Corporate Governance in Bosnia and Herzegovina

1. Corporate Structure Of The Companies

1.1. General legal framework

In Bosnia and Herzegovina, corporate matters are regulated at the level of each of the entities of B&H (FB&H and RS) as well as at the level of Brcko District of B&H (hereinafter BD B&H), which forms a separate self-governing administrative unit.

A. BD BiH

A Limited Liability Company (Ltd.) has as the management body an assembly and a board that can consist of one (director) or more members. Ltd. can have a maximum of 50 members/founders (can have more if approved by the government). Members of the ltd. can be natural or legal persons. Members of the ltd. are liable for the company’s liabilities up to the amount of the nominal capital, while they will be liable for the company’s liabilities with their entire assets without limitation, only in the following cases:

1. if one represents the company before the company was registered in the Company’s Register in the court of the BDB&H

2. if one uses the company to achieve personal goals that are not in accordance with the goals of the company and other owners of the company as a whole,

3. if one manages the affairs or assets of the company as if they were his own,

4. if one uses the company to defraud the creditors of the company, or

5. if one causes or influences the occurrence of waste or consumption of the company’s assets for one’s personal benefit or the benefit of third parties or if one causes or influences the creation of the company’s liabilities, even though they knew or should have known that the company would not be able to settle such liabilities.

A Joint Stock Company (JSC.) has as management bodies an assembly and a board of directors and a supervisory board is required if:

• the nominal capital of the company higher than BAM 1 million,
• the average annual number of employees in the company is higher than 250,
• if the shares of the company are listed on the stock exchange, or
• if the number of registered shareholders is higher than 100.

A Joint Stock Company can be registered by natural or legal persons. A shareholder is liable for the obligations of the company in the same way and under the same conditions as a member of d.o.o. The law does not define the minimum/maximum number of JSC. members.

According to the Companies Act of the BD BiH, companies and entrepreneurs are classified as small, medium, or large, based on the following criteria:

1. number of employees,

2. revenues, and

3. the average level of assets according to the annual accounting calculation for the last business year.

According to the same criteria, entity (FBiH and RS) laws on accounting and auditing distinguish between micro, small, medium, and large companies.

B. FBiH

A Limited Liability Company has an assembly and a board that can consist of one (director) or more members as management bodies. In addition to the assembly and management, a Limited Liability Company must also have a supervisory board, if it has more than 10 members and if it has a nominal capital in the amount of more than BAM 1 million and at least two members.

Members of theltd.. can be natural or legal persons (the minimum/maximum number of members is not stipulated). Members of the d.o.o. are liable for the company’s liabilities up to the amount of the nominal capital, while for the company’s liabilities they will be liable with their entire assets without limitation only in the following cases:

• uses the company to achieve a personal goal that does not agree with the goals of other members and the company as a whole,
• manages the assets of the company as its own assets,
• uses the company to defraud or damage its creditors, or
• influences the reduction of the company’s assets for their own benefit or the benefit of third parties, or influences the company to assume obligations even though they knew or should have known that the company was not or would not be able to fulfill its obligations.

A Joint Stock Company has an assembly of shareholders, a board that can consist of one (director) or more members, a supervisory board, and an audit committee as its management bodies. A Joint Stock Company can be established by one or more founders (natural or legal entities). Joint Stock Companies can be open (they cannot limit the transfer of shares to third parties) and closed.

A shareholder is liable for the obligations of the company in the same way and under the same conditions as a member of d.o.o.

C. RS

A Limited Liability Company has an assembly and a board that can consist of one (director) or more members as management bodies. Members of a d.o.o. can be natural or legal entities (one or more).

A ltd. can have a maximum of 50 members.

Members of a ltd. are liable for the company’s liabilities up to the amount of the nominal capital, while they will be liable for the company’s liabilities with their entire assets without limitation if they were assumed before the establishment of the company, if they misuse the company for illegal or fraudulent purposes, or if they dispose of the company’s assets as if they were their own assets, in the manner as that the company does not exist.

A Joint-Stock Company has an assembly of shareholders and a director or a board of directors (if it is an open Joint Stock Company) as management bodies. An open Joint Stock Company, whose shares are listed on the official stock market, must have an internal audit.

A Joint Stock Company can be established by one or more founders (natural or legal entities). Joint Stock Companies can be open (they cannot limit the transfer of shares to third parties) and closed.

A shareholder is liable for the obligations of the company in the same way and under the same conditions as a member of a ltd.

1.2. The function of the Supervisory Board

The Supervisory Board supervises the company’s operations, adopts business strategies and business plans, appoints the management and supervises its work, and approves decisions of strategic importance.

In the FBiH, the Supervisory Board approves the disposal of the company’s assets (purchase, sale, exchange, leasing, taking or giving loans, and other transactions with assets), whose value during the business year is in the range of 15% to 33% of the book value of the total assets of the Joint Stock Company according to the balance sheet at the end of the previous year.

