Most beginning businessmen in the Czech Republic decide between being a self-employed person (individual enterprise) and establishing of a limited liability company (LLC, Ltd). Those two forms differ significantly in the difficulty of registration, administrative management and from the fiscal perspective.

Self-employed person (cz. – živnost, živnostnik, OSVČ) – is an optimal form for one-person business plan.
Registration: You can register yourself as a self-employed person during a short visit at the Trade Office in your town in the Czech Republic. It will cost 1.000 CZK. Attention has to be paid to the fact that for some occupations and crafts you should submit an evidence of adequate education or experience.
Administration: The self-employed persons don’t need to keep the classic accounting. It is enough to keep so called fiscal recording, which the businessman could manage himself, possibly after consulting a professional accountant.
Taxes: The current tax rate for self-employed persons is 15%. To the overall tax burden we could count also the social insurance payments (14,6% of net income) and health insurance (6,75% of net income). Together it makes tax burden of 38,35%.

The income tax law allows the self-employed to reduce the annual tax base by 60% (for artisans by 80%), although their real expenses were lower.
The self-employed person operates under his own name and is responsible for his business with his all possessions, on the other hand, he/she could freely handle with all business funds.

Limited liability company (cz. – s.r.o.). Establishing an LLC means creating a new legal entity, namely – a legal person.
Registration: The process of establishing LLC includes communication with authorities and with a notary. It takes more time and costs about 12.000 – 15.000 CZK, so it often pays off to employ specialized help.
Administration: LLC should keep its own accounting, which usually requires a professional accountant.
Taxes: The incomes of LLC are taxed at 19% rate. But to the overall tax burden we should count the tax of 15%, which is paid while transferring annual contributions to the companions. Together it makes tax burden of 31,15%.

It is important to realize that the money of LLC are money of the separate legal person. A LLC-companion who wants to use this money for private purposes must first let them be properly booked and taxed. Often this is done by receiving a salary in their own company.
The LLC form allows making business with multiple companions in one company*. LLC is liable for its obligations with its founding capital, not with the shareholders’ own property.
*In some cases, this effect can be achieved by making a business group of self-employed persons regulated by a contract.