• Hypermotion

Cities of Innovation: Brno

How to set up a business: a quickfire guide

What are my options?

The most common legal form for Czech start-ups and SMEs is the limited liability company (společnost s ručením omezeným; or “LLC”).

 

Among the advantages of an LLC is the very low minimum share capital contribution requirement of just CZK 1 (approx. €0.04), with 30% to be paid in upon formation.

 

A higher contribution may be determined and recorded in the foundation deed (in the case of a one-member company) or articles of association (in the case of a company with multiple members). It is also recommended that your company has a share capital of at least CZK 100,000 (approx. €3,900), which is standard in the Czech market and makes the company appear more credible.

What do I need to set up a company?

The following steps are required to set up an LLC:

(i) execution of a foundation deed or articles of association in the form of a Czech notarial deed; (ii) opening of a bank account; (iii) payment of the share capital and issuance of a bank confirmation that the share capital has been paid up; (iv) obtaining consent from the owner of the real estate where the company will have its registered office (if the company is not the owner); (v) obtaining a trade licence; and (vi) filing for registration in the Czech Commercial Register.

 

Upon registration, the LLC is established. Registration usually takes two to three weeks from the submission of a complete filing. Czech banks conduct a thorough KYC (know-your-customer) check before they open a bank account. This should be factored into the timing.

 

The same set of rules applies to foreign entrepreneurs when it comes to the foundation of an LLC. Practice has shown, however, that logistics as well as the opening of a bank account are sometimes practical bottlenecks for foreign founders. In addition, licensing and trade law requirements may impose conditions on foreign founders.

How much does it cost?

The cost and timing for establishing an LLC depend mainly on the complexity of the intended corporate governance rules and the number of shareholders. Legal fees typically range between €2,500 and €3,500 (net). Special legal packages are available for start-up founders. Founders must budget an additional €500 for court and notary fees.

Tax rates

The corporate income tax rate for LLCs is 19%. Capital gains (dividends and proceeds from the sale of the LLC) will generally be taxed at a rate of 15%. Exemptions and double-taxation issues should be considered.

 

After the registration of the LLC, further steps may be needed such as: (i) tax registration and a request for issuance of a tax identification code / tax number / VAT number; (ii) registration of the LLC in the Czech Beneficial Owner Register; and (iii) registration at the social security office (if the company has employees).

 

LLCs in the Czech Republic are subject to very strict capital maintenance rules that essentially limit payments by the LLC to its shareholders to dividends and arm’s length transactions (the consequences of a violation may be that transactions are declared null and void, at least partly; there will also be claw-back risk, liability of management and potential tax liabilities).

 

The transfer of shares in an LLC (for example, in the course of an investment or exit, including call-and-put options) requires the drawing up of a share transfer agreement with notarised signatures.

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