How to Select Legal Form While Establishing a Firm in Serbia
Oct 10, 2019
Oct 10, 2019
Choosing a legal form of the company is the most important decision to be brought when establishing a company. It can be an entrepreneur or company registration. The legal form chosen for future independent businesses will significantly impact the business results.
This choice can also influence decision-making by the firm’s director or the company’s founder. It is equally important to make the right decision regarding the founder’s responsibility which can affect his private life.
When establishing a company, there are these forms of organization (or legal forms):
A company is a legal entity or a business subject established by oneself, practicing business activity. It practices its activity on the market to make a profit. The company is economically and legally independent. That means one can choose a business, provide business resources, make business partnerships, and get certain rights and commitments, but also be responsible in case of damage.
Legal forms of companies can be LLCs, partnership companies, limited partnership companies, and joint-stock companies. Besides that, the companies can be divided into capital companies and personal companies.
In capital companies, the owners of the capital (members and stockholders) do not answer with their personal property for all the company’s commitments but have limited responsibility. Meaning that for all the commitments and debts, they have a limited responsibility (with the property they brought into the company or with the property they signed for bringing into the company). The capital companies are :
In companies, the owners of the capital have a limitless responsibility for all the debts and commitments of the company. This means that the founders are responsible for all the company commitments (with personal property and property they brought into the company. The forms of companies are:
The entrepreneur can not be considered a company. Instead, they are a person or business and a capable physical person registered to practice their activity to make a profit.
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The limited liability company is a legal form that can be chosen when establishing a company. The LLC can be set up by at least one member and by more than one company member or founder. Besides, the LLC as a legal entity can be established by a physical person; other legal entities and the legal and physical person may do that.
There is minimal share capital for establishing the LLC, which is 100 dinars. The founders alone decide the amount of share capital. However, the Law can prescribe a higher share capital (related to the LLC, which plans to practice certain activities). The share capital can be in the form of money or non-money and is brought in cash, things, or rights.
Establishing the LLC starts with submitting the registration application to the Business registers agency and additional prescribed documents. Next, the LLC is obliged to issue the Memorandum of association, which enrolls the share capital of all the LLC’s members and is submitted with the application. Your accounting agency can help you to fill out and submit the application, create the Memorandum of Association and prepare prescribed documents.
The LLC is responsible for all the firm’s commitments and answers to the company’s property. The LLC’s members are not responsible for all the firm’s commitments answer restrictively and proportional to their stake in the share capital. They do not have to answer for all their commitments with their private property. But if it comes to abuse, illegal business, and damage, in that case, the LLC’s founders become responsible for the company’s commitments.
The founders own the share in the company’s capital proportionally to the height of their share capital stake, which can be defined differently by the Memorandum of association. Besides the commitments, the LLC’s founders have certain rights proportional to the height of their stake in the share capital. Those are: voting right and directing the company, property rights, the right to participate in dividing the profit, the right to participate in liquidation, and other rights.
The LLC stake in the share capital can belong to co-owners, where co-owners in that relation are seen as a group representing one company’s member. In the LLC, the transfer of stake in share capital is free (unless differently defined in the Memorandum of Association), but the preemptive right restricts it. If the LLC has only one member, it is possible to transfer a stake to another person, and in that case, he must sign the share transfer agreement.
An entrepreneur is a physical person registered to practice an activity and make a profit out of it. One person can not be registered as more entrepreneurs, but one physical person, one entrepreneur. That means that an entrepreneur is a person who is registered to enter a certain business for which they have a permit and make a profit.
By registering in the BRA, you are signed into the Business register. At the latest, five days after applying, the decision is brought with the entrepreneur signed in. If the application is rejected, it starts the stoppage of the application. When the BRA accepts the application, business commitments start for the entrepreneur (as a legal person).
Entrepreneur has the right to dispose of their profit during business (they alone can dispose of it with their share). In that case, all the income they make, or profit or gain, belongs to the entrepreneur.
The entrepreneur answers for all the commitments related to the business with personal property. This is the case with the property obtained in the business and the entrepreneur’s property before they opened the firm. Even if they do business as a physical person, legally, they have commitments and responsibilities as a legal person or the firm.
To stop their business, they must be removed from the Business Register. But their responsibility for the commitments does not stop after they are erased. They are automatically transferred to the physical person (or the person registered as the entrepreneur at the beginning).
The joint-stock company is a legal entity whose share capital is determined and divided on the stock with equal nominal value. This company’s legal form is established by joining the capital of one or more founders called shareholders. The shareholders can be both persons and legal persons (physical persons – domestic and foreign citizens, as well as companies)
For all the commitment or losses of the company, the joint-stock company answers with its property. The shareholders are responsible for the company’s commitments. restrictively and with the property they brought into the company (with the property they listed for bringing). The shareholders do not answer for the company’s commitments and debts with their personal property unless there is abuse and losses when they have to answer for that damage.
When establishing a joint-stock company, the founders must bring the share capital, which can be rights and money. The minimal amount for share capital is 3 000 000 dinars. By Law, the shareholders must pay or bring their stakes in the amount of at least 25% of the share capital.
The joint-stock company must have the Memorandum of Association and Statute. The organs of the joint-stock company are the board and the director, and those are together obligatory authorities of the company. The joint-stock company can also have a supervisory board. This kind of company is appropriate when you have to gather huge starting capitsignificant a significant amount of money at the beginning of the business.
