Starting a business is fraught with numerous business decisions that need to be made, one of which is the basic and very important choice of the appropriate legal form for establishing a company in Serbia. This decision is additionally significant if it concerns foreign investors who come to Serbia and who need to know the legal system of the Republic of Serbia in order to be able to make the most adequate decision for their business and the achievement of their business goals. On the other hand, the registration of the appropriate legal form in which you conduct your business is not only your right, but also an obligation, considering that conducting economic activity without registering a company is a criminal offense for which a prison sentence can be imposed. In view of the above, in this article we point out the different possibilities that you have at your disposal, depending on your needs, and how the company you register would suit your needs and the needs of your business.
The importance of choosing the appropriate legal structure
When you decide to embark on a business venture, one of the first questions that arise is how to do it and what do I need. In order to perform economic activity, it is necessary to do so in a certain form, that is, in the form of a business entity. The basic regulation that regulates business operations is the Companies act , which stipulates that you can do business in Serbia in one of the following ways:
Individual Entrepreneur
Individual entrepreneur – better known as an entrepreneurial shop, agency, studio, etc. represents the simplest form of business. An essential entrepreneur is a natural person who is registered for the performance of economic activity. Considering that, this business system is suitable for beginners or for those who are engaged in simpler activities in which the business risk is lower (cafes, restaurants, hairdressers, beauty salons, etc.). Also, this form of business is recommended for individual foreigners who come to Serbia to secure a temporary stay and continue their business, as the simplest option until they become familiar with the business environment and expand their business.
What is the basic characteristic of doing business through the form of an entrepreneur is that the natural person or the founder is fully responsible with all of his assets for the obligations he takes on by doing business as an entrepreneur, which is why this activity is not recommended for high-risk jobs, i.e. jobs where already elaborated and have reached a certain level of business development.
On the other hand, for this risk, the entrepreneur is rewarded on the one hand, considering that, in the case of keeping books, the profit tax is 10%, unlike the profit tax of a legal entity, which is 15%.
General partnership
General partnership – is a partnership of two or more partners who are jointly and severally liable for the obligations of the partnership with their entire assets. Therefore, unlike an entrepreneur, a partnership implies the existence of two or more persons, that is, partners, each of whom has the authority to regularly manage the company and make decisions. Therefore, we can freely say that each of the partners is a “director” of the partnership. Additionally, as a founding contribution, partners, unlike the founders of a limited liability company, can also invest their work as non-monetary capital. What is a prerequisite for the existence of a partnership is extraordinary relations between the partners and agreement regarding the way of doing business, because otherwise the partnership will be blocked in its work due to the impossibility of making decisions.
Limited partnership
Limited partnership – is a company that has at least two members, of which at least one is liable for the obligations of the company in unlimited joint and several liability (general partner), and at least one is liable limited to the amount of his unpaid, i.e. non-entered stake (limited partner). The specificity of this business model, which rarely occurs in practice, is that the general manager essentially has the role of investor and control over the company’s operations, while the general partner is someone who takes risks, makes business decisions and develops the company’s operations.
Limited liability company
A limited liability company – is a company in which one or more members of the company have shares in the basic capital of the company, with the fact that the members of the company are not responsible for the obligations of the company except in exceptional cases. In addition to entrepreneurs, this is also the most popular form of company business, and its biggest benefit is precisely the exclusion of any liability of the members or founders for the company’s business. Therefore, this legal form allows people to more easily enter into business ventures where there is an increased business risk, considering that even in case of bankruptcy of the company, the personal property of the founder remains protected.
joint stock company
Joint-stock company – is a company whose basic capital is divided into shares owned by one or more shareholders who are not responsible for the company’s obligations. A similar business model as a limited liability company in that in this case the founders acquire shares instead of shares, which can be of different types or classes. Shares can also be quoted on the stock exchange, so in this regard we distinguish between closed and open joint stock companies. It is precisely this possibility of listing shares on the stock exchange that leads to the fact that with joint-stock companies, there is a primacy that the business is fully compliant with domestic regulations, and on the other hand, it gives the possibility of collecting financing on the capital market.
In addition to these business models, it is important for foreign investors that they can also establish branches of foreign legal entities or representative offices.
Branch of foreign Company
A branch is a separate organizational part of a company on the territory of the Republic of Serbia, through which the company carries out its activities in accordance with the law.
Given that it represents only a separate organizational part of its founder, the branch does not have the status of a legal entity, and in legal transactions it acts in the name and on behalf of the founder, who is unlimitedly liable for obligations to third parties that arise in the business of his branch.
Representative office of a foreign Company
The representative office of a foreign company is its separate organizational part that can perform preliminary and preparatory actions in order to conclude the legal business of that company. Therefore, it, like the branch, does not have the status of a legal entity, but it also has limited business capacity. Namely, the representative office can only conclude legal affairs in connection with its current business, but not perform activities on behalf of the founder.
Benefits and differences between a limited liability company and a representative office
As the most common way of doing business in Serbia is in the form of an entrepreneur or limited liability company, the so-called companies, here we point out some of the most important differences that you should keep in mind when making a decision in which legal form you will do business.
