Czech Republic: Formation of Companies
The legislation stipulated in Act No. 90/2012 Coll., on Commercial Companies and Cooperatives, as amended (the „Business Corporations Act“) on formation of companies can be considered to be a standard legislation, reflecting the legislation of European Union. The provisions of the Business Corporations Act stipulate the following five types of commercial companies.
General Trading Company (in Czech: Veřejná obchodní společnost) (the “GTC”)
GTC is considered to be one of the less used types of commercial companies, mostly due to the fact that GTCs partners are liable for GTC’s obligations with all of their assets. Minimal number of partners/founders is 2 and, unless stipulated otherwise, any of them is entitled to act on behalf of GTC.
Limited Partnership (in Czech: Komanditní společnost) (the “LP”)
Along with GTC, LP is another type of commercial company that is not used often. It can be most easily described as a combination of GTC and LLC (as defined below), in which limited partners (in Czech: Komanditista) are liable for LP’s obligations up to the amount of the unpaid part of their contribution, as recorded in the Commercial Register and general partners (in Czech: Komplementář) are liable for LP’s obligation with all of their assets. Minimal number of partners/founders is 2, from which one is to be limited partner and the other one is to be general partner. Only general partners are entitled to act on behalf of the LP, unless agreed otherwise.
Limited Liability Company (in Czech: Společnost s ručením omezeným) (the “LLC”)
In comparison to GTC and LP, LLC is a type of commercial company that is the most prevalent in Czech Republic. Minimal umber of shareholders/founders is 1 and the maximal number is unlimited. Shareholders are liable for LLC’s obligations up to the amount of their unpaid part of the contribution to the own registered capital of the LLC, as registered in the Commercial Register. Minimal registered capital of LLC is not required, however minimal contribution of founder/shareholder is CZK 1. Executive directors (appointed by the general meeting of shareholders) are entitled to act on behalf of LLC.
Joint Stock Company (in Czech: Akciová společnost) (the “JSC”)
JSC is a type of commercial company, whose own registered capital is in the form of shares. The Czech law differentiates between different types, forms and sub-forms of the shares. The two types of shares are common stocks (in Czech: Kmenová akcie) (with no special rights) and priority stocks (in Czech: Prioritní akcie) (with rights to priority dividends, however with no voting rights). With regards to the forms of shares, the Czech law differentiates between deed shares (in Czech: Listinná akcie) and booked shares (in Czech: Zaknihovaná akcie). When it comes to sub-forms, there are registered shares (in Czech: Akcie na jmeno) and bearer shares (in Czech: Akcie na majitele). Booked shares are registered in the owner’s accounts administered by Central Securities Depository. When it comes to Deed shares, JSC is obliged to keep its own List of Shareholders. Shareholders are not liable for JSCs obligation. Minimal number of founders is 1 regardless of whether it is legal entity or natural person. Minimal registered capital of JSC is CZK 2.000 000 or EUR 80.000. The Czech law recognizes two types of JCS stock companies, one with a monistic system of arrangement and the other with a dualistic system of arrangement. The main difference is that in the monistic system of arrangement board of directors and supervisory board form one single body. Board of directors acts on behalf of JSC, with term of office up to the maximum amount of 3 years, unless stipulated otherwise. Supervisory board is an obligatory body of company (min. 3 members), with term of office up to maximum amount of 3 years unless stipulated otherwise.
Cooperative Society (in Czech: Družstvo) (the “CS”)
In addition to the abovementioned companies, the Business Corporations Act also contains legislation on a CS, being an entity with “dualistic” entrepreneurial-social character. Minimal number of members is 3 regardless of whether it is legal entity or natural person. Members are not liable for CS’s obligations. The Czech law does not establish minimal own registered capital. Board of directors acts on behalf of CS, members of the board can only be voted from the members of the CS. Control commission is an obligatory control body of CS.
Formation of Companies
In general, a company is founded on the basis of a deed of association, signed by all of the founders, with authorized signatures. If the company is being founded by a single founder (applicable only in case of LLC and JSC), the deed of association is replaced by founder’s deed. The abovementioned can also be processed by an attorney based on a notarized power of attorney.
One of the obligatory contents of the deed of association (or founder’s deed respectively) is the scope of the company’s business activity. Generally, pursuant to Czech law we differentiate between:
(a) business activity based on a trade licence:
i. free trade licence – no special requirements needed;
ii. craft trade licence – requirement of acquiring professional competence acquired by training in the respective field;
iii. bound trade licence – requirements specified by specific legal acts;
(b) business activity based on a specific legal act, that is not considered a trade licence and is usually governed by specific association (e.g. attorneys, architects, etc.);
(c) special license such as banking license, security trader license etc. issued by special state authorities such as National Bank of Czech Republic.
In general, the most effective process is to obtain few general free trade licences in order to be able to establish the company and if some other business activities are required, the process of acquiring such licences/permissions will be handled after the company has been duly brought up.
Foreign person as a Shareholder and member of a company’s executive body
Aside from the limitations specified in the abovementioned text, foreign person can be a shareholder in JSC, LLC and SSC or limited partner of an LP even without having any kind of residence in Czech Republic or other EEA member state.
