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Amendments to the Law on Companies – creating more favorable legal environment for a limited liability company

On 23 December 2019 the National Assembly of the Republic of Serbia adopted the latest amendments to the Law on Companies (the “Amendments”). The purpose of such Amendments is to create a model for rewarding employees, management and other individuals working for a limited liability company (“LLC”), which is the most common form of legal entities in Serbia. The amendments shall come into force as of 1 April 2020.

For this purpose, the Amendments introduce two new legal concepts: “reserved own share”, and a financial instrument – “the right to acquire share”.

Namely, in order to issue the financial instrument, the company is required to provide the asset for its implementation – a special type of own share that can be issued solely for this purpose called “reserved own share”. Reserved own share is a share acquired by the company from its existing member(s), without any compensation, for the purpose of providing the said financial instrument. It is important to note that (i) this procedure is also applicable to a single-member LLC, as more than one reserved own share can be acquired, and (ii) that the decision of the company assembly on the reserved own share is binding solely on the members who voted in favor thereof.

After acquiring own share, the company renders a decision on the issuance of the financial instrument. The financial instrument – “right to acquire share”, is defined as a nontransferable financial instrument issued by an LLC, entitling the acquirer to acquire the share on a stated date (maturity date) at a stated price. Evidently, the concept is an equivalent to stock option already recognized by the Serbian legislation, now also available in LLCs.

Although the Amendments introduce the new financial instrument, provisions of the Law on Capital Market will not be applicable to the issuance of such financial instrument, except for the provisions governing the procedure of inscription with the Central Securities Depository and Clearing House.

In addition, this possibility to acquire share will be available not only to employees of the respective LLC (as it is the case of stock options in a joint stock company), as the Amendments do not strictly define the acquirer as an employee, but also to any other individual engaged on any basis to work for an LLC.

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