An s.r.o. (společnost s ručením omezeným) is the Czech limited liability company. For most freelancers it is more expensive and more work than a trade license. Here is what it is, and when it makes sense.
What an s.r.o. is
- A company: a separate legal entity, owned by one or more shareholders (people or companies, also from abroad) and run by one or more directors (jednatel).
- Limited liability is not the protection people expect: shareholders risk only their contribution, but a director who does not act with due care is personally liable for the damage.
- You do not have to live in the Czech Republic to own one. If the company is managed entirely from abroad, though, it can become taxable there.
- It can have clients abroad and work in foreign currencies.
- Selling an s.r.o. is possible but rare; closing one (liquidation) takes time and money.
Compared with a trade license
- A trade license is much easier, cheaper and faster to set up.
- Getting money out of an s.r.o. costs more: about one third goes to corporate tax and dividend tax, and a salary costs the company about 1.8 times what you take home. See income tax for an s.r.o.
- An s.r.o. always needs double-entry accounting; a trade license needs very little.
- An s.r.o. needs a company name approved by the commercial register. With a trade license you trade under your own name, optionally with an addition.
- A trade license can be paused or stopped easily.
- Extending a business visa based on an s.r.o. is more complicated.
- With both you can hire employees or work with other freelancers, and you can have a trade license next to a job, an s.r.o. or a business abroad.
More than 95% of our clients do not need an s.r.o. for the work they do. Start as self-employed; if you ever really need a company, you can set it up later. Compare the numbers in trade license or s.r.o.
