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

The Company Law.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Yes, an AD has legal personality.

(Maximum) period of existence

There is no limit to the period of existence.

Governing document(s)

Governing documents are Articles of Association and Founding agreement/Decision of foundation.

Liability of incorporators / shareholders

Shareholders are not responsible for their company's obligations.

(Governing) bodies

Depending on the form of AD, mandatory bodies are either:

• the Assembly, the Board of Directors and the executive director
• the Assembly, the Supervisory Board and the Management Board

In any case, AD can have a secretary, and is obliged to have an independent auditor.

Other particularities

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

Yes, according to Montenegrin law, international restructurings, mergers, and asset acquisitions etc. are possible.

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

Yes.

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

No, because there are other forms of organizations whose purpose can be non-profitable or charitable work . Profit making is fundamental for this form of entity.

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

Main documents required

A company is deemed incorporated and legally permitted to commence its business upon registration in the Central Registry of Commercial Entities (CRCE). Upon registration, the CRCE issues an incorporation certificate.

Involvement of notary, company register, governmental authorities

Documents required in the incorporation procedure:

• Founding agreement or Decision on foundation (must be notarised)
• Articles of Association;
• Decisions on the appointment of the board of directors and executive director of the joint-stock company, that is, the supervisory and management board of the joint-stock company. Furthermore, decision on appointment of the secretary and the independent auditor;
• The previous name of the members of the board of directors, i.e. the supervisory and management board, in case there was a name change, the date and place of their birth, their unique ID number, and place of residence;
• Declarations of citizenship of the members of the board of directors, that is, the supervisory and management boards;
• Data on the occupations of members of the board of directors, that is, the supervisory and management boards, as well as data on membership in other boards, the positions they hold, as well as the place of registration of those companies, if they are not registered in Montenegro;
• Signed statements on the acceptance of the appointment of members of the board of directors and executive director of the joint-stock company, that is, members of the supervisory and management board of the joint-stock company, auditors and the secretary of the company, if there is one in the company;
• the decision of the Commission for the Capital Market confirming the success of the public issue procedure for the successive establishment of joint-stock companies, that is, the decision of the Commission for the Capital Market on the registration of the founding issue of shares, for a company that is simultaneously established;
• data on persons authorized to represent the company with the scope of authorization for representation (individual or collective);
• proof of payment of the registration fee.

Timing (estimate)

If all the required documentation is appropriately submitted, the CRCE is obliged to deliver the registration resolution of the joint stock company within eight (8) business days from the moment of the issuance of the resolution. In most cases, the CRCE issues the decision within two weeks as of submission of the documentation. Additional post-registration procedures including the opening of a bank account, which can be completed within an additional 10 to 13 days, depending on the KYC procedures at the chosen bank. Therefore, the time period necessary for a company to become fully operational is not more than four (4) weeks, from the submission of all documentation to the CRCE.

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

The costs involve:

• Administrative fees (approx. EUR 120); and
• Costs of certified translation, if any (EUR 15 per translator's page).

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

Minimum number of incorporators / shareholders and residency requirements

There must be at least one (1) incorporator, and there are no residency requirements.

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

The Board of Directors must have at least three (3) members.

The Supervisory board must have at least three (3) members.

The Management board must have at least three (3) members.

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

There is a minimum issued share capital of EUR 25,000.00 and every AD is required to open a bank account immediately upon incorporation.

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

No, the whole incorporation process can be done through an authorised representative, so the physical presence of the incorporators is not required. However, the banks insist on physical presence of executive director when opening a bank account.

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

Yes, a tax identification number is required. It is assigned by CRCE, during the registration process.

What is the title of the applicable company registry?

Central Registry of Commercial Entities (Centralni registar privrednih subjekata – CRCE).

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

The founding agreement or decision on foundation (if there is a sole shareholder);

The Articles of Association;

A list of the names of the members of the Board of Directors of the joint stock company – i.e. the supervisory and management board of the joint stock company and the decision on their appointment;

The previous and current names of the members of the Board of Directors – i.e. the supervisory and management board, in the event of a change of name, date and place of their birth, their unique identification number, permanent or temporary residence;

Statements on citizenship of the members of the Board of Directors – i.e. the supervisory and management board;

Data on occupations of members of the Board of Directors – i.e. supervisory and management board, as well as data on membership in other boards, functions in which they are located, as well as the place of registration of these companies, if they are not registered in Montenegro;

Name and address of the auditor, name and address of the executive director and secretary of the company, if any in the company and decisions on the appointment of these persons;

Name and address of the members of the audit board, if formed in the company in accordance with the regulations in the field of audit, as well as decisions on their appointment;

Signed statements of acceptance of the appointment of members of the Board of Directors and executive director of the joint stock company, or members of the supervisory and management board of the joint stock company, auditor, and secretary of the company, if any;

Decision of the Capital Market Commission confirming the success of the public issue procedure in the establishment of the joint stock company, i.e., decision of the Capital Market Commission on recording the founding issue of shares, for a company being established simultaneously;

E-mail address;

Address for receiving mail, if any;

Data on persons authorised to represent the company with the scope of authorization for representation (individually or collectively); and

Proof of payment of the registration fee.

Registration documents contain information regarding whether persons authorised to represent a company can act collectively or as individuals.

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

Executive directors –

conduct the operations of the company; and they are legal representatives of the company

Management board –

• manages the affairs of the company;
• determines the internal organization of the company, with the consent of the supervisory board;
• supervises the management of the company's business books and the preparation of the company's financial reports;
• proposes the agenda for the sessions of the company's assembly to the supervisory board;
• calculates the amount, that is, the amount of dividends, determines the day, procedure and method of their payment, in accordance with the decisions of the company's assembly;
• executes the decisions of the assembly and the decisions of the supervisory board;
• submits quarterly reports on the company's current operations to the supervisory board;
• performs other tasks and makes decisions in accordance with this law, the statute, the decisions of the assembly and the supervisory board.

