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Company Law and Corporate Governance in the Enlarged Europe. Prof . dr. sc. Hana Horak. I. Legal history, foreign inspirations and recent development in Croatian company law. Croatian legislation took over German company law in its entirety. There are only a few contents that were changed :.

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i legal history foreign inspirations and recent development in croatian company law
I. Legal history, foreign inspirations and recent development in Croatian company law
  • Croatian legislation took over German company law in its entirety
there are only a few contents that were changed
There are only a few contents that were changed:
  • not accepting limited partnership as a stock company
  • permitting one founder, that is, member of a joint stock company
  • the establishment of each type of company requires different minimum capital
  • optional participation of union representatives in the management
slide5
The Croatian Companies Act entered into force in 1995, andwas amended on several occasions
  • The most recent amendments were introduced in 2010 & 2011
the most important accompanying legislation in the field of company law are the following
The most important accompanying legislation in the field of company law are the following:
  • The Court Register Act (1995, amendments in 1996, 1999, 2003, 2005, 2007, 2010, 2011)
  • Bankruptcy Act (1996, amendments in 1999, 2000, 2003, 2004, 2006, 2010, 2012)
  • Capital Market Act (2008, 2009)
  • The Act on the Takeover of Joint-Stock Companies (2007, 2009)
  • Insurance Act (2005, 2008, 2009)
  • Investment Funds Act (2005)
the most important accompanying legislation in the field of company law are the following1
The most important accompanying legislation in the field of company law are the following:
  • Crafts Act (1993, amended in 1995, 1996, 2001, 2003, 2007)
  • Associations Act (2001, amended in 2002)
  • Cooperatives Act (1995, amended in 2001, 2002, 2011)
  • Institutions Act (1993, amended in 1997, 1999, 2008)
  • The Competition Protection Act (2003, amended in 2009)
  • Banking Act (2002, amended in 2006)
  • Audit Act (2005,amended in 2008)
alignment of the national law with the ec directives
Alignment of the national law with the EC-Directives
  • The screening of the company law with EU legislationstarted in 2006
  • It presupposes the analysis of EU directives relating to company law
the first directive on company law includes
The First Directive on company law includes:
  • safeguards prescribing the conditions for obligatory disclosure of information,
  • limiting the reasons for the nullity of obligations entered into by companies and limiting the reasons for nullity of joint stock companies and limited liability companies
slide11
The Second Directiveconcerning company law specifies rights about the formation of public limited liability companies and maintenance and alteration of their capital
slide12
The Thirdand Sixth Directivesconcerning company law harmonise national rules for the protection of stockholders and trustees in the context of domestic mergers and divisions of public limited liability companies
slide13
The acquiscommunautaire provides for certain European legal formationsregulation, in particular the European Economic Interest Grouping(EEIG) and the European Company (SocietasEuropaea or SE) but Member States may regulate in their national legislation some aspects of their internal organisation and business operations
slide14
Regulatoryframeworkincludes rules for the evaluation and appearance of balance sheets and profit and loss accounts for annual (Fourth Directive concerning company law) and consolidated (Seventh Directive concerning company law) financial statements of joint stock and limited liability companies
slide15
Croatia stated in its report that it is prepared to take over the acquis communautaire relating to company law and that no difficulties are expected in the implementation of the acquis communautaire until the accession to the European Union
the system of croatian company law
The system of Croatian company law

I. Structure of company law and its legal environment

who is a merchant
Who is a merchant?

1. A merchant is a legal or natural person.

2. A merchant must perform an economic activity independently, in his name and for his account.

3. A merchant must perform an activity continuously.

4. A merchant must be engaged in an economic activity.

5. This activity must be carried out with the aim of making profit.

6. The economic activity and the making of profit may result from production, trade in goods or provision of services on the market

slide19
a company into which two or more persons are joined with the aim of continuous performance of activities under a common firm name
  • each member of the company has unlimited and joint liability to creditors of the company with all his assets
  • any natural or legal person may be a member of the company
the main characteristics of the general partnership are the following
The main characteristics of the general partnership are the following:
  • it must have at least two members
  • members of the company may be natural and legal persons
  • the company’s activity must be permanent
  • the activity must be carried out under the joint firm name
  • it is based on a contract
  • all members of the company share unlimited liability for the company’s debits, jointly with all their assets
slide21
the application for entry into the court register is accompanied by the contract on the establishment of the company – the company agreement
  • members regulated their relations on the basis of their own willand such application of the CompaniesAct confirms the principle of OPTIONALITY
the companies act contents
The Companies Act contents:

