Question and Answers

Which supporting documents are required for the conversion of a joint stock company into a limited liability company?

Along with the application for conversion, the applicant must submit a decision of the shareholders assembly on the conversion, the Articles of Association of the Limited Liability Company and adequate evidence with regard to the shareholders. In the procedure for the conversion of a joint stock company into a limited liability company, the terms and conditions for the conversion of the shares of the joint stock company into shares of the limited liability company must be specified. As proof of the company shareholders, the shareholders book issued by the Central Securities Register must be delivered to the Register. If the company does not have an open issuing account in the Central Securities Register, then a certificate from the shareholders book kept by the company itself must be submitted along with the registration application form for change of legal status.

How do you convert the initial capital into euros, in the case of companies that originated in the privatization of formerly socially owned capital?

The initial capital of a joint stock company which was established in the privatization process is converted on the basis of a Certificate issued by the Central Register, in such a way that the total number of issued shares, multiplied with the nominal value of one share, representing the company’s basic capital, is converted into euros on the date of adoption of the decision, or on the date of issue of the aforesaid Certificate. The sum of the capital calculated in this manner must correspond to the sum of initial capital registered in the Court Registry, subsequently re-registered with the Agency’s Register.

The conversion of the capital of a limited liability company which stemmed from the privatization process is effected on the date of appraisal of the capital. For all investments made subsequently with the purpose of increasing the capital, all capital increases are converted individually on the date of payment for monetary capital, or on the date of entry for non-monetary capital. The total sum of the capital appraised in the sales process and the subsequent capital increases represents the company’s basic capital. In the conversion process, it must be determined whether all increases have been registered in the Register. If that is the case, the capital should correspond with the registered status, if not, it is likely that some of the capital increases or decreases were not registered in the process and hence they should be registered as a change in the harmonization process.
    
When must the conversion of capital be effected?

The conversion of the initial capital has to be effected on the date of payment for monetary basic capital, or on the date of input of assets and rights for non-monetary capital. The reason for this is that the Law on Companies, (“Official Gazette RS”, no. 125/2004), foresees a minimum monetary value of the company’s initial capital on the date of payment (Art. 112 and 233 of the Company Law). The Certificate of conversion may be procured from the Association of Banks, Belgrade, Bulevar Kralja Aleksandra 86/II or from a commercial bank. The Banks Association’s method for calculating the conversion is as follows: if the payment or input was effected before the introduction of the Euro as a currency (1/1/1999), the capital is converted into US dollars as per valid exchange rate on the date of payment, or input, and then the amount calculated in this way is converted into Euros as per rate of exchange on the effective date of the Company Law (30/11/2004), as the law prescribes the obligation to express the basic capital in Euros as of this date.

What is the legal status of a company branch and is the company liable to register its branches?
 
