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Glossary of terms

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Establishment of a European Cooperative Society (SCE)

Art. (2) of the SCE Regulation deals  exhaustively with the ways in which the SCE can be established. The so-called  transnational element is needed. An SCE can be established:

  • Mergers of national cooperatives under the law of a state whose registered office and principal administration are located in the EC territory, if at least 2 of them are governed by the law of different member states.
  • Transformation of a cooperative having its registered office in the EC if such a cooperative has at least two years a subsidiary which is governed by the law of another Member State. It may arise even if the national cooperative has at least two years at least the organizational unit of an enterprise in another Member State (difference from SE)

The SCE Regulation also permits the SCE to be set up as a new entity:

  • By at least 5 natural persons in the territory of at least 2 different member states
  • By at least 5 natural persons and companies within the meaning of Article 48 of the SES and other legal entities established under the law of a Member State which are resident in the territory or governed by the law of at least two Member States
  • By at least two companies within the meaning of Article 48 of the SES and other legal entities established under the law of a State which is governed by the law of at least two different Member States.

Establishment of a European Economic Interest Grouping (EEIG)

The EEIG is established by a consortium agreement and is established on the day of its  registration. The contract must include:

  • Company name, the company must include the European Economic Interest Grouping or EEIG,
  • Domicile - on the registered office depends which law will be applicable in the alternative, it may be only in an EU Member State, it may be just the place where the main EEIG management or the main management of the member of the EEIG which is a legal person or, if a natural person, where he / she carries out his / her main activity if the EEIG also carries on business,
  • The scope of activities of the EEIG
  • The designation of a member of the EEIG - a Member State may provide that the EEIG may not have more than 20 members (restrictions are governed by the law of the association's headquarters) and that certain groups of entities may not charge membership, only under specified conditions (limitation by the law of the State to which the person concerned is subject)
  • The duration of the EEIG unless otherwise stated in the contract, is based on an indefinite period of time, the EEIG Regulation expressly prohibits the contract from adjusting in advance the amount of the rights and obligations of a member upon termination of membership.
  • Formal requirements - written form, notarial deed nor official signature verification is not required. The Member State cannot make any further requirements.

Establishment of a joint stock company

Only one person may set up a joint stock company if it is a legal person (the concentration of shares in the hands of 1 natural person is not a reason for cancellation of a JSC or the cause of its invalidity)

4 Steps to establish a JSC

  • Founding agreement (or founding document in case of only 1 shareholder)
  • Statutes of the JSC
  • Subscription and min. partial repayment of deposits
  • Collective decision on establishing JSC and on its statutes

Two ways of foundation:

  • One-off (simultaneous) - no public offer of shares
  • Gradual (successive) - with public offering of shares

Simultaneous establishment - founding of the JSC without public offers of shares

Founders will be obliged to repay the entire share capital, there is no underwriting of the shares or establishing general meeting (instead of it, the founders decide together). Founders have to pay the entire share premium (= the difference between the nominal value of the share and its selling price), 30% of all shares (when repaying with cash deposits) and fully repay the non-cash deposits prior to the registration. Here too, it is necessary to make a notarial deed (also if the simultaneous method is used by one founder), the share capital here is min. 2 million CZK.

Successive way of establishing of a JSC. - establishing JSC on the basis of a public offer of shares

Used if founders cannot, or do not want to subscribe the entire share capital. Part of the share capital, which exceeds the sum of the value of their deposits, is thus subscribed to by shares (by public offer). The share capital must be min. 20 million (if the JSC with a capital of less than 20 million increases its capital by public offer, it must be increased to this amount at minimum).

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Establishment of Limited Liability Company (Founding of s.r.o., Ltd.)

Founders (associates) - natural persons and legal entities, min. 1 and up to 50 founders (members), one-person Ltd. however, ca not be the sole founder (partner) of another company, 1 natural person may be the sole shareholder of max. 3 Ltd.

