Setting Up an SRO

A brief outline of the steps needed to establish a limited liability company (společnost s ručením omezeným) in the Czech Republic

In an earlier article, I wrote about the differences between a živnostenský list and a limited liability company or s.r.o. (společnost s ručením omezeným).

For those who are considering the latter option, here's a brief guide.

WHAT IS AN SRO?
An s.r.o. is company with basic start-up capital of at least 200,000 CZK and with no more than 50 shareholders. An s.r.o. can also have a single member, providing that member is the sole contributor of the start-up capital.

This sole member may be either an individual (natural person) or a legal entity. They may be the sole member of no more than three limited companies.

A limited company with a single owner cannot be the sole member of another s.r.o.

If the s.r.o has two or more shareholders, each must contribute at least 20,000 CZK, though more may be required to get the total to 200,000 CZK. Whatever the amount, the total must be in lots of at least 1,000 CZK.

Foreign shareholders can contribute in foreign capital providing the amount fulfills the above criteria.

Contributions can be non-monetary -- in the form of property or equipment, for instance -- but the partnership agreement or a written statement must detail specifically what this non-monetary contribution is and make allowances for increasing the member’s contribution and the amount they amount they must pay, if required. The value of this non-monetary contribution must be appraised by a third party expert.

EXECUTIVE OFFICE AND STATUTORY ORGANS
At least one member must act as the executive (jednatel). The executive is the statutory body of the company. They have the right to act on the company's behalf but are also legally responsible for the company's business management, bookkeeping and obligations to the authorities.

One main duty of the executive is to convene an annual general meeting (AGM) which is the company's highest decision-making body. The AGM is responsible for appointing or recalling the chief executive officer, changing the company's statutes, and approving the company's financial statements.

The statutory body can also comprise more executives. In this case each has full representation and responsibility unless agreed otherwise.

ESTABLISHING AN SRO
Though Czech commercial law is significantly more relaxed than in the past, a considerable amount of red tape still exists.

The first document you will need is an Establishment Memorandum or, if you have more than one shareholder, a Memorandum of Association. Either memorandum should include the following information, where applicable:

• The company's business name and registered office; the company name can't already be in use

• The shareholders' names and the addresses of either their registered offices or their residences

• The company's main business activity

• The address of the company's headquarters

• The total amount of registered capital, the value of the contribution to be paid by each shareholder, whether this contribution is monetary or non-monetary; each shareholder must deposit at least 30 percent of their contribution when the company is established and at least 50 percent of the company's total registered capital must be deposited at this time

• The jenatel's or jednatels' name(s), their residential address(es), and the capacity in which they work for the company

• The appointment of an officer to record the financial contributions made by members to the company's registered capital

• The members' rights and duties

• Guidelines on how to wind up the company without a legal successor, and how to liquidate it

• Guidelines for shareholders to transfer their business shares

Along with the memorandum and the start-up capital, the shareholders will also have to do the following:

• Get a copy of the jednatel's Czech criminal record (rejstřík trestů) and that of any country where they have lived for three months or more in the past three years; these must be clean, of course

• Get written confirmation from the Czech authorities that the shareholders have no outstanding tax bills

• Open a bank account in the Czech Republic

• Get a živnostenský list (trade license) for the business activity the company intends to pursue

• Register the company with the Obchodní rejstřík (Business Register) at a cost of 5,000 CZK

• Register the company with the health, social security, and tax offices; you must register with the tax office within 30 days of establishing your company

LIABILITY
An s.r.o. offers its owner(s) less protection than a limited liability company in the USA or UK. Since the law was changed in 2001, shareholders can now be liable for a portion of all company debts.

INCENTIVES
The Czech government has introduced a number of schemes to encourage business. These include:

• Ten years' full corporate-tax relief for manufacturers

• A state contribution of 50 percent of costs for new technology and business investments

• Grants for job creation and training

USEFUL VOCABULARY
CZECH PRONUNCIATION ENGLISH
Sídlo SEED-lo Seat (Registered Office)
Jmění YMYE-nyee Capital
Ručení ROOCH-enee Liability
Valná hromada VAL-nar HROM-a-da Annual General Meeting
Dozorčí rada DOZ-or-chee RA-da Supervisory Board
Výše VEE-sheh Amount


• This article is for information purposes only; for further assistance, Prague TV recommends contacting a company formation specialist

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