1. name, surname and personal identification number of a citizen and residence, that is, firm name and seat of each member of the company who was the founder of the company at the moment of its establishment

2. firm name

3. company seat

4. subject of business activities

5. contribution that members of the company are obliged to make in order to achieve the company’s goal

slide23
A company member who does not pay his contribution in due time or does not deliver the money received for the company to the company in a timely manner, or unjustifiably takes money belonging to the company or is in delay with making other contributions, shall pay the statutory default interest to the company
  • Every member of the company has the right and the obligation to manage company business
slide24
Each company memberis entitled to be informed about the company business
  • The profit and loss account is prepared at the end of each financial year
    • One-third of profits made in the current year shall be divided among company members in such a way that each member receives the part corresponding to his share in the company capital(CAPITAL PRINCIPLE)
    • Two parts of profits is divided in equal parts among members of the company regardless of their share in the company(PERSONAL PRINCIPLE )
reasons for the dissolution of the company
Reasons for the dissolution of the company:
  • expiry of the time for which it has been established
  • decision of company members
  • bankruptcy of the company
  • final court decision establishing that the entry of the company in the commercial register was unlawful
  • death or dissolution of a company member, unless otherwise provided for in the company agreement
reasons for the dissolution of the company1
Reasons for the dissolution of the company:
  • initiation of bankruptcy proceedings over one of the company members
  • rescission of one of the company members, or of his creditor
  • final court decision
liquidation
Liquidation
  • is initiated upon the occurrence of a reason to dissolve the company unless the company members have agreed upon a different manner of settling accounts and division or unless a bankruptcy procedure is instituted
  • it shall be carried out by all members of the company as liquidators
slide29
a company in which two or more persons are joined with the aim to permanently conduct activities under the common firm name
  • it is formed by an COMPANY AGREEMENT
c haracteristics of a limited partnership
Characteristics of a limited partnership:
  • the company is a person, a legal person and a merchant
  • at least two persons are joined
    • members have different liability for the company’s obligations
  • the objective of the company is to permanently perform activities under the common firm name
  • the basis of association is the agreement
  • the company is a person
slide31
it has two kinds of members whose position differs in proportion to their responsibility
        • GENERAL PARTNER (at least one)
        • LIMITED PARTNER
limited partners responsability
Limited partners responsability:
  • a limited partner is not authorised to manage the company but has the right of supervision over the company business
  • a limited partner may not oppose decisions or actions of general partners, except for decisions or actions which go beyond the scope of the ordinary scope of business activities of the company
  • a limited partnership is represented exclusively by general partners(a limited partner is not authorised to represent the company)
limited partners responsability1
Limited partners responsability:
  • profit is paid out to a limited partner if he has paid his capital contribution in full
  • limited partner shall participate in the compensation of loss incurred by company’s business, but only up to the amount of his share in the company’s capital
slide35
a legal person established by two or more natural or legal persons with the aim of facilitating and promoting the economic activities which form the objects of their business activities, and to improve or increase their effect, but in such a way that legal person does not acquire profit for itself
  • the grouping is not established for the purpose of acquisition of profit
i mportant characteristics of economic interest groupings
Important characteristics of economic interest groupings:

a) at least two persons are joined

b) its goal is strictly prescribed by the Act and is different from all other companies

c) the basis is the agreement

d) it is a legal person and a company

e) members are liable for the groupings' obligations

t he grouping shall have this bodies
The grouping shall have this bodies:
  • members acting jointly
  • management board of the grouping
  • other bodies that must be provided for in the contract on the establishment of the grouping
slide38
the management board is the obligatory body of the grouping consisting of one or more members
  • members of the management board do not have to be the members of the grouping
  • management board shall perform the MANAGEMENT ANDREPRESENTATIONtasks
slide39
In all cases of dissolution of the grouping, except in case of bankruptcy, liquidation must be carried out
slide41
Joint stock companies are regulated in Title IV of the Companies Act which has 225 Articles out of which almost all are very detailed and regulate separate issue under their own headings.
  • The provisions about joint stock companies make up one third of the total Act
e stablishment of a company
Establishment of a company:
  • SIMULTANEOUS ESTABLISHMENT
  • SUCCESSIVE ESTABLISHMENT
share capital
Share capital
  • the smallest initial amount of company’s capital defined in the Articles of Association
  • a sum of nominal amounts of shares

The share capital is divided into shares and it must be made out to nominal amounts expressed in HRK.

