LIMITED LIABILITY COMPANY LAW FIRM "SAJIĆ" BANJA LUKA Bulevar vojvode Z.Misica 49b, B.Luka Bosnia ad Herzegovina Phone: +387 51 227 620, fax: 227 623 E-mail: info@afsajic.com www.advokatskafirmasajic.com
I. INTRODUCTION A company is a legal entity established by legal and/or natural persons to conduct business with an aim of making a profit. Establishment of companies, its management, rights and obligations of founders, partners, members and shareholders, merger and reorganization (status changes and changes of legal form of companies) as well as the liquidation of companies shall be governed by the Law on Companies ("Official Gazette of the Republic of Srpska " No. 127/08, 58/09, 100/11 and 67/13). A limited liability company is a company founded by one or more legal and/or natural persons (domestic or foreign), as the members of the company, in order to perform certain activities under the same business name. A limited liability company (LLC) as one of the most common forms (legal forms) of companies represents a company of capital whose share capital is divided into shares and each founder/member of a limited liability company may hold only one share. A member of a limited liability company acquires a share in the company in proportion to the value of deposit. The monetary part of the share capital of a limited liability company shall be at least 1 BAM and shall be paid to a temporary bank account until the company's registration. A special law for the establishment of financial and insurance organizations and companies that perform legally defined activities as limited liability companies can set a higher minimum of the share capital. The voting rights of members of a limited liability companies, as well as the property rights in the company, including their participation in the profit and distribution of liquidation surplus, shall be proportional to the shares of the members of the total paid share capital of the company at the time of exercise of such rights, unless the Articles of Incorporation provide otherwise. A limited liability company may have not more than 50 members, but if the number of members increase over 50, but not more than 100 members, and if that number sustains for more than a year, the company shall change its legal form to a form of closed joint stock company. Mutual relations of the company's members, as well as their relations with the company, are arranged freely by the members unless otherwise prescribed by law. A limited liability company is liable for its obligations with its entire assets while a member of the company shall not be liable for the company's obligations, except to the extent of the stake entered in the company's assets. II. PROCEDURE FOR ESTABLISHMENT AND CHANGES OF DATA WHICH ARE IMPORTANT FOR LEGAL OPERATIONS OF A LIMITED LIABILITY COMPANY 1
The Law on registration of business entities in the Republic of Srpska (Official Gazette of RS, no. 67/13), regulates the rules of extra-judicial proceedings and on that ground the competent registration courts act and decide on the court registration of business entities in the Republic of Srpska, as well as other entities which are to be entered into the court register. The process of establishing a limited liability company includes the registration process and post - registration process: 1. Registration process The relevant Law on registration of business entities, in force since 01.12.2013, stipulates "one-office" system for the registration of companies which means that registration have to be initiated with the Agency for Intermediary, IT and financial services (APIF), whereas the earlier registration process was conducted exclusively by the courts and in accordance with provisions of the former Law on registration of business entities in the Republic of Srpska (Official Gazette of RS, no. 42/05, 118/09 and 102/12). Thus, the registration process shall be initiated by filing an application with APIF or with its organizational units, regardless of the seat of the legal entity which is to be registered. The application has to be submitted on the prescribed form and accompanied with prescribed documents either in original, certified transcription or certified copy. The following documents have to be attached to the application for registration of establishment of a limited liability company: 1) Articles of Incorporation (Contract on establishment has to be notary processed while there is no need to notarize the Decision on establishment but only to certify signatures of the founder in the office of the public notary) 2) Bank certificate on payment of registered capital in cash, i.e. proof of cash value of assets and rights entered into the company, whose value is estimated by a certified estimator, 3) Decision on the appointment of the authorized representative in domestic and foreign operations, if the person is not appointed by the Articles of Incorporation, 4) Certified signature of the authorized representative, 5) Statement of the Director or Acting Director on acceptance of duties, 6) Excerpt from the register for the founder if the same is a legal entity (for foreign legal entities excerpt from the register have to be translated and certified by an authorized court interpreter), or a certified copy of the passport or ID card for the founder if the same is a natural person depending on whether it is a foreigner or a citizen of BiH, 7) Certified copy of passport or ID card of the authorized representative, depending on whether the same is foreigner or a citizen of BiH, 8) Proof of guarantee in terms of unpaid amount of cash part of share capital, or proof of guarantee for non-entered part of non-monetary capital. 2
