Lesson 3 – Law of Business Organisations
Introduction and Objectives of the Lesson
The main objective of this lesson is to explore commercial law and business organisations in the Czech Republic. We will define different entities that are entitled to do commercial activities, especially limited liability companies and joint stock companies. While reading the descriptions, you will familiarise yourself with company-related terminology, bodies, documents, and stages of existence.
The theory in this lesson focuses on business organisations in the Czech Republic. The aim is not to study common law companies, because the U.S. or UK business forms have different terminology and studying it is beyond the scope of this course. We feel it is the best to start learning foreign terminology about the environment you are familiar with in your mother tongue. Once you get the basics, you can go further and study from numerous sources on the common law.
At the end of the lesson, you can compare some legal expressions in British English and American English. This may help to avoid misunderstanding in communication with people from different parts of the world.
This lesson is about business law, therefore, lets get down to business!
Doing business is one of the fundamental pillars of the society. Every country in the world and every single community creates business environment, so that goods can be exchanged for money (or other valuables). The law needs to recognise those who are capable of doing so professionally and legally. We call them entrepreneurs and they may be natural persons or legal persons. The law of the UK or the United States defines different forms of business organisations than the Czech law. Classic Legal English textbooks focus mostly on common law companies and corporations, and thus we think that those types of business organisations are widely covered by literature or the Internet. Our goal is to explore Czech business environment according to the Czech Civil Code and Business Corporations Act.
In terms of the Civil Code, doing business (or conducting business) means a systematic activity conducted independently by an entrepreneur in their own name, on their own behalf and with a goal to make a profit.
An entrepreneur is
a person registered with the Commercial Register;
a person conducting business on the basis of a trade licence;
a person doing business on the basis of a licence other than a trade licence;
a natural person engaged in agricultural production.
Business Organisations in the Czech Republic
A. Sole Trader
Sole trader (or self-employed, sole proprietor) is not an example of a company or business organisation per se, but deserves special attention. Trade Licensing Act is the act which regulates their legal status and conditions for doing the entrepreneurial activity. Sole traders shall conduct their activities independently, continuously, on their own behalf, at their own risk, and with a purpose to make a profit. Sole traders are registered with Trade Licensing Offices and are holders of a trade licence, which serves as a certificate of their qualification. A trade licence expressly defines the scope of business of a sole trader. Different business areas require different level of qualification, and trade licenses can be unqualified (based on notification only), qualified (requires proofs of qualification) or craft trade licenses.
The act also stipulates the list of activities which are not considered to be trade licensing activities, and the examples include attorneys, physicians, experts, interpreters, tax advisors, artists, etc. Sole traders provide the entire capital for their business and have unlimited liability for business debts.
B. Limited Liability Company
By far the most popular form of business organisation in the Czech Republic, a limited liability company is a company whose registered capital is comprised of predetermined contributions of its shareholders (or partners). It may be founded even by a single shareholder. The company is liable for any breach of its obligations by its entire property, and the shareholders are liable up to the amount of their unpaid contributions registered with the Commercial Register.
Limited liability company is founded by the Memorandum of Association (or Articles of Incorporation in American English), or the Founders Deed in case of a sole shareholder. These documents, besides other particulars, identify the shareholders, scope of business, amount of the registered capital, monetary and in-kind (non-monetary)…