Basic Rules: How to Legally Distribute Profits in Your s.r.o.

Czech law imposes restrictions on profit payments to protect the company’s financial stability and creditors’ rights.

A limited liability company (s.r.o.) is one of the most common forms of doing business in the Czech Republic, popular due to its flexibility and relatively simple management. This article delves into a crucial aspect of LLC activity: the strict regulation of profit payment, which encompasses several important stages and legal requirements.

Determine the profit margin

At the end of each accounting period, a company must determine its total profit (or loss). This process includes the following steps:

Financial Statements: A company prepares financial statements, including an income statement, balance sheet, and other financial statements. These documents provide insight into the company’s financial position.

Audit: An independent auditor must audit the financial statements if required by law (for example, for large companies).

Profit distribution decision

The general meeting, the highest body of the limited liability company, decides on the distribution of profits.

Shareholders convene for a general meeting to discuss the financial year’s results and decide on profit distribution. The constituent act requires an absolute majority of shareholders to approve this decision. Distribution of profits may include payment of shares (dividends), contributions to reserve funds, or reinvestment of profits in the company.

Distribution of profit shares

The actual profit share distribution, after tax, includes the following:

Shares: The amount of profit shares paid to individual shareholders, usually based on their shares in the company, unless the articles of association provide otherwise.

If the shareholders agree, profits may also be paid unevenly or differently than provided for in the articles of association.

Payment terms

The general meeting determines the payment dates for profit shares. Shareholders have the option to make a lump-sum payment or to spread the payment over several periods.

Capital preservation and creditor protection

Czech law imposes restrictions on profit payments to protect the financial stability of the company and the rights of creditors. If this leads to its insolvency or a reduction of the authorized capital below the level established by law, the company cannot pay profits.

Conclusion

The distribution of profits in a limited liability company established under Czech law is a complex process requiring careful planning and compliance with the law.

Professional consultants must prepare a number of documents necessary for the distribution of profits. For any questions regarding taxation and accounting, you can contact our experienced specialists. 

Source:

https://portal.pohoda.cz/dane-ucetnictvi-mzdy/ucetnictvi/vyplaceni-zisku-ve-spolecnosti-s-rucenim-omezenym