Establishment of a Partnership or Corporation – Key Steps
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.
Memorandum of Association, Articles of Association or Founder’s Deed
The corporation is founded by a memorandum of association or articles of association signed by each founder. Both the limited liability company and the joint stock company may be founded by a sole founder. In the case of a corporation founded by a sole founder, the sole founder executes a founder’s deed instead. The memorandum of association, the articles of association or the founder’s deed (jointly referred to as the founding document) by which a limited liability company or a joint stock company is founded have to be executed in the form of a notarial record. These documents may also be executed on behalf of a founder by a person authorized to do so by the founder. The respective power of attorney in the form of a notarial record must be enclosed with the founding document.
Compulsory content required both for the memorandum of association (founder’s deed) and the articles of association:
- The corporate name (in Czech obchodní firma). The corporate name of the corporation may not be interchangeable with the corporate name of another entrepreneur and may not be deceptive.
- The seat (registered office, in Czech sídlo).Upon applying for the incorporation of the company, the legal title for use of the premises where the seat is situated has to be documented. For this purpose, a written declaration of consent with the placement of the seat of the company issued by the owner of the real estate or unit or by another person who is entitled to dispose with the real estate, flat or non-residential unit where the seat is situated is sufficient.
- The object of (business) activity. The designation of the object of business activity has to be identical with the name of the trades for which the company will be issued the trade authorizations. The names of the trades are specified by Czech law. Therefore, prior to the specification of the object of business activity in the founding document, the following steps in the given order have to be taken by the founders:
- informally decide on the business activities of the corporation
- choose suitable trades for these business activities
- set out the subject of business activity in the founding document.
- The amount of registered capital. The registered capital is the sum of all investment contributions in the company. For the limited liability company, no minimal amount of registered capital is required. The registered capital of the limited liability company with one founder thus can amount to CZK 1 only. The minimum registered capital of a joint stock company must amount to CZK 2,000,000 or EUR 80,000.
The investment contribution means the monetary expression of the value of the object of the investment contribution in the registered capital of the company. In the limited liability company, the minimum investment contribution amounts to CZK 1. The object of the investment contribution is a thing which the future shareholder undertakes to contribute to the company in order to acquire a share in such company. The object of the contribution can be money (“monetary contribution”) or other thing appraisable in money (non-monetary contribution). Before the incorporation, the non-monetary contributions have to be provided and at least 30 % of the monetary contributions have to be paid up. The non-monetary contribution has to be appraised by an expert chosen from the list of experts by the founders. The founding document must state in which amount the non-monetary contribution will be counted as the contribution of the respective founder and as the issuance or contribution premium, as the case may be, or how many shares of a certain nominal value will be issued to the respective founder.
Prior to incorporation (entry in the Commercial Register) the manager of the investment contributions entrusted in the founding document manages (administers) the paid-up or provided portions of the investment contributions. The monetary contributions have to be paid up into a special bank account, which has to be opened for this purpose by the manager of the investment contributions. The bank shall not allow any disposal with the paid-up contributions in this account until the corporation is incorporated in the Commercial Register, unless it is duly proved that the payment shall cover the costs of the foundation of the company or the return of the contribution to the founders.
The manager of the contributions shall issue a written statement confirming the paid-up contributions or part thereof of individual participants (members, shareholders). The statement shall be enclosed with the application for registration (incorporation) in the Commercial Register. If the manager of contributions lists an amount which is higher than the amount actually paid up the manager of contributions shall be liable to the company’s creditors for the company’s obligations up to the amount of this difference.
- Identification of the executive director(s) and members of the supervisory board, if the supervisory board is established (in the case of the limited liability company) or members of the bodies who shall, under the articles of association, be elected by the general meeting (in case of the joint stock company). Both a natural person and a legal entity can become an executive director, member of the supervisory board or a member the body of a joint stock company who shall, under the articles of association, be elected by the general meeting.
Under Czech law most of the business activities in the Czech Republic are deemed to be trades (živnosti) in the sense of the Trade Licensing Act (Act No. 455/1991 Coll., as subsequently amended, hereinafter referred to as the TLA). Any individual or legal person may carry on trade upon a registration with the Trade Licensing Register. Under TLA, explicitly stated business activities are not deemed to be trades. Thus, for example, the business activities of professionals (lawyers, pharmacists, dentists, veterinary doctors) and some other special business activities (such as banks, insurance companies, pension funds, securities dealers etc.) or lease of real estates, flats (apartments) and non-residential premises do not belong among trades. Conditions for conduct of those business activities that are not deemed to be trades are mostly set forth by special acts. Usually, a special license issued by a different authority than a Trade Licensing Office is required.