In accordance with the Law on Amendments to the Law on Court Fees (Official Gazette of RS, no. 67/13), companies are exempted from paying court fees in the course of the registration process. APIF shall forward submitted documentation in writing and electronically, immediately and without delay, to the competent registration court for consideration. APIF is required prior to submission of the application to obtain JIB (unique identification number) from the competent tax authority for the subject of registration and sub number of JIB for organisational unit which is to be registered. Competent registration court shall, within two days of receipt of the application, examine and determine whether the requirements for entry into the register are fully met and in the same period shall bring a decision on registration in the register, if the application also contains required documentation for registration in the court register. Competent registration court shall submit all decisions rendered in the process of registration via APIF which is obliged to submit court decisions immediately and without delay, respecting the delivery regulations. All decisions of the registration courts brought in the process of registration shall be published on the website of APIF. 2. Post registration process Once the court has reached a decision on registration of the company, it is necessary to undertake the following activities: Obtain a stamp for the company, Submit an application to the Institute of Statistics of the Republic of Srpska for classification of activities in order to obtain statistical number, Submit Application for registration and entry to the register of indirect tax payers with locally competent BIH Regional Centre of the Indirect Tax Administration (for the entity which is subject to the obligation of registration for VAT in accordance with Article 57 of the Law on VAT, as well as for the entity which makes the request for voluntary registration in accordance with Article 44 and Article 61 of the Law on VAT). When entering a change of data significant for legal operations such as: change of the name, seat and activities of the business entity, change of the founder or authorized representative as well as other changes, as a notary processed document related to amendments and/or additions to these data shall be submitted. In addition to the stated document other relevant documentation in accordance to the Law on registration of business entities shall be submitted too. A decision shall be brought in relation to the request for registration of establishment as well as entry of all changes of data relevant for legal operations which are to be entered in the register. III. ARTICLES OF INCORPORATION AND COMPANY AGREEMENT OF A LIMITED LIABILITY COMPANY 3
Articles of Incorporation (founding act) adoption of the Articles of Incorporation is a basis for registration and it is strictly a formal act. A limited liability company shall be founded on the basis of a contract in writing concluded between the founders, whose signatures have to be certified in accordance with the law. When a limited liability company is to be founded by only one founder then the Articles of Incorporation shall be in a form of the Decision on establishment of the company. According to the Law on Notaries, the Articles of Incorporation have to be constituted and processed by the public notary so the same has the character of notarial deed. Lack of verified signatures makes the Article of Incorporation null and void. Articles of Incorporation of a limited liability company shall contain: (i) the full name and residence of any individual and the business name and registered office of each legal entity member of the company; (ii) the business name and registered office; (iii) activities; (iv) the amount of registered capital and the amount, type and value of stake of each founder and description of the type and value of the non-monetary contribution; (v) the manner and timing of introduction of non-monetary contribution, or payment time of the monetary contributions, (vi) the total costs of establishment, or the estimated amount of all costs paid by the company or charged to the company in connection with the establishment, and if necessary costs before it was established that the company fulfils the requirements to start a business and (vii) approved special benefits to any person who has participated in the establishment of the company or activities prior to establishment of the company, or verifying fulfilment of the conditions to start a business. Articles of Incorporation of a limited liability company may also contain other provisions, including provisions that can be contained in the Company Agreement. Company Agreement in addition to the Articles of Incorporation a company may have a Company Agreement which regulates the company's operations and management. Company Agreement shall be made in writing and shall contain the following provisions: (i) obligations of members in relation to the additional stakes