This content is from: Local Insights

New Companies Law

The Republic of Srpska (RS), one of the two entities that comprise Bosnia and Herzegovina, adopted a new Law on Business Companies (Companies Law) on December 10 2008. The new Companies Law, effective on July 1 2009, introduces a number of innovations to the existing company law legislation. Many of the changes reflect an attempt to bring RS company law into closer alignment with the company law directives of the EU.

The law introduces changes across a wide range of issues affecting legal entities. Some of the principal changes are outlined below.

The process of registering new companies has been simplified. Most companies may now begin to operate their businesses without having to first obtain confirmation from the relevant authorities that their business premises meet the criteria required for pursuing the company's registered activities. The company founder issues a written statement that the company meets the necessary criteria. An exception applies to companies whose business activities may affect human life or health or the environment; these companies still need to obtain a prior confirmation. This change should speed up the registration process, which has been heavily criticised by both domestic and foreign investors.

Furthermore, foreign companies may now establish one or more branch offices in RS. Previously, a foreign company was required to set up a local subsidiary before establishing a branch office. However, the Law on Registration of Business Entities in RS permits only local companies to register branch offices. It is not clear which law will be applicable to the registration of a branch office, as the laws have still not been harmonised.

The Companies Law regulates four types of legal entities: general partnerships, limited partnerships, limited liability companies and joint stock companies (JSCs). It also provides for two types of JSC, as follows.

Unlisted JSCs may have up to 100 shareholders and may not issue any shares through a public offering. Shares may be issued only to the founders or to a limited number of other persons. The minimum share capital is set at KM20,000 ($13,000).

Listed JSCs must list their shares on a stock exchange or other public securities market. The number of shareholders is not limited. The minimum share capital is set at KM50,000.

Various changes have been introduced with regards to the persons who may be members of the company's legal bodies. For example, the Companies Law introduces the notion of independent and non-executive members of the management board of a JSC.

The Companies Law dedicates a whole section to the protection of the rights of minority shareholders members who oppose decisions taken at the company level. This should substantially increase the statutory rights of minority shareholders.

By attempting to follow the relevant EU directives, the new Companies Law brings RS company law substantially forward. The law should provide more clarity and simplicity for both domestic and foreign investors in RS as Bosnia and Herzegovina proceeds on the path to EU membership.

David Ayres, Andrea Zubovic and Eldar Dudo

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