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In order to understand the liability of the director and the shareholder in the legal system of Serbia, it is important to understand their role in the limited liability company. This is especially important since these two roles are often getting confused between each other and in most small to medium sized companies, these two roles are often filled by the same person.
When it comes to a shareholder, this is a legal or a natural person that is establishing a company and determining its structure, business activity, share capital and other details that should be included in the establishment act. The shareholders role is mostly connected to paying the share capital and making decisions within the scope of shareholders board. However the day to day decisions about the business operations of the company are made by the company director.
The company director is a natural or legal person that acts as a legal representative of the company. They are signing all the contracts on behalf the company, and are making all decisions necessary for the operation of the company. Therefore, their responsibility is higher compared to the responsibility of the shareholder.
The Companies Act of Serbia provides that the company director must act conscientiously, with the attention of a good businessman and in the reasonable belief that he is acting in the best interest of the company. It is not just a general moral obligation, but a well defined legal standard. The director must make informed decisions that are in the best interest of the company and if director fails to fulfill this duty, the company might file a lawsuit against him for damages.
The penal provisions of many laws that provide for penalties for the company also provide penalties for the legal representative of the company. So in addition to liability towards the company, the company director is also exposed to fines and other penalties for company offenses.
The company shareholders main liability is to pay the shareholders capital determined in the establishment act. The period of time in which the shareholder must pay the share capital is also determined in the establishment act, with the maximal period being 5 years from the day of registering the establishment act. The company can file a lawsuit for the damages against the shareholder that fails to fulfill this obligation on time.
As a general rule, the company shareholders are not personally responsible for the debts of the company. However, there are exceptions to this general rule. The institute of piercing the corporate veil provides that the shareholder will be liable if they abuse the rule of limited liability. The Companies Act of Serbia provides that the shareholder is abusing the rule of limited liability if they:
use the company to achieve a goal that is otherwise forbidden to him
use the company property or disposes of it as if it were their personal property
use the company or its property for the purpose of damaging the company’s creditors
reduce the assets of the company in order to gain benefits for himself or a third party, even though they knew or must have known that the company would not be able to fulfill its obligations.
Moreover, after the liquidation of the company, the members of the LLC may be liable for the company’s obligations up to the amount of the liquidation balance received. However, in the event of a forced liquidation of the company, the controlling member of the LLC may be liable for the company’s obligations indefinitely and jointly and severally.
That is why it is of crucial importance for every company to clearly separate ownership and management functions, establish proper internal control and take into account the rules of loyalty, conflict of interest and protection of creditors.