apart of basic stakes, as well as special charges and the consequences of any breach of such obligations; (ii) special conditions and manner of transfer of stakes of company members if different than the manner prescribed by the law; (iii) the method of exercising the right to vote or the right to dividend (the equal right, the right in accordance with the stake of the share capital or the right established in some other way), and (iv) the decision-making procedure, including the procedure for decision-making in the event of blockages of decision-making among members of the company. Company Agreement of a limited liability company, and its amendments and changes, shall take effect on the day of signature by all members of the company, if the agreement does not provide otherwise. Company Agreement of a limited liability company shall not be submitted with the application for registration of the company. In the event of any inconsistency between the Articles of Incorporation and the Company Agreement the Articles of Incorporation shall prevail. IV. BODIES OF A LIMITED LIABILITY COMPANY 4
General Meeting is consisted of all members of the company. In the single-member limited liability company, the powers of the General Meeting shall be carried out by that single member or an authorized person. The General Meeting of members of a company decides on the following issues: (i) approval of transactions concluded in connection with the establishment of the company prior to registration; (ii) the election and dismissal of director or board of directors and determination of their compensations i.e. salaries; (iii) approval of the financial statements, deciding on the time and amount of payments to the company's members; (iv) increase and reduction of share capital of the company; (v) status changes, change of legal form and termination of the company, (vi) the acquisition, sale, lease, pledge or other disposal of highvalue property, in accordance with this Law; (vii) amendments to the Articles of Incorporation or Company Agreement; (viii) the establishment of business units, as well as other matters prescribed by Article 132 of the Law on Companies. The General Meeting of members of a limited liability shall be convened by the Director or the Board of Directors, unless provided differently in the Articles of Incorporation and the Company Agreement. The General Meeting shall be held at the seat of the company, unless provided differently in the Articles of Incorporation and the Company Agreement or if the General Meeting of members of the company decides otherwise. The Annual General Meeting of members of a limited liability company shall be held no later than six months after the end of the financial year in order to approve the financial statements and decide on profit distribution, while Extraordinary General Meeting may be held between the Annual General Meetings. The Extraordinary General Meeting of members of a limited liability company shall be convened if in writing required by the members of the company who already have or represent 10% of the voting rights (minority members), unless the Articles of Incorporation and the Company Agreement does not specify that it applies also to members who together have even a lower percentage of voting rights. A request for convening the General Meeting shall be addressed to the Director or the Board of Directors of the company. If the Director or Board of Directors reject the request of minority members of the company and do not convene an Extraordinary General Meeting of company s members within fifteen (15) days of receipt of the request, requestors may convene the General Meeting themselves stating the agenda for the same but the General Meeting shall decide who shall bear the costs for the same. If an Extraordinary General Meeting on the convocation of minority members do not meet or if there is no quorum, the minority members may convene a General Meeting again within a further period of seven (7) days, and if the General Meeting still does not meet or does not have a quorum, they can ask the court in non-contentious proceedings to appoint a person as a temporary representative to convene the General Meeting and determine the agenda, in which case the court shall issue a decision within 48 hours of receipt of the request. The invitation for the General Meeting shall be delivered to every member of the company, not later than seven (7) days and not earlier than 15 (fifteen) days prior to the General Meeting. The invitations have to be delivered to the address of members recorded in the 5