-The lowest amount of share capital of a joint stock company is HRK 200.000,00

the meaning of the concept of a share is threefold
The meaning of the concept of a share is threefold:
  • PART OF THE SHARE CAPITAL OF THE COMPANY
  • COLLECTION OF MEMBERSHIP RIGHTS AND OBLIGATIONS BELONGNIG TO A SHARE’S OWNER
  • SECURITIES
bearer share s or registered shares
Bearer shares or registered shares
  • bearer shares do not specify the name of their owner and they are transferred on the basis of transfer of ownership (tradition).
  • registered shares specify the name of the shareholder. They are transferred by endorsement or in the manner prescribed by the law regulating non-materialised securities (cession).
t hree classes of shares
Three classes of shares:
  • ordinary
  • preferred*
  • non-voting shares

Each share gives the right to vote at the general meeting of the company.

*only preferred shares may be issued without the right to vote

slide48
a company into which one or several legal or natural persons have invested their capital contributions, participating in the share capital which was agreed upon earlier so that the members are not liable for the company's obligations
a limited liability company
A limited liability company
  • a company
  • a legal person
  • a company of capital
  • a commercial company
  • members are not held liable for company's obligations
  • has share capital
slide51
members of the company are not called shareholders but members of the company
  • the lowest prescribed share capital of the limited liability company is HRK 20.000,00
  • the minimum amount of a capital contribution is HRK 200.00
slide52
the share capital is divided into contributions that may be expressed in securities
  • the company agreement is the basic founding document of the company, and not the articles of association as is the case in the joint stock company
the obligatory bodies
The obligatory bodies:
  • the management board (at least one member )
  • the general meeting
  • the Supervisory Board is an optional body of a limited liability company
slide55
a public book containing data and information about entry subjects that must be entered into the register pursuant to the law (Article 2 of the Court Register Act)
subjects in the court register
Subjects in the court register:
  • unlimited partnership
  • limited partnership
  • economic interest grouping
  • joint stock company
  • limited liability company
  • sole trader
  • institution
  • association of istitutions
  • other persons as prescribed by the law (Article 6 of the Court Register Act)
slide60
is regulated by the provisions of the Bankruptcy Act (OG Nos. 44/96., 29/99., 129/00., 123/03. and 82/06., 116/10., 25/12.)
    • BankrupcyActregulates:

-the conditions for the initiation of bankruptcy proceedings

-bankruptcy proceedings

-legal consequences of its initiation and implementation

-the bankruptcy plan

r easons for bankruptcy
Reasons for bankruptcy :
  • insolvency
  • overdebtedness
the securities market act regulates
The Securities Market Act regulates:
  • the procedure for the issuance of securities
  • transactions with securities and persons authorised to conduct business with securities
  • conditions for organised public trading in securities
  • protection of investors and holders of rights from securities
  • non-materialised securities
  • the organisation and powers of the Central Depository Agency
  • the stock exchange and regulated public markets
slide64
transactions with securities may be performed in Croatia only by authorised companies:
      • a brokerage firm
      • a bank licensed by the Agency and entered into the court register
slide66
In the Republic of Croatia the government is divided into three branches of power:
      • legislative
      • executive
      • judicial (independent and autonomous )
judicial power in the republic of croatia is exercised by
Judicial power in the Republic of Croatia is exercised by:
  • misdemeanour courts
  • municipal courts
  • county courts
  • commercial courts
  • High Misdemeanour Court of the Republic of Croatia
  • High Commercial Court of the Republic of Croatia
  • Administrative Court of the Republic of Croatia
  • the Supreme Court of the Republic of Croatia
acquisition of shares
Acquisition of shares
  • the decision on the issuance of shares is made by the General Meeting or the founders of the company in accordance with the statute
    • The company’s own shares are shares held by the company and the rights of which are not in effect
slide71
The company may acquire its own shares only in the following cases:
    • if such acquisition is necessary to avoid immediate and serious damage threatening the company;
    • - if shares are to be offered in order to provide them to company employees or to employees of companies affiliated with the company;
    • - if shares are acquired with the aim of compensating the severance shareholders in accordance with the provisions of this Act;
    • - if the acquisition is made without consideration or if by the acquisition the financial institution purchases the shares on commission;
slide72
- on the grounds of universal legal succession;
  • - pursuant to the decision of the general meeting to redeem the shares, in accordance with the rules on the reduction of the share capital of the company.
  • - on the basis of the authority of the General Assembly to acquire shares which is worth 18 months at the most and determines the lowest and the highest price that may be paid for those shares and the amount of share capital referring tho those shares in such a manner that it may not exceed the tenth portion of the mentioned capital
relations between shareholders and the company
Relations between shareholders and the company
  • The rights of shareholders may be divided into:
    • economic rights
    • management rights
    • preferred rights
distribution of profits
Distribution of profits
  • basic economic right of shareholders is the right to participate in the distribution of profits
  • a dividend only in joint stock companies
        • paid from net profits
  • profits are shared in proportion to the par value of shares
  • a different method of distribution of profits may be prescribed by the Articles of association
increase in share capital
Increase in share capital:
  • a company may acquire funds necessary for investments and other purpose by taking an interest loan and obligation to return it or on the basis of systematic provisions of company law

