The share capital of the LLC

The share capital is one of the key elements in the establishment of the company, as well as its functioning, because it represents the value of the members' contributions to the company, which serves to protect creditors and cover business obligations. In the case of a limited liability company, the legal nature of the share capital and the rules related to it are regulated By Law on Business Companiesand information on the share capital can also be found in the Serbian Business Registration Agency.

WHAT IS SHARE CAPITAL?

According to the Act on to companies, the share (registered) capital is the monetary value of the members' contributions to the company registered in the Register of Business Entities kept by the Business Registers Agency. In other words, the share capital is the sum of all contributions that the members of the company subscribe to upon the incorporation of the company or later in the course of business, and which are recorded in the register.

The share capital is expressed in dinars, and contributions can be:
monetary (real money);
non-monetary (things and rights).

If the payment of the monetary contribution is made in a foreign currency in accordance with by the law governing foreign exchange operations, the Dinar counter-value of the contribution is calculated at the middle exchange rate of the National Bank of Serbia on the day the contribution is paid.

If you are planning to establish a company, and you are not sure how to determine the share capital of the company, consult with a corporate law lawyer..

You can read more information related to the establishment of an LLC hereIf you still think that entrepreneurship is a better form of business for you, read more about it here.

Are you planning to establish or change the share capital?

Check that your share capital is properly organised and registered. PM Lawyers can help you carry out the entire procedure without any errors.

MINIMUM SHARE CAPITAL FOR AN LLC?

The law stipulates that the share capital of a company is at least 100 dinars, unless a special law stipulates a higher amount of share capital for companies that perform certain activities.

This means that a company can be founded and operate with a share capital of only 100 dinars, without the obligation to increase it.

In practice, it often happens that companies are founded with a share capital of 100 dinars, but later that share capital is increased due to business seriousness, credit rating, and business partners' belief in the seriousness of the company's operations.

Members investments in the LLC

The share capital of the company, as mentioned earlier, represents the sum of the members' contributions to the company. The members of the company acquire shares in proportion to their contributions to the total capital of the company, unless otherwise determined by the founding deed at the time of founding the company or by a unanimous decision of the assembly.

What does it mean in practice and what does it look like? If the company is founded by two persons, and they decide that the share capital will be 1,000 dinars, and at the same time person A pays 400 dinars and person B 600 dinars, this means that person A will acquire a share of 40% and person B a share of 60%.

PAYMENT AND INPUT OF CAPITAL AT ESTABLISHMENT

The contribution of the company does not have to be paid immediately upon registration, but there is a possibility that the contribution is only entered upon registration, and that it is actually paid later. In the founding act, it must be indicated within what period the member will make the payment, i.e. entry of the contribution, where the law stipulates that the term cannot be longer than 5 years.

Therefore, at the moment of founding the company, although the founding contribution is defined, it does not have to be paid at that moment, but can be paid later, as previously stated.

INCREASE AND DECREASE IN SHARE CAPITAL

The law foresees the possibility of both increasing and decreasing the share capital

An increase in the share capital can be effected:

• with new investments of the members,
• by converting reserves or retained earnings into capital,
• conversion of receivables into equity (e.g. debt into equity),
• status changes of the LLC.

A reduction of the share capital is also possible, but it cannot be less than the minimum amount prescribed by law – that is, not below 100 dinars.

Both procedures require a decision by the company's assembly and registration of the change in the Register of Business Entities.

Why is the share capital important?

The share capital has many legal and practical functions:

• represents the minimum amount of assets the company has at its disposal,
•  serves as the financial foundation for the business,
•  impacts credibility with banks and partners,
•  affects the participation of members and the right to vote,
• in the event of liquidation, it may be relevant to creditors.

Because of all this, its legal status and records must be precisely regulated in the founding act and in the register.

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