Implementation and Legal Effect

Decision on status change

Status changes which are stipulated by the Companies Act (“Official Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015 and 44/2018) are: acquisition, merger, division and spin-off.

By-Laws and Documents which are necessary for the implementation of the status change

For the purpose of conducting a status change, the board of directors, i.e. supervisory board, if the company has a two-tier management system, prepares the following by-laws and documents:

  • Draft agreement on status change, i.e. draft division plan, if only one company participates in the status change, as well as all the following documents which are the integral part of the agreement on status change:
    – Proposal of a decision on amendments to the memorandum of association, i.e. articles of association of the recipient company, and, if the status change leads to the incorporation of a new company, a proposal of the memorandum of association, as well as a proposal of the articles of association of that company if such company is a joint stock company
    – Divisional balance sheet of the transferring company, in case of a status change involving division or spin-off
    – List of the members of the transferring company with the designation of the par value of their shares, i.e. stocks in the recipient company, as well as shares, i.e. stocks they acquire in the recipient company
    – List of employees in the transferring company whose employment continues in the recipient company.
  • Financial statements, with the auditor’s opinion with the balance on the day that precedes for no more than six months the day of adoption of the decision of the general meeting on the status change
  • Auditor’s report on the completed audit of the status change
  • Report on the status change compiled by the board of directors, i.e. executive board, if the company has a two-tier management system
  • Proposal of the decision of the general meeting on the status change.

A company may use the following documents as the financial statements:

  • Latest annual financial statements with the auditor’s opinion, if no more than six months have elapsed from the end of the business year until the day of rendering of the decision of the general meeting on the status change or
  • Semi-annual financial statements with the auditor’s opinion, if more than six months have elapsed from the end of the business year until the day of rendering of the decision of the general meeting on the status change.

The financial statements may be based on the latest annual financial statements, if those statements were subject to audit, taking into account, based on the bookkeeping records, the changes that have occurred since the day on which the latest annual financial statements were prepared, including the more significant changes to the value of assets, without undergoing a special inventory of reserves and fixed assets.

Exceptionally, the financial statements are not needed if all the members of the company involved in status change agree that these reports should not be prepared.

In a company which is not a public joint stock company, the auditor’s report is not needed if all the members of each company involved in the status change agree that this report should not be prepared.

The report on the status change compiled by the board of directors, i.e. executive board, if the company has a two-tier management system is not required for the company that participates in the status change if all the members of that company agree that such a report should not be made.

Decision on the Status Change and its Legal Effect

Decision on Status Change

In a decision on the status change, the general meeting approves:

  • The division plan adopted by the board of directors, i.e. supervisory board, if the company has a two-tier management system
  • The contract on status change, if such a contract was concluded up to the date of holding of a session of the shareholders’ meeting
  • The draft agreement on status change, if such an agreement was not concluded up to the day of holding of a session of the shareholders’ meeting.

In case of a joint stock company, the decision on the company’s status change is passed by a three-quarter majority of votes of the stockholders present, unless a higher majority is prescribed by the articles of association.

If, as a result of the status change, certain members of the transferring company are becoming the members of the recipient company, jointly and severally liable for its obligations, the decision on status change may be rendered only with their consent.

The general meeting shall, concurrently with rendering the decision on status change:

  • Adopt the amendments of the memorandum of association, i.e. articles of association in case of a joint stock company, if the company continues to operate
  • Adopt the memorandum of association of a company which is created in the status change, as well as the articles of association of that company, if it is a joint stock company
  • Adopt a resolution on the share capital increase, i.e. decrease depending on the type of the status change.

If the exchange of share, i.e. stocks in a different proportion is effected by a status change, the decision on status change must contain a provision that it enters into force by issuing a written statement by  the chairman of the board of directors, i.e. the chairman of the company’s supervisory board, if the company has a two-tier management system, that each member of the transferring company agreed that the exchange of the shares, i.e. stocks in a different proportion is effected by the status change, except for the members of the transferring company that use their right to payment instead of acquiring shares, i.e. stocks in the recipient company in accordance with Article 508 of the Companies Act.

In case of a joint stock company, the decision from paragraph 1 of this Article shall contain a provision that it enters into force upon giving of a written statement by the chairman of the board of directors, as well as the chairman of the supervisory board, if the company has a two-tier management system, that all of the dissenting stockholders were fully paid up for the value of their stocks in accordance with Article 475 of the Companies Act.

Entry into Force the Decision on Status Change

An agreement on status change enters into force when the general meetings of all the companies participating in the status change adopt a decision on status change approving it, i.e. on the day of conclusion of that contract, if that date comes later, unless the agreement envisages that it enters into force on a later date.

The division plan enters into force when approved by the decision on status change by the general meeting of the company which carries out the status change, unless that plan envisages that it enters into force at a later date.

Memorandum of association of a company created by a status change, as well as its articles of association, if it is a joint stock company, shall enter into force simultaneously with the entry into force of the agreement on status change.

Contesting the Decision on Status Change

Provisions of Art. 376 through 381 of the Companies Act apply when contesting the decision on status change.

In the proceeding upon the action for annulment of the decision on status change, the court shall set an appropriate period in which the respondent company shall eliminate the reasons for annulment, if such reasons can be eliminated.

The competent court shall serve the decision on annulment of the decision on status change, after it becomes final, on the register of business entities for publication in accordance with the registration act.

The decision on annulment of the decision on status change produces no effects to the rights and obligations of the recipient company in connection to status change which arose after entering into force of the legal consequences of the status change, and up to the day of publication of the decision on annulment of the decision on status change on the register of business entities, and all the companies participating in the status change are jointly and severally liable for those obligations.

The decision on status change may not be contested on the grounds of the determined ratio of the exchange of shares, i.e. stocks.

Read more:
Status changes according to the Law on Business companies – concept and types »
Strike off of Company and Entrepreneur from the Register »
Entering and changing data of the company »

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