The process of establishing a limited liability company

The first step for establishing a company in the form of a limited liability company (Czech name společnost s ručením omezeným, „s.r.o.“, „spol. s r.o.) is to draw up a founding document in the form of a Memorandum of Association (in the event it is founded by a sole member a Deed of foundation).

The Memorandum of Association must take the form of a notarial deed and must also comply with the content requirements stipulated by Act No. 90/2012 Coll., On Commercial Companies and Cooperatives (hereinafter referred to as the Business Corporations Act or ZOK). The company is formed by writing a notarial deed and by a decision to adopt the Memorandum of Association.

The establishment of a company by writing a Memorandum of Association must be distinguished from the very incorporation of the company, which occurs only after recording an entry in the Commercial Register.

Further legal action must be taken in the period between the setting up and creation of a company. As the company was not actually created by the formation, a person different from the company must take steps on behalf of the company. The person is obliged from this legal action until the general meeting of the newly created company additionally approves it within 3 months after its creation. 

Within this period, in addition to writing a founding document, it is necessary to deposit the company's registered capital or its part, and obtain a business licence (most often a trade licence, respectively a trade certificate).

For a successful formation of a founding document, it is necessary to provide:

o The company’s trade name

When choosing a business name, it is necessary to ensure that the name is not the same or interchangeable with another trade name registered in the Commercial Register (it can be checked at www.justice.cz). Also, the chosen name should not be misleading. In addition, the trade name must distinguish entrepreneurs from other entrepreneurs in the sense that the difference is not only in the number of characters, but also in the overal sense of the company’s trade name.

o Registered office of a company

It is necessary to provide the consent from the property-owner/owners to the location of the Registered Office of the company, including the verified signature of each property-owner. The consent may not be older than 3 months. The consent shall be supported by an excerpt from the Land Registry (deed of ownership) not older than 3 months. If the property is not registered in the Land Registry, it is necessary to present the occupancy permit decision / certificate of occupancy and the assignment of a Land Registry Number/ House Number, both in original form or in a certified copy.

o Object of business or activities of the company

A business licence is most often obtained in the form of acquiring a trade license, but it may also be a business activity requiring a license other than a trade license (such as in the case of operation of activities in the field of finance, notary services, legal services, etc.).

The most common request is for a trade license for all 79 free trades - "Production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act".

In the case of qualified trade license / craft / licensed trades, a legal representative is required by law (Pursuant to Section 11 of Act No. 455/1991 Coll., On Trade Licensing Act, a person cannot act as a responsible representative for more than four entrepreneurs).

o The amount of the registered capital and the amount of deposits of each partner

The statutory minimum deposit of the shareholder is only CZK 1 – the minimum amount of registered capital is also CZK 1 (in the case of one shareholder).

As this data is accessible to public, companies with a low share capital may not be fully trusted by partners. It is therefore recommended to set the amount of the registered capital to at least CZK 200,000.

The cash deposit must be repaid within the time limit set by the Memorandum of Association (Deed of Foundation). Before submitting the application for entry in the Commercial Register, the entire share premium contribution will be repaid and at least 30% of the cash contribution.  

Deposits may also be of a non-monetary nature – immovable or movable assets may also be deposited. Work or services may not be a non-monetary contribution. The only non-monetary contributions may be those that can be estimated the price or value (according to Par. 15 (3) of the Business Corporations ). The value-based price of the non-monetary contribution shall be stated in the founding document. For this reason, a non-monetary contribution must be valued by an expert selected from the list of experts (par. 143 ZOK). Non-monetary deposits must be fully transferred to the stock corporation before recordiung an entry in the Commercial Register.

 Non-capital contributions, as well as cash contributions are handed over to the contribution administrator during the establishment of the company. 

oSpecify the contribution administrator

Before the creation of a stock corporation, the contribution administrator authorized by the founding agreement accepts and manages paid or deposited contributions or their parts. The contribution administrator may also be the founder or one of the founders. 

If the non-monetary contribution is an immovable object, the depositor shall hand over the immovable property to the contribution administrator, together with a written declaration with a verified signature confirming the contribution of the immovable object. In the case of a movable object, it is brought in by handing over to the contribution administrator (unless the Memorandum of Association states otherwise). A non-monetary contribution may also be a business enterprise or part thereof, which is brought into effect by the deposit contract.

The contribution administrator shall establish a special account at the bank (or credit union) which serves to pay up cash deposits. The Bank institution will not allow these funds to be disposed of before the Company is created (or before it is entered in the Commercial Register), with the exception of settlement costs. 

