Commercial companies: What are the main features and what do they have to fulfil?

You want to start a company and you’re thinking about which form of business to choose. Will a joint-stock company or a partnership be more profitable for you? What kind of capital do you need? In this article, we dive into the differences between the various types of companies and help you decide.

WHAT IS A COMPANY?

Commercial companies are legal entities formed for the purpose of doing business or managing their own assets. Exceptions are non-profit organisations, which also fall under this category, but business and profit generation is not the purpose of their existence. Commercial companies and cooperatives together form commercial corporations and their business is regulated by Act No. 90/2012 Coll.

The main features of commercial companies include:

• established by a memorandum of association,
• formation by registration under a business name in the Commercial Register,
• the obligation to keep accounting records.

DIVISION OF COMPANIES

Which types of companies fall under trading companies? There are three main groups:

• personal companies,
• capital companies,
• European companies.

In the Czech environment, in the vast majority of cases, you will encounter partnerships or limited companies. The main difference between these two legal forms is that while in a partnership, all or at least some of the shareholders are liable for their entire assets. In a limited company, they are not liable for the company's obligations at all, or their liability is limited.

For a comparison of the different types of companies, see our table overview. We’ll then look at each of the forms of business separately below.

PERSONAL COMPANIES

This type of company is established by a memorandum of association by at least two entrepreneurs. A partnership may be established for business purposes only or for the purpose of managing its own assets.

Personal companies are further divided into:

• public companies (general partnership),
• limited partnerships (limited partnerships).

Unlike their counterparts in limited liability companies, partners here do not have a deposit obligation, rather they must personally participate in their operation (except for limited partners in limited partnerships).

PUBLIC COMPANY

A public company is established by a memorandum of association by at least two partners who are jointly and severally liable for debts with their entire assets. In the event of bankruptcy, they may therefore also lose their personal assets. However, the advantage is that the shareholders do not have a deposit obligation or a set minimum amount. The specific conditions are regulated in the articles of association.

You don't come across a public company very often. For example, the Kaufland supermarket chain uses this form of business.

LIMITED PARTNERSHIP

There are two types of partners in a limited partnership: general partners and limited partners. While a general partner is liable for their entire property, a limited partner is liable only up to the amount of their contribution, or up to the amount of the so-called “limited partnership sum”, assuming the partnership agreement provides as much. The limited amount is the amount of the limited partner's liability, which cannot be less than the amount they contributed.

The general partner is in charge of the management of the company, but the limited partner can, for example, consult the accounts. Unless the partnership agreement provides for a different division, the profit and loss are divided in half between the partnership and the general partner. The general partners share equally in the profits and losses. The part of the profits that has accrued to the partnership shall be divided among the limited partners in the proportion of their shares after taxation. The loss is not borne by the limited partners.

The shareholders do not have a deposit obligation or a statutory minimum deposit amount; the specific conditions are regulated by the company in the articles of association. This legal form of business is not very common in the Czech Republic, but it is used, for example, by the transport company Student Agency.

CAPITAL COMPANIES

The advantage of a limited company is that, unlike a partnership, it can be set up by a single founder. The shareholders of a capital company contribute their share, but they do not have to participate personally in the company's activities.

Capital companies include:

• limited liability companies (LLC),
• joint-stock companies.

JOINT-STOCK COMPANY

Škoda Auto, Kofola, and Tesco. Joint-stock companies are one of the most common types of companies. This legal form is often used by large companies requiring high investments.

The share capital of a joint-stock company, in the minimum amount of CZK 2,000,000 or EUR 80,000, is created by selling shares to shareholders. They also participate in the management of the company, have voting rights according to the number of shares, and are entitled to a dividend (profit share). The shareholders are not liable for the company's obligations. To incorporate, a deed of incorporation must be drawn up with a notary; if there is more than one founder, a memorandum of association is signed.

There are two types of internal organisations for a joint-stock company: monistic and dualistic systems. They differ mainly in the number and form of the supreme, statutory, and controlling bodies.

The following are required to form a joint-stock company:

• the approval of the company's articles of association,
• the decision to establish the company,
• the decisions on the election of the company's bodies.

LIMITED LIABILITY COMPANY

Surely you’ve already run into the abbreviation “LLC”. A limited liability company is the most common form of company in the Czech Republic. An example of such a company is the producer of sparkling beverages Bohemia Sekt or the MOL petrol station network.

The shareholders in a partnership are liable for the company’s loss only to the extent of their outstanding contribution to the company's share capital. A single Czech crown is enough to establish an LLC., however, the amount of the contribution affects its credibility.

The incorporation document of an LLC must include:

• the company name,
• the address of the company's registered office,
• the partners’ determination,
• the subject of business,
• the amount of the share capital and the amount of each shareholder's contribution, including
• the method and term of repayment of the contribution,
• the names and residences of the first executive officers of the company and the manner in which they act on behalf of the company,
• the names and residences of the members of the first supervisory board (if one is established),
• the appointment of a deposit manager,
• determining the amount of the reserve fund and the method of its creation.

ARE YOU STARTING A COMPANY? LEAVE IT TO US

Now that you know the differences between the different types of companies, you can start setting up your own business. Can't decide which form is best for you? Contact us to discuss your options. Fill out the contact form below and we can get started. And if you want to have a company as soon as possible, choose one of the ready-made company from our offer.