ClassificationofBusiness Enterprisesmultiedu.tul.cz/~katerina.marsikova/multiedu/Business_Administration/2Legal_forms.pdfThe definition of legal (juridical) person: This is a business

Classification of Business

Enterprises

ClassificationClassification ofof BusinessBusiness

EnterprisesEnterprises

Typology of enterprisesTypology Typology ofof enterprisesenterprises

Legal forms Size of enterprise Type of production Sectors and branch of economy

LegalLegal formsforms SizeSize ofof enterpriseenterprise Type Type ofof productionproduction SectorsSectors andand branchbranch ofof economyeconomy

three groups according to independence criteria:

three groups according to independence criteria:

The new definition of SME categorizes them in following:

linked enterprises, when one company owns most of the capital or voting rights in the other company,

partner enterprises, when one company is an upstream enterprise and owns more than 25% of the capital or voting rights in a downstream enterprise,

autonomous enterprises that do not meet the two above mentioned criteria of independence.

The new definition of SME categorizes them in following:

linked enterprises, when one company owns most of the capital or voting rights in the other company,

partner enterprises, when one company is an upstream enterprise and owns more than 25% of the capital or voting rights in a downstream enterprise,

autonomous enterprises that do not meet the two above mentioned criteria of independence.

Size clasification - EUSizeSize clasificationclasification -- EUEU

EnterpriseCategory

Number of employees Annual Work Unit

Annual turnover

or Annual balance sheet total

Medium-sized

< 250 ≤ 50 mil. €

(in yr. 1996: 40 mil.)

≤ 43 mil. €

(in yr. 1996: 27

mil.)

Small < 50 ≤ 10 mil. €

(in yr. 1996: 7 mil.)

≤ 10 mil. €

(in yr. 1996: 5 mil.)

Micro < 10 ≤ 2 mil. €

(not defined)

≤ 2 mil. €

(not defined)

Enterprise share according to thenumber of employees

EnterpriseEnterprise shareshare accordingaccording to to thethenumbernumber ofof employeesemployees

NumberNumber ofof employeesemployees % % ofof enterprisesenterprises

1 1 -- 99 96,096,010 10 -- 4949 3,13,150 50 -- 249249 0,70,7250 250 andand moremore 0,20,2

Type of productionType Type ofof productionproductionEnterprises with production:

a) Single part production – small amount of the same products

b) Batch (line) production – production of the same type ofproduct repeating in batches;

Size of batch:b1) smallb2) mediumb3) great

c) Continual production – production of great amount of smalltype of products

SectorsSectorsSectors

1.Primary sector (primary production, basicindustry, např. agriculture, forestry, miningindustry)

2.Secondary sector (manufacturing industry, e.g. manufacturing, food, textile).

3.Terciary sector (non-productive enterprises, např. trade, transport, banks).

Legal formsLegalLegal formsforms

1. Natural person (tradesman, enterpreneur)2. Corporations3. Cooperative4. State enterprises, state organisations5. Budgetary organisation6. Contributory organisation7. Foundation8. Association9. Not-for-profit organisation10. Others

DefinitionsDefinitions

The definition of a natural person: He/she is a citizen born in the Czech Republic. The natural person must be 18 years old to achieve full legal capacity.

The definition of an entrepreneur (physical person): Entrepreneurs are natural people devoted to business (so-called self-employed people; Czech acronym OSVČ). They have entrepreneurial resources, which they use for the realisation of business plans, but they accept the business risk.

Entrepreneurs carry the business risk. Their personnel property is a business liability.

The definition of legal (juridical) person: This is a business entity (corporation) according to a business code or other specific legal conditions.

In the Czech Republic, people may carry out business in two ways - as a natural person (self-employed) or as a legal entity.

The definition of a natural person: He/she is a citizen born in the Czech Republic. The natural person must be 18 years old to achieve full legal capacity.

The definition of an entrepreneur (physical person): Entrepreneurs are natural people devoted to business (so-called self-employed people; Czech acronym OSVČ). They have entrepreneurial resources, which they use for the realisation of business plans, but they accept the business risk.

Entrepreneurs carry the business risk. Their personnel property is a business liability.

The definition of legal (juridical) person: This is a business entity (corporation) according to a business code or other specific legal conditions.

In the Czech Republic, people may carry out business in two ways - as a natural person (self-employed) or as a legal entity.

