On June 8th, 2018 the National Assembly of the Republic of Serbia adopted the much-awaited Amendments to the Companies Act (hereinafter referred to as: “the Amendments”). The Amendments represent an important step towards the harmonization of the Companies Act with the EU law as well as an important step towards adjusting to the contemporary business needs in Serbia.

Harmonization with the EU law

With Serbia’s accession to the European Union – specifically Chapter 6 of the accession dialogue: having the Companies Act – in mind, the legislature introduced a myriad of amendments ensuring harmonization with the EU law. The most significant of these relate to the conditions for mergers between Serbian and EU companies, and for the establishment of European joint stock companies by at least one Serbian and one EU company (or legal person).

Empowering the minority shareholders

Perhaps recognizing that Serbia ranks 76 for protecting minority investors in the World Bank’s “doing business” ranking explains the rationale of the National Assembly of the Republic of Serbia for introducing provisions which promote their rights to a higher extent. It is with this Amendments that the shareholders:

• can convene a meeting of the shareholders if they hold a 10 % stake (previously set at 20%);
• may set a point of the agenda if they have a 5% interest (previously set at 10%); and
• all have voting rights in proportion to their share – the Memorandum of Association can no longer stipulate that a shareholder has no voting rights.

High – value assets

One of the things now clearly put straightforward is the explanation as to what should be considered an asset of high value (over 30% of the company’s asset value) for the purposes of disposition of such assets, in cases where such a disposition has been previously approved at the shareholder’s meeting thus allowing the minority shareholders to sell their shares. Common dispositions include mortgages, loans, granting securities for loans, sale, purchase and any dispositions that create obligations for the company. The newly amended provisions indicate that when determining whether an asset is of high value or not, the loan value and the value of each of the securities should be considered, ultimately choosing the higher of the two.

A new manner for evaluating the values of shares of joint stock companies

The Amendments now set out a new manner for evaluating the value of shares in a joint stock company. To be precise, the value of shares will equal the average weighted price of shares on the regulated market, provided that the following two conditions are met.

The conditions that have to be met are that:

1. at least 0,5 % of shares have been subject to trading on the regulated market, in the period of 6 months; and
2. that each month during that period, 1/3 of the trading days was affected by the trading.

Transactions affected with the personal interest

In dealing with a transaction in which personal interest is included, one must know to determine the value of the transaction. To put it in right words, the Amendments differentiate the situations in which the value of a transaction is less than 10 % of the company’s book asset value, by stipulating that in such situations no prior approval of the shareholders or directors having no personal interest is needed.

On the other hand, if the value of the transactions surpasses 10 % of the company’s book asset value, the procedure of approving such a transaction is now stricter. Namely, the companies must now publish on their website or on the website of SBRA a detailed report concerning the subject transaction as well as the personal interest which is part of the transaction, provided that they have previously obtained an assessment on the market value of the asset which is part of the transaction.

Share capital decrease in limited liability companies

Unfortunately, it seems that the legislator has not recognized the importance to liberalize the institute of the share capital decrease. Instead, the Amendments now create a more conservative approach by stipulating that the share capital decrease can only be performed in specific situations. That is to say, that the share capital decrease is possible only in situations such as the coverage of losses, the creation or the increase of the company’s reserves used for coverage of losses or the increase of the basic share capital of the company, disposal of its own shares, etc., i.e. in situations which are more or less affecting the accounting part of the company.

Practical matters 

It seems that several practical matters associated with the business of companies in Serbia are also dealt with these Amendments. Those relate primarily to the company’s business name, the usage of stamps by the companies, the branches of Serbian companies, distribution of dividends etc.

• Business name of the company

The Amendments now stipulate two important changes concerning the business name of the companies, the first one being that the companies can now opt for an acronym as an integral part of their business name. Nonetheless, it seems as if the second amendment deserves more attention mainly because it prolongs the list of situations in which the requirement of the Ministry of Economy is needed when designating the business name prior to its registration. That list is prolonged by stipulating that whenever a company intends to add an abbreviation “SRB” to its name, it must first consult the Ministry of Finance of the Republic of Serbia.

• Usage of stamps – a thing of the past

The dilemma concerning the usage of stamps is now resolved by clearing out that companies are not required to use an official stamp in legal documents and in business transactions. Prior to the Amendments the Act only contained a provision which provided that the companies did not have to use their stamp unless otherwise stipulated by law. De facto, many banks and other entities refused to accept documents without official stamps, often relying on secondary legislation instead of the Act. Hopefully, the new Amendments will ensure that stamps become a thing of the past.

• A new obligation for branch offices in Serbia

Something new required by the Amendments is that the domestic branch offices now have an obligation to register to the company register of the Serbian Business Register Agency (hereinafter referred to as “SBRA“).

• Shorter time for the payment of dividends

It is indeed important to note that, from now on, the dividends must be paid out within six months from the day of enacting the decision on dividend payment. Hopefully, this provision will have a positive effect and henceforth decrease the possible non-payment of dividends.

Paperless business – a step towards the future

The refreshing provisions stipulating that electronic signatures may be used and mandating the registration of the company’s e-mail address do herald a future of “paperless business”. Expert commentary estimate that the electronic registration of the company will be 20% to 30% cheaper than the “paper registration”.

Harmonization with the EU law – A Boost to Business?

Overall, the Amendments to the Companies Act bring welcoming clarifications, and will hopefully make Serbia a more attractive destination for founding a company and doing business, as well as further the process of its integration into the EU.

Surely one of the most positive impacts in that regard is the fact that Serbia has in recent years undergone a significant growth of points on the „ease of doing business list “ on the World Bank’s list, increasing its points from 72.87 from 2017 to 73.13 in 2018.

Contact:

Miloš Velimirović, Partner
milos.velimirovic@sog.rs

Ivana Barać, Associate