What is the main source of law authorising this entity form?

The Company Act (Official Gazette Nos. 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013, 110/2015, and 40/2019)

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The d.d. has separate legal personality.

(Maximum) period of existence

There is no maximum period of existence; the d.d. can be incorporated for an indefinite or definite period.

Governing document(s)

The d.d. is governed by its Memorandum of Association (contained in the notarial deed of incorporation, or subsequent notarial deed of amendment).

Liability of incorporators / shareholders

Incorporators/shareholders are not personally liable for the debts of the company, save in exceptional circumstances (e.g. in the instance of a corporate veil piercing event). Otherwise, the company is solely responsible for its debts by all of its assets.

(Governing) bodies

The (governing) bodies are:

• in a two-tier structure: (i) shareholders’ assembly (“glavna skupština”); (ii) at least one director (manager) – all directors are members of the management board (“uprava društva”); (iii) and supervisory board (“nadzorni odbor”); or
• in a one-tier structure: (i) shareholders’ assembly (“glavna skupština”); and (ii) board of directors (“upravni odbor”).

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes

Can this type of entity be publicly listed or held?

Yes, the d.d. can be organized as public and non-public. Shares of a public d.d. can be listed at stock exchange.

Can this type of entity be used for a non-profit or charitable organization?

No

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Main documents required for incorporation are:

• Memorandum of Association and documents on the basis of which the Memorandum is adopted and documents on the basis of which the shareholders acquired their shares;
• in case a special status is provided by the incorporation or if assets are invested, contracts which prove this;
• evidence on payment of shares, or the transfer of rights and assets;
• calculation of incorporation costs;
• decisions on appointment of management and supervisory board;
• decision on determining a list of business activities that entails the determined subject of company’s business;
• reports on incorporation and on audit of incorporation;
• approval of public or any other body, if required.

Involvement of notary, company register, governmental authorities

Certain documents must be executed before notary public. The d.d. must be registered with the companies’ registry of the competent Commercial Court.

Timing (estimate)

Although the practice of incorporation is not completely coherent, the required time for incorporation in most cases is up to 30 days from the date of submitting the appropriate documentation.

Main costs, including registration and similar fees (excluding legal fees)

The main costs involve administrative taxes (approx. EUR 50) and notary public cost (depending on the amount of share capital and number of signatories; for minimal share capital companies with one director the cost is around EUR 1,000).

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Yes, companies are allowed only to engage in registered activities specified in the Memorandum of Association.

Minimum number of incorporators / shareholders and residency requirements

The minimum number of shareholders is one. There is no residency requirement for shareholders.

Minimum number of directors (or other applicable officers) and residency requirements

The minimum number of directors is one. There is no residency requirements for directors for legal purposes (residency is relevant only for tax purposes).

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The minimal required capital is HRK 200,000 (approx. EUR 26,700).

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Execution of the notarial deed of incorporation may be carried out by virtue of a power of attorney.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The court provides the Croatian personal identification number (OIB) to the company upon its registration. However, obtaining a tax identification number is required for foreign incorporators / directors.

What is the title of the applicable company registry?

Each Commercial Court in Croatia holds its own companies’ registry (“sudski registar”).

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

The information listed below must be filed with the companies’ registry and is publicly available:

• company name;
• registered seat of the company;
• company’s activities;
• share capital amount;
• date when the Memorandum of Association is adopted;
• names and surnames of the Management Board members, president and members of the Supervisory Board, or of the executive directors and members of the Board of Directors, and their Croatian tax identification numbers and addresses;
• duration of the company;
• representation authorities of the Management Board members;
• personal data of the shareholder, if there is only one;
• other information stipulated by special laws.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The management board (“uprava društva”) – members are all directors of the company. The management board represents the company and manages the company’s activities at its own risk. The management board prepares and implements decisions of the shareholders’ assembly.

How are the members of the executive body appointed, dismissed and replaced?

