Amendments to the Company Law Adopted

The National Assembly of the Republic of Serbia has adopted the Law on the Amendments to the Company Law (hereinafter: the Law) on June 8, 2018. The Law was published in the “Official Gazette of the Republic of Serbia”, No. 44/2018 on the same day.

According to its provisions, the Law’s entry into force occurs gradually, as follows:

1. provisions dealing with the rights of minority shareholders, non-monetary contributions and determining the market value of the shares of joint stocks companies, have entered in force as of June 9, 2018;
2. all other provisions, beside those relating directly to the harmonization with EU legislation shall enter into force on October 1, 2018, and
3. provisions relating directly to the harmonization with EU legislation shall enter into force on January 1, 2022.

General overview of the most important provisions of the Law is presented below:

• Rights of minority shareholders in a limited liability company: the Law forbids the right of the company to prevent shareholders to participate and vote at General Meeting via Founding Act. Also, it decreased the previously prescribed threshold of 20% of votes for the convocation of the General Meeting of the company. New threshold is 10% of votes. Also, the Law now prescribes the threshold of 5% of votes for the addition of new points in agenda of the General Meeting, instead of the previously prescribed threshold of 10%;
• Evaluation of shares of joint stock companies: according to the Law, the evaluated value of the shares of the joint stock company will be average weighted price of shares on the regulated market, i.e. MTP in the period of 6 months prior to the date of the evaluation, if the following conditions are met: (i) in that period of 6 months, at least 0,5% of the shares were subject to trading on the regulated market, and (ii) the trading took place on at least 1/3 of the trading days in each month during that period;
• E-mail address: all companies are obliged to have the e-mail address registered with the Serbian Business Registers Agency (hereinafter: the SBRA);
• Business name: abbreviated business name of the company now can consist of acronyms of the words from the full business name of company and description of the company’s business. The Law regulates in a detailed manner the use of words “Serbia”, the internationally recognized abbreviation “SRB”, and other derivatives of these words in the business name of the company;
• Transactions involving personal interest: the Law prescribes the obligation of the company to obtain a report on the assessment of the market value of the subject of a legal transaction involving personal interest, value of which is equal or higher than 10% of the company’s book assets value stated in the last annual balance sheet. Consequently this assessment is not needed if the market value of the subject of a legal transaction involving personal interest is lower than 10% of the company’s book assets value.

The Law also prescribes the obligation of the company to publish the notification regarding the conclusion of legal transaction with the detailed information regarding the personal interests involved. Notification shall be published on the Internet page of the company or on the Internet page of the SBRA;

• Decrease of the share capital of the limited liability company: the Law in a detailed manner regulates the decrease of the share capital of the limited liability company. It prescribes that the decrease could be performed for: (i) coverage of losses, (ii) creation or increase of the company’s reserves used for coverage of losses or the increase of the basic share capital of the company, (iii) release of a shareholder from the obligation to pay share capital, (iv) withdrawals and cancellations of contributions and (v) disposal of own shares.

Decision on the decrease of share capital of a limited liability company shall be adopted with 2/3 out of all votes of the members of the company, shall contain the invitation to all company’s creditors to report their receivables and shall be registered with the SBRA in the period of 3 months from the day of adoption;

• Assets of significant value: terms “acquisition” and “related acquisition” are more specifically defined. In order to eliminate the dilemma of what is considered as a related acquisition, i.e. disposal of significant value assets over a period of one year, the Law specifies that the establishment of a pledge, mortgage or other security provided by the company to secure its own obligation under a credit agreement, loan or other legal transaction does not constitute a single acquisition, or disposal of significant value assets;
• Branches of the companies: the Law now prescribes the obligation of registration of the branches of the companies, opposed to the so far valid provisions, which prescribed such registration as an option. The Law also prescribes the period of one year for the companies that have not registered their branches to do so.
• Distribution of dividends: deadline for the payment of dividends after being declared is introduced. The deadline is 6 months following the decision on declaring dividends.
• Harmonization with EU regulations: in order to harmonize domestic legislation with the acquis communautaire, the Law enables the establishment of new company forms: the European public limited-liability company (Societas Europea) and the European Economic Interest Grouping (a legal entity founded by at least two companies, firms and other legal entities, or individuals carrying on an industrial, commercial, craft or agricultural activity or providing professional or other services, of which at least one is registered on the territory of the Republic of Serbia, the territory of another Member State of the European Union or of a State party to the Treaty on the European Economic Area).

Also, the Law enables cross-border mergers of Serbian and EU companies.

If you have any questions regarding the above, please contact Nenad Cvjetićanin, CVJETIĆANIN&PARTNERS Corporate and M&A Partner (office@cvjeticaninlegal.com).