What is the main source of law authorising this entity form?

90/2012 Coll. Act on Commercial Companies and Cooperatives (Business Corporations Act).

Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

The s.r.o. has legal personality;

(Maximum) period of existence

There is no maximum period of existence. If the time for which a legal person is formed has not been provided, it is conclusively presumed to have been created for an indefinite period;

Governing document(s)

The governing document is the Memorandum of Association (společenská smlouva), also referred to as Articles of Association and a Deed of Foundation (require the form of an authentic instrument which means a notarial deed);

Liability of incorporators / shareholders

Funders (incorporators) are jointly and severally liable for the company’s debts up to the amount at which they have not fulfilled their contribution obligation, pursuant to the record in the Commercial Register. Shareholders are also liable for the company’s debt up to the amount of their share in the liquidation balance in case of dissolution of the company by liquidation; and

(Governing) bodies

The Supreme Body of the s.r.o. is the General Meeting (valná hromada). An Executive Body of a company constitutes of one (1) or more executives. If required by Memorandum of Association or by law, the s.r.o. also establishes a Supervisory Board (dozorčí rada).

Other particularities

NA

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

According to Czech law, cross border restructurings are a merger, separation, transfer of assets and seat transfer.

The s.r.o. can be involved in international restructurings between EU Member States.

Can this type of entity be publicly listed or held?

No, a member’s interest may be represented by a common certificate, which is an order instrument. However, a common certificate may not be subject to public offering or admitted for trading on a public market.

Can this type of entity be used for a non-profit or charitable organization?

No, common forms of a non-profit organisation are association (spolek), benevolent association (obecně prospěšná společnost), social cooperative (sociální družstvo) or foundation (nadace).

Give a brief summary of the process of incorporation, formation, or organization, including

Main documents required

The s.r.o. is established by a Memorandum of Association. It requires the form of an authentic instrument which means a notarial deed.

The Memorandum of Association includes the objects or activity of the company.

The company must arrange the company’s business licence.

Involvement of notary, company register, governmental authorities

Within six (6) months after establishment, it is necessary to submit the application for registration of a company in the Commercial Register.

Timing (estimate)

The company can be established within one (1) week, including its registration in the Commercial Register.

Main costs, including registration and similar fees (excluding legal fees)

The main costs are the notaries’ fee, the application fee, and the fee for the company’s business license.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Yes, a description of the anticipated business is required for the process of incorporation.

All steps can be made by a lawyer acting based on a power of attorney (verified/notarised signature(s) required).

The s.r.o. can also be founded online via virtual conference with notary. However, in this case, bank identity (bankovní identita) and qualified electronic signature (kvalifikovaný elektronický podpis) are required.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one (1) incorporator and there are no residency requirements.

Minimum number of directors (or other applicable officers) and residency requirements

There must be at least one (1) executive and there are no residency requirements.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The minimum amount of a share capital is CZK 1 (which is less than 0,05 EUR) per incorporator – not used very often, though. A monetary contribution shall be paid into a designated account held with a bank or a savings and loan cooperative to be opened by the contribution administrator. If the amount of all monetary contributions does not exceed CZK 20,000, the monetary contributions can also be paid in another way including a cash payment. A contribution in kind must be contributed to the company capital prior to its incorporation.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

No, the process of incorporation may be done by virtue of a power of attorney (verified/notarised signature(s) required).

Is a tax identification number, or equivalent, required? If so, how is it obtained?

A tax identification number is required, and it is obtained pursuant to registration with the tax administration. It is received in the form of certificate.

What is the title of the applicable company registry?

The Commercial Register (Obchodní rejstřík), which is held by respective Regional or Municipal courts, depending on the registered office of the company.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles , Ownership identification (direct and/or indirect ownership, 'beneficial owners') , Group structure , Share capital , Directors , Accounts , Insolvency, good-standing, liquidation , Liens and encumbrances on the shares , Liens and encumbrances on assets of the entity , Other (e.g. litigation, tax matters)

Information listed below must be filed at the Commercial Register and be publicly available:

• Memorandum of Association;
• Company’s trade name and seat;
• Legal form;
• Date of incorporation and dissolution;
• Identification number;
• Objects and activities of the company;
• Executives, including their date of birth and address details, and the way they act on behalf of the company;
• Details about control authority and corporate agent;
• Amount of registered capital;
• Amount of the members’ contributions;
• Details about the enterprise;
• Suspension of the execution of the function;
• Details about interests;
• Shareholders identification, including their date of birth and residency in case of natural persons and identification No. and seat in case of legal persons;
• Insolvency, liquidation etc.;
• Liens and encumbrances in the interests and in assets of the entity, including negative pledge;
• Annual accounts; and
• Notice of dissolution proceedings.

