Corporate law is a branch of law that deals with all aspects of the operation of business entities. Corporate law covers the regulation of the legal status of companies, including their establishment, management, status changes, changes in legal form, and termination of business activities. This branch of law also includes “commercial contracts.”
Types of companies
Company Law specifies the forms of companies: Limited Liability Company (LLC); Joint-Stock Company (JSC); Limited Partnership (LP); and General Partnership (GP), and as a separate type of business organization for individuals, it provides for entrepreneurs (PR).
Entrepreneur
An entrepreneur is not a company, although it shares some characteristics with companies. There are various theoretical and legal approaches and definitions of the concept of an entrepreneur and their position in the economy. One of the simplest definitions of an entrepreneur is: “an entrepreneur is an individual to whom the characteristics of a company are granted in order to perform a specific business activity.” Therefore, an entrepreneur is an individual who, after registering a business activity, obtains certain attributes of a company, such as a registration number and a tax identification number, all for the purpose of conducting a registered business activity. However, the entrepreneur is personally liable with their entire personal property for all obligations arising from the entrepreneurial (business) activity. From this, it can be concluded that the individual’s personality is inseparable from the entrepreneur, which is generally not the case with business entities.
General Partnership
A general partnership is an entity consisting of two or more partners who are jointly and severally liable for the obligations of the company with their entire property. If the agreement on the formation of the company or another agreement between partners contains a provision limiting the liability of partners to third parties, that provision has no legal effect. Essentially, this means that the partners, like entrepreneurs, are fully liable with all of their property for obligations arising from conducting the partnership’s business.
A general partnership is established by signing an agreement to form the partnership. This agreement must be signed by at least two partners and must contain all elements required by law.
Partners contribute equal-value shares unless otherwise specified by the agreement. Contributions can be monetary or non-monetary. Exceptionally, non-monetary contributions can be in the form of labor or services by the partners.
A general partnership is dissolved by being removed from the business registry under conditions specified by the Company Law (e.g., completion of liquidation, bankruptcy, status change).
It is important to note that a general partnership must always have at least two members. If one member leaves a two-member partnership, the conditions for initiating compulsory liquidation and removal of the partnership from the business registry will be met.
Limited Partnership
A limited partnership is a business entity that has at least two members, of which at least one is fully liable for the obligations of the company (general partner), and at least one is only liable up to the amount of their unpaid contribution (limited partner). It is a business entity with mixed characteristics of a general partnership (GP) and a limited liability company (LLC).
Essentially, the general partner has obligations similar to those of a partner in a general partnership, so the provisions of the Law on Business Entities applicable to partners in a general partnership are applied to them, while the limited partner’s obligations are those typical of a member of a limited liability company.
A limited partnership is established by a founding agreement that, in addition to mandatory elements required by law, must specify which members are general partners and which are limited partners.
A limited partnership must always have at least one general partner and at least one limited partner. If the partnership loses all its general or limited partners, it can decide to change its legal form. If this is not done, or if a new general partner or limited partner is not added within the prescribed period, the conditions for initiating compulsory liquidation and removal from the business registry will be met.
Limited Liability Company (LLC)
A limited liability company is a company in which one or more members hold shares in the company’s capital, and the members’ liability for the company’s obligations is limited to the amount of their monetary or non-monetary contributions. An LLC is one of the most common forms of organizing a business entity in the Republic of Serbia. The limited liability of members makes this type of company very appealing for individuals who wish to engage in business activities.
Members of an LLC can regulate their internal relationships and their relationship with the company freely, in accordance with the provisions of the Law on Business Entities.
An LLC can be single-member or multi-member. If it is a single-member company, it is established by a decision to establish the LLC (a unilateral legal act), while a multi-member company is established by a founding agreement signed by the members.
The membership in the company is obtained upon registration of ownership of the share, in accordance with the registration law, and ends when the registration of the termination of membership occurs. Members are free to transfer their shares in the company, subject to the right of first refusal for other members, as stipulated by law.
The minimum capital of the company is 100 dinars, unless a special law requires a higher amount for certain types of activities. Thus, the Company Law requires only a symbolic minimum capital.
The management of the company can be organized as unicameral or bicameral. In a unicameral system, the company’s organs are: the assembly and one or more directors. In a bicameral system, the company’s organs are: the assembly, supervisory board, and one or more directors.
Joint-Stock Company (JSC)
A joint-stock company is a company whose capital is divided into shares held by one or more shareholders who are not liable for the company’s obligations, except in cases of piercing the corporate veil. The JSC is liable for its obligations with its entire property. Some companies are required by law to be established as joint-stock companies, such as banks.
A JSC has a statute that contains all elements specified by the Company Law.
