Launching a business: becoming self-employed or starting a company?
Are you thinking about starting a business? The decision to become your own boss is certainly important and can affect your whole life. In addition to the objects of business, you also need to consider other aspects that can influence this activity.
The crucial question for you as a future entrepreneur is to choose the legal form of your business – that is, whether you will operate as a self-employed person or establish a company. Each variant has its advantages and disadvantages.
Self-employment – if you want to start your business quickly and on the cheap
In terms of time and initial investment, becoming self-employed is the less demanding option. You get a trade license at the Trade Licensing Department and you can start right away. The fee for having a trade licence issued is CZK 1,000.
As for the initial duties of a self-employed person, the good news is that there are very few of them. The Trade Licensing Department informs your health insurance company and the social security administration that you have started a business. You should report this fact to both of these institutions within 8 days together with information on whether the business is your main or secondary source of income. This determines whether you will have to pay advances towards health and social insurance for the given year.
At this moment, you do not have to deal with the tax authority. You are required to file a tax return only after the end of your “start-up” year. You must also submit overviews (přehledy) of your income and expenses to your health insurance company and social security administration, which will then serve as a basis for calculating the advances for the next year. If your income does not exceed CZK 1 million per year, you can opt for the flat-rate tax (paušální daň), which frees you from the duty to file tax returns and send overviews of your income and expenses to the health insurance company and to the social security administration.
Starting a company – when there are more of you
The second option is to establish a company (such as a limited liability company – s.r.o.). You will choose this option especially if you have partners to go into business with.
If you are founding a company, you need to visit a notary who will draw up the foundation deed or the memorandum of association (if there are multiple shareholders). You will also need to pay the fees for registration in the Commercial Register and issuing a trade licence. These initial investments vary depending on whether you are establishing a limited liability company (s.r.o. – the simplified founding procedure at the notary’s office costs around CZK 4,000 excl. VAT; the standard founding procedure costs over CZK 7,000 excl. VAT plus CZK 2,700 for the judicial fee) or a joint-stock company (a.s. – over CZK 17,000 excl. VAT plus CZK 8,000 for the judicial fee). If you plan to have a registered capital, it is advisable to open a company bank account.
If a company is founded, it is automatically assigned a data box. From that point onwards, all communication between the company and public administration authorities must go through this channel. The company is obliged to register with the tax authority for corporate income tax and, if appropriate, also for other applicable taxes. From the time of its registration in the Commercial Register, the company is also required to keep accounts.
What’s next?
Well, at this point you are at the starting line. Each entrepreneur has different goals in their business. If you need advice with choosing the ideal legal form of your business or with your later entrepreneurial activities, do not hesitate and contact us. We will be happy to help you.