Additionally, information regarding beneficial owners must be filed (or be recorded automatically from other public registers) at the Register of Beneficial Owners and be publicly available including:

• First and last name;
• Date of birth (only month and year is publicly available);
• Address details (only state of residence is publicly available);
• Citizenship;
• An indication of the nature of the beneficial owner's position (whether the beneficial owner has a relevant interest in the voting rights or profits or exercises controlling influence in the parent company (if applicable));
• Beneficial owner’s status – real or substitute;
• An indication of the size of the beneficial owner's direct or indirect interest or profit, when that interest or profit establishes his position;
• The day from which the individual is the beneficial owner; and
• The date until which the natural person was the beneficial owner.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Executive Body is constituted by one (1) or more executives (jednatel). An executive primarily represents the company and oversees the management of the company’s business, ensures that the prescribed records and accounts are duly and properly kept and that a register of members is administered, submits financial statements to the General Meeting for approval, and, upon request, informs the members about any company-related matters. An executive must, without undue delay after becoming aware of any change in the Memorandum of Association, draft the full text of Memorandum of Association including any changes and deposit it, together with the documents proving the change, in the Commercial Register's collection of instruments (sbírka listin).

How are the members of the executive body appointed, dismissed and replaced?

The members of Executive Body are appointed and recalled by the General Meeting. The change has to be registered with the Commercial Register.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes, however in this case a representative who is a natural person must be appointed by the legal entity. The representative acts on behalf of the legal entity as a member of the executive body. Both the legal entity and its representative shall be registered with the Commercial Register.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

The s.r.o. can have non-executive directors who would be in a separate body. Means of recall and appointment of non-executive directors shall be specified in the Memorandum of Association.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The body of members is the General Meeting. It decides in particular on the contents of the Memorandum of Association, on changes in the amount of registered capital, appointment and recall of the executive, the Supervisory Board (if established), the liquidator (if provided in the Memorandum of Association), and the corporate agents. It approves financial statements and also decides to convert the company or to dissolve the company by liquidation (if provided in the Memorandum of Association). The General Meeting may also reserve the right to decide in relation to matters which fall within the powers of another body of the company.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

The General Meeting decides by a simple majority of votes of the present members unless the Memorandum of Association or the law state otherwise. However, to approve some decisions a majority of two-thirds of the votes of all members is required, and the Memorandum of Association can also require a greater majority in these cases. The consent of all shareholders is required when a change in the Memorandum of Association affects the rights and obligations of all shareholders. When a change in the Memorandum of Association affects the rights of particular shareholders, the respective shareholders have to grant their consents. The quorum requirements are met if members with at least a simple majority of votes is present at the General Meeting unless the Memorandum of Association states otherwise.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Not in general. However, other legal regulations than Business Corporation Act may require special governance regimes e.g. in connection with special object of business e.g. companies operating on the capital market etc.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

A company creates the financial statements which have to be approved by the General Meeting. The ordinary financial statements have to be done no later than six (6) months after the last day of the past accounting period and have to be filed with the collection of instruments of the Commercial Register.

Is the entity permitted to determine its own financial year?

Yes.

Is the entity subject to any statutory (external) auditor obligations?

The obligation to have a statutory auditor depends on the number of employees, the annual net turnover, and the assets.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

A company establishes a Supervisory Board, if provided by the Memorandum of Association or by legal regulation. It supervises the activity of executives, reviews trade and accounting books, and reports annually to the General Meeting on its activities.

There are no residency requirements that apply to members of the Supervisory Board.

What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

Interest (podíl).

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Yes, different types of interests may be allowed by the Memorandum of Association. Different rights may be attached to each type of interest – e.g. right to a profit share, right to a share of the liquidation balance or a voting right.

What documentation is required for the transfer of ownership interests?

