ARTICLE Co-ownership of share in Serbia

ARTICLE Co-ownership of share in Serbia

     Article 153 of the Law on Business Companies stipulates that a share in a company may belong to multiple persons. The law refers to those persons as share co-owners and specifies that share co-owners are considered as one single member of the company and are unlimitedly jointly and severally liable before the company for all obligations related to that share. Furthermore, they exercise their voting rights based on the share through a common proxy, henceforth they are obliged to inform the company on the proxy's identity.

 

Relationship between share co-owners


When defining share co-ownership, the provisions of the law do not distinguish between different ownership regimes, i.e. the law defines as “co-owners” both co-owners and joint owners. While not specifying any detail on the ownership regime between shareowners of a company, the law prescribes that share co-owners arrange their mutual relations regarding the co-ownership in a separate agreement. From the point of view of the law, the specific share ownership regime is not important since the owners are considered as one sole company member and their rights in the company are exercised through a common proxy whom they are obliged to appoint. When registering the company in the Business Entities Register, all share co-owners are enlisted as owners of their shares in the company, whereas the percentage belonging to each co-owner is not being specified.

The appointment of a common proxy and the submission of the Decision on Appointment of a Proxy to the company is necessary for exercising rights based on a share ownership. Without the appointment of a proxy, share co-owners do not have the opportunity to participate in the work of the assembly of a company. Article 153 paragraph 6 prescribes that, until the date of notification to the company on the appointment of a common proxy, the share of the co-owners is not counted for the purposes of voting and determining the quorum at the assembly session.
When It comes to resolving potential disagreements between share co-owners, the Law on Business Companies is vague. Interpreting the provisions of this article, especially paragraph 4 which stipulates that co-owners are considered to be one single member, we come to the conclusion that the legislator probably assessed that it is unnecessary to regulate the mutual relations between the co-owners. The law in actual fact left it to the co-owners to take charge of resolving their own relations if they wanted to exercise their rights as a member of the company. In the event of any disagreement between the share co-owners, e.g. the appointment of a common proxy or the voting for a specific decision in the assembly, the co-owners would deprive themselves of the opportunity to participate in the decision making.


Share joint ownership of spouses


The absence of legal regulations regarding the common property regimes creates a lot of conflicting positions among the guild when considering the question of joint ownership of spouses over a share in a company in case only one spouse has been registered as a member of the company.
The judicial practice has taken the position that the share capital of the spouses who are not named as business partners, does not give them any rights over the business company in question.


The Court of Appeals in Kragujevac - Judgment Gž 242/2016 – 9 December 2016:
 

The first-instance court finds that the pecuniary share capital of the defendant M. M. in the company PP "I" p.o. Ch., founded on 16 April 1990, was 5.000,00 RSD at the time, which was revalued on 31 December 1994 and was 4.000,00 RSD. The funds entered by M. M. as contributed share capital in the company "I" p.o. Ch. represent the joint property of the parties. Thence, the common property of the plaintiff and the defendant became the property of the company, and from the moment of its contribution to the company, the property rights of both the investor and his spouse ceased. By registering the incorporation of PP "I" p.o. in the Register of the Commercial Court, the legal effects of the Founding Act are taking place, in accordance with Art. 5 and 50 of the then valid Law on Enterprises, that is, the acquisition of legal subjectivity of the newly established enterprise, and then the acquisition of the ownership rights of that enterprise on the basis of the share capital entered by the defendant M. M. In addition, according to Art. 151 and Art. 152 of the Law on Business Companies ("Official Gazette of the RS", no. 36/11, 99/11 and 83/14) the contributions of the members of the company constitute the property of the company, and, in relation to the defendant M. as a founder-investor of joint property that had been entered into the company as share capital, the plaintiff can only have a obligation legal claim in the amount that corresponds to her contribution in acquiring the invested funds, which according to this court's opinion is 50%.

The second-instance court finds that the first-instance court made a correct decision when determining that the share capital of the plaintiff and the defendant M. entered into the company "I" p.o. amounted to 4.000,00 RSD on 4 January 1995, since this share capital was contributed at the time the parties were married. Namely, a spouse who is not a party in the Founding Agreement nor a participant in the Founding Decision cannot acquire neither decision-making nor property rights in the company. However, he/she can be the holder of the right of joint ownership over the property that his/her spouse contributed to the company as his/her contribution. The plaintiff cannot assert a property legal claim regarding this founding contribution, but she can assert an obligatory legal claim, as the first-instance court correctly found. Namely, the pecuniary contribution entered into the company from the joint property as one spouse’s share capital becomes the property of the company. For this reason, the obligation claim of one spouse is constituted towards the other spouse, who is an investor-member of the company, in the amount of the corresponding value of that property. Given that the shares of the parties over the course of the marriage are equal, and bearing in mind their contributions in the acquisitions made in the marriage, the defendant is obliged to pay the plaintiff the amount of 2.000,00 RSD, which represents half of the founding contribution in the company "I" p.o. Ch. [...]

 

The same position was taken by the Court of Appeal in Belgrade in the Judgment GŽ 5853/17 from 7 August 2019. The plaintiff filed a review petition against the judgment, and it was rejected by the Supreme Court in Judgement Rev 1549/2021, where it is stated that the plaintiff could not assert a property claim in relation to the property of the company, but could only assert an obligation claim against the ex-spouse, which would be in proportion to her participation in the acquisition of the assets that had been included in the property of the company.
The main issues that legal professionals have with regards to this interpretation of the judicial authorities primarily refer to these:

- There is a need for a unified legal order;
- The legal system cannot be constituted in a single regulation;
- The regulation must not be viewed through a narrow lens.

The objections are being made mostly bearing in mind the Family Law which considers the joint property of spouses, as well as articles 151 and 152 of the Law on Business Companies which prescribes that a member of the company acquires a share in the company in proportion to the value of their share in the total share capital of the company. Furthermore, a shareowner has the right to profits of the company. However, critics of this judicial practice ignore the fact that the status of a member of a company is acquired at the moment of registration in the Business Entities Register, and a person who is not entered on this Register as a member of the company cannot be considered as such. Otherwise, it would leave room for a company to have secret members.
Although the law remains vague in terms of the property regime between co-owners of a single share, the judicial practice took a consistent position that a share in a company is not to be considered marital property. When answering a question whether the spouse who is not registered in the Business Entities Register as a member of the company has property rights to the share in the acquisition of which he/she participated, or whether he/she has an obligation right towards the registered spouse in the amount of the contributed value, it is precisely the "controversial" Article 153 of the Law on Business Companies that offers the solution – there is an open possibility for both spouses to be registered in the Business Entities Register as members-owners of a single share, as well as to regulate their mutual relations by an agreement.

 

Authors:

Miloš Vučković, Senior & Managing Partner

Branka Dželajlija, Associate

 

*The information in this document does not represent legal advice and is provided for general informational purposes only.

**Partner, Senior Associate, Associate and/or Junior Associate refers to Independent Attorney at Law in cooperation with IVVK Lawyers.

28/06/2023

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