1. Basic facts about limited liability company in Croatia

Pursuant to Croatian Companies’ Act, a limited liability company (Ltd.) is a commercial company to which one or more legal or natural persons make contributions constituting a share capital and in return acquire the shareholdings in the company. The effected contributions need not to be of equal value and may consist of money, tangible assets or rights. The minimum amount of a share capital is set at HRK 20,000 whereas the minimum amount of a shareholding amounts HRK 200.

The amendments to the Companies' Act of October 2012 introduced into the Croatian Companies regime a new form of the Ltd. company, so-called simple limited liability company (SLtd.). SLtd. represents a sub-category of a limited liability company which may be incorporated with a share capital of only HRK 10 (EUR 1.25) payable in cash and with the lowest nominal value of a shareholding amounting HRK 1.

The amendments to the Companies’ Act instituting the SLtd. were effected in accordance with the Guidelines and Decisions of the European acquis communautaire. With the purpose to avoid migration and the outflow of potential investors to the countries with more flexible rules related to company foundation, the Croatian Government decided to implement such solutions which aim at simplifying and speeding up the entrepreneurship in Croatia. Because of the low threshold the new regulations make starting a business accessible to everyone.

2. Foundation of the Ltd. and theSLtd.

Both Ltd. as well as the SLtd. shall acquire legal personality by the entry of the company into the court registry that is kept with the commercial court.

The basic founding document of Ltd. is the Articles of Incorporation to be executed by all the company’s shareholders in a form of a notarized deed, private document verified by the notary public or minutes completed by a notary public. If the Ltd. is founded by a single shareholder, instead of Articles of Incorporation, the basic founding document is Statement on Incorporation signed by a single shareholder in a form of the notarized deed. The Articles of Incorporation contain information on company shareholders, company name, registered office, amount of the share capital and the specification of shareholdings, business activities of the company and duration of a company. It may include other topics as well.

The SLtd. shall be incorporated on the basis of special minutes completed by the notary public which content is provided by the Companies Act. The completed form shall be simple indicating shareholders and managing directors of the company. It shall include the statement of the company’s managing director on acceptance of appointment along with the managing director’s signature which is to be deposited with the court registry. The founding costs of the SLtd. amount approx. HRK 750 (EUR 100) which is much lower compared to the foundation costs of a classic Ltd.

3. Company’s Organs

The obligatory organs of a classic Ltd. are the Management Board and the Shareholders’ Meeting. Except under special circumstances stipulated in the Companies Act when the company must have supervisory board, it shall be optional body. In case the company has a supervisory board one member shall be employees’ representative.

The Shareholders’ Meeting is an organ of the Ltd. in which the shareholders execute their rights and adopt decisions on certain important matters determined by the Articles of Incorporation. Every shareholder may participate at the Shareholders’ Meeting and in the decision-making process. The Companies’ Act reserves for the Shareholders’ Meeting the authority to decide on the following issues: financial statements of the Ltd., business reports of the Management Board, giving clearance to the members of the Management and Supervisory Board; appointment and revocation of the members of the Management and Supervisory Board; merger, division and withdrawal of the shareholdings, amendments to the Articles of Incorporation, raising claims for damages towards the members of the Management and Supervisory board etc. The decision-making area of the Shareholders’ Meeting may be broadened or narrowed pursuant to the Articles of Incorporation and the Companies’ Act.

The Shareholders’ Meeting must be convened at least once a year upon the decision of the Management Board, in all cases when the interests of the company require such an action or if special conditions provided under the Companies Act are met (e.g. in case of loss of ½ of the share capital). Also, the Shareholders’ Meeting shall be convened upon request of the shareholders whose shareholdings represent 1/10 of the total share capital. At the Shareholders’ Meeting, the decisions may be adopted by simple majority of votes, unless otherwise is prescribed by the Articles of Incorporation or the Companies Act. Each HRK 200 of nominal shareholding value represents 1 vote, unless otherwise is defined by the Articles of Incorporation. In order to have the authority to pass a valid decision, the shareholders representing at least 1/10 of the total share capital should be present at the shareholders’ meeting.

