CzechInvest Information Series No. 8
Subject No: BUS/12/94-8
Date of Issue: December 20, 1994
Branch Office of a Foreign Company
Czech law enables foreigners to conduct business activities under the same conditions and to the same extent as Czech entrepreneurs. Foreigners may become founders or co-founders of a company, or may join an existing Czech company. There is no upper limit on foreign investment.
Foreigners with business operations abroad may also run business activities in the Czech Republic (CR) provided they own an enterprise or branch office in the CR.
Since April 1991, no formal approval is required from the Czech Ministry of Finance for foreign investment except when made through the large privatisation programme or when involving the banking/financial and defence sectors.
The Czech Commercial Code provides the following options for business activities in the CR:
- limited liability company;
- joint stock company;
- co-operative;
- various types of partnerships (i.e. limited, general commercial - unlimited, silent); and
- branch office of a foreign company.
The most common types are limited liability companies and joint stock companies.
A limited liability company is a company the capital whereof is made up of previously determined investments of its partners. the company may be founded by a single person. The company shall be liable for a breach of its obligations with all its assets. The minimum capital of the company shall have the value of 100,000Ke (about USD3,450). If non-monetary investments are to be contributed, the articles of incorporation shall state the object of such investments, the method of its appraisal in monetary terms, and the sum credited to the partner's investment.
The deed of foundation shall include:
(in case of one partner the deed of foundation must be obligatorily worked out by the notary office)
the commercial name and the seat of the company
specification of the partners, including the seat of legal person (in case of the foreign legal person it is necessary to present the extract of the Commercial Register of the country or of the town where the company was established)
the object of business activity (based on the trade licence given by the Trade Licensing Office to the responsible representative - a person with permanent domicile in the Czech Republic)
the amount of the capital and the amount of investment contributed by each partner, and in the case of non-monetary investments also their object
the names and the places of residence of the initial executives (statutory body) of the company and the manner whereby they act on behalf of the company (statutory body) if not Czech citizen shall be required to present a document permitting such person to reside in the Czech Republic.
When the company is established by a single founder, it may be entered in the Commercial Register only when its capital has been paid up in full. At least 30% of each partner's financial contribution, totalling at least 50,000 Ke (US$1,725), must be paid on foundation. The application for entry of the company in the Commercial Register shall be signed by all the executives.
Reserve fund: Specifications to be outlined in the partnership deed. Must be supplemented annually with at least 5% of the company's net profits (10% in the first year the company makes a profit) until a level specified in the partnership deed (which must be at least 10% of the basic capital) is reached.
JOINT STOCK COMPANY
is the corporate form covered by the Commercial Code in the greatest detail.
A shareholder is not liable for the company's obligations.
A joint stock company is founded by a founding contract and must have its bylaws which form a part of the founding contract. If a single legal person founds a joint stock company, it does so by a founding charter.
The structure of the company: the company has a board of directors, which, however, is elected by the general meeting and has not less than three members. The company must also have a board of supervisors and under its bylaws it may be the board of supervisors which can also appoint the board of directors. The board of supervisors, too, must have at least three members. If the company has more than fifty employees, at least one third of members of the board of supervisors must be elected by the employees. The board of supervisors may include more representatives of the company's employees, but their number may not exceed half of the board's total membership. The board of directors is the company's statutory body and decides on all matters which are not reserved for decision to the general meeting. under the bylaws not all members of the board of directors may act on behalf of the company.
A foreign natural person entered in the Commercial register as a person authorised to act on behalf of the respective entrepreneur must have a residence permit.
Employee shares may be issued only to the extent where their unpaid-up nominal value does not exceed 5 per cent of the capital stock. They may be transferred only between the company's employees and retired workers. Preference shares are defined rather briefly, only as shares to which relate preferences regarding divided payment. The total nominal value of preference shares may not exceed half of the capital stock.
A joint stock company may also issue bonds up to half of its stock capital. The Commercial code moreover provides for increase and reduction of the capital stock.
BRANCH OFFICE OF A FOREIGN COMPANY
Foundation: Czech law requires that branch offices fully list their planned activities in their application for entry in the Commercial Register as they are only allowed to engage in those activities listed in their entry. A director, who may be either a Czech national or a foreigner with a valid Czech residency permit, must be appointed to head the branch office. All laws under which the branch's parent entity was founded also apply to the branch's internal dealings.
Under the new Commercial Code, all enterprises in the CR, including representative offices, must be registered in the Commercial Register.
The Commercial Register is a public list kept by district or regional courts. To be included in the list, business entities or individual entrepreneurs must submit a petition to the court whose jurisdiction covers the entity's seat or the individual's address. The petition must contain officially authenticated signatures of all founding partners, and must be accompanied by:
- a trade certificate and/or trade license;
- the entity's founding document (with officially verified signatures) or a similarly verified document establishing the foreign entity's branch office in the CR;
- confirmation that the initial capital has been deposited with a Czech bank;
- a lease or contract for the business' premises;
- approval of the entity's location from the local authorities; and
- foreigners must also obtain a residency permit authorising residency in the CR in case they are the statutory body of the company
All documents must be either originals or officially verified copies, and are not returnable.
TRADE AUTHORISATION
Under the Trades Licensing Act, specified applicants for entry in the Commercial Register must also prove possession of an effective trade authorisation (trade certificate or license) obtained from the Trades Licensing Office appropriate to the seat of the joint venture or branch office.
WORK AND RESIDENCY PERMITS
All foreigners employed in the CR must obtain a work permit , issued by the appropriate Labour Bureau. Applicants must submit an application with a statement from their employer.
Foreigners employed in the CR must also obtain either short-term, long-term, or permanent-stay residency permits. Short-term permits are issued for the period stipulated by the foreigner's visa, or for a period of up to 183 days. Long-term permits, issued for periods of one year, may be extended on request for periods of one year and require a notarised statement from the foreigner's landlord providing consent for tenancy. Permanent stay permits are granted for family unification, or other humanitarian or political reasons. Residency permits are granted by Czech diplomatic offices abroad or by the Czech Ministry of the Interior.
NOTE: This information is current as of December 1994. Although we have made every effort to ensure the reliability of our sources, CzechInvest does not assume responsibility for its accuracy.