At the end of October 2023, the Croatian Parliament adopted the latest amendments to the Companies Act, which entered into force on 10 November 2023, except for certain provisions which entered into force on 1 January 2024. These amendments introduced the following key updates:
- Individuals with unsettled debts cannot incorporate a company or be appointed to positions in a company
The new provisions which entered into force on 1 January 2024, pertain to legal and natural persons (i) with unsettled debts based on public contributions, or (ii) are listed in the registry of taxpayers i.e. employers who fail to pay salaries, or (iii) in the period of one year preceding the application for the incorporation of a company, were a shareholder of a company which was part of the ownership structure of a company deleted in bankruptcy proceeding with unsettled debt based on public or tax contributions.
- New proceeding for granting general commercial power of attorney
With the amendments, it is explicitly prescribed that if the general commercial power of attorney (procura) is granted by the founding act, there will be no need to amend such act when changing procura.
- Updates regarding joint-stock companies
If a shareholder has been imposed with international measures which restrict disposition with a property or legal consequences of a final conviction for criminal offenses such as financing terrorism and/or money laundering persist in respect of him, he is obliged without delay to inform the company about these circumstances, and, on the company’s request, to make a statement as to whether any of these circumstances exist in respect of him. During measures and legal consequences of conviction, the rights of that shareholder from the shares are suspended by virtue of law, regardless of whether the company knows about the existence of these circumstances. In the case of existing of mentioned circumstances, natural person will cease to be a member of the management or supervisory board by virtue of law. This person is obliged to report the existing of such circumstances to the court register, and the consequence is the deletion of such person from the court register.
A new form of security for payment of fair compensation to minority shareholders has been introduced – a confirmation from the central depository with seat in Croatia, confirming that the main shareholder deposited necessary funds, increased by a quarterly amount of interest, for payment of fair compensation to the central depository account.
Regarding the updates in determining of the executive remuneration policies, the general assembly can now, upon the request of minority shareholders, decide to reduce the maximum amount of remuneration for a company whose stocks are listed on a regulated market for trading. If a company whose stocks are listed on a regulated market for trading decides to issue a part of remuneration in the form of stocks, it will be necessary to specify the deadlines and conditions for holding the stocks after acquisition. Additionally, clarification on how this part of remuneration contributes to the business strategy and the long-term development of the company should be provided.
The amendments also include a new definition of transactions with related parties. Instead of the previous requirement for the approval of the supervisory board of the company whose stocks are listed on a regulated market for trading for transactions with related parties, now such prior approval can also be granted by a commission appointed by the supervisory board. In accordance with this, the obligation of such companies to promptly disclose transactions with related parties for which the aforementioned prior approval is required has been further regulated, and for the purposes of business transparency, the notification (disclosure) on the company’s website should be available for at least five years.
In merger and acquisition audits, among other things, it is necessary to specify the method by which the cash compensation was determined. Regarding the implementation of acquisitions, it is now explicitly stipulated that the acquiring company does not have to increase its share capital if the same person holds all stocks of all companies involved in the acquisition, or if the same persons hold stocks in the same proportion in all companies involved in the acquisition, unless it would be contrary to the rules on the prohibition of returning shares and on the prohibition of exemption from the obligation to invest shares pursuant to Articles 216 and 217 of the Companies Act.
Amendments also ensure the implementation of the Commission Implementing Regulation (EU) 2018/1212 dated 3 September 2018 laying down minimum requirements for the implementation of the provisions of the Directive 2007/36/EZ of the European Parliament and of the Council regarding the identification of shareholders, transmission of information, and facilitation of the exercise of shareholder’s rights.
- New grounds for nullity and voidability of decisions of the supervisory board
Decisions are considered null if their content is contrary to the Constitution of the Republic of Croatia, mandatory regulations, societal moral or mandatory provisions of the statute. They are also null if gross procedural violation occurred during their adoption and/or if a decisive vote was given under duress when making the decision. Decisions are void if, during their adoption, a minor procedural violation occurred which the supervisory board can rectify or which can be resolved over time. They are also void if, despite the demonstrated diligence of a supervisory board member, the violation significantly influenced the decision-making, or if a decisive vote for the decision was given due to justified fear caused by an impermissible threat, substantial error, misunderstanding about the legal nature of the decision or one of its essential elements, or fraud.
- Joint and Several Liability in case of the division of the commercial companies
The provision of Article 550o of the Companies Act now reads as it originally did, so companies participating in the division are limited joint and several liable for all obligations of the company being divided, up to the value of the assets transferred to each of them as per the division plan, reduced by the obligations assigned to each company in accordance with the division plan.
- Updates for limited liability companies
A term of share interest is introduced, so now a limited liability company (LLC) is a commercial company into which one or more legal or natural persons pay share interests in a predetermined share capital.
An important amendment also relates to the obligation to convert the share capital to euro. Specifically, no conversion proceeding is required for the transfer of share interests.
Furthermore, the articles of association must now contain a personal identification number (PIN) of the founder(s). Also, to remove uncertainty, it is now explicitly prescribed that founders are not obliged to provide a statement of non-conviction.
Similarly to a joint-stock company, measures which restrict disposition with a property and final conviction for criminal offenses affect membership in the management or supervisory board.
- Cross-border mergers, acquisitions, divisions and transformations
The amendments introduced solutions from the Directive EU 2019/2121 of the European Parliament and of the Council dated 27 November 2019 amending the Directive (EU) 2017/1132 regarding cross–border transformations, mergers, acquisitions and divisions, with the aim of retaining the legal personality of a company by registration in the court register after the cross-border proceeding.
As a result of these amendments to the Companies Act, amendments to the Court Register Act have been introduced. As individuals with unsettled debts cannot incorporate a company, there is no obligation for them to submit a statement of the absence of unsettled debts when incorporating a company. Rather, the statement is replaced by a no-debt-confirmation, which will be exchanged by official duty between the court register and the Ministry of Finance (Tax Administration).
Margareta Piskač
