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.o.o. has legal personality.

(Maximum) period of existence

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

Governing document(s)

The d.o.o. is governed by its Articles 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 the general assembly (“skupština”), at least one director (manager) – all directors are members of management board (“uprava”), and supervisory board (if applicable)(“nadzorni 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?

No.

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

Generally, no, given its nature as a commercial entity, with the ability to make profit distributions, and being subject to corporate income tax.

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

Main documents required

Main documents required for incorporation:

• Articles of Association;
• list of shareholders;
• confirmation on payment of shares;
• if a special status is provided by incorporation or if the rights and assets are invested, reports on incorporation and on audit of incorporation;
• decisions on appointment of management and supervisory board (if applicable);
• list of persons authorised to manage the company’s business along with their personal data;
• if there is a supervisory board, list of its president and members along with their personal data;
• public body’s approval, if required;
• decision on determining the subject of the company's business and a list of business activities that entails the determined subject of company’s business

Involvement of notary, company register, governmental authorities

Certain documents must be executed before a notary public. The d.o.o. 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 20 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 330).

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 decision on determining company’s business activities.

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 20,000 (approx. EUR 2,700). At least HRK 5,000 (approx. EUR 700) or a quarter, whatever is more, needs to be paid up paid prior to the registration. Opening of a bank account is required as the post-registration activity.

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

No, physical presence of incorporators / directors is not required for incorporation as it 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. Once the company is established and registered in the companies’ registry, it further needs to be registered before the Tax Authority as a general tax payer and as a Croatian VAT payer, if applicable. 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 Articles of Association is adopted;
• names and surnames of the Management Board members, president and members of the Supervisory Board (if applicable), and their Croatian tax identification numbers and addresses;
• duration of the company;
• representation authorities of the Management Board members;
• personal data of the shareholder(s);
• other information prescribed 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 in accordance with the Articles of Association, decisions of the shareholders and mandatory instructions of the general assembly and the supervisory board, (if there is one).

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

The management board is appointed by the shareholders’ decision, if it is not prescribed by the Articles of Association that it is appointed by someone else in the company. The Articles of Association can stipulate that the management board will be appointed by the public authority. In principle, the dismissal occurs in the same way as the appointment. A member who is also a shareholder can be dismissed, if there is an important reason, by the court’s decision. If the members are appointed by the Articles of Association, it can be stipulated by the Articles of Association that they can be dismissed only if 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?

In the d.o.o. there is no difference between the executive and non-executive directors under Croatian law.

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

General assembly (“skupština društva”). Its main tasks are provided by the law and the Articles of Association. The main tasks regard the annual financial statements, use of profit, the appointment of the management board and the supervisory board members, amendments of the Articles of Association, share issues etc.

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

In case it is not otherwise stipulated by the Articles of Association, the assembly can take decisions if the shareholders (or their representatives) who hold at least 1/10 of the share capital are present. The decisions are made by the majority of provided votes, if not otherwise prescribed by law or the Articles of Association.

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

Supervisory boards are mandatory in the d.o.o. only in large companies (whose average number of employees in a year exceeds 200; or where the share capital exceeds HRK 600,000.00 (approx. EUR 80,000.00) and a company has more than 50 shareholders; or in case where the company is holding other companies with mandatory supervisory board or directly holds more than 50% of shares in their share capital, and in both cases average number of employees in such companies is more than 200; or the company is general partner in limited partnership where average number of employees in both companies is more than 200), or if it is specially required by law for a company engaged in a particular business activity.

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 (“poslovni udjeli”).

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

No.

What documentation is required for the transfer of ownership interests?

For any transfer of shares a notarial deed of transfer needs to be executed and the competent commercial register should be notified.

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

The Articles 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 200 (approx. EUR 25) and all shareholders are registered in book of shares. Prior to the registration of the company, at least ¼ of share value must be paid, and the total amount of paid shares must be at least HRK 5,000 (approx. EUR 700).

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. Prior to the registration of the company, such shares must be paid in full. Shareholder may, in addition to the obligation to pay its share in the share capital, undertake to make additional payments in cash to the company or fulfil other activities that have monetary value for the company, in order to increase the company’s funds needed to conduct its business activities. Such payments or actions do not lead to increase of company’s share capital and will be considered as unsubscribed capital of the company, for accounting purposes (i.e. the company’s capital reserves).

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

The share cancellation is possible only if prescribed by the Articles of Association. No shareholder’s approval is required when the prerequisites for such cancellation were defined by the Articles before the shareholder acquired the share. In any case, the shareholder does not have the right on repayment of the share.

The share must be repurchased upon the request of each shareholder who voted against decision on transformation of the d.o.o. into a d.d. (Joint Stock Corporation), if the request is made in due term of 2 months upon the change is registered in the companies’ registry. Share capital can be regularly reduced only upon the shareholders’ decision on amending the Articles of Association and after the procedure prescribed by law is executed.

 

Any requirements with respect to distributions to shareholders?

The shareholders have the right to require the payment of the annual and retained profit from previous years when the losses from previous years are covered, and in the amount which is not excluded by law, the Articles of Association or the shareholders’ decision on the use of profit.

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.o.o. 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.