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

An executive director is appointed, dismissed or replaced by the Board of Directors. Members of the Board of Directors are appointed and dismissed by the Assembly.

Members of the Managing board are appointed and dismissed by the Supervisory board. They may be dismissed by the Assembly as well.

Members of the Supervisory board are appointed and dismissed by the Assembly.

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

No, all directors must be natural persons.

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?

Members of the Board of Directors can be only non-executive directors. They are appointed, dismissed, and replaced by the Shareholders' Assembly. They are in a separate body (two-tier structure).

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

Assembly is the title of the owners' body, and its main tasks and responsibilities are the following –

• make amendments to the Articles of Association;
• appoint and dismiss members of the Board of Directors, auditor, and liquidator;
• decide on the remuneration policy and compensation of members of the Board of Directors;
• adopt the annual financial statements and report on the company's operations;
• decide on the disposal of the assets of the company (purchase, sale, lease, replacement, acquisition or other disposal) of a value greater than 20% of the carrying amount of the company's assets (large value assets) if the Articles of Association have not established a lower value;
• decide on the distribution of profit;
• increase or decrease the capital of the company determined by the Articles of Association;
• decide on voluntary liquidation of the company, restructuring or filing a motion for initiation of bankruptcy proceedings; and
• approve the assessment of non-cash deposits.

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

Voting thresholds vary based on the matter to be voted upon, which can be ordinary or qualified. If shareholders who own at least more than half of the total number of voting shares are present, they constitute a quorum. By changing the Articles of Association owners may change the required voting threshold, but not below the limit prescribed by law.

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

There is a special governance regime for a public AD.

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

The company is required to prepare annual financial statements and consolidated statements with the status of the company as of 31 December of the business year, on the day of registration of statutory changes (merger, acquisition, division) and on the day of issuance of the decision on voluntary liquidation of the company.

The company is also required to submit a management report to the Tax administration.

Is the entity permitted to determine its own financial year?

No.

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

Yes, an external auditor has to review all financial reports.

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)?

Ownership interests are called shares (akcije).

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

Yes, there can be two (2) different types of shares: (i) ordinary shares (obične akcije) and (ii) preferential shares, which grant special powers to the shareholders such as the right to a dividend in a pre-set cash amount (povlašćene akcije).

What documentation is required for the transfer of ownership interests?

Transfer of the shares of a non-public AD is done through a share transfer agreement which has to be notarised.

Transfer of the shares of a public AD is performed by the transfer of the shares to the account of the acquirer of the shares by the Securities Commission and Central Clearing Depository Company after the public offering is terminated.

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

Transfer of the ownership has to be registered before the Central Clearing Depository Company, and the Share transfer agreement must be notarized.

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

Yes, in case of sale or transfer of shares in a legal entity, the profit from such transaction is taxed at the rate of:

• up to EUR 100,000.00: 9%;
• from EUR 100,000.01 to EUR 1,500,000.00: EUR 9,000.00 + 12% on the amount over EUR 100,000.01;
• over EUR 1,500,000.01: 177,000.00 euros + 15% on the amount over 1,500,000.01 euros.

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

The share issuance process takes place as follows –

• issuance of the Resolution on share issuance;
• submitting a request to the Security Commission to obtaining approval for public offer;
• the issuer and the Central Clearing and Depository Company must enter into an Agreement;
• drafting a Prospectus of shares and announcing a public offer for shares pay-in; and
• registration of the issuance with the Securities Commission and Central Clearing and Depositary Company.

Issued shares must be registered with Central Clearing and Deposit Company, from which moment their rights and obligations arise.

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?

Equity contributions can be monetary or non-monetary. Non-monetary contributions made to a company must be appraised by one (1) or more certified independent experts. Experts can be natural persons, legal entities, or firms, with the relevant license for appraisal.

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

The AD may purchase its own shares, in accordance with the Articles of Association, based on the decision of the Shareholders Assembly or an extraordinary decision of the Board of Directors or Supervisory board, but the acquired shares must not exceed 10% of the company's share capital. The AD is obliged to cancel its own shares that have not been resold three (3) years from the date of acquisition within three (3) days from the date of expiry of the deadline without the need for a separate decision of the Shareholders Assembly.

A company's share capital may be reduced by a decision of its Shareholders Assembly, but not below the minimal amount of share capital. A decision on share capital reduction must be passed by the Shareholders Assembly by a three-quarters majority of the voting power present. A decision on share capital reduction must specify the objective, the volume, and the manner of such reduction.

A company's share capital may be reduced through –

• withdrawing and cancellation of shares;
• reducing the nominal value of shares.

Any requirements with respect to distributions to shareholders?

The Company cannot make a capital reduction unless it offers additional guarantees for its obligations to any creditor who so requests.

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

Yes, and it is common in practice.

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

The company has an obligation to pay an external auditor. The amount will depend on the volume of business.

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

The rate of profit tax is progressive and amounts to:

• up to EUR 100,000.00: 9%;
• from EUR 100,000.01 to EUR 1,500,000.00: EUR 9,000.00 + 12% on the amount over EUR 100,000.01;
• over EUR 1,500,000.01: 177,000.00 euros + 15% on the amount over 1,500,000.01 euros.

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

The last changes to the Company law were adopted on 23 January 2024. A new draft of the amendments to the Company law is currently in the development within the competent ministry. The draft law is currently not publicly available, however it is expected that it shall further align Montenegrin Company law with the EU legislation. Generally, AD is a less common entity type than limited liability companies because of their –

• significantly higher minimum share capital;
• more difficult incorporation procedure; and
• more complicated management structure.