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October 7th, 2008
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Ministry eases rules for startups

Commercial Code now requires less paperwork and money for ventures

By František Bouc
Staff Writer, The Prague Post
July 9th, 2008 issue

Starting a business may now be a quicker and less expensive endeavor. A newly amended Commercial Code means a single business registration instead of the current maze of paperwork that has been the norm for startups. Trimming the excess paperwork will save entrepreneurs 125 million Kč ($8.3 million) in total annual costs, according to the Justice Ministry, which is leading the effort.
“It is clearly a move in the right direction,” said Bedřich Danda, chairman of the Association of Small and Midsize Entrepreneurs. “Local businessmen have been struggling with increasing difficulties related to doing business, such as inefficient court proceedings, so every simplification helps cultivate a business environment in this country.”
The improvement is part of the amended Commercial Code that came into effect July 1. But even bigger changes are ahead as the Justice Ministry develops a new Commercial Code that aims at fostering entrepreneurship. One of the most significant differences would drastically reduce the starting capital needed for launching a private limited company, from the current requirement of 200,000 Kč to only 1,000 Kč. The amendment could take effect next year, after collaboration between the ministries and approval by Parliament.
The Czech Republic ranks below Mongolia in terms of paperwork and capital required to start a business, according to a “Doing Business 2008” study released last September by the World Bank and the International Financial Corporation. The Czech Republic placed 56th on the 178-member list, behind Slovakia (32nd), Saint Lucia (34th), Armenia (39th), Antigua and Barbuda (41st) and Mongolia (52nd).
The news wasn’t all bad, as the study noted that government reforms had shortened the amount of time needed to start a business from 24 days on average in 2006 to 17 days last year.
The improvements meant that 22,507 companies were launched in 2007, growth of 27 percent over the previous year.
“The biggest incentive for starting a business here was the dynamic rise in consumer demand,” said Raiffeisenbank economist Aleš Michl. He said reducing bureaucratic requirements has been a boon to businesses entering the local market.
Despite improvements, the paperwork associated with startups has meant many entrepreneurs launch a business by buying “ready-made” companies, businesses created by firms with the intent to sell them to local or foreign businessmen. Last year, more than 2,000 such companies were sold.
“Buying a ready-made firm [lets entrepreneurs] start a Czech company within a few hours,” said Radovan Mužík of Incoma Research, a company that monitors retail markets.
The costs for such companies can range between 40,000 and 50,000 Kč, although there remains the option of paying in monthly installments of 1,777 Kč, according to Petr Mála, the director of Společnosti Online, which sells companies.
While conditions have improved, progress in the form of business legislation in the courts has yet to be made.
“The biggest difficulties for doing business in the Czech Republic are the inefficient courts and complicated tax legislation,” said Jana Matesová, the country’s representative at the International Financial Corporation.

František Bouc can be reached at fbouc@praguepost.com


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