Types of Companies in Montenegro

Interested in establishing a company in Montenegro? Broadly speaking, aspiring entrepreneurs can select among four main types of companies, each with its own opportunities and obstacles. You should choose your future business structure wisely because it will influence everything from day-to-day work, to personal liability, and off course, how much you pay in taxes.

It is highly recommended that you already decide on the legal form before registering your business with Montenegro’s Company Register. Even though converting it later on to another type is possibble, this could incur unneccessary costs and trigger unintended tax and regulatory consequences. Most businesses would also need to apply for a new tax ID number and VAT identifier, plus potentially update their business licenses and permits.

Table of Contents

Limited Liability Company (LLC or D.O.O.)

The Limited Liability Company (Montenegrin: Društvo sa ograničenom odgovornošću / D.O.O.) is by far the most common company type in Montenegro. It is an incorporated business entity that is separate from its shareholders, and as such, it can be thought of as an US corporation (C Corp), rather than the unincorproated US LLC.

A Montenegrin D.O.O. lets you take advantage of full asset protection, confering limited liability on all of its shareholders. It can be established as a single-member company with a start-up capital of just 1,00 Euro and must have one company director and at least one shareholder who can also be the same person. Here are some other things to consider:

The company director must apply for residency in Montenegro (in case he is a non-Montenegrin national)
Montenegrin LLCs can make a profit, pay corporate income tax, and can be held legally responsible
They offer shareholders the strongest level of asset protection
LLCs are subject to two levels of taxation: corporate income tax and personal income tax when the company profits are distributed as dividends to the shareholders
They can raise captial through the sale of stocks
Company directors need to have at least a high school diploma
All employees, including the director, must receive at least the minimum monthly salary
The LLC can have either natural or legal persons as shareholders

Sole Proprietorship

Choosing to incorporate as D.O.O. may not always be the best solution for newbie Montenegrin entrepreneurs. While it protects you from personal liability for business debts as your small company grows, you may at first only need a simpler business structure. Registering your dealings as a sole proprietorship is often the more straightforward way to get started because it is easier to form and does not require incorporation.

Becoming a sole trader can be a wise choice for simple, low-risk businesses that are not dependent on outside financing, such as freelance writers, programers, and web designers, plus prudent entrepreneues who want to test the waters first before fully committing to a more formal business setup.

Sole Proprietorship vs LLC

Limited Liability Companies (D.O.O.) and sole proprietorships are two entirely different company types available to Montenegrin entrepreneurs, with each having their own advantages and disadvantages. Here are the most important differences:

Partnership

Whereas sole proprietorships are a valid option for single founders, partnerships (Montenegrin: Ortacko Drustvo) take the idea of the simplest business structure a step further, allowing for two or more entrepreneurs to own a business together, share its profits, but are also responsible for the actions of the other partners and are jointly liable for incurred business debts.

While the responsibilities are shared equally, the specifics of the profit distribution are usually defined in the partnership agreement, which must be submitted to the Central Registry of Commercial Entities (CRPS) in Podgorica when setting up this business type. Given that partnerships are treated as pass-through enttities by the tax office, profits have to be declared by the individual partners in their personal income tax return – unlike a D.O.O., a partnership pays no corporate income tax. Here are some additional things to consider:

The partners in a partnership are formally not employed in the business; they don’t receive a salary but earn (monthly) distributions of the business profits instead
They have to a pay a share of their estimated monthly income into Montenegro’s social security system
Each partner can apply for a temporary work and residence permit in Montenegro
Since a partnership cannot issue shares, raising investment capital is more difficult compared to LLCs or JSCs (Joint-stock companies)
For residency purposes, each partner must have at least a high school diploma
Partners can either be natural or legal persons

Joint-Stock Company

Very few companies in Montenegro are organized voluntarily as joint-stock companies (Montenegrin: Akcionarsko društvo / AD), in large part due to the much higher incorporation and running costs, lenghty and complicated formation procedure, and heigtened due diligence requirements compated to all other company types.

According to Montenegro’s Company Act, certain companies must be registerd as joint-stock companies, including banks, insurance companies, brokerages, and gambling companies. Theype of this business structure is often chosen by larger companies thanks to the ease of raising large amounts of capital through public stock offerings. Here are some other things to take into consideration:

Stocks in a AD are owned by its shareholder who are allowed to buy and sell stock in the company freely (unless otherwise agreed)
Shares of public stock companies are traded on Montenegro’s National Stock Exchange (MNSE) in Podgorica
The liability of shareholders is limited to their invested capital
Additional capital can be raised by issuing new shares
The minimum share capital required to form a stock company in Montenegro is 25,000 Euros

Non-Profit Foundation & Organization

Unline the four company types mentioned above, nonprofit foundations (Montenegrin: nevladina fondacija) and nonprofit organizations (Montenegrin: nevladina organizacija) do not operate primarily to make a profit for the services they provide; for example education and literary programs, religious charity, and health services.

Because the work of nonprofit entities is in the public interest, they can often apply for tax-exempt status, meaning they won’t have to pay any taxes on the profits they make. Further, they need to follow organizational principles similar to the ones of a regular limited liability company like the Articles of Association and Memorandum of Association. Here are some more things to consider when establishing a NGO in Montenegro:

The nonprofit foundation can be started by one (or more) founders with or without residency in Montenegro whereas the nonprofit organization strictly requires at least three founders, of which one must be a resident in Montenegro
Nonprofits are required to be listed on the NGO register (Montenegrin: Registar Nevladinih Organizacija)
Every NGO are obliged to apply for a Tax ID Number
In case the NGO plans to engage in any commercial activity, it also needs to be listed on Montenegro’s Company Register

Compare the Business Types

When choosing to start your business, it is important to compare the individual strengths and weaknesses that each company type provides. Compare the general characteristics of each entity with the table below, and decide which business structute makes the most sense to help you achieve your business goals in Montenegro.

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