For any transfer of an interest not represented by a common certificate (an order instrument) it is required to have the interest transfer agreement completed with certified signatures. In case of transfer of an interest represented by a common certificate, the conclusion of an interest transfer agreement is required (written form is not necessary, however is recommended), along with an endorsement and a physical transfer of the common certificate to the transferee.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

Unless provided otherwise in the Memorandum of Association, a member is entitled to transfer his or her interest to a person who is not a member, with the consent of the General Meeting only.

The Memorandum of Association may also set the condition of the consent of a company if the interest is transferred to another member.

The transferability of the interest represented by the common certificate cannot be restricted.

The transfer of shares shall be notified to the company by presenting a counterpart of the effective share transfer agreement with certified signatures to the company and shall be effective against the company henceforth. The notification of a change of shareholder and presentation of the common certificate with an endorsement to the company is required for the effectiveness of the transfer of the interest represented by a common certificate to be effective against the company.

Are there any applicable stamp duties imposed when transferring ownership interests?

Yes, when transferring an ownership interest a fee of CZK 2,000 (approx. EUR 85) shall be paid for registering the change in the Commercial Register.

How are shares issued? (including information on payment obligations, registration requirements)

The interests are determined in the Memorandum of Association which can be amended by agreement of all members. The contribution obligation must be paid within the period of time stipulated in the Memorandum of Association and no later than five (5) years after the date of incorporation or the assumption of the contribution obligation. An interest may also be represented by a common certificate (kmenový list) which is an order instrument.

Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

It is possible to contribute by an item the value of which can be expressed in monetary terms, which is called the “contribution in kind”.

The value of a contribution in kind must be specified in the Memorandum of Association of the business corporation and must be based on an expert evaluation. Contribution in kind cannot consist of work or services.

Share premium contributions are possible with the consent of the executive, or, if provided in the Memorandum of Association, upon decision of the General Meeting.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

The registered capital may be decreased by a decision of the General Meeting.

The s.r.o. can acquire its own interest unless it is acquired through an interest transfer agreement.

Any requirements with respect to distributions to shareholders?

A profit share is determined on the basis of the financial statement approved by the General Meeting. It can only be distributed among the members, unless provided otherwise in the Memorandum of Association. If the share carries a right to a fixed share in the profit, no decision of the General Meeting on its distribution is required.

Decisions to pay a profit share are made by the executives.

Profit may not be paid if the same could result in insolvency of the s.r.o. under another legal regulation.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes, such agreements are allowed.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The company has to maintain its business address and have executives. At least once every accounting period (which is usually one (1) year), the General Meeting has to be convened. Also, expenses covering bookkeeping and other expenses associated with preparation of the tax returns occur.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The corporate tax rate is 19 %. There is no local distinction.

Summary of any specific matters, e.g. recent or prospective major legal developments

At the end of 2016, an amendment of the Criminality Liability Act expanded the scope of criminal liability of legal entities. The legal entities themselves can be liable for almost all crimes under the Criminal Act.

From 2017, legal entities can be liable themselves for administrative offenses (přestupky) under the Act on Liability for Offenses and the Procedure of Offenses.

From 2018, all legal entities registered in the Czech Republic have a duty to disclose information about their beneficial owners to the register courts via the Register of the beneficial owners. The beneficial owner is defined as any natural person who may de facto or legally directly or indirectly control the legal entity or benefit from such entity. The system of beneficial owners is based on the EU AML Directive (Directive (EU) 2015/849) as amended by Directive (EU) 2018/843.

From June 2021, there will be new sanctions of up to CZK 500,000 (approx. EUR 21,325) imposed on entities that do not disclose their beneficial owners. Furthermore, if the beneficial owner is not disclosed in the register, he cannot exercise his voting rights at the General Meeting and the company cannot pay a profit share to such person.

From July 2023, conditions of performance of office change. Persons who are to become executives or members of the supervisory board (if established) are not eligible for the office (i) if disqualification of holding of office has been imposed on them by court or other public authority, (ii) the prohibition of exercise of activities relating or similar to the company’s object of activity has been imposed on them by court or other public authority (iii) they have been convicted of certain criminal offenses and there has been no acquittal, and (iv) for the declaration of bankruptcy on their assets. Following the change in the conditions of performance of office, the evidence of disqualified persons (evidence vyloučených osob) is established and the eligibility for performance of office shall be investigated by the notary or registry courts (rejstříkový soud).