1. General overview
The basic Croatian law for establishing a company is the Commercial Companies Act (hereinafter “CCA”), and this law states that there are two main groups of companies, one of which is a capital company, and the other is a personal company. The following table contains an overview of the kinds of companies which fall under these two groups.
|Personal company||Capital company|
|economic interest grouping||joint stock company|
|limited partnership||limited liability company|
Special Croatian laws enable the founding of other types of groupings, such as: cooperatives, associations, co-operative association, mutual insurance companies, credit unions and others. However, in this case they are of less importance due to the nature of their specialized goals.
We are going to focus on capital companies, and especially on the limited liability company (hereinafter “LTD”), as it is the most frequently used form of companies in Croatia. An LTD is the simplest to establish, and is practically the simplest for conducting business. But before we start with the LTD we are also going to briefly go over the most important characteristics of joint stock companies, due to their exceptional economic value.
2. Joint stock company
Shareholders of a joint stock company take part in the share capital of the company, which is divided into shares. The shareholders bear no responsibility for the company’s obligations, as the company itself is a separate legal entity and a bearer of its own rights and obligations.
The founding act of the company is the statute which determines the internal structure of the company. The company itself can be founded simultaneously and successively. The main characteristic of a successive founding of a company is that a public call is sent, so that each person can take on shares if they deposit a certain amount of funds, rights or things. To this day never has a joint stock company been established in Croatia in such a way. The usual way of establishment is simultaneous founding, in which the founders take a series of actions prescribed by law and register the newly established company into the Commercial registry of a competent Commercial Court.
The lowest nominal amount of share capital is 200,000.00 HRK, and the investment itself can be done in cash, things and rights, and the issued share cannot be less than 10.00 HRK. The maximum amount of share capital has not been determined.
3. Limited liability company
An LTD is a commercial trading company in which members invest into shares of a previously arranged share capital, based on which they obtain membership rights within the company, embodied in the business shares. The LTD has a legal personality different than its own members, and is the bearer of its own rights and obligations, for which it answers with its entire assets, while the members only carry a business risk in the amount they had previously invested in. The members of the company can be domestic or foreign, legal or natural persons, and it can be established even by a single person. If the members or founders of the company are foreigners, they have to be issued the appropriate PIN from the tax authorities, in order to be properly registered within the system.
The basic act of the LTD are the Articles of Incorporation, on the condition it was established by more than two founders. On the other hand, if the LTD is founded by a single founder, then the Articles of Incorporation are replaced by a Statement on Incorporation from the founder on the founding of the company. All the founders have to sign a the aforementioned deeds in form of a notary public act, or a private document attested by a notary public. This kind of a company can only be founded simultaneously, that is, by performing legally prescribed actions as follows:
- a statement from the founder that they will take on business shares, as well as the obligation that they will pay the prescribed investment amount for them,
- a statement on the establishment of the company,
- drafting and finalizing the Articles of Incorporation (or Statement on Incorporation),
- appointing the first board of directors
- appointing a board of directors (if prescribed by law, or the founders agree to it),
- appointing an auditor if needed,
- writing a report on the founding of the company, and performing an audit of the founding (if needed),
- applying for registration into the court registry.
The LTD is officially established after it is entered into the court registry, and stops existing upon its deletion from the court registry. The application for registration into the court registry along with legally prescribed attachments is done by all board members and the president of the supervisory or board or directors, if the company has one. The competence of the court in whose court registry the company is being entered is determined according to the company headquarters. In Istria (namely the Cities of Pula, Rovinj, Poreč, Umag, Novigrad, Pazin) the competent Commercial Court is in the City of Pazin, which is the formal administrative centre of the County.
The company headquarters is a place in Croatia where the management of the company is situated, and from where the business of the company is managed, or a place in which the company permanently performs its activities, and was determined in the Statement of Incorporation, or the Articles of Incorporation. A change in the company headquarters has to be entered into the court registry. If needed, the company headquarters can be can be temporarily registered to our office address, as it is only a formal prerequisite of the establishment procedure, and not necessarily a question of conducting business in reality.