The members of the Supervisory Board are responsible to the company and shareholders for any violation of the standards of conduct, which stipulate that every responsible person in the company is obliged to perform their duties with the care of a good businessman and in a way that they reasonably believe is in the best interest of the company.

The Chairman and members of the Supervisory Board are jointly and severally liable for damages caused by failure to perform or improper performance of their duties.

1.3. The function of the Executive Board

Management organizes the work and manages the business, represents the Joint Stock Company, and is responsible for the legality of the business. If the Board has more members, decisions are made by majority vote, and in case of a tie, the vote of the Chairman of the Board will be decisive.

Any person who fulfills the requirements prescribed by law (that they have not been convicted of a criminal offense, that they have not been prohibited from engaging in the profession, and other conditions depending on whether they are elected as a Member of the Board in FBiH, RS, or BD BiH) can be appointed as a Member of the Board. Management members are obliged to perform the tasks within their competence in accordance with the material legal regulations and internal acts of the company.

Board members are jointly and severally liable for the damage the company suffers by acting contrary to the aforementioned obligations.

1.4. Conflicts of interest and related party transactions

According to the provisions of positive legal regulations, persons with special obligations towards the company (members with a majority share in the capital, members of the Board of Directors, Supervisory Board, authorized agents, representatives, etc.) have the obligation to avoid conflicts of interest. This obligation is reflected in the duty to correctly and completely present all facts that may be of importance for making a decision and obtaining prior approval from the competent body of the company when undertaking legal affairs in which there is a personal interest.

A member of the assembly, Supervisory Board, or Management may not decide on affairs where they have a personal interest.

1.5. Legal framework for large companies

See Section 1.1.

2. Corporate Governance Framework

2.1. Transparency and public disclosure

All companies have an obligation to inform their members/shareholders about their operations and financial situation, as well as to make available to them information and documents that must be made available in accordance with positive legal regulations and the founding acts of the company.

Joint Stock Companies have the obligation to compile and publish their financial statements on their website in accordance with IAS and IFRS. Joint Stock Companies (whose shares are listed on the stock exchange) also have the obligation to submit financial statements to the competent stock exchange, which publishes these reports. Furthermore, Joint Stock Companies have the obligation to publish all decisions/events that may have a significant impact on the company’s operations (e.g., changes of members of the Supervisory Board, notices on convening meetings of assemblies, increase/decrease of capital, changes of predominant activity, codes of conduct/standards of corporate governance, Statute, rules of procedure for the work of the assembly, etc.).

The Joint Stock Company should publish the decisions of the assembly and the Supervisory Board.

2.2. Public authorities responsible for the monitoring of corporate governance

The Securities Commission has adopted the Standards for the Management of Joint Stock Companies (Corporate Governance Standards), which determine the mechanisms for the functioning and protection of interests in the mutual relations of various stakeholders in a Joint Stock Company.

Joint Stock Companies should apply the Governance Standards for Joint Stock Companies.

2.3 ESG

Taking into account that Bosnia and Herzegovina is not a member of the European Union as well as the fact that non-financial reporting is in principle regulated by directives adopted by the EU in terms of obligation, there are no regulatory requirements for non-financial reporting in Bosnia and Herzegovina, i.e. reporting of any of the kind that would include the contribution of business operations to sustainable development. However, there is no obstacle for business entities to prepare and publish non-financial reports on a voluntary basis. The above refers to entities of the real sector.

For certain industries, it is necessary to fulfill the conditions stipulated by the law, which could indirectly indicate non-financial reporting, such as, for example, the issuing of an environmental permit or acting in accordance with the law on occupational safety.

In Bosnia and Herzegovina, there is no public authority responsible for the control, submission, and publication of non-financial reports.

2.4. Internal controls and fraud measures

BD B&H

The annual accounting of large limited partnerships, large and medium-sized joint-stock companies, large limited liability companies, and all other companies whose securities are traded will be audited in accordance with special regulations, within six months after the end of the business year.

FB&H

The audit committee is obliged to audit the half-yearly and annual accounts and at the same time control the compliance of the company’s operations and the functioning of the company’s organs with the law, other relevant regulations, and basic principles of corporate governance and submit a report on this to the assembly and the supervisory board no later than eight days after the end of the audit.

RS

An open joint-stock company, whose shares are listed on the official stock market, must have an internal audit. The internal auditor performs tasks within their jurisdiction in accordance with the law, the founding act, and the company statute. An open joint-stock company has an independent auditor whose position and powers are determined by the law regulating accounting and auditing.

An open joint-stock company publishes the half-yearly and annual report on operations and the external auditor’s report on its website and submits them to the stock exchange for publication on the stock exchange website.

3. Shareholder And Board Committees

Positive legal regulations do not stipulate the obligation to form special committees of shareholders/members and management of the company.

The remuneration of members of the Board of Directors and Supervisory Board is optional. The remuneration policy for the members of the Board of Directors and Supervisory Board is established by the company in its internal acts. The remuneration of Board members of a Joint Stock Company should be publicly disclosed.