Ltd. or S.R.O. - That Is the Question!
06. února 2019
Imagine that you wake up one day in beautiful Prague (or any other Czech city) with a brilliant idea which could be turned into a viable business. What do you need besides the idea and hard work? A company! The question is: do I want a British Ltd. or a Czech s.r.o. (limited liability company)? We will not consider joint stock companies because, in our opinion, they are not needed in the early stages of developing an idea.
In the UK, you can set up a company online via the Companies House site without even walking out of your door. Within 24 hours, even as a non-UK citizen, you can have an established Ltd. Then, all you have to do is to register for the corporation tax and you are good to go! That sounds awesome, right?
On the other hand, it takes about 5 to 7 days to establish a Czech s.r.o. It requires you to visit at least 3 places (a notary public, the Trade Licensing Office and a Bank) and it cannot be processed online. Yet.
An Irish Ltd. can also be established online via the Companies Online Registration Environment.
The pros of the Ltd. are: less bureaucracy and faster and cheaper incorporation.
The cons of the Ltd. are: opening a UK bank account is complicated; a Czech trade license and a branch office is required to do long term business in the Czech Republic.
So why should you choose the s.r.o.? Following the incorporation of the s.r.o., most of the communication with the Government can be processed online. Opening a bank account is easier. The articles of incorporation can be written at the shareholder's/founder's discretion, including options, agreements, warranties, etc. You can easily expand to neighbour states. Tax and legal advice is cheaper.
Brexit is also a factor. A cross-border regulation between the UK and the EU after Brexit has not been settled yet.
Last but not least, we also want to talk about the company's debts. We wish every founder success, but sometimes in business even a brilliant idea is not enough and it happens that the company is unable to pay its debts. There are two aspects which you need to consider (i) the costs of winding up a company, and (II) a possible ban to hold a director's office in another company due to your company's insolvency. The costs depend on ad hoc conditions but there is a possibility that a director's ban may be imposed for up to 3 years in the Czech Republic, 5 years in Ireland and up to 15 years in the UK.
From a legal point of view with respect to a long-term business operation, we believe that the Czech s.r.o. is a better option than the British and Irish Ltd. What do you think?