acting of the directors in the articles of association. The directors can manage their responsibilities without receiving any compensation. Directors without permanent CZ address need to provide:
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EU citizens: extract from the “Register of excluded persons” (výpis z “Evidence vyloučených osob”) which can be obtained in any government contact place called Czech POINT.
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NON-EU citizens: extract from the criminal record from their country of origin. The extract cannot be older than 90 days, and needs to be translated to Czech by a certified interpreter.
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Supervisory Board (Dozorčí rada) – an optional body of the company that supervises the activities of the directors, reviews accounting documentation, and annually submits a report on its activities to the General Meeting.
The company is established when all its associates agree on the content of the articles of association and sign it in front of a notary, but formed only upon registration in the commercial register.
Period between the establishment and formation of the company
The administrator of the associates' contributions (or the associate, in case there is only one) opens a bank account in the name of the company, into which all associates deposit their monetary contributions in accordance with the articles of association. Before submitting the application for registration of the company in the commercial register, each monetary contribution must be paid up to at least 30%. In the case of foreign associate, the bank has 30 days for assessment of opening a business account. Getting in touch with banks in time is crucial. If the basic capital is up to 20,000 CZK, it can be deposited in cash with a notary.
All non-monetary contributions such as buildings, land, cars, etc., must be valued by a court-appointed expert. Before submitting the application for registration of the company in the commercial register, 100% of these contributions must be handed over to the administrator of contributions in accordance with the articles of association.
Regardless of the establishment of the company, the company is not a legal entity before its formation, i.e. it cannot conduct business activities. However, some actions such as opening a bank account or arranging a lease for the premises where the company's registered office will be located, can be carried out.
The registered office of the company is specified in the memorandum or articles of association. It is necessary to obtain written consent from the property owner allowing premises to be registered in the commercial register. The consent must be officially verified, which can be arranged through a notary or via Czech POINT.
Formation of the company
The application for registration of the company in the commercial register can be submitted to the registry court, or it can be arranged through a notary, which is usually faster - and in some cases cheaper. Documents that need to be provided to submit the application for registration in the commercial register:
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the form "Application for Registration in the Commercial Register",
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documents establishing the company (memorandum or articles of association),
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a bank confirmation of the payment of basic capital in case it is over 20,000 CZK (or a statement from the administrator of contributions regarding the handover of non-monetary contributions),
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the property owner’s consent allowing the registered office in the premises.
The court usually processes the application within 5 working days, after which it sends a notification and an extract from the commercial register to the company’s registered office. The court also assigns an identification number (IČO) to the company. The company is formed on the day of its registration in the commercial register. The details can be checked via the Ministry of Justice's portal at justice.cz.
After the company is registered in the commercial register, the director(s) need to promptly obtain a trade license for the company, in accordance with the business activity specified in the memorandum or articles of association. The trade license application is submitted to the trade licensing office (živnostenský úřad). The following documents are required:
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the founding memorandum or articles of association,
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the property owner’s consent allowing the registered office in the premises.
Additionally, it is necessary to know which type of trade license you will be applying for. Types of trades are divided into craft, regulated, licensed, and unregulated trades. The specific trade classification is listed in Appendices 1 to 4 of the Trade Licensing Act No. 455/1991 Coll.
No special qualifications are required for an unregulated trade (appendices no. 4). Conversely, the remaining types of trades require specific qualifications (education or experience in the field), and the company needs a guarantor of the trade. The guarantor can - but doesn’t have to be - the director, and is responsible for the proper and safe operation of the business. The trade licensing office must be provided with a statement agreeing to perform the function of guarantor and proof of their professional qualifications.
Accounting and tax related obligations
From the date of the company’s formation, i.e. from the date of registration in the commercial register, the company is obliged to keep accounting. Keeping accounting involves documenting all financial transactions of the company, such as purchases, sales, payments, receipts, expenses, etc. These transactions are recorded in accounting software through financial documents such as invoices, receipts, bank statements, and so on.
Within 15 days of registration in the commercial register, the company must register with the tax office for corporate income tax. The relevant tax office is determined by the company’s registered office. The company is required to annually submit a corporate income tax return and financial statements to the tax office.
The establishment and formation of the company is usually secured through a notary or lawyer company. We are happy to assist you with accounting, taxes obligations and communication with the financial authorities.
Šárka Houžvicová
+420 602 755 855