The term branch of a company is defined in Art. 3 of the Law on Companies (“Official Gazette of the RS”, 125/04), which foresees that a company, domestic or foreign, may establish one or more branches. A branch is an organizational part of a company which does not have the capacity of a legal entity. A branch has a business location and authorized representative, and conducts business with third parties in the name and on behalf of the company. A branch of a company must be registered, as required by the law regulating company registration. Hence, the Law clearly defines a branch as an organizational part of a company, as part of its internal organization, which may have some authorities in legal dealings, but without the capacity of a legal entity. The founders of a company may freely decide whether they will a branch or several branches. It is the discretionary right of the founders whether they want to avail themselves of the possibility to form a branch, as an organizational part of their company. Therefore, a company may have other types of internal organizational, business parts which do not have the status of a branch, (subsidiary, business unit, department…), and if the company requires it, the company may decide to form and register some of them as branches. In conclusion, the decision on whether an organizational part will acquire the legal status of a branch is the discretionary right of the company and its founders, who are the ones to decide on forming a branch. The data on the formation and termination of a branch are filed in the Business Register. As mentioned earlier, the branch does not thereby acquire the capacity of legal entity, nor can it act independently in legal dealings. The provision in Art. 6, paragraph 2 of the Company Registration Law (“Official Gazette of the RS” 55/04 and 61/2005), foresees that the Register shall also contain certain company data if such data exist, as set forth in Art. 6 paragraph 2 item 7 of the Law, these are, among other, data on the branch of a company. The way in which this provision was revised also points to the fact that the data on a branch do not necessarily have to exist, i.e. a company does not necessarily have to have a branch, but if it does have one it will be registered in the Register. The difference between a branch and other internal organizational parts of a company is the possibility envisioned by the law of granting a certain degree of legal autonomy to the branch which is less than the full legal capacity that only a company has, as a branch does not have the capacity of a legal entity, but still a greater level of autonomy than that of other organizational parts which have no authority whatsoever in legal dealings. A branch cannot exist independently from a company, and even though it can undertake legal dealings, it always does so in the name of and on behalf of the company. Regardless of the status of the parts of a company, (branch, business unit, subsidiary and similar), as a taxpayer, the company is under the obligation to report data on every place (address) of business outside its registered office address where it conducts its business activity, in accordance with Art. 25 of the Law on Tax Procedure and Tax Administration (“Official Gazette of the Republic of Serbia” 80/02…61/07), and failure to comply with the aforesaid stipulations is a tax fraud according to the same Law.

What is the procedure for the registration of changes in the Business Register for companies against which bankruptcy proceedings have been filed, what are the changes for which registration is mandatory and what supporting documents must be submitted?

A request for registration of change of data for companies against which bankruptcy proceedings have been filed must be submitted by the bankruptcy administrator as the sole authorized person, (in accordance with regulations governing bankruptcy proceedings), who will request the following changes to be effected in the Register:

• Change of company name (in the sense of Art. 64 of the Law on bankruptcy proceedings which foresees that along with the company name of the bankruptcy debtor be added the designation “under bankruptcy”)
• Change of the person with authority to represent (the person authorized to represent the company undergoing bankruptcy proceedings is the bankruptcy administrator, in the sense of Art. 60 of the Law on Bankruptcy, which foresees that on the date of initiation of the bankruptcy proceedings, the rights of the director, representative and proxy, as well as the administrative and supervisory bodies of the bankruptcy debtor are terminated and transferred to the bankruptcy administrator)
• Entry of data which are relevant for legal dealings, i.e. request the registration of data concerning the initiation of bankruptcy proceedings against the company by decision of the competent authority, (that is the court which adopted the decision on the initiation of bankruptcy proceedings).

The supporting documents to be submitted by the bankruptcy administrator, based on which the required changes will be entered in the Register are:

• Application requesting entry of changes in the following data: company name, person authorized to represent the company and data on the initiation of bankruptcy proceedings
• Certified signature of the new representative – the bankruptcy administrator
• Proof of payment of the fee amounting to RSD 2,400
• Decision of the competent authority (commercial court) that adopted the decision on initiating the bankruptcy proceedings and on the appointment of a bankruptcy administrator.

Can a company register several activities?

Under the previous Company Law, (which became ineffective on 30 November 2004), a company could stipulate contracts and engage in other business transactions and services only within the framework of its registered activities.  Hence, previously a company was required to register all business activities that it intended to conduct. Unlike the previous Law, the new Company Law foresees that a company may engage in any lawful activity (Art. 5 paragraph 1). Under the current regulations, a company is required to register one predominant activity, while it may engage in any other activities, with the exception of those that require the approval of, a permit or other document issued by a state authority. Specific activities which require the approval of, a permit or other document issued by a state authority may only be conducted upon obtaining such approval, permit or other document (Art. 5, paragraph 2).

Which supporting documents are required for the registration of a change in the membership of a limited liability company?