Subsequent to the fulfillment of his obligations, the contribution administrator shall issue a written declaration of fulfillment of the deposit obligation or its part by the individual depositors.

o Identifying members of a LLC

A member may be a natural or legal person.

If the member is a natural person, he / she needs to submit:

• Name, surname, birth number (date of birth in the case of a foreigner), permanent address
• If there is more than 1 shareholder, the amount of the share must also be determined

If a legal entity is a member, i tis necessary to submit:

• Business name, ID number, registered office, extract from the Commercial Register not older than 3 months
• The amount of the business share

If a foreign legal entity is a member:

• up-to-date extract from the Commercial Register or a similar document issued by the competent authority of the country where the company has its registered office. It must be clear from the document who is authorized to act on behalf of the company and that the company exists. In addition, the document must be translated by a certified translator and provided with an apostille if required
• The amount of the business share

o Determining the types of shares of each shareholder and the rights and obligations associated with them, if the Memorandum of Association / Deed of foundationpermits the formation of different types of shares.

o Designation of the company Director 

The General Meeting does not elect the first director of the company, this is determined by the founders of the company in the Memorandum of Association or by the founder in the Deed of foundation.

The mandatory requirement of the Memorandum of Association is to determine the number of company directors. The director may be a natural or legal person. The director is not required to reside permanently in the Czech Republic, even in the case of non-EU nationals.

The company Director may be any member or other person. If there are more directors, the way of acting on behalf of the company must be determined – whether each acts for the company separately or whether they act jointly.

An essential element of the Memorandum of Association is an indication of whom the founders designate as the first director or directors of the company, that by submitting the full name, birth number and permanent address of the director or directors of the company, or the business name, company (registration) numberand registered office of the legal entity, including the name of the person representing the company.

 Each director must enclose an affidavit that he / she agrees to have his person registered as the company director in the Commercial Register, that he / she is fully legally competent within the meaning of Section 152 (2) of Act No. 89/2012 Coll., The Civil Code, furthermore, that he / she fulfills the conditions pursuant to Section 46 of the Business Corporations Act (ie. he / she is irreprochable within the meaning of Act No. 455/1991 Coll., the Business Licencing Act, as amended), insolvency proceedings have not been conducted in respect of his / her assets or those of a business corporation in which he /she has been a member of a body in the last 3 years, and that there is no other obstacle to the performance of office. The signatures of company directors must be officially verified.

An affidavit shall be accompanied by an excerpt from the Criminal Record not older than 3 months.

An EU citizen will also provide a date of birth and an excerpt from the Criminal Record from the country of origin not older than 3 months, translated by a certified translator into Czech (provided with an apostille if required).

Non-EU nationals provide the date of birth and an excerpt from the Criminal Record of the country of origin translated by a legal translator and an excerpt from the Czech Republic Criminal Register - both not older than 3 months (the foreign excerpt shall be provided with an apostille if required).

o Appointment of members of the Supervisory Board, if this statutory body has been established. The members of the Supervisory Board must submit the same documents as the executive directors

The creation of a limited liability company

 After drafting up the Memorandum of Association in the form of a notarial deed, obtaining the necessary authorization and paying up the registered capital, it is possible to file an application for recording an entry in the Commercial Register, most often in the form of a direct entry by a notary or at the relevant registration court.

The application for registration must contain:

o The Memorandum of Association / Deed of foundation in the form of a notarial deed

o Documents for the registered office (proof of legal reason for using the premises in which the registered office is located together with an extract from the Land Register – both must not be older than three months)

o Notifying a trade

o Certified copies of the extract from the Trade Register

o Certificate of professional competence, evidence of professional experience

o Affidavit of the person in authority that he / she agrees with the appointment of the person in authority and with the assumption of duties to the extent stipulated by the Trade Act for the incorporated company.

o Affidavit of the director/directors with officially verified signatures + excerpt from the Criminal Record

o Signature specimen of the director

o Documents supporting the members of the Supervisory Board (if it had been established)

o Proof of paying up the contributions (confirmation of the contribution administrator on lodging the deposit, confirmation of the bank on the fulfillment of the deposit obligation, expert opinions in the case of non-monetary deposits)

o The consent of the members's spouse to use the assets in the marital property for business purposes

o Confirmation of payment of the administrative fee

It should not be forgotten that the newly established company is obliged to register with the relevant tax office within 30 days from the registration in the Commercial Register.