Law on Amendments and Supplements to the Companies Act

The Government of the Republic of Serbia has introduced to the National Assembly a Bill on the Law on Amendments and Supplements to the Companies Act (hereinafter referred to as “Law”), at the initiative of the Information Technology and Entrepreneurship Team in the Prime Minister’s Unit for Strategic Projects, (Delivery Unit), which provides some minor changes to Companies Act and implementation of new legal institutes such as “right on acquiring shares issued by a limited liability company” and “reserved own share”, which should represent a form of remuneration for employees, management and third parties (investors, consultants) in a limited liability company.

 The main objective to be achieved by passing this Law is to enable limited liability companies (hereinafter referred to as “LLC”) to stimulate their employees, investors, consultants etc.,  through the issuance of a financial instrument – “the right to acquire a share issued by LLC”, which entitles the holders of this financial instrument to acquire a share in the company on a particular day (maturity day) at a preferential price, and through that employees of the limited liability company, as well as shareholders in a joint-stock company, can participate in distribution of the company  profit, and thus, through direct connection with the company itself, have the motive to make maximum contribution to the capital increase of the company.

 The reason behind this legal solution is an attempt to encourage employees of a limited liability company to do their work best they can (and thereby to increase  the value of the company capital), by giving them the opportunity to become members of that company, and enabling them to gain participation in the company capital at a preferential price and that in the future, when the sale of the company occurs, they can make a significant profit by selling (at the market price) the share capital they acquired through this option, as it is explained by proponents of the Law.

The additional goal that should be achieved by the adoption of this Law, as the proponent claims, is to stimulate economic growth, and in particular the further growth of the information technology industry and also to enable companies in this field to operate in accordance with generally accepted standards in the world, which enables  LLC operating in the Republic of Serbia to use generally accepted instruments for rewarding employees, investors, consultants etc., preventing the outflow of capital abroad.

“Reserved own share” of a company within the meaning of this Law shall be considered a share that a company acquires without charge from a member of a company to grant a financial instrument — the right to acquire a share. The reserved own share cannot be pledged, nor can the reserved own share be disposed of except in the manner prescribed by Law.

A financial instrument – the right to acquire a share, within the meaning of this Law, is a non-transferable financial instrument issued by a limited liability company, which gives the consenting holder the right to acquire a share on a particular day (maturity day) at a certain price.

The decision on the issue of a financial instrument – the right to acquire a share is taken by the general meeting of the company, unless otherwise is provided by the founding act, it cannot be inherited, and the members of the company don’t have the right to purchase the share acquired on the basis of the financial instrument – the right to acquire a share.

The proponent expects that this Law will encourage the foundation of new limited liability companies, especially in the information technology industry and the further development of existing companies, and thus to stimulate economic activity and increase market competition.

The adoption of this Law is expected at one of the next sessions of the National Assembly of the Republic of Serbia, while we will be able to see its real effects in the next period after its entry into force and implementation.