In Croatian law, the first distinction between types of entities according to domestic corporate law is a distinction between entities that have legal capacity and those which do not. Companies that do have legal capacity are: public limited company, limited partnership, joint-stock company, Limited Liability Company, economic interest grouping, Mutual Insurance Company, credit union, co-operative, association of co-operatives and union. Only three companies do not have legal capacity: partnership, secret company and unions without legal capacity.The second distinction is the one between companies of persons and companies of capital. The companies of persons are: partnership, secret company, public limited company, limited partnership, economic interest grouping, co-operative, association of co-operatives and union. The companies of capital are: joint-stock company, Limited Liability Company, mutual insurance company and credit union. The distinction is made based on the fact that companies of persons place emphasis on members, not capital, connection between members’ interests is stronger, members are personally liable for a company's obligations, they cannot transfer their shares to someone else without the acceptance of other members etc. Companies of capital have legal persons, must have stock capital, and members are not liable for company’s obligations etc.
The Croatian Company act recognizes five types of commercial entities:
Public limited company;
Joint stock company;
Limited liability company and;
Economic interest grouping.
1.1. Public limited company means a company into which two or more persons are joined with the aim of continuous performance of activities under a common company name and each member of the company has unlimited and joint responsibility to the creditors of the company with all his assets. Any natural or legal person may be a member of the company. The application for registration in the commercial register must indicate the company name, headquarters and subject of business activities of the company, name and surname, national registration number and residence, i.e. the company name and headquarters of each individual company member and names of persons authorized to represent the company and their authorizations. The agreement on foundation of the company (company agreement) must be enclosed with the application. Company members contribute in equal shares, and those shares may be invested into company as money, objects, rights, labour and other services or possessions. Each company member has both the right and obligation to manage the business activities of the company unless the management of business activities has, under the company agreement, been transferred to one or more specifically determined members of the company. The adoption of decisions in the company requires the consent of all members authorized to participate in decision making. A member of the company cannot use his share in the company without the consent of other company members. Each member is authorized to represent the company unless the provisions of the company agreement exclude him from representation. Each member is responsible for obligations of the company toward the creditors with all his assets and jointly with other members of the company.
1.2. Limited partnership means a company in which two or more persons are joined with the aim to permanently conduct activities under the common company name, of whom at least one has joint and several and unlimited responsibility for obligations of the company with all his assets (general partner), and at least one bears responsibility for obligations of the company up to the amount of a certain assets share invested in the company (limited partner). The company is founded by an agreement (company agreement) in which one or more company members is in the position of general partners and one or more company members in the position of limited partners. The company is managed by general partners and limited partners are not authorized to manage business activities of the company. A limited partner is not authorized to represent the company and has no responsibility with regard to the obligations of the company if he has wholly paid the share he has by the company agreement committed himself to pay.
1.3. Economic interest Grouping means a legal person founded by two or more natural and legal persons with the aim of facilitating and promoting economic activities representing the subject of their business activities, and with the aim of improving their effect, but without acquiring any personal profit and it is therefore founded without stock capital. Members of the grouping have unlimited responsibility for obligations of the grouping by all their assets. Business activities are managed by one or by more natural persons appointed into the management board of the grouping on the grounds of the foundation agreement, or by a decision of grouping members. The grouping is represented only by a person embodying the management of the grouping or, if there are several persons, each one of them.
1.4. Joint Stock Company means a company in which members (stock holders) participate with their shares in the stock capital divided into shares; it may also have only one stockholder. Stockholders are not responsible for the obligations of the company. The lowest stock capital is 200.000,00 Kuna. The company can issue stocks with or without nominal amount. The lowest nominal stock amount is 10.00 Kuna. The company is responsible for its obligations and members of a company are not responsible for its obligations, only in case that they misuse the circumstance that they as members of a company bear no responsibility for obligations of the company, they will be held responsible. Bodies of a company are: management, supervisory board and general assembly. The company can have a management board instead of a management and supervisory board. Transfer of stocks is allowed but the statute of the company may prescribe that the consent of the company shall be required for the transfer of shares. The consent shall be given by the management board of the company. The statute may also determine the supervisory board or the general assembly of the company shall decide on giving consent.
1.5. Limited Liability Company means a company into which one or several legal or natural persons have invested their basic shares, participating in the stock capital which was agreed upon earlier. All basic shares don't have to be equal. The amount of all shares must correspond to the amount of the stock capital. The company is responsible for its obligations and members of a company are not responsible for its obligations. The lowest stock capital is 20.000,00 Kuna and the lowest amount of share is 200.00 Kuna. Bodies of a company are: management, supervisory board and assembly. Business shares are both transferable and inheritable. A contract verified by a notary public is required for the transfer of a business share.
In Croatia, Limited Liability Company is the most commonly used type of company in corporate law practice.
2.1. Joint stock Company: The founders establish a company by taking over all the stocks of the company, by adopting and signing the statute and by giving a statement on the establishment of a joint stock company. A company shall be established when it has been registered in the commercial register. The company may also be founded in such a way that the founders adopt the statute, take over part of the stocks and make a public call for the subscription of stocks, on the grounds of which the stocks are subscribed. The company is considered to be founded when it is registered in the commercial register.
