LLC Formation

Step-by-step procedure for setting up an LLC

Forget all the articles about how much bureaucracy, queuing, and fees await you. Their authors compete to create a heavy impression that there is no other way. Do not be discouraged. Today, you can establish a company within a single day, from one place, and with minimal expenses. Even online from the comfort of your home or from a seaside vacation.

The fastest and cheapest LLC formation directly at the Notary Chamber of the Czech Republic

Do not look for any complexity behind it; we will try to explain everything with a minimum of technical terms, without Latin phrases or citations of legal sections. After all, we do not need to introduce these procedures to professionals in the field, lawyers, or sellers of ready-made companies. They have known and used them for a long time. It would be beneficial for everyone considering founding their own company to have this information as well and be able to make a decision based on it.

A limited liability company (s.r.o.) is currently the most popular way of doing business in the Czech Republic. The reason is primarily the fact that LLC shareholders are not liable for obligations with their personal property to the full extent, like self-employed persons, but are liable only up to the amount of unpaid contributions.

Those who have decided to have their own company often search extensively through various sources for information on what steps are needed for company formation, how much it costs, and how long it takes. In reality, you can make the situation easier for yourself – just schedule a meeting with a notary! You can often become a proud owner of an LLC in just a few hours. And we are not talking about pre-established “off-the-shelf” companies that someone else has already founded before you and you become their second owner. Within a few hours, you can establish a completely new company with an absolute guarantee of a clear (zero) history, which is yours and yours alone from the beginning.

Source: Freepik.com

Step-by-step procedure for setting up an LLC

Establishing an LLC with a notary is currently the fastest, safest, and easiest way to bring your dream company to life. The entire process can be summarized into a few simple steps that the notary will help you with. At the beginning of everything is a consultation and advice on the options for setting up a company. Every founder has different ideas and needs that their company should fulfill.

In common cases where the founder has no special requirements for the new company, a registered capital of up to CZK 20,000 is sufficient, and they do not yet need a trade license, the following steps await them:

• Preparation of related documentation and obtaining extracts
• Drafting the deed of association (or memorandum of association)
• Registration of the company in the Commercial Register

And all the mentioned steps for company formation can be handled at a notary. Founders often ask if they must open a bank account and deposit the registered capital into it when establishing a company. They do not. Therefore, do not look for this point in the list. During the consultation with the notary, the founder agrees on the amount of registered capital. Simply put, if the money invested in the company upon formation does not exceed CZK 20,000 in total, you can handle its payment differently. For example, on the spot at the notary’s office to the hands of the contribution administrator. You can resolve this step of company formation directly with the notary in their office.

Another common question is whether it is necessary to visit the Trade Licensing Office and obtain a business license when setting up a company. This is also not strictly necessary. Those who only need to establish a company (sometimes referred to as having an ID number) but will not be doing business for some time do not have to arrange a trade license immediately upon formation. Or they do not plan to do business with the company at all, and the company will serve, for example, for asset management. If this is your case, that is great; the company formation will be faster, and this step is eliminated for you. And if you need to arrange a trade license during the formation, the notary can also help you with this filing.

In contrast to common cases, a number of more complex questions sometimes arise during company formation. Did you know that you can have special types of shares in the company, registered capital without an upper limit, do business in any field for which you meet the set conditions, hold a general meeting via videoconference, and have each shareholder from a different country?

When creating your company, you have many options that we definitely recommend discussing with a notary. This is mainly because each specific detail can affect the duration of the formation process and the total costs, which no one can estimate in advance in these cases. If you have shareholders from other countries, documents requiring a higher form of authentication, if you are a politically exposed person, or if you plan to do business in an area where many conditions must be met, it is good to start preparing for the company formation earlier. Do not believe miraculous promises from advertising flyers and websites too much. It is better to consult in advance with the notary with whom you will be handling the company formation. The phrase: “But a lady on the internet said…” will not replace a missing document.

