The Business Corporations Act, the new law (as of 2014) on trading co-operatives and companies in the Civil Code, has at its core the idea of facilitating the registration of business enterprises and addressing various features of the investment environment. Some changes are brought to the conduct of businesses in the Czech Republic which will also shift current legal and business relationships.
The new rules on corporate governance are contained under the Act No. 90/2012 Coll., the Act on Business and Cooperatives, also known as the Act on Business Corporations; our team of consultants in company formation in Czech Republiccan advise on the regulations included in the new act and can also assist investors in registering any of the legal entities prescribed under the Business Corporation Act.
New rules of the Czech Company Act
The new regulations of this act are generally seen as having the qualities to provide a more business-friendly, flexible environment for foreign investors who want to establish companies in the Czech Republic. Our team of specialists in company formation in the Czech Republic can offer assistance on the new regulations of the law. Some of these changes are as follows:
• new requirements for the founding deeds of corporations which must comply with the Corporations Act's provisions (thus, companies have to abide and then file the new version with the Czech Commercial Register within half a year from the date the act came into force);
• in case a lawyer engages in legal transactions on behalf of a client requiring a notary's record (special form), the power of attorney must be granted in the same form of a notary's record which would have to be drawn up by a notary in the Czech Republic;
• cancellation of the rule that made it mandatory to establish a statutory reserve fund from net profit for companies in this country;
• allowance of choice between complying to the new Corporations Act or remaining governed by the old Czech Commercial Code;
• joint stock companies will be free to decide if their properties and business activities are to be administered by a board of directors and a supervisory council or by an administrative one.
Our specialists in company formation can help you with setting up a company in the Czech Republic and comply with the new rules of the Company Act. Investors can also request legal assistance on the main documents necessary for setting up a business in this country.
More details on the Czech Company Act are available in the following video:
What are the main business forms available under the Czech Company Act?
The legislation on commercial entities in the Czech Republic, which is established under the Act on Business Corporations, provides the possibility of opening a company here through several types of legal entities. The Act also stipulates the registration obligations available for each company type, but it is necessary to know that all business forms have to be registered with the Commercial Register. Under the new legislation, investors (both local and foreign) can incorporate one of the following:
•joint stock company – a company type which needs a capital of CZK 2,000,000 and which is founded based on the articles of association;
•limited liability company – this is the most common way to start a business in the Czech Republic and the novelty provided by the new law is that the company can be founded with a capital of only CZK 1;
•general partnership – a business form that must be founded by minimum two partners, who have the same obligations for the company’s debts;
•limited partnership – it resembles with the general partnership, with the difference that only one of the partner has unlimited liability;
•cooperative – it is incorporated by at least three members and it represents a type of association, founded to provide support for specific entities;
•branch office – a subdivision of a local or foreign parent company that has to be registered with the Commercial Register in the Czech Republic.
What are the requirements for opening a Czech joint stock company?
The joint stock company and the limited liability company represent very popular ways to start a business in this country. Those opening a company in the Czech Republic as a joint stock company will need to follow the regulations of the Company Law stipulated under the Title V.
The joint stock company is a business entity that is set up by large corporations and our team of specialists in company registration in the Czech Republic can present its advantages; when referring to its incorporation, Part 2 of the Title V presents the below mentioned information:
•the company is founded based on the articles of association;
•the articles of association must prescribe information on the company’s capital, the shares owned by investor and the nominal value of a share;
•the articles of association must also provide information on the company’s object of activity and the name of the company;
•the company’s business name has to include the words “joint stock company” or the abbreviations “akc. Al” or “SpA”;
•the company’s share capital has to be registered in the country’s national currency, the Czech crowns (the capital may also be expressed in EUR, in certain conditions).
Top indicators for starting a business in the Czech Republic
The Doing Business 2019 Report, conducted by the World Bank, provides one of the most comprehensive presentations on starting a business in any jurisdiction of the world. The data assessed in this report takes into consideration all aspects included for starting a business and the presentation provides valuable information for opening a company in the Czech Republic as well. The study presents the Czech Republic as a competitive economy, with attractive conditions for doing business, as follows:
•Czech Republic has a score of 76.10 (occupying the 35th rank) from a total of 100 on the ease of doing business;
•it ranks as the 1st economy on matters related to trading across the borders, having a score of 100;
•the registration with the Commercial Register also takes 1 day;
•the registration for local taxes, including for value added tax, takes approximately 2-3 weeks;
•the country has one of the best results for connecting to the electricity supply as it has a score of 95.36 (out of 100) and the procedure is formed of only 3 steps.