The legal forms of business are as follows:

The legal forms of business are as follows:

sole owner, e.g. trader (Czech acronym OSVČ),

silent partnership, limited liability company (Czech acronym

s.r.o.), limited partnership (Czech acronym k.s.), unlimited partnership (Czech acronym

v.o.s.), joint-stock company (Czech acronym a.s.), cooperative.

sole owner, e.g. trader (Czech acronym OSVČ),

silent partnership, limited liability company (Czech acronym

s.r.o.), limited partnership (Czech acronym k.s.), unlimited partnership (Czech acronym

v.o.s.), joint-stock company (Czech acronym a.s.), cooperative.

Types of business organisationsTypesTypes ofof business business organisationsorganisations

a) personal established by 2 and more people,partners participate on business,collective company liabilityco-partnership, limited partership

b) capital capital participation of partners on business they do not have participate personally on business,limited company Ltd, joint-stock company(public limited company – plc.)

Sequence of establishment ofcompanies

SequenceSequence ofof establishmentestablishment ofofcompaniescompanies

1) Signing of partnership contract

2)Deposit the capital in the bank

3) Application in the licence authority.

4) Registration in Companies register.

Legal Forms of Business Organisation

LegalLegal FormsForms ofof Business Business OrganisationOrganisation

Proprietorship Partnership Cooperation

ProprietorshipProprietorship PartnershipPartnership CooperationCooperation

Sole Owner – Natural Person (Entrepreneur)

Sole Owner – Natural Person (Entrepreneur)

The natural person (individual entrepreneur) can carry on business activities in their own name on the basis of a valid trade licence or other permission.

In the case of a foreign non-EU individual, registration in the Commercial Register is also required.

The natural person (individual entrepreneur) can carry on business activities in their own name on the basis of a valid trade licence or other permission.

In the case of a foreign non-EU individual, registration in the Commercial Register is also required.

Silent PartnershipSilent Partnership

A silent partnership is established by a written contract between a silent partner and a Czech entrepreneur.

The silent partner invests in the Czech business and awaits the results – a share of the profits.

Silent partners are only liable for losses to the extent of their original investment.

A silent partnership is established by a written contract between a silent partner and a Czech entrepreneur.

The silent partner invests in the Czech business and awaits the results – a share of the profits.

Silent partners are only liable for losses to the extent of their original investment.

LtdLtd

Liability of ownersLiability of owners Together into Together into amount of amount of outstanding depositoutstanding deposit

Minimum of capitalMinimum of capital min. 200 000 CZKmin. 200 000 CZK

Minimum of partners (founders)Minimum of partners (founders) min. 1, max. 50min. 1, max. 50

InstitutionsInstitutions

General meeting General meeting –– highest highest institutioninstitutionExecutives Executives –– corporate inst.corporate inst.Advisory board Advisory board -- voluntaryvoluntary

Profit/loss sharingProfit/loss sharing According of share of business According of share of business shareshare

Limited liability companySpolečnost s ručením omezeným

Limited Limited liabilityliability companycompanySpoleSpoleččnost s runost s ruččeneníím omezenýmm omezeným

Joint stock companyJointJoint stockstock companycompany

This form of business is characterized by the limited liability of itsowners, the issuance of shares of easily transferable stock, andexistence as a going concern.

The process of becoming a corporation, call incorporation, gives thecompany separate legal standing from its owners and protects thoseowners from being personally liable in the event that the company issued (a condition known as limited liability).

Incorporation also provides companies with a more flexible way to manage their ownership structure.

ThisThis formform ofof business business isis characterizedcharacterized by by thethe limited limited liabilityliability ofof itsitsownersowners, , thethe issuanceissuance ofof sharesshares ofof easilyeasily transferabletransferable stockstock, , andandexistence as a existence as a goinggoing concernconcern. .

TheThe processprocess ofof becomingbecoming a a corporationcorporation, , callcall incorporationincorporation, , givesgives thethecompanycompany separateseparate legallegal standingstanding fromfrom itsits ownersowners andand protectsprotects thosethoseownersowners fromfrom beingbeing personallypersonally liableliable in in thethe eventevent thatthat thethe companycompany isissuedsued (a (a conditioncondition knownknown as limited as limited liabilityliability). ).

IncorporationIncorporation alsoalso providesprovides companiescompanies withwith a more a more flexibleflexible wayway to to managemanage theirtheir ownershipownership structurestructure. .

Joint stock companyJointJoint stockstock companycompany

Owners have limited liability. Share capital must be at least CZK 1 million. The company must put at least 20% of the capital

into a reserve fund, which is funded by after-tax profits.

