Corporate Governance 2019 Comparisons

Last Updated June 21, 2019

Contributed By Cakmakova Advocates

Law and Practice

Authors



Cakmakova Advocates has a legal team of 12 highly trained and experienced attorneys at law, and two associates (who have each passed the Bar exam), each dedicated to a specific area of the law so that the firm can give the best legal assessment and assistance possible. The partnership has expertise in the area of corporate governance, and also in corporate law, business law, construction law, banking and finance, commercial law, telecommunications, labour and employment, foreign investments, litigation and dispute resolution, tax law, mergers & acquisitions, competition, and intellectual property.

The principal forms of corporate/business organisations in the Macedonian jurisdiction are: (i) the limited liability company; (ii) the joint stock company; (iii) the general partnership; (iv) the limited partnership; and (v) the limited partnership with stocks.

Differences between the stipulated forms of corporate/business organisations are as follows:

  • The general partnership – the shareholders have unlimited and solidary responsibility, and are liable to the extent of their entire property.
  • The limited partnership – involves two types of shareholders: namely, limited and general partners. General partners are liable unlimitedly and solidary, and must comprise at least one fifth of the basic capital of the partnership.
  • The limited liability company is the most popular form of corporate/business organisation, and consists of 50 shareholders at most. The minimum basic capital is EUR5,000, and there is the possibility for deferred payment of the basic capital.
  • The joint stock company may be formed without a public call for the recording of shares when the basic capital is EUR25,000 minimum, and successively with a public call when the basic capital is EUR50,000.

In Macedonia, the most common forms of corporate/business organisations are the limited liability company and the joint stock company.

The principal source of corporate governance requirements for companies in the Macedonian jurisdiction is predominantly the Company Law, followed by company agreements whereby the shareholders/stakeholders regulate the mutual relations, and also rulebooks on procedural rules for the work of the companies and other internal acts.

Corporate governance requirements for companies with shares that are publicly traded include the listing on the Macedonian stock exchange based on different criteria and terms, and the mandatory listing requirements on separate trade platforms on the basis of agreement (regulating the mutual rights and obligations) between the Macedonian stock exchange and the issuer of securities.

Thereby, the decision to list securities on the stock exchange is adopted by the management body of the issuer of securities, and such listing is done per its request, filed in written form.

The general condition for the listing of securities on the stock exchange is that they must be fully paid in and unlimitedly transferable.

The rules on listing adopted by the Macedonian stock exchange thus determine the conditions for the disclosure of information and reporting by the issuer whose securities are listed on said stock exchange. Such conditions may not be less detailed or strict than the conditions for the disclosure of information and reporting by joint stock companies with separate reporting obligations prescribed by the Securities Law.

The Macedonian stock exchange keeps a register maintaining all relevant data and documents pertaining to issuers whose securities are listed on the stock exchange.

Expulsion from the listing of securities on the stock exchange, as per the request of the issuer of securities, is performed solely on the basis of an adopted decision of the shareholders' assembly of the securities issuer.

The shareholders' assembly/meeting must be held at least once per year based on the requirements of the Company Law for the adoption of the annual accounts and the annual report on the operations of a company, covering the loss and profit distribution.

In the annual report on the operations of the company for the previous business year, the management body shall be obliged to objectively present and explain the following:

  • the main factors and circumstances that had an influence on determining the operations, including any changes in the environment in which the company operates, the response of the company to such changes and their impact;
  • the investment policy for the maintenance and support of the success of the operations of the company, including the dividend policy;
  • the sources of the company’s assets;
  • the policy regarding long-term debt in relation to the basic capital;
  • the risk management policy;
  • major transactions and interested party transactions with data regarding the amount of the transactions conducted on the basis of the deal with the interested party, as well as the assets of the company the value of which is not covered in the balance sheet according to the international financial notification standards;
  • the tendencies of the future development of the company and its business venture;
  • activities in the field of research and development; and
  • information in relation to the acquisition of the company's own shares, depending on the relevant circumstances.

Most of the recent developments pertaining to corporate governance in Macedonia concern commercial banks and their operations.

Other key topical issues include the possibility of establishing silent partnerships, a form of corporate organisation that has existed since 2004 but was abolished with amendments to the Company Law in 2018.

The principal bodies involved in the governance and management of a company are the shareholders' assembly/meeting and the director or board of directors/management board.

