Companies Act

Directors of limited liability companies, according to the Companies Act

According to the provisions of Article 218 of the Companies Act (“Official Gazette of RS”, no. 36/2011, 99/2011, 83/2014 – other laws, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021), the legal representatives of the limited liability company are the directors, and there is no possibility that the provisions of Article 218 of the Companies Act (“Official Gazette of RS”, no. 36/2011, 99/2011, 83/2014 – dr. law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021) to be derogated or amended.

Companies Act (“Official Gazette of RS”, no. 36/2011, 99/2011, 83/2014 – other laws, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021) regulates many issues related to directors of a limited liability company such as the number of directors, appointment, representation, management, responsibility, reporting, remuneration, dismissal, resignation, etc.

Number of Directors

A limited liability company (further: company) may have one or more directors who are legal representatives of the company and are registered in the register of business entities per the registration act.

The number of directors is determined by a memorandum of association or by a general meeting resolution.

If the memorandum of association or the resolution of the general meeting does not determine the number of directors, a company has one director.

The law does not require that the director be employed in the company.

According to the provisions of Article 48 of the Labour Law (“Official Gazette of the RS”, no. 24/2005, 61/2005, 54/2009, 32/2013, 75/2014, 13/2017 – decision of the US, 113/2017 and 95 /2018 – authentic interpretation), the director can establish an employment relationship in the company, but he does not have to.

Mutual rights, obligations and responsibilities of a director who has not established an employment relationship, and the employer, are regulated by contract. A person performing tasks of the director without establishing an employment relationship is entitled to remuneration for work and other rights, obligations and responsibilities in conformity with the contract.

Appointment of Directors

A director is appointed by the general meeting, i.e. the supervisory board, if the company has a two-tier management system. When incorporating a company, a director may be assigned by a memorandum of association.

Unless otherwise specified in the decision on appointment, the director’s term of office starts on the day of adoption of the appointment decision.

Unless otherwise specified in the memorandum of association or the resolution of the company’s general meeting, a director’s term of office is not limited.

The day of appointment of the director is earlier than the day of registration in the commercial register, which means that a person can be considered a director even before registration (which otherwise has a constitutive effect). Still, third parties learn about it only after registration in the register of commercial entities.

The company’s director can be a legally capable natural person or a company registered in Serbia. A combination of the mentioned persons is possible, but the company must have at least one director who is a natural person.

In addition to civil capacity, conditions that a person has to meet to be appointed as a director may be determined by a memorandum of association or resolution of the general meeting.

Dismissal and Director’s Resignation

The general meeting, i.e. supervisory board, if the company has a two-tier management system, dismisses a director and, in doing so, is not obliged to indicate the reasons for dismissal unless this is expressly stipulated in the memorandum of association or by a resolution of the general meeting.

A director may resign at any time by giving written notice to the remaining directors.

In single-director companies, the director submits his resignation by giving notice to the chairman of the general meeting, i.e. company’s member who owns the most significant number of votes.

The resignation would produce the effect concerning the company as of the day of submission unless a later date were specified therein.

The resignation of a director and erasing the director from the register are registered following the registration act.

If the sole director of the company resigns, he shall continue to conduct the activities, which may not be postponed until a new director is appointed, but not for more than 30 days from the day of registration of that resignation following the registration act.

If the company is left without a director and the new director is not registered in the register of business entities within a further period of 30 days, a company member or other interested person may request that the court, in the non-contentious procedure, appoints a temporary representative of the company. The process is urgent, and the court is obliged to decide on the request within eight days from the day of receipt of the request.

If a company is left without any director until the appointment of a director, i.e. temporary representative, the expressions of will given to any member of the supervisory board, if any, or to any company member if the company has no supervisory board, are binding on the company.

Powers of Representation

A director represents the company before third parties, according to the memorandum of association, resolutions of the company’s general meeting and instructions of the supervisory board, if the company has a two-tier management system.

If the company has more than one director, all directors jointly represent the company unless provided by the memorandum of association or the resolution of the company’s general meeting. Regardless of the method of representation (jointly or independently), an expression of will given to one director is considered correctly assigned to the company.

