Different corporate structures
Incorporation of a business in Bosnia and Herzegovina is primarily governed at the entity level, more specifically Federation of Bosnia and Herzegovina (“Federation of BiH”) and the Republic of Srpska, by the entity's company laws and laws on registration of business entities. In Federation of BiH, the registration is in jurisdiction of the Registry of Business Entities kept by the municipal courts while in Republic of Srpska, as of 2013 the Intermediary Agency for IT and Financial Services serves as a one-stop-shop for registration of business entities which reduced the process of incorporation dramatically.
Business activities on the market are performed through one of the legal entities prescribed by the company laws, each having different corporate structure which can, in general, be freely chosen.
The following forms may be used for incorporation of company:
Unlimited Joint Liability Company is a company of at least two persons who bear unlimited mutual liability of the company. The company is founded by a founding contract of two or more domestic or foreign legal entities or physical persons. Every member has the right and obligation to manage the company. The company has no statute and no management bodies because members manage the company directly, including representation of the company.
Limited Partnership is a company in which at least one member has unlimited liability for the liabilities of the company including members’ private assets and at least one member bears the risk of up to the value of their share in the partnership. A Limited Partnership is founded by a contract of two or more domestic/foreign legal entities. The partner which bears unlimited liability for company's debts manages the business and represents the company.
Joint–Stock Company is a company with basic capital divided into shares founded with the establishment agreement by domestic/foreign shareholders (i.e. with decision on establishment in case of one shareholder). A Joint-Stock Company is not liable for the obligations of shareholders. The minimum share capital is BAM 50,000 (approx. EUR 25,000) if the shares are listed on the stock exchange or BAM 20,000.00 (approx. EUR 10,000) if the shares are not listed on the stock exchange.
Limited Liability Company (LLC) is a separate legal entity having at least one shareholder. The liabilities of the company cannot pass to the shareholders save in exceptional circumstances (piercing the corporate veil). A member in a limited company is liable up to the value of his investment in that company. The shares of the LLC are expressed in percentages (for example, 5%, 10%, 51%, 100% or any other). A shareholder can have only one share in the company. The share capital may consist of money or any contributions "in kind" (such as property, rights and services, under the conditions prescribed by the law). Minimum share capital in Republic of Srpska is BAM 1.00 (approx. EUR 0.50), and BAM 1.000,00 (approx. EUR 500.00) in Federation of BiH, and the value of individual share cannot be less than BAM 100 (approx. EUR 50.00).
The limited liability company is by far the most common used legal form in practice. This is due to the rather straightforward incorporation procedure and minimal requirements in relation to the share capital of the company.
On the other hand, due to the unlimited liability of shareholders for the debts of the company, general and limited partnerships are rarities in Bosnia and Herzegovina, whereas the incorporation procedure for joint stock company is rather complex and time-consuming, which also makes this legal form rarely used in practice.
The business in Bosnia and Herzegovina may also be conducted through a form which does not represent a legal entity i.e. branch office and representative office and therefore the founder remains liable for all obligations assumed by branch office or representative office. The most common presence of the foreign investors in Bosnia and Herzegovina (without establishment of a legal entity) is through the representative office. Activities of the representative office are very limited and include market research, contract or investment preparations, technical cooperation and similar business facilitation activities. The registration of the representative office, is performed before the Registry of Representative Offices, maintained by the Bosnia and Herzegovina Ministry of Foreign Trade and Economic Affairs.
Incorporation requirements (registration, capital and management requirements)
The founding document of the LLC is the Memorandum of Association, which may be in a form of a decision in case there is only one shareholder of the company or the agreement in case there are several shareholders. In Republic of Srpska, in the case of a sole founder who is registering minimal share capital, it is necessary only to notarize a signature of the founder or authorized person.
In Federation of BiH, incorporation of LLC requires the submission of the Memorandum and other documents to the Registry of Business Entities of the municipal court where the headquarters of the company are situated. In Republic of Srpska, the role of one-stop-shop is performed by the Intermediary Agency for IT and Financial Services that acts as intermediary between the court and the applicant, whereby the court is issuing the Incorporation Certificate and the agency delivers it to the applicant. Once this document is issued and delivered, the LLC is considered registered and legally permitted to commence its business activities. The procedure of incorporation is finalized with the issuance of the Incorporation Certificate. In practice, the incorporation procedure in FBIH is finalized 7-15 days upon submission of the complete application. In Republic of Srpska, the incorporation is usually finalized within 5-10 days.
In Federation of BiH, following the registration of the company, there are a few other registrations that have to be completed (the so-called post-registration procedure) - including registration with the Federal Institute for Statistics, general tax registration, customs registration and VAT registration (if applicable). Required time for post-registration procedures is approximately two weeks (provided all the documents are collected in a timely manner). On the other hand, in Republic of Srpska there are no additional obligatory registrations after the registration of the company. The company is obliged to either appoint a certified accountant or to engage an accounting agency immediately after the incorporation.
To register an LLC, the founder should submit the documentation prescribed by the Republic of Srpska/Federation of BiH Law on Registration of Business Entities. Generally, all documents must be originals and translated by a court sworn translator into local language. Depending on the country of notarization of documents additional legalization may be required.
Corporate governance of the LLC in the Federation of BiH can be organized as one-tier (shareholders' assembly and one or more directors) or two-tier system (with additional supervisory board). In the Republic of Srpska, corporate governance of the LLC is organized as one-tier system.
The Assembly operates through sessions and the Memorandum governs the scope of its powers (in the case of the sole shareholder, the functions of the shareholders' assembly are performed by the shareholder itself). Management of the company consists of one or more directors who don’t have to be the company’s shareholders and who are in charge for day to day businesses of the company. Director of the company does not have to be employed by the company, provided that he/she has concluded the management agreement with the company. If a person appointed as a director is a foreigner, it is necessary that he/she obtains a residence and work permit.
In Federation of BiH, the Supervisory Board is required if the company has more than 10 shareholders or if the company has the share capital of BAM 1 million (approximately EUR 511,300) and at least two shareholders. The Supervisory Board is appointed by the Assembly.
The LLC can be engaged in all legally permitted activities, which must be defined in the Memorandum of Association and registered with the relevant state authority. Certain activities (e.g. financial services and insurance services), may be performed only by an entity incorporated in a certain legal form (e.g. joint-stock company), and some activities require prior specific licenses, approvals or consents of Bosnia and Herzegovina regulatory bodies or authorities for transfer of LLC`s share (e.g. broadcasting, financial services, etc.). In addition to the requirement of obtaining a specific license, in the fields of the production and sale of arms, ammunition and explosives for the military use and military equipment and broadcasting, the foreign capital may not exceed 49% of the company's share capital.