The Serbian Parliament adopted amendments to the Serbian Company Law (Law) on 8 June 2018, and they were published in the official journal on the same date.
This is the first overhaul of the Serbian Company Law since it was enacted back in 2011. Most of the amendments relate to the introduction of the concepts required for Serbia's accession to the EU (such as cross-border merger and European company forms). However, a lot of the changes have been made in an attempt to resolve the issues which occurred in the practical implementation of the previous Law.
The Law's entry into force is planned in three phases, and is somewhat complicated:
- immediate application, as of 9 June 2018, is envisaged for provisions relating to the buy-out of shares and determining the market value of the shares (see section "Valuation of shares in joint stock companies" below);
- amendments relating to the harmonisation with EU legislation will apply from 1 January 2022; and,
- all other provisions will apply as of 1 October 2018.
Below is an overview of the most important changes.
Under the amendments to the Law:
- an abbreviated business name of a company can now contain an acronym; and,
- a business name cannot contain the designation "SRB" without the approval of the Ministry of Economy. The approval of the said Ministry was, until now, required for designations with the full name of "Serbia". However, this approval requirement has now been extended to the abbreviation "SRB" as well, since it was broadly used in business practice as a means of circumventing the approval requirement. As for companies containing the designation "SRB" in their names, the relevant ministry is authorised to (and it will most likely do so), once this provision takes effect, request that each of these companies delete this designation from their registered name unless they obtain approval in the meantime.
Until 20 October 2019, all companies will have to register their e-mail addresses with the companies register.
Distribution of dividends
The amended Law introduces a deadline for the payment of dividends after being declared. The deadline is 6 months following the decision on declaring dividends.
Assets of significant value
The amendments to the Law attempt to introduce some clarifications to the provisions concerning the disposal of assets of significant value i.e. assets exceeding 30% of the company's asset value (which require shareholders' meeting approval and in turn trigger the rights of dissenting minority shareholders to sell their shares to the company). This concept has been the source of tensions between the management and the minority shareholders ever since it was introduced into the Serbian legal system back in 2004. The interest of the management and the majority shareholders has been to limit the application of this provision (in turn, limiting the right of minority shareholders to force a sale of their shares), while the minority shareholders' interests have been the opposite.
The amendments relate to situations which are most frequent in practice – taking out a loan and granting securities for such a loan. Now, for the purposes of calculating the 30% threshold, the higher amount between (i) the loan value and (ii) the value of each of the securities given for such a loan is to be taken into consideration, and not the sum of each of these individual values.
While the attempt to bring clarification to this complicated and burdensome concept is certainly welcome, it still remains to be seen whether this will bring any significant benefit in practice.
Transactions involving personal interest
The amendments introduce changes to the internal approval procedure for transactions involving the personal interest of the shareholders or directors:
- If the value of the transaction is less than 10% of the company's book asset value, no approval by the disinterested shareholders or directors is needed.
- If the value of the transaction involving personal interest is greater than 10% of the company's book assets value, the approval procedure is made more stringent:
- as part of the approval procedure, a company must obtain an assessment by an authorised court expert, auditor etc. of the market value of the assets subject to the transaction; and,
- once the approval has been obtained, the company must publish on its website, or on the website of the Business Registers Agency, detailed information on the transaction and the personal interest involved.
Branches of Serbian Companies
The amendments introduce the requirement (so far, it was an option) for Serbian companies to register all their branch offices in Serbia with the companies' register. Serbian companies that have non-registered branches in Serbia will have a one-year period to register them.
Minority shareholders in limited liability companies
- The shareholding interest threshold authorising a shareholder to request a convening of the shareholders' meeting has been decreased from 20% to 10%. The company's bylaws can set a lower, but not a higher threshold.
- The shareholding interest threshold authorising a shareholder to put an item on the agenda of the shareholders' meeting has been decreased from 10% to 5%. The company's bylaws can set a lower, but not a higher threshold.
- The amendments clarify the existing provision enabling voting rights not to be pro-rata to the respective shareholding interests – the amendments confirm that voting rights do not have to be pro-rata to the shareholding interest, but no share can have zero voting rights.
Decrease of share capital in limited liability companies
According to the amendments, a "regular" version of share capital decrease, which involves payments to shareholders (such as in the case of overcapitalisation) is not possible. Now, share capital decrease is possible only as a matter of, more or less, "accounting" changes – the covering of losses, the creation of reserves etc.
The amendments to the Law have only formalised the existing practice of the authorities, which prohibited this type of share capital decrease even before these amendments. The expectations of the business community, that such an extremely conservative and ungrounded practice will be terminated by these amendments, did not materialise; to the contrary, we now have a strict legal prohibition against the decrease of share capital in the case of the overcapitalisation of a Serbian limited liability company.
Valuation of shares in joint stock companies
The conditions for determining the market value of shares in a joint stock company have been changed. The amended Law now prescribes that the market value of shares is the average weighted price of shares on the regulated market in the period of 6 months prior to the issuance of the decision on determining the market value, provided that:
- in that period, at least 0,5% of the shares were subject to trading on the regulated market; and,
- the trading took place on at least 1/3 of the trading days in each month during that period.
If the above conditions are met, when determining the value of the shares for the purposes of a buy-out of shares held by dissenting minority shareholders, only the market value should be taken into consideration, and there is no requirement to determine the book or the evaluated value of the shares.
If there is no market value for the specific shares, the higher amount between the book value and the value evaluated by authorised evaluators is to be paid as the price to the dissenting minority shareholders.
These amendments apply immediately after the publication of the amendments, i.e. as of 9 June 2018.
Harmonisation with EU regulations
There are some amendments, in relation to EU integrations, which will enter into force on 1 January 2022. The amended Law:
- introduces new company forms: Societas Europea, the European joint stock company, and the European economic interest grouping; and,
- enables cross-border mergers of Serbian and EU companies.