Company formation (s.r.o.) from 7,990 CZK

S.r.o. stands for společnost s ručením omezeným (limited liability company), which is the most widespread form of business in the Czech Republic. It is a legal entity that is, by law, a capital company.

Its advantages include greater credibility, liability limited to the company's assets, a tax liability that only arises based on the company's actual profits (which tends to be more advantageous at higher profits or a high rate of reinvestment), and the option to build up your company's track record over time, or to trade under your own name. And in some cases, even lower contributions.

The company name is the name under which it's entered in the Commercial Register. The basic rule is that a business owner may not have more than one name for their company, and its name must not be confusable with the name of another company, nor may it be misleading.

The characteristics of a good company name include: brevity, being to the point, originality, ease of pronunciation, memorability and, ideally, good distinctiveness from existing companies (so that your customer doesn't get confused when looking for you and pick your competitor instead).

In principle, a name can be personal (e.g. Me & Son), descriptive (e.g. Me the Architect) or entirely made up (with no connection to the line of business). Before you form your company and have it registered, we recommend checking your chosen name in the Commercial Register or via a name checker, as well as in the trade mark register.

Share capital is part of an s.r.o.'s capital and represents the value of its owners' contributions to the newly forming company. These contributions to an s.r.o. can be either monetary (cash or money in a bank account) or non-monetary (valued movable or immovable assets).

The amount of share capital is governed by law, and the minimum contribution for an s.r.o. is 1 CZK per shareholder. If there's more than one owner, they agree the amount of share capital together in the memorandum of association and pay it in according to the size of their stake in the company. However, its value should be divisible, so that it reflects the structure of the shareholders and their stakes.

So why contribute more than the single crown, or the few crowns mentioned above? Simply because the new company draws on it for the money to cover all the expenses awaiting it in its first months of existence. We therefore recommend contributing enough share capital for business owners to cover their initial costs, before their new company starts earning.

Other arguments for contributing more capital definitely include the company's credibility – a minimum contribution or a lower amount may not seem all that serious to potential customers. Bear in mind, though, that share capital is only an accounting item, so once it's been paid in, the money doesn't need to be kept sitting visibly in the company's bank account at all times. What's more, a higher share capital will also make a better impression on a bank when applying for a loan.

With us, we pay in the company's share capital with the notary on your behalf, up to 20,000 CZK. So in practice you don't have to pay it in at all – up to that amount, it doesn't even need to be paid into a special bank account for that purpose. It's paid in by way of a declaration from the contribution administrator. If you'd like to pay in and declare a higher share capital, it needs to actually be paid into a bank account (which then needs to be opened in advance) – we can arrange this promptly too, though there's a fee for the service.

By law, a company needs to have a registered office. If you're just starting out in business and don't want to rent office space (e.g. you don't need it yet) or buy it outright, one option is to give your permanent address as the company's address (i.e. that of one of the managing directors). Of course this is possible, but if you're deciding based on price, a virtual office is definitely worth considering.

A virtual office, or rather its address, serves as both a billing and correspondence address, so various documents are sent there. Providers typically also offer administrative services such as forwarding or scanning post, among others. It depends on exactly what the company needs.

A virtual office can therefore help a start-up save both money and time. And if you choose a good address, it can also help create a better impression. Do watch out, though, as providers vary. So besides the price, it's a good idea to look at their track record, number of clients, minimum rental period, the add-on services on offer, and any items that carry an extra charge.

These are the 2 most important roles in an s.r.o. Their differing powers and roles, however, can raise a number of questions for those just starting out in business. Below is a brief summary of the essentials.

The managing director is, in practice, the company's manager. They represent the company, act in its name, sign contracts, hire employees, make decisions on financial operations, and may authorise other people to act on their behalf in dealings. They're responsible for keeping the company's accounts and other records. In short, they're fully responsible for running the company. A managing director must make all decisions with the care of a prudent manager – that is, steer the company towards prosperity, avoid knowingly harmful decisions, not enter into disadvantageous contracts, and so on. If they breach these duties, a managing director is liable with their entire personal assets.

A shareholder is the owner, or co-owner, of the company. They contribute a monetary or non-monetary contribution to it, the amount of which corresponds to their stake in the company. Unlike a managing director, they don't have powers such as signing contracts, hiring employees or making decisions on financial operations. They typically don't even have access to the company's bank account. At the general meeting (valná hromada), however, they're entitled to raise proposals and comments, and to vote on the most important matters affecting it, usually over a longer time horizon. Including, for instance, the election and removal of the managing director. The weight of their vote is directly proportional to their stake in the company. Based on the size of their stake, they're also entitled to a corresponding share of the company's profit.

You can find out more about the differences between a managing director and a shareholder in this article on our blog.

A trade licence refers to the designation of an activity that the company (or self-employed person) will carry out for the purpose of making a profit. The number of trades (fields) in which the company/self-employed person operates can be unlimited, however for a number of activities you must provide evidence of the relevant qualification, without which the relevant authority won't issue the trade licence.

Trade licences are divided into 4 categories: unqualified, craft, regulated and permitted (concession). Fields in the unqualified trade category don't require proof of qualification, while for regulated, craft and concession trades you must, in most cases, provide evidence of the relevant education and experience in the field. If you're not particularly sure about your choice, of course we're happy to help.