Establishment of a branch plant of a foreign person
Doing business through a branch plant (formerly an organizational unit) is one of the forms of business of foreign persons in the Czech Republic without the need to establish a new company. The establishment of a branch plant, its administration and dissolution is administratively less demanding than the establishment, administration and dissolution of a classic company (e.g. limited liability company, joint stock company, etc.). Let's take a look at the details of a spin-off company.
ADVANTAGES OF A SPIN-OFF PLANT COMPARED TO A COMPANY
- it is 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 a spin-off company does not have to be in the form of a notarial deed, which saves on fees,
- when a spin-off company is established, there is no need to create share capital,
- the only obligatory body of a branch plant is its manager, who is not subject to such strict requirements as the members of the statutory body of a traditional company,
- the administration of the spin-off plant is not subject to any special rules, therefore there is no need to hold general meetings, etc.; and
- when a spin-off plant is closed, it is not liquidated, which is time-consuming and costly.
HEAD OF THE BRANCH PLANT
The key person of a branch plant (organizational unit) is its head, who is the head of the branch plant and usually also acts as the responsible representative and is therefore also responsible to the foreign person for the proper operation of the trade and for compliance with trade regulations.
Therefore, the foreign person should exercise due care in selecting the person, as he or she will represent its business activities in the Czech Republic. A branch plant can have only one manager, who can only be a natural person (i.e. not a company). The head of the branch plant must be entered in the Commercial Register.
The advantage is that the head of the branch plant is already legally entitled to represent the foreign person in all matters concerning the branch plant in the Czech Republic, including representation of the foreign person in court, administrative, tax and other proceedings. Therefore, it is not necessary for the foreign person to grant him a power of attorney for specific legal actions.
IS A SPIN-OFF PLANT A LEGAL ENTITY?
It should be emphasised that a branch plant is not a legal entity (it has no legal personality). It is merely an organisational unit of a foreign person located in a different State than the residence or registered office of the foreign person.
This means that in contracts or other business documents, when dealing with business partners, authorities, courts or other entities in the Czech Republic, the head of the branch plant must always designate the foreign person as the acting party and not the branch plant itself, because only a foreign person is entitled to acquire rights and bind itself to obligations (legally act) by its own legal actions. In other words, it is the foreign person and only the foreign person that can own property, employ employees, enter into contracts, participate in relevant proceedings, etc.
Ex. the correct designation of the actor: Business Intelligence, s. r. o., ID No.: 123456, registered office: Bratislava, Kríková 4, Postal Code 821 07, registered in the Commercial Register maintained by the District Court Bratislava I, Section Sro, Insert 00007/B [note: this is the identification of a foreign person] through Business inteligence, s.r.o., spin-off plant, ID No.: 741852, with registered office: Praha, Dlouhá 730/35, Postal Code 110 00, registered in the Commercial Register maintained by the Municipal Court in Prague, Section Ax, Insert 987 [note: this is the identification of the spin-off plant], represented by the head of the spin-off plant, Jan Novák.
TRADING, EMPLOYEES AND ACCOUNTING
If the foreign person provides an item to the branch plant, e.g. property, employees, etc., this is done purely informally, precisely because the branch plant is not legally separated from the foreign person (these transactions take place within a single entity, so there is no need to conclude, for example, a purchase agreement).
Apart from the manager, the branch plant does not have any authorities, but it is not excluded that the foreign person may allocate its own employees to the branch plant or hire new employees for this purpose.
A foreign person conducts business in the Czech Republic through a branch plant under the same conditions and to the same extent as a domestic person, which means, among other things, that the branch plant is obliged to keep separate accounts according to Czech regulations, pay taxes in the Czech Republic, etc.
TIP: If you are still considering whether to set up a spin-off plant or whether to start a business in the Czech Republic in the form of a limited liability company, read the complete article on the differences between a spin-off plant and a limited liability company.
WHO CAN SET UP A SPIN-OFF PLANT?
All foreign persons residing or having their registered office in the territory of a foreign state may establish a branch plant in the Czech Republic. In order for a foreign person to start business in the Czech Republic through a branch plant, it is necessary that:
- decided to establish a spin-off plant,
- has obtained a trade or other licence to carry out business activities in the Czech Republic; and
- filed a petition for registration of the spin-off company in the Commercial Register, which must be accompanied by the relevant annexes.
TIME FOR ADMINISTRATION: WHAT TO PREPARE FOR THE REGISTRATION OF A SPIN-OFF COMPANY IN THE OR?
Documents to be submitted for the registration of a branch plant in the Commercial Register:
- the decision of a foreign person to establish a branch plant,
- an extract from the commercial register of the foreign person or an equivalent document,
- the memorandum of association by which the foreign person was established, and amendments and complete versions thereof,
- the property owner's consent to the location of the branch office,
- a trade or other licence to carry out the business activities of a branch plant,
- affidavit and consent to the registration of the head of the branch in the Commercial Register,
- an extract from the criminal record from the Czech Republic of the head of the branch plant,
- an extract from the criminal record of the head of the branch plant from the state of which he/she is a citizen, if the head of the branch plant has a nationality other than Czech citizenship; and
- power of attorney for representation.
TIP: Want to know even more? Read the next article about what a spin-off plant is. Find out, for example, how it differs from a branch and a branch office, or which laws govern its operation.
LEAVE THE ESTABLISHMENT OF THE SPIN-OFF PLANT TO US
Our services include:
- preparation of the documents required for the registration of the spin-off company in the Commercial Register,
- obtaining the property owner's consent for the location of the branch office,
- obtaining a trade license or other authorization to conduct business activities of a branch plant in the Czech Republic,
- processing of a criminal record extract from the Czech Republic of the head of the branch plant,
- registration of the spin-off company in the Commercial Register,
- payment of notary, administrative, court or other fees,
- keeping the accounts of the branch plant and
- other activities by individual agreement.
The time limit for the registration of a branch plant in the Commercial Register from the submission of the order and delivery of the necessary documents is only 10 working days.
Finally, we note that each country has its own specificities. Before you start to procure the above documents, be sure to contact us, we will be happy to advise you.