Founding s.r.o. - a social contract (a founding charter - if there is only one founder)
form - notarial deed
essentials:

  • Firm (with mandatory addendum) and registered office of the Ltd.
  • Partners - firm or name and registered office of the legal entity (including ID and place of business) or name and domicile of natural person (incl. personal ID)
  • The scope of business or activity (Ltd. can be set up for non-business purposes - fictive or formal PL) - scope of business can also be activities which can be performed only through persons with special justification (§56 / 3; however, the performance of these activities in the form of Ltd. does not deprive these persons of personal and unlimited liability for the proper performance of professional activity based on special regulations - it is then a joint liability of the Ldt. and above mentioned persons)
  • Amount of share capital and the amount of the contribution of each partner (including the manner and time of repayment of the deposit, in the case of non-monetary deposits, their subject and the amount to be credited to the shareholder's contribution, and the price according to expert's opinion)
  • Names and residence of the first directors of Ltd. and the way they act on behalf of the Ltd. (in the case of other executives, how many will be and the manner of negotiations on behalf of Ltd.)
  • Names and domicile of members of the first supervisory board (if established)
  • Determination of the deposit manager
  • According to the practice and the arrangement on the reserve fund (see §124 / 1)
  • Other data according to the Commercial Code
  • Officially verified signatures of all founders

Company establishment – registration in Commercial Register - conditions:

  • Submission of the proposal
  • Business license
  • Fulfilment of the deposit obligation in the legal scope (total capital of at least CZK 1,-, non-monetary deposits fully repaid, each monetary minimum of 30%, repayment of the entire issue); if 1 founder, then in full (non-cash contributions require expert opinion of 2 experts)
  • Proof of the legal reason for the use of the premises in which the Ltd. has a registered office
  • The proposal shall be signed (officially certified) by all directors (the proposal is filed on behalf of Ltd.); with the proposal are connected data about facts recorded in the Commercial Register pursuant to §28 of the Commercial Code, incl. documents in the collection of documents (in particular the social contract, proof of fulfilment of the mandatory extent of the repayment of deposits, expert opinion valuing non-cash deposits). In OR with Ltd. enters into section C.
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Establishment of Limited Liability Company (Founding s.r.o.)

Founders (associates) - natural persons and legal entities, min. 1 and up to 50 founders (members), one-person s.r.o. however, cannot be the sole founder (partner) of another company, 1 natural person may be the sole shareholder of max. 3 s.r.o.

Founding s.r.o. - a social contract (a founding charter - if there is only one founder)
Form - notarial deed

Essentials:

  • Firm (with mandatory addendum) and registered office of the s.r.o.
  • Partners - firm or name and registered office of the legal person (including ID and place of business) or name and domicile of natural person (incl. personal ID)
  • The scope of business or activity (s.r.o. can be set up for non-business purposes - fictive or formal PL) - scope of business can also be activities which can be performed only through persons with special justification (§56 / 3; however, the performance of these activities in the form of s.r.o. does not deprive these persons of personal and unlimited liability for the proper performance of professional activity based on special regulations - it is then a joint liability of the s.r.o. and above mentioned persons)
  • Amount of share capital and the amount of the contribution of each partner (including the manner and time of repayment of the deposit, in the case of non-monetary deposits, their subject and the amount to be credited to the shareholder's contribution, and the price according to expert's opinion)
  • Names and residence of the first directors of s.r.o. and the way they act by s.r.o. (in the case of other executives, how many will be and the manner of negotiations on behalf of s.r.o.)
  • Names and domicile of members of the first supervisory board (if established)
  • Determination of the deposit manager
  • According to the practice and the arrangement on the reserve fund (see §124 / 1)
  • Other data according to the Commercial Code
  • Officially verified signatures of all founders
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European company

European society is a form of a multinational society, the regulation of which is based on Community rules. The basis is Council Regulation (EC) No 2157/2001 on the Statute for a European Company (SE), followed by Council Directive 2001/86 / EC (SE Directive).

The SE Regulation foresees the adoption of laws in the Member States that fill the gaps that the regulation deliberately creates. The SE Regulation only regulates the basic status issues, their scope is far from exhaustive.

The Regulation either authorizes the Member States to create a specific rule - Member States may adapt the relevant issues for the SE without having to take into account the provisions they apply to the joint-stock company, are limited by the relevant European directives or refer directly to the stock law of Member States.

Benefits of a European Society:

  • Most legal orders do not allow a registered office to be relocated abroad without the cancellation of the company, and thus the interruption of the continuity of legal personality. European company allows relocation to another state, thereby changing the applicable law.
  • European society has a more flexible management and governance structure, and states are obliged to organize a SE based on their territory, both according to the dualistic and the monistic model (only the Board of Directors)

Capital Structure:

It does not differ from a regular joint-stock company. Mandatory share capital is created and is divided into shares and must be expressed in EURO. A minimum subscribed capital is of € 120,000 (however, conducting business in a particular field may require a higher amount).

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European Economic Interest Grouping (EEIG)

The basic purpose of regulation is to facilitate cooperation between entrepreneurs from different Member States. Based on the Council Regulation No 2137/85 establishing a European Economic Interest Grouping (EEIG). It is effective from 1 July 1989, with the exception of Articles 39, 41 and 42 which entered into force as from the entry into force of the Regulation. In the Czech Republic, effective from 1 May 2004.

