New Law on Business Entities
The new Law on Business Entities of Montenegro (“New Law”) was enacted on 25 June 2020 by the Parliament of Montenegro and has entered into force on 11 July 2020.
Below are listed the novelties brought by the New Law.
I Two-tier system of corporate governance
The New Law introduces the possibility for the joint stock companies (“JSC”) to organize its system of corporate governance either as a one-tier system, which is a legal solution from the previous law or as a two-tier system, which is a novelty. Management bodies of one-tier system of corporate governance are the board of directors and the executive director, and the management bodies of two-tier system are supervisory and management board. Also, limited liability companies (“LLC”) which are considered major legal entities in accordance with the accounting laws are required to be organized either as one-tier or two-tier system. Some legal entities will not have a possibility to choose the system of corporate governance, such as banks, since lex specialis for the banks – Law on Credit Institutions, which begins to be applicable on 01 January 2021, prescribes imperatively two-tier system of corporate governance.
II Rights of the dissenting shareholders
The dissenting shareholders who voted against the decision of the shareholders’ assembly in the cases which are exhaustively enumerated in the New Law, have the right to request from the company the repurchase of the shares in the amount of the average market price of the shares in the previous six months from the day of the enactment of the decision of the assembly or in the amount of the proportionate part of the net value of the assets of the company on the day of the enactment of the decision. The New Law stipulates the definition of the net assets value of the company as a difference between the assets and the obligations of the company. The dissenting shareholder can initiate a legal proceeding in case the company does not pay the indisputable amount, or if the paid amount does not match the owed amount or if the market price cannot be determined in which case the court would determine the value of the shares.
III Nominal Value of Shares
The Company may issue shares with or without nominal value. In the event that the company issues the shares without nominal value, all other shares must be without nominal value. The Company may not issue the shares below the nominal value, and in case that the shares do not have the nominal value, the shares cannot be issued below the book value.
In the final provisions, the New Law stipulates that JSC, which on the day of entering into force of this New Law have the regular shares with different nominal value, are obliged to homogenize shares in order to equalize the nominal value, within one year from the date of entry into force of this New Law, in a way to keep the proportionate participation in total number of shares.
IV Online registration and electronic participation in the shareholders assembly
The general tendency of the New Law is to provide more digital approach to several legal institutes, including the participation in the assembly electronically as well as to prescribe the possibility of online registration within the Central Registry of Business Entities. The New Law stipulates the following ways of participation in the assembly electronically: (i) transmission of the assembly directly (ii) two-way communication which enables shareholders to address the assembly from another location (iii) by voting electronically, before or during the assembly. Power of Attorney for participating in the assembly can also be given electronically, in accordance with the law which stipulates the electronic signatures.
V Prokura/ Power of Attorney
The New Law stipulates a special kind of power of attorney (“PoA”) (Montenegrin prokura) by which the company authorizes one or more natural persons to, in the name and on behalf of the company, concludes legal transactions and undertakes other legal actions. PoA must be notarized and registered within the Central Registry of Business Entities of Montenegro. The natural person authorized by PoA can conclude agreements and undertake all legal actions on behalf of the company except to (i) conclude legal transactions and undertake legal actions in connection with the acquisition, alienation or encumbrance of real estate, i.e. shares and stocks that the company owns in other companies (ii) conclude loan and credit agreements; (iii) assume bill of exchange obligations and guarantee obligations (iv) represent the company in administrative and court proceedings, before arbitration or mediator (v) give power of attorney to other persons.
VI Piercing the Corporate Veil
Although this is not a new provision, the New Law stipulates in more detail the legal concept of piercing the corporate veil which is a step forward for its more common usage in court practice. The competent court may determine the joint and unlimited liability of the shareholders of the company (either JSC, LLC or limited partnership) in the following events of misuse of the capacity of limited liability of the company, (i) if the shareholder uses the company for achievement of the prohibited goal or (ii) uses the company or its assets to the detriment of the company’s creditors or (iii) manages or disposes of the company’s assets against the law or (iv) decreases the company’s assets to his own or benefits of third parties, even though he knew or ought to know that the company cannot fulfil its obligations.
VII Special Duties towards the Company
The New Law prescribes the following special duties towards the company (i) duty of care (ii) duty of reporting the personal interest (iii) duty of avoiding the conflict of interest (iv) duty of keeping the business secret (v) duty to respect the prohibition of competition. Further, the law defines special conditions and who within the company has the obligation to respect these duties as well as the possibilities for raising a claim against the responsible person for breach of duty.
VIII Alignment with the New Law
JSC and public LLC and LLC which are considered major legal entities in accordance with the accounting laws must align its organisation (statute, management bodies etc.) and register the changes, in accordance with the New Law, within 9 months from the day of entering into force of the New Law. Other companies must align its organisations and register the changes within 18 months and entrepreneurs which are registered within the Central Registry, must align its business and registers within six months from the day of entering into force of the New Law. In the event of non-alignment in the prescribe deadlines, the Central Registry of Business Entities will initiate the process of court liquidation and erase the non-aligned companies.