LLC in Czech Republic

A business corporation in the Czech Republic means any company with limited liability. In case of a limited liability company, every partner contributes to such a company by participating in its authorized capital. In this case, the partners are liable for the company debts only up to the amount by which they have failed to fulfill the deposit obligations according to the status entered in the Commercial Register at the moment of calling them by the creditor.

Its registration is among the easiest comparing with other types of corporations. That is why such type of company can be exceptionally popular.

Rights and duties of a Member of the Management Board of S.R.O.

A Management Board Member is one of the most important positions in the company, hence he should be well aware of the rights and duties applicable to his post. Each and every limited liability company has to have a director inside. He is the statutory and executive body of the limited company. That means he represents the company externally, is responsible for its management, and acts on its behalf towards third parties.

It is the General Meeting that elects and appoints the Executive Director. As such, only a person of legal age, capable of performing legal acts, may be appointed. A limited liability company need not have a single director but may have more. Unlike the partners, the managing director or directors are registered in the commercial register.

The executive body can also be a legal entity, but an individual is empowered to act in his name whose name is recorded accordingly in the Commercial Register.

Because of the breadth of his authority, the Member of the Management Board is sometimes confused with the owner of the Czech company. In actual fact, in smaller companies, the manager and the owner are usually the same person, while in larger companies they are generally different persons.

Rights and obligations of the owner of the Czech Company s.r.o.

Each partner of a limited liability company has certain rights, but also has responsibilities under the law.

The right to participate in decision-making

One of the main rights of a partner is participation in decision-making in a limited liability company. In particular, this right includes the possibility to take part in general meetings, to vote on all important matters concerning the company, and the right to be elected to the company’s bodies.

The weight of a partner’s vote is decided by the size of his shareholding in the company. Hence, the more the share, the more influential the partner is in respect to the general meeting decision as compared to other partners with small shares.

In the framework of the duty of loyalty, there exists also a duty for the partners to actively co-operate in the activity of the company. They do this, for example, by attending and voting at general meetings or by obtaining the cooperation of other shareholders and the company itself.

Increase and decrease of SRO’s authorised capital

The major equity element is share capital, which is the sum of the shareholders’ respective contributions to the company. In general, the share capital remains fixed; however, specific circumstances give rise for share capital to be increased or reduced.

The authorized capital can be increased by cash contributions only after the cash contributions made so far have been fully paid up. An increase of the authorized capital with non-cash contributions is already permissible before such redemption. A shareholder has a preferential right to participate in the increase of the authorized capital, if it is increased by means of monetary contributions, by assuming the obligation to make a contribution. Shareholders may assume contribution obligations in proportion to the amount of their shares, unless otherwise established by an agreement of all shareholders.

The deposit commitment is accepted in writing, whereupon the signature must be certified in due official form, and the statement shall take effect when delivered at the company.

Raising of authorized capital by way of own contribution

The General Meeting may resolve that an increase of the share capital by way of own resources shown in the ordinary, extraordinary or interim financial statements, reflected in the equity of the company shall be carried out, unless such resources are earmarked and the company is not authorised to change their purpose. It shall not be possible to use net profit with a view to increasing the share capital based on the interim financial statements. The capital increase shall not exceed the difference between the amount of capital stock and the amount of share capital. Share capital may be increased solely from own funds if the part of the financial statements on the basis of which the general meeting decides on the increase has been audited by an auditor who has given an unqualified opinion. With a view to the increase in the authorised capital at the expense of own funds, the size of the shareholders’ contributions shall be changed due proportion to the preceding contributions unless the articles of association provide for an increase in the number of shares and the general meeting has resolved to issue a new share. If this way new shares are issued, all partners in the amount of their previous shares have to be given a new share.