Supervision over the operations of a company is performed by a supervisory board or controller.

The stipulated bodies make decisions adopted with different majorities, depending on the required majority determined in an act for the establishment of a company and/or the provisions of the Company Law.

Furthermore, the cessation of a company, amendments to the act for its establishment, increases or decreases of basic capital, and statutory changes in a limited liability company can be done with a three-quarter majority of the total number of votes within a company. Such exact changes at a joint stock company are performed with a two-thirds majority of the shares with the right to vote that are represented in the shareholders' assembly.

In principle, decisions are adopted in a session of the suitable management body – ie, the board of directors/management board/directors of the company or the shareholders' assembly/meeting. Such sessions are convened by written invitation, with draft decisions in term prescribed by the applicable Company Law.

Whenever the company agreement or the procedure rules of the designated body allow for decision making without convening such a session, decisions are adopted without scheduling sessions, namely by means of correspondence.

The board of directors is comprised of three to 15 members, elected by the shareholders' assembly.

During the formation of the board of directors, certain members are appointed as independent members, from the ranks of the non-executive members of the board of directors.

The board of directors shall entrust to the executive members the representation of the company in relation to third parties. If the board of directors elects more than one executive member, it shall determine the member who shall manage the activities of the executive members and, upon a proposal, shall determine the internal organisation and the manner of co-ordinating the management of the company’s operations.

The board of directors cannot transfer authorisation to the executive members when it is deciding upon the following:

  • closure (termination) or transfer of the enterprise or any part thereof contributing more than 10% of the profit of the company;
  • a decrease or expansion of the scope of operations of the company;
  • essential internal organisational changes in the company, determined by an act of the company;
  • the establishment of long-term co-operation with other companies, being of essential importance for the company or its termination;
  • the establishment and termination of a trade company contributing more than 10% of the basic capital of the company; and
  • the establishment and termination of subsidiaries of the company.

The statute can also prohibit the transfer of authorisation to the executive members for decisions on other issues within the competence of the board of directors.

When formed by the shareholders' assembly, the board of directors must contain fewer executive members than non-executive members.

The board of directors shall appoint one or more executive members from among its elected members.

If the board of directors has up to four non-executive members, at least one of them must be an independent member. If the board of directors has more than four non-executive members, at least one quarter of them must be independent members.

An independent non-executive member of the board of directors is a natural person who meets the following conditions:

  • has not had any material interest or a business relation directly with the company as a business partner, as a member of the management body, as a member of a supervisory body or as a managerial person in the last five years;
  • has not received additional income other than the company salary in the last five years ;
  • does not have a close family relationship with any members of the management body, the supervisory board or the company’s managerial persons; and
  • is not a shareholder owning more than one tenth of the company’s shares, and does not represent a shareholder owning more than one tenth of the company’s shares.

Directors or officers of a company are appointed and revoked by a decision of the shareholders/stakeholders passed at a shareholders' meeting/assembly with a majority of votes.

The members of the management board (that is, the director) shall be elected by the supervisory board. One of the members of the management board shall be elected as a president of the management board, through the "Decision for election of the members of the management board".

For each deal with an interested party where the company is a party and a director has an interest in being involved, even indirectly, such interest must be promptly reported to the shareholders' assembly and the supervisory board, enclosing all material evidence that refers to the nature and scope of that interest.

The director has the right to be heard regarding the deal with an interested party, but cannot participate in the decision making with regard to the agreement with the interested party or other business activity in connection to it, nor in the adoption of the decision for granting approval of a deal with the interested party.

The principal duties of directors of a company are as follows:

  • to represent the company in legal relations with third parties within its designated authority;
  • to timely prepare the annual account and the annual report on the operations of the company for the previous business year;
  • to submit to the shareholders' assembly a draft annual report about the operations of the company and a plan accompanied by a study for the next year;
  • to submit to the shareholders a report of the full financial standing of the company, once a month; and
  • to keep the trade books of the company in accordance with the Law and other regulations.

Directors are personally and severally liable towards the company for any operations performed contrary to the provisions of the law and other regulations, and for non-compliance with the Company’s Agreement.

Directors are also personally liable for the damages that they will cause to the company through a legal deed that they have concluded on behalf of the company or someone else for their own account.