The accounts must be audited annually. There must be at least three members on the board

of directors, and each member must be a Czechcitizen or resident

OwnersOwners havehave limited limited liabilityliability. . ShareShare capitalcapital mustmust bebe atat leastleast CZK 1 CZK 1 millionmillion.. TheThe companycompany mustmust put put atat leastleast 20% 20% ofof thethe capitalcapital

intointo a a reservereserve fundfund, , whichwhich isis fundedfunded by by afterafter--tax tax profitsprofits..

TheThe accountsaccounts mustmust bebe auditedaudited annuallyannually. . ThereThere mustmust bebe atat leastleast threethree membersmembers on on thethe boardboard

ofof directorsdirectors, , andand eacheach membermember mustmust bebe a a CzechCzechcitizencitizen oror resident resident

Joint stock companyJointJoint stockstock companycompanyLiability of Liability of stockstock holdersholders nonenone

Minimum Minimum ofof capitalcapitalmin. min. 2 000 2 000 000000 CZKCZK withoutwithout tender tender ofofstocksstocksmin. min. 20 000 20 000 000000 CZKCZK withwith tender tender ofof stocksstocks

Minimum Minimum ofof partnerspartners((foundersfounders))

min. 2 min. 2 naturalnatural personperson oror 1 1 corporatecorporatebodiesbodies ((legallegal entitiesentities))

InstitutionsInstitutionsShareholderShareholder´́s meetings meetingBoardBoard ofof directorsdirectorsAdvisoryAdvisory boardboard –– min. 3 min. 3 membersmembers

Profit/Profit/lossloss sharingsharing AccordingAccording ofof shareshare ofof nominalnominal valuevalue ofofstockstock to to allall stocksstocks

The minimum share capital condition is CZK 2 million for companies set up without a public offer for share subscription. The shares may be issued either in certificated or uncertificated (paperless) form. All joint-stock companies are required to establish reserves of at least 20% of their share capital.

Cooperative - družstvoCooperativeCooperative -- drudružžstvostvo

Liability of owners No liability

Minimum of capital min. 50 000 CZK

Minimum of partners (founders) min. 5 partners or 2 corporatebodies (legal entities)

Institutions

Member meeting board of directors – corporateinst.Control commision – 3 members

Profit share According to level of memberdeposit

Limited partnership (comandite) –Komanditní společnost

Limited Limited partnershippartnership ((comanditecomandite) ) ––KomanditnKomanditníí spolespoleččnostnost

Liability of ownersLiability of owners

GeneralGeneral partner partner –– Sole trader is Sole trader is liable for the debts of business to the liable for the debts of business to the full extent of his personal assetsfull extent of his personal assetsLimited partnerLimited partner –– amount of amount of outstanding depositoutstanding deposit

Minimum of capitalMinimum of capital Limited partner minimum 5000Limited partner minimum 5000

Minimum of partners Minimum of partners (founders)(founders) 1 + 11 + 1

Profit/loss sharingProfit/loss sharing

profit 1 : 1, than profit 1 : 1, than GeneralGeneral partner partner the the same amount and same amount and Limited partnerLimited partneramong their depositsamong their depositsloss loss –– GeneralGeneral partner partner the same the same amount amount

Unlimited- partnership - Veřejnáobchodní společnost

UnlimitedUnlimited-- partnershippartnership -- VeVeřřejnejnááobchodnobchodníí spolespoleččnostnost

Liability of ownersLiability of ownersTogetherTogether liabilityliability forfor thethedebtsdebts ofof business to business to thethe fullfullextentextent ofof personalpersonal assetsassets

Minimum Minimum ofof capitalcapital IsIs not not defineddefined

Minimum Minimum ofof partnerspartners((foundersfounders))

2 2 naturalnatural personperson oror 2 2 corporatecorporate bodiesbodies ((legallegalentitiesentities))

Profit/Profit/lossloss sharingsharing EqualEqual shareshare

In an unlimited partnership (Czech acronym v.o.s.), all partners (minimally two) are jointly and severally liable for the partnership’s obligations. Partnership profits are shared equally unless otherwise specified in the partnership agreement.There is no minimum capital requirement.

Sources:Sources:

http://www.businessinfo.cz/en/section/guidelines-starting-a-business-psc/1001864/

http://www.businessinfo.cz/en/section/guidelines-starting-a-business-psc/1001864/