The Parliament of Republika Srpska adopted the amendments of the Company Law of Republika Srpska which entered into force on 2 March 2023. This is the sixth time that the Company Law has undergone changes since it was enacted, whereas the recent amendments brought significant novelties, rather than cosmetic ones.
Below are presented the major changes that relate to all types of companies or only to LLCs or JSCs.
General changes
1. Extension of deadlines
The deadline for exercising the right of the company based on the breach of conflict of interest and competition rules is now extended to 6 months (instead of 60 days) as of finding out for the breach, i.e., 10 years (instead of 3 years) as of the occurrence of the breach. The statute of limitations for claims of shareholders towards the company (and vice versa) is set to 10 years (instead of 3 years) from the due date. In addition, the statute of limitations for dividend claims of shareholders in open JSC is set to 10 years as of the company’s decision on dividend distribution.
Changes that relate to LLCs:
1. Minimal share capital
As of 2 March 2023, if the share capital of the LLC is equal to or higher than BAM 5,000 half of the amount shall be paid to the temporary account until the registration of the company is completed and the rest is paid according to the deadlines for the payment of monetary contribution determined in the memorandum of association, but no later than two years from the date of registration.
In addition, for LLCs established by more than one shareholder, the minimal monetary contribution of each shareholder cannot be less than BAM 1.
2. Registration of shares with the Central Securities Registry
The major novelty brought by the amendments is related to the registration of shares in LLC with the Central Securities Registry of Republika Srpska. Now, shares in LLC may be registered with the Central Securities Registry by which such share obtains the status of the security. Hence, as of 2 March 2023, if the share is registered with the Central Securities Registry the shareholder is allowed to freely transfer its share.
This novelty consequently triggers many other aspects. To name a few, the book of shares may be now maintained by the Central Securities Registry which also records the pledges established on the shares registered in Central Securities Registry. Also, these shares of LLCs, for which the Central Securities Registry maintains a book of shares, may be traded on the stock exchange.
3. General Meeting of sole shareholder LLC
If the sole shareholder of LLC is a legal entity, it may be now determined by its memorandum of association that the general meeting function is performed by the body of the sole shareholder, otherwise, this function is performed by the authorized representative. In addition, there is no longer a need to prepare the minutes of the General Meeting, but only to record the enacted decision in the book of decisions.
4. Quorum for deciding on reserved matters
Enacting decision on reserved matters (i.e. amendments of the memorandum of association and the agreement of the shareholders; increase and decrease of the share capital; status changes; change of legal form and termination of the company; distribution of profits to shareholders; acquiring own company shares and disposal of company assets of high value) has undergone a significant change. Instead of a previous statutory solution that required the consent of all shareholders, now the above-listed matters may be decided by the 2/3 majority of all shareholders (unless otherwise stipulated in the internal acts).
5. Termination of shareholder status
Provisions regulating the termination of shareholder status are now more detailed and systematic. Thus, the amended provisions regulate the conditions and consequences of voluntary termination of the shareholder status including the situation when a shareholder does not claim the compensation for its share, but also the termination based on the court decision, and the decision of the company.
Changes that relate to JCSs:
1. Sale price of shares
So far, the sale price of shares could be determined in a lower amount compared to its nominal value. However, from now on a general rule is that the sale price cannot be lower than the nominal value of the share except in the following circumstances:
- when the book value of the share is lower than the nominal value whereby the sale price of the shares cannot be lower than the book value,
- sale of ordinary shares in the procedure of exercising the right of pre-emption of shares of existing shareholders or sale of shares to a stockbroker for their resale (in the procedure of taking over the issue of shares), whereby the sale value of the shares cannot be lower than the market value unless the market value is lower than the book value, in which case the book value of the share is applied,
- issuance of shares in the company reorganization procedure.
2. Determining the market price of shares
In addition to the previously set requirements for determining the market value of shares in JSC (weighted average price on the stock exchange or other regulated market, in the period of six months before the date of the decision determining the market value of the shares, if in that period the trading volume of shares of that class on the securities market represented at least 3% of the total number of issued shares of that class and that in at least three months of that period, the trading volume was at least 1% of the total number of issued shares of that class on a monthly basis) the amended Company Law also introduces a third requirement, being that it was traded on more than one-third of the days of possible trading on a monthly basis.
3. Dividend distribution
According to the amended Company Law, part of the undistributed profit (up to 20%) may be distributed in the form of shares to the employees of the company. However, only the employees who do not hold more than 5% of the share capital (including new shares) are entitled to these “dividend” shares.
The amendments invoke the principle of equal treatment of all shareholders regarding dividend payment and envisage that the monetary dividend may be registered in the Central Securities Registry. In the latter case, the dividend payment is performed by depositing the funds to the special purpose account of the Central Securities Registry that conducts the direct payment to shareholders.
In addition, special rules for challenging the decision on dividend distribution are envisaged if such a decision does not foresee dividend payment but the company should pay the dividend based on the circumstances of its business and under the following conditions:
- a positive assessment of a good businessman (being the independent auditor) has been obtained,
- enacting a decision on dividend payment is mandatory in accordance with the company’s dividend policy determined based on the corporate governance standards.
The lawsuit may be filed by the shareholders holding at least 10% of the share capital.
4. Convening the general meeting
The main novelty with regard to convening the general meeting is related to the content and publication of the invitation to the general meeting. Now, the invitation does not have to be published in two newspapers registered in Republika Srpska, while the content of the invitation is regulated in more detail.
5. Cross-border M&A
The amendments introduced the cross-border M&A transactions determining the requirements, the announcement of cross-border M&A, the content of the agreement between the companies, registration of the change, participation of the notary public, consequences of this transaction, etc. Involved are only LLCs and JSCs incorporated in Republika Srpska and the foreign companies (established as companies based on capital). In addition, the law envisages a simplified procedure in case the acquirer is the sole shareholder of the local company or if the acquirer is the local company holding at least 90% of shares in another company.
6. Conversion of JSC to LLC
Regarding the conversion of JSC to LLC, two additional requirements have been added. Hence, for such conversion the JSC has to meet the conditions for conversion from an open JSC to a closed one and the Securities Commission has to issue the approval in accordance with the regulations regulating the securities market.
7. Squeeze-out
The squeeze-out provisions have also undergone certain changes. The significant one is that in case the adequacy of squeeze-out compensation has been challenged, the payment to minority shareholders is not anymore suspended until the final court decision.
The amendment will be applied to the pending procedures which definitely meets the practical expectations. Also, the statute of limitations for the minority shareholders’ entitlement to compensation is extended to 10 years (instead of 3 years). In addition, as of 2 March, the registration of the squeeze-out decision shall be conducted within 15 days as of the expiry of 30 days deadline for challenging the decision (or 15 days as of rendering the final court decision in the procedure of challenging the squeeze-out decision). Moreover, according to the amended provisions, the court shall now ex officio check whether the decision has been challenged, meaning that the statement of the director on the status of the decision challenging is no longer necessary.
By Nihad Sijercic, Partner, and Nevena Tomic Lucic, Advisor, Karanovic & Partners