Directors shall be personally liable to the company and to the shareholders and also creditors without limitation for the damage caused by inaccurate data and a lack of diligence in the maintenance of the book of portions/stakes in a company. The latter shall apply when the directors were aware for the existence of such data, and have disclosed such without prior written approval and consent from the shareholders' meeting and the supervisory board.

Whenever directors breach their duties and act contrary to their designated competences, the company and the shareholders may request reimbursement of the damages from the directors by filing a lawsuit via the competent court, or by assigning to the company the legal deed concluded on its behalf and any benefit gained as a result of said act concluded on its or someone else’s behalf.

Other bases for claims against directors in Macedonia for breaches of corporate governance requirements are when directors act contrary to the prohibition against competition requirements. In such cases, the company may request the reimbursement of damages from a director, or to assign to the company the legal deed concluded on its behalf and any benefit gained as a result of said act concluded on its or someone else’s behalf. 

If the director does not reimburse the damage or assign the legal deed to the company, or does not provide to the company the benefit that ensues from the legal deed concluded on its behalf, or does not transfer the claim that ensued from the legal deed, the other directors and any given shareholder can file a lawsuit for the realisation of such claims.

The management bodies of a bankruptcy debtor authorised to represent the debtor according to the Bankruptcy Law shall be obliged to file a proposal for initiating a bankruptcy procedure at the latest within 21 days of the occurrence of the reasons for initiating a bankruptcy procedure – ie, the incapability of payment by a debtor when the amount that was supposed to be paid based upon applicable payment grounds has not been paid for 45 days, from any account with any entity responsible for payment operations.

The shareholders' assembly/meeting may approve the participation of the executive members of the board of directors/management board in the company's profit as remuneration for their work. Such participation, by rule, comprises participation in part in the annual profit of the company, as cash payment, the granting of shares, the payment of royalties or bonuses, or in another manner.

There are no express restrictions on the remuneration, fees or benefits payable to directors and officers.

The annual report of the company shall disclose the earnings (salary, salary allowances, bonuses, insurance and other rights) of each executive member of the board of directors and each member of the management board – ie, the compensation of the non-executive members of the board of directors and members of the supervisory board. Detailed data on the earnings from other companies (salary, salary allowances, membership compensations, bonuses, insurances and other rights) for the executive members of the board of directors, the members of the management board, the non-executive members of the board of directors, and the members of the supervisory board, provided that they are members of management bodies of other companies, shall be mandatorily published in the annual report of the company. Detailed data on the employment (name of the employer, business activity, amount of the salary, salary allowances, bonuses, insurances and other rights) of the executive members of the board of directors, the members of the management board, the non-executive members of the board of directors, and the members of the supervisory board, provided that they are employed by other employers, shall be mandatorily published in the annual report of the company.

Rules and requirements governing the relationship between a company and its shareholders are prescribed in the Company Law.

Shareholders in joint stock companies and stakeholders in limited liability companies are not liable for the obligations of the companies, whereas the companies are liable with their entire property.

However, shareholders/stakeholders shall be unlimitedly and jointly liable for the company’s obligations in the following scenarios:

  • if they have abused the company as a legal entity in order to achieve aims that are prohibited to them as individuals;
  • if they have abused the company as a legal entity in order to cause damage to their creditors;
  • if, contrary to law, they have disposed of the company's asset as if it was their own property; or
  • if they have decreased the company’s asset for their own benefit or to the benefit of a third party when they were aware or should have been aware that the company was not capable of settling its liabilities to third parties.

The shareholders/stakeholders adopt decisions for the requirements of the implementation of the decision-making process by the management bodies of a company.

The shareholders/stakeholders thus achieve direct/indirect control over the management of a company via the adoption of annual accounts and annual reports, large deals and deals with interested parties. Besides such control, shareholders/stakeholders may request the convening of an extraordinary report on the operations of a company at any time.

Whenever there is more than one shareholder/stakeholder in a company, shareholders' meetings are duly required and shall be convened by a written invitation delivered via registered mail, other express mail or some other convenient way, with a receipt by each member unless otherwise determined by the act for the establishment of the company. There must be at least 30 days between the day the written invitation is sent and the day of the shareholders' meeting. The agenda for the meeting shall be enclosed with the invitation.

