Registration of legal form of business
Business corporations are commercial companies and cooperatives. The commercial companies are unlimited partnership (veřejná obchodní společnost – v. o. s.), limited partnership (komanditní společnost – k. s.), limited-liability company (společnost s ručením omezeným – s. r. o.) and joint-stock company (akciová společnost – a. s.). All corporations are registered in a Commercial Register. No corporation can exist without such registration.
First of all, it is essential to choose a type of corporation that is convenient to the business plan or preferences of the founders. It depends especially on requirements of minimum number of founders, minimum registered capital, financial liability of members and internal structure system of a corporation. The most common form of entrepreneurship in the Czech Republic is the limited-liability company.
Firstly, it is important to distinguish establishment (1) and incorporation (2) of a corporation. These two steps of founding a corporation are common for all the types.
Step 1: Establishment
Corporations are established by memorandum of association (společenská smlouva or stanovy). When a capital company is established, i.e. a limited-liability company or a joint-stock company, the memorandum of association must have a form of a notarial deed. A company is by a sole member or by a deed of foundation.
Every notary prepares a notarial deed based on the documents and facts submitted to him by the members. The cost of preparing the notarial deed is charged according to the notarial tariff (the Regulation of Ministry of Justice No. 196/2001 Coll., notarial tariff, as amended – available inCzech language).
The memorandum of association or deed of foundation must always include at least the legal person’s name, registered office, objects of activities, the type of statutory body and the manner of its establishment. It shall also specify the first members of the statutory body. Other requirements depend on the type of corporation.
All legal acts governing the establishment, incorporation, modification, dissolution or winding up of a business corporation must be in written form with certified signatures. This certification can be made at municipal office or at post office with the Czech POINT.
Step 2: Incorporation
When the corporation is established, then it must be registered in the Commercial Register. An established corporation acquires legal personality by the incorporation. The corporations are incorporated as of the date of their registration in the Commercial Register.
The other legal requirements of establishment (e. g. other memorandum of association or deed of foundation requirements, contributions) depend on the type of corporation.
The Commercial Register is a register of all types of legal persons which have been established in accordance with the Czech legislation and also (under certain conditions) of sole traders. The Commercial Register is administrated by Register Courts. Submission of an application for incorporation to the Commercial Register is a subject to the court fee (Article 11 of Enclosure of the Act No. 549/1991 Coll., on court fees, as amended – available in Czech language).
The application for incorporation to the Commercial Register must be submitted on a special form. It can be submitted in paper or electronic form. The signature on the paper form must be certified and signature on the electronic form must be signed by qualified certificate (electronic signature).
The application must be accompanied by documents that ascertain the information that should be recorded in the Commercial Register and by the documents that form the collection of documents in connection with the registration. The application must be submitted to the competent Register Court. The competent Register Court is a Regional Court (krajský soud), wherein district is the registered office of the corporation.
It is also possible to choose a direct registration by a notary. The notary shall arrange the incorporation in the Commercial Register, if the recorded information is based on a notarial deed. This option is often used and also recommended in event of establishment a limited liability company and joint-stock company because these companies must obligatorily have the memorandum of association in the form of a notarial deed. The record in the Commercial Register is cheaper and also usually performed in a shorter time.
The application for incorporation to the Commercial Register must be submitted to the competent Register Court within 6 months (unless the memorandum of association provides a different period) of establishing the company, otherwise, the memorandum of association is no longer valid.
From the date of registration of the company in the Commercial Register the following deadlines are imposed on the company:
• 8 calendar days to register with the District Social Security Administration, if the company has employees,
• 8 days to register with health insurance companies, if the company has employees,
• 15 days to register with the tax authority.
The new company set up in Czech Republic has to be registered with the Trade License Office and this is a compulsory requirement for businesses set up in this country. To obtain the trade license, the following documents are required when starting a company in Czech Republic:
In no more than 90 days since the company was set up or the trade license was released, the businessmen must register with the Commercial Register of the Regional Commercial Court. Along with the standard application, the founders must submit:
The owners must submit an application at the Tax Office for the income tax, withholding tax and payroll tax registration and for the VAT registration no later than 15 days since the company was registered. As a result, the newly formed entity will receive a tax identification number. The last step of incorporation is the registration for social security and health insurance, within eight days after the first employee was hired.
The corporate income tax for a company set up in the Czech Republic is 19% in 2018, with exceptions like pension and investment funds that have a special 5% income tax. The VAT is imposed at the standard rate of 21% and the registration is mandatory if the turnover exceeds CZK 1 million over twelve consecutive months. However, it is important to know that Czech Republic applies lower VAT rates for specific categories of products and services. The country imposes reduced VAT available at the rates of 15% and 10% and even 0%.