[OMOS knowledge puzzle] – Share capital reconciliation in accordance with the Law on Amendments to the Companies Act

Share capital reconciliation in accordance with the Law on Amendments to the Companies Act

With the entry of the Republic of Croatia into the eurozone and based on the Act on the introduction of the Euro in the Republic of Croatia, the provisions of the Law on Amendments to the Companies Act came into force on January 1, 2023,. Those provisions prescribe minimum amounts of share capital, nominal amounts of share business shares and shares and the deadlines for the implementation of the adjustment of the share capital.

Share capital and nominal shares until December 31, 2022

Share capital and nominal shares from January 1, 2023

The Law on Amendments to the Companies Act prescribes a compliance period of 1 year for joint-stock companies and 3 years for (simple) limited liability companies, while penalty for non-fulfillment of the obligation varies from fines to even deletion of the entity from the register of the Commercial Court. Based on the announcement of the Ministry of Justice, the deadlines for compliance will be extended indefinitely, and entities will not be deleted from the register after the expiry of the statutory deadline. The Ministry of Justice further announces changes to additional legal acts, which would exempt entrepreneurs from court fees and notary fees and urge entrepreneurs to wait for the entry into force of the aforementioned changes.

In addition to the capital adjustment itself, the procedure for the adjustment of the share capital also includes the adjustment of the Incorporation Acts in the provisions on the number and amount of business shares / shares, and the procedure itself is carried out:

• by reducing the share capital to a multiple of 10 (d.o.o.) or 1 (j.d.o.o / d.d), whereby the amount for which the share capital has been decreased cannot be paid out and needs to be classified as capital reserve, or if there is one, it covers the carried forward loss;
• by increasing the share capital to a multiple of 10 (d.o.o.) or 1 (j.d.o.o / d.d) by cash payment
• by increasing the share capital to a multiple of 10 (d.o.o.) or 1 (j.d.o.o / d.d) by entering rights or things or by “reinvesting profit”, and when registering in the court register, it is necessary to attach the opinion of the Certified Auditor on the financial statements, and this procedure is carried out until expiration of the period of 8 (eight) months from the date of the financial statements.

It is very important to mention the provision of the Rulebook on the Corporation Income Tax, which stipulates that the reduction of share capital as a result of compliance with the new legal provisions will not result in a tax liability for entrepreneurs who previously used the possibility of exemption from income tax for profits that were reinvested and entered into the share capital.