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On 1 January 2021, an amendment to the Business Corporations Act will finally come into force, helping to ease the process of launching your business in the Czech Republic. Given that a limited liability company is by far the most widely used form of business corporation in the Czech Republic, let us take a closer look on the matter.
Since 2014, it has been possible to establish a limited liability company with a registered capital of CZK 1. However, despite the low amount, you are still required to set up a special bank account which takes time and entails additional unnecessary administrative costs. As of January 2021, however, you can avoid this hassle by transferring cash to one of the founders of the company or a notary public, given that this amount does not exceed CZK 20,000. This means that you can save your first trip to the bank until after your company is incorporated.
It is safe to conclude that the newly introduced legislation has brought a breath of fresh air into the law of business corporations. It leaves entrepreneurs a greater space to consider the various possibilities how to set up their business and prepare it better for future growth.
The current law allows you to create a business share with varying degrees of profit based on the share. This means that one shareholder can be entitled to a higher share of the profit, whereas another could have no share of the profit at all. As of 2021, however, it will also be possible to create a share without voting rights or attach a right to appoint a managing director to the share. Such arrangements are typically made under Shareholders’ Agreements at the moment but enshrining these rules in the Articles of Associations significantly increases their transparency and enforceability. The amendment has thus taken a significant step to broaden the potential of limited liability companies for investment projects in the form of joint ventures.
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The amendment also confirms an existing decision of the Supreme Court which states that company profits can be distributed throughout the whole year following the financial statements relating to the previous accounting period. Thus, it will be possible to distribute profits during the entire year of 2021 based on the financial statements prepared as of December 31, 2020. Of course, it is still the general meeting who decides on the distribution of profits. The profit payment is then executed by the managing director who must make such a decision with due care to avoid bankrupting the company.