– increase in capital

-by issuing new shares

the advantages of such an increase in capital are the following
The advantages of such an increase in capital are the following:
  • new shares or increase in their nominal value belong to shareholders on the basis of distribution in proportion to their share in the company,
  • new shares are valid as paid in full
  • special financial statements are required for such an increase
  • such increase in capital shall not affect the obligations of the company towards third persons and additional obligations of shareholders
share capital reduction
Share capital reduction
  • The reasons for capital reduction transactions are always of economic nature:
    • Capital surplus
    • Significant loss
slide78
Regular reduction of share capital -effective reducation
  • Simplified reduction of base capital -a form of nominal reducation
  • Withdrawal (depreciation) of shares -one of the special legal techniques of regular, effective capital reduction
legal and technical reduction may be carried out in the following manner
Legal and technical reduction may be carried out in the following manner:
  • by reducing the nominal share amount;
  • by consolidating the shares, which shall be allowed only if the minimum par value may not be lowered any further;
  • by withdrawal (depreciation) of shares
slide80
The Act requires that the decision specifies the purpose of such capital reductions, which may be the following:
  • to compensate for a decline in value,
  • to offset losses
  • or transfer assets to capital gains
dissolution of a company
Dissolution of a company
  • The Act regulates the reasons and procedures for the dissolution of a joint stock company. Other reasons for the dissolution of the company may be prescribed by the Articles of Association
  • The company is dissolved after the completion of liquidation proceedings regulated by the law
t here are different cases of dissolution
There are different cases of dissolution:
  • final decision of the court referred establishing that the entry of the company in the commercial register was illegal
  • final court decision denying the initiation of bankruptcy proceedings due to a lack of bankruptcy assets to cover the costs of bankruptcy
  • dissolution of the company as an exceptional case possible only when proposed by the Government of the Republic of Croatia, and when the court adopts a decision on the dissolution
  • company without assets may be dissolved by deletion from the commercial register
relations between members and the company
Relations between members and the company
  • The rule is that funds corresponding to the amount of share capital defined by the company agreement must be contributed to the company
slide85
The Companies Act regulates legal relations between the company and its members in two separate subsections:
      • CAPITAL CONTRIBUTIONS
      • BUSINESS SHARES
distribution of profits1
Distribution of profits
  • The main economic right of members is to request the payment of annual profit and of undistributed profit (minus losses) from the previous years for as long as the company exists
  • The basis for the distribution of profits, unless otherwise provided for in the company agreement, is the ratio between actual capital contributions of members
business shares
Business shares
  • Unless otherwise determined by the company agreement, the business share of a company member shall be determined in accordance with the amount of capital contribution that has been taken over
slide88
The Companies Act differentiates between the possibility of acquisition and pledge of company's own business shares for which the capital contribution has been fully paid and for which it hasn't:
slide89
1. The company shall not acquire or to take in pledge its own business shares for which the capital contribution amount has not been fully paid
slide90
2. The company may acquire its own business shares for which the capital contribution amounts have been fully paid, provided that the following conditions have been cumulatively fulfilled:

- the capital contribution amounts have been fully paid

- the price of the capital contribution is paid by the assets exceeding the share capital of the company

- provided the company is able to set up the reserves for acquiring its business shares, pursuant to law, without reducing the company’s share capital or reserves it is obliged to maintain pursuant to the company agreement, and which may not be used for payments to company members.