3.3. Company name
An LTD established in Croatia can select any name, in accordance to the legally prescribed limitations. For example, it cannot be named the same as another company without their express permission. For the use of the word Croatia or its derivative the company has to obtain a special authorization from the Ministry of Public Administration. The company name has to be in Croatian, or in one of the official languages of the European Union. There is a full and a shortened company name; the full name has to contain the name, legal form and business activity, while the shortened name contains only the name and the legal form.
3.4. Share capital
The share capital can be invested in the form of cash, things or rights, the prescribed minimal amount of share capital is 20,000.00 HRK, and the maximum amount is not determined. The sum of the nominal amounts has to match the amount of the share capital of the company.
The nominal amount of the business share cannot be smaller than 200.00 HRK and it has to be expressed by a whole number, which is a multiple of the number one hundred. During the establishment procedure the shares entered for individual business shares do not have to be equal. It is important to say that every founder has to pay at least ¼ of their share for their own business share, but the total amount of all payments cannot be smaller than 10,000.00 HRK. However, it is different when the shares are paid in things and rights; in that case the whole investment has to be done before entry in the court registry. There is a special rule if the company is founded by a single member, then they have to provide an appropriate insurance that the part of the share which was not paid will be paid accordingly at a certain later date.
3.5. Establishment expenses
In order that the company is not financially damaged during its establishment phase, that is that the value of its assets do not become smaller than its share capital, it is prescribed that the company founders cannot be paid from the share capital for their preparatory expenses or for the foundation of the company. It is also not allowed that the sum of expenses are to be added to the share capital as a founder share.
The founders of the company take on the expense of the founding procedure in proportion to their investments, but it is allowed that they agree upon a different way to handle costs and suffer the expenses in accordance to their mutual agreement. However, the expense refund that the founders had during the establishment can only be approved as much as their highest fees determined by the Articles of Incorporation.
3.6. Company bodies
The LTD is founded on the principle of hierarchy, and there are only two mandatory company bodies. Those are board and the company assembly. The supervisory board is only an optional body, and it is only mandatory in certain legally prescribed cases.
Foreign citizens can be board members, and in order to manage and represent the company, the board members do not have to physically be present in Croatia – they can appoint representatives. In case that the board members perform their duties based on a contract of employment, they have to receive a permit from the competent authorities for a work residency.
3.7. A simple limited liability company
This kind of company is a subgroup of the LTD, and was incorporated into the Croatian legal system in order to entice investments from entrepreneurs without needing to make significant mandatory investments. The establishment procedure of this company is simple and quicker, and yet it enables entrepreneurs to use the perks of capital company members not being responsible for the company’s obligations.
The share capital for this type of company is a total of 10.00 HRK, and the lowest amount of business share is 1.00 HRK. Shares for this company are only paid in cash. An application for entry into the register is made after all the company shares have been completely paid for.
A simple limited liability company can have one to three members. If it is founded by an individual, they do it via The Minutes of Establishment of a simple limited liability company with one member, available to everyone as Attachment 1 of the CCA. If it is founded by two or three people, they do it via The Minutes of founding a simple limited liability company with a maximum of three members, available to everyone as Attachment 2 of the CCA.
The administration of the company consists from only one member. The minutes on the founding of the company contain directives on appointing, and a statement on accepting the appointment. The formulations of these two documents are in a legally prescribed form, and cannot be changed by an agreement.
4. In Conclusion
The previous text is a basic overview of the most important information relevant for the founding of an LTD company in the Republic of Croatia, with a special mention of the County of Istria. An LTD is the most flexible option for foreign investors due to its simplicity and low-risk nature, while on the other hand retaining the possibility of expansion and growth on the Croatian as well as the international market.
Croatia has a lot of investment potential, but at the same time suffers substantial bureaucratic obstacles in its formal procedures, and a complicated tax system, which was consolidated on an acceptable level only through the latest tax reform. The procedure of company establishment has been synchronized with the acquis of the EU, which has made it less demanding, quicker and more appropriate for foreign investment opportunities.
What makes Croatia special is its geographic location, access to the Adriatic Sea, and the managable distance of all the capitals of Europe. The Croatian market is small and complex, but plays one of the key parts in the stability of South-Eastern Europe. Since its entry into the EU it has been attracting more and more businessmen and women that are ready to invest, and due to its geographic location it is becoming a regional hub for founding companies. The same goes for the County of Istria, whose geographic location has proven to be of utmost importance to its continuing growth and expansion as a clear leader of the whole country.