Setting up a company in Czech Republic

Czech Republic – an ideal place to access the European market

Czech Republic is a country with a perfect strategic location in the centre of Europe to access the European market. Low costs to set up and run a business, in comparison to Western Europe makes the country even more attractive for foreign investors. Science and engineering have a long tradition in the Czechia. This is especially interesting for manufacturing and R&D-oriented businesses given the fact that graduates from technical disciplines are available in the country. There are also targeted R&D-funding programs, tax deduction of R&D-related expenses and from R&D investment incentives. The work force in Czechia are skilled and well-educated with a lower cost than in western European countries. A Czech worker is almost four times cheaper than a German one. Despite the low cost of the worker force there is a high standard of living in Czechia. The economic policy is predictable and stable which brings a stability of a bank sector as well as the currency Czech koruna. Investors can also profit from a solid system of funding with its access to EU structural funds. The business environment is interesting because it has one the lowest unemployment rates of Europe. Czechia is geographically close to Western Europe and it has high-quality infrastructure.

Interested to set up a business there? Here you can find the ways how to do that.

There are three ways how to start a business in Czechia the first to register a branch office, to relocate a seat to Czechia or to establish a Czech company.

The first possibility is to establish a branch office registered in Czechia. The branch office functions as the representative of a foreign company and may engage only in business activities which correspond to those of the foreign company. The registration in the Commercial register and the appointment of a director for the branch office is required.

A relocation of a seat is the second way how to start a business in Czechia. A company which has a registered office abroad may transfer its seat to Czechia under certain conditions. An application for registration in the Commercial register, the decision regarding the selected legal form of a Czech legal person (see further) and memorandum of association is required for the relocation. After transferring its seat to Czechia, internal legal relations within a legal person are governed by the Czech laws.

For the last way - to establish a Czech company - there are two main legal forms of companies under the Czech law: limited liability company (s.r.o.) and joint-stock company (a.s.). Also, three European forms of legal entities can be active in Czechia namely: a European Economic Interest Grouping, a European Company (Societas Europea), a European Cooperative Society.

A limited liability company (společnost s ručením omezeným, s.r.o.) is used for small and medium-sized businesses. A founder’s deed or a memorandum of association concluded by several subject is required for the establishment of this type of company. These acts must be executed in the form of a notarial deed by a Czech notary. The minimum registered capital contribution for limited liability company is only symbolic - 1 Czech koruna (0,25 Euro). At least 30 per cent of subscribed monetary contributions must be paid up before the registration of the company in the Commercial Register. There are no shares issued by this type of company.  Different rights and obligations may be attached to different types of ownership interest. The ownership interest is transferable only under certain conditions and the corporate governance is quite simple. The general meeting (the supreme body of the company) appoints one or more executive directors who constitute an executive body. The supervisory board is not required but may be established.

A joint-stock company (akciová společnost, a.s.) is used for large businesses and is established by articles of association (done by one or more shareholders) which must be executed in the form of a notarial deed by a Czech notary. A joint-stock company may issue shares in the form of either certificated or book-entered shares. There is a requirement for a minimum registered capital which is 80,000 EUR (2,000,000 CZK). Before the application for the registration of the company in the Commercial Register at least 30 per cent of the registered capital must be paid up. The board of directors is the executive body for this type of company. The general meeting elects and recalls members of the board of directors. A supervisory board, which monitors the operations of the company must be established.

And what are the formalities to set up a company?

It is required to open a special bank account for the company. The monetary contributions must be paid to this special bank account before registering the company in the Commercial Register. An application filled by the executive body is necessary for the registration in the Commercial Register. A decision about registration of the company is made by the Registry Court without undue delay. Following documents must accompanied the application to the Commercial Register:

- documents as proof of the valid incorporation of the company, existence of the founder and the power of its representatives to act on its behalf;

- funding document;

- evidence that minimum capital is paid;

- an affidavit signed by each member of the executive and supervisory body and consent from each member to the entry of his/her details in the Commercial Register;

- extracts from the criminal registry for each proposed representative and supervisory board member;

- business activity authorisation;

- consent of the owner of the premises in which the registered office of the company will be situated, the consent of such owner must have a notarised signature and cannot be older than three months;

For more information on the above or on our services on Czech Republic please consult Legal Counsel Czech Republic, Linda Tejchman on l.tejchman@a-law.eu or fill in our online contact form.