Starting a startup? Entrepreneur or LLC – That’s the question.
Starting a startup in Serbia is still a topic that brings many doubts to the founders.
In order to solve these doubts, together with the "Stanić i partneri" Law Partnership Association, we wrote about things that are useful to know before and during the establishment of an LLC, as well as whether an LLC is the right type of business for you and your team. It probably is, and why is that, we tried to explain through a typical startup story, while any coincidence with real events and conversations below is intentional.
This story of ours begins in a rented apartment in Banjica, Belgrade. The main characters are Ana, the engineering brain of the whole operation, and Aleksej, a friend from the hood having an entrepreneurial spirit.
The project they are working on in their spare time is the mobile application "Nespavko", which measures the number of sleepless hours of new fathers and automatically informs the employer about it, who accordingly adjusts the employee's workload.
We could also describe the dilemma that has been breaking spears between them for some time now.
Ana: What do you think? We should create a company, maybe an entrepreneurial agency or an LLC, we will look more serious when the first investor comes?
Aleksej: What will it do to us, just the cost, we will be like all the other freelancers until the first money comes, and I heard that there is a new law, we will pay something minimal and we won't have a headache.
Translated into legal language, what is the difference between an entrepreneurial agency and an LLC?
An entrepreneur is a person who performs business activities and as a form of legal organization has certain advantages:
- low initial costs,
- simple establishment and shutdown,
- keeping business books, which is reduced to an Excel table of realized turnover without other formalities (in most cases)
- relatively low effective tax burden for those lump-sum earners who manage to exceed the limit of, say, two average salaries in Serbia.
However, if "Nespavko" goes the way of unicorns and other mythical animals of the startup Narnia, the aforementioned form of business will become inadequate, we would say tight for our friends.
For these purposes, a form of business that separates the Company as a legal entity from its founders is much better, although it is difficult for the average owner of capital to believe this. This model of legal organization is more flexible, and later it can be adapted to the specific needs of the founders, current and future.
Aleksej: Okay, let's say we need to establish an LLC, what do we need, and most importantly - do I have to leave the apartment for that?
Ana: Well, unless Glovo brings it to you, I think a walk to the nearest notary will benefit your health.
Yes, at the moment, a single-member LLC (one person is the founder) can be established online, with an electronic certificate and a little reading of APR's excellent video guide.
In about 18 months, regardless of the form and number of members of the company, establishing an LLC via the Internet will be the only way to do it.
In the meantime, for the establishment of a limited liability company (that's how it is said in Serbian, company, firm, LLC, LTD...), which has several members of the company, you will have to take a leisurely walk from the notary, through the bank to APR.
What should you do before opening an LLC?
First, make an agreement on the essential and mandatory elements to be included in the founding act.
The founding document is something like a birth certificate for the Company, and it must contain the name and surname of the child (business name of the Company), where the child was born (headquarters), what he will do in life (activity), who his parents are ( founders), and some money - 100 dinars minimum, and it can be much more: apartments, fields, licenses (primary capital, monetary and non-monetary).
Parents of their firstborn, dedicated to making a profit, receive a share in the capital or co-ownership in the Company for this money. In this example, for the paid 50 dinars, each founder receives a 50% share in the capital of the Company.
What else do you need to know when establishing an LLC?
- the activity that is registered as predominant is only one and it is entered in the register - but there are no obstacles to performing any other (legal) business. Medicines, weapons, and taxis are not counted here.
- the business name of the Company, except that it must be sufficiently different from other already existing ones, i.e. so as not to create confusion in legal transactions, it can also be protected at the Intellectual Property Office in order to make a brand out of it.
In this case, your “go-to” IP right is actually a trademark. The same can be protected at the Institute for Intellectual Property, for a symbolic amount of about 60,000 dinars, and for a period of 10 years of protection. The trademark is territorial, which means that it is valid only in those countries where it is protected.
Therefore, if the goal is to enter the foreign market, the trademark should be protected in the countries where the product or service is offered, e.g. you get EU-wide protection (one application - 27 countries), for CHF 2,190 and a 10-year protection period (trademark right).
A little-known fact is that trademark rights also protect an Internet domain that reads identically to the trademark.
- address, it can also be the parents' house, it is only important that they receive mail,
- the capital of the company does not have to be paid in immediately, it can only be "registered" with the obligation to pay in the next 5 years.
- the company must have a Director and an Assembly.