EEIG differs from cooperatives and commercial companies in the CR by activity, which must meet the following conditions:

Positive definition of the activity:

  • The activity is intended to alleviate or develop the economic activities of its members, as well as to improve and increase the results of those activities
  • The EEIG's activities must be related to the economic activities of its members
  • Activities of the EEIG may be only ancillary activities in relation to the economic activities of its members

Negative definition of the purpose:

  • Purpose of the EEIG is not to achieve its own profit, but to support profit growth of members, EEIG can generate profit, but it should be divided among the members,
  • EEIG may not exercise executive or supervisory power over the actions of its members or other business activities (cannot be controlling person within the meaning of § 66a of the Commercial Code), an EEIG may exercise in relation to its members and other persons EEIG coordination activities.

The EEIG cannot carry out the activity instead of its members, but at the same time its activity cannot be independent of the activities of its members. E.g. EEIG whose members are lawyers, cannot practice law itself but only ancillary activities, such as organizing training, clients seek etc. Most EEIG were founded in services, 90% are private sector.

The EEIG may or may not be a legal person, it depends on the legislation of a Member State, it is always possible participant in substantive and procedural relationships.

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Foundation of the firm

This term is used in business practice with the term company foundation. In fact, the term of the foundation of the firm is wider and includes not only the foundation of companies as legal entities, but also, for example, the registration  of a natural person in the Commercial Register, which is also mandatory for a natural person in certain cases. The term firm is not equal to the term company, but is the name under which a person (whether natural or legal) is registered in the Commercial Register.

Founding of public trading company (founding of v.o.s.)

Founders (partners) v.o.s. are both natural person and legal person (except for special laws, e.g. bank), domestic and foreign, min.  2, the maximum number is not fixed, but it is true for the same law that one can be an unlimited guarantor only in one company (but does not refer to the societas or the silent participation).

Natural person must meet general conditions for operation of the trade according to the special law and it must not be impeded by the pursuit of the trade (irrespective of the scope of business of the company).

If partner is a legal person, his rights and duties are associated with participation in v.o.s., or authorized representative (but must meet the conditions set for the natural person).

Social Contract (SS)

Form - written with officially verified signatures (SS may also be concluded by an agent with a written power of attorney with officially verified signature of the principal - he / she will join the SS)
Essentials:

  • Firm and registered office - firm with a mandatory supplement (see above)
  • Partners - firm or name and registered office of natural persons (ID) or name and domicile of natural person (personal ID)
  • Scope of business - within the limits of § 2/1
  • Signatures

Establishment of v.o.s .:

  • Social contract
  • Before the filing of an application for registration in the Commercial Register, the partners must be authorized to exercise business activity (the founders have to prove the trade, the foundation of the v.o.s and set up a competent responsible representative for the performance of the trade, the company will get a trade license on the day it is created itself), v.o.s. can also be established for the purpose of pursuing the free professions = business whose performance is by law only allowed to natural persons (can only be done by persons authorized to do so, §56 / 3)
  • The v.o.s. is established by the day on which it was registered in the Commercial Register - the proposal is signed by all partners, social contract is attached (+ documents certifying the data entered in the Commercial Register - §28 / 1.2). In case that the application is not filed 90 days from the founding of the v.o.s. or from the delivery of the trade licence or other authorization, it is no longer possible to file an application for registration.
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Founding of the company and its establishment

Ways of founding

  • System of free formation - the company is founded and as a legal person is created simultaneously with the signing of the social contract
  • Concession system - valid founding depends on permission
  • Normative (registration) system - social contract is sufficient for founding, but the company as a legal person is established only after the registration in the public register

Founding in the Czech Republic - Founding in the Czech Republic is a legal action, which creates a basic prerequisite for the establishment of a company as a legal person

The legal act underlying founding of the company is

  • Social contract
  • Founding agreement and the statutes (JSC)
  • Founding charter (Ltd, JSC, if there is 1 founder, the form is notarial deed)

The essential elements of all these documents must be identical, the authenticity of the signatures of the persons who have founded the company must be authenticated (legalization, social contract of the Ltd. and founding agreement of the JSC must take the form of a notarial deed. Notarial Order introduces as a new type of notarial deed the report on decision of the statutory body of the legal person - the notary is newly responsible for the compliance of the recorded facts with legislation). The social contract can be signed by the founder's agent if it is equipped with a written power of attorney with an officially signed signature of the principal.

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