Written by: Dr. Stjepan Lović, attorney
For the purposes of the company’s operations, capital is raised through borrowing, but they are often exposed to the obligation to use capital under the conditions and supervision of creditors. To avoid this, the most common way to raise additional funds is through an increase in share capital, i.e., recapitalization. This is done by contributions from existing or new members of the company/shareholders, which increases the financial strength of the company while also changing its ownership structure.
In the case where share capital is increased by contributions from existing members of the company/shareholders, their membership shares in the company increase. If the share capital is increased by contributions from new members of the company, then the membership shares of existing members/shareholders decrease. The decision to increase share capital is made by votes representing at least three-quarters of the votes of the share capital represented at the general assembly when making that decision, as clearly stipulated by the Companies Act. No other majority for voting on the increase of share capital is prescribed by this or any other law.
Exclusion of Preemptive Rights
When additional capital is raised from ‘external sources’, it is customary that with the decision to increase share capital, a decision is also made to exclude the preemptive rights of existing members/shareholders to acquire new shares/membership interests that will be issued to carry out the recapitalization. Exclusion is permitted in accordance with Article 308, paragraph 4 of the Companies Act, which stipulates that the preemptive right when subscribing for shares can be excluded in whole or in part by the decision to increase share capital. Such a decision is made by votes representing at least three-quarters of the votes of the share capital represented at the general assembly when making that decision.
The statute may stipulate that a larger majority is required for this, and additional conditions may also be required. Such a provision, along with Article 457, paragraph 4 of the Companies Act, applies accordingly to limited liability companies. Despite the clearly prescribed majority for making a decision on increasing share capital and the conditions that must be met for making such a decision, the Supreme Court of the Republic of Croatia in its decision from 2025 takes a completely different stance, which has no basis in any previous decision of Croatian courts or provisions of the Companies Act.
When the Court is Concerned with Profit
Thus, in decision No. Rev-113/2024 dated September 24, 2025, it is stated that for a limited liability company, any decision that ultimately reduces the size of a member’s business share in the company affects the realization of the member’s rights – among other things, on the distribution of profits. Therefore, the Supreme Court concludes that for making a decision that changes the company agreement and simultaneously increases share capital while excluding the preemptive rights of members to acquire business shares, the consent of all members of the company is required. This provision states that ‘the decision to increase the obligations of members towards the company arising from the company agreement or to reduce the rights of certain members based on that agreement can only be made if all members of the company to whom the increase of obligations or reduction of rights applies agree to it.’ This decision clearly warns that the decision to increase share capital while excluding the preemptive rights of members to acquire business shares reduces the rights of existing members of the company, which is why it is not sufficient for that decision to be made by votes of three-quarters of the share capital represented at the general assembly. Additionally, it is complicated by the fact that it does not specify whether the consent of all members of the company for making that decision should be obtained before voting at the assembly on that decision or if it is sufficient for the decision to be made by votes of all one hundred percent of the members of the company.
