Forming an LLC Step by Step

Setting up a limited liability company (s.r.o., the Czech equivalent of an LLC) is faster and cheaper today than most people think. The key is doing things in the right order and not underestimating the documents that are hard to change later, especially the articles of association. Let’s go through the whole process in six steps, the way I usually work through it with clients.

An s.r.o. makes the most sense where you want to separate your personal assets from business risk, you are entering business with another partner, or business partners and banks expect a capital company rather than a sole trader. If you run the business alone and the risks are low, being a sole trader can be a simpler alternative. Before you decide, I recommend discussing both options, because switching from a sole trader to an s.r.o. later effectively means setting up a new company.

1. Choose a name and confirm a registered seat

The company name must not be confusable with that of another business, nor misleading (Section 424 of the Czech Civil Code). The Registry Court assesses confusability from the perspective of an average customer, so even a similarly sounding name in a different field of business can go through without issue. Before you decide, I recommend:

• ✓entering the proposed name in the search tool at justice.cz and checking for similar companies
• ✓checking that the name is not protected as a trademark
• ✓preparing at least two or three variants in case the notary or court rejects the first choice

You also need a registered seat, i.e. an address entered in the Commercial Register. If you are not based in your own property, you must submit the owner’s consent to placing the seat there. It is usually authenticated with an officially certified signature and accompanied by a current extract from the Land Registry, so the court can verify that the consent was really given by the owner.

The registered seat does not have to be the same as the place where you actually operate. If you do not yet have your own office, one solution is a so-called virtual office, an address provided by a specialized firm, which will also give you the owner’s consent in the required form. I do recommend checking whether dozens of other companies are already registered at the same address, as that can look suspicious to banks and business partners alike.

2. Sign the articles of association before a notary

The founding legal act of a capital company must take the form of a public deed, in practice a notarial deed (Section 8 of the Business Corporations Act). You cannot avoid a notary, even with a single shareholder. A notary can draw up a template (standard-form) articles of association faster and more cheaply, but it will not cover the specific situation of your company. Before you go to the notary, I recommend deciding on:

• ✓the size of each shareholder’s share and the ratio of voting rights
• ✓who will be the executive director, and whether there will be one or more
• ✓how the company will be represented: acting alone, or only jointly with another director
• ✓shareholders’ pre-emption rights when a share is transferred to a third party

In my experience, these are exactly the points that turn into disputes between shareholders a few years down the line. A later amendment to the articles of association requires the shareholders’ consent and a fresh notarial deed, so it is worth taking the time over it right at the start.

For the meeting with the notary, prepare the ID cards of all shareholders and future directors, a draft of the articles of association (if we have already discussed it together, I will bring it prepared), proof relating to the registered seat, and details of the amount and method of paying up the contribution. The notary will also issue the director’s affidavit and specimen signature on the spot.

3. Arrange a trade license

The application for registration in the Commercial Register must be accompanied by proof of the right to carry on business in the field you want to operate in. For notifiable trades (free, craft or qualified trades), a notification to the Trade Licensing Office is enough, and the license generally arises within a few days. For licensed trades, typically running a funeral service or road transport, you have to wait for the license to be issued by the authority, which extends the whole process.

A practical tip: the trade notification can be filed together with other registrations on a single form through the Trade Licensing Office, which serves as a central registration point. This saves you a trip to the tax office and the district social security administration. You also do not have to choose just one free trade, it is worth including fields of activity you only plan to enter in the future, since adding them later means a further filing and further waiting.

4. Decide on the amount of share capital

The statutory minimum is CZK 1 (Section 142 of the Business Corporations Act), and the contribution can differ between individual shares. Lower capital, however, tends to look less trustworthy to banks, suppliers and business partners in practice, and sometimes complicates things like getting a company card or a loan. Depending on the field and the company’s plans, I therefore usually recommend a contribution of at least CZK 10,000 to 50,000. A cash contribution must be paid into a special bank account or handed to the contribution administrator before the registration application is filed; a non-cash contribution, for example real estate, requires an expert valuation.

A common misconception among clients: higher share capital does not protect personal assets any more than the minimum capital does. Shareholders are not liable for the s.r.o.’s debts as long as they have properly paid up their contributions, regardless of whether that was CZK 1 or CZK 100,000. Higher capital matters more externally, for financing, tenders and credibility with business partners, not as protection against personal liability.

5. Register the company in the Commercial Register

The company only comes into existence on the day of registration in the Commercial Register, not on signing the articles of association. You essentially have two routes:

6. What to arrange right after the company is formed

Registration in the Commercial Register is not the end of the work. In the following days and weeks, several obligations await that are easy to overlook:

• ✓open a company bank account, the bank will want an extract from the Commercial Register and the director’s identification documents
• ✓register for corporate income tax at the locally relevant tax office within 15 days of registration (Section 39a of the Income Tax Act); filing is only possible through a data box
• ✓take over the access details to the data box, which the state sets up automatically and free of charge for a newly formed company
• ✓check the entry in the register of beneficial owners: for a simple ownership structure (one or a few individual shareholders), it is entered automatically from the register’s data, for a more complex structure a separate application must be filed

How much LLC formation costs and how long it takes

The total time from signing the articles of association to a functioning company with a bank account and tax registration is usually 1–3 weeks. Direct registration by a notary and notifiable trades keep the process at the lower end of this range, while an application to the Registry Court or a licensed trade push it towards the upper end.

Indicative costs for the mandatory fees run into a few thousand crowns: the notary’s fee for drawing up the articles of association starts at around CZK 2,000 excluding VAT for a template agreement, from CZK 4,000 excluding VAT for an individually drafted agreement, and rises with the scope and size of the contributions. On top of that comes the court fee for registration (CZK 0 for a template deed with a cash contribution registered by a notary, otherwise CZK 2,700 through a notary, or CZK 6,000 through the Registry Court), plus the fees for the trade notifications. If you want to be sure the agreement covers your specific situation and do not want to handle the paperwork yourself, my fee for handling the whole LLC formation starts from CZK 10,890, an indicative price depending on scope.

The most common mistake I see with clients is not the incorporation itself, but underestimating the articles of association or choosing the wrong method for directors to act on the company’s behalf. If you are not sure how to set up the shares, voting rights or pre-emption rights between shareholders, I recommend discussing it with a lawyer before you visit the notary. It will save you not just the cost of a later notarial deed of amendment, but above all the disputes that would otherwise arise once the shareholders stop agreeing.

Frequently asked questions about forming an LLC

Who will handle your case

Ing. Mgr. Tomáš Beneš

Attorney registered with the Czech Bar Association, based in Prague.

Law degree from Charles University. I focus on business law, real estate and employment disputes. I handle every case personally, no assistants.

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