Commercial Law

COMMERCIAL AND BUSINESS LAW

The term commercial / business law represents a field of law that studies the legal aspects of business. The main focus of Business law is the position of business entities, their relationship with the state, their place on the market regarding the sale of goods and services, their rights and obligations (Business contracts), as well as banking activities and securities. Therefore, Business law mostly includes Company law, but also includes business contracts, banking activities and securities. Form a point of view of the interest theory we can see that Business regulates private that is individual interests of business subjects.

Business operations require constant and dedicated legal support, which is why every company must have an internally or externally engaged lawyer/legal person for all day to day operations, having in mind all possible questions, situations and problems that may occur. From company establishing, status changes, liquidation and day to day activities, business is based on regulations that are very strict and must be respected.

An important part of business should be compliance with all the laws and by-laws, which business entities must respect starting from their establishment throughout all business activities. If you are interested to read about compliance with the law, by-laws and international standards, you can read about it the text “Compliance” on our web-site.

COMPANY LAW

When we talk about the relationship between the business entities and the state, we mean “incorporation, managing, status changes, changes of legal form, dissolution and other issues relevant for their status”[1]. These questions are the subject of Company law, but without further elaboration, it is already clear that Company law is a part of the Business law in general. With the decision of going into business, it is also important to choose which legal form you want your company to be established as. When we talk about establishing of a company, it is clear that the goal of every individual who wants to form a business of any kind, of course is profit “A company is a legal person conducting an activity with the aim of gaining profit”[2].  In order to make profit, a company must be registered before the Register of Business Entities, which in the Republic of Serbia is the Agency for registration of business entities (hereinafter referred to as APR). If you are interested to read more about company incorporation, legal forms in which a company can be established, procedures and the needed documentation, you can read it the text “Company foundation” on our web-site.

Sometimes, companies can be reorganized in a way that they transfer their entire business onto another company, and that is called a status change, that is “A company in a status change reorganizes itself to the effect that it transfers assets and obligations to another company, while its members acquire shares, i.e. stocks in that company[3]. The law states that any legal forms of companies can go through a status change, but excludes status changes for companies that are in the process of liquidation or bankruptcy (unless it is a measure of reorganization in accordance with the bankruptcy law). In addition, law also states 4 possibilities of going through a status change, such as: 1) acquisition; 2) merger; 3) division; 4) spin-off. It is important to distinguish a difference between status changes and changes of legal forms. However, as it is already said, status changes require the transfer of business to another company that is acquisition, merger, division or spin-off, while the change of legal forms is just the change of the form in which a company is organized (for example, if a company that is in form of an LLC is transformed into a LP). One more similarity with the status change is that the Law doesn’t allow changes of the forms when the company is in liquidation or bankruptcy (unless it is a measure of reorganization in accordance with the bankruptcy law). Status changes and the changes of legal forms must be registered in front of the APR in accordance with the Registration law.

BANKRUPTCY AND LIQUIDATION

When we speak about company termination, every legal form in which a company is organized has its specifics termination wise. However in this text we will only focus on liquidation and bankruptcy.

When the company still has a possibility of managing its obligations, that is still has some founds, then the liquidation procedure can be carried out. Liquidation begins with the registration of the decision on liquidation and its publishing in accordance with the Registration law (the decision is made by general partners, limited partners, general meeting of the company, or shareholders).  What needs to be emphasized is that the initiation of liquidation does not prevent the initiation of bankruptcy at the same time. The liquidation procedure ends with a final decision of the end of liquidation and with the erasing of the company from the register of business entities in accordance with the Registration law.

When a company has difficulties in business, when the company has experienced bankruptcy, Bankruptcy is a process with which the company’s creditors are being settled, “Bankruptcy shall mean creditor satisfaction through the sale of entire assets of the bankruptcy debtor, or the sale of the debtor as a legal entity[4] and “Reorganization shall mean creditor satisfaction accomplished under the adopted plan of reorganization by redefining relations between the debtor and the creditor or the debtor’s legal status, or in another manner provided for in the plan.”[5] When we say that a company has difficulties in business it doesn’t immediately have to mean bankruptcy. There has to be at least one of the bankruptcy reasons, which are: 1) permanent insolvency; 2) pending insolvency; 3) over-indebtedness; 4) failure to comply with the adopted reorganization plan or if the plan was put into effect in a fraudulent or unlawful manner. The bankruptcy procedure begins with a proposal form the bankruptcy administrator, bankruptcy debtor or creditor. During the procedure the order of the creditors is determined, as well as the scope and composition of the bankruptcy estate, that is the entire assets of the company. All the specifics of the bankruptcy procedure are stated in the Law on bankruptcy.

