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One-Tier Corporate Governance System Introduced in Croatian Legal System

January 2008 - Corporate & Commercial. Legal Developments by BABIC & PARTNERS Law Firm .

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On 3 October 2007 Croatian Parliament enacted the Amendments to the Companies Act which should enter into force on 1 April 2008 ("Amendments", "Act"). These Amendments represent the first substantial change to the Act since 2003.

Proclaimed purpose of the Amendments is further alignment of the Croatian companies' law with the relevant provisions of the aquis and with the most recent changes in the German law which had been used as a model in drafting of the Act. The Amendments introduce new solutions with respect to cross border mergers, reserves in the company, financial statements, abolishment of bearer shares, etc. However, arguably the most visible change has taken place with respect to the system of corporate governance of the Croatian joint stock company. More specifically, Croatian joint stock companies are now allowed to choose between the "old" two-tier system with the Supervisory Board and the Management and the "new" one-tier system with the Management Board only.

The choice of one-tier system of corporate governance (i.e. existence of the Management Board instead of the Supervisory Board and the Management) should be expressly stated in the company's Articles of Association. Articles of Association should also determine the number of members of the Management Board. The number of members of the Management Board is limited to (i) 9 for the companies with the share capital of up to 12 million Kuna (app. 1.64 million Euro); (ii) 15 for the companies with the share capital of up to 80 million Kuna (app. 11 million Euro) and (iii) 21 for the companies with the share capital exceeding 80 million Kuna (app. 11 million Euro). Where the relevant Croatian laws mandate that employees must have their representative in the Supervisory Board of the company, the same entitlement shall extend to the Management Board.


Members of the Management Board are elected by the Shareholder's Meeting and the duration of their mandate is determined by the Articles of Association (it cannot exceed 6 years). Particular shareholders may be afforded the right to directly appoint a member of the Management Board. Members of the Management Board elect chairman and vice chairman of the Management Board. The chairman and the vice chairman cannot be among executive directors of the company. The appointment, revocation and resignation of the members of the Management Board as well as the internal structure of the Management Board (e.g. the existence of the particular committees) are governed mutatis mutandis by the provisions regulating the Supervisory Board in the two-tier system.


The Management Board is competent for (i) steering the company; (ii) laying foundations for the performance of the company's activities; (iii) supervising management of the company and (iv) representing company towards executive directors. The Management Board is obliged (i) to convene the Shareholders Meeting whenever necessary for the benefit of the company and (ii) to file for bankruptcy in cases of insolvency and over-indebtedness. It is also responsible to ensure due keeping of the company's business books. The Management Board is also given an important role in adoption of company's financial statements.


The Management Board appoints one or more executive directors of the company for a term defined in the Articles of Association but cannot exceed 6 years. If there are several executive directors one shall be appointed as the chief executive director. Executive directors can be elected among members of the Management Board. However, the members of the Management Board which are not appointed as the executive directors shall always remain majority in the Management Board. Executive director can be revoked by decision of the Management Board at any time. The revocation does not affect the contract entered into by and between the company and the executive director.


Executive directors manage and represent the company. Default rule is that the executive directors manage and represent the company collectively but a different solution can be prescribed in the Articles of Association. The competences afforded to the Management Board by the law cannot be delegated to the executive directors. Again, majority of issues with respect to the executive directors is dealt with by the reference to the rules governing the Management in the two-tier system.

Contributed by Boris Andrejaš, Associate at Babić & Partners



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