The shareholders' assembly is convened in a manner determined by the statute of a joint stock company, which can determine that an assembly can be convened by invitation or with the publication of a public announcement, or with an invitation and publication of a public announcement to the shareholders. The assembly shall be convened by sending invitations to all shareholders whose share gives them the right to participate in the operation of the assembly that is being convened. The invitation shall be sent according to the excerpt from the shareholders' book. 

Shareholders may file claims for compensation of damages against the company or directors, or may require the assigning to the company of the legal deed concluded on its behalf and any benefit gained as a result of said act concluded on its or someone else’s behalf.

Disclosures on shareholders in publicly traded companies are published on the web page of the Central Securities Depository as a list of each natural person and legal entity that owns 5% of any type of securities class in listed companies and joint stock companies with separate reporting obligations.

The Central Securities Depository notifies the Securities Commission within five working days of the evidencing of the transfer of the securities by which the owner of securities acquires in total more than 5% of any securities type and class issued by listed companies and joint stock companies with separate reporting obligations.

Companies in Macedonia are subject to the following annual and other periodic financial reporting requirements, depending on their size, number of employees and yearly revenues:

  • the filing of annual accounts; and
  • the filing of approved financial reports.

The annual account adopted by the management body must be filed with the Central Register before the end of February.

Approved financial statements with the annual report on the operations of the company are filed as a transcript to the register of annual accounts to the Central Register by the management body within 30 days of their approval, but no later than 30 June.

In general, the current operations and arrangements of companies in annual reports are reflected in the incomes and expenses section, raised credits/loans/warranties/guaranties, secured collaterals, achieved profit and loss, and short-term and long-term obligations.

A company is required to file annual accounts and statements with the Macedonian Central Register. Such filings are duly publicly available and may be procured for certain administrative tax reasons from the Register of Annual Accounts within the Central Register.

Other than such mandatory filings, companies are obliged to file and register changes in their current standing, such as a name change, a change of registered office, a change in basic capital, and any changes to the management bodies.

The following companies must appoint an external auditor to audit their financial statements in accordance with the Company Law:

  • large and medium-sized commercial entities registered as joint stock companies;
  • companies whose shares are listed on the stock exchange; and
  • large and medium-sized commercial entities organised as limited liability companies.

Such companies are obliged to have an audit opinion regarding the financial reports one month prior to the holding of a shareholders' meeting/assembly.

Financial reports that are subject to audit cannot be approved if they have not been audited by an authorised auditing company or an authorised auditor-sole proprietor.

The authorised auditor of the financial reports shall submit a report on the audit performed, in accordance with the International Accounting Standards (IAS) published in the “Official Gazette of Republic of Macedonia” updated annually for the purpose of harmonisation with the current standards amended and adopted by the International Federation of Accountants (IFAC).

The supervisory board in a joint stock company is obliged to organise an internal audit service as an independent organisational unit in the company, while joint stock companies are obliged to appoint an internal auditor.

The organisational structure, the rights, the responsibilities and the relations with the other organisational units of the company, as well as the responsibilities and requirements regarding the appointment of the head of the internal audit service, shall be regulated by the supervisory body.

The internal audit service shall perform a constant and full audit of the legality, regularity and effectiveness of the work of the company through the following:

  • assessment of the adequacy and efficiency of the systems for internal control;
  • assessment of the implementation of the risk management policies;
  • assessment of the structure of the information system;
  • assessment of the accuracy and authenticity of the trade books and financial reports;
  • control of the accuracy, authenticity and timely notification in accordance with the regulations; and
  • monitoring of compliance with the regulations, policies and procedures within the company.

The internal audit service shall implement its activities in accordance with the principles and standards on internal audit and the policy and procedures regarding the operation of the service.

Cakmakova Advocates

str.8-ma Udarna Brigada no.43/3
1000 Skopje
Republic of North Macedonia

+ 389 2 3115 205

+389 2 3111 521

info@cakmakova.com www.cakmakova.com
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Law and Practice in Macedonia

Authors



Cakmakova Advocates has a legal team of 12 highly trained and experienced attorneys at law, and two associates (who have each passed the Bar exam), each dedicated to a specific area of the law so that the firm can give the best legal assessment and assistance possible. The partnership has expertise in the area of corporate governance, and also in corporate law, business law, construction law, banking and finance, commercial law, telecommunications, labour and employment, foreign investments, litigation and dispute resolution, tax law, mergers & acquisitions, competition, and intellectual property.