This form of business entity has significantly fewer procedural formalities and less complex internal organisation than a joint-stock company, which is why it is the most common form chosen when setting up a company.
LLC is the acronym for Limited Liability Company (in Montenegro: d.o.o.)
Each member of the company (founder) contributes capital to the share capital of the company and is liable only up to the value of that contributed capital. The percentage share of ownership in the company is divided among the members on the basis of an agreement between them and must be documented at the time of incorporation.
It is possible to change the ownership percentage of any member by a separate decision of the other members.
A limited liability company is defined on the basis of three essential elements.
It is a type of business entity
This type of company combines elements of a partnership of persons — a general partnership, in which each member participates in the incorporation with their contribution, in the distribution of profit, in changes of ownership or in the liquidation of the company — and elements of a capital company — a closed joint-stock company, because a member is not liable for the company's obligations, but only bears the risk of the company's operations up to the amount of the capital invested.
The popularity of this type of business entity lies, above all, in the fact that each person is liable only up to the amount of their share in the company; the minimum share in the Republic of Montenegro is 1 EUR.
The difference compared to a joint-stock company is that this type of company cannot issue shares on an inter-share market. LLCs are usually smaller companies, both in terms of capital and the number of members, than joint-stock companies — generally small and medium-sized enterprises.
An LLC may have only one founder, that is, one owner — even though the term "company" appears in the name, do not be misled: it refers to a different use of that term.
It is common for the founders and owners of the company to also be employed by the company itself; they receive a salary for their work and also a dividend if profit has been generated at the end of the fiscal period. Dividends are subject to taxation on a different basis than salaries.
A limited liability company is a legal entity, which acquires this status upon entry into the Central Register of Business Entities.
An LLC is not a VAT taxpayer — that is, it is exempt from VAT under special incentive measures of the state — as long as the value of the turnover of services does not exceed EUR 18,000.
Note:
Pursuant to Article 55 of the Law on Value Added Tax, a person who becomes, or may become, a VAT taxpayer for the first time is obliged to submit a registration application to the tax authority no later than the 20th day of the calendar month following the month in which it carried out — or in which there is a likelihood of carrying out — a turnover of goods or services exceeding the amount of EUR 18,000. VAT taxpayer status is acquired on the day determined by the tax authority in the VAT registration decision, which is issued within seven days of receipt of the application. In addition, a taxpayer is obliged to notify the tax authority of the beginning, change and cessation of activities for which it is required to calculate and pay VAT.
It has share capital
The share capital is the sum of the values of the contributions made by all members of the company (founders). As a rule, each member contributes one stake to the company, which together with the stakes of the other founders forms the share capital. On the basis of the contributed stake, each member acquires a share in the company, expressed as a percentage of the total share capital. The stakes of the members do not have to be equal, and neither do their shares — they need not be proportionally identical. Members exercise their statutory rights in the company (voting rights, participation in profit distribution, etc.) in proportion to the size of their stake, but this may be departed from on the basis of an agreement between the members or during incorporation.
A member of the company is not liable for the company's obligations
For due obligations towards third parties (companies, banks or employees) — such as payments to suppliers or loan repayments — only the company itself is liable, with its entire property. If the company has, for example, operated at a financial loss and its obligations to third parties have become due, a member can lose only what they have contributed to the company, and not their personal property that is not connected with the property of the limited liability company itself. The independence of the company's property from the personal property of a member, and the non-liability of the member for the company's obligations, means that the company's creditors are not at the same time creditors of the members.
Advantages of setting up an LLC
- All members are liable only for their stakes and their liability is limited
- The management structure of the company can be entrusted to another board or group of owners, but it is important to note that the company itself forms its management structure
- Companies organised in this way often pay lower tax
Disadvantages of a limited liability company are:
- Setting up this type of company can be quite expensive (if you do not have adequate information)
- When registering the company, bear in mind that a subsequent change of data regarding the address or a new activity can become a big unexpected cost
- The change of ownership of the company is limited by the right of pre-emption of the other members
If you are considering setting up a company, or if this article was not entirely clear to you, please contact us so that we can explain the procedure in more detail. Finance Plus is committed to the accessibility and quality of its services — one of which is company formation.