The management board is appointed by the supervisory board for the maximum period of 5 years. The supervisory board can revoke its decision on appointment when there is an important reason. Note: any changes must be registered with the Commercial Court’s companies’ registry.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes, but corporate directors are appointed only for the purpose of internal organisation of the company and are not registered in the companies’ registry.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Executive and non-executive directors are only required in a one-tier structure with the board of directors and the shareholders’ assembly. The executive directors can, but are not required to be members of the board of directors and they manage the company’s business. The non-executive directors are always members of the board of directors and they supervise the management of company’s business.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

Shareholders’ assembly (“glavna skupština”). Its main tasks are provided by the law and the Memorandum of Association. The main tasks regard the annual financial statements, use of profit, the appointment of the supervisory board members, amendments of the Memorandum of Association, increase and decrease of the share capital, termination of the company etc.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Quorum can be defined by the Memorandum of Association. The decisions are taken by the majority of provided votes, unless higher majority or fulfilment of additional assumptions is required by the law or the Memorandum.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Generally, there are no special governance regimes. In the listed d.d. one member of the supervisory board must be an expert in accounting field or in audits of financial reports.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The financial statements have to be submitted once per year, usually by 30 April at latest (currently the deadlines are extended due to COVID-19). The financial statements have to be submitted to Croatian Financial Agency („FINA“) and competent tax authority.

Is the entity permitted to determine its own financial year?

Yes, in that case the entity needs to obtain a permission from tax authority.

Is the entity subject to any statutory (external) auditor obligations?

Yes, if the company is considered as large or medium-sized entrepreneur or if any two of the following conditions are met:

• the amount of total assets is HRK 15 million (approx. EUR 2 million);
• the amount of income is HRK 30 million (approx. EUR 4 million);
• the average number of employees during the business year is at least 25.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares (“dionice”).

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Yes, there are two types of shares: (i) ordinary shares (“redovne dionice”) and (ii) preferential shares (“povlaštene dionice”). Ordinary shares grant the right to vote in the shareholders’ assembly, the right on payment of dividend and payment out of the bankruptcy assets. Preferential shares grant the special rights, such as right to dividend in a monetary amount set in advance.

What documentation is required for the transfer of ownership interests?

For any transfer of shares a notarial deed of transfer must be executed and the request has to be submitted to the Central depository and clearing company.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The Memorandum of Association may contain transfer restrictions (e.g. approvals and/or pre-emptive rights) that must be complied with.

Are there any applicable stamp duties imposed when transferring ownership interests?

No

How are shares issued? (including information on payment obligations, registration requirements)

The minimum nominal amount of share is HRK 10 (approx. EUR 1.3). Prior to the registration of the company, at least ¼ of share value must be paid. If the share is issued for the amount higher than the lowest amount for which such share can be issued, the shareholder

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Shares can be paid using assets or rights. Such non-cash payment of shares must be stated in the Memorandum. Prior to the registration of the company, such shares must be paid in fully. Shareholder may make additional payments to the company. Such payments do not lead to increase of company’s share capital and will be considered as unsubscribed capital of the company (i.e. the company’s capital reserves).

Any requirements with respect to share cancellation, share repurchase and other capital reductions

The company can cancel the shares when it is mandatory (i.e., if it was ordered or allowed by the first Memorandum of the company or by its amendments prior to the acquisition or registration of shares) or after the company acquires its own shares. The share must be repurchased upon the request of each shareholder who voted against decision on transformation of the d.d. into the d.o.o. (Limited Liability Company), if the request is made in due term of 2 months upon the day the change is registered in the companies’ registry.

Any requirements with respect to distributions to shareholders?

Shareholders have the right on distributions once the company’s losses from previous years are covered and the mandatory reserves, statutory reserves and reserves for own shares are being paid in. The shareholders’ assembly can decide to use the distributions for other purposes, or not to distribute them to the shareholders. Share capital can be regularly reduced only upon the decision of shareholders representing at least ¾ votes of share capital present at the shareholders’ assembly when rendering decision.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes, the shareholders may conclude a separate agreement which regulates the relationship between the shareholders, and is effective amongst the shareholders. However, the Shareholders Agreement is not a document necessary for incorporation.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Once the d.d. is incorporated, certain fees would apply in order to run business in Croatia. Those are:

• Business bank’s fee for administering new company’s account: depends on internal policies of banks in Croatia and number of transactions (usually up to approx. EUR 100 annually);
• Accountant’s fee for keeping the new company’s books: depends on stipulated terms with accountants (lower tier accountants usually charge their services up to approx. EUR 1,800 annually);
• Croatian chamber of commerce membership fee: up to approx. EUR 100 annually.

Besides the above-mentioned fees, there are also fees that are not possible to determine at this point but may occur once the company is incorporated (such as lease fee for the business premises and utility costs).

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The rate of the profit tax is 10% if the income is same or less than HRK 7.5 million (approx. EUR 1 million) and 18% if the income is higher than HRK 7.5 million.

Summary of any specific matters, e.g. recent or prospective major legal developments

No major legal developments are expected for 2021.