Czech Republic - League of Lawyers

Capital: Prague
Largest city: Prague
Official Language: Czech
Government: Unitary parliamentary constitutional republic
Area: 78,866 km2
Population: 10.7 million
Currency: Czech Koruna (CZK)
GDP total: CZK9.056 trillion (USD432 billion)
GDP per capita: CZK850,825.97 (USD40,585)
Time zone: UTC+1/+2
Calling code: +420
Internet TLD: .cz
[Source: Wikipedia]

No. of companies in total: 527,367 as at 31 December 2020
[Source: Czech Statistical Office]

Principal Legislation governing Companies

Czech laws (mainly the Act on Business Corporation)
EU Directives

Q&A on Company Law

What are the different kinds of legal entities available in the Czech Republic?
The Czech Republic offers a wide range of legal entities – from business companies and investment funds to foundations, cooperative societies, registered clubs and many more.
By far the most common are business companies – mainly a private limited company (abbreviated “SRO”) and a joint-stock company (abbreviated “AS”). These entities provide wide flexibility. Founders have options relating to structure, issued securities, governing bodies, etc.
What are the laws and regulations governing legal companies in the Czech Republic?
First, there is the Czech Act on Business Corporations. It governs the incorporation and existence of all business companies and cooperative societies.
The Czech Republic is an EU member. Thus, secondly, there are EU regulations relating to company law, e.g. on exchange-listed companies, investment funds, publicity or protection of personal data.
What are the procedures and requirements for incorporating or registering a company in the Czech Republic?
1. Choosing the right type of business company and structure
2. Signing a respective notarial deed
3. Directors – declarations and excerpts from the criminal register
4. Optional – agreement with a company’s seat provider
5. Bank account, paying up the registered share capital
6. Getting a standard business license (or any other business license)
7. Registration of the company in the public registry of companies
What are the reporting requirements for companies in the Czech Republic?
Publicly available – annual accounts
Limited availability (banks, state bodies) – ultimate beneficial owner
VAT payers file control reports to the Tax Office/Custom House on a monthly basis.
Regulated companies – exchange traded companies, financial sector companies – are subject to broader reporting requirements.
What are the procedures and requirements for foreigners and/or foreign companies to establish a company or business in the Czech Republic?
Nearly anyone can set up a company in the Czech Republic. No prior approval is needed.
What are some of the challenges that foreign companies should take into consideration prior to entering an industry or market in the Czech Republic?
Company law in the Czech Republic are fairly standard. However, some specifics that may be surprising to foreigners are:
- General information on all companies, their directors and annual accounts are publicly visible to anyone for free
- The courts are relatively slow and it takes some time to enforce the law
- EU regulations increase pressure for transparency and sustainability
What are the duties, responsibilities and liabilities of directors in the Czech Republic?
Duties of directors – mainly a duty of diligent care and duty of loyalty to the company itself
Liability of directors – directors will be liable to the company itself from a breach of director’s duty, which when enforced by courts will give rise to an obligation to pay damages and interest
What are the requirements or criteria to be satisfied for an individual to qualify as a director of a company?
You should:
- be over 18 years of age, full legal capacity
- have a clean criminal register
- not be subject to insolvency proceedings
- agree to become a director
What are the requirements or criteria to be satisfied for an individual or a legal entity to qualify and be a shareholder of a company in the Czech Republic?
There are no specific requirements. Practically anyone can become a shareholder.
How are shares in a company allotted and/or offered in the Czech Republic?
Most companies are closely held – their shares are held by the founders.
The public offer of securities is subject to EU Prospectus Regulation. Generally, bigger initial public offerings (IPOs) require a prospectus (detailed information document) to be approved and published.
What are the corporate governance practices in the Czech Republic?
The interests of shareholders are protected directly by law (the Act on Business Corporations).
There are also voluntary codes of corporate governance – regarding sustainability, ethical principles, etc.
Most companies in the Czech Republic are closely held (shareholders and directors are the same persons) and do not follow voluntary codes of corporate governance.
Who are the regulators for corporate governance in the Czech Republic?
The general rules and principles on corporate governance are contained in laws and are enforced by the courts.
Lately, corporate governance in the Czech Republic has been strongly shaped by EU regulations, e.g. on sustainability, non-discrimination or whistleblowing.
What are the taxes which apply to companies in the Czech Republic?
Corporate income tax is 19%.
Individual income tax is 15% (on dividends). Income from the sale of shares in a company is usually tax exempt after a 3-year holding period.
Are companies in the Czech Republic subject to competition laws and regulations in the Czech Republic?
Yes, competition rules exist in both the Czech Republic and EU.
General rules: no cartels, no abuse of dominant position – unless sanctioned by the state.
Fair competition: no deceptive advertising, no breach of trade secrets, etc. – damages may be claimed by the injured company.
What are the data privacy laws in the Czech Republic that companies should be aware of?
GDPR (General Data Protection Regulation by the EU) applies to companies in the Czech Republic.
What are the company insolvency laws and regulations in the Czech Republic?
Insolvency laws are partially regulated by the EU.
The general objectives are to protect creditors and save jobs.
Insolvency may be announced by the directors or creditors. Important decisions are issued by the courts. Day-to-day management is taken over by the insolvency administrator (chosen by creditors).
Insolvency proceedings usually lead to the sale of the company’s assets or restructuring.
Have there been any recent reforms or regulatory changes pertaining to company law in the Czech Republic?
The Act on Business Corporations came into effect in 2014 and is consistent with previous laws. Overall, the companies and their management have become more flexible as a result of the Act.
What are the main changes to company law in the Czech Republic that differ from company laws in other European countries?
Czech laws on companies are comparable to any other EU state.
In light of the Covid-19 pandemic and various governmental movement control orders in the Czech Republic, has the Czech government implemented changes or temporary orders to assist companies to cope with financial constraints?
Yes, the government provides various economic incentives to companies in response to the Covid-19 pandemic.

