Náš článek: "Companies flying off the shelves"
Foreigners scoop up premade firms to avoid red tape, delay
Tomas Chrobak of Spolecnosti Online says business is booming for firms selling ready-made companies.
By Zuzana Kawaciukova
Staff Writer, The Prague Post
(May 27, 2004)
When Paul Deverell was asked what benefit he gained from purchasing a ready-made company instead of establishing a firm himself, the British citizen was quick to fire back an answer. "I still have hair left on my head," he said.
Like many foreigners, Deverell bought a shelf liability company (s.r.o. in its Czech abbreviation) in 2003 after he found out how much bureaucracy was involved in registering a company. He said he didn't have much of a choice.
"My purpose [in running a company] was genuine. I needed to be able to pay taxes in the country and work here legally," Deverell said. He said it was a matter of a couple of weeks to have the company in his name and a few more weeks getting the company registered with the commercial registry.
Every year, hundreds of clients (not all of them foreigners) pay to avoid the time-consuming paperwork involved in establishing a company here. And the demand for ready-made or off-the-shelf companies is expected to continue to increase in 2004. A law that bans foreigners who do not have an s.r.o. from purchasing real estate has also fueled the demand for already-established companies and kick-started a lucrative business for companies that specialize in inventing shell companies and then selling them off.
Big business
Spolecnosti Online, which was established in 2001, is one of four main firms that create and sell such companies. Tomas Chrobak, the company's director, said he expects business this year to keep pace with 2003. Last year, the company created and sold almost 400 joint-stock and liability companies, a 300 percent jump from the 100 firms sold in 2002.
Most of the companies are real estate firms, which can later be changed to whatever the purchaser wants: a record store, a bar or a newspaper, for example. Newly established companies that have not been subjected to maintenance costs are cheaper than companies that have an established history.
The price for an off-the-shelf firm ranges from 60,000 Kc ($2,300) for an s.r.o. established in 2004 to 145,000 Kc for a joint-stock company established in 2002.
The law also requires that anyone purchasing a liability company have an initial capital investment of 200,000 Kc for an s.r.o. and 2 million Kc for a joint-stock company.
He said limited-liability companies are more popular than joint-stock companies, and one in four sold winds up in the hands of a foreign investor who, more often than not, obtains the company for the purpose of buying real estate.
Despite the Czech Republic's joining of the European Union May 1, citizens from other EU countries still face a five-year ban on buying real estate here. The lengthy registration process involved in starting a company here has also made ready-made companies more attractive.
Unlike in the United States, where it takes five days to set up a business, or in the United Kingdom, where it can be done in 18 days, the average length of time to establish a company here is 88 days. That's more than a month longer than in neighboring Slovakia, according to a recent World Bank report.
The numerous steps (including getting a criminal record certificate, providing proof of a bank account and of capital, and obtaining the appropriate trade licenses) make the process a headache, buyers say. The costs are also prohibitive. The average cost of starting a company from scratch here is $800 (20,960 Kc), compared to $375 in Slovakia, $314 in the United Kingdom and $210 in the United States.
Increased competition
Spolecnosti Online is not the only company to take advantage of the time-consuming system.
Companies.cz has recently entered the market to compete with Spolecnosti Online and its competitors Tacoma and TMF-group.
Since February, when the company was established, nearly 30 shell companies have been sold, and Companies.cz has set a target to sell 20 firms per week, said Tim Cox, a consultant at Companies.cz.
Although one of the original concepts of Companies.cz was to service the mainly English-speaking market, the company plans to adjust its strategy and branch out.
"Since we started to trade, we have had inquiries from many foreign markets as well as the domestic Czech-speaking market, and plan to translate pages to Czech, Chinese, Japanese and Italian," Cox said.
But Chrobak of Spolecnosti Online said he does not fear an influx of other companies entering the market because many lack the cash flow needed to make the initial investment.
Companies such as Spolecnosti Online also say they have an advantage in knowing the system and knowing how to get their made-up firms through the process quicker.
Under the best circumstances, Chrobak said, it takes two to three weeks for a verdict at the commercial registry. And there are various patterns companies look for to speed up the process. "Some of the judges are faster than others, and based on our experience we can figure out who is going to deal with each of the cases and estimate the duration of the process," Chrobak said.
His staff also tries to invent names that will catch a client's attention. Those names can be derived from plants, animals and mythological heroes, although two out of three buyers change the name anyway.
