Establishment of a branch of a foreign entity
Business through a branch is one of the ways in which foreign entities can do business in the Czech Republic without establishing a new company. The establishment of a branch, its management and dissolution is less administratively demanding than the establishment, management and dissolution of a classical company (e.g. limited liability companies, joint stock companies, etc.).
The main advantages of a branch compared to a classical company are the following in particular:
- not a separate legal entity, but part of a foreign entity, and therefore transactions between the foreign entity and the branch are purely informal;
- the decision on the establishment of the branch does not have to be in the form of a notarial deed, thus saving on fees;
- in establishing the branch it is not necessary to create registered capital;
- the sole mandatory body of the branch is the branch manager, on whom the law does not impose such strict requirements as on members of the statutory body of a classical company;
- management of the branch is not subject to special rules, meaning that general meetings, etc. do not have to be held; and
- dissolution of the branch is not accompanied by liquidation, which is time-consuming and costly.
The key person in the branch is the branch manager, who manages the branch and usually also holds the position of responsible representative, and therefore also answers to the foreign entity for the proper operation of the business and adherence to the Trade Licensing regulations. In selecting the branch manager, therefore, the foreign entity should proceed with due diligence, as it is the person who will be responsible for its business activities in the Czech Republic. A branch can have only one manager, who must be a natural person. The branch manager must be registered in the Commercial Register.
The advantage is that the branch manager is already directly entitled under the law (without having to be granted power of attorney for the specific legal act) to act for the foreign entity in all matters relating to the branch in the Czech Republic, including representation of the foreign entity in judicial, administrative, tax and other proceedings.
In this context, it should be emphasized that the branch is not a legal entity (since it does not have legal personality); it is merely an organizational unit of a foreign entity located in a state other than that of the place of residence of the foreign entity. This means that in dealing with business partners, authorities, courts or other entities in the Czech Republic the branch manager must denote all contracts and other business documents as the foreign entity an not as the branch itself, as only the foreign entity is eligible to acquire rights for itself by its own legal actions and commit to obligations (perform legal acts). In other words, it is only and solely the foreign entity that can own property, employ staff, enter into contracts, participate in relevant proceedings, etc.
Example of correctly denoted representative: Business intelligence, s. r. o., identification no.: 123456, registered office: Bratislava, Kríková 4, Postal Code 821 07, registered in the Commercial Register maintained by the Regional Court Bratislava I, Section Sro, Insert 00007/B [note: identification of the foreign entity] via Business intelligence, s. r. o., odštěpný závod (branch), identification no.: 741852, registered office: Prague, Dlouhá 730/35, Postal Code 110 00, registered in the Commercial Register maintained by the Municipal Court in Prague, Section Ax, Insert 987 [note: identification of the branch], represented by the branch manager Jan Novák.
If a foreign entity provides an item to the branch, such as property, employees, etc., it does so purely informally, and it is precisely for this reason that the branch is not legally separated from the foreign entity (such transactions take place within one entity, therefore it is not necessary to conclude a purchase contract).
Except for the branch manager, the branch has no bodies, but the foreign entity may allocate core employees to the branch or hire new employees for this purpose.
The foreign entity operates in the Czech Republic through the branch under the same conditions and to the same extent as a domestic entity, i.e. among other things, this means that the branch is required to maintain separate accounts according to the regulations of the Czech Republic, to pay taxes in the Czech Republic, etc.
All foreign entities who are domiciled in a foreign country may establish a branch in the Czech Republic. In order for a foreign entity to start doing business through the branch in the Czech Republic, it is necessary to:
- decide on the establishment of the branch;
- obtain a trade licence or other authorization to perform business activities in the Czech Republic; and
- file for registration of the branch in the Commercial Register, supported by relevant documents.
Documents to be submitted to the registration court for registration of the branch in the Commercial Register are:
- the decision of the foreign entity establishing the branch;
- certificate of incorporation of the foreign entity or equivalent;
- partnership agreement, under which the foreign entity was founded, and its amendments and full text;
- the consent of the property owner to the placement of the branch office;
- trade licence or other authorization of the branch to conduct the business;
- affidavit and consent to registration of the branch manager in the Commercial Register;
- Czech criminal record for the branch manager;
- criminal record for the branch manager from the State of which he is a national, if the branch manager is other than a Czech citizen; and
- power of attorney for representation.
Our services include:
- preparation of all documents required for registration of the branch in the Commercial Register;
- arranging consent of the property owner to placement of the branch;
- arranging a trade licence or other authorization for the branch to conduct the business in the Czech Republic;
- arranging of Czech criminal records for the branch manager;
- arranging registration of the branch in the Commercial Register;
- payment of notarial, administrative, judicial or other fees;
- bookkeeping for the branch; and
- other activities upon individual agreement.
The deadline for registration of the branch in the Commercial Register after submission of the application and delivery of the necessary documents is only 10 business days.
What we will need from you in order to prepare the respective documents:
- 2x certificate of incorporation of the foreign entity bearing an apostille and super-legalization (if required); the certificate of incorporation must not be older than 3 months;
- 1x copy of the partnership agreement under which the foreign entity was founded, and its amendments and full text;
- 1x copy of identity card or passport of persons authorized to act on behalf of the foreign entity;
- description of the business activities that the branch will conduct in the Czech Republic;
- name of the branch (for the time being, the same name as the foreign entity – with additional indication that it is a branch – is sufficient);
- address of the branch office in the Czech Republic (we are able to provide a registered office in the Czech Republic);
- 1x copy of the identity card or passport of the branch manager;
- 2x criminal record for branch manager from the state of which he is a national, if the branch manager is other than a Czech citizen, provided with an apostille and super-legalized (if required); the criminal record must not be older than 3 months. If the state does not issue an extract from the criminal records or an equivalent document, an affidavit for the branch manager made before a notary public or other competent authority of that state stating that there is no impediment for the branch manager to engage in the business operation pursuant to Section 8 (5) of the Trade Licensing Act; the affidavit must not be older than 3 months;
- 1x extract from the criminal record for the foreign entity from the country where the foreign entity is domiciled, or an equivalent document issued by a competent judicial or administrative authority of the state, bearing an apostille and super-legalization (if required); these documents must not be older than 3 months. If the state does not issue an extract from the criminal records or an equivalent document, an affidavit for the foreign entity made before a notary public or other competent authority of that state stating that there is no impediment for the foreign entity to engage in the business operation pursuant to Section 8 (5) of the Trade Licensing Act; the affidavit must not be older than 3 months
- other information and documents upon request.
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