How to Do Business in the Czech Republic

Doing Business

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FORMS OF BUSINESS ACTIVITIES IN THE CZECH REPUBLIC

Czech or foreign natural persons or legal entities can perform business activities in the Czech Republic if they comply with Czech Law. The condition is generally the issuance of a Czech Trade Licence regulated by the Czech Trade Licensing Act, or another specific permit regulated by a number of specific acts, depending on the type of business activity. The exception to this condition applies to entrepreneurs from another EU member state in the case of the temporary provision of services based on the Trade Licences issued in such member state.

NATURAL PERSONS AS ENTREPRENEURS

A natural person or entrepreneur is, according to Czech Law, a person who conducts business on the grounds of a Trade Licence, a person who conducts business using a special licence, or a person who practises agriculture and is registered according to a special regulation. Citizens of other countries are allowed to conduct business in the Czech Republic under exactly the same conditions and to the same extent as Czech citizens, unless the Law states otherwise. For this purpose, the term “foreign person” applies to a natural person whose permanent residence is outside of the Czech Republic. Therefore, it is permanent residence, and not citizenship, that is decisive here. Visas are required in certain cases.

CONDUCTING BUSINESS WITH A TRADE LICENCE

According to the Czech Trade Licensing Act (Act No. 455/1991 Coll.), the business activity is conducted systematically, individually, using one’s own name, at one’s own responsibility, with a view to making profit and under the conditions laid down under this Law. The different professions requiring a Trade Licence are listed in Appendices 1- 4 of the Czech Trade Licensing Act. The Czech Trade Licensing Act differentiates between notifiable trades, where the licence is granted once the agreed conditions are met and the Trade Office is notified, and concessionary trades, which require State permission – i.e. the granting of a concession; this is not accorded automatically. Notifiable trades are further divided into skilled, restricted and free trades. Every natural person who is considering pursuing a trade must meet a set of general conditions, including being 18 years old and above, having legal capacity and being a person of good character. In the case of restricted, skilled and concessionary

trades, a natural person is additionally obliged to meet special conditions – a professional qualification or other competence as defined by the Law for each profession. In the case of non-compliance with these special conditions, a natural person is obliged to conduct a trade through the intermediary of a responsible representative, who is obliged to meet both the general and the special conditions pertaining to the given type of trade. Access to the Trade Register is free and available online at www.rzp.cz.

CONDUCTING BUSINESS USING A SPECIAL LICENCE

The different business objects for the given category are the professions listed in Section 3 of the Czech Trade Licensing Act, and which are exempt from its provisions. First and foremost, this applies to professional services (doctors, advocates, expert witnesses, auditors, tax advisers, dentists, etc.). Conditions for each of these professions are specifically defined by separate laws.

PRACTICE OF AGRICULTURE

The third type of natural person encompasses persons who practise agriculture and who are registered under a special regulation – the Agriculture Act (Act No. 252/1997 Coll.). Agriculture includes Forestry and Water Resource Management. An agricultural entrepreneur is any person who practises agriculture for profit and who meets the agreed conditions, including being at least 18 years of age, having legal capacity and Czech or EU citizenship – all other natural persons require permanent residence in the Czech Republic and a certification of a basic knowledge of the Czech language.

LEGAL ENTITIES

The Czech Act on Business Corporations recognises the following types of business entities:

*limited liability companies

*joint-stock companies

*general partnerships

*limited partnerships

*co-operatives

*Societas Europaea (European companies)

*European Economic Interest Grouping (EEIG).

The Czech Civil Code also recognises other forms of legal entities, such as Trusts and Associations, which can also perform business activities, but this should not be the main purpose of their existence. A Czech legal entity is an entity that has its registered office in the Czech Republic. Commercial companies are formed in two stages. The first stage involves founding the company and the second stage involves establishing it as a legal person, as of the date of its entry in the Commercial Register. The Commercial Register is maintained by the courts. Only after registration in the Commercial Register is the company entitled to commence its business activity in the Czech Republic. Access to the Commercial Register is free and available online at www.justice.cz.

