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How to select legal form while establishing a firm in Serbia

Oct 10, 2019

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HBL > Company formation > How to select legal form while establishing a firm in Serbia

Choosing a legal form of the company is the most important decision which must be brought when establishing a company. It can be an entrepreneur or company registration. The legal form chosen for future independent business will have a significant impact on the business results.

This choice can also influence a degree of deciding and making decisions by the firm’s director, or the company’s founder. It is equally important to make the right decision when it comes to the founder’s responsibility which can affect his private life.

When establishing a company, there are these forms of organization (or legal forms):

  • An entrepreneur
  • A limited liability company
  • A partnership company
  • A limited partnership company
  • A joint-stock company
  • Representative office
  • Branch office

 

The types of companies that can be registered in Serbia

 

A company is a legal entity or a business subject that is established by oneself practice business activity. It practices its activity on the market to make a profit. The company is economically and legally independent. That means that it can oneself choose its business, can provide business resources, make business partnerships, get certain rights and commitments, but also be responsible in case of damage.

READ MORE: DETAILED GUIDE TO SET UP A COMPANY IN SERBIA >>

Legal forms of companies can be the LLC, the partnership company, the limited partnership companies, and the joint-stock company. Besides, the companies can be divided into capital companies and person companies

In capital companies, the owners of the capital (members and stockholders) do not answer with their personal property for all the companies commitments but have limited responsibility. This means that for all the commitments and debts 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 :

  • The limited liability company
  • The joint-stock company

 

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 commitments of the company (with personal property and property they brought into the company. The forms of companies are:

  • The partnership company
  • The limited partnership company

The entrepreneur can not be considered as a company. He is a person, or business nad capable physical person registered to practice its activity to make a profit.

 

1. The limited liability company

 

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, but can also be set up by more than one company’s member or founders. Besides, the LLC as a legal entity can be established by a physical person, other legal pentity and the legal and the physical person may do that.

There is a minimal amount of share capital for establishing the LLC and that is 100 dinars. The founders alone decide about the amount of share capital. The Law can prescribe a higher amount of 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 it is brought in cash, things or rights.

Establishing the LLC starts by submitting the registrational application to the Business registers agency, together with additional prescribed documents. The LLC is obliged to issue the Memorandum of association, which enrolls the share capital of all the LLC’s members and that is submitted together with the application. Your accounting agency can help you to fill and submit the application, create the Memorandum of association and prepare prescribed documents.

 

For all the firm’s commitments, the LLC is responsible and answers with the company’s property. The LLC’s members are not responsible, or 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.

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The founders own the share in the company’s capital proportionally to the height of their stake in the share capital and that 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 of persons who represents one company’s member. In the LLC, the transfer of stake in share capital is free (unless it is defined differently in the Memorandum of association, but it is restricted with the preemptive right. If the LLC has only one member, then it is possible to have a stake transfer to another person and in that case, he must sign the share transfer agreement.

 

2. An entrepreneur

 

An entrepreneur is a physical person registered to practice 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 he has a permit and makes the profit.

By registration in the BRA, you are signed into the Business register. At the latest 5 days after applying, the decision is brought with which the entrepreneur is signed in. If the application is rejected, starts the stoppage of the application. When the BRA accepts the application, business commitments start for the entrepreneur (as a legal person).

 

The entrepreneur has the right to dispose of his profit during business (he can alone dispose of with his share) All the income he makes, or profit or gain in that case belongs to the entrepreneur.

The entrepreneur answers for all the commitments related to his business with his personal property. This is the case with the property he got in the business, but also the property the entrepreneur got before he opened his firm. Even if he does business as a physical person, legally he has commitments and responsibilities as a legal person or the firm.

To stop his business, he must be erased from the Business register. But his responsibility for the commitments does not stop after he is erased. They are automatically transferred to the physical person ( or the person who was before registered as the entrepreneur).

 

3. A joint-stock company

 

The joint-stock company is a legal entity whose share capital is determined and divided on the stock with equal nominal value. This legal form of the company is established by joining the capital of one or more founders who are 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.

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When establishing the joint-stock company, the founders must bring the share capital which can be in things, rights and money. The minimal amount for share capital is 3 000 000 dinars. By the Law, the shareholders must pay or bring their stakes in the amount of at least 25% of the share capital.

The joint-stock company as a form of organization must have the Memorandum of association and the 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 an appropriate type of company when at the beginning of the business you have to gather huge starting capital or a great amount of money.

The shareholders have a huge 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 rising the dividend, it is obligatory to pay the tax on the dividend which is 15%.

 

4. A partnership company

 

The partnership company is a legal entity and form of the company’s organization which can be registered by two or more partners. The company is registered for practicing business activity to make a profit.

The partnership company is a legal entity and the 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 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.

The partnership company as a legal firm can be registered by both legal and physical persons. That means that the founders of the partnership company can be both 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, then 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 the contract between the partners with which they define their relations and the way of leading the company (a division of activities and leading business).

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When making the 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.

 

5. A limited-partnership company

 

A limited-partnership company is a legal form of a company and a legal entity that must have to 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 one must be 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 he answers proportionally to his stake. The partners can be both physical persons and companies.

From the enlisted facts, we can see 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. Consistent with that limited partners have the same status as partners.

There is no minimum share capital which 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 listed facts, they participate in dividing profit and covering the losses.

 

6. A branch office of a domestic legal entity

 

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 to practice 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 registrational application for establishing the branch and signing in the BRA.

 

Additional business possibilities for foreign business formation in Serbia

 

Foreign companies have additional possibilities for expanding their business in the Republic of Serbia. Besides the fact that they can establish the 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 as legal entities, first they must be established and after that registered in the Business registers agency.

 

1. A branch office of a foreign legal entity in Serbia

 

A branch office of a legal entity represents the separate organizational part of a foreign company through which it does its 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 the same, but it can differ.

The branch office can have its legal representative. However, the branch office’s representative and the founder company’s representative 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 name and the account of the founders. The founder of the branch office is a company that is responsible and directs the branch’s business. The foreign company, as founders, is responsible for all the commitments made during the business. When it comes to taxes, the branch office is considered as 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 of establishing the branch office submit it to for signing in the business register.

 

2. A subsidiary of a foreign legal entity

 

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 legal business of that company. 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 and that is that it can do the regular activity of the foreign company. This means that it can not place or sell goods on the market, or offer its services in the domestic market. The subsidiary can only conclude businesses that are connected with their current business.

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The subsidiary is established by the authorities of the foreign legal person by bringing the Decision in establishing the subsidiary. After that, by the 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 that is its founder).

For deciding about the legal form which answers your business needs, you should consult the authorized accountant. HLB T&M Consulting accounting agency from Belgrade stands at your disposal for legal and tax services, for rendering qualitative accounting services and proficient service for establishing the company.

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