Preparation

If you decide to establish a company, it is necessary to clarify several basic things:

1. What will the company be named? What will the name be (technically – what will be the business name). The business name must not be interchangeable with another business name and must not be misleading. Read about how to choose a business name.
2. Where will the registered office of the company be located? The registered office can be located in your own property, or you can request written consent from the property owner with a notarized signature. In the case of so-called virtual offices, we recommend weighing the pros and cons.
3. What will be the registered capital of the company? For a single-member LLC, the registered capital can be as low as CZK 1. Here, it is necessary to think about what the company will do and how a low registered capital might affect potential customers and business partners. It should be noted here that with registered capital up to and including CZK 20,000, it is not necessary to open a special bank account for depositing the registered capital.
4. What will be the shares of the partners? It is necessary to determine the shares of the partners. This is possible either by a fraction or a percentage. It remains at the discretion and agreement of the partners how to set the shares – whether one of the partners will keep a controlling interest or they will share equally.
5. What will be the company’s objects of business? You can choose from fields of activity belonging to free trades, regulated trades, or licensed trades. Their list is an annex to the Trade Licensing Act. It is also possible to do business in fields that are not trades and are subject to a special regime. If the company does not want to do business (to make a profit), the object of activity is specified instead of the object of business.
6. Who will be the executive and how will they act for the company? The executive is the statutory body of the company, bearing all responsibility for the company’s operations. If there are multiple executives, it is necessary to specify the manner of their acting for the company. Executives can act jointly or independently. It is also possible to specify in which matters they act independently and in which jointly. Similarly, joint or independent action can be linked to the financial amount of the transaction it concerns. The executive must meet the conditions for holding office and grant consent to their registration in the Commercial Register (an affidavit with a notarized signature serves this purpose – this can be done during the visit to the notary). Likewise, you can request an extract from the criminal record to prove integrity at the notary.
7. Who will be the contribution administrator before the company’s formation? The contribution administrator is the person who acts as an intermediary for the transfer of the founder’s contribution to the company. It is the person to whom the company founder entrusts their contribution to the registered capital before the company’s formation. After the company is formed (registered in the Commercial Register), the contribution administrator subsequently hands over the partners’ contributions to the company. In most cases, the contribution administrator is a partner or one of the partners. It can also be a bank or another third party. The contribution administrator must confirm the payment of contributions in writing.
8. Will you make special adjustments to rights? Partners can arrange special rights beyond the common requirements of the founding legal act. These most often include a right of first refusal for another partner’s share, higher decision-making majorities at the general meeting, etc. The principle here is: “What is not forbidden is allowed.”

Documents necessary for LLC formation

The advantage of establishing an LLC with a notary is, among other things, the fact that you basically only need to bring your ID card and the consent of the owner of the property where you want to have the registered office to the meeting (of course, if the company will be based in a property you own directly, you can resolve the consent with the notary during the meeting). If you want to do business in a field that requires specific qualifications, experience, or a guarantee from another person, it is also necessary to submit the relevant document proving fulfillment of this requirement.

Otherwise, you don’t need anything else – the notary will take care of everything else for you. From the common documents, they will help you with an extract from the criminal record, an extract from the land registry, an affidavit for persons in company bodies, a statement from the contribution administrator, consent to the placement of the registered office, and an application for registration in the Commercial Register or a proposal for the court (should you choose this significantly more expensive and time-consuming option). In special cases, they will prepare powers of attorney, consent to use a person’s name in the name of a legal entity, or other documents that may be necessary in your case.

It only depends on your agreement with the notary which range of documents you will need prepared and which you will obtain yourself.

Choosing an LLC name

Although it might seem that there are no limits to imagination when choosing a name for a new LLC, it is a bit more complicated. Is a catchy and original name an advantage, or does it pay off if it reflects the object or area of business at least to some extent? Can I use another person’s name, the name of a city, or my internet domain? The answer to the question regarding the name of a new company combines elements of law with elements of marketing. Given how many companies already operate in the Czech Republic, always make sure during preparation that the name you have chosen has not already been thought of and used by someone before you.

The notary will then also verify whether the new name is not similar to the name of an existing company (to avoid confusion) or whether it is not misleading.

The company’s business name must also include the designation “společnost s ručením omezeným,” or the abbreviation “s.r.o.” or “spol. s r. o.” We could pause to consider whether the individual letters in the abbreviation should be separated by a space and the entire abbreviation then separated from the company name by a comma (for example, Řeznictví Málek, s. r. o.), but again, this would be a consideration of the wording of the law, register entries, the custom of such use, and the practicality of the abbreviation and omitting the comma. After all, “založení firmy” (setting up a firm) is also a widely used term, even though it should correctly be “založení společnosti” (setting up a company), and you will encounter it in many articles. If you have any doubts regarding the company name, do not hesitate to ask a notary; you will surely find a suitable solution that complies with the law, case law, and the marketing side of things.

