LLC in Czech Republic

A limited liability company in the Czech Republic is a type of business corporation. Each partner makes a contribution to the limited liability company, thereby participating in its authorised capital. In this case, the partners are jointly and severally liable for the company’s debts only to the extent of the amount in which they have not fulfilled their deposit obligations (according to the status entered in the commercial register at the time when the creditor called them to do so).

SRO registration is one of the easiest compared to other types of corporations. This is why limited liability companies are a very popular option.

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

A member of the Management Board is one of the most important positions in the company. Therefore, he should be well aware of the rights and duties applicable to his position. Every limited liability company must have a director. This is the statutory and executive body of the limited company. This means that he represents the company externally, is responsible for its management and acts on its behalf towards third parties.

The General Meeting elects and appoints the Executive Director . Only a person of legal age and capable of performing legal acts may be appointed to this position. A limited liability company does not have to have only one director, but may have more. Unlike partners, the managing director or directors are registered in the commercial register.

The executive director may also be a legal person, but an individual is authorised to act on its behalf, whose name is then also entered in the commercial register.

It is not uncommon for a Member of the Management Board of a Czech company to be confused with the owner because of the scope of his competence. In smaller companies, the manager and the owner are usually the same person. However, in larger companies they are usually two different people.

Responsibilities of the supervisor

 When you take up a management position, you are given a lot of authority, but above all, you are also given responsibility.

Duty to act with care of the proper landlord

 The main responsibility of a manager is to act as a proper manager while performing their duties. This means that they must be fully loyal to the company, have the necessary experience and fulfil their duties with the utmost care.

Obligation to convene a general meeting

 Another duty of the executive is to convene a general meeting at least once a year. It is normally convened in the spring to approve the financial statements, but may be convened at any time during the year at the request of the partners.

Obligation to inform partners

 Since the partners have contributed to the company s.r.o. and thus participate in its activities, they have every right to know how the company is doing. Therefore, the manager is obliged to inform the partners about the management of the company and all material facts that concern him.

Duty to maintain accounting records

 The manager is responsible for the correct maintenance of the accounting records, regardless of who keeps them. He is also obliged to present the financial statements to the shareholders at the general meeting and to enter them in the commercial register.

Commitment to maintain a list of partners

The manager should keep an up-to-date list of partners, including their residential addresses, contact details and information on shareholdings and voting rights.

Obligation to regularly file documents with the document fund

 All documents such as financial statements, annual reports, profit distribution proposals or resolutions of the general meeting in the form of a notarised record must be filed by the director in the company’s document collection.

Obligation to file an insolvency petition

 If a company is in financial trouble, the chief executive has a duty to try to prevent the company going bankrupt and to file for insolvency.

Contracting and hiring of employees

 The manager is authorised to act on behalf of the company and to represent it in relation to third parties. Thus, he or she is authorised to conclude and sign contracts on behalf of the company, to hire new employees or to make decisions in financial transactions.

Authorisation of persons to sign contracts or make representations

 The powers of a director also include the ability to authorise another person to sign contracts or represent them in their capacity.

Compensation for the performance of the function

Although a director’s duties are many and it is a very important function, the right to remuneration for it does not arise by law. For this reason, the contract for the performance of the function governing the relationship between the manager and the company must be written and specify the amount of remuneration. If no remuneration is stipulated in the contract, it means that the performance of the executive function is free of charge.

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

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

The right to participate in decision-making

Participation in decision-making of a limited liability company is one of the basic rights of a partner. It gives shareholders the opportunity to participate 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 depends on the size of his shareholding in the company . Thus, partners with higher shares have more influence on the decisions of the general meeting than partners with small shares.

Right to share in profits and liquidation surplus

 If a company generates profits from its activities, the partners are entitled to a share of those profits. As in the case of voting rights, profits are divided among the partners, usually according to the size of their share in the company. Thus, a higher share in the company also means a larger share of the resources approved by the general meeting.

If the company is dissolved by liquidation a partner is entitled to a share of the liquidation balance . This is again divided according to the amount of the paid deposits of the individual partners.

Right to information

 When a partner invests in a limited liability company, he participates in its activities and as such has the right to information about the company and its management. This right is the same for all partners, regardless of the size of their shareholding in the company. In this case, the director of the company is obliged to provide the necessary information to the partners.

The right to sue on behalf of the company

 A partner may also claim damages from the contractor for damages caused by the principal in breach of duty or demand that the other partner fulfil the obligation of a deposit. For this purpose, a so-called joint action is used, which the partner does not file in his own name, but on behalf of the company. However, the claim has its limits – it cannot be filed, for example, when the director demands the return of the deposit or the general meeting has decided to expel a partner who is in arrears with the return of the deposit.

Deposit obligation

 The SRO partner’s contribution is the basis for the business share in the company, which subsequently determines the strength of the voting rights or the size of the profit share. A partner is obliged to make at least a minimum contribution to the limited liability company to be formed, which is currently 1 kronor. However, it is usually recommended to contribute a larger amount in order to make the company appear more credible.

A partner may repay his deposit either in full before the establishment of the company or repay part of it and pay the rest, but not later than 5 years after the establishment of the company. However, in this case at least 30% of the deposit must be repaid before incorporation.

Additional payment obligation

 If an enterprise needs to quickly overcome an unfavourable economic period, it can take advantage of additional payment obligations regulated by the social contract.

