Private limited companies are the most frequent type of company in Croatia. A private limited company is one in which one or more legal entities or natural persons invest stakes in the total authorized capital as contractually set beforehand. Stakes need not be of the same amount. In the process of company formation, a founder may acquire multiple business stakes. The total amount of all stakes must correspond to the amount of the company’s authorized capital (Art. 385.). Stakes may not take the form of securities.
Founders
Owners may be either domestic or foreign legal entities and natural persons. Just one owner may also establish this type of company. A private limited company is a legal entity. This status is established by entry into a court register. Company assets are strictly separated from the property of owners. The company is liable for its debts with all its assets. Owners are not liable for company debts. Exceptionally, they may be held liable for company debts if they abuse the principle of their nonliability
Authorized capital
The initial authorized capital of a private limited company must be shown in Croatian currency – kuna (HRK). The minimum amount of COMPANY FORMS PRIVATE LIMITED COMPANY (Croatian abbreviation: d.o.o.) initial authorized capital may not be below HRK 20,000. The minimum amount of an initial authorized stake must be expressed with a whole number that is a multiple of 100. The nominal amounts sum of all business stakes must be equal to the total amount of authorized capital. Before entry into a court register, each founder must pay for at least one quarter of an authorized stake that is to be paid for in cash, while the total amount of payments in cash may not be lower than HRK 10,000, i.e. at least one half of authorized capital must be provided in cash. The initial authorized stake may also be provided by investing tangibles or rights, which is to be done completely prior to company entry into a court register. Stakes in cash are to be paid into a company account held with a financial institution in Croatia.
Company start-up procedure
A private limited company is established on the basis of articles of association, which must be signed by all founders in the form of a notarized document or a notarized private document. If the company is established by just one founder, the founding document is a statement on establishment submitted by the company founder in the form of a notarized document.
The articles of association or statement on establishment should contain the following:
The totality of each individual owner’s rights and obligations constitutes his/her stake in the company. As a rule, the size of a stake is proportional to the size of authorized capital paid up.
Costs of establishment
The costs of preparatory procedures or establishment may not be refunded to the founders from authorized capital. In particular, it is not permitted to add such costs to the capital as a stake. Compensation for company establishment costs may be approved only to the amount specified in the articles of association. Unless otherwise agreed in a contractual form, the founders bear the costs of company establishment proportionally to the size of their authorized stakes.
Company bodies
A company must have a management board and a general meeting. The company management board may have one or more members (directors). A foreign national may also be a member of the management board. Members of the management board are appointed and released from duty by company owners. The management board is responsible for company management, company representation, the orderly keeping of the company’s business records, preparation of financial reports and for the records of ownership stakes in the company.
A company must have a supervisory board only if the average number of employees in a year exceeds 200, if law explicitly requires so for a particular business activity, if the initial authorized capital of the company exceeds HRK 600,000 and the company has more than 50 owners, if the company has a single management that runs public and private limited companies that must have supervisory boards under the law, or if it directly participates in them through direct shares in the authorized capital exceeding 50% (whilst in both cases the number of employees in one of the companies or all of them together exceeds 200), or if the company is a general partner in a limited How to Start Up an Enterprise in Croatia 11 partnership and the total number of employees in the company and limited partnership together exceeds 200 (Art. 434.). The supervisory board must have at least three members, and if there are more members, their number should be an odd one. A foreigner may also be a member of the supervisory board. Company owners elect members of supervisory boards.
A company general meeting is a mandatory body to be established by a private limited company. Company owners must vote in a general meeting to decide on issues that are their responsibility pursuant to the Companies Act and to the company’s articles of association.
A simple private limited company is a subtype of the private limited company as the most frequent type of company in Croatia. A simple private limited company can be founded in a simplified manner and it can consist of a maximum of three members and one member of the management board.
Founders
Members of the company may be either domestic or foreign legal entities and natural persons. The founder or a member of the company can be one or up to a maximum of three persons, while only one person can be the member of the management board.
Authorized capital
The initial authorized capital of a private limited company must be shown in Croatian currency – kuna (HRK). The minimum amount of initial authorized capital may not be below HRK 10.00, and the lowest nominal amount of the stake amounts to HRK 1.00. Stakes must be provided in cash only. Each amount of HRK 1.00 of the nominal stake gives the right to one vote, until the company’s initial authorized capital increases to a minimum amount of HRK 20,000 and the provisions of the Act pertaining to the classic private limited company start applying to it.
