Vukmir and Associates

Introduction of a new simple limited liability company model in the Croatian legal system

By February 9, 2013 No Comments

As a part of the development of a strategy for reviving the Croatian economy and entrepreneurship activity, the Law on Amendments to the Companies Act (Official Gazette 111/12, in effect as of October 18, 2012), introduced in the Croatian legal system a new statutory form of company, in addition to the already existing ones. We refer to the simple limited liability company or just “j.d.o.o.”. It appears that the reason for the introduction of such model is the forthcoming Croatia’s accession to the European Union and the necessary harmonization of legislation and legal practices with the standards adopted in the legal systems of individual Member States. On the other hand, the main goal of the introduction of such model is to enable incorporation of companies and performing of entrepreneurial activities to the broadest public, reducing the number of unregistered business activities, decreasing the outflow of Croatian entrepreneurs abroad and facilitating to foreign entrepreneurs to perform their business activities in Croatia.

In comparison with the standard statutory form of the limited liability company, the simple limited liability company model has reduced the minimal share capital required for incorporation of a company, has remarkably reduced the costs of incorporation and made incorporation procedure significantly simpler and faster.

In particular, some of the aforementioned changes include:

  1. Share capital of HRK 10.00 (unlike the regular limited liability company with minimum share capital of HRK 20,000.00)
  2. Minimum share in the simple limited liability company of HRK 1.00 (unlike the regular limited liability company with minimum share of HRK 200.00)
  3. Easier company incorporation due to the use of prescribed protocol forms verified by the notary public; abolition of compulsory publication of company incorporation in the Official Gazette and significant reduction of the costs of incorporation (average costs of simple limited liability company incorporation are only about HRK 750.00, unlike the regular limited liability company incorporation costs amounting from HRK 3,000.00 to HRK 4,000.00)
  4. Easier general assembly convening.

On the other hand, there has been a restriction of the number and group of persons who can be founders of the simple limited liability. There are also limitations with regard to profit distribution, which do not apply to regular limited liability companies.

In line with the above, the number of simple limited liability company members has been limited to three, one of them being also Member of the Management Board. Also, in spite of the fact that this is not explicitly prescribed by the Law, judicial practice has took the stand that only natural persons can be members of the simple limited liability company, and not legal entities as, for instance, commercial companies.

Furthermore, it is important to point out the fact that simple limited liability companies must keep their legal capital reserves where they must place a quarter of the yearly income shown in the annual financial reports. Said legal reserves can be used only for strictly prescribed purposes, i.e., capital increase and covering of current and previous year losses.

Finally, referenced Law envisages the possibility of conversion of simple limited liability company into regular limited liability company if the company adequately increases its share capital.

For more information on this topic, please send us your request to vukmir@vukmir.net.

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