Along with the registration form for change of the members of a limited liability company, to be submitted by a registered company representative, an agreement on the transfer of the share certified by the competent authentication body must also be submitted. The signatures affixed on the agreement must be those of the assignor and acquirer of the share. In the case when a third person signs the agreement on their behalf, then a special power of attorney must be submitted, showing the principal’s intent to authorize the agent to sign the agreement of transfer, i.e. acquisition of the share, in his name and on his behalf. In addition to the above, changes and amendments to the agreement on the formation of the company must also be submitted.

Can a municipality appear in the capacity of a founder of a limited liability company?

Yes it can. According to Art. 2 paragraph 1 of the Company Law, a business company is a legal entity founded by virtue of Articles of Association by legal and/or natural persons for the purpose of conducting activities with the aim of gaining profit. Consequently, the founder of a company must have the status of a legal or natural person. Hence, the answer to the question whether a municipality can be the founder of a limited liability company, as one of the company types foreseen by law, depends on whether a municipality has the status of a legal entity. The provision in Art. 1 paragraph 2 of the Law on Local Government (“Official Gazette of the Republic of Serbia”, no. 9/2002, 33/2004 and 62/2006), foresees that the local government shall fulfill its functions through the municipality, city and city of Belgrade, and that the municipality, city and city of Belgrade are units of local government. The provision in Art. 11 of the same Law sets forth that a unit of local government has the capacity of a legal entity. Hence, as the municipality is a unit of local government and has the status of a legal entity, there are no impediments for it to take on the capacity of company founder.

May an entity other than the applicant lodge a complaint against the Agency’s decision to register a company based on the applicant’s request, when the said entity is not satisfied with such a decision?

This is not an option, because in this case the complaint would be lodged by an unauthorized person, and as such it would be rejected. However, there are no legal impediments for an entity which has a rightful interest to determine the validity of a registration, to file a suit with the competent court and to request, in the sense of Art. 69 of the Law on Company Registration, the verification of the validity of registered company data, company registration included, if the application contains fictitious data, if the registration is based on a counterfeit document, a document issued in an unlawful procedure or a document containing false data, and for other reasons foreseen by the law.

How do you file a request for the registration of company data changes and is the use of certain types of forms mandatory?

You may submit your request on an application form, which you can obtain:

• in the Business Registers Agency or its branch offices (you need to pay the RSD120.00 fee for the application for registration form, in conformity with article 5, paragraph 1, point 3 of the Decree on Fees for Registration and other Services Provided by the Business Registers Agency), or
• download for free from the Agency’s website.

The use of a form is not mandatory but optional. This means that there is no obligation to submit the application on a form, and therefore no impediments to formulate your written request in any other manner, (naturally, it is preferable that the request be formulated as clearly as possible, indicating the type and content of the change for which registration is requested).

What is the legal effect of a decision on the appointment of a new director (statutory representative), i.e. when does the appointment become legally effective and is its enforcement related to the change of the entry in the Register?

The decision of the competent company body on the appointment of a new director – statutory representative – to replace the previous one, is constitutive and legally effective irrespective of the formal act of change of registered data in the Register. In fact, only the first entry in the Register is constitutive, while all subsequent entries merely have a declaratory character. A decision on change takes effect immediately upon adoption. Hence, from the date of appointment by decision of the competent body, the appointed person is the director of the legal entity, while his registration with the Register is of a purely formal character.

Does the current legislation allow for conversion of an open joint stock company into a closed one and, if so, under what conditions?

