A Company for 10 Kuna is Equally Responsible as the ‘More Expensive’ Ones

The truth is that, despite the fact that before acquiring full membership we are not part of the EU and what constitutes the legal acquis of the European Union is not part of our legal system (in the sense that it binds us equally as EU member states), Croatia has been preparing for the moment of full membership for years.

In part, this is done by ensuring compliance with the acquis communautaire in the adoption of new laws and amendments to existing ones, so a so-called compliance certificate is required when enacting laws. However, the Croatian legislator has clearly decided to take a step further, which means enacting regulations in a way that involves monitoring European case law and normative responses to which we are not only not obliged but will not be even when we become a full EU member. This concerns changes to the Companies Act, one of the most important laws for the Croatian economy, but also one of the highest quality laws. It has already undergone five amendments, one authentic interpretation, one decision from the Constitutional Court, and one consolidated text. After a break of more than three years since the last amendment, the legislator opted for an amendment published in NN 111/2012, which came into force on October 18, 2012. In addition to other changes, this amendment includes a new form of company – a simple limited liability company or abbreviated j.d.o.o.

The British Started First
In defending the principle of the acquis communautaire, especially the freedom of movement of goods, services, capital, and persons, European case law has allowed the operation of companies in the same manner throughout the EU, regardless of where they were established and where their headquarters are located. This was a reaction to the mass establishment of companies in Great Britain at a minimal capital contribution of one penny, compared to a minimum of 25,000 euros in Germany. After this occurred, the German legislator allowed establishment for one euro, and the ‘migration’ of entrepreneurs motivated by these differences ceased to happen.

Unlike the classic delay of the Croatian legislator in response, this time the opposite happened – while still allowing the existence of the classic d.o.o. with a minimum capital of 20,000 kuna, the establishment of a simple d.o.o. with a minimum capital contribution of 10 kuna is now enabled, and it is certain that we will not see entrepreneurs fleeing abroad to establish companies, for example in Slovenia, just because it is cheaper for them.

Cash Contribution?!
The new, simple j.d.o.o. may have a maximum of three founding members (which could pose a potential problem in the event of the death of one of the founders who has more than one heir) and only one member of the management, and one quarter of the profit must be allocated to special reserves. There are no restrictions on business operations, nor on the number or type of activities for which it is registered. Although a formal justification can be found, it still seems somewhat comical that the capital must be contributed exclusively in cash (how else would it be with an amount of ten kuna?). It is particularly interesting that special forms, which make the registration process maximally transparent and simple, are an integral part of the amendment to the Companies Act.

It is also necessary to clarify any possible objections that such a low minimum contribution means less responsibility for both the company and potentially the founders and authorized persons. It is a great misconception that the amount of the capital means anything for the creditor and the (in)ability to settle the claim they have. Probably the largest capital contributions in Croatia are held by companies that are considered very unreliable debtors. This is logical because there are no legal barriers or restrictions preventing the capital from being pledged or even alienated, regardless of its nature or size.

Timely Information
Thus, this legal change does not negatively (nor positively) affect the position of creditors by itself, but every creditor always has the option to seek additional quality security. What is unfortunate, but must be acknowledged, is the fact that without the legal change, entrepreneurs will ‘migrate’ to where the establishment costs are lower, leading to the same legal solution contained in the latest amendment to the Law. It should not have taken the close accession to EU membership to ‘force’ this.

We will not be able to change the freedom of movement of goods, services, capital, and persons, as well as many other things, and we must come to terms with this as soon as possible. However, no one should take away our right to complain or express regret about why we were not timely informed about everything important, and the impression is that we receive information only when it is no longer possible to avoid it.