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

The Company Law

Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

Yes, the D.O.O. has legal personality.

(Maximum) period of existence

There is no limit regarding the period of existence.

Governing document(s)

Governing documents are articles of association and shareholders’ agreement (or decision).

Liability of incorporators / shareholders

The shareholders have liability up to the value their contribution. The liabilities of the D.O.O. cannot pass to the shareholders save for very rare circumstances (e.g. default in payment of share capital, misuse of the company’s property).

(Governing) bodies

The Executive director is the only mandatory body for the D.O.O. with one shareholder

The Executive director and the Assembly are mandatory bodies for the D.O.O. with two or more shareholders

The Board of Directors is frequent but no obligatory body.

Other particularities

N/A

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

Yes, according to the Montenegrin law there is possibility for international restructurings, mergers, asset acquisitions etc.

Can this type of entity be publicly listed or held?

It cannot be listed (only joint stock companies may). It may be publicly held.

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

No, because there are other forms of organization for registration of non-profit organization. Gaining of profit is immanent for this form.

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, CRCE issues an incorporation certificate.

Documents required in the incorporation procedure:

Certificate of incorporation of the shareholders – notarized and not older than three months from the date of issuance, or, if the shareholder is a natural person, a notarized copy of his/her identity card (for Montenegrin citizens) or passport (for foreign citizens);

Resolution / power of attorney of each of the shareholder's board of directors or other appropriate authority to establish a limited liability company in Montenegro and appointing (a) person(s) to sign the founding documents of the company – notarially certified and legalized. If the shareholders are natural persons, than a power of attorney for signing of the founding documents is sufficient;

Resolution of the shareholder(s) on appointing executive directors and any of the additional authorised representatives – notarially certified and legalized;

Statements of all persons appointed to serve either as executive director, authorised representative or member of the board of directors, accepting their respective functions;

Shareholders’ Agreement (or Resolution);

Articles of Association of the Company;

A list, signed by shareholders (or their proxies) of shareholders, authorised representatives and members of the board of directors (if they are appointed). This list should include the following data regarding the said persons:

1. Notarized and legalised copy of passport of the executive director and any of other appointed representatives of the company, if any of them is a foreign citizen;
2. Excerpt from the Central Depositary Agency showing whether the shareholder(s) of the Company owe any securities in Montenegro;
3. Forms containing signatures of the executive director and other representative(s) made on a form which is prescribed by Montenegrin laws in Montenegrin language – notarized and legalized. If notarisation of such document in Montenegrin language is not possible in the country of residence of the appointed representatives (i.e. if a notary in his or her country cannot notarize a document prepared in Montenegrin language), such notarization would have to take place in Montenegro, requiring presence of these representatives in Montenegro.
4. If all the required documentation is appropriately submitted, the CRCE is obliged to register the limited liability company within 3 business days from the moment of the submission of the documentation. In most cases, the CRCE complies with the prescribed deadline.
5. Furthermore, post-registration procedures including the opening of a bank account can be completed within an additional 7 to 10 days. Therefore, the time period necessary for a company to become fully operational is not more than three weeks, as of submission of all documentation to the CRCE.
6. The costs involve:
7. Administrative fees (approx. EUR 20);
8. Costs of certified translation, if any (EUR 15 per translator’s page);

Involvement of notary, company register, governmental authorities

If all the required documentation is appropriately submitted, the CRCE is obliged to register the limited liability company within 3 business days from the moment of the submission of the documentation. In most cases, the CRCE complies with the prescribed deadline.

Timing (estimate)

Furthermore, post-registration procedures including the opening of a bank account can be completed within an additional 7 to 10 days. Therefore, the time period necessary for a company to become fully operational is not more than three weeks, as of submission of all documentation to the CRCE.

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

The costs involve:

Administrative fees (approx. EUR 20);

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?

N/A

Minimum number of incorporators / shareholders and residency requirements

There must be at least one shareholder, and there are no residency requirements.

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

There may be only one person nominated for the position of the executive director, and there are requirements concerning the obtainment of the work and residency permits if he/she is a foreigner.

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

There is a minimum issued share capital of EUR 1, and there is obligation for every D.O.O. to have opened bank account immediately upon incorporation.

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

The whole incorporation process can be done through an authorized proxy, so the physical presence of the incorporators is not obligatory.

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

Yes. Together with issuance of the incorporation certificate, CRCE will assign a tax identification number (“TIN”) to the newly founded LLC. If requested, the CRCE will also issue a VAT and custom number to the D.O.O..

What is the title of the applicable company registry?

Central Registry of Commercial Entities ( “CRCE”, Centralni registar privrednih subjekata)

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles, Ownership identification (direct and/or indirect ownership, 'beneficial owners'), 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)

Articles of association;

Memorandum of association;

List of the shareholders, members of the company, members of the board directors;

Name of the executive director;

Company name, registered seat address and address for receipt of official letters, if different;

Persons authorized to represent the company and whether representation is collective or individually;

Written consent of the members of the Board of Directors to their appointment, if they are appointed;

A document confirming the payment of the registration fee;

Data on the date of registration, total capital and TIN and VAT number.

