December 2011 – The Serbian parliament adopted a new company law in May 2011, which is scheduled to take effect on 1 February 2012 (hereinafter: the “New Company Law”). The new legislation will replace the current company law that has been in force since 2004 (hereinafter: the “Old Company Law”).
According to the New Company Law, all Serbian companies are obliged to harmonise their activities with its provisions by 1 February 2012. However, on 13 December 2011, the Serbian government proposed a number of amendments to the New Company Law. If adopted, one of the main changes will be the postponement of the aforementioned deadline for harmonisation until 30 June 2012.
The adoption of the New Company Law is part of a wider legislative initiative aimed at further harmonising the Serbian legal system with EU standards. As a part of this effort, a new Capital Markets Act was introduced also in May 2011 and took effect already on 17 November 2011. There are plans to adopt a new law on the registration of companies and amendments to the Takeover Act in the near future, in order to further implement the new concepts introduced by the New Company Law and new Capital Markets Act.
This article provides a brief overview of the relevant changes to be introduced by the New Company Law.
General Changes
The following are some of the changes that are introduced by the New Company Law that relate to all company types (including limited liability and joint-stock companies):
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Representation of a company – in addition to natural persons, the New Company Law provides a general possibility for a company to also be represented by another legal person registered in Serbia. However, each company must have at least one representative that is a natural person;
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Denomination of basic capital – the company’s basic capital must be denominated in Serbian dinars instead of euros, which has been the requirement under the Old Company Law;
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Corporate governance – limited liability and joint-stock companies will now have either a one-tier or two-tier corporate governance structure. Under the one-tier system, the necessary corporate bodies are the shareholders’ assembly and one or more directors. In the two-tier system, the corporate bodies are the shareholders’ assembly, the supervisory board and one or more directors (including the executive board, in the case of joint-stock companies);
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Criminal liability – the New Company Law introduces the criminal liability of company representatives and certain other persons connected with the company for fraudulent and certain other actions/omissions that result in damage to the company or its creditors. Prescribed penalties include imprisonment (in the most serious cases up to 10 years), monetary fines and prohibition on performing specific functions and professions.
Changes Concerning Limited Liability Companies
Some of the most important changes pertaining to limited liability companies, which are the most common company type in Serbia, are as follows:
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Minimum amount of basic capital – the New Company Law decreases the minimum amount of basic capital for limited liability companies from 500 euros to 100 Serbian dinars (which is currently equivalent to approximately 1 euro);
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Foundation act amendments – after each change to a company’s foundation act (establishment memorandum), the relevant representative of a limited liability company is obliged to adopt and register with the competent company register a clean/consolidated version of such an amended foundation act. This appears to be a requirement that will contribute to the general transparency of corporate statutory documents vis-a-vis third parties, but which will also represented a new formality for company management;
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Transfer of ownership interests – the New Company Law explicitly provides that the right of first refusal regarding the sale of an ownership interest in a limited liability company can be entirely excluded by the company’s foundation act. Also, the right of first refusal in favour of the company itself, which exists under the Old Company Law, is no longer even mentioned by the New Company Law (although company shareholders are free to envisage in the company’s foundation act procedural requirements that are different from those set out in the New Company Law);
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Additional payments – this formalises an already existing corporate practice in Serbia, according to which shareholders of a limited liability company may contribute funds to the company in the form of “additional payments” that are not treated as an increase of the company’s basic capital and that can be repaid by the company at a later stage (provided that certain conditions have been met). This represents a relatively quick and simple method of providing short- and mid-term liquidity to limited liability companies. However, the New Company Law is not entirely clear regarding the extent to which the procedure for repayment of additional payments will have to emulate a capital decrease procedure, which may cause some uncertainties in practice;
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Book of ownership interests – a limited liability company is no longer obliged to have and manage a book of ownership interests, which is a requirement set out in the Old Company Law that was often not observed by Serbian companies.
Changes Concerning Joint Stock Companies
The following are some of the most important changes applicable to joint-stock companies:
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(Public) joint-stock company – the distinction between “closed” and “open” joint-stock companies, which exists under the Old Company Law, has been abolished. The New Company Law distinguishes only between joint-stock companies in the general sense of this term and “public joint-stock companies”, whose shares are listed and which are subject to a more demanding legal regime (e.g., they must have an executive board comprising of at least three executive directors);
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Minimum amount of basic capital – the minimum amount of basic capital for joint-stock companies is 3 million Serbian dinars (which is currently equivalent to approximately 30,000 euros);
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Foundation act and articles of association – the foundation act of a joint-stock company is now to be adopted only at the time of the company’s foundation and cannot be amended subsequently. Therefore, all subsequent adjustments to the organisation and functioning of a joint-stock company must be regulated through amendments to the company’s articles of association, which under the New Company Law is a statutory document that all joint-stock companies are now obliged to have from the moment of their incorporation.
For further information please contact Branislav Marić, Partner, at .