When starting a business in some countries, entrepreneurs have to choose between different legal forms for their company. In Croatia, for instance, two popular legal forms are d.o.o. (LLC) and d.d. (JSC) companies. While both offer limited liability for their owners, there are significant differences between the two that entrepreneurs should consider when making their decision.
A Limited Liability Company (LLC), or, in Croatian, Društvo sa Ograničenom Odgovornošću (d.o.o.) is a corporation in which one or more legal or natural persons invest in prearranged share capital the fundamental positions with which they engage. The minimum share capital for a d.o.o. is 20,000 kn, which can be invested in items (mandatory auditor assessment), but must be at least 50% in money when forming in money, and the remainder in matters and rights.
To retain the prudential balance sheet structure of the liabilities (source of financing), members of d.o.o. will invest tax-free in d.o.o. money, objects, and rights in unwritten capital (capital reserves) that are not reported in the court register – their must be a social contract on investment. Personal assets of d.o.o. members do not correspond to d.o.o. liabilities.
A limited liability partnership is formed based on a social contract that must be signed by all founders and sealed with a notarial deed. If a company is created by only one person, the company is formed based on a
declaration of incorporation signed by the creator in the form of a notarial act. On the day of his entry into the Court Register, he gains legal personality.
On the other hand, a Joint Stock Company (JSC), or, in Croatian, Dioničko društvo (d.d.), is described by the Companies Act as a company in which partners (shareholders) have interests in the share capital divided into shares. A legally effusive individual who acquires legal personality by registering in the court registry is referred to as a joint-stock corporation. Both of the Company’s funds are used to cover its obligations. Shareholders are not responsible for the company’s debts.
A statute is a stock company’s fundamental act. It governs society’s internal structure. The minimum share capital required for the formation of a stock company is kuna equal to HRKZ 200,000.00. A joint-stock corporation is required to have a management and supervisory board, as well as a general meeting.
The key distinction is that d.o.o. has shareholders or owners, depending on the share of the share capital, and the founders are not liable for the company’s responsibilities. While d.d. has management, a supervisory board, and an assembly, the Company is financially responsible for all of its responsibilities.
As of 17th of June 2020., Scalable Global Solutions has successfully made the transition from LLC to JSC. The company capital was increased from 400.000 kunas to 800.000 kunas, and divided into 80.000 shares, with a nominal price per share of 10 kunas. Based on the investments in the company and further business growth, to become more attractive to investors and achieve greater market credibility, Scalable Global Solutions has an intention to accordingly proceed with raising the company capital and number of shares.
One of the advantages of being a JSC is the simplicity of the share transfer process, where the transfer is consumed by the execution of the share purchase/transfer agreement. On the other hand, ownership change in an LLC is more time-consuming, with a lot more bureaucratic procedures involved.
Also, the benefits of a JSC are that they have the stability of existence (not many companies make the transition from LLC to JSC), there is scope for further (and easier) expansion, public confidence, and tax benefits.
Conclusion
While both d.o.o. and d.d. companies offer limited liability for their owners, they have significant differences that entrepreneurs should consider when choosing the legal form for their company. The choice ultimately depends on the entrepreneur’s business plan, the size of the company, the desired ownership structure, and the resources available to meet the legal requirements.
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Sources:
https://www.rtl.hr/zivotistil/edukacija/3591293/razlika-izmedju-dd-i-doo/
https://www.petric-kajic.hr/preoblikovanje-d-o-o-a-u-d-d/
https://savjeti.novac.net/blogovi/razlika-izmedu-d-d-i-d-o-o/