BRANCH OFFICE

A branch office is merely an organisational unit of the founding company and it is not regarded as a separate legal entity and does not have its own legal capacity. It is an entity legally dependent on its head office, although it has an independent management and its own accounts. The branch office must be registered in the Commercial Register and the founder must appoint a Director of the branch office, who acts on behalf of the founding company, but this is only in relation to matters concerning the branch office. In the case of the commencement of any business activity in the Czech Republic (i.e. continuous business activity carried out independently and aimed at generating a profit), it is important to ensure that the respective Trade Licences or other permits in the Czech Republic are obtained and registration with the Czech Commercial Register is performed.

INCORPORATING A LIMITED LIABILITY COMPANY

The Limited
Liability Company is the most common form of business corporation in the Czech
Republic. How is such a company established?

A Limited Liability Company is established by a
Memorandum of Association, which is signed by all the founders, i.e. the future
shareholders, or just one future shareholder. In both cases, it is essential
that it is executed in the form of a Notarial Deed by a Czech Notary. The notarial
fee usually does not exceed CZK 5 000 (EUR 205) and depends on the amount of
the registered capital. In the case of a basic Memorandum of Association, which
contains only the mandatory provisions required by the Civil Code and Business
Corporations Act, and if all contributions to the registered capital will be
monetary and registration of the company to the Commercial Register will be
performed by the Notary, the notarial fee is decreased to CZK 2 000 (EUR 82).
The Founding Deed must contain basic information about the company, e.g. the
business name, registered address, identification of the shareholders, types of
business interests (shares) held by each shareholder and specification of the rights
and obligations attached to such business interests (assuming various types of
business interests are allowed), a list of the company’s business activities, the
number of executives and how they will act on behalf of the company, the amount
of registered capital, amount of contribution of each shareholder to the
company’s registered capital, identification of the initial executives and the appointment
of a Contribution Administrator. The business name must not be interchangeable
with any already existing name of another company registered in the Commercial
Register. This is why the business name being considered by the founders should
be checked out in this regard in advance at the website www.justice.cz. If the
company’s business name contains the name of a living natural person, the
founders must obtain the consent of such person.

OBTAINING A BUSINESS LICENCE

Once the Founding Deed is drawn up, the initial executives need to obtain a Trade Licence at the Trade Licence Office, unless the company’s business activity includes only the management of own property, letting of real estate, residential units and non-residential units, or if a special permit is required. The administration fee for obtaining a Trade Licence at the Trade Licence Office amounts to CZK 1 000 (EUR 41).

BUSINESS INTERESTS

The Founding Deed of the Limited Liability Company may allow the formation of various types of business interests (shares) held by the shareholders of the company. Furthermore, the business interest of the shareholders could be represented by a common certificate issued as registered security. Shareholders of the Limited Liability Company may own more than one business interest in the company.

REGISTERED CAPITAL AND PAYMENT OF CONTRIBUTIONS TO THE REGISTERED CAPITAL

The minimum requirement for the registered capital of the Limited Liability Company is CZK 1. However, it is recommended that the founders agree on a higher amount of the company’s registered capital than the minimum amount. A shareholder’s contribution to the registered capital is either in monetary or in-kind form, whereas all contributions of the founders are administered by the Contribution Administrator who is usually one of the founders. Monetary contributions are deposited to a special bank account established for this purpose. The in-kind contributions must be appraised in an expert’s opinion, drafted by the expert chosen by the founders from the official list of experts. Before submitting the Application for the entry of the company into the Commercial Register, any in-kind contribution must be fully paid up, while at least the contribution premium (if any) and 30 % of each monetary contribution must be paid. As of 1 January 2021, the amended Czech Business Corporations Act allows an exception to the above-mentioned rule. It shall be possible, in cases where the amount of the registered capital (and therefore the deposited amounts) does not exceed CZK 20 000 (EUR 820), to deposit the registered capital amount directly into the hands of the Contribution Administrator.