With regard to this issue, article 194, paragraph 1 of the Law on Companies (Official Gazette of the Republic of Serbia, No. 125/04) stipulates that a closed joint stock company is a company whose shares may be issued only to its founders or to a limited number of other persons in line with the Law. Paragraph 5 of the same article of the Law specifies that an open joint stock company may become a closed joint stock company, in conformity with this Law and the law that regulates the securities market. Nevertheless, neither the Law on Companies nor the Law on Market for Securities and Other Financial Instruments (a lex specialis that governs the securities market, Official Gazette of the Republic of Serbia, No. 47/2006) specify detailed conditions or the procedure for converting open joint stock companies into closed ones. In its Opinion No. 3/0-04-393/-05, adopted on the 83rd session of the seventh term of office, dated 14 July 2005, the Securities Commission stated the following: “our legislation does not directly regulate the procedure for changing the status of joint stock companies and there is evidently a loophole here”. The same Opinion contains a conclusion that an open joint stock company may not convert into a closed one in conformity with the existing regulations before amendments and changes to the Law on the Market for Securities and Other Financial Instruments, which would specify (prescribe) the procedure for converting open joint stock companies into closed ones, are adopted. Furthermore, the Supreme Court of Serbia took the same view in its ruling No. 664/08, dated 19 November 2008.

Can the non-cash capital of a limited liability company, whose founder is a joint stock company, comprise shares of the joint stock company (own shares)?

No, because it would be in contravention with article 14, paragraph 1, and article 220, paragraph 2 of the Law on Companies. Namely, provision of the article 14, paragraph 1 of the Law on Companies stipulates that non-cash contributions may be contributions in kind and rights, work or services, as well as shares of other companies. Article 220, paragraph 2 of the Law on Companies prescribes that a dependent company may not subscribe to shares of its controlling company directly or indirectly, through another person who would acquire them on its behalf. Therefore, it may be concluded from the cited provisions that the Law on Companies stipulates that a non-cash contribution to a new company may only comprise shares that the controlling company, as the founder, holds in other companies, but not its own shares.  

In what way are decisions made in a single-member limited liability company, that is, who has the authority of the members’ meetings and can the decisions be made by the director, if the founder of a single-member liability company is also its director?

Article 136, paragraph 2 of the Law on Companies stipulates that in a single-member limited liability company, the decisions of the members’ meeting are made by the member or a person authorized by the member. Accordingly, in a single-member limited liability company, the founder has the authority of the members’ meeting, i.e. the founder makes all the decisions that fall under competencies of the members’ meeting in line with article 137 of the Law on Companies. Furthermore, this means that the preamble of those decisions (such as decision on the director’s reelection or dismissal, increase or decrease in the company’s basic capital, granting of procuration, establishment of a branch, change of the company seat) should refer to article 136 of the Law on Companies. This decision should be signed by the company founder, and not the company director, which does not preclude the fact that the director and the founder may be the same person. This is because if the founder and the director are the same person, the founder is the one primarily authorized to make decisions, while the director is the representative of the company. According to article 137 of the Law on Companies, the director may be authorized by the company’s Articles of Association to make the decisions that are otherwise made by the founder. However, as this is usually not the case with single-member limited liability companies, the decisions within competence of the members’ meeting need to be made in the manner described above.

What do I need to register a change of a company member in a limited liability company in the event of death of the founder?

If it is a single-member company and successors of the founder’s stake in the company wish to continue business operations, it is necessary to file the following documents:

• a duly completed application for registration of change of data on members
• the original or authenticated photocopy of the copy of entry in the Register of Deaths (if the founder was an alien, then the original or authenticated photocopy of the copy of entry in the Register of Deaths, certified in line with the law by a notary’s stamp and Apostille, if necessary)
• original or authenticated photocopy of the final probate decision that will serve to determine the successors of the deceased founder (if the founder was an alien, then the original or authenticated photocopy of the probate decision issued by the competent court, certified in line with the law by a notary’s stamp and Apostille, if necessary).

If the deceased founder was at the same time the representative of the company, the changes and amendments should include a decision on appointment of a new representative (director) or a decision on the issue may be a separate document and an authenticated signature form must also be filed for the new representative.
In case of a multimember company, beside the successors that assume the place of the deceased founder, other founders need to sign the amendments and changes as well.

If successors to the founder’s interest in a single-member company do not wish to continue the business, it is necessary to file, together with the documents listed above, the application for transfer of the interest by which the successors cede the inherited interests to a third party or a petition for liquidation, along with the required documentation concerning these changes.