book of company's members, but, with the written consent of the members, it may also be sent electronically. The invitations have to contain the time and venue of the meeting, proposal of the agenda and other information specified in the Articles of Incorporation or Company Agreement. If there is proposed change of the Articles of Incorporation or Company Agreement the draft of the same has to be attached. The invitation must be sent along with the materials for each item on the agenda. The General Meeting decides on matters stated in the agenda and the issues proposed by any member of the company who has informed the other members of the company no later than three (3) days prior to the General Meeting. Issues not mentioned in the invitation for the General meeting or on which the other members were not informed may be included in the agenda if no member objects to debate and vote on them. Members of the company who attend the General Meeting, in person or by its legal representative, have no right to object to any irregularities in the procedure of its convening, unless they give a reasoned objection in writing during the session (the exclusion of the right to object - Article 136 of the Law on Companies). If the company has no more than ten members, the General Meeting may be held through conference call or other audio and visual communication equipment, so that all persons participating in the session can hear and talk to each other. Members of the company who participate in the General Meeting in this way shall be considered as present in person. Members of the company may vote in writing or in any other form of delivery of documents, unless the Articles of Incorporation or Company Agreement provide otherwise. The Articles of Incorporation or Company Agreement may contain detailed rules for voting, including the rules governing the issues that can be voted in this way. Also, every decision of the company may be brought out of the session, if signed by all members of the company with the right to vote on the matter, unless the Articles of Incorporation or Company Agreement provide that the decisions have to be brought at the session of the General Meeting of members of the company. For convening the General Meeting it is necessary to provide a majority of the total number of votes (the quorum) unless the Articles of Incorporation or Company Agreement determined the higher number of votes. If the General Meeting cannot take place or cannot make decisions due to the lack of quorum, the same shall be re-convened with the same agenda, no later than ten (10) days and no later than 30 (thirty) days from the date of the first convening (repeated General Meeting). The rules governing the convening of the General Meeting and which are described above and related to the convening of the repeated General Meeting. The quorum for the repeated General Meeting makes 1/3 of the total number of votes of the members of the company, unless the Articles of Incorporation or Company Agreement determines higher number of votes. The General Meeting decides by a simple majority of votes of the members present who constitute a quorum unless the Articles of Incorporation or Company Agreement does not specify that the decisions have to be made by a majority vote of all members. Exceptionally, 6
the General Meeting decides with the consensus of all members of the company: (i) amendments and changes to the Articles of Incorporation or Company Agreement; (ii) increase and reduction of share capital in addition to the additional stakes in accordance with the Articles of Incorporation or Company Agreement; (iii) status changes; (iv) change of legal form and termination of the company; (v) distribution of profits to members of the company; (vi) acquisition of own stakes in the company; (vii) disposal of the assets of great value. However, all decisions that reduce the rights of one or more members of the company in relation to the rights of any other member of the company shall be made only with the consent of the member or members of the company that the decision refers to, unless otherwise arranged by the law. Director / Board of Directors A company may have a Director or Board of Directors and it has to be determined in the Articles of Incorporation whether a company has a Director or Board of Directors. Director of the company may be a member of the company or a person who is not a member of the company. If the company has a Board of Directors it can be composed of the company or other persons. Director or board members shall be elected by the members of the company at the General Meeting, except the first Director or members of the first Board of Directors who have to be determined by the Articles of Incorporation. The number of members of the Board of Directors shall be determined by the Articles of Incorporation or Company Agreement of the limited liability company. The Board of Directors has a President elected by the members of the board by majority of the total number, unless the Articles of Incorporation determined a different majority. The President of the Board of Directors represents the company, convenes and presides at the meetings of the Board of Directors and is responsible for keeping the minutes. Articles of Incorporation or Company Agreement may provide that the President of the Board of Directors chairs the General Meeting and be responsible for keeping its minutes. Responsibilities of the Director or the Board of Directors are governed by the provisions of Article 152 of the Company Law, or they may be otherwise determined by the Articles of Incorporation of the company. Director or the Board of Directors of the limited liability company is responsible for the orderly conduct of business books and internal audit of operations, in accordance with the law. If a limited liability company is represented or its business managed by the Board of Directors, each member has the right to act independently, unless the Articles of Incorporation determined otherwise. However, if the Articles of Incorporation prescribes that board members can act only together, than it means that it is necessary to obtain the approval of all persons for any document or work, except where it would require postponing a decision that caused harm to the interests of the company. The Board of Directors of the company holds at least four regular meetings per year, one of which immediately before the Annual General Meeting of the company s members. Also, the Board of Directors may hold an extraordinary session convened by the President on his/her 7