OBLIGATIONAL ASPECTS OF BUSINESS LAW

 

CONTRACTS

The subject of business law that is also very important is all legal relations that might occur between business parties regarding their business activities. All business activities must be concluded with business contracts. Business contracts are mainly contracts that refer to activities regarding the sale of goods and services which companies conclude in order to make profit. Contracts are legal obligations and are therefore stated in the Law of contract and torts. There is a large number of contracts regulating business activities, as well as named, unnamed, some of which are common in business such as:

  • contract of sale;
  • contract of order;
  • mediation contracts;
  • warehouse contracts;
  • contracts of construction;
  • contract of transportation;
  • and other.

Contracts are by far the best legal remedy that protects you from business parties that do their activities outside the law as well as by violating it. In our office we are specialized for making various kinds of contracts, and have our clients interest in mind as well as their best possible protection.

SECURITIES

Securities and banking transactions are also considered as legal obligations and are also a big part of the business law. “Securities are written certificates by which their issuer assumes a duty to fulfill the obligation inscribed in such certificate to its legal owner”[6], this is how securities are defined by the Law of contract and torts and it is considered as a unilateral expression of intention. Securities are in fact a very useful tool for their owner because a certain right is incorporated in them and those rights are mainly legally binding. The law emphasizes the importance of the form of the securities, having in mind their enormous significance. An important question is surely the moment of obligation arising form the security. There are two theories, the theory of emission and the theory of creation. Our law clearly took the side of the emission theory: “An obligation out of securities shall originate at the moment the issuer of securities hands them over to their beneficiary”[7]. Of course keep in mind that the security must be sign in the moment of transfer to the user, but as far as the theory of creation is concerned the moment of obligation is the moment of signing not transferring, and that is the main difference of these two theories. Types of securities:

  • bill of exchange;
  • check;
  • share;
  • bond;
  • treasury and commercial paper;
  • certificate;
  • bill of landing;
  • warehouse warrant.

One of the most used securities are surely promissory notes and checks. “A written document, with which a person orders another person to give a certain amount to a third person, or in a certain place and time by their order”[8],  this is the definition of a drawn bill of exchange which is most used. We have three parties here, and they are drawer – the party who gives the bill of exchange, drawee – the party who the drawer has given an order and the beneficiary – the obligated party in the bill of exchange. However the bill of exchange can be a single-name paper, when the issuer unconditionally commits to the other party to pay a certain amount of money at a certain time and place. As we can conclude here we have a drawer who sets himself to be the user. Our Law on contract and torts treats the bills of exchange as securities made out to order, which means that the name of their user is written on the paper itself as well as the owner rights to transfer the securities to other parties. In that case the issuer of the securities remains obligated before every other user, if the securities are transferred. Securities by order are transferred by endorsement, which means that the “new user is the only user[9]”. Endorsement is a written statement of the user of the bill of exchange with which he transfers the right form the security onto another person.

BANKING ACTIVITIES

Banking activities are a specific kind of legal activities, where it is important that one of the parties is a bank, and of course that the object is money. Those are the two cumulative requirements in order to consider a legal activity as banking. Depending on the position of the bank in relation to the other party, banking activities can be: 1) active – were the bank is the creditor; 2) passive – were the bank is the debtor; 3) neutral – those are transactions were the bank is neither the creditor nor the debtor, but only takes commission from its clients for specific types of services.  Most common banking activities/contracts are:

  • credit contracts;
  • deposit contracts;
  • bank guarantee;
  • bank money deposits;
  • and other.

DAMAGE COMPENSATION

We must not forget to address torts as a part of legal obligations. Compensation for damages is always present when there is an injury or loss to someone’s property (simple loss) or preventing its increase (profit lost). “Whoever causes injury or loss to another shall be liable to redress it, unless he proves that the damage was caused without his fault.”[10] The Law on contract and torts with article 170 states a special sort of liability that is liability of an enterprise with which an employee is protected if the employee has caused the loss or injury to a third person, if the employee proceeded as he should have. The person sustaining loss has a right to also demand compensation for damages directly form the employee if the employee has caused the damage willfully.  