The partners are obliged to provide the company with a monetary supplement (non-monetary form is not possible in this case) outside the share capital. The supplementary obligation is a quick and easy way to finance the company’s operations from its own funds and to overcome unfavourable periods.

Duty of loyalty

 Partners are obliged to be loyal to the company, to act in accordance with its interests and to maintain confidentiality regarding internal company affairs or trade secrets. A breach of this obligation may be defined as damaging the good name of the company, abusing their rights against other partners, preventing the achievement of profits, etc.

As part of the duty of loyalty, partners also have a duty to actively participate in the company’s activities. They achieve this, for example, by participating and voting at general meetings or by securing the co-operation of other shareholders and the company itself.

 Increase and decrease of SRO’s authorised capital

The most important component of equity is share capital, which is the sum of individual shareholders’ contributions to the company. The amount of share capital usually remains the same, but there may be situations where it needs to be increased or decreased.

The authorised capital of the Czech Company may be increased:

• By making a deposit commitment to increase existing deposits or to make a new deposit,
• From the company’s own resources
• Increase of authorised capital by assuming contribution obligations
• The authorised capital may only be increased by means of monetary contributions if the monetary contributions have been fully repaid to date. An increase of the authorised capital by means of non-monetary contributions is allowed already prior to such redemption.

Partners have a preferential right to participate in the increase of the authorised capital, if it is increased by means of monetary contributions, by assuming the obligation to make a contribution. Partners have the right to assume contribution obligations in proportion to the amount of their shares, unless otherwise established by agreement of all partners.

The deposit commitment is accepted by a written statement, the signature must be officially verified, and the statement becomes effective upon delivery to the company.

Increase in authorised capital at the expense of own funds

The General Meeting may resolve to increase the share capital by means of own resources reflected in the approved ordinary, extraordinary or interim financial statements , in the company’s equity, unless these resources are earmarked and the company is not authorised to change their purpose. Net profit may not be used to increase share capital on the basis of interim financial statements. Increases in share capital may not be higher than the difference between the amount of the capital stock and the amount of the share capital. The share capital may only be increased 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 with an unqualified opinion. As a result of an increase in the authorised capital at the expense of own funds, the amount of the shareholders’ contributions changes in proportion to the previous contributions, unless the articles of association allow for an increase in the number of shares and the general meeting has resolved to create a new share. If new shares are created in this way, a new share must be created for all partners in proportion to the amount of their previous shares.

Decrease in share capital

As a result of a decision to reduce the share capital of the company, the amount of each partner’s contribution is reduced in proportion to previous contributions. As a result of a resolution to reduce the share capital, a shareholder’s contribution may also be forfeited if he or she has another contribution, or if it is a released share, or if the company has invalidated his or her share certificate. The General Meeting may, with the consent of all shareholders, decide that their contributions will be reduced unevenly. The resolution to reduce the share capital must be published by the directors within 15 days from the date of its adoption, twice consecutively at an interval of 30 days. At the same time, the directors will apply to known creditors of the company whose claims against the company arose before the general meeting’s resolution to reduce the share capital to register their claims against the company within 90 days. after the publication of the last notice. The company will provide a creditor who has timely registered its 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 the share capital will occur when the new amount of share capital is registered in the commercial register . The reduction of the share capital will be entered by the court or notary in the commercial register only if:

• it is proven that the time limit under § 236, Sub-Clause 2 has passed if no creditor has registered his claim within that time limit,
• provided a statement by the company that it has no 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
• sufficient security has been proved on the basis of a court order pursuant to § 238.

In the case of a declaration of a company under paragraph 2 letter b) or an agreement under paragraph 2 letter e), it is not necessary to comply with the time limit referred to in Article 236, paragraph 2 ( publication of the resolution to reduce the share capital within 15 days from the date of its adoption twice consecutively at an interval of 30 days ) .

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

When reducing share capital, the focus is on protecting the company’s creditors. Creditor protection provisions do not apply if a company reduces its share capital to cover losses.

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 bodies of a limited liability company are the managing director and the general meeting, which are established by each limited liability company. If desired, a supervisory board may be established.

The statutory body of an SRO is the managing director . This may be one or more. They may represent the limited liability company in different ways, if there is one, the o.o.o. represents separately, if there are more, they may act on behalf of the s.r.o. either individually or jointly, or together only in certain 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 on all important matters concerning the existence of the SRO by a notary,

If the partners of the SRO agree with the notary that the SRO will also have a supervisory board, they must determine the number of members in the articles of association and subsequently elect the members of the supervisory board. It then has the power of control.

Authorised capital for the establishment of an SRO in the Czech Republic

The minimum share capital of SROs has not always been the same, so most often we can find companies with a share capital of CZK 200,000 or CZK 100,000. The current minimum share capital of an SRO is CZK 1.00. The maximum amount is not limited.

At the notary public’s office, the share capital can be increased or decreased by resolution of the general meeting. When establishing an SRO, the notary usually recommends a share capital of more than CZK 1. On the one hand, every company, and therefore SRO, must have funds not only to cover the costs associated with establishing and registering with a commercial company. register, but also for its operations and its own business activities.

The number of s.r.o. partners may change during the term of validity and the minimum deposit of each partner is 1.00 CZK. Transferring a share in the SRO is the easiest way to increase or decrease the number of SRO partners. A new partner can also be admitted by increasing the share capital, for which the presence of a notary is required.