Company law and capital markets law
Ivan Milosevic
Jankovic Popovic & Mitic
Belgrade
Ivan Milosevic (Bio)
In response to the forthcoming challenges to reach the core objectives of the Serbian internal and foreign policy relating to receiving EU candidate status and determining the date for commencing negotiations for EU accession, the Serbian Parliament has adopted two crucial laws governing companies and the capital market:
The Company Law
The Company Law (No 36/2011), which is to be applied as of February 1 2012, introduces the following changes regarding companies on the Serbian market:
i) Coordination with the Capital Market Law;
ii) Obligation for joint stock companies to ensure the compliance of their capital and corporate bodies and for limited liability companies to ensure the compliance of their corporate bodies;
iii) Implementation of the concept of unicameral and bicameral management system and freedom to choose the former or the latter;
iv) Detailed and clearer governance of legal institutes (adoption and amendments of Memorandums of Association and Articles of Association, mail receipt, companies' stamps, representatives, pecuniary and non-pecuniary investments);
v) Strengthening the responsibility of management and shareholders towards companies, reducing the possibility of the shareholders/members abusing their powers;
vi) Detailed governance of creditors' protection;
vii) Ensuring electronic communication between companies and shareholders;
viii) Detailed regulations, should there be no legal representative.
Regarding two basic forms of companies - Limited Liability Company and Joint Stock Company, the Company Law has introduced the following changes:
Limited Liability Company (LLC)
a) There is no limit regarding the number of shareholders; b) An LLC is no longer obligated to keep a book of shareholders; c) initial capital is expressed in YD/ the amount of minimum initial capital is reduced to YD100 (€1); d) initial capital can be increased through procedures of debt for equity swap; e) An LLC is obliged to comply with the level of its net value with its initial capital; f) the possibility of excluding transfer of stake to a third person; g) the pre-emption right to purchase a stake belongs to shareholders and not to LLC itself; h) the possibility for shareholders to purchase a stake from the inheritance of a deceased shareholder is introduced; i) An LLC may have several managing directors; j) a legal entity, with registered seat in Serbia may be a representative of an LLC.
Joint Stock Companies (JSC)
a) the difference between open and closed joint-stock companies regarding the level of initial capital no longer exists. However, the difference between public and non-public joint-stock companies is preserved. On the other hand, each joint stock company may become a public joint stock company provided: i) it has successfully carried out the tender, in compliance with tender documentation approved by the Securities Commission; ii) its shares have been admitted in the regulated market, i.e. the multilateral trade platform in the Republic of Serbia; b) unique evidence of shareholders is being kept by the Central Register of Securities; c) joint stock companies are obliged to reduce their initial capital on account of the expressed loss; d) the amount of the initial capital is increased to the amount of YN3,million (€30 million).
Capital Market Law
Capital Market Law (No 31/2011), which became effective on May 17 2011 and shall be applied as of November 17 2011 represents a significant step towards complying of this area with the modern tendencies of EU and neighbouring countries:
a) The institute of the public tender, including exceptions has been developed and complied with EC Directive 2003/71;
b) For the first time, the Capital Market Law defines the procedure of the IPO;
c) The basic principle of the Capital Market Law is that each public company is obliged to submit the request for listing its securities on a Regulated Market (managed by the Market Organiser, and having the Security Commission's permit and ensuring balance between the supply and the demand in accordance with its rules). Should the securities not satisfy the listing requirements, they will be admitted to a segment of the regulated market of non-listed securities. The securities which do not satisfy the requirements of the regulated market of non-listed securities will be admitted to secondary trading with securities, i.e. into trading at multilateral trading platform (MTP) or secondary market for trading with financial instruments (OTC);
d) The secondary trading with securities is divided into:
i) Multilateral trading platform (MTP) which shall be managed by the Market Organiser or Investment Company which provide the balance between the supply and the demand;
Only investment companies that have been granted the Security Commission permit are allowed to trade on the MTP. Other legal entities may trade on the MTP only through mediation of the investment companies.
ii) OTC or secondary market for trading with financial instruments which is not managed by the Market Organiser and the system of which includes negotiations between the buyers and the sellers for the purpose of carrying out the transactions (without obligatory mediation of the investment company and with the obligatory report on the transaction to Central Register of Securities);
e) Trading with debt securities simultaneously on a regulated market, MTP or OTC is possible;
f) The Law provides for the new obligations and requirements for the public companies in terms of delivering their financial reports and revised financial reports to the Securities Commission and the Market Organiser and of publishing them, in compliance with EC Directive 2004/109;
g) The Law provides for the new legal institute (Investment Protection Fund) which protects the funds of the investors from the risks in case of bankruptcy of the investment companies, credit institutions and investment management companies;
h) The law provides for strict conditions for incorporation of the Market Organiser and the Investment Companies and the obligatory internal and external acts, in compliance with the EC Directive 2004/39.
It is expected that both new laws will contribute to a more efficient protection of the investors, the creation of an efficient and transparent capital market and reduction of the system risk at the capital market.