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Companies Act Amended – Companies with a share capital of merely 10 HRK possible as of 18 October 2012

Amendments to the Companies Act, adopted by the Croatian Parliament on 21 September 2012, came into force on 18 October 2012 (OG 111/12).

The most significant novelty of these amendments is the introduction of the simple limited liability company (j.d.o.o.).

Significant reduction of the minimum share capital requirement and a faster, simpler and cheaper incorporation procedure are the main advantages of this new company type, introduced with the aim to enable company incorporation and performing entrepreneurial activities to the broadest public and consequently reduce the number of unregistered business activities. In addition, considering that after the Republic of Croatia joins the EU companies within the EU may do business in Croatia without incorporating a subsidiary or a branch office, this company type should reduce migration of Croatian entrepreneurs to other EU countries.

Simple limited liability company is essentially a limited liability company with certain specific features.

The minimum share capital requirement for the simple limited liability company is only HRK 10.00, unlike the regular limited liability company whose minimum share capital is HRK 20,000.00. The minimum share in the simple limited liability company is HRK 1.00. Shares can be paid in only in cash, and the company may be entered into the court register only after all the shares have been paid in.

The incorporation procedure is significantly simpler and faster through the use of prescribed protocol forms completed by the notary public. This way the costs of incorporation have also been significantly reduced.

The maximum number of shareholders and directors is limited, so that a simple ltd. can have a maximum of three shareholders and only one director.

The company must keep legal capital reserves where it must place 25% of the yearly income shown in the annual financial reports, reduced by the losses from the previous year. Legal reserves can be used only for strictly prescribed purposes, i.e. for capital increase, and covering of current and previous year losses. These obligations cease if the company increases its share capital to at least HRK 20,000.00. In that case, the company is no longer regarded as a simple ltd. and is subject to the general rules governing limited liability companies. If the company is facing insolvency, the shareholder assembly must be convened immediately.

Other important amendments refer to the harmonization with the EU Directives 2009/109/EZ i 2007/36/EZ, i.e. easing of reporting and documenting obligations in mergers, acquisitions and dissolution of companies, and improvement of the rights of small shareholder in respect of access to information and proposing amendments to the agenda of the shareholder assembly.

In addition, shareholder assembly convening in join-stock companies has been eased resulting in the consequent reduction of costs, and the legal protection in case of abuse of shareholder rights to request invalidity of assembly decisions has been extended to limited liability companies.

Finally, the amendments remove previous doubts which existed regarding criminal liability of limited liability company directors for not initiating the bankruptcy procedure within statutory deadlines, and extend such criminal liability to the managers of general partnerships, limited partnerships and the economic interest associations.

10.11.2012. at 11:30

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