Deed of association versus memorandum of association

The most important step preceding the formation of a limited liability company is the drafting of the deed of association or memorandum of association. How do they differ? The former is intended for an LLC with a single shareholder, while the memorandum of association handles the formation of an LLC with multiple shareholders. Both documents, however, share the fact that it is legally required to draft them with a notary and that they must contain several mandatory details. Simply put, these include in particular:

• company name
• address of the registered office of the new LLC
• names and addresses of shareholders and executives
• object of business
• amount of registered capital and the contribution of each shareholder
• designation of the contribution administrator

A notary will, of course, guide you through these and other steps necessary for drafting the memorandum of association/deed of association. During the company’s existence, you can change the founding document, but it is always good to set up the company’s functioning from the beginning so that as few changes as possible are needed. And in such matters, you can hardly rely on a “template from the internet.”

The drafting of the founding document can also be carried out with a notary electronically and remotely. The condition is an e-identity (or bank identity) and a guaranteed electronic signature.

If the founding document contains only the legally required elements (so-called simple LLC or 100-euro LLC), such a company is exempt from the court fee for registration in the Commercial Register. Your notary will discuss the pros and cons of such a founding document with you.

Registered capital

If necessary, the contribution administrator must open a current account at a selected bank for depositing the registered capital. This is formed by the contributions of all shareholders, who thus document their participation in the newly formed corporation. The funds deposited into this account can be used to pay expenses related to the formation of the LLC. Usually, however, shareholders leave them in the bank until the company is registered in the Commercial Register.

While until 2014 the amount of registered capital for an LLC was set at at least CZK 200,000, currently the minimum registered capital is CZK 1 (if there is one shareholder in the company), otherwise at least as many crowns as there are shareholders in the company. Thus, anyone can really establish a limited liability company. Some are concerned that too low a registered capital may seem untrustworthy to future business partners, so they prefer to choose a round amount – CZK 10,000, or even better, a well-divisible amount – CZK 12,000.

As soon as you deposit the registered capital into the account, the bank will issue a confirmation of the deposit of funds. You then bring this document to the notary again.

Trade licenses for LLC formation

Another thing you need for establishing a limited liability company is a trade license, which you can obtain at the Trade Licensing Office or you can use electronic filing. If you plan to do business under a free trade, you do not have to meet any special conditions (except for being of legal age and having integrity) and you can often take the “trade certificate” away within a few minutes, usually the next business day. If you want to operate one of the regulated or craft trades, you will have to prepare documents proving your professional competence for the issuance of the license. A special category consists of licensed trades, for which you must obtain the relevant concession. Often, a notary can help you directly, eliminating the need to visit the relevant office. In some specific cases, it will not be a trade, and in such cases, licenses are issued by other bodies (Mining Authority, Czech National Bank).

A trade license is essential for registering the company in the Commercial Register (unless it is one of the few legal exceptions). If another license or decision of a public authority is needed for business, it must be requested (e.g., a decision on permission to provide health services).

Registration of a new firm in the Commercial Register

Registration in the Commercial Register can be carried out through the notary who drafted the founding document (so-called direct registration) or by filing on a prescribed form at the relevant registry court. However, the court fee for registering a limited liability company is CZK 6,000 at the court, while for direct registration by a notary, it is only CZK 2,700. Alternatively, the registration is exempt from the fee if it is a so-called simple LLC.

The notary will thus easily and more cheaply take care of the last, most important step – registering your emerging limited liability company in the Commercial Register. You no longer have to worry about anything; the notary will attach all necessary documents and perform the registration via remote access. Those in a great hurry can arrange with the notary in advance to set aside time and register the company practically immediately after the documents are delivered. Your company has just been formed!

After the company’s formation

The company is formed as soon as it is registered in the Commercial Register. In the next step, it is necessary to register the company for corporate income tax at the tax office. The company’s executive will also receive login details for the company’s data box by registered letter.

