In mid-November 2021, the National Assembly of the Republic of Serbia adopted amendments to the Law on Companies. One of the most important novelties refers to the changes in the provisions of regarding the duty to report transactions and activities in which exist a personal interest.

Namely, changes refer to prescribing the content of the notice that a person with special duties towards the company (controlling shareholder, director, member of the supervisory board, representatives and procurators, liquidation manager) submits to the competent body of the company to report transactions and activities in which exist personal interest (the “Notice”).

The Notice must contain the type or legal nature of the transaction or activity, a detailed description of the subject of the transaction or activity, the value or price, deadline for execution and/or payment, as well as all relevant facts about the nature and the scope of personal interest.

In this way, transparency is ensured during the approval of these transactions by the competent body of the company, i.e. said body in that process has all relevant information for decision making.

The Law on Companies also stipulates that the company is obliged to publish on its own or on the website of the Business Registry the intention to conclude a transaction, i.e. to undertake a legal action that requires approval, which contains a detailed description of that transaction, personal or business name of related party, information on the nature of relationship with related party, the date and value of the transaction, as well as other mandatory data from the Notice. This obligation occurs for the company immediately after bringing the decision by the competent body in regard with approval of transaction or activity in which exist a personal interest, and no later than the day of concluding such transaction or undertaking action.

A novelty in the Law on Companies is also the obligation to report in the annual financial statements on transactions and activities in which exist a personal interest. The information that the Company is obliged to provide in that case are: (i) type and subject of transaction, (ii) value or price, (iii) percentage of shares held by person who has special duties towards the company, in that company, as well in the entity that is another party in transaction, (iv) the status and position that the person with special duties towards the company has in that company or in the entity that is another party in transaction.

We believe that the goal of the legislator was to better protect the rights of minority shareholders of the company with changes described above. The protection of their rights implies the right of the company to file a lawsuit for annulment of transaction and compensation for damages against a person who has a personal interest in that transaction. The novelty is that the Business Registry Agency, upon receipt of a final court decision, deletes from the competent register a person who had a personal interest in a certain transaction.

In accordance with all described changes, the basic feature of the criminal offense of Concluding a transaction or undertaking action in case of existence of personal interest has been supplemented. However, criminal sanctions remained unchanged, therefore fines and imprisonment of up to one year were threatened for the basic form of the crime. For a more severe form, if the company suffered damages exceeding the amount of RSD 10 million (cca. EUR 85,000), the perpetrator will be punished by imprisonment for six months to five years and a fine.

In the coming period, it should be expected that these changes to the Law on Companies have a positive impact on transparency and generally increase legal certainty in the operations of companies, which is especially important for potential investors.

Author: Goran M. Ćiraković, attorney-at-law

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