Shareholders in a Montenegrin Limited Company

Also known as (founding) members or subscribers (Montenegrin: Osnivači), shareholders are the legal owners of equity in a limited company. Every company in Montenegro must have one or more shareholders, who may either be individuals or other corporate entities – based in Montenegro or abroad. They hold shares, representing ownership in proportion to the capital they have invested in the company.

In exchange for their capital, shareholders are entitled to vote on company matters and receive a portion of profits – typically through dividends – while their financial liability is limited to the nominal value of their shares. A large number of small companies in Montenegro are owned by a single shareholder, who is frequently also the sole director. Nonetheless, companies can have multiple resident or non-resident owners.

What is the difference between shareholders and directors?

Whereas shareholders (co-)own a business by holding shares in the company, directors are appointed by those shareholders to manage the operational activities of a company. Directors do not need to own shares, and being a shareholder does not automatically make someone a director and grant them any authority over the company’s daily operations.

As company founders often tend to also be directors, it is not uncommon, especially in small and medium-sized companies, for just one person to assume both the role of sole shareholder and director. This dual role often blurs the line between shareholders and directors, especially in family-owned companies.

Rights and responsibilities of shareholders

Because they are not necessarily actively involved in daily operations, owners/shareholders will only make decisions about important matters such as rebranding and changing the name of the business, appointing or removing directors, changing directors’ powers, and altering the Articles of Association.

Not all shareholders have access to the most recent company records. Other than the annual accounts, any further information may only be available at the directors’ discretion. For all that, shareholders have specific rights outlined in Montenegro’s Companies Act (65/2020), the organisation’s Articles of Association, and additional shareholder agreements.

Commonly, shareholders in a Montenegrin limited company will have the following rights and responsibilities:

• Voting on key company matters: making amendments to the Articles of Association, agreeing to increase or reduce the share capital, and approving major transactions (mergers & acquisitions, as well as substantial investments and the sale of significant corporate assets)
• Adopting the Memorandum of Association at the company’s incorporation
• Authority to appoint and dismiss company directors
• Receiving dividends relative to the quantity and value of owned shares
• Control over company name changes
• Power to change the company structure
• Assigning responsibilities and powers to directors
• Participating in general meetings
• Receive a share of the remaining capital upon the closing of the company

It’s important to note that while it is true that shareholders can exert significant influence through their voting rights and approval of major decisions, they do not have the power to instruct directors on the company’s day-to-day affairs. Instead, they set the framework and guidelines within which directors have to operate.

What are shares?

Shares are units of ownership in a company, allowing multiple investors to share the risks and rewards of the business in proportion to their holdings/investments. The total number of shares held by an individual or corporate investor determines their stake and level of control. Some shareholder information (name, surname, and ownership share) appears on the public register.

A limited company in Montenegro must issue at least one share. At the same time, the Companies Act (65/2020) does not set an upper limit on the total number of shares that can be distributed among its shareholders. However, the maximum number of shareholders in a DOO (Društvo sa ograničenom odgovornošću) is capped at 50. Most companies issue 100 shares of equal value during incorporation, which translates to 1% ownership per share.

There is a difference between the nominal and market value of shares. The nominal value, which usually is 1€ (although this can be altered to any value), is the amount a (founding) member of the DOO agrees to pay to own a single share. The nominal share value represents the limit of the shareholder’s total liability; they cannot lose more money than they originally invested, regardless of the company’s debts or obligations.

The market value of a share is the price at which you are able to sell it in a private transaction, which often differs from the nominal share value since it reflects what buyers are actually willing to pay for it based on the company’s assets, profitability, and growth potential. The difference between the nominal value and the market value is referred to as the ‘share premium’.