slide91
3. A member of a limited liability company may have a type of legal relation with the company that is separate from its membership.
increase in share capital1
Increase in share capital
  • There are two ways of increasing share capital:
    • EFFECTIVE AND
    • NOMINAL
share capital reduction1
Share capital reduction
  • when a company has too much capital and wishes to reduce it
  • when it has suffered losses which it could not recover within a reasonable period of time
  • when, instead of dealing with the nominal share capital which has been objectively reduced, the company decides to reduce the share capital to the actual value of the company's assets
the reduction of share capital may be effectuated by
The reduction of share capital may be effectuated by:

a) returning basic shares to company members;

b) through the reduction of par value of those shares;

c) through complete or partial exemption of company members or their legal predecessors from their commitment to full payment of their capital contributions

dissolution of the company
Dissolution of the company

Reasons for dissolution of the company:

  • the expiry of the time limit defined by the company agreement,
  • the decision of the company members
  • merger of the company into another company or consolidation with another company
  • a final court decision
  • completion of bankruptcy proceedings
  • register court decision adopted in relation to shortened
organisational structure of the company
Organisational structure of the company
  • according to the new legislation in this area, limited liability company is the only type of a company with three lawful management bodies:
      • the General Meeting
      • the Management Board
      • the Supervisory Board
management board
Management Board
  • the Management Board is the main body of the limited liability company independent of the General Meeting and the Supervisory Committee
slide99
the Management Board consists of one or more persons
  • the number of members is determined in the Articles of association, and if there is more than member of the Management Board, a Chairman must be appointed
  • the members of the Management Board and its Chairman are appointed by the Supervisory Board for a period of five years
slide100
The members of the Management Board realise the right to a remuneration for their work on the basis of a contract concluded with the company. The remuneration may be calculated in two ways:
  • in a fixed amount or
  • by participating in a certain extent of profits, that is, in a share determined in a different manner (bonus)
slide101
The members of the Management Board may be cleared of their liability if it is proved that:
  • they acted with the care of a prudent businessman,
  • on the basis of the General Meetings' decision
slide103
the main function of this body is to ensure expert and objective supervision over the overall effectiveness of the Management Board
  • the supervisory authority in the Croatian law are confidential
  • members of the supervisory board shall be elected by the general meeting of the company
slide104
Scope of work of the supervisory board and its responsibilities
  • Supervision work
  • Representation function
slide105
The composition of the supervisory board must reflect two of its basic functions:
  • a supervisor body for which majority shareholders are primarily interested
  • an expert body capable of effective supervision and influence on the successful business operations, growth of the company and increase in profits
slide106
Without the consent of the supervisory board, a member of the management board shall not:
  • either for his account or for the account of third persons, carry out activities from the object of activity of the company
  • act as a member of the management or supervisory boards in another company engaged in business similar to that of the company
  • use company premises to perform activities for his own or for another person's account
  • be a personally liable member of another company if the company carries out activities from the object of activity of the company in question
slide108
a company body in which shareholders realise their rights and in which the will of all shareholders is shaped and expressed
slide109
Decision-making and business operations:
  • conclusion and amendments of business contracts,
  • joining of a company,
  • merger of the company
  • transfer of assets
  • transformation of the company
general meeting shareholder democracy and decision making
General meeting: Shareholder democracy and decision making
  • in principle, every shareholder may participate at the general assembly and in the decision-making process, unless he is the holder of shares that exclude this right
  • shareholders must be informed about the business operations of the company as a precondition for voting and decision-making before the general assembly
slide111
The right to information is protected:
  • by the law in cases when the provision of information may be denied (taxes, information harmful for the company, business secrets, etc)
  • by court protection of the right to information
slide112
There are two possible majorities for the adoption of valid decisions:
  • simple majority
  • ¾ of represented shareholders – a qualified majority
  • a greater majority than a ¾ majority
best practices in public companies
Best practices in public companies
  • basic rules concerning the management, supervision and competence over companies are contained in different regulations, for the most part in the Companies Actand in other acts and regulations regulating the capital market.
slide114
for the purpose of development of best practice in corporate management in the republic of Croatia, the Croatian Agency for the Supervision of Financial Services and the Zagreb Stock Exchange have prepared a Code of Corporative Management
the basic principles of the code are
The basic principles of the Code are:
  • transparency of business operations
  • clearly defined procedures in the work of the Supervisory Board, Management Board and other bodies and structures responsible for taking important decisions
  • avoidance of the conflict of interest
  • efficient internal control
  • efficient division of responsibilities