Share capital reduction

By resolution on reduction of the share capital of the company, the size of contribution by any partner is reduced in the same measure as previous contributions. A resolution to reduce the share capital may have as a consequence the forfeiture of a shareholder’s contribution, too, in case he or she has another contribution, or his or her share has been released, or if the firm has invalidated his or her share certificate. Alternatively, the General Meeting may decide, after the consent of all the shareholders, that their contributions are going to be reduced unevenly. The resolution for reduction in share capital shall be published by the directors, for two consecutive times in a period of 30 days, within 15 days from the date of adoption. In the meantime, the directors shall apply to the known creditors of the company whose claims against the company arose before the resolution of the general meeting to reduce the share capital to submit their claims against the company within 90 days after the date of the last notice. The company shall provide the creditor, who duly has registered his claim against the company with sufficient security for that claim or satisfy it, unless otherwise agreed with the creditor. The effect of the reduction of share capital shall be considered to take effect upon placing the new amount of the share capital in the commercial register. The reduction in share capital shall be registered in the Commercial Registry by the court or notary only when:

• it is shown that the period specified under § 236 Sub-clause 2 has expired without any creditor having declared his claim within that period;
• whereas the company has provided a statement that it does not have any creditors entitled to security or satisfaction of its claims;
• documented loss of the company at least in the amount corresponding to the reduction of the authorised capital to cover the loss;
• proven satisfaction of the claim or its adequate security or the effectiveness of the agreement in accordance with § 237, Sub-Clause 1;
• submitted a valid agreement of the company with creditors who are entitled to satisfaction or security for their claims, to enforce that right, or
• it has been proved that the security is sufficient by means of a court order in accordance with § 238.

In case of a declaration of the company as in paragraph 2 letter b) or an agreement as in paragraph 2 letter e), no compliance is required with the time limit referred to in Article 236, paragraph 2 (to publish, within 15 days from the date of its adoption, twice consecutively at an interval of 30 days, the resolution to reduce the share capital).

The Company disposes of the amount corresponding to the reduction of share capital only after the reduction of share capital has been registered in the commercial register.

General principles

In the event of a reduction in share capital, what is paramount is the protection of the creditors of the company. In the case of a company reducing its share capital with the view to compensating for losses, creditor protection provisions do not apply.

The General Meeting decides by resolution to increase or decrease the authorised capital. This must be notarised.

Structure of a limited liability company in the Czech Republic

The organs of a limited liability company are the managing director and the general meeting, which must be established by every limited liability company. A supervisory board may be established on a voluntary basis.

Statutory body of SRO managing director. This could be one or more. In the case of one, the o.o.o. represents separately. If there are more, they can act in substitution for the s.r.o. either individually or jointly or together only in specific cases, e.g., when concluding contracts. If there are more executives, they may also form a collective body, which may be called for example, an Executive Board. The supreme body of the SRO is the general meeting. It is composed of all affiliates. The general meeting of the SRO decides by a notary on all important matters concerning the existence of the SRO. If the partners of the SRO decide that it also will have a supervisory board and the notary mentions this in the record, the number of their members needs to be pointed out in the articles of association and then the members of the supervisory board need to be elected. Only then is it entitled to exercise the right of control.

Charter capital upon the SRO incorporation in Czech Republic

The minimum share capital of SROs was not the same, so most often one can find companies having a share capital of CZK 200,000 or CZK 100,000. The current minimum share capital of an SRO is CZK 1.00. Maximum amount is not limited. This can be done by the general meeting’s resolution at the notary public’s office, where the share capital may be increased or decreased. When an SRO is being established, the notary usually suggests a share capital higher than CZK 1. In the first place, every company and therefore SRO should have means for covering costs not only in establishing and registering at a commercial company registry but also for its operations and its own business. Within the period of validity, the number of s.r.o. partners can vary, and the deposit of each partner shall be at least 1.00 CZK. The easiest method of increasing or reducing the number of SRO partners is the transferring of a share in the SRO. It is also possible to admit a new partner by increasing the share capital, whereby the presence of a notary is required.