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Company Law Amendments Lead to Favorable Business Environment?

05/06/2024

The Law on amendments of Company law has entered into force on June 9, 2018. However, only a part of its provisions started to apply as of that day, while the second part, which is the largest part of the Law has entered into force on October 1, 2018. The most important changes of these amendments included, among other things, the registration of e-mail address, registration of a branch of a company, use of seals, approval of legal actions with personal interest and share capital’s reduction. Finally, the third part is devoted to new forms of business entities, in the process of harmonization of Serbian law with the law of the European Union (hereinafter: “the EU”). The implementation of these provisions began only on the first of January 2022.

The amendments from 2018 aimed to improve the conditions in which business entities conduct their business in the Republic of Serbia (further: “the RS”), to overcome deficiencies in the Company law that have been present so far, as well as to harmonize Serbian legal system with the EU legal system.

Although the amendments from 2018 contain numerous significant changes, in this text, we focused on the changes that we consider it is most important for legal entities to become more familiar with. We described the amendments starting from the essential provisions of the Company law, through the rules of business of companies, to the norms on companies’ termination.

 

MANDATORY E-MAIL ADDRESS REGISTRATION

Companies, entrepreneurs, branches and representative offices of foreign companies in the RS, formed after October 1, 2018, are obliged to register their e-mail address before the Agency for Business Registers (hereinafter: “The Agency”). Additionally, the amendments introduced an obligation for all business entities (as well as entrepreneurs, representations, and branches of foreign companies) registered before the entry into force of the amendments, which do not have a registered email address for receiving electronic mail, to register that address within one year from the date of the law’s application commencement.

 

MANDATORY REGISTRATION OF COMPANY BRANCHES

When it comes to mandatory registration, the amendments from 2018 no longer allows Serbian companies to choose if they will register their branches. On the contrary, the amendments from 2018 prescribed obligatory registration.

As with the e-mail address registration, the companies which have formed their branches by September 30, 2018, need to register them by June 9, 2019. On the other hand, every branch that is formed starting from October 1, 2018, have to be registered in accordance with the Law on registration procedure before the Agency.

 

LIMITATIONS WITH THE COMPANY BUSINESS NAME

Existing restrictions on the use of national or formal names and signs in the company’s business name are specified in the Amendments to the Law from 2018. Namely, only if previous approval is sought and granted, the company’s business name may contain the word “Serbia”, as well as the name of part of its territory or the name of its autonomous province. In addition, it may contain these words’ derivatives, all of the forms which remind of these words, as well as the internationally accepted sign of the RS (“SRB”). Previous approval of competent authority is needed for this, as well.

You may find more on how to choose the business name in our blog post on choosing a business name.

USE OF COMPANY SEAL

In accordance with the provisions of the Company law which was in force before the amendments from 2018, companies were not obliged to use seals, unless specific laws stipulated otherwise. The amendments from 2018 went a step further in this regard, stating that special legal acts are not allowed to force companies to use seals. Moreover, it abolishes the use of the seal in 117 existing laws.

 

LLC‘S MINOR SHAREHOLDERS’ RIGHTS

The amendments to the Law from 2018 improved the position of minority members of LLCs by prescribing lower minimum for exercising certain membership rights. In order to organize a session of the company’s assembly, its members with at least 10% of the total number of votes (instead of 20% so far) have to file a written request to the company. Furthermore, in order to introduce new points of discussion to the agenda of the assembly’s session, its members with at least 5% of the company’s shares (unlike 10% so far) need to file a written notification to the company. The company’s founding act may reduce these minimums even further.

Furthermore, regardless of the member’s share in the company, any possibility of preventing a limited liability company member from voting by using the company’s founding act was excluded.

 

INTRODUCTION OF A TIME LIMIT FOR THE PAYMENT OF DIVIDEND

Speaking of the stock company, this legal entity may adopt a decision on profit division during the regular session of its assembly, in which case the company pays the dividend to its shareholders. The amendments from 2018 stipulated that this decision needs to state the time limit for this payment, along with the amount of dividend. The time limit may not be longer that 6 months as of the date of the adoption of the aforementioned decision.

 

APPROVAL OF LEGAL ACTIONS THAT INVOLVE PERSONAL INTEREST

The amendments from 2018 introduced a special procedure that precedes the approval by the company of legal actions involving the personal interest of persons with special obligations towards the company. Among others, a shareholder of LLC/stock company with significant share, a major shareholder of LLC/stock company, Managing Directors, and a liquidation manager are considered to be persons with special obligations towards the company. This procedure applies when the amount of legal action amounts to or exceeds 10% of the total amount of the company’s assets.

The company’s body, which received notification on legal action involving personal interest, selects the appropriate expert or a company, in order to estimate the market value of the legal action’s object. The selected subject will compose a report on its estimation. Such a report will be included in the decision on approval of legal action involving personal interest.

Moreover, limited liability companies and stock companies are obliged to achieve transparency by publishing a notice of concluded legal transactions/taken legal actions on their websites or on the Agency’s website. It will contain the detailed description of the legal action in question, as well as all of the relevant facts regarding the nature and the scope of personal interest. Finally, these companies have to post this report in the period of 15 days as of the date of the occurrence of the legal action in question.

 

CAPITAL SHARE DECREASE

The amendments from 2018 provided detailed rules on instances in which the reduction of the LLC’s share capital can be performed. Moreover, it regulates the legal framework aimed at the protection of the LLC’s creditors in the case of the LLC’s share capital’s reduction.

