Share capital is one of the main elements of a limited liability company (s.r.o.). When establishing a new company, it is necessary to determine its amount. In the following text, we will answer questions regarding the meaning of share capital, its influences, and how to determine a share capital amount.
What is share capital?
Share capital represents the financial resources available to a company at the beginning of its existence. It refers to the value of contributions made by the owners into the newly formed company. These contributions can be:
· Monetary (cash or deposit into a bank account).
· Non-monetary (assets valued based on an expert appraisal, such as movable or immovable property).
What amount should be chosen for share capital?
The minimum amount of share capital for a limited liability company is 1 CZK (Czech koruna). Previously, the minimum value of share capital was much higher (200,000 CZK), but it was reduced to 1 koruna in 2014 to remove barriers to starting new businesses.
In practice, it is recommended to choose a higher amount for share capital when establishing a new company, for example, at least 10,000 CZK or more.
Why choose a higher share capital?
As mentioned before, share capital represents the financial resources of the company. Its amount should cover at least the basic costs associated with company formation, which are significantly higher than 1 CZK.
The total incorporation costs of an s.r.o. can be around 10,000 CZK. This amount does not include expenses for renting premises for the company's registered office, which is a legal requirement. If you do not have your own property, you can use a virtual office, which also incurs additional costs to fulfill legal obligations.
When determining the share capital, it is therefore advisable to consider other necessary costs associated with starting a business, such as equipment and advertising. Even with maximum savings, an amount of 1 CZK will not be sufficient for a successful business start.
If you choose a share capital of 1 CZK, it may negatively affect the credibility of your company and create complications when applying for loans or transferring shares among partners.
How to contribute the share capital?
Contributing the share capital is one of the final steps before registration in the Commercial Register. How and when should it be contributed?
By depositing it into a bank account:
After the notarial deed is prepared, you must open a special account at a bank for depositing the share capital and transfer the financial resources to that account. Once the deposit is made, the bank will issue a confirmation that allows the notary to complete the process of registering the company in the register.
Since 2021, it is possible to contribute the share capital in cash, up to 20,000 CZK, directly at the notary. This option facilitates and expedites the process of company establishment. This option is particularly useful for foreigners, as banks require the completion of security questionnaires that need approval