Czech law enables foreigners to conduct trade activities under the same conditions and to the same extent as Czech entrepreneurs. Foreigners may become founders or co-founders of a company, or may join an existing Czech company. There is no upper limit on foreign investment.
Foreigners with business operations abroad may also run trade activities in the Czech Republic (CR) provided they own an enterprise or branch office in the CR.
Since April 1991, no formal approval is required from the Czech Ministry of Finance for foreign investment except when made through a large privatisation programme or when involving the banking/financial and defence sectors.
The Czech Commercial Code provides the following options for trade activities in the CR:
- limited liability company;
- joint stock company;
- various types of partnerships (i.e. limited, general commercial - unlimited, silent); and
- branch office of a foreign company.
The most common types are limited liability companies and joint stock companies.
LIMITED LIABILITY COMPANY
A limited liability company is a company the capital whereof is made up of previously determined investments of its partners. The company may be founded by a single person. The company shall be liable for a breach of its obligations with all its assets. The minimum capital of the company shall have the value of 100,000CZK (about USD3,450). If non-monetary investments are to be contributed, the articles of incorporation shall state the object of such investments, the method of its appraisal in monetary terms, and the sum credited to the partner's investment.
The deed of foundation shall include:
(in case of one partner the deed of foundation must be obligatorily worked out by the notary office)
- the commercial name and the seat of the company
- specification of the partners, including the seat of legal person (in case of the foreign legal person it is necessary to present the extract of the Commercial Register of the country or of the town where the company was established)
- the object of business activity (based on the business licence given by the Business Licensing Office to the responsible representative - a person with residence permit in the Czech Republic)
- the amount of capital and investment contributed by each partner, and in the case of non-monetary investments also their property
- the names and places of residence of the initial executives (statutory body) of the company and the manner whereby they act on behalf of the company (statutory body) and if not Czech a citizen, shall be required to present a document permitting such person to reside in the Czech Republic.
When the company is established by a single founder, it may be entered in the Commercial Register only when its capital has been paid up in full. At least 30% of each partner's financial contribution, totalling at least
50,000 CZK (US$1,725), must be paid on foundation. The application for entry of the company in the Commercial Register shall be signed by all the executives.
Reserve fund: Specifications to be outlined in the partnership deed. Must be supplemented annually with at least 5% of the company's net profits (10% in the first year the company makes a profit) until a level specified in the partnership deed (which must be at least 10% of the basic capital) is reached.
JOINT STOCK COMPANY
A joint stock company is the corporate form covered by the Commercial Code in the greatest detail.
A shareholder is not liable for the company's obligations. A joint stock company is founded by a founding contract and must have its bylaws which form a part of the founding contract. If a single legal person founds a joint stock company, it does so by a founding charter.
Capital stock may not be less than CZK 1,000,000 (39 000 USD). At least 30% of the amount to be subscribed for in cash must be paid upon incorporation.
Structure of the company: the company has a board of directors, which is elected by a general meeting of share holders and has not less than three members. The company must also have a board of supervisors and under its bylaws it may be the board of supervisors which can also appoint the board of directors. The board of supervisors, too, must have at least three members. If the company has more than fifty employees, at least one third of members of the board of supervisors must be elected by the employees. The board of supervisors may include more representatives of the company's employees, but their number may not exceed half of the board's total membership. The board of directors is the company's statutory body and decides on all matters which are not reserved for decision by the general meeting. Under the bylaws not all members of the board of directors may act on behalf of the company.
A foreign natural person entered in the Commercial Register as a person authorised to act on behalf of the respective entrepreneur must have a residence permit.
Employee shares may be issued only to the extent where their unpaid-up nominal value does not exceed 5 per cent of the capital stock. They may be transferred only between the company's employees and retired workers. Preference shares are defined rather briefly, only as shares to which relate preferences regarding divided payment. The total nominal value of preference shares may not exceed half of the capital stock.
A joint stock company may also issue bonds up to half of its stock capital. The Commercial Code moreover provides for increase and reduction of the capital stock.