The company acquires the rights and assumes liabilities out of transactions concluded on behalf of the company by the director, irrespective of whether the transaction was explicitly concluded on behalf of the company or the circumstances of the specific case imply that the will of participants in a legal transaction was to have that legal transactions concluded on behalf of the company.

Representation of the Company in a Dispute with a Director

In a dispute between the director and the company, a power of attorney for the company’s representation and other actions necessary to protect the company’s interests is given and undertaken by the company’s assembly. A director may not issue a power of attorney for representation or represent the company in a dispute in which he, or his affiliated person, is the opposing party.

Incomplete Number of Directors

If the number of directors who individually represent the company falls below the number set forth by the memorandum of association or the resolution of the general meeting, the remaining directors continue to represent the company within the scope of their authority.

If several directors authorized to represent a company jointly falls below the number set forth by the memorandum of association or the resolution of the company’s meeting, the remaining directors shall promptly notify thereof the general meeting and the supervisory board in case of a two-tier management system. In that case, the general meeting, i.e. the supervisory board, in case of a two-tier management system, appoints the missing directors. Until such appointment, the remaining directors may attend only urgent matters unless otherwise provided for by the memorandum of association or the resolution of the general meeting.

Managing Company’s Operations

A director manages the company’s operations in keeping with the:

  • the memorandum of association
  • resolutions of the general meeting
  • the instructions of the supervisory board if the company has a two-tier management system.

If a company has more than one director, all directors manage the company’s business jointly unless otherwise provided by the memorandum of association or the resolution of the company’s general meeting.

Suppose the memorandum of association or the resolution of the general meeting provides that each director acts independently in managing the company’s operations. In that case, a director may not undertake a contemplated action if any remaining directors have objections. Still, he is authorized to ask for instructions from the general meeting, i.e. the supervisory board, in case of a two-tier management system in the company.

In a company with a one-tier board system, the directors perform all tasks not falling under the competence of the general meeting.

In a company with a two-tier management system, the directors perform all tasks not falling under the competence of the general meeting and the supervisory board.

Responsibility for Ledgers, Financial Statements and Keeping Records of the General Meeting’s Resolutions

The company’s director is responsible for the representation and management of the company.

A director is responsible for the proper keeping of the company’s ledgers and the accuracy of the company’s financial statements. This liability is threefold:

  1. Criminal liability/ economic offence and misdemeanour
  2. Legal status liability- the director can be dismissed
  3. Legal property liability – if someone has suffered damage due to inadequate bookkeeping or incorrect financial statements.

The law does not prescribe the obligation to keep a book of decisions. A director shall keep records of all resolutions adopted by the general meeting, in which each company member may get insight during the company’s working hours.

Duty to Report

The director at an ordinary session of the general meeting, i.e. to the supervisory board, in case of a two-tier board system in the company, submits reports on the following:

  • Accounting and financial reporting practices of the company and its affiliated companies if any
  • Compliance of the company’s operations with the law and other regulations
  • Qualification and independence of the company auditor concerning the company if the financial statements of the company were subject to an audit
  • Contracts concluded between the company and directors, as well as with persons affiliated to them in terms of the Companies Act.

A director of the company shall promptly notify each member of the company holding a share which represents at least 10% of the share capital, i.e. the supervisory board in case of a two-tier board system in the company, on the occurrence of extraordinary circumstances that may be of importance for the status or business of the company.

Regarding the director’s responsibility for failing to report the actions of the company and members, it is identical here as usual: status (dismissal) and property (damage compensation).

Director’s Remuneration

The company director has the right to compensation for his work and stimulants or bonuses in terms of allocating shares or another way.

The founder’s act, the decision of the assembly or the decision of the supervisory board, if the company’s management is a two-tier board, shall determine the remuneration and stimulus for the director.

The amount of that compensation in the contracts mentioned above and the amount of stimulants do not have to be precisely defined but may depend on the company’s business results. The director’s remuneration cannot be determined as a participation in the company’s profit distribution.

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