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, the D.O.O. 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 shareholders' agreement (or decision).

Liability of incorporators / shareholders

The shareholders have liability up to the value of 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 a D.O.O. with one (1) shareholder.

The executive director and the Assembly are mandatory bodies for a D.O.O. with two (2) or more shareholders.

A Board of Directors is often used but it is not required.

Other particularities

D.O.O., which is considered a large legal entity in accordance with accounting law, must have management bodies as a joint stock company, in accordance with the Company law.

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, international restructurings, mergers, 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?

It cannot be listed (only joint stock companies may be listed). But 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 organisation 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, CRCE issues an incorporation certificate.

Involvement of notary, company register, governmental authorities

Documents required in the incorporation procedure:

• Certificate of incorporation of the shareholders – notarised and not older than three (3) months from the date of issuance, or, if the shareholder is a natural person, a notarised 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 or persons to sign the founding documents of the company – notarised and legalised. If the shareholders are natural persons, then a power of attorney for signing of the founding documents is sufficient;
• Resolution of the shareholder(s) regarding appointing executive directors and any additional authorised representatives – notarised and legalised;
• Statements of all persons appointed to serve either as executive director, authorised representative or member of the Board of Directors, accepting their respective functions;
• Resolution/Agreement on Establishment;
• Articles of Association of the Company;
• A list, signed by shareholders (or their proxies), authorised representatives, executive director, and members of the Board of Directors (if they are appointed) with the following details –
• name, last name (in the case of a name or last name change, the previous name or last name);
• date and place of birth of members of the Board of Directors, personal identification number or passport number of foreign citizens;
• domicile, or place of residence of the members of the Board of Directors;
• information on shareholding interests in other companies, participation in the bodies of other companies, or other functions that members of the board perform in Montenegro; and
• Statement from the members of the Board of Directors confirming their citizenship.
• Notarised and legalised copy of passport of the executive director and of any other appointed representatives of the company, if any of them is a foreign citizen;
• Excerpt from the Central Clearing and Depositary Company showing whether the shareholder(s) of the Company own any securities in Montenegro; and
• Forms containing signatures of the executive director and other representative(s) made in a form which is prescribed by Montenegrin laws in the Montenegrin language – notarised and legalised. If notarisation of such document in the 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 notarise a document prepared in the Montenegrin language), such notarisation would have to take place in Montenegro, requiring presence of these representatives in Montenegro.

Timing (estimate)

If all the required documentation is appropriately submitted, the CRCE is obliged to deliver the registration resolution the limited liability 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 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 include:

• Administrative fees (approx. EUR 20); 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 shareholder, and there are no residency requirements.

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

Only one (1) person may be nominated for the position of the executive director, and there are requirements concerning the obtainment of the work and residency permits if such person 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 every D.O.O.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?

The whole incorporation process before the competent registry can be done through an authorised proxy, but the banks insist on physical presence of executive director when opening of a bank account.

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 D.O.O.. 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 (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)

Articles of Association;

Resolution/Agreement on Establishment;

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 authorised to represent the company and whether representation is collective or individual;

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

A proof of payment of the registration fee; and

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 its 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 is 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 is 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?

Non-executive directors are not a mandatory feature of the D.O.O. nor is their appointment prescribed by law. However, it is implicitly possible, and it can happen if a D.O.O. has elected to form a Board of Directors.

Non-executive directors can be part of a D.O.O.'s Board of Directors, which is a separate body (two-tier structure). A Board of Directors is comprised of minimum of three (3) members (an odd number is required), and the president of the Board has the same legal authorisations as the executive director of a D.O.O. The other two (2) members (e.g. in a three (3) member Board) are deemed to be 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 Articles of Association and it must not exceed four (4) years. If the Articles of Association 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.

Decisions on dismissal are made by D.O.O. shareholders and registered with the CRCE

A Board of Directors member cannot be replaced on an individual basis in which one member is replaced with 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 its main tasks and responsibilities are the following –

• make and adopt amendments to the Articles of Association;
• appoint and dismiss the executive directors, authorised representatives, the members of the Board of Directors, the auditor, and the liquidator;
• decide on the remuneration policy and compensation of members of the Board of Directors;
• adopt annual financial statements and report on the D.O.O.'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 share;
• 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, and it can be ordinary or qualified. If shareholders who own at least half of the share 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)?

According to the Accounting law, micro and small legal entities are not obliged to submit a management report to the tax administration or 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 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 a 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 a 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?

A share purchase agreement which contains notarised signatures is required.

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 an 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:

• 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)

A shareholder obtains his 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 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 a relevant license for appraisal.

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

Share cancellation is not possible.

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

• The 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 required 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 must not change in the event of a reduction of the share capital which (i) creates or increases reserves to cover future losses of the company or to increase share capital from the company's net assets; and (ii) covers 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 (1) 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-emptive rights are allowed by 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, pay the salaries and social contributions to its employees such as the executive director and have an 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 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.

There is no national/local distinction.

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.