A limited liability company’s share capital may be reduced by the resolution of the company’s general meeting, but not below the minimum share capital, which amounts to at least RSD 100, unless a special law provides a higher amount of the share capital for companies dealing in certain business activities.
Decision to reduce the share capital of a limited liability company below the minimum share capital may be passed only under a condition that an increase in share capital is simultaneously carried out, so that, as a result of such reduction and increase the company’s share capital becomes at least equal to the minimum amount of share capital, which amounts to at least RSD 100, unless a special law provides a higher amount of the share capital for companies dealing in certain business activities.
If the limited liability company fails to simultaneously pass a decision on increase of share capital and fails to carry out such increase, the decision on reduction of share capital is null and void.
A company may render a decision by which the limited liability company’s share capital is simultaneously reduced on one grounds, and increased on the other grounds. Provisions of the Companies Act governing the reduction and increase of the company’s share capital apply to this case.
Provisions of the Companies Act on increase and reduction of a joint-stock company’s share capital apply mutatis mutandis to the increase and reduction of a limited liability company’s share capital.
The limited liability company shall, once a year, in accordance with the registration act, when registering annual financial reports pursuant to the law governing accounting and audit, register the amount of the share capital, if the amount of the share capital has changed in the previous business year.
Adoption of the Resolution and its Content
The decision on the reduction of share capital is passed by the general meeting by a three quarter majority of votes of the present members of a limited liability company.
Exceptionally, a decision on the reduction of share capital may be rendered by the board of directors, i.e. the supervisory board if the company has a two-tier management system, in case of cancellation of the limited liability company’s own shares, if that authorization is granted under the decision passed by the general meeting.
The decision on the reduction of share capital is registered in accordance with the registration act within no later than three months as of the date of adoption.
The decision on the reduction of share capital that is not registered in accordance with the registration act within no later than three months as of the date of adoption is null and void.
A decision on the reduction of share capital specifies the purpose, extent and manner of such reduction, and especially whether the reduction of share capital is made in compliance with provisions on the protection of creditors in case of cancellation of shares or provisions on protection of creditors when reducing the share capital without change the company’s net assets.
If a reduction in share capital is made in keeping with the provisions that governs the protection of creditors, a decision on the reduction of share capital also contains the invitation to the creditors to file their claims for the purpose of security interest.
Methods of Reducing Share Capital
The limited liability company’s share capital may be reduced:
- By withdrawal and cancellation of shares in the possession of members of the limited liability company
- By cancellation of the limited liability company’s own shares.
The reduction in share capital of the limited liability company is carried out by applying the provisions of the Companies Act pertaining to the protection of creditors, unless the Companies Act provides otherwise.
Protection of Creditors and Reduction of share capital
The Business Entities Register publishes the decision on reduction of the company’s share capital for a continuous period of three months starting from the day of registration.
The limited liability company shall send a written notification of such decision to creditors known to the company, whose individual claims amount to at least 2,000,000 dinars in any foreign currency at the National Bank of Serbia middle exchange rate on the day of registration of the decision on reduction of company’s share capital, at the latest within 30 days from the day such decision is registered.
The creditors whose claims have arisen, independently of maturity dates, prior to the expiry of a 30-day deadline as of the day of publication of the decision on the reduction of the company’s share capital may demand in writing from the company the collateral for such claims until the expiry of the publication period for that decision.
The creditors which demanded collateral for their claims, but which failed to obtain collateral for such claims from the company within the period of three months upon the expiry of the deadline of three months starting from the day of registration or whose claims are not satisfied by the company, may file an action before the competent court in order to get a collateral for their claims, on condition that they prove that the settlement of their claims is threatened by the subject reduction of share capital.
When deciding on the action the court shall pay special attention on whether the requested security is necessary for protecting the creditors, having in mind the company’s assets.
With exception, the collateral for claims may not be demanded by:
- Creditors whose claims belong to the first or second rank of priority in terms of the law governing bankruptcy
- Creditors whose claim is secured.
In the event of the reduction of share capital, the company may execute payments towards members of limited liability company only upon the expiry of a period of 30 days from the day of registration of the decision on reduction of share capital in accordance with the registration act.
Exemptions from Application of Provisions on the Protection of Creditors in case of Cancellation of Shares
The provisions on protection of creditors do not apply in the following cases:
- When cancelling own shares which the limited liability company acquired without charge which are fully paid up
- When the fully paid in shares are withdrawn and cancelled by payments at the burden of the reserves’ funds that may be used for such purposes, where the company is obliged to comply with the provisions of Article 275 of Companies Act on payment limitations.
Exemptions from the Application of Provisions on Protection of Creditors when Reducing the Share Capital without Change the Company’s Net Assets
A reduction of the company’s share capital that does not result in a change of the company’s net assets is not subject to the provisions on the protection of creditors.
The limited liability company’s net assets are not changed in case of a reduction of share capital that:
- Covers the company’s losses
- Creates or increases the reserves for covering future losses of the company or for increasing the share capital out of the company’s net assets.
The reduction of the company’s share capital may be carried out only if the company has no retained earnings and reserves that may be used for such purposes and in the amount that may not exceed the amount of losses to be covered.
The reserves may not exceed 10% of the share capital after the capital reduction was carried out.
A reduction of share capital, in the case when reducing the share capital does not result in a change in net assets of the company, may not be the basis for effecting payments to members of the limited liability company or releasing members of the limited liability company from the obligation of payment, i.e. entering of the contributions that are subscribed, but not paid in, i.e. entered into the company.
Read more:
Change in Share Capital »
Additional payments of the company member »
Valuation of the contribution in kind consisting of the securities »