As already mentioned above, the object of business activity has to be stated in the founding document. It is therefore necessary to look up the exact name of the respective trade, as set forth by TLA and governmental decree No. 278/2008 Coll., as subsequently amended. In the case of other business activities which are not deemed to be trades under TLA and which fall under special legal regulation, the exact designation of the business activity has to be looked up in these special acts.
After the execution of the founding document, the founders, the statutory body of the company or its members stated in the founding document have to register the trades with the Trade Licensing Register.
TLA differentiates notifiable trades and licensed trades. Notifiable trades are further divided into:
- crafts, whose operation is conditional on providing evidence that the entrepreneur or its responsible representative (see below) meets the skills (qualifications) stipulated by TLA,
- regulated trades, whose conduct is also conditional on the specialized skills (qualifications) of the entrepreneur or its responsible representative stipulated in Annex No. 2 of TLA, and
- unregulated trade whose conduct does not require any stipulated skills.
The crafts are listed in Annex No. 1 of TLA, the regulated trades are listed in Annex No. 2 of TLA and the unregulated trade with its objects of activities is stated in Annex No. 4 of TLA. Licensed trades may be carried on only on the basis of an authorization by the state in the form of a license. Licensed trades are listed in Annex No. 3 of the TLA.
Notifiable and licensed trades may be carried on by any entrepreneur (including corporation) which meets the conditions stipulated in TLA. Provided that the stipulated conditions are met, notifiable trades may be carried on once they have been registered with the Trade Licensing Register. The fulfilment of the conditions laid down in TLA is confirmed by an excerpt from the Trade Licensing Register, which is issued by the Trade Licensing Office.
Notifiable trades may be notified to, and the application for the trade license may be filed with, any Trade Licensing Office (živnostenský úřad). In case all legal requirements are met, the Trade Licensing Office registers the notifiable trade with the Trade Licensing Register within 5 working days from the day when the application was delivered thereto. The licensed trade is registered with the Trade Licensing Register within five days of the day when the license came into force. In case of newly founded corporation, the authorization to carry on a trade becomes effective as of the day of its incorporation.
The contact data of the Brno Trade Licensing Office: Živnostenský úřad města Brna, Malinovského nám. 3, tel. 542 173 411.
Opening hours: Monday, Wednesday 8 a.m.–5 p.m., Friday 8 a.m.–12 a.m.
Under TLA an entrepreneur who is a legal entity – with the exception of those carrying notifiable unregulated trade – is obliged to carry on a trade through a responsible representative. A responsible representative is an individual who has been appointed by an entrepreneur to ensure the proper conduct of a trade and complies with the trade’s legislation and who is in a contractual relationship with the entrepreneur. Nobody may be appointed as a responsible representative for more than four entrepreneurs. A member of the supervisory board cannot act as the responsible representative.
An entrepreneur (including corporation) may carry on more than one trade provided that he/she has a (separate) trade authorization for each trade. However, a responsible representative for each such trade has to be appointed. Such responsible representative can be the same person, provided that he meets the requirements stipulated for each such trade.
Incorporation in the Commercial Register (obchodní rejstřík)
Once the founding document has been executed in the form of the notarial record, all non-monetary investment contributions have been provided and the part of monetary contribution stipulated by law or the founding document have been paid up, the corporation has gained the consent with the use the premises in which its seat will be situated and the necessary trade authorizations/or licenses for business activities which are not deemed to be trades have been issued, the application for incorporation (registration of the company in the Commercial Register) can be submitted. The applications for registration of the incorporation or other changes in the Commercial Register have to be filed only by means of forms.