ENTRY OF THE COMPANY INTO THE COMMERCIAL REGISTER

The Application for entry of the company into the Commercial Register must be submitted either by all executives of the company on the prescribed form with their officially verified signatures, or the registration can be performed through a Notary, who can register the company directly into the Commercial Register. The Application must be submitted to the competent Court, depending on the location of the company’s registered office, within 6 months from the foundation of the company; otherwise the Founding Deed shall be considered as withdrawn. The Founding Deed may stipulate another period. The Court registration fee amounts to CZK 6 000 (EUR 246). The fee amounts to only CZK 2 700 (EUR 110) if the registration is performed by a Notary on the basis of a Notarial Deed which contains only the mandatory provisions. If all contributions to the registered capital of the company are monetary, the registration of the company is free of charge. Irrespective of whether the Application is submitted by the company’s executives or through a Notary, the following documents must usually be presented:

* a Notarial Deed containing the Founding Deed, a Trade Licence or licence for other type of business activity;

* a Deed attesting to the legal basis for the use of the premises at which the company’s registered office is situated, e.g. the written consent of the owner, together with the decision of the company’s statutory body on the company’s registered office location;

* a document attesting to the fulfilment of the obligation to pay prescribed contributions to the registered capital. This fact could be proved by a declaration by the Contribution Administrator and, in the case of the registered capital exceeding CZK 20 000 (EUR 820), also confirmation from the bank that the relevant monetary sums have been credited to the special bank account of the company;

* Affidavit attesting to the fact that the persons who are to be registered as members of the company’s bodies agree to their appointment and satisfy the requirements set forth by Law, i.e. that they are at least 18 years old, have legal capacity, are without a criminal record related to the business, and that there are no impediments to their operating of a trade in accordance with the Trade Licensing Act and other legal regulations, and an extract from the Criminal Record or equivalent document issued by the relevant authority of the EU Member State in which they were last residents, in the case of citizens from another EU Member State

The necessary forms for entering the company into the Commercial Register can be found in Czech on the website of the Czech Ministry of Justice https://or.justice.cz/ias/ui/podani. Documents presented to the Commercial Register must be in Czech, including all their attachments; any Deeds in a foreign language must have a legally certified translation, unless it is drawn up in one of the official languages of the European Union (in that case, a simple translation is sufficient). For certain types of foreign Deeds (e.g. an extract from a Criminal Register or Commercial Register), a special form of higher authentication is required, one that certifies the authenticity of the issuing authority, generally identified as an Apostille or “super-legalisation”, depending on whether or not the country issuing the deed is a signatory to the Hague Apostille Convention. The statutory deadline for registration of the company is five working days from submission of the Application. A Notary may register the company into the Commercial Register almost immediately. In order to submit an Application to the Commercial Register or Trade Register, it is not mandatory to be represented by a lawyer. Nonetheless, with respect to the fulfilment of formal requirements, we recommend that an Attorney-at-Law is engaged. The average amount of time needed to establish a Limited Liability Company in the Czech Republic is approximately seven days, but registration within even one day is also possible.

INCORPORATING A JOINT-STOCK COMPANY

The Joint-Stock Company is the second most common form of business corporation in the Czech Republic. How is such a company established?

A Joint-Stock Company is established by at least one founder on the basis of Articles of Association, which are executed in the form of a Notarial Deed by a Czech Notary and signed by all the founders. The notarial fee usually does not exceed CZK 16 000 (657 EUR) and depends on the amount of the registered capital. The Founding Deed must contain basic information about the Joint-Stock Company, such as the business name, registered address, list of the company’s business activities, number of shares and their nominal value, specification of shares and whether the company issues registered shares or bearer shares, amount of the registered capital, number of votes attached to an individual share, total number of votes in the company and estimation of costs related to the establishment of the company. The business name must not be interchangeable with any already existing name of another company registered on the Commercial Register. This is why the business name being considered by the founders should be checked out in this regard in advance on the Commercial Register at the website www.justice.cz.

OBTAINING A BUSINESS LICENCE

After the Articles of Association have been executed, the members of the company’s statutory body need to obtain a Trade Licence at the Trade Licence Office, unless the company’s business activity includes only the management of own property, letting of real estate, residential units and non-residential units, or if a special permit is required. The administration fee for obtaining a notifiable Trade Licence at the Trade Licence Office amounts to CZK 1 000 (EUR 41).