Therefore, the basic characteristics of an entrepreneur are:
- Simplicity of business and establishment
- A flat-rate model of taxation is available for certain activities
- Responsibility for the operation of the entire property
- The possibility of pausing in the performance of activities
- Lower tax burden
- Smaller threatened amounts of prescribed fines for misdemeanors and economic crimes compared to companies
- Suitable for less risky activities
- The impossibility of co-founders
On the other hand, what is specific for doing business through a company or limited liability company:
- Absence of responsibility for the company’s operations
- The possibility of having multiple founders
- Greater creditworthiness with banks
- The possibility of transferring shares and selling the company
- The possibility of establishing an employee reward system through the allocation of shares in the company (ESOP)
- Higher tax burden
- More legal obligations regarding the adoption and compliance of certain regulations and other legal acts
- More rigorous penalties in the case of misdemeanors and economic offenses
Therefore, bearing in mind the above-mentioned characteristics, it is necessary that, bearing in mind the above-mentioned basic characteristics of the above-mentioned two forms, you should think about which form best suits your needs, while we recommend that you make the final decision in cooperation with your lawyer, considering that there are some activities that can only be carried out in a certain legal form.
Steps to successful company registration
Since you have made the decision in which legal form you want to start your business, you need to prepare all the necessary documentation.
In the case of a company or limited liability company, you need to prepare:
Memorandum of association
The foundation act is the basic act by which you lay the foundations of the way you will function. The founding act itself defines the amount and type of share capital, payment deadlines, share percentages, powers and limitations in the work of directors, powers of the assembly and regulates many other issues that are important for the functioning and protection of your business. What the law stipulates as mandatory content:
1) data on company members;
2) business name and headquarters of the company;
3) the predominant activity of the company;
4) the total amount of the basic capital of the company;
5) the amount of the monetary contribution, that is, the monetary value and description of the non-monetary contribution of each member of the company;
6) the time of payment, that is, of the entry of contributions into the basic capital of the company;
7) the share of each member of the company in the total share capital expressed as a percentage;
8) determination of the company’s bodies and their competences.
Decision on the appointment of directors
Although the director can be appointed by the founding act itself, our recommendation is to do so in a separate decision made by the company’s assembly. With the decision, you determine how many directors you will appoint, the way in which they will represent the company (independently or jointly), the duration of the mandate, the organization of the representation as well as other necessary details related to its work.
Identification documents of the founder
Regarding the identification documents that need to be attached, for a domestic natural person it is a scanned ID card and for a foreigner, a copy of the passport. On the other hand, for a legal entity, it is an extract from the competent commercial register. In the case of a foreign legal entity, depending on the country of origin, it will be necessary for the extract in question to be legalized and translated into Serbian by an authorized translator.
The data that needs to be registered are:
1) for a domestic natural person – personal name, gender and unique citizen ID number;
2) for a foreigner – personal name, gender, passport number and country of issue, ie registration number for a foreigner, ie number of the foreigner’s identity card and country of issue;
3) for a domestic legal entity – business name, seat address and registration number;
4) for a foreign legal entity – business name, registered office address, number under which that legal entity is registered in the registry and the country in which that entity is registered.
Certificates of payment of fees
It is also necessary to pay the fee and submit a confirmation of the payment made. The certificate in question does not have to contain the bank’s seal or the signature of an authorized person. Fee amounts change frequently, so you should check the amounts on the following link.
Also, for certain activities, you need to submit additional documentation, such as certificates from competent authorities on the fulfillment of the conditions for performing the activity in question (banks, pharmacies, insurance companies, etc.), so this is one of the reasons that you should carry out the registration procedure in cooperation with a lawyer.
Competent authority for company registration
Serbian Business Registration Agency is responsible for the registration and implementation of all changes in business entities. Only the procedure is carried out in accordance with the Law on the Registration Procedure Before the Serbian Business Registration Agency and exclusively electronically in the case of establishing a company. Therefore, you need to have a qualified electronic certificate issued in Serbia in order to complete the registration process.
If you do not have an electronic certificate, registration can only be done by your lawyer as the only authorized person for representation in the establishment procedure and the implementation of other applications before the competent registry .
The procedure itself, starting from the submission of the application to the receipt of the founding decision, takes up to 5 working days, and you receive the decision in electronic form, while an additional fee is paid for issuing the decision in written form. With the adoption of the founding decision, it is considered that you can start doing business and the deadlines for submitting appropriate VAT returns, registration of the ultimate owners and preparation of other necessary documents necessary for doing business begin to run. That is why, before starting the process of choosing the appropriate legal form for business and initiating the registration procedure, it is necessary that, in addition to a lawyer, you also have your chosen accountant who will be ready to complete all the necessary tax returns in a timely manner immediately after the establishment, so that you do not pay due to missed deadlines misdemeanor penalties.
Registration of business with other competent authorities
Once the company has been registered with the competent authority, it is necessary to take additional steps in order to complete the entire procedure.
Namely, first of all it is necessary to initiate the procedure for opening an account in a business bank. The account opening process itself is initiated by the director of the company, i.e. the authorized attorney. The opening procedure can last from 5 to even 15 working days, depending on the activity you are engaged in, and whether it is a foreign or domestic legal entity, as well as the complexity of your corporate structure.
It is also necessary, in accordance with the Law on Archive material, to report the beginning of activity and submit general documents and an archive book for confirmation.
Also within 15 days, it is required in accordance with the Law on Central Registration of Beneficial Owners Register the real owners as well as submit the necessary tax returns, especially if you are in the VAT system.
Penalties in case of unauthorized activity
As we stated at the beginning, company registration is not only a right but also an obligation of all those who want to do business. In this regard, it is prescribed that the illegal performance of commercial activity is a criminal offense for which a prison sentence can be imposed, while a large number of economic offenses and misdemeanors are prescribed for non-compliance with the regulations of the Law on Business Companies.
Therefore, before starting business, we advise you to consult with your lawyer as well as an accountant in order to operate in accordance with legal regulations from the beginning and avoid a large number of fines that can go up to 3,000,000.00 dinars.
If you need advice and help during the establishment of the company and during the actual business, you can contact us through our contact form.
This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.