They shareholdersconsiderablee a considerable share in the joint-stock company’s capital proportional to the stake brought into the share capital. Proportional to the stake, they participate in the profit division. The profit is called a dividend. For the shareholders to get their part of the profit, the company’s board must decide about the profit division. When raising the dividend, it is obligatory to pay the tax on the dividend, which is 15%.
The partnership company is a legal entity and form of the company’s organization that two or more partners can register. The company is registered for practicing business activity to make a profit.
The partnership company is a legal entity whose founders answer for all the commitments without restrictions. So, for all the commitments and debts, the partners answer solidly and with their whole personal property.
There is no prescribed minimal stake of the founders, but according to the rules, the partners should bring the same amount of stake. The profit of the partnership company is equally divided among partners because all of them have the right to an equal share. If it is different in the Memorandum, then the profit is divided according to the defined clauses.
As a legal firm, the partnership company can be registered by legal and physical persons. The partnership company’s founders can be physical and legal entities. The partnership company is founded by the Memorandum of Association or with the company establishment contract.
The legal act must contain all the necessary data related to the legal entities. For example, the data about the founders, the business name, the company’s headquarter, the core activity, the stake of each partner and its amount, and all the elements significant for the company. The founders can also make a contract between the partners with which they define their relations and the way of leading the company (a division of activities and leading business).
When making decisions in the partnership company, all the decisions must be brought unanimously, or one partner can not decide without the affirmation of other partners. For any decision made by the partnership company that is not a part of regular business, you must have the affirmation of all the partners. Other decisions that are part of the regular business are made by a relative majority of the partner’s votes.
A limited-partnership company is a legal form of a company and a legal entity that must have two members during its establishment: a general and a limited partner. The founders of this company can be both legal and physical persons. Of founders, at least one must be the general partner and the limited partner.
The general partner is the member and founder who answers without restrictions for all the commitments of the limited-partnership company with the property he brought as share capital. The limited partner is the member who has limited responsibility and answers proportionally to his stake. The partners can be both physical persons and companies.
The enlisted facts show that the company’s founders do not have the same status. Besides, the general partner leads the company and represents it in business, while the limited partners, as founders, do not have these authorizations.
According to the Companies Law, the same legal provisions are applied to the limited–partnership companies and the partnership companies. Therefore, consistent with that, limited partners have the same status as partners.
No minimum share capital must be brought into the company by the founders of the limited-partnership company. But, during the establishment, the general and limited partner’s stakes must be in the same amount (the share capital can be in things, rights, work, and services). Consistent with the listed facts, they divide profit and cover losses.
A branch office of a legal entity represents the separate organizational part of a domestic company on the territory of the Republic of Serbia through which it leads its business. The branch office is not considered a legal entity. The branch office does not do business in the city as the main office but out of it and practices business in one or more other places (cities).
In legal transactions, it represents the name and account of the legal person that established the branch office. For all the commitments of the branch office made towards the third person during business activities, answers the founder company (the company which established that branch office)
By the Companies Law, the branch office is established by the Decision on establishing the company’s branch office, which is brought by the board or the partners and the general partner (If it is not decided differently by the Memorandum of association or with the Statute). Even though it does not have the status of a legal entity for the branch office, you must submit the documentation and registration application for establishing the branch and signing in the BRA.
Foreign companies can expand their business in the Republic of Serbia. Besides the fact that they can establish an LLC, joint-stock company, or register themselves as entrepreneurs, foreign companies can expand and move their business to our country.
By the Companies law, the foreign company can have its branch office or representative office in the Republic of Serbia. Even though they are not considered legal entities, first, they must be established and, after that, registered in the Business Registers Agency.
A branch office of a legal entity represents the separate organizational part of a foreign company through which it does business in the Republic of Serbia and by the Law. It has its registered core activity but can also practice other legally permitted activities. The core activity of the branch office and the founder does not have to be the same, but they can differ.
The branch office can have its legal representative. However, the branch office and the founder company’s representatives don’t need to be the same person.
The branch office does not have the status of the legal entity in Serbia but practices activities and forwards in the founders’ name and account. The founder of the branch office is the company responsible for and directs the branch’s business. The foreign company, as founders, is responsible for all the commitments made during the business. Regarding taxes, the branch office is considered a domestic tax resident. As in the previous case, the branch is established by the Decision on establishing the branch office brought by the authorities of the foreign company. After that, you gather the documentation and, together with the registration application for establishing the branch office, submit it for signing in the business register.
The subsidiary of the foreign legal person represents the separate organizational part of that foreign company in Serbia, which can deal with previous and preparation actions for concluding the company’s legal business. The subsidiary is not considered as a legal person, does not do business as the founder, but to do the business, it must be registered in the Business register.
There are restrictions on the subsidiary’s work. However, it can do the regular activity of the foreign company. This means it can not place or sell goods or offer services in the domestic market. In addition, the subsidiary can only conclude affairs connected with its current business.
The subsidiary is established by the authorities of the foreign legal person by bringing the Decision to establish the subsidiary. After that, by Law, the subsidiary is registered in the Business registers agency. The subsidiary is not responsible for the commitments toward the third person; the foreign company answers all those commitments made during the business (the foreign company is its founder).
You should consult the authorized accountant to decide on the legal form that answers your business needs. For legal and tax services and to render qualitative and proficient accounting for establishing the company, HLB T&M Consulting accounting agency from Belgrade is at your disposal.