Assembly - these are the founders and, later, the other members of the Society. The director, one or more of them, is the one who does what the assembly tells him, unless he is both, as in, for example, a single-member company, so-called. The boss.
The management structure can be much more complex, but for a start - there is no need, it is easier for everyone. And how does the assembly decide? The law says a simple majority of 50%+1, but it is possible otherwise if everyone agrees.
The founding act must be certified by a notary office, after which the basic capital is paid into a special deposit account in a commercial bank of your choice.
Take one copy of the certified founding deed, together with the aforementioned certificate, the identity card of the founder and proof of the paid fee, to the APR and hand it in together with the previously completed registration application for the establishment (documentation).
Your newborn will come into the world after just a few days, and you will receive proof of this in the form of a Decision on Establishment. Congratulations!
But, in order for your child to be able to continue his independent legal life and avoid unnecessary penalties, it is necessary that upon establishment (within the next 15 days):
- open a business account in the bank of your choice
- get an electronic certificate
- you register beneficial ownership with APR
- submit an electronic application to the PU
- create a company seal (who knows, maybe you need it, the evildoers and the law will say that it is forbidden to ask for the same from business entities, but they don't know that if there is no blue, it is not a right either)
Aleksej: Great, now we are our own people, in a word, bosses, can I order a table with my company card?
Ana: Hmmm, I'm thinking about something, now we also have a company, but the only thing of value is the code for the application I've been working on for the last year, it should be protected somehow.
Aleksej: What do you mean, you worked on the application, so if I remember correctly, the idea was mine, well, my wife's, but it's like it's mine, besides that, my friend promised me 10 grands for pre-seed round?
The road to hell is paved with good intentions, and the road from the camaraderie, through camaraderie to "I can't look at him/her/them anymore" and "I'm leaving the story", is much shorter than it might seem at first.
There are mainly two reasons for this outcome - different expectations of the co-owners and, of course, money, or the lack or unexpected influx of it.
For these reasons, it is best to put on paper and sign the Members' Agreement in relation to the company or the much more popular Shareholder agreement, but it should be kept in your wallet and only for the occasional reminder of some of the possible topics, for example:
Stakes and financing = if, who and when from the proud capital owners should invest a certain amount, real estate in Vračar or perhaps some right of claim, intellectual property, etc., including loans to the company and capital increase.
Disposition of the ownership share = conditions under which the share can be transferred, right of pre-emption, lock up, tag along/drag along options, vesting, dilution, etc.
Assembly and decision-making = mainly boil down to which majority is needed for which decisions and what if there is none. The framework gives the law, so you find a compromise within that framework.
Profit sharing = the general rule is this: Profit is not the same as income. Profit is what is left when you pay off the employees of the company, your suppliers, the banks, and of course, the tax administration, and not necessarily in that order. From that, which remains as net profit, each of the founders receives a part that is proportional to his share in the company, and this is called a dividend.
IP = Another smart thing for founders to do is to regulate their relationships with each other regarding intellectual property ownership. How? By contract.
So a lawyer again?
It is not necessary, but it is preferable that someone with a little more experience goes through certain topics with you, of which we highlight the following as the most important:
- who has what percentage over the author's work
- how you will share percentages from licensing or selling intellectual property
- who will be the joint representative among several owners.
If you are employed while developing your innovation, check your Employment Agreements to see if the employer has stipulated that he will own any intellectual property (if he's smart, he probably did) that you create in the course of your employment. , using the means and knowledge obtained from the employer.
If you hire developers, be sure to conclude Contracts on the order (production) of the author's works with them, which will ensure that all IP rights belong to you, thus avoiding the inconvenience of startups who are denied access to the code by developers.
P.S. Aleksej can pay the bill through the company's account, but only 0.5% of the Company's total income is recognized as an expense.
Aleksej: Are we finally done with paperwork and administration?
Ana: Of course not.
Of course, with the establishment of a company, the paperwork and administration is just beginning - but that doesn't mean you'll get lost in the paperwork, just that you'll have everything in black and white. Clean account = long IT partnership.
The authors of this text are actually serious lawyers, but our friends at Joberty have asked us not to show how smart we are by quoting the Constitution, and the law and using modern business English abbreviations, so for any additional clarifications, please feel free to contact the addresses below, if possible during working hours. :)
Text authors:
Jovana Joksimović, lawyer | Law partnership "Stanić i partners"
Predrag Vuksanović, lawyer | Law partnership "Stanić i partners"
