On February 3, 202, the Law on Amendments to the Law on Companies entered into force, and the same was published in the Official Gazette no. 17/23 on February 22, 2023. In fact, the primary text of the Law was adopted even in 2008, and ever since then there was a need to elaborate certain provisions additionally, as well as to regulate new institutes of commercial law.
Below is an overview of the most significant amendments to the Law on Companies.
Share capital of a limited-liability company
In connection with the share capital, the minimum amount of the same remained unchanged (1.00 BAM) but the changes concern the situation when several persons establish a limited-liability company, then the minimum financial part for each founder cannot be less than 1.00 BAM per founder. The other change regarding the share capital refers to the case when the monetary part of the share capital of a limited-liability company is equal to or exceeding the amount of 5,000.00 BAM, and then at least half of that amount is paid into a temporary account until the registration of the company, and the rest is paid according to the deadlines for the payment of monetary contributions that are determined by the Articles of Incorporation and no later than within two years from the date of registration.
Registration of shares in the Central Register of Securities
One of the novelties, the implementation of which will likely attract the most attention, is the provision regulating the possibility to register shares of a limited-liability company in the Central Register of Securities. With this amendment, shares registered in the Central Register of Securities acquire the status of securities and are freely transferable. This novelty will introduce numerous other changes and alternative possibilities, such as the possibility to entrust the management of the Book of Shares to the Central Register of Securities, as well as to trade shares registered in the Central Register of Securities on the stock exchange or other regulated market in accordance with the applicable rules. Therefore, the regulations regulating the securities market are accordingly applied to the keeping of the Share Register at the Central Register and to the issuing of relevant reports. If the shares are registered in the Central Register, the principle of constitutive registration in the Central Register will be applied, which implies that all rights and obligations are acquired from the date of entry in the Central Register, regardless of the date of entry in the Register of Business Entities. Given that this type of registration was introduced as a possibility and not as an obligation, time will prove whether businessmen will use this possibility in practice and what advantages the same might provide.
Assembly of a limited-liability company
More significant changes have also been made to the provisions concerning the company’s Assembly, i.e., in the case where the sole member of a limited-liability company is a legal entity, then the Articles of Incorporation can determine the body of that legal entity that performs the function of the Assembly, and if the Articles of Incorporation does not include such a provision, it is assumed that the role will be performed by the registered representative of that company. In addition, there is no longer a need to draw up minutes from the Assembly, but only to enter the decision in the Book of Decisions.
In addition, significant changes in connection with the company’s Assembly concern the majority required for decision-making, so these changes abandon the previous regulations, which for: amendments related to the Articles of Incorporation and Contract of the Members of the Company, increase and decrease of the share capital (except for additional contributions of members in accordance with the Articles of Incorporation or Contract of the Members of the Company), status changes, change of legal form and termination of the company, distribution of profits to the members of the company, acquisition of the company’s own shares, disposal of the company’s assets of high value, etc. acquired the consent of all members of the company, but now new legal solutions on the above-mentioned matters can be decided by a two-thirds majority of the members’ votes (unless internal documents otherwise specified).
Resignation and expulsion of a member of the company
The provisions regulating the resignation and expulsion of a member of the company have been elaborated in a more detailed manner with these amendments, and a member of the company who has no outstanding obligations towards the company and does not seek compensation for his/her share, may at any time, based on a statement of resignation submitted to the company, withdraw from the company without mentioning reasons. The share of a member of the company who withdrew from the company becomes the own share of the company even without making a decision on acquiring own share. In addition, it also regulates the resignation of a member for a justified reason, the resignation procedure itself, as well as the resignation for a justified reason by a court decision i.e. when a member of the company files a lawsuit against the company to the competent court and demands the termination of the status of a member of the company due to the existence of a justified reason and demands the payment of compensation for his/her share. In addition, the provisions on the expulsion of a member of the company by the decision of the company’s Assembly, i.e., the decision of the court, as well as the compensation for the share of the excluded member are now regulated in more detailed manner and the dilemmas that arose in practice on this occasion have been eliminated.
Selling price of shares
Until now, the selling price of shares could be set at a lower amount compared to its nominal value. The new amendments stipulate that the selling price cannot be lower than the nominal value of the share, except in cases where the book value of the share is lower than the nominal value, provided that the selling price of the shares cannot be lower than the book value of the share, then in the case of the sale of ordinary shares in the process of exercising the right of pre-emption of existing shareholders’ shares or selling shares to a stock broker for their resale (in the process of takeover), whereby the sale value of the shares cannot be lower than the market value, unless the market value is lower than the book value, in which case, the book value of the share is applied. The exception equally applies to the issuance of shares in case of reorganization of a company.