 

The basis for the share capital’s reduction

The share capital may be reduced due to the following:

1. To cover the losses suffered by the company

2. To create or increase the company’s reserves for the covering of future losses or for the share capital’s increase from the company’s net asset value


3. In the case of relieving a company’s member of its obligation to pay in/bring in its stake


4. In the case of withdrawal and annulment of company’s shares


5. In the case of disposing of the company’s own shares

 

The Decision on the share capital’s reduction

In principle, the decision on the company’s share capital’s reduction (further: “the Decision”) is adopted by its assembly with a majority of two-thirds of the total number of the member’s votes. Despite that, the company’s founding act may provide for smaller or higher majority of the votes needed to adopt the Decision. However, it cannot prescribe that the absolute majority (the majority of the total number of the company’s members’ votes) will be sufficient to adopt the decision.

The Decision must be registered before the Agency in the period of up to three months as of the date of its adoption. If not, the Decision is null and void. The company’s share capital will be reduced from the day the Decision is registered.

 

The protection of the creditors

The compulsory part of the Decision on share capital’s reduction is the invitation to the company’s creditors to report the debts which the company owes to them. This is done so that they may be secured, all under the condition that the Company law’s provisions on the creditor’s protection are applicable to the share capital’s reduction in the given case. Therefore, these rules are inapplicable if there are any of the exceptions to the applicability of these rules.

If the protective norms apply, the Decision will be published in the Registry of business subjects (which is managed by the Agency) in the duration of three months from the date of the Decision’s registration.

The special form of protection is provided for the creditors to whom the company owes at least 2 million RSD (the equivalent of any currency according to the average exchange rate of the National Bank of Serbia on the date of the Decision’s registration). The Company is obliged to send a written notification concerning the Decision to these creditors in the period of 30 days as of the Decision’s registration.

As for the debts which occurred before the expiration of this 30-day period and regardless of the moment when they became/have become due, the following applies:

The creditors may submit a written request to the company in order to secure the debts which the company owes to them. This may be done until the expiration of the period until which the Decision remains published. If the company does not act in accordance with their request or pays the debts which it owes to them, the creditors may file a lawsuit against the company. The lawsuit can be filed in the further period of one month with the aim to secure the debts. The prerequisite for filing the lawsuit is that the settlement of these debts is threatened by the share capital’s reduction. The creditors are required to send a written notification to the company in relation with this.

In addition, the company may make payments to its members only after the 30-day period as of the date of the Decision’s registration has expired. This is another norm aimed at protecting the company’s creditors.

 

MANDATORY LIQUIDATION OF THE COMPANY

The amendments from 2018 aimed also to help the companies with certain difficulties to overcome those difficulties. Namely, before the initiation of the procedure of the company’s compulsory liquidation, the Agency’s registrar is obliged to publish on the Agency’s website the notification about the company regarding which all of the conditions for compulsory liquidation are fulfilled. This notification serves as an invitation to the company to resolve the issues regarding which the notification has been published, as well as to register the appropriate information with the Agency, after the resolution of those issues. All of this should be done in the period of 90 days as of the date when the notification was published.

If the issues are not resolved before the expiration of the prescribed time period, the registrar adopts the decision on initiation of the compulsory liquidation procedure. Based on this decision, the company’s status is changed to “the company in the compulsory liquidation procedure”. At the same time, the notice on compulsory liquidation is published at the Agency’s website in the duration of 60 days. After that, within 30 days, the Agency ex officio terminates the company.

 

DISPOSING WITH HIGH-VALUE ASSETS

 

The amendments from 2018 introduced the definition of connected acquisition/disposal of the high-value assets in a one-year period which is treated the same as one-time acquisition/disposal of the high-value assets. Several legal actions are considered to be connected if they are performed for the same purpose, or as a result of the legal action’s nature for the performance of which they are conducted. The legal actions need to be conducted within a one-year period.

From the connected acquisition/disposal regime the Law clearly excludes the right of pledge, hypothec or other means of security which the company takes upon itself in order to secure its own obligation regarding the bank loan agreement, loan or other. These legal actions are not considered as connected acquisition/disposal.

 

THE LEGAL ENTITIES FROM THE EU LAW

Trans-border merger and acquisition

In trans-border mergers and acquisitionsat least two companies take part. Among them, at least one LLC or the stock company is registered in the Serbian territory, and at least one LLC or the stock company is registered in the territory of a state party of the EU or a state signatory of the Agreement on the European economic territory (further: “the state parties”).

 

The European stock company

The European stock company (Societas Europea – “SE”) is formed in the legal form of the stock company whose share capital is divided into stocks, which are in possession of one or more of the company’s shareholders. The shareholders are not liable for the company’s obligations, except if the company’s veil is pierced. This description is very similar with the manner in which the stock company is already regulated in the Company Law. However, the foreign component that connects the company with the territory of the member states is what constitutes an essential difference from a “standard” stock company. Namely, the Law provides for several complex ways of the SE formation and all of those include the foreign component.

 

The European Economic Business Group

At least two companies, entrepreneurs or other legal or natural persons which conduct agricultural or other business activity may form the European Economic Business Group, which has the status of a legal person. At least one of the aforementioned subjects is registered in the Serbian territory, while the other one is registered in the state party’s territory. This legal form is completely new in the Serbian legal system. Its goal is to improve the realization and representation of the economic interests of the group’s members.

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