Establishment of a Partnership or Corporation – Key Steps

Legal Form

When establishing an enterprise, the business ideas of investors and entrepreneurs determine the first steps to be taken. It is necessary to differentiate whether you want to do business in the area of banking or financial services, as a professional, or in the sector of social services. At this first stage, a decision on the form of the corporation or the partnership has to be taken.

The Czech Act on Business Corporations offers the following options:

  • general partnership (veřejná obchodní společnost, v.o.s.)
  • limited partnership (komanditní společnost, k.s.)
  • limited liability company (společnost s ručením omezeným, s.r.o.)
  • joint stock company (akciová společnost, a.s.)
  • cooperative (družstvo)

The legal form of so called European company (evropská společnost, SE) or European Cooperative Society can be used as well.

The most frequently used legal forms are the limited liability company and the joint stock company. The legal form of a general partnership is used only rarely in some specific areas of business activities (e.g. partnership of attorneys-at-law). The same applies to the legal form of a limited partnership, which is sometimes used by, e.g., international retail chains. The legal form of a cooperative is practically never used by foreign investors.

Thus, in the following text we will concentrate on the process of the foundation of corporations (limited liability company, joint stock company) in general, then on some specific information which applies either solely to the limited liability company or solely to the joint stock company. As this text concentrates on the legal forms used by foreign investors, we will not deal with the process of the establishment of a general partnership or a limited partnership, which is in many aspects similar to the process of the establishment of corporations.

The process of the establishment of a new limited liability company or a joint stock company can be divided into two main stages: foundation of the corporation and its incorporation (entry in the Commercial Register). The process of the foundation of a corporation consists of:

  • The execution of the memorandum of association (in the case of a limited liability company), articles of association
    (in the case of a joint stock company) or the founder’s deed (in the case of a limited liability company founded by a sole member).
  • The payment of the contribution premium and of the specified portion of monetary investment contributions and provision of all non-monetary contributions.

The new legal entity is incorporated (officially comes into being) only on the day as of which it is entered in the Commercial Register.

Although the corporation legally comes into being only with its incorporation, anyone (usually the founder(s), an appointed executive director or a member of the board of directors) can act on its behalf prior to the incorporation. However, such person becomes entitled from and bound by these legal acts. In the event that more persons act in such way, they are entitled and bound jointly and severally. The corporation can take over the obligations from these legal acts and notify the other participants thereof within 3 months of its incorporation. In such case the corporation is deemed to be entitled and bound by these legal acts from the beginning.

    Minoritská 10, 602 00 Brno

    Ing. Mgr. Milan Chládek
    +420 542 422 811