Establishment of the most common form of corporation in the Czech Republic – the limited liability company (in Czech the “s.r.o.”) – has considerably simplified since the beginning of 2014 thanks to the new Civil Code (Act No. 89/2012) and the Act on Business Corporations (Act No. 90/2012) coming into force. In the mid 2014, the media widely reported on further changes due in the spring of 2015 whose objective was to further simplify, speed up and make cheaper the establishment of an ‘s.r.o.’. Under the new plan the ‘s.r.o.’ could be established in as little as 3 days for as little as 3 000 CZK (approximately 110 €).
This simplified regime assumes that founders use the form establishment deeds and have the company registered directly by the notary, avoiding the more expensive and lengthy filing with the court / commercial registry. The possibility to have a corporation registered directly by the notary theoretically existed already in January 2014, but this option was not functional due to the system allowing actual direct registrations not being in place. Therefore an amendment was adopted rectifying this shortcoming, and it should come into force now on 1 April 2015. This amendment will however make direct registrations temporarily more expensive. The non-functional direct registration was originally set at 300 CZK (12 €), but the current amendment increases this fee to 2 700 CZK (on top of other fees). The above mentioned plan to have an ‘s.r.o.’ in place in 3 days for 3 000 CZK will thus remain a mere vision for the immediate future.
This vision should be finally implemented in full in October 2015, requiring additional amendment. This amendment will reduce the notarial fee for the certification of the form establishment deed to 2 000 CZK (73 EUR), which is about half of the fee today (excl. VAT) and the first registration should be exempted from the court registration fee entirely. This would finally reduce the cost of establishing an ‘s.r.o.’ to approximately 100 € (respectively 2 700 CZK, which is at the current FX rate just under 100 €).
At present time the usual cost of establishing a limited liability company amounts to approximately 15 000 CZK, or minimum of 12 000 CZK (545 € or 437 € respectively). This includes chiefly the 6 000 CZK due as court registration fee, 1 000 CZK for one standard trade license notification-only and approximately 4 000 CZK for notarial fees + additional minor expenses. The establishment process takes in average 19 days and includes 9 separate procedures. The lengthiest procedure is usually the actual court registration – the filing itself, delivery of the resolution on registration and waiver of appeal may take approximately 14 - 30 days, the trade licence may usually be obtained within 5 days and registration at the Financial Authority in about 10 days. The founders should count on spending approximately 24 hours net on the entire process, including such minor steps as making sure the name of corporation has not been used before, to more consuming matters such as filing in or drafting the founder’s deed and applying for trade license plus time spent to study the minimum extent of legal regulation, unless they hire an advocate.
Czech Republic is, in terms of cost and timeframe for establishment of a corporation, ranked by the 2015 World Bank Doing Business Report at the very unflattering 110th place out of 189 evaluated countries. The efforts to simplify establishment process and reduce costs are primarily driven by the European Union, which motivates the Czech Republic chiefly through its ability to define terms for draw downs of the Community funding.
The so far most significant change to simplifying the establishment of an ‘s.r.o.’, respectively facilitating entry into business, has been the radical reduction of the required minimum capital, respectively shareholder’s contribution toward the capital. The minimum contribution of a shareholder in an ‘s.r.o.’ is currently 1 CZK. The capital is then equal to the sum of all shareholders’ contributions. The minimum capital of a sole shareholder ‘s.r.o.’ can thus be as little as 1 CZK. Even though this change made the ‘s.r.o.’ corporate vehicle available even to entrepreneurs with minimum capital, the actual cost of establishing an ‘s.r.o.’ has not been reduced. Even if the founder established a company with the initial capital of only 1 CZK, the company needs to have sufficient assets to cover its establishment. Should the initial capital be this low, the company will not be able to meet the cost of its establishment. In this situation the company would need to obtain funding otherwise, whether in the form of additional contribution from the shareholder(s) or using bank loan etc. A company with minimum required capital would also not be considered economically stable, for instance from the perspective of the Public Procurement Act. Maybe this is one of the reasons why the professional public is advocating to increase the minimum registered capital again. This however remains on the sidelines of the tendency to further liberalize entry into business, in the form which is now planned for October 2015.