Law on Amendments to the Companies Act

Reserved own share and financial instrument

Since April 1, 2020, began implementation of the Law on Amendments to the Companies Act (“Off. Herald of RS”, Nos. 91/2019) by which two new legal institutes for limited liability companies were introduced:

  • reserved own share and
  • financial instrument – right to acquire a share.

Reserved Own Share

A reserved own share of a company within the meaning of the Companies Act shall be considered a share that the company acquires from a member of the company without consideration, for the purpose of granting a financial instrument – right to acquire a share.

A reserved own share cannot be pledged, nor can a reserved own share be disposed of, except in the manner prescribed by law.

A single-member limited liability company may have a reserved own share. A company may have more reserved own shares. The share percentage of all reserved own shares in the share capital of the company may not exceed 40%.

The decision on acquiring a reserved own share is made by the general meeting of the company by a two-third majority of the total number of votes all company members. A reserved own share may only be acquired from the shares of members who have voted in favor of the decision to acquire a reserved own share.

The Company may acquire the reserved own share only from the shares that have been fully paid up i.e. entered into.

If no financial instrument has been issued from the reserved own share, the company may:

  1. Pass a decision to divide that reserved own share into several new reserved own shares
  2. Pass a decision to cancel that reserved own share, when it is under obligation to carry out the procedure of reduction of share capital.

The reserved own share shall be registered in accordance with the law on registration.

Rights of a Company Stemming from the Reserved Own Share

The Company has neither the voting right on the basis of reserved own shares, nor are those shares counted in the quorum of the General Meeting. The reserved own share does not entitle to share in profit

Financial Instrument – Right to Acquire a Share

Financial instrument – the right to acquire a share, within the meaning of the Companies Act, is a non-transferable financial instrument issued by a limited liability company that gives the consenting holder the right to acquire a share on a particular day (maturity day) at a certain price.

Financial instrument – the right to acquire a share cannot be pledged, or inherited.

The provisions of the law governing the capital market relating to the Central Registry, the Depository and the Clearing of Securities (hereinafter: the Central Registry) shall apply to the financial instrument – the right to acquire shares.

Issuance of the financial instrument – the right to acquire a share is not considered to be a public offer within the meaning of the law governing the capital market. Procedure and documentation required for conducting the registration and printing of a financial instrument – the right to acquire a share in the Central Registry shall be exercised in accordance with the rules of operation of the Central Registry.

Decision on Issue of the Financial Instrument – Right to Acquire a Share

The decision on the issue of the financial instrument – the right to acquire a share (hereinafter: the decision on the issue), shall be made by the general meeting of the company, unless otherwise provided by the memorandum of association.

The decision on the issue shall contain elements which are prescribed by the provisions of Article 159g paragraph 1 of the Companies Act.

All issues of the financial instrument – right to acquire share from one reserved own share shall have the same maturity date and the same deadline for payment of the price.

The Company shall submit the issue decision to the Central Registry within five working days from the day of adoption, for the purpose of subscription and registration of the financial instrument – right to acquire share in favor of the legal holders.

Share Acquisition on the basis of a Financial Instrument – Right to Acquire Share and Cancellation of the Financial Instrument

Financial Instrument – right to acquire shares may be:

  1. Realized by acquiring a share or
  2. Cancelled
    – When the holder of the financial instrument – right to acquire the share has failed to fulfill his obligation to pay the price to the company for share acquisition within deadline from the decision on the issue, which may not be shorter than 15 days or longer than 30 days from the day of maturity
    – Before the maturity date, in accordance with the terms of the emission decision.

In the cases of share acquisition or annulment, the financial instrument – right to acquire share shall be cleared from the Central Register.

If the holder of the financial instrument – right to acquire share within the period from the issue decision makes the payment of the price, it shall be deemed that he has given his consent to acquire the share.

In the cases of the financial instrument – right to acquire the share annulment, the general meeting of the company or other body designated by the memorandum of association shall pass a decision to cancel that financial instrument.

The Company shall submit to the Central Registry, within 30 days from the expiration of the deadline for payment of the price from the emission decision, an application for the clearing of the financial instrument – right to acquire share, for the purpose of acquiring the share, i.e. cancellation. The Central Registry shall make the clearance and issue to the company a certificate of the clearing of the financial instrument – right to acquire share.

Acquisition of the share on the basis of the financial instrument – right to acquire share shall be registered simultaneously for all issues issued from the same reserved own share in accordance with the law on registration.

The members of the company shall have no pre-emption right regarding the share which is acquired on the basis of the financial instrument – right to acquire share.

Disposing of the Remaining Unused Reserved Own Share

After the registration of an acquisition of a share on the basis of financial instruments – right to acquire share issued from one reserved own share, the remaining unused portion of that reserved own share may be canceled or used for new issues of the financial instrument – right to acquire the share. If the company decides to cancel the remaining unused portion of the reserved own share, the company shall carry out the procedure of reduction of the share capital.

The remaining unused portion of the reserved own share which shall be used for new emissions in accordance with the provisions of the Companies Act shall be considered as the new reserved own share.

Special cases of maturity

Exceptionally, the financial instrument – right to acquire share shall become due even before the maturity date from the decision on the issue, namely in the case of:

  1. Liquidation – the next day after the publication of the announcement of the commencement of liquidation
  2. Status change – the next day after the publication of the draft status change agreement, i.e. the plan of division
  3. Changes in the legal form – the next day after the date of publication of the proposal for a decision on the change of legal form.

In the cases of the early maturity date, the deadline for payment of the price paid by the holder of the financial instrument – right to acquire the share to the company for acquiring the share shall be 40 days from the date of occurrence of the early maturity date.

The Company cannot make a decision on finalization of liquidation, decision on status change and decision on change of legal form until it completes the registration of acquisition of share on the basis of the financial instrument – right to acquire share, i.e. registration of reduction of share capital due to cancellation of unused reserved own share.

Judicial Protection

In case the company failed to register the acquisition of the share on the basis of the financial instrument – right to acquire the share within 60 days from the day of expiry of the deadline for the payment of price, the holder of the financial instrument – right to acquire the share who made the payment of price to company for share acquisition within deadline from the decision on the issue, which may not be shorter than 15 days or longer than 30 days from the day of maturity or within the term of 40 days from the date of occurrence of the early maturity date made the payment may, within the next six months, file a lawsuit with the competent court to establish the membership status and the percentage of the share that the holder of the financial instrument – right to acquire the share acquires or a lawsuit to determine the compensation that the company must pay to the holder of the financial instrument – right to acquire the share.

The court shall determine the compensation according to the market value of the share that the holder of the financial instrument – right to acquire the share would be entitled to acquire on the maturity date of the financial instrument – right to acquire the share.

Financial Instrument – right to acquire share shall cease to exist on the day of deletion of the company from the register due to the completion of the compulsory liquidation procedure and shall be cleared from the Central Registry ex officio, and the holder of this financial instrument shall become a creditor of the company and shall be entitled to payment of compensation in the amount of the market value of the share which the holder of this financial instrument would be entitled to acquire on the maturity date of the financial instrument if the price was paid, i.e. on the day of the deletion of the company from the register due to the completion of the compulsory liquidation procedure, reduced by the amount of the price paid to the company by the holder of the financial instrument – right to acquire the share for the acquisition of the share, if the price was not paid.

Read more:
Change in Share Capital »
Tax aspect of liquidation of companies »

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