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Company Formation in Czech Republic

Czech Republic

Company Formation in Czech Republic

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Czech Republic Company Formation

So you've decided to start a business in The Czech Republic and researched your market. Now it's time to decide how you will register or start a business in Czech Republic. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

Here are your typical options when starting a business into The Czech Republic:

Joint-Stock Company

This type of company exists independently of its shareholders, who are not liable for any debts that might occur on the business. There is a board of directors and a supervisory board that is elected. A joint-stock company must have a minimum registered capital of CZK 2 million however if it is established by a public offering of shares the minimum registered capital is CZK 20 million. The registered capital and all in-kind contributions must be recorded in the Commercial Register, Articles of Association must be prepared and a trade licence must be obtained from the Trade Licensing office.

Limited Liability Company

Incorporating a business as a LLC creates a company existing independently of the shareholders. They are not liable for any debts on the business should any occur. Once an executive is appointed, it is responsible for the management of the company. In the Commercial Register there must be a list of the shareholders and their contribution, names and addresses of the Supervisory board, the amount of registered capital (minimum CZK 200,000), each shareholders contribution (minimum CZK 20,000).

General Commercial Partnership

This type of company is set up by two or more people. All partners are entitled to act on behalf of the partnership and assume unlimited liability should any debts occur on the business. All partners names and addresses, and their registered office must be recorded in the Commercial Register.

Limited Partnership

This type is a limited partnership which is set up by two or more people. One partner, an active partner, is responsible for the running of the business and has unlimited liability. The sleeping partner is not responsible for the running and has limited liability. The entry in the Commercial Register must include the partners names, addresses and registered office. It must have who is the active and who is the sleeping partner and who has limited/unlimited liability.

Co-operatives (Druzstvo)

A co-op is formed by a minimum of 5 or more members to undertake a business for the economic or social benefit of its members. The amount of registered capital (minimum CZK 50,000) and the amount of each members basic investment must be entered in the Commercial Register. Members are not liable for the debts on the business should any occur.

Branch Offices

This means that a foreign company can open and operate a branch in the Czech Republic. They must be registered in the Commercial Register and must include details of the foreign parent entity, branch location, the scope of the business activities and names and address of the branch managers. It is important to obtain a license from the Trade Licensing office. The branch office does not have limited liability and are required to maintain double entry accounting records prepared in Czech.

Licensing

Licensing a business in the Czech Republic is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

  • Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

  • Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

  • Patent License - The allowance of another party to use your patented product, design or process.

  • Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising in the Czech Republic

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of franchising your business in The Czech Republic include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in The Czech Republic: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

It is quite straightforward to start up a franchise in the Czech Republic and they follow EU regulations. In the Czech Republic there is the Czech Franchise Association (CAF) who are members of the European Franchise Federation.

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