Business cafe: what legal form to choose

What is the legal form of business

The choice of legal form is a very important decision and needs to be well considered. This is because the decision has long-term economic, tax and legal implications. The Commercial Code offers you, as a prospective entrepreneur, several legal forms of business. It is up to you which one you choose. Each legal form is subject to certain legal standards that will subsequently influence your future business decisions.

ⓘ Of course, you do not have to maintain your originalform of business permanently. You can change it later as you develop further.

Business café: choosing a legal form

The first deciding factor will be whether you want to run your café as a sole proprietorship as a multi-partner business, i.e:

sole proprietorship,
or a business corporation.

Business corporations are then further divided into:

publicly traded partnerships (v.o.s.) and limited partnerships (k.s.), also known as partnerships and
limited liabilitycompany (LLC) and stock corporation (a.s.), also referred to as limited liability companies.

Setting up a café: sole proprietorship or limited company?

The following questions will help you decide:

Do I set up the company alone or with partners?
How much business risk do I want to take?
What are the costs of setting up and maintaining the legal form?
What is the tax advantage?
What is the liability in case of bankruptcy?
What is the capital required for incorporation?

How to set up a café as a business

The sole proprietorship form is particularly suitable for thesmallest businesses. As a sole trader in the café business, you must hold a trade licence for the hospitality business. This falls under the trades of a craft and therefore you need to provide evidence of your qualifications in the trade. Either:

1 year's experience and a teaching certificate: secondary education in the trade (or a related trade)
1 year's experience and a school-leaving certificate: secondary education in the trade (or a related field)
1 year of experience and higher vocational education in (or related field)
university degree in (or related field)
Recognition of professional qualification according to Act 18/2004 Coll. or recognition of full qualification according to Act 179/2006 Coll.
professional retraining and 1 year of experience in the field
6 years' experience in the field
a qualification obtained in another EU country in accordance with Section 7 of the Trade Licensing Act

Advantages and disadvantages of trade business

Advantages:

minimum legal obligations
low administrative costs for setting up a company
the form of accounting can usually be chosen by the sole trader
profits are subject only to personal income tax
the possibility to apply flat-rate expenses (if this is more advantageous)
independence and freedom of decision-making
no start-up capital required
the activity can be interrupted or terminated very easily

Disadvantages:

theentrepreneur is liable with all his assets and thus bears a great risk
has limited access to credit
high requirementsare placed onthe professional and economic knowledge of the entrepreneur
from a psychological point of view, the sole trader may appear as a small and insignificant partner in business contacts

How to open a café as a limited company

Themost common form of company is the limited liability company. A limited liability company can also be established by just one person.

The share capital is made up of the shareholders' contributions and the company is liable for breaches of its obligations with all its assets. All the partners are jointly and severally liable for the company's obligations up to the amount of the aggregate of the outstanding portions of the contributions of all the partners as recorded in the Commercial Register.

How to set up a company?

A company is established by a memorandum of association signed by all the founders and the authenticity of their signatures must be officially certified.

The articles of association must contain:

identification of the partners by stating the company name or the name and registered office of the legal entity or the name and residence of the natural person
the object of the business
the amount of the share capital and the amount of the contribution of each of the partners, including the method and time limit for repayment of the contributions
the names and places of residence of the first managing directors of the company and the manner in which they act on behalf of the company
the names and places of residence of the first members of the company's supervisory board, if one is established
the designation of the administrator of the deposits, if any

How much will I pay for a limited liability company?

Today, it is possible to form a company with a crown x the number of people forming the company. The total amount of all deposits must, however, match the amount of the company's share capital.

When can I apply for registration in the commercial register?

Before filing a petition for registration in the Commercial Register, the entire share capital must be paid up and at least 30% of each cash contribution must be paid up.

Advantages and disadvantages of a limited liability company

Advantages:

limited liability of the shareholders
theapproval of all shareholders is not requiredfor the adoption of a large number of decisions
thedeposit can be repaid within five years (however, 30% of each deposit must be repaid in order to be registered in the commercial register)
acontribution in kindcan also be made to the company

Disadvantages:

initial capital required
the company's profits are subject to corporate income tax at 19%; profit shares paid out are also subject to withholding tax at 15%. This means thatprofits are de facto taxed twice
greater administrative burden on the running of the company