Companies a la carte

A friendly regulatory regime is making the Czech Republic the center of a growing new industry that is turning out a unique product: companies themselves. Societas Europaea (SE), also called a "European company," is a relatively new creation authorized by the European Union in 2001, the structure of which provides many business and financial advantages. The Czech Republic is leading the way in SE formation with the most SEs on the trade registry of an EU country.

An SE is a shareholder-based form of business that falls under the EU legal system. The idea is to enable the free movement of capital within the EU.

As of Oct. 28, the EU had racked up 654 SEs, with 306 of those registered in the Czech Republic, mostly in Prague. Germany had the second-highest number of registered SEs, followed by the Netherlands, according to the European Trade Union Institute (ETUI).

"Czech legal regulations allow for a fairly easy and quick process of selling a ready-made company of any sort. Such legislation is much more complicated in other European countries," said Bohumila Holubová from Bohumila Holubová Attorneys at Law.

To establish an SE, however, is much more complicated legally than to create a classic national corporation or limited company, and Czech businessmen familiar with the favorable legal system on the sale of ready-made companies have not hesitated to provide interested buyers with ready-made SEs, which saves a lot of hassle.

"The main reason for the Czech Republic's leadership in the amount of SEs is the ability to obtain such corporations in ready-made form," said Vítězslav Hruška, business director at Smart Companies. "Ready-made companies are already registered in the trade registry, it is possible to become an executive easily, and they have 100 percent repaid capital. For clients, it is the fastest and cheapest variant of obtaining a European Company."

The free flow of capital is not the only advantage of a European company. This business structure also enjoys the possibility of easier relocation within European borders.

"The possibility of relocation is mostly used to move the company into a country with lower taxes, lower labor costs or easier law enforcement," Holubová said.

Experts also talk of smaller challenges with personnel and management requirements.

"To establish a national corporation in the Czech Republic today, you need at least six members; European corporations require only two," said Milan Čermoch, coordinator at Ready Made Companies, SE.

"Czech corporations need to have at least three members on the board of directors and another three on the supervisory board. For SEs, one member is enough for each board," Hruška added.

Image also seems to be a big part of the SE appeal. According to Čermoch, this could be yet another reason the Czech Republic leads in the number of registered SEs.

"If you register your company in London, that's prestige in and of itself. Also, the form of the business is clear within international business terms, as it is in English. But if you register a company at a Prague address with European legal and business structures, it becomes definitely your advantage," he said, explaining that a Prague-based company will benefit from an "international" image if it has an international legal ending in the company name instead of a local one.

Holubová noted another benefit of SEs over traditional corporations: anonymity.

"The legal form of Societas Europaea allows the shareholders to conceal their names from the public eye," she said.

The most common way to create an SE is by fusing two or more corporations or SEs, and at least two of those fused corporations need to have registered headquarters in one of the European member states. Two separate companies from two different member states can form an SE as a holding or form a European corporation by signing over their stocks to the newly created company. Another way is to transform a normal corporation into an SE, which can be done if the company has had an affiliation in an EU member state for at least two years.

"It is fairly difficult to establish an SE for an ordinary entrepreneur. Mostly, it is due to the multinational concept," Hruška said.

Holubová, however, warned that buying a ready-made SE might not always be absolutely safe.

"It is best to consult lawyers who specialize in this subject," Holubová said. "One can never be 100 percent sure of the history or possible liabilities a ready-made company might have."

Nella Manson can be reached at
features@praguepost.com