The shares issued by the company are dematerialized and in registered form, and their registration, transfer, and rights associated with them are governed by the laws regulating the capital market. The company can issue ordinary or preferred shares, and shares may or may not have a nominal value. If the company issues shares with nominal value, all shares of the same class must have the same nominal value. The nominal value of the shares cannot be lower than 100 dinars.
A JSC is established by signing the founding act, which is signed by the shareholders. The founding shareholders also sign the first statute of the company.
The company may operate under unicameral or bicameral management. In the unicameral system, the company’s organs are: the assembly and one or more directors, or a board of directors. In the bicameral system, the company’s organs are: the assembly, supervisory board, and one or more executive directors or an executive board.
Status Changes
A status change refers to the reorganization of a company where its assets and liabilities are transferred to another company, and its members acquire shares or stakes in the new company. This is a relatively complex process involving the creation of numerous documents, followed by submitting the request to the Business Registers Agency, which is responsible for carrying out the desired status change.
Types of Status Changes for Business Entities
According to Serbian law, status changes include:
- Merging – One or more companies can merge into another company, transferring all assets and liabilities to the new company, causing the merging company to cease to exist without liquidation.
- Amalgamation –Two or more companies can amalgamate to form a new company, transferring all assets and liabilities to the new entity, resulting in the companies ceasing to exist without liquidation.
- Division – A company can divide its assets and liabilities into two or more newly established companies, or transfer them to existing companies.
- Spin-Off –A company can transfer part of its assets and liabilities to one or more newly established or existing companies, with the original company continuing to exist.
Change of Legal Form of an Entrepreneur
An entrepreneur may decide to continue performing business activities in the form of a company, in which case the provisions of the Companies Act relating to the establishment of that specific type of company apply.
The change of the legal form involves the simultaneous removal of the entrepreneur from the register of economic entities and the registration of the company’s establishment, which assumes all the rights and obligations of the entrepreneur arising from business operations up to the moment of the company’s establishment.
After losing the status of an entrepreneur, the individual remains personally liable with their entire property for all obligations related to business activities until the entrepreneur is removed from the register.
Change of legal form
Changing the legal form is a process where a company that has been operating its registered activity in one legal form (e.g., a Limited Liability Company) decides to switch to another legal form (e.g., a Joint Stock Company) in accordance with the provisions of the Company Law. It is important to note that changing the legal form does not affect the legal personality of the company. The law prescribes certain limitations regarding the possibility of carrying out this procedure. For example, if a public joint stock company changes its legal form, it must meet the requirements for ceasing to be a public company, as stipulated by the law regulating the capital market. Furthermore, a company cannot change its legal form if it is in liquidation or bankruptcy, except as part of a reorganization under the bankruptcy law.
To carry out the change of legal form, one or more directors, or the board of directors, prepare and submit the following acts and documents to the assembly for adoption:
1. Proposal of the decision to change the company’s legal form;
2. Proposal for changes to the founding act;
3. Proposal for the company’s statute if the company is changing to a joint stock company;
4. Proposal of the decision appointing the members of the company’s bodies in accordance with the provisions of this law related to the given legal form;
5. Report on the necessity of carrying out the change of legal form procedure;
6. Detailed notice to members about their right to disagree with the decision on changing the legal form.
If the company has a bicameral management structure, the above-mentioned acts and documents are prepared by one or more directors, or the executive board, and the supervisory board determines and submits them to the assembly for adoption. The notification of company members and creditors regarding the procedure for changing the legal form, the invitation to the meeting where the decision on changing the legal form is made, and the procedure for making this decision are subject to the provisions of this law concerning status changes.
The decision to change the legal form of the company should include the following:
- The company’s business name and registered address;
- The designation of the new legal form of the company;
- Information on how and under what conditions shares will convert into stakes, or vice versa, depending on the specific legal form change.
In a joint-stock company, the decision on changing the legal form is made by a three-quarter majority of the shareholders present, unless the statute requires a larger majority.
At the same time as the decision, the members of the company, or the assembly, adopt:
- Amendments to the founding act;
- The statute, if the legal form is changing to a joint-stock company;
- The decision or decisions appointing members of the company’s bodies.
The registration of the change in legal form is performed in accordance with the registration law, and if the company is changing its legal form to a joint-stock company, it must first register the shares in the Central Registry, as per this law. If the company changes its legal form and becomes a joint-stock company or a public joint-stock company, it ceases to be one; the provisions of the law regulating the capital market also apply. The legal consequences of changing the legal form occur on the day the change is registered, in accordance with the registration law.
Legal Consequences of Changing the Legal Form of a Company:
1. The shares in the company are converted into stakes, or vice versa, depending on the specific change of legal form;
2. Holders of convertible bonds and warrants, or other securities with special rights (except for shares), are guaranteed at least the same special rights after the legal form change, unless otherwise determined by the decision on issuing these securities or agreed upon with their holders;
3. Partners and general partners who, due to the change of legal form, become members of a company with limited liability, remain jointly responsible with the company for the company’s obligations incurred until the registration of the change of legal form, in accordance with the registration law;
4. Third-party rights, which represent encumbrances on the shares or stakes of the company changing its legal form, transfer to the shares or stakes of the new legal form.