When it comes to determining the market price, in addition to the previously established conditions for determining the market value of shares (weighted average price on the stock exchange or other regulated market, in the period of six months before the day of making the decision on determining the market value of shares, if during that period the volume of that class share trading on the securities market represented at least 3% of the total number of issued shares of that class and that in at least three months the realized trading volume amounted to at least 1% of the total number of issued shares of that class on a monthly basis) as amended by the Law on Companies introduced is the third condition, which is that it was traded on more than one-third of the days in which trading was possible on a monthly basis.
There are different views on this change, and the most common criticisms are that by prescribing the provision that the selling price cannot be lower than the nominal price, it may lead to a reduced interest in financing the development of joint stock companies through the issue of shares, and in general to a decrease in interest in buying shares at the higher price than the market price.
Dividend distribution
By amending the Law on Companies, the Shareholders’ Assembly can make a decision that up to 20% of undistributed profits can be distributed to employees of the company, in the manner and according to the criteria that will be beforehand determined by the Articles of Incorporation, i.e. Articles of Association. The decision on the distribution of profits in this way is made by the votes of those shareholders who do not exercise the right to shares from the profits. It is significant to emphasize that the right to a share of the profit can be exercised by an employee who, together with the new shares, does not own more than 5% of the share capital of the company. The amendments refer to the principle of equal treatment of all shareholders with regard to the payment of dividends and provide that monetary dividends can be registered in the Central Register of Securities. In the latter case, the dividend payment is made by depositing the funds to the dedicated account of the Central Securities Register, which makes direct payments to shareholders.
In addition, it is important to emphasize that the new amendments provide for special rules for contesting the decision on the distribution of dividends, and such a decision, in addition to the conditions previously regulated, can also be contested in the event that the decision on the distribution of profits does not include the payment of dividends to shareholders, and this payment should have been carried out considering the circumstances in which the company operates and under the condition that a positive assessment of a good businessman was obtained (assessment based on the opinion of an independent auditor), that it was mandatory to make a decision on the payment of dividends in accordance with the company’s dividend policy, which is determined according to corporate governance standards in accordance with this law.
A lawsuit to challenge the decision from paragraph 1 of this article of the Law can be filed by shareholders whose total participation in the company’s share capital is at least 10%.
This change, on the one hand, gives some kind of security to minority shareholders to request the payment of dividends when the new prescribed conditions are met, while on the other hand, it can be a limiting factor for shareholders and future investors, as it somewhat affects the right to make decisions at the Shareholders’ Assembly, especially since the law prescribed how the decision on the distribution of profits is made.
Cross-border mergers and acquisitions
Amendments to the Law on Companies also introduced cross-border M&A transactions, i.e. the merger/acquisition of at least two companies, of which at least one company is registered in the Republic of Srpska and at least one capital company is registered on the territory of a member state of the European Union or another country. Therefore, it was necessary to work out the concept, conditions, announcement/publication of cross-border M&A transactions, the content of contracts between companies, the content of relevant reports required for the implementation of transactions, the position and role of notaries in this type of transaction, registration and consequences of this transaction. In addition, the law provides for a simplified procedure in case the acquiring company is the sole shareholder of a domestic company or if the acquiring company is a local company that has at least 90% of shares in another company. This new chapter remains open for numerous additions and discussions depending on how much interest there is in practice for this type of investment and thus the expediency of introducing these provisions.
Extension of certain deadlines
The Law on Amendments to the Law on Companies has changed the deadlines in which the rights that a company has based on the violation of conflict of interest and competition rules can be exercised by a company and a partner, member or shareholder who owns or represents at least 5% of the company’s share capital, and it is up to six months from the day of learning about the committed violation, i.e., ten years from the day of the committed violation. Previously, the subjective deadline was 60 days, and the objective deadline was three years.
Claims of partners, members and shareholders against the company, which arose on the basis of this status, expire within six months from the date of learning of the reason for filing the lawsuit, and no later than within ten years from the due date, unless otherwise provided by law for individual claims.
In addition, the right of minority shareholders to payment of monetary compensation and any price difference for bought shares was extended from three to ten years.
Author: Tijana Tatic
E-mail: [email protected]
