Trade Licence or s.r.o. in Czechia

For most people starting out in Czechia, this is the first decision that really matters. It deserves more thought than picking the option you heard of first.

Trade licence (živnost)

With a trade licence you do business as an individual, so you and the business are the same person. Registering is simpler, and so is the administration that follows.

Business debts are yours, backed by your personal assets. Some larger clients would rather contract with a company. A trade licence is also hard to sell or pass on.

Limited liability company (s.r.o.)

An s.r.o. is a legal person separate from its owners, and it answers for its own debts. Partners can divide shares between them or sell them.

The company keeps double-entry accounts, recording every transaction as both a debit and a credit, and it prepares annual financial statements.

You cannot simply take money out of the company. Each payment to you needs a formal arrangement.

Questions that usually settle it

• Who are your clients? Corporate and public buyers often prefer to contract with an s.r.o.
• How much financial risk sits in the work itself?
• Do you expect partners or investors to join, now or later?
• Does your residence permit depend on this business?
• Can you keep double-entry accounts from the first month?

The tax side of each form is for a tax adviser or accountant to answer, because it turns on your income and circumstances.

Switching form later

Plenty of people start on a trade licence and set up a company later. The switch takes work.

Contracts, invoicing and registrations all have to be redone, and some clients will register you again as a new supplier.

So the choice can be corrected. The usual cost of an s.r.o. set up too early is accounting you pay for and do not use.