The first step in order to set up a company in Croatia consists of choosing a company name and the verification of its uniqueness. An enquiry has to be made to the Croatian Court to reserve the name. The founders must also notarize the statute of the company. Other documents to be notarized are the application for court registration, along with the director’s statement of acceptance of the appointment. A bank account has to be opened and the minimum capital must be deposited prior to company registration with the Financial Agency of Croatia and the founders must find a legal address.
2.2. Limited Liability Company: company is founded on the grounds of an agreement concluded between the founders (company agreement). All founders shall sign the company agreement concluded in the form of a document verified by a notary public. If the company is founded by one founder only, the company agreement is replaced by the founder's statement on the foundation of a limited liability company verified by a notary public. Proxies authorized by the founder must have their power of attorney verified by a notary public. The power of attorney is not demanded if the founder's representative is authorized by law to sign the company agreement for him as well as to make the statement required for the company’s foundation. If the company has a maximum of three members and one member of management, the incorporation can be done in a simpler way using forms made by notary public. Provisions regarding registration of a company name, notarization of documents, bank accounts etc. are the same.
In the case that founders of the company are foreign companies or individuals, they must obtain a personal identification number from the tax administration.
3.1. Joint Stock Company: the management consists of one or more persons (managers) whose number is determined by the statute. If the management board consists of more persons, one among them shall be appointed chairman. A member of the management can be any natural person having a business capacity. The statute may determine the terms and conditions for appointing the members of the management board. Members of the management and its chairman are appointed by the supervisory board of the company for a period of 5 (five) years at the longest with the possibility of reappointment. The earliest reappointment of the management board is possible one year before their mandate expiry.
3.2. Limited Liability Company: the management can be any natural person having a business capacity who is appointed by members of a company unless the company agreement states otherwise. The company agreement may also anticipate the appointment of the management by some public body. The company agreement may determine the terms and conditions for appointing the members of the management board.
Croatian Company Act proscribes which persons are not allowed to become members of the management.
3.3. Modification of By-laws: In a Joint Stock Company the statute of the company may be amended upon a decision of the general assembly. The general assembly may authorize the supervisory board to amend the statute if the amendments involve the harmonization of the text. Votes must represent at least three quarters of the stock capital represented at the general assembly at the time when the statute is being decided on. The statute may require a greater majority or fulfilment of some additional conditions. The amendment to the statute shall become valid after the entry into the commercial register.
In a Limited Liability Company, the company agreement can be amended only by a decision of the company members. The decision shall be in the form of a notarised document and it is not valid before it has been entered into the commercial register. The decision about the amendment to the company agreement is made by a majority of at least three quarters of all votes cast. The company agreement may prescribe a greater majority and it may also require the fulfilment of some additional conditions.
4.1. Joint Stock Company: the management can consist of one or more director. If there are more directors, one of them is the chairman. In the case that several directors have the right to conduct business, they can do it only collectively. The statute may also determine other methods of management, but not that, in the case of different opinions among members of the management board upon a particular matter, the final decision may be made by a minority. If the voting results in a tie and the statute has not provided any other way of settling the matter, the decisive vote shall be that of the president of the management board.
Management is authorized to take all legal actions of representation in business, before the court and other governmental bodies. If the management board consists of several persons and the statute has not prescribed otherwise, its members will be authorized to represent the company collectively. Regarding the declaration of will towards the company, it shall be sufficient to declare it to only one member of the company management. The statute of the company may determine whether individual members of the management board shall be authorized for representation alone or together with the procurer. If authorized by the statute, the supervisory board of the company may decide in such matters.
In a Joint Stock Company, founders can decide to have a one-tier or two-tier board system. In the first case a supervisory board and general assembly, and in a two-tier system also a management board.
4.2. Limited Liability Company:
Management can consist of one director or more. If the management board consists of more members and if the company agreement has not determined otherwise, the members shall take actions required for the management of company business activities jointly, unless there is a danger that certain actions would not be taken in good time. If the company agreement authorises each member of the management board to act individually as required for the management of company business operations, he is not allowed to undertake any intended activity if it is opposed by some of the management members, unless otherwise prescribed by the company agreement.
Unless otherwise provided for in the company agreement, the members of the management board jointly represent the company. If the management consists of several members, the company agreement may determine that the company is represented by one member of the management together with the procurator. Agreement that would prescribe that individual or all members of the management will represent the company only together with one or several procurators would be invalid.
The liquidation procedure is initiated after the occurrence of a reason for discontinuing the company unless the company members have agreed upon a different manner of settling accounts and division, or unless bankruptcy procedure is initiated.
Unless stipulated by a decision of the company members or by the company agreement that liquidation is carried out by individual members of the company or by some other persons, it shall be carried out by all members of the company as liquidators. Liquidators may be appointed by the court due to some important reasons. Application for registration of liquidators in the commercial register must also be submitted to the court.
Liquidators of the company must complete the still pending business activities, collect payments related to company's claims, capitalize the company's assets and indemnify the creditors. After the division of assets among the stockholders has been completed, the liquidators must present to the general assembly their final liquidation financial reports and the report on the liquidation they have completed. Then they submit to the court the application demanding the deletion of the company from the commercial register accompanied by the decision of the general assembly and by a copy of the minutes from which it shall be evident that the general assembly has accepted final liquidation financial reports and the reports presented by the liquidators, and that it has released the liquidators from their duty. The company ends with its erasure from the commercial register.
This information was compiled by Pecarevic&Relic