Role of a Lawyer
Every form of organization within corporate law has its specificities when it comes to establishment procedures, management, and responsibilities towards the state and third parties. For this reason, before embarking on the process of establishing a business entity and starting a business, it is advisable to consult a corporate law attorney, who will outline the important specifics of each business entity and help the client choose the most suitable organizational form.
Legal Support During the Establishment and Operation
The assistance of a corporate lawyer is essential when establishing companies. Due to the complex documentation that must be prepared and submitted during the company’s establishment, and because companies can only be established by submitting an electronic application to the Agency for Business Registers, it is far simpler for clients to delegate the entire process of preparing and gathering the necessary documentation and submitting the application for the establishment of the business entity to an attorney. Moreover, a company will have ongoing interactions with administrative bodies (e.g., tax administration) and third parties it conducts business with. In these complex relationships, the presence of an attorney with the necessary expertise in this field is crucial. A company will, in order to carry out its registered activity, conclude numerous commercial contracts (e.g., sales agreements, commission agreements, shipping agreements, construction contracts, etc.), the preparation of which should be entrusted to a professional to protect the rights and interests involved.
Resolving Business Disputes
Frequently, creditor-debtor relationships that arise during business operations can escalate into business disputes. Business disputes, which are common, represent a special type of civil lawsuit before commercial courts. Although a company can be represented by its legal representative in court, considering the potential high value or importance of the dispute, it is imperative to have the company represented by a lawyer.
Legal Services We Provide
Radoičić & Associates Law Office specializes in corporate law and has extensive experience in representing companies. We represent prominent companies successfully operating in Serbia and abroad.
In this field of law, we offer a wide range of legal services, including:
- Establishing companies and entrepreneurs, changes related to companies, changes in legal forms of companies, etc.
- Drafting all normative acts
- Preparing complete documentation and conducting the procedure for status changes, legal form changes, and other changes in the company and representation during these procedures
- Reducing and increasing the company’s capital
- Initiating liquidation, bankruptcy procedures, and de-registration of entrepreneurs
- Drafting all types of commercial contracts
- Preparing Due Diligence reports
- Attending meetings and actively participating in negotiations with clients’ business partners
- Representing clients in proceedings before administrative bodies
- Representing clients in legal disputes
- Representing clients in international arbitrations
- Representing clients in procedures related to the recognition and enforcement of foreign court decisions
- Establishing associations
Advantages of our services:
Expertise and Experience – Our corporate law team has years of experience providing legal services to companies from various sectors.
2. Individual Approach to Each Client – Every business has its specific needs and challenges. We understand that universal solutions are not always applicable, which is why we offer personalized legal services tailored to the client’s specific business goals.
3. Comprehensive Legal Support – We provide a wide range of services, including contract drafting, legal analysis, advising during negotiations, resolving business disputes, and representation in domestic and international procedures.
4. Efficiency and Dedication – We understand the importance of speed and precision in the business environment. We aim to provide timely and high-quality legal services so you can focus on growing and developing your business.
5. Knowledge of Domestic and International Law – In addition to an in-depth knowledge of Serbian law, we have experience working with international companies and addressing legal issues in a global context, including arbitration and international contracts.
Frequently Asked Questions
An entrepreneur is an individual who establishes a business activity to perform registered economic activities and is personally liable for all obligations with their entire personal property. On the other hand, a company is a legal entity that has separate property from its founders. Establishing a company allows for limited liability of the founders, and the process of establishment and required documentation significantly differ from that of an entrepreneur.
Yes, it is possible. Changing the legal form of a business entity, for example, from a limited liability company (LLC) to a joint-stock company (JSC), or vice versa, or changing from an entrepreneur to an LLC, requires carrying out a status change. This includes preparing the relevant documentation, amending the statute, and obtaining approvals from the competent institutions. A corporate lawyer specializing in this area will be able to carry out the process smoothly and efficiently.
Due Diligence is a detailed legal and financial analysis of a company carried out before making key business decisions, such as purchasing a company, mergers, or investments. This process helps identify potential legal risks, hidden liabilities, or operational issues in the company under consideration, ensuring security for investors and transaction participants.
Disputes between founders can be resolved through negotiations, mediation, arbitration, or legal proceedings. It is advisable for founders to preemptively address potential conflicts through well-drafted internal documents (e.g., a founders’ agreement or company statute). A corporate lawyer assists in negotiations and finding solutions that benefit all parties involved. Proper internal documentation prepared by a corporate lawyer can help prevent major misunderstandings and disputes.