Company law in Croatia is governed primarily by the Companies Act. The act regulates different types of business forms (see below) and contains rules on groups of companies, mergers, divisions, transformations of companies and the legal status of foreign companies.
The Companies Act recognizes three principal types of business forms:
Croatian law requires all merchants (sole traders, companies of persons and companies of capital) to register in the court register, governed by the Court Register Act.
Changes and amendments of the Corporations Act from 2012 have enabled foundation of a company with at most 3 activities, 3 members of a company and 1 member of the management board. The lowest share capital of a simple limited liability company is set at HRK 10,00 whilst the lowest nominal amount of the share interest is set at HRK 1,00.
This form of a company may only be incorporated by payment of the share capital in cash. At the end of the year ¼ of the profit of simple Ltd must be transferred in the legal reserve so that the legal capital of the company is in that way increased up to HRK 20.000,00 when a simple Limited Liability Company becomes a regular Limited Liability Company.
Limited liability companies are the most common type of companies in Croatia. It is one in which one or more domestic or foreign legal entities or citizens invest in initial authorized stakes, with which they participate in the total authorized capital as contractually set beforehand. Company assets are strictly separated from the property of owners. The company is liable for its debts with all its assets. The initial authorized capital of a private limited company must be shown in Croatian currency – Kuna (HRK). The minimum amount of initial authorized capital may not be below HRK 20,000.
General partnership is the relationship between two or more persons carrying on a business in common with a view to profit. The members of the partnership are jointly and severally liable for all debts and obligations, without limitation. No minimum capital is required.
Partnership profits are shared by the partners as income, and taxation is paid on this income in exactly the same way as a sole proprietor.
Just like a general partnership, the limited partnership in Croatia can be established by at least two members, individuals or legal entities. The difference is that at least one partner has limited liability up to his own contribution, while at least one member is fully liable for the company’s obligations and management as general partners. No minimum capital is required.
The silent partnership in Croatia makes no difference in terms of requirements for establishment. At least two partners are required and no minimum capital is necessary. The main characteristic is that this type of partnership has a silent partner who is excluded from the obligation to cover the losses of the company. It is not necessary for this partnership to register with the Commercial Court in Croatia.
Under Croatian legislation, foreign companies and sole traders may conduct business in Croatia by setting up a branch office. The start-up and operation of branch offices owned by foreign companies are governed by the same regulations that apply to the establishment of branches by domestic companies. A branch office is not a legal entity. The liabilities and rights stemming from its operation do not belong to the branch office but to the founder.
The sole proprietorship is the simplest business form under which one can operate a business. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. The fictitious name is simply a trade name – it does not create a legal entity separate from the sole proprietor owner.
A subsidiary is a company registered in Croatia but beneficiating from foreign capital. It’s considered a separated legal entity, though. The advantages of owning this type of business are numerous especially from a tax point of view: thanks to the vast network of double tax treaties, a subsidiary registered in Croatia must pay taxes on profits only in the country of origin and beneficiate from abolished or minimized taxes on dividends paid to those countries.
A public limited company is based on capital, with owners (shareholders) investing in authorized capital divided into shares. The company is liable for its debts with all its assets. Shareholders are not liable for the debts of the company. The basic document for a public limited company is the articles of association, as it specifies the internal organization of the company. Authorized capital and shares must show par value in the currency of the Republic of Croatia. The minimum amount of authorized capital is HRK 200,000.
The Law on Companies regulates the establishment of joint-ventures, investment in companies with mixed ownership, as well as other types of foreign or domestic investment.
Under Croatian law, a joint venture may operate under two legal structures:
Anti-trust provisions apply to joint ventures.
A foundation is property permanently assigned to serve some “generally beneficial” or “charitable” purpose. Beneficiaries need not be the general public; a foundation is considered generally beneficial even if its activities benefit only members of a particular profession, nationality, religion, or other group.
A foundation is generally created by a donor’s “letter of establishment” and administered by a director or a governing body pursuant to rules set forth in the foundation’s charter (also called a statute). A foundation may be established by one or more domestic or foreign, physical or legal, persons.