Regulations for the LLC in the Czech Republic
The new law introduces the new minimum registered capital to incorporating a limited liability company (LLC) of only CZK 1, comparing to the previous CZK 200,000 capital requirement (approximately EUR 8,000). The memorandum of association can allow the representation of ownership interest through a common certificate ("kmenový list"). For transferring a certificate of this kind you only need an oral agreement, endorsement and hand-over.
Establishing a subsidiary in Czech Republic
A subsidiary is appropriate for owners of large companies from overseas who want to start their operations in Czech Republic and enjoy a certain level of independence and flexibility. The Articles of Association remain the important set of documents under which the subsidiary can be incorporated in the Czech Republic, once the minimum share capital is deposited in a local bank account. Our Czech company formation agents can help you draft the necessary documents for a subsidiary, in agreement with the regulations of the Company Act in Czech Republic. It is best to be assisted from this point of view by one of our specialists in company formation and skip the possible registration mistakes. We are at the disposal of international entrepreneurs interested in establishing a subsidiary in Czech Republic.
Establishing a branch in Czech Republic
A branch is suited for foreign companies in Czech Republic, yet, there are specific features to consider, different from subsidiaries. Foreign branches are considered an extension of companies from overseas, and can only develop the activities of the parent enterprise. Compared to subsidiaries, branches are not independent but have fewer administrative and accounting requirements that represent quite an advantage. The registration of a branch is straightforward and allows a fast business start. If you believe that the branch is the right type of business for you in Czech Republic, you can talk to our Czech company formation agents and ask for support and information about the provisions of the Company Act.
Shelf companies in Czech Republic
Shelf companies are vintage companies that are already incorporated in the Czech Republic. These have no activities and therefore no debts, and they can be purchased right away by foreigners interested in a fast business start in the Czech Republic. Once the ownership transfer is concluded, the new business proprietor can start the activities right away, not before registering for taxation in Czech Republic.
Is company relocation possible in Czech Republic?
Yes, company relocation is available for owners of foreign enterprises who want to do business in Czech Republic. The main step in company relocation is to close the operations in the country of origin and de-register the firm from the entitled authorities. As soon as this process is concluded, the next step to consider is to choose the new business form before registration in Czech Republic. This means that the new company can run under the rules of limited liability companies, partnerships, joint-stock companies, for example, as mentioned by the Czech Company Act. Foreign entrepreneurs interested in relocating their companies are invited to get in touch with our Czech company formation specialists and find out all the details referring to the standard incorporation process.
Making investments in Czech Republic
Czech Republic is open for business and foreign investments of any kind. In this direction, the legislation related to foreign investments is quite advantageous and lets international entrepreneurs enjoy a proper and correct business climate, plus a wide range of investment encouragements. Besides the beneficial legislation and available incentives, Czech Republic is an emerging market that attracts the attention of international entrepreneurs and eases business connections worldwide, being located in the heart of Europe. Moreover, the tax system, the skilled workforce, the well-developed infrastructure, the affordable labor, and business startup costs represent nothing but pluses in front of young or experienced entrepreneurs. We present you a few facts and figures that underline the business direction of the Czech Republic:
•In terms of total FDIs in Czech Republic, the country enrolled nearly USD 171 billion in 2019.
•The ease of doing business was appreciated by the World Bank and 2020 Doing Business report, ranking the country 41st out of 190 economies in the world.
•Due to the amount of FDIs attracted by the country, Czech Republic ranks first among the countries found in the Eastern part of Europe.
•The greenfield investments in Czech Republic in 2019 had a total value of around USD 2/4 billion.
•Most of the FDIs in Czech Republic were directed to the manufacturing sector, around 29%, in 2018.
•The real estate field is another appealing sector that attracts foreign direct investments each year. More than 10% of the total FDIs for 2018 were absorbed by this sector.
The in-kind (non-monetary) contributions will not need to be appointed by the court anymore. If you need guidance through the process of opening a company in the Czech Republic, feel free to ask our agents for counsel. Our team of consultants in company formation in the Czech Republic can also help investors in selecting the services of a virtual office or in the formalities for purchasing a ready-made company.
The team from CzechCompanyIncorporation.com is very qualified and benefits from extensive expertise in this area. I would definitely recommend them to any entrepreneur decided to start his own business here.
Mihai Cuc, Partner of Enescu&Cuc; Law Firm www.romanianlawoffice.com