ABOUT THE AUTHORS

Veronika Civínová
Lawyer, KLB Legal

Veronika graduated from the Faculty of Law, Charles University and also took the opportunity to study for a year at Sutherland School of Law, University College Dublin. She started her law practice in an international investment bank in 2012 and joined KLB Legal in 2015. Veronika focuses on financial markets and both their Czech and European regulation. On a long-term basis, she cooperates with leading Czech financial institutions. Furthermore, she is active in the area of issuing securities, including working on IPOs or prospectus and matters related to investment funds. Last but not least, she acts as a mentor in the area of compliance and money laundering prevention and is focused on FinTech and innovations in financial services.

Ondřej Kučera
Junior Lawyer, KLB Legal

Ondřej graduated from the Faculty of Law, Charles University in 2020. During his university studies, Ondřej spent one year in Grenoble, France, where he got a Diploma in French Law. He also completed several internships, in particular at the Ministry of Finance of the Czech Republic and in an international law firm affiliated with a consulting company. He joined KLB Legal in September 2020. Ondřej focuses mainly on capital markets law, corporate law and European law. On a long-term basis, he is active in the field of issuing securities, including composing prospectus, setting up alternative investment funds, anti-money laundering policy or mergers and acquisitions.

ABOUT THE FIRM

Name: KLB Legal
Address: Letenská 121/8, Malá Strana, 110 00, Praha 1, Czech Republic
Telephone: +420 739 013 183
Email: info@klblegal.cz
Website address: www.klblegal.cz
Key contact: Veronika Civínová, Lawyer, civinova@klblegal.cz
Established: 2013
Number of lawyers: 11
Languages: Czech, English, German

Brief description:

KLB Legal was founded in 2013 by attorneys-at-law David Kuboň, Vojtěch Láska and Petr Budzinski. David and Vojtěch have gained many years of experience working for international law firms and leading Czech investment banks; Petr was a top litigation attorney with experience in restructuring troubled companies. Since then, KLB Legal has grown into a medium-sized law firm providing comprehensive legal advice in all areas of law. In terms of the law of capital markets, compliance, securities, structured financing, investment funds, damages and class dispute settlement, we undoubtedly rank among the few top lawyers with such specialization and unique know-how in the Czech Republic.

Key practice areas:

Financial law, Capital Markets law, Corporate law, Damages, Injury Compensation, Litigations, General Civil law, Class Dispute Settlement, Insolvency law.