General Information on SRO CompaniesStarting an SRO is not done on an afternoon and requires thorough planning and calculation, because it involves much more than registering as self employed (through a Trade License).
Although due to EU regulations, since 2014 the formation of an SRO should be easier, in practise it still is a bureaucratic process that involves a notary, notarized signatures and visits to several government offices. Unlike the UK, where an LTD can be opened online in a matter of minutes / hours, the SRO formation process is still hopelessly outdated and needlessly complex.
This is one of the reasons why Ready-made companies have increased in popularity. Reality demands to say that a Ready-made solves only part of the problem. In case the new director wants to change the company name, the amount of directors / share holders or apply for special trade licenses, changes to the company formation documents (notarsky zapis) are unavoidable, and implementing the changes will take almost as long as forming an entire new company from scratch.
Requirements for Forming a new SRO company / Buying a Ready-madeIn order to register (the changes) at Commercial Court the following documents are required:
- a passport copy of the directors(s) and shareholder(s),
- in case a (foreign) company is shareholder, court-translated company extracts with apostille stamp
- for each director, a court-translated foreign police clearance with apostille or superlegalization *
- proof of the owner's / shareholder's residence address,
- and address / virtual office for the business seat (sídlo)
* US Citizens can use an afidavit from the US embassy instead.
Downsides of Ready-Made SROs / off-the-shelf companies
- If you want a ready-made company for reasons of having little money, it is much faster, cheaper and easier to register and maintain a personal Trade License instead of owning an sro,
see our Trade License (Živnostenský List) Registration Services
- We do not recommend buying a ready-made company for visa-purposes. Not depositing the basic capital yourself is an indication for the foreign police that you do not have not enough money to live and do business in CZ and therefore a visa application may be rejected.
- A common mistake is to think that a ready-made company is faster than a new one. This not really the case. Yes, one becomes immediately director after signing the transfer documents but before the changes show up in Commercial Court and paper proof can be collected (for example for visa purposes) almost exactly the same amount of time as for registering a new sro company has been spent.
- Ready-made companies usually have a name that does not match with your activities, an address that you will have to change immediately and almost never have suitable trade licenses, so in order to do business they need to be added or changed, so in practise it will be at least as expensive and time-consulming as forming an SRO newly from scratch.
- Becoming a director of a ready-made company means that there is no basic capital on the account. It has been taken out in cash by the previous director. This means that there is a hole in the accounting - something that will become your responsibility.
2014 changes to legislation concerning SROs2014 has seen an important revision to the Commercial Code, the most important elements of it are:
- SRO liability, which traditionally has been limited to the amount of share capital, has undergone significant changes. Now, in principle, a Jednatel (director) can be held responsible, and is not longer protected by the maximum share capital.
- SRO share capital can be as low as 1 CZK, it used to be 200.000 CZK - question is of course, how serious an impression an SRO makles with such a low share capital.
- The 1 CZK basic capital has given the so-called Ready Made SROs a new impulse. However, for most small businesses, actually a personal Trade License is still the better choice.
Adding / Removing Trade licenses to /from the SROEach company has at least one trade license. This license allows you to conduct business activities in that specific area. We highly recommend to choose several trade licenses in the field you are planning to operate in if you form a new company. (this doesn't cost more money).
Ready-mades usually have all 80 available trade licenses registered. Although legally possible, it does not make a very professional impression - do you know any company that combines small animal breeding, glass manufacturing, provision of aviation ground services and modelling?
Our advice is to choose only relevant trade licenses - it looks more seriously, and one avoids difficult questions when applying for a business visa (in fact, visas get refused because directors have no clue of the company's registered activities)
Ownership / Directors / ShareholdersS.r.o's can have multiple owners (division of shares) and multiple directors. None of the directors / share holders needs to reside in CZ, and there is also no need for a company secretary or a local resident as director.
A Director does not need to have shares, he can have 0% shares, in that case there must be one or more share holders that together have 100% of the shares.
Shares can always be re-divided in a later stage (for example for an investor), although it will require changes to the company founding documents (notarsky zapis).
The simplest sro configuration has 1 director with 100% of the shares - this is used for all Ready-Made SROs.
Registration at the Taxoffice, Filing a Corporate Income Tax ReturnAfter the company formation is complete, it must be registered within 30 days at the tax office for corporate income tax (and optionally for VAT and employees).
The registration for corporate income tax is included in the price of the company formation.
A company must file a corporate income tax return each year, even if the company has had no activities.
VAT RegistrationIf the expected turnover from Czech sources in 12 consecutive months is over 1.000.000 CZK, the sro has the obligation to register for VAT. This means that every month VAT reports must be filed and all invoices need to include VAT.
If the turnover is smaller, the SRO can choose to voluntarily register for VAT.
When providing / using goods or services from the EU, a VAT-registration is almost always an obligation.
The VAT regulations in Czech Republic have been adjusted almost every year. We have written a rather extensive article on VAT / trading in the EU, which you can find here:.
Personnel is expensive. The total costs for the company are about twice the net salary.
And, after a 3 month trial-period it is not so easy to fire someone. In three months it can be difficult to evaluate a person's performance, especially when the company is in startup- phase. Fortunately there are some tricks.
Write temporary employment agreements, or even better, a special agreement (dohoda o provedene prace) which are relatively easy to cancel. Also quite common is to hire people as self-employed on a trade license.
It is true that the above solutions also have some downsides, such as a limitation in salary or worked hours.
We can help you with employing personal, writing temporary agreements and employment contracts.
See Hiring a (Foreign) Employee in Czech Republic
SRO Accounting RequirementsSRO bookkeeping is always double-entry, because it is a legal entity registered at the Commercial Court.
This makes it very difficult for somebody who is not an accountant to do the accounting and tax returns.
Alexio recommends for all s.r.o's (also non-VAT) to send in papers for bookkeeping at least quarterly,
this allows us to detect and correct problems in an early stage, unless it is an SRO without much activity such as a 'realestate s.r.o' with one or a few properties.
Warnings and Recommendations for buying an old SRO CompanyThere is a lot that can go wrong when buying an old (recycled) SRO company or ready-made sro, below page is meant as a guide to prevent you from most pitfalls:
Applying for a Business Visa3rd-Country Nationals who want to have a trade license or an SRO company, do not need a Work Permit or an Employment Visa. Instead of those two, it is necessary to apply for a Visa for Business purposes, unless the director has already a temporary or permanent residence permit.
Note that one has to be a director to apply for a Business Visa - a shareholder is not entitled to.