The application has to be signed by all executive directors (in the case of a limited liability company) or by all members of the board of directors, respectively by the statutory director (in the case of a joint stock company), regardless of the way in which they are entitled to represent the company pursuant to the founding document. The application can also be filed by an empowered person, usually an attorney-at-law. The signatures on the power of attorney have to be authorized. The documents set out in the Act on Public Registries of Legal Entities and Natural Persons (act No. 304/2013 Coll.) have to be enclosed with the application for incorporation:
The application for incorporation has to be filed with the Regional Court (krajský soud) which is locally competent according to the seat of the corporation. As the court regions do not correspond with the administrative regions, the Regional Court in Brno is locally competent for the former districts of Blansko, Brno, Brno-venkov, Břeclav, Hodonín, Kroměříž, Prostějov, Třebíč, Uherské Hradiště, Vyškov, Zlín and Znojmo, i.e. the whole of South Moravia plus parts of surrounding regions.
The Brno Commercial Register is seated at the Regional Court in Brno, Commercial Department, Husova 15, tel. 54210 1111, fax 54210 9368. The contact data of all courts in the Czech Republic can also be found at.
The court fee for the incorporation amounts to CZK 12,000 in case of a joint stock company and CZK 5,000 in case of all other legal forms regardless of the amount of registered capital.
The participants in the incorporation proceedings in court are the applicants (all executive directors in case of a limited liability company or all members of the board of directors, respectively the statutory director in case of a joint stock company). Other persons who shall be entered with the Commercial Register (founders, members of the supervisory board) are not participants in the incorporation proceedings. However, the applicant(s) shall provide the Commercial Register with a written consent of such other person with their entry in the Commercial Register. The signature of the consent has to be certified, or the consent has to ensue from a document executed in the form of a notarial record. An applicant – foreign person – shall provide the Commercial Register with an address for delivery of official documents in the Czech Republic.
The court has to decide on the application for incorporation or make a registration in the Commercial Register within five days of filing the application. If the court neither makes the registration nor decides on the application nor call on the applicant to complete the application within this time-limit, the registration is deemed to be made on the day following the expiration of the aforesaid time-limit. The court shall inform the participants in the proceedings by delivery of the excerpt from the Commercial Register. The court shall send away the excerpts within three days of the registration.
At the request of the persons authorized to file the application for entry in the Commercial Register, a notary can also register the company in the Commercial Register provided that certain conditions are met.
Winding-up and Dissolution of a Corporation
A corporation becomes dissolved at the date it is deleted from the Commercial Register. Dissolution of a corporation is preceded by its winding-up, either with or without liquidation.
Dissolution of a corporation without liquidation means company’s fluent transfer to its legal successor (e.g., by means of merger or division).
A corporation can be wound up either voluntarily (e.g. on the date specified in a resolution adopted by the members or by the competent body of the corporation) or by decision of a court (e.g. if the company has no statutory body constituting a quorum, if the company is unable to perform its activities and fulfil its purpose for a period longer than 1 year or if the company cannot perform its activity because of insurmountable differences among the shareholders).
Dissolution with Liquidation
In the course of liquidation following actions have to be performed:
- A corporation decides on its winding-up with liquidation and on appointment of a liquidator (in a form of a notarial record). The powers of the statutory body to represent the corporation pass to the liquidator on the day of his appointment. Consequently a motion to register the liquidation has to be filed with the Commercial Register. A court fee for such a motion amounts to CZK 2,000;
- Without undue delay the liquidator has to notify all known creditors of the entry into liquidation. He also has to publish the decision on winding up the corporation in the Commercial Bulletin at least twice, no less than a fortnight apart, thereby inviting the corporation’s creditors to register their claims within a period which may not be shorter than three months;
- The liquidator has to draw up an opening liquidation balance sheet and a list of the corporation’s business assets;
- After completion of all acts in law necessary for executing the liquidation, the liquidation is completed by use of the liquidation balance, by take over of the liquidation estate by the creditors or by its refusal;
- Within 30 days of completion of the liquidation, the liquidator shall file an application for deletion of the company from the Commercial Register;
- Upon its deletion from the Commercial Register, the company ceases to exist.
CZERWENKA & PARTNER v.o.s.
Minoritská 10, 602 00 Brno
Ing. Mgr. Milan Chládek
+420 542 422 811
- I.South Moravia: Geography, Labour Force, Economy
- II. Legal Regulation of Business Activities, Establishment of Business Entities
- III. Accounting and Auditing
- IV. Tax System in the Czech Republic
- V. Employment and Labour Regulations
- VI. Visa and Integration after Arrival
- VII. Co-operation with South Moravian Institutions
- VIII. Practical Information: Working and Living in South Moravia