Company start-up procedure
A simple private limited company is established through a simplified procedure. Minute forms, which constitute annexes to the Act on Amendments to the Companies Act (Official Gazette 111/2012), drawn up by a notary public must be used for such establishment of a company. The filled-in minute form is valid as a list of the members of the company, a list of persons authorized to conduct company business and it contains a statement by which the member of the management board accepts the appointment as well as the signature of the member of the management board which is filed in the court register. If the company is established by just one founder, it is established on the basis of a Statement on establishment of a simple private limited company which is given in the form of a minute on the establishment of a simple private limited company with one member. If the company is established by more members, it is established through the conclusion of articles of association in the form of a minute on the establishment of a simple private limited company with a maximum of three members.
Company’s business activities
The company must have legal reserves in which it must deposit one fourth of the company’s profit expressed in the annual financial reports minus the amount of loss from the previous year. The legal reserves can be used:
If the company is under threat of insolvency, the company general meeting must be held immediately. If the company increases its authorized capital so that it reaches or exceeds the amount of HRK 20,000, the provisions pertaining to the classic private limited company apply to the company
A public limited company is based on capital, with owners (shareholders) investing in authorized capital divided into shares. A public limited company may be started by a single owner, i.e. it may have only one shareholder.
A public limited company is a legal entity. This legal status is established by entry into a court register. The company is liable for its debts with all its assets. Shareholders are not liable for the debts of the company. The basic document for a public limited company are the articles of association, as they specify the internal organization of the company.
Authorized capital
Authorized capital and shares must show par value in kunas (HRK). The minimum amount of authorized capital is HRK 200,000. The company may issue shares with an indication of their par value or shares without such indication. The par value of a share may not be below HRK 10. Par values higher than this minimum amount must show amounts that are multiples of HRK 10. In the case of shares indicating par value, the portion of authorized capital held is determined by the ratio of the par values of authorized capital and shares, whereas in the case of shares without par value the portion of capital held is based on the number of shares.
Shares may be registered shares (Art. 165.). The transfer of shares, except of those issued in dematerialised form, is effected by endorsement. The form of endorsement, legal identification of the holder and his/ her obligation to turn shares over are regulated by the respective provisions of the Bill of Exchange Act. Shares issued in dematerialised form are transferred as regulated by the law governing dematerialised securities (Art. 227.).
In terms of the rights they ensure, shares may be ordinary and preference shares. Ordinary shares ensure the right to vote in a general meeting, to receive dividend and the right to the respective portion of the liquidation, i.e. bankruptcy estate.
Preference shares give certain preferential rights, such as the right to a dividend in an amount or percentage of the par share value set in advance, priority in the disbursement of dividends or in receiving the remainder of the bankruptcy estate and other rights as provided by law and by the company’s articles of association.
Company establishment procedure
The Companies Act provides for a simultaneous and a successive establishment of a public limited company. Company founders are the shareholders who have adopted the articles of association.
A public limited company is established simultaneously when:
A public limited company is established successively when:
The subscription period may not exceed three months after the beginning of the subscription term. If, within this period, all the shares are not subscribed and paid for in accordance with the public call, the company founders are entitled to subscribe for or take possession of the unsubscribed shares within fifteen days. If they fail to do so, the company establishment is considered to have failed and the founders will ask the subscribers to take their payments back within fifteen days. If all the shares have been subscribed for, the founders shall give them to their owners within fifteen days after the subscription period has expired and call the first general meeting.
Application to enter a public limited company in a court register
Application to enter the company in the court register is submitted by all members of the management and supervisory boards, that is, by all executive officers and management board members.
The application for entry in a court register should contain the following:
The following should be enclosed with the application:
The following is entered in the court register:
Bodies of a public limited company
The management consists of one or more persons (“directors”), their number being defined by the articles of association. If the management consists of several persons, one must be appointed chair.
Any natural person of full legal capacity may be appointed management board member. A person who has been sentenced for offenses involving the abuse of bankruptcy, abuse in the course of bankruptcy procedure, favoring creditors, or failure to comply with the obligation to keep account books and business records as defined by the Penal Code of the Republic of Croatia; or who has not been served a protective measure prohibiting the performance of a profession fully or partially covered by the company business activity (applies so far as the measure is in force).
Croatian or foreign nationals may be management members, and they are appointed by the supervisory board for a maximum period of five years
Rights and obligations:
The supervisory board must have at least three members. Their number is defined in the articles of association and should be an odd number. A foreign national may be a member and there is no barrier to all members being foreign nationals. Members of the supervisory board are elected by the general meeting for a maximum term of office of four years, and they can be re-elected.
The supervisory board supervises company management and has the right to examine the company’s business records and all other company documents. The board reports to the general meeting on the supervision carried out.