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

The executive body of the D.O.O. is the executive director and his main duty is to represent the D.O.O. and to manage the business of the D.O.O.

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

The Executive director will be appointed by the Shareholder’s assembly / Shareholder. At the time of incorporation, a director may be appointed by the instrument of incorporation. Unless provided otherwise by a decision on his/her appointment, a director’s term in office shall commence on the date of passing of a decision on appointment. Unless provided otherwise by the instrument of incorporation or a decision of the Assembly / Shareholder, the duration of a director’s term in office shall be unlimited. The Shareholders Assembly / Shareholder will also be in charge for dismissal and replacement of the executive director. The executive director may resign before the expiration of his term of office, by notifying the Board of Directors at least 15 days before the resignation.

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

No.

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?

Please note that non-executive directors are not mandatory feature of the D.O.O. nor their appointment is envisaged by the law. However, this is implicitly possible, and it happens in a case when a D.O.O. has formed Board of Directors, which is not obligatory by the law.

Non-executive directors can be part of D.O.O.’s Board of Directors, which is a separate body (two-tier structure). A Board of Directors is comprised of minimum of 3 (three) members (odd number is required), whereas the president of the Board has same legal authorizations as the executive director of a D.O.O. The other two members (e.g. in a 3 members Board) are deemed as non-executive directors.

Board of Directors’ members are appointed by the shareholders of the D.O.O.

Board of Directors’ membership duration is a period determined by the statutes and it must not exceed 4 years. If the statutes or a resolution of the general meeting on the appointment of members of the Board of Directors does not determine the duration of the term of office, the term of office will expire at the first regular annual session of the general meeting. Also, upon the expiration of the term of office, a member of the Board of Directors may be reappointed.

Decision on dismissal is enacted by D.O.O. shareholders and registered with the CRCE.

A Board of Directors’ member cannot be replaced by replacing one member with another (new) member. The Company Law prescribes that in order to implement the individual replacement of a Board member, the complete Board of Directors must be dismissed and then a new Board of Directors must be appointed by the shareholders of the D.O.O..

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

Assembly (Skupština) is the title of the owners body, and main tasks and responsibilities are the following:

1. make and adopt amendments to the Articles of Association;
2. appoint and dismiss the executive directors, authorised representatives, the members of the board of directors, the auditor and the liquidator;
3. decide on the remuneration policy and compensation of members of the Board of Directors;
4. adopt annual financial statements and report on the D.O.O.’s operations;
5. make a decision on the disposal of the assets of the company (purchase, sale, lease, replacement, acquisition or otherwise 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 share;
6. make a decision on the distribution of profit;
7. increase or decrease the capital of the company determined by the articles of association;
8. make a decision on voluntary liquidation of the company, restructuring or filing a motion for initiation of bankruptcy proceedings;
9. 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?

The majority will depend on the decision upon which has to be voted, and it can be ordinary or qualified. If shareholders who own at least half of the share are present, they represent the quorum. By changing the articles of association, owners may change the required majority, 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)?

According the Accounting law, micro and small legal entities are not obliged to submit a management report to the tax administration, as well as to audit the financial statements.

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

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

Is the entity permitted to determine its own financial year?

No.

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

External audit is mandatory for medium and large legal entities.

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)?

Share ( Udio ).

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

There are no different classes of shares. In the D.O.O. the share is expressed in percentage, i.e. each shareholder has a certain percentage of the shares.

What documentation is required for the transfer of ownership interests?

Share purchase agreement, which has to contain notarised signatures.

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

The change has to be recorded before the CRCE, and there is obligation to submit amended articles of association of the company.

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 9%.

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

Shareholder obtain share in D.O.O. based on his contribution.

All contributions must be registered and paid.

Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

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

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

Share cancellation is a not possible.

Share reducing is possible and it is conducted and based on a decision of the assembly of members/ shareholders. The requirements with respect to it are:

• Reduction must not reach below the amount of the minimum share capital prescribed by law (EUR 1,00);
• After deciding on the reduction of share capital, the company is to notify in writing each creditor known to the company, whose individual claim amounts to at least 10,000 euros on the day of publication of the decision;
• The company's net assets shall not change in the event of a reduction of the share capital which (i) create or increase reserves to cover future losses of the company or to increase share capital from the company's net assets; (ii) cover losses. The reserves after the reduction of the share capital, may not exceed 10% of the value of the share capital.

The D.O.O may acquire a share from one or more members of the company, if such a decision is made by members of the company whose shares make up at least two thirds of the share capital.

Pre-emption rights are allowed by the law.

Any requirements with respect to distributions to shareholders?

A company may make profit distributions to its shareholders, return additional paid-in amounts and make other payments on any other grounds solely in accordance with the instrument of incorporation and the provisions the Company Law pertaining to payment restrictions.

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 LLC must maintain its business address, paid the salary and social contributions to its employees such as the executive director and have the accountant. In addition, annual accounts must be prepared and adopted each year and the applicable tax filings must be made.

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

The rate of profit tax is proportional and amounts to 9% of the tax base.

There is no national/local distinction.

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

New Law on Business Organisations i.e. the Companies Law has been adopted and start its implementation in July 2020.