How long it takes to set up an LLC?

If you were horrified by various deadlines in the range of several weeks or months appearing on the internet while finding information about LLC formation, then know that the reality is much more optimistic.

The answer can again be divided into simpler (common) cases without significant peculiarities, where you can establish a company during a single meeting with a notary, and then we are not talking about days, but hours.

In slightly more complex cases, you can manage the drafting of the memorandum of association/deed of association, a visit to the bank to deposit the registered capital, arranging a trade license, and a return visit to the notary within one to three days. Since the notary can register the company in the Commercial Register themselves and without any delay, you can basically take an extract from it immediately.

On the other hand, there are also more demanding cases where the formation process takes several days. These are often cases related to the conduct of business for which fulfillment and documentation of multiple conditions are required.

What is a ready-made company

It is a company established in the past that is registered in the Commercial Register, has a name, registered office, ID number, and executive, and fully paid-up capital, but does not carry out any business activity and is thus ready for sale to a customer. However, read why buying a ready-made company is not as advantageous as it might seem in the article How to set up a ready-made.

Price for LLC formation

You also don’t have to fear high costs for establishing a limited liability company – that is, if you choose formation through a notary.

The price paid by the seller of an offered ready-made company is the same as the price you pay when you establish the company yourself, so why pay an intermediary?

Did you know that in the simplest variant, establishing a company can cost you between CZK 5,000 and 6,000? And that includes registration in the Commercial Register and VAT?

In more complex cases, be sure to consult with a notary regarding the amount of registered capital. It is one of the factors that affect the price. After considering all your specifics, they will clarify the price much better than discussion forums.

LLC formation online

Now you know how to set up a company step by step. Today, you can establish a limited liability company very quickly and conveniently online.

A remote notarial deed is a type of notarial deed that a notary can draft with a participant without them having to physically meet in one place (whether at the client’s or in the notary’s office). Setting up a limited liability company “online” is precisely such an act for which the drafting of a remote notarial deed was intended from the beginning. From the first contact to the payment for the services provided, everything can take place without the need to visit a notary’s office.

All familiar steps and proven procedures are transferred here to the electronic world and you can therefore carry them out, for example, from the comfort of your home. The meeting place with the notary will not be their office, but a virtual space “meeting room,” and a classic signature will be replaced by an electronic signature. Payment through a payment gateway is a matter of course.

So how to proceed?

1. Open the page with the address https://www.nkcr.cz/sro-online-informace
   It will be appropriate to prepare basic information about the company you want to establish and about the persons of future shareholders and executives. If you have a valid electronic signature (recognized or qualified), you can use it in the process of drafting the deed.
2. Log in using bank identity or Citizen Identity
   These options include a wide range of login methods. Within the Citizen Identity, it is also expected that a remote notarial deed can be drafted by citizens from other EU countries (electronic identification means assurance level “high”).
3. Confirm your contact details
   This is just the first name, last name, email, and phone.
4. Next is the selection of a notary and language choice
   You can choose your notary. If you do not require a specific notary, the system can assign one to you from those who are currently online. You can specify from which region you want to choose a notary, or choose a language preference.
5. Fill in the basic details about the requested company into the form
   This includes the name, registered office, object of business, executive, manner of acting, and shareholders, for whom you can add the amount of their contribution and share in the company. You can supplement or change everything additionally. The application will allow the notary to check these details and resolve any discrepancies with you. Help is also available.
6. Consent to provide data
   The application will connect you with the specific notary you have chosen or call several notaries who meet the specified criteria. Before establishing a connection, you grant consent so that the notary can see your data.
7. Preparation and signing of documents
   You will enter a virtual meeting room (videoconference) with the notary, where you can exchange documents, consult their content, and sign them. Based on these, the notary will then register the company in the register.
   Currently, it is essential that you have your own (previously issued) electronic signature; otherwise, it will not be possible to sign the remote notarial deed.
   In pilot operation since March 2022, the possibility of issuing a qualified certificate directly by a notary is now launched, if you do not have one, in the process of online company formation. This option is available only at selected notaries.
8. Payment
   Payment is handled by a payment gateway that offers standard payment methods commonly used when shopping and paying in online stores. More detailed information on online payments here.