CORPORATE GOVERNANCE

The founders may choose between a monistic or dualistic model of corporate governance. In the case of a dualistic model, the company establishes a Board of Directors and a Supervisory Board. The Board of Directors is in charge of the management of the company’s business. The Supervisory Board supervises the executive powers of the Board of Directors. In the case of a monistic model, the company only has an Administrative Board that determines the basic orientation of the management of the company’s business and supervises its proper execution. The Administrative Board should, as a rule, have three members, unless the Statute of the company sets out a different number. The one-member Administrative Board is allowed.

There are two types of shares in the Joint-Stock Company, i.e. shares with no special rights (ordinary shares), and preference shares with special rights (such as different or fixed profit shares, or different vote weighting shares). Newly, what are called “no par value shares” can also be issued.

REGISTERED CAPITAL AND PAYMENT OF CONTRIBUTIONS TO THE REGISTERED CAPITAL

The minimum amount of the registered capital of the Joint-Stock Company is CZK 2 000 000 (EUR 82 000). A shareholder’s contribution to the company’s registered capital may either take monetary or in-kind form, whereas all contributions are administered by the Contribution Administrator, who is usually one of the founders. Monetary contributions are deposited to a special bank account, identified in the Articles of Association. The value of in-kind contributions is determined by an expert chosen by the founders from the official list of experts. Before submitting the Application for registration of the company on the Commercial Register, each founder must pay up at least the share premium, and all the founders must further pay up in aggregate at least 30 % of the nominal value of the subscribed shares. All in-kind contributions must be fully paid.

REGISTERED CAPITAL AND PAYMENT OF CONTRIBUTIONS TO THE REGISTERED CAPITAL

ENTRY OF THE COMPANY INTO THE COMMERCIAL REGISTER

The Application for entry of the company into the Commercial Register may either be submitted by all the members of the company’s statutory body on the prescribed form with their officially verified signatures, or the registration can be performed through a Notary, who can register the company directly on the Commercial Register. The Application must be submitted to the competent court, depending on the location of the company’s registered office, within 6 months from the foundation of the company; otherwise, the Founding Deed shall be considered as withdrawn. The Founding Deed may stipulate another period. The court registration fee equals the amount of CZK 12 000 (EUR 492). The fee amounts to CZK 8 000 (EUR 328) only, if the registration is performed by a Notary.

Irrespective of whether the Application is submitted by the company’s members of the statutory body or through a Notary, the following documents must usually be presented:

*a Notarial Deed containing the Founding Deed;

*a Trade Licence or licence for other type of business activity;

*a Deed attesting to the legal basis for use of the premises at which the company’s registered office is situated, e.g. written consent of the owner, together with the decision of the company’s statutory body on the company’s registered office location;

*a document attesting to the fulfilment of the obligation to pay at least statutory minimum contributions to the registered capital. This fact could be proved by a declaration by the Contribution Administrator and confirmation from the bank that the relevant monetary sums have been credited to the bank account of the company;

*Affidavit attesting to the fact that persons who are to be registered as members of the company’s bodies agree to their appointment and satisfy the requirements set forth by law, i.e. that they are at least 18 years old, have legal capacity, are without a criminal record related to the business, and that there are no impediments to their operating of a trade in accordance with the Trade Licensing Act and other legal regulations, and an extract from the Criminal Record or equivalent document issued by the relevant authority of the EU Member State in which they were last residents, in the case of citizens from another EU Member State;

*the decision on the appointment of the Chairman of the Board of Directors, Chairman of the Supervisory Board, Chairman of the Administration Board or Statutory Director, if applicable.

The necessary forms for entering the company on the Commercial Register can be found in Czech on the website of the Czech Ministry of Justice https://or.justice.cz/ias/ui/podani. Documents presented to the Commercial Register must be in Czech, including all their attachments; any deeds in a foreign language must have a legally certified translation, unless drawn up in one of the official languages of the European Union (in that case, a simple translation is sufficient). For certain types of foreign deeds (e.g. an extract from a Criminal Register or Commercial Register), a special form of higher authentication is required, one that certifies the authenticity of the issuing authority, generally identified as an Apostille or “super-legalisation”, depending on whether the country issuing the deed is or is not a signatory to the Hague Apostille Convention. The statutory deadline for registration of the company is five working days from submission of the Application. A Notary can register the company on the Commercial Register almost immediately. In order to submit an Application to the Commercial Register or Trade Register, it is not mandatory to be represented by a lawyer. Nonetheless, with respect to fulfilment of formal requirements, we recommend that an Attorney-at-Law is engaged.