Management board – Under the articles of association, it can be defined that the company shall have a management board instead of a management and supervisory board. A management board consists of a minimum of three members. However, provisions can be laid down for more than three members on the management board. Management board members are appointed for a maximum period of six years and they can be reelected and reappointed.
The general meeting is a body consisting of all shareholders and it allows them to exercise their rights in company matters. All shareholders are entitled to participate in the general meeting.
The responsibilities of the general meeting are set out in the articles of association. Decisions are generally taken by a simple majority of votes.
A general partnership is a business entity where two or more individuals join in order to conduct business as a going concern and under a common company name. Every partner has unlimited and joint liability to cover the partnership’s debts with all his/ her assets. A partner may not dispose of his/her ownership stake without consent from other partners.
Founders
Any legal entity or individual, both domestic or foreign, may become a partner. The articles of association define the relations between partners. The partners enjoy maximum freedom in this respect, because the Companies Act applies only in cases when the articles of association do not regulate certain matters otherwise.
Authorized capital
A general partnership does not have authorized capital. Unless otherwise provided by the articles of association, partners should bring equal stakes into the company. The stakes may consist of cash, tangibles, rights, labor and other services and goods. Partnership management is the responsibility of all partners. The articles of association may stipulate that only one or just a number of partners run the company. Each partner is authorized to represent the company.
Start-up procedure
A general partnership is established by adopting the articles of association, which need not be a notarized document. A notarized application for entry into a court register is then submitted.
The application for entry in the court register should contain the following information:
Articles of association need to be enclosed with the application.
A limited partnership is a company where two or more individuals associate together in order to conduct business as a going concern under the same company name. At least one partner has unlimited and joint liability for company debts with all his/her assets (general partner), and at least one partner has limited liability proportional to the assets invested (limited partner).
Founders
Both domestic and foreign individuals and legal entities may be partners in a limited partnership. A limited partnership is a legal entity that achieves such legal status by being entered in a court register.
Authorized capital
A limited partnership does not have authorized capital.
Establishment procedure
The company is established by adopting the articles of association, which need not be a notarized document. They should specify who among the partners are the general ones and who is a limited partner.
The application for entry of partnership in the court register should contain the following:
Company management and representation are entrusted to general partners.
An economic interest association is a legal entity established by two or more natural persons or legal entities for the purpose of facilitating and promoting their business activities, but in a way that the legal entity earns no profit for itself. Members of the association may be persons who perform any economic activity as well as free-lance employed persons.
Authorized capital
An economic interest association is established without authorized capital, and the rights of members may not take the form of securities. The business activity of the association must be related to members’ business activities as an activity that supports them.
Establishment procedure
An economic interest association is started up by concluding an agreement on the establishment that must be notarized and entered in a court register.
The agreement should contain the following:
The association is entered in a court register and so becomes a legal entity. The application for entry and all changes to the information entered (Art. 588) should be submitted by all members of the new management board.
Along with the association being liable itself, the members of the association have secondary unlimited liability that includes all their assets. The management board of the association runs its operations and represents it. The board may consist of one or more natural persons appointed by association members.
Under Croatian legislation, foreign companies and sole traders may conduct business in Croatia by setting up a branch office (Art. 612). The start-up and operation of branch offices owned by foreign companies are governed by the same regulations that apply to the establishment of branches by domestic companies. A branch office is not a legal entity. The liabilities and rights stemming from its operation do not belong to the branch office but to the founder. The branch office operates under its own name. The name should also indicate both the branch’s and the founder’s registered office.
To register a branch office, it is necessary to apply for registration and enclose the following original documents and certified translations in Croatian:
The Founder submits the application for registration with the register court located in the district where the future branch will have its registered office. In addition, the following original documents and their certified translations should be enclosed:
The register court may approve entry if the founder has proved:
The founder is required to report all data changes to the register court.
In the case that the same founder intends to establish several branch offices, the establishment procedure is carried out separately for each branch. The entry application should specify which is the main branch, while marking the others with ordinal numbers. The founder is obliged to authorize for representation one or more individuals in each branch, with the possibility of authorizing the same person for several branch offices.
As they are not legal entities, branch offices may not independently hold legal rights and obligations. The founder legally holds all rights and obligations of branch offices. In case of dispute with third parties, the branch is not a party to it, but the company or sole trader that owns the branch.
Branch offices are required to keep business records in compliance with applicable regulations in Croatia, which includes the Accounting Act, International Accounting Standards and tax regulations.
Regulations governing company establishment: Regulations in force are available at the Official Gazette’s official website: http://narodne-novine.nn.hr/default.aspx