Upcoming simplification of company formation

13 April 2022

Filip Lukačovič |
Štěpán Kleček, Partner |

Setting up a company can be an administratively demanding process. Increasing levels of digitalisation are making it possible to handle more matters remotely. Nevertheless, there are still some issues that businesses must deal with person, either at a notary or at the Trade Licensing Office.

The current legislation distinguishes two phases of the formation of a new company or incorporation. In the first phase, in the case of capital companies, the deed of incorporation is drawn up with the necessary formalities in the form of a notarial deed. In the second stage, the company is registered in the Commercial Register based on an application, which must be supported by the relevant documents. These documents may include an extract from the Trade Register, which proves that the company has the appropriate business authorisation. Without an extract from the Trade Register, the founders will not be successful and the court will not register the company's business as defined in the deed of incorporation (we commented on the requirement to define the business in the December issue of the newsletter).

The Chamber of Deputies is now debating a government bill - amendments to the registry and trade licence regulations that could simplify this procedure. According to the amendment under discussion, it will be possible to file an application to register a company in the Commercial Register before the company obtains a trade licence. The Commercial Court will register the company, including its line of business, despite the lack of a trade licence. The company should then have up to 12 months to apply for a trade licence.

This does not preclude the usual way of incorporating a company, i.e. obtaining authorisation and only then filing an application for registration in the Commercial Register. However, it is proposed here that a limit of 90 days be introduced after which the trade licence ceases to exist (or the trade licensing authority decides that the licence has not been created) if no application is made for its registration in the Commercial Register. The draft amendment is now in the first reading, and it will be some time before we see this change. In addition, the draft is likely to undergo further amendments.

In this connection, we would like to remind you that the above-mentioned relief consisting in the subsequent acquisition of a trade licence does not in any way mean that the company could still operate in the given field before obtaining the licence. It is only about reducing the administrative burden associated with the establishment and formation of a company. Doing business without a trade licence will remain an offence, and depending on its intensity, a misdemeanour or even a crime.

According to the explanatory memorandum of the amendment, we believe that this government initiative may have partly originated in a recent Supreme Court decision, which we reported on in an earlier article. In it, the court supported the conclusion that in incorporation proceedings it is not necessary to formulate the wording of the line of business in the "language" of the Trade Licensing Act, as these are two entirely separate sets of law with relatively little intersection. In other words, although the company's actual line of business must be subsumed under the relevant business authorisation (mainly a trade), they need not be entirely identical. This appears to have opened the door to the possibility of registering a company with a line business even though the company has not yet obtained the trade licence in question.

If you are unsure about any of the steps involved in setting up your own company, please do not hesitate to contact us.