BRANCH OFFICE OF A FOREIGN COMPANY
Foundation: Czech law requires that branch offices fully list their planned activities in their application for entry in the Commercial Register as they are only allowed to engage in those activities listed in their entry. A director, who may be either a Czech national or a foreigner with a valid Czech residency permit, must be appointed to head the branch office. All laws under which the branch's parent entity was founded also apply to the branch's internal dealings.
THE COMMERCIAL REGISTER
Under the new Commercial Code, all enterprises in the CR, including representative offices, must be registered in the Commercial Register.
The Commercial Register is a public list kept by regional commercial court
To be included in the list, business entities or individual entrepreneurs must submit a petition to the court whose jurisdiction covers the entity's seat or the individual's address. The petition must contain officially authenticated signatures of all founding partners, and must be accompanied by:
- a trade certificate and/or trade license;
- the entity's founding document (with officially verified signatures) or a similarly verified document establishing the foreign entity's branch office in the CR;
- confirmation that the initial capital has been deposited with a Czech bank;
- a lease or contract for the business' premises;
- approval of the entity's location from the local authorities; and
- foreigners must also obtain a residency permit authorising residency in the CR in the case that they are the statutory body of the company.
All documents must be either originals or officially verified copies, and are not returnable.
Under the Trades Licensing Act, specified applicants for entry in the Commercial Register must also prove possession of an effective trade authorisation (certificate or license) obtained from the Trades Licensing Office appropriate to the seat of the joint venture or branch office.
Impact of the amendments to the Trades Licensing Act No. 455/1991 Coll. of 1 November 1995
A) Major changes in the new amendments
1) Legal entity on foreign companies operating in the Czech Republic:
(limited liability company, joint stock company)
- if the Responsible Representative is not a Czech citizen (he has a residential permit) he has to prove the fluency of Czech language till the end of 1996 or
- the statutory body of the company can decide to change the Responsible Representative to someone else who fulfils general as well as special conditions stated by the Trades Licensing Act for the Responsible Representative.
2) Branch office registered in the Czech Republic
The same situation as above.
3) The company is not registered in the Czech Republic.
For such cases the Trades Licensing Act and its amendments are not applicable.
B) Besides this there are some other changes:
1) If a foreign company wants to start a new activity in the CR it needs a new Trade Licence - Trade Authorisation according to the new amendments.
The Responsible Representative must declare that he agrees with the function of the Responsible Representative and that he will undertake all duties stated by the Trades Licensing Act.
2) In case, the statutory body of the legal entity and the Responsible Representative are to be the same person, the legal entity doesn't nominated the Responsible Representative and the statutory body of the company fulfils the duties of the Responsible Representative, i.e. Responsible Representative = statutory body under the same conditions stated by the Trades Licensing Act as the Responsible Representative.
The General Conditions which must be met by individuals for Carrying on a Trade (by the Responsible Representative) are:
- a) a minimum age of 18 years
- b) legal competence
- c) unimpeachable of character
Unimpeachability of character must be proved by a foreign natural person to the Trades Licensing Office by the submission of relevant documents issued by the state of which the natural person is a citizen, as well as by states in which he stayed long-term (i.e. for over 3 months without interruption in the previous 3 years.
Specific Conditions for Carrying on a Trade
Professional or other qualifications constitute by specific requirements for carrying on a trade.
WORK AND RESIDENCY PERMITS
All foreigners employed in the CR must obtain a work permit, issued by the appropriate Labour Bureau. Applicants must submit an application with a statement from their employer.
Foreigners employed in the CR must also obtain either short-term, long-term, or permanent-stay residency permits. Short-term permits are issued for the period stipulated by the foreigner's visa, or for a period of up to 183 days. Long-term permits, issued for periods of one year, may be extended on request for periods of one year and require a notarised statement from the foreigner's landlord providing consent for tenancy. Permanent stay permits are granted for family unification, or other humanitarian or political reasons. Residency permits are granted by Czech diplomatic offices abroad or by the Czech Ministry of the Interior.
see Trades Licensing Act No. 455/1991 Coll. including amendments of 1 November 1995, Trade Links, December 1995
For further information contact CzechInvest at Politickych veznu 20, 112 49 Prague 1, Czech Republic Phone (42-2) 2422-1540 Fax: (42-2) 2422-1804
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