STEPS FOR ACQUIRING A CZECH TRADE LICENCE

Trades are divided under the Czech Trade Licensing Act (Act No. 455/1991 Coll.) into notifiable trades, which can be obtained based on notification, and concession trades, which can only be pursued on the basis of a special business licence – a concession. Notifiable trades are categorised into three further groups: vocational, professional, and unqualified.

Notifiable trades are characterised by the fact that the authorisation to trade becomes valid immediately at the very moment of notification (not later, when the Trade Licence is issued). To illustrate the various types of trade, here are a few examples. Trades categorised as vocational include carpentry, bakery and confectionary, bricklaying and plastering, brewing, etc. Professional trades include activities such as providing or brokering consumer credit, work as an optician, or animal trading. In order to acquire the concession for concessionary trades, it is necessary to demonstrate the relevant professional eligibility and in some cases also to meet some additional requirements. Trades that require concessions include operating a travel agency, road freight transport or a security firm employed to protect other people’s property. Those interested in a licence for a notifiable trade can obtain one by notifying the trade, while applicants for a concession can submit their Application at one of the general trade offices – central registration points – by means of government administration contact points (Czech-Point), or do so electronically using the Trade Register web system. Trades are notified and applications for concessions are submitted using a standard registration form. Forms can be obtained at any trade office, and in most cases are freely available at the Ministry of Industry and Trade website https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/ (forms must be completed in Czech).

STEPS FOR ACQUIRING A CZECH TRADE LICENCE

The general conditions applying to a natural person pursuing a trade are: to have reached the age of 18 years, to have full legal capacity and a clean criminal record. According to the Act, a person with a clean criminal record is someone who has not been finally convicted of intentionally committing a criminal act, if it was committed in connection with business activities, or with the business object for which they are applying or notifying, unless they are now considered as not having been convicted of such offence.

PROFESSIONAL ELIGIBILITY

Alongside the form, in the case of a professional or vocational trade or concession, the notifier or applicant must submit a document attesting to its professional eligibility for the relevant trade, or of the appointed responsible representative, together with his/ her signed declaration that he/she consents to the appointment. The signature on the declaration must be officially certified. If documents are in a foreign language, they must be translated into Czech by a sworn translator (a list can be found at http://datalot.justice.cz/justice/repznatl.nsf/$$SearchForm?OpenForm), with the exception of documents submitted by nationals of EU Member States, or by a legal entity with its registered office, central administration or principal place of business activities in an EU Member State, unless there are doubts as to the translation’s correctness.

OTHER TERMS AND CONDITIONS

Further, a document attesting to the legal basis for use of the premises in which the trader has located their place of business (e.g. a Lease Contract) must be submitted. In addition, a receipt must be submitted for payment of the administrative fee, which is 1 000 CZK (41 EUR) for a notifiable trade (if multiple trades are notified simultaneously, the fee is charged only once). Foreign natural persons, except for nationals of EU Member States or of a State Party to the Agreement on the European Economic Area, or the Swiss Confederation, must attach to their notification of a trade or concession Application a document corroborating that they have been granted a visa to stay longer than 90 days or have a long-term Residency Permit. A foreign natural person must further provide an extract from the Criminal Register or equivalent document issued by the relevant court or state authority of the country of which the individual is a national; the extract must not be more than three months old. The Trade Office is obliged to make the entry into the Trade Register within 5 business days of receiving the notification and to issue the entrepreneur an extract if the notifier meets the conditions set out in the Czech Trade Licensing Act. Where concessions are concerned, the Trade Office shall decide the matter within 30 days of receiving the Application, provided that all the relevant particulars are met. Subsequently, within 5 business days of the decision granting the concession having come into effect, an entry is made in the Trade Register and an extract is issued to the entrepreneur.

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