The Essential Corporate Law in the Cech Republic

These are the highlights if you want to know the essential of Corporate Law in the Cech Republic.  This entry was drafted by Bányaiová Vožehová for”E-IURE COMPENDIUM” 2018. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case “Bányaiová Vožehová” is an excellent option in the Cech Republic.

Corporate Law

As of 1 January 2014, the Czech Republic has enacted new legal regulations including the rules regarding the corporate law. The main regulation of the corporate law is contained in Act No. 90/2012 Coll., on Business Companies and Cooperatives (Act on Business Corporations), as amended, and in Act. No 89/2012 Coll., the Civil Code, as amended.

Types of Companies and Liability of Shareholders

Under Czech law, general partnership, limited partnership, limited liability company, joint-stock company, European Company and European Economic Interest Grouping are considered commercial companies or corporations. Besides these, the Czech law also recognizes cooperatives as additional legal form.

All companies and cooperatives are registered in the Commercial Register held by regional courts. Individual entrepreneurs may also be registered in the Commercial Register, otherwise if they hold a trade license, they are registered in the Trade Register.

JOINT-STOCK COMPANY (in Czech: akciová společnost): The joint-stock company is a separate legal entity the share capital of which is apportioned to certain number of shares. Shareholders are not liable for liabilities of the company (except for one extraordinary case). It is established by executing the Articles of Association before a Czech notary. The Articles of Association need to include the essentials set out in the applicable regulations. The joint stock company is established by registration in the Commercial Register, where the Articles of Association become part of the Collection of Deeds which is publicly accessible online. The statutory minimum share capital is EUR 80,000. At least 30% of the share capital must be paid by the date of application for registration of the company in the Commercial Register. Joint-stock company is the corporate form adopted by larger companies with the major advantage that its shares can be transferred rather easily and, theoretically, be listed on a stock exchange, making it relatively easy to raise capital from the public.

LIMITED LIABILITY COMPANY (in Czech: společnost s ručením omezeným): The second form of corporations under Czech law is the limited liability company, which is the corporate entity most commonly used for enterprises in the Czech Republic. The minimum share capital of a limited liability company is lowered to CZK 1.00, i.e. less than EUR 1, as of 2014. The liability of shareholders for liabilities of the company is limited to the amount of the aggregate of their unpaid contributions according to the state of registration of contributions payment in the Commercial Register at the moment they have been invited by the creditor to pay it (except for one extraordinary case). It is easier to establish and administer than the joint-stock company.

Local and foreign corporations and partnerships as well as individuals may become shareholders of a limited liability company. It is established by executing a Memorandum of Association or a Foundation Deed (in case of one shareholder) before a Czech notary. Again, the Memorandum of Association needs to include the essentials set out in the applicable regulations. The limited liability company is established by registration into the Commercial Register, where the memorandum of association becomes part of the Collection of Deeds.

GENERAL PARTNERSHIP (in Czech: veřejná obchodní společnost): General partnership is a company of at least two persons who participate in its business and administration of its assets and are jointly and severally liable for its liabilities.

LIMITED PARTNERSHIP (in Czech: komanditní společnost): Limited partnership is a company in which at least one partner is fully liable for all debts and one partner whose liability is limited to the amount of its unpaid contribution.

COOPERATIVE (in Czech: družstvo): A cooperative is an association of unlimited number of persons established to provide mutual support for its members or third parties or for business purposes. The cooperative shall have at least three members. Cooperatives are not often used for business purposes, and if they are, it is in traditional sectors such as agriculture. Only the members of the cooperative can be elected to the functions of the members of the bodies of the cooperative.

A special type of cooperative is a housing cooperative established to provide housing needs for its members and social cooperative established to carry out activities for public benefit, aimed at supporting social cohesion in order to ensure labor and social integration of disadvantaged groups into the society by meeting the needs and using the resources local to the registered office and sphere of activities of the social cooperative, particularly in the areas of job creation, social services and health care, education, housing and sustainable development.

BRANCHES: A foreign company not interested in doing business through a separate Czech legal entity may establish a branch. The branch has to be registered in the Commercial Register. Although contracts may be signed in its name, a branch is not a separate legal entity. For its registration, the court will request evidence of the existence of the foreign company.

Business may be also conducted through a silent partnership or a civil-law association which are not, however, considered separate legal entities.

The Czech legal system also recognizes other types of the legal entities although these entities are not established for business purposes (e.g. Foundations, etc.).