The Management Board may consist of 1 or more managing directors who shall be appointed and released from their duty by the Shareholders’ Meeting. The Management Board is in charge to represent the company and manage company’s affairs in accordance with the Articles of Incorporation, shareholders’ decisions and mandatory instructions of the Shareholders’ Meeting and the Supervisory Board. The information on appointed managing directors of the Ltd. and their change, as well as the manner in which they represent a company shall be registered with the court registry. The managing directors are especially responsible for timely keeping of the company’s business records, preparing the financial reports and for the records on ownership of shareholdings of the company.

In general, the Supervisory Board is an optional organ. In certain cases provided for in the Companies’ Act, the Supervisory Board shall be a mandatory organ:

  • if the yearly average number of Ltd.’s employees exceeds 200;
  • if explicitly required by the law for particular business activity;
  • if the share capital of the Ltd. exceeds HRK 600,000 and the company has more than 50 shareholders;
  • if the company manages public and private limited companies in which companies the supervisory board is a mandatory organ or if the company directly owns more than 50% of the share capital in such companies provided that in both cases the average yearly number of employees in some or all of those companies in previous calendar year exceeds 200.

The Supervisory Board shall consist of at least three members, and if there are more members, their number should be uneven. The members of the Supervisory Board shall be appointed by the shareholders whereas one member shall be appointed by the company’s employees. The Supervisory Board is in charge of supervising the activities of the Management Board and submitting the reports to the Shareholders’ Meeting.

As opposed to the regime of classic Ltd., the SLtd. shall have maximum three shareholders which may be either, natural and/or legal entities. The company’s organs are the Shareholders’ Meeting and the Management Board which shall have only one member. In the Shareholders Meeting, each HRK 1 nominal value of the shareholding represents 1 vote.

4. Company’s reserves

As opposed to the joint stock company, the Ltd. is not obliged to have legal reserves.

Capital reserves of the Ltd. may consist of:

  • part of the amount paid for acquiring shareholdings exceeding the nominal value of the shareholding;
  • amounts of additional contributions effected by shareholders for acquiring special rights within the company;
  • other supplementary contributions;
  • amounts for which the share capital has been simply reduced with the purpose of entering the funds into the capital reserves.

Reserves from the profit may only consist of the amounts of the net profit realised in the current business year or in the previous business years.

In the reserves provided for acquisition of its own shareholdings, the Ltd. shall contribute the amount which corresponds to the amount stated in the financial statements for the same shareholdings. The reserves set up for acquisition of own shareholdings may be abolished only if the company disposes with or withdraws its own shareholdings.

As opposed to the Ltd, a quarter (25%) of the earned profits reported in the annual financial reports of the Sltd. (reduced by the losses from the previous year) shall be contributed to the legal reserves. Legal reserves may be used only for strictly prescribed purposes:

  • for the increase of the share capital by converting the reserves into the company’s share capital;
  • for covering the losses from the current fiscal year;
  • for covering the losses suffered in the previous year.

In case that Sltd. increases share capital up to the amount of HRK 20,000 (the amount of the share capital prescribed for a classic limited liability company) the provisions of the Companies’ Act regulating SLtd. shall no longer apply and the company shall be subject to the provisions governing classic Ltd.

5. Termination of the company

Reasons for dissolution of both SLtd and Ltd may be:

  • expiry of the time limit defined by the Articles of Incorporation;
  • decision of the shareholders;
  • division of the company by separation, merger or consolidation with another company;
  •  opening and completion of bankruptcy proceeding;
  • valid court decision (also in case of nullity or abolition of the company).

Beside statutory reasons for dissolution of a company, the company’s shareholders are free to agree on some other causes for the termination.

6. Conclusion

Both, Ltd. and SLtd. represent independent legal entities separated from the shareholders that are fully capable to be holders of rights and to assume obligations. Company’s assets in both types of company are strictly separated from the property of the shareholders. The provisions governing classic Ltd. shall apply to SLtd. and both types of capital companies shall be held liable towards third parties with the entire company assets, whereas the shareholders shall generally not be held liable for the company’s obligations (unless in exceptional cases such as piercing of corporate vale).