Choosing the right legal form is one of the most important decisions when starting a business, as it can significantly impact the company's future operations, financing, liability, and management. In practice, we often see that entrepreneurs — and sometimes even their advisors — reduce this decision to a mere act of registration. However, correctly setting up the legal framework requires more than administrative formality.
1. What Does the Legal Form Determine?
The legal form mainly affects:
- the extent of liability for obligations,
- the tax burden and accounting requirements,
- the options for profit distribution and investor entry,
- regulatory obligations and governance demands.
Therefore, the selection should not be based on popularity, but rather on your business model, risk profile, and growth strategy.
2. Common Business Forms
Sole Trader (SZČO)
- Suitable for individuals starting a simple business
- Quick to establish, low cost, but unlimited liability with personal assets
Limited Liability Company (s.r.o.)
- The most common legal form
- Partners are liable only up to the unpaid part of their capital contributions
- Ideal for individual entrepreneurs or smaller teams
- Relatively flexible, but requires double-entry bookkeeping
Joint-Stock Company (a.s.)
- Suitable for large-scale projects, investors, or companies planning to access capital markets
- Stricter regulation and higher setup/operating costs
- Favourable for diversified ownership and structured governance
Simple Joint-Stock Company (j.s.a.)
- A hybrid structure combining features of s.r.o. and a.s.
- Designed for startups or businesses with external investors
Below is a comparative table of the most used business forms. Some less common structures (cooperatives, general/limited partnerships) are not included due to their niche use or extensive liability. The table is for general reference; professional consultation is essential before incorporation.
|
Legal Form |
Liability |
Min. Registered Capital |
Suitable For |
Advantages |
Disadvantages |
Limitations |
| SZČO (sole trader) | Unlimited (entire personal property) | €0 | Individuals, craftspeople | Fast and inexpensive setup, simple recordkeeping, flat-rate expenses | Full personal liability, higher levies at higher income levels, lower credibility | Not suitable for multi-owner businesses or regulated sectors |
| s.r.o. | Limited to unpaid contributions (in practice, usually none) | €5,000 (min. €750 per partner) | SMEs, partnerships | Flexible structure, limited liability, widely accepted | Requires bookkeeping, visible in public register | Max. 50 partners; cannot perform certain regulated activities |
| j.s.a. | No liability for shareholders | €1 | Startups, investment ventures | Low capital requirements, flexible governance, easier investor entry/exit, anonymous shareholders, employee share schemes | Less well-known, more complex legal setup | Shares must be book-entered and registered to name; no bearer or publicly traded shares allowed |
| a.s. | No liability for shareholders | €25,000 (min. €750 per shareholder) | Large enterprises, capital-intensive projects | Anonymous shareholders, suitable for public capital raising, prestigious legal form | Higher costs, personnel-heavy – supervisory board with at least 3 natural persons required | Only a legal entity may found an a.s. alone; mandatory structure and governance organs required for certain sectors (e.g. banking, insurance) |
3. Legal Form vs. Nature of Business Activity
Some business activities require specific legal forms. For example:
- In sectors like insurance, pension fund management or casino operation, the law explicitly requires a joint-stock company (a.s.).
- Regulated professions such as law, auditing, or healthcare cannot be performed via a trade license.
- A foreign element (subsidiary of a foreign investor, cross-border expansion, tax considerations) may also influence the choice.
4. How to Decide
Choosing the legal form should consider:
- expected turnover and business risk,
- number and structure of founders,
- need for ownership anonymity,
- funding method and investor involvement,
- potential sale of business or assets,
- anticipated obligations (tax, accounting, regulatory).
Our law firm offers tailored advice on choosing the optimal legal form and provides full incorporation services, including tax and regulatory structuring. Contact us for a personalised consultation.
Kristína Drábiková, attorney-at-law.