own initiative or at the request of a member of that board. If the President of the Board of Directors does not call the session of the Board at the written request of a board member, the session may be convened by the board member. The sessions of the Board may be held through conference telephone call or using other audio and visual communication equipment, so that all persons participating in the session can hear and talk to each other. Persons participating in this way are considered to be present in person. The Board of Directors can decide without session if a written consent for the decision which is the subject of decision-making is obtained by all members entitled to vote on the issue, unless the Articles of Incorporation of Company Agreement provide differently. The quorum for work and decision-making of the Board of Directors shall be made of a majority of all members. The decisions of the Board of Directors shall be brought by majority vote of the board members, become effective upon its adoption and shall be entered in the book of decisions. If in the course of decision-making the votes of the members of the Board are equally divided, the vote of the President of the board, who always votes the last, shall prevail. Audit a limited liability company may have an Internal Audit, if it is determined by Articles of Incorporation or Company Agreement. In addition to the internal audit the company may have Audit Committee. Duties of the internal audit shall be conducted by a person who is employed in the company and who meets the requirements prescribed by the company. Audit committee members shall be elected by the General Meeting in accordance with the conditions laid down in the company's bylaws and shall be elected among independent persons who are not related parties of the company as prescribed by the Law. The first members of the audit committee shall be determined in the founding document or special document of the founder. Members of the audit committee of the company can be dissolved by the General Meeting decision with given reasons for the dismissal or without them. Responsibilities of the Audit committee and the internal auditor shall be regulated by the provisions of Article 165 of the Company Law. The internal auditor and the audit committee shall submit a report to members of a limited liability company at each Annual General Meeting and at an extraordinary session of the General Meeting, if they believe that reporting is appropriate and necessary or when requested by the Board of Directors. The internal auditor may inspect all documents of the company, check their authenticity and the information provided in the same, then require reports and explanations of directors or the Board of Directors and employees, and review the state of the company's assets. The internal auditor and the audit committee shall submit a special report to the General Meeting about contracts concluded between the company and the directors of the company or the members of the Board of Directors of the company, if the company has a Board of Directors, as well as with related parties in accordance with the Law. In the execution of its 8
duties the internal auditor and the audit committee of the company can engage other experts in their respective areas and determine payment of reasonable fees. If a limited liability company has an internal audit but no audit committee, tasks under the responsibility of the audit committee are performed by an internal auditor. Also, in this case, the internal auditor shall submit the reports (which according to the law he/she is obliged to submit to the Audit Board) to the General Meeting of the company. The company may have an Independent Auditor. The independent auditor shall be notified at the same time with the notification to the members on General Meeting in order to participate in the Meeting in accordance with the law. V. TERMINATION OF A LIMITED LIABILITY COMPANY A limited liability company shall be terminated in the following situations: (i) the expiry of the period specified in the Articles of Incorporation; (ii) the Decision of the General Assembly; (iii) the status changes that result in the termination of the company; (iv) a final court decision establishing that the registration of the company is null and void and on the basis of that orders the deletion of the company from the register of businesses entities and (v) the occurrence of certain events specified in the Articles of Incorporation or Company Agreement. A single-member limited liability shall be terminated in the event of bankruptcy or liquidation of the only member who has no legal successor, or in the event of the death of a member who has no heirs of stakes. LAW FIRM SAJIC Banja Luka, Bulevar vojvode Z.Misica 49b, Bosnia and Herzegovina Contact: Helena Babic, Lawyer, e-mail: helena@afsajic.com Milica Karadza, Associate, e-mail: milica@afsajic.com 9