TRADE LAW

Business law a synonym of trade law. The scope of the business law is in fact in the Trade law as well and we must not forget it when we speak about business activities. Trade law states: “conditions and methods for conducting trade on the single market of the Republic of Serbia, promotion of trade and market protection, prohibition of unfair market competition and supervision[11], as well as principles and all that one marked should contain.

The most important division of trade is surely retail and wholesale. This division is based on if the selling of goods/ providing services is aimed at further selling of goods/ providing of services, or it aims to satisfy the needs of end users, that is consumers in order to satisfy their personal needs. We can conclude that wholesale means the sale of goods/ providing of services for future use on the market. When we talk about retail we can conclude that it is aimed to satisfy the personal needs of end buyers. Retail can be done: 1) at the point of sale; 2) by personal offering; 3) distance trade. In our modern society, there is a specific division of distance trade which can further be divided into: 1) electronic trade and 2) other distance trade. Electronic trade consists of selling and offering of the goods/services using the internet and it can be done via:

  1. e-commerce shop – which includes selling of goods/services;
  2. e-commerce platforms – which include sale of goods/services that connects traders and consumers. These c-commerce platforms are more and more frequent. If you are more interested in reading about these platforms you can read it in our text “E-commerce” on our web-site.
  3. drop-shipping – includes “the sale of goods through an e-shop or e-commerce platform, while the goods are being delivered directly to the consumer form the manufacturer/wholesaler”[12].

PROTECTION OF COMPETITION – COMPETITION LAW

In this text we have to mention the Law on protection of competition, which is determined to organize competition, that is business entities and force them to a fair “market match”. The law states to regulate the normal conditions of supply and demand, which should spontaneously take place within the framework of one country. By “spontaneously” we mean acting within the framework of the Law on protection of competition and other laws by which the state uses appropriate tools for acting and interfering in the market, all with the aim of its better functioning.

Having the above said in mind we can conclude that Business law is a wide field of law, which is in touch with other fields of law which interpenetrate each other and which all make up the totality of business law. The field of Business law is regulated by many positive regulations, which is why this legal field represents one of the most complex branches of law.

        

[1] article 1 of the Companies Act („Off. Herald of RS“, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021); 

[2] article 2 of the Companies Act („Off. Herald of RS“, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021); 

[3] article 483 of the Companies Act („Off. Herald of RS“, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021); 

[4] article 1, paragraph 3 of the Law on bankruptcy („Off. Harald of RS“, Nos. 104/09, 99/2011 – dr. zakon, 71/2012 – decision US, 83/2014, 113/2017, 44/2018 and 95/2018);

[5] article 1, paragraph 4 of the Law on bankruptcy („Off. Harald of RS“, Nos. 104/09, 99/2011 – dr. zakon, 71/2012 – decision US, 83/2014, 113/2017, 44/2018 and 95/2018);

[6] article 234 of the Law of contract and torts („Off. Herald of SFRJ“, Nos. 29/78, 39/85, 45/89- decision USJ and 57/89, „Off. Herald of SRJ“ Nos. 31/93, „Off. Herald of SCG“ Nos. 1/2003 – Constitution and „Off. Herald of RS“ Nos. 18/2020);  

[7] article 237 of the Law of contract and torts („Off. Herald of SFRJ“, Nos. 29/78, 39/85, 45/89- decision USJ and 57/89, „Off. Herald of SRJ“ Nos. 31/93, „Off. Herald of SCG“ Nos. 1/2003 – Constitution and „Off. Herald of RS“ Nos. 18/2020);  

[8] Marko Steljic „Promissory notes in practice“

[9] Marko Steljic „Promissory notes in practice“

[10] article 154 paragraph 1 of the Law of contract and torts („Off. Herald of SFRJ“, Nos. 29/78, 39/85, 45/89- decision USJ and 57/89, „Off. Herald of SRJ“ Nos. 31/93, „Off. Herald of SCG“ Nos. 1/2003 – Constitution and „Off. Herald of RS“ Nos. 18/2020);  

[11] article 1 of the Trade law ( „Off. Herald of RS“ Nos. 52/2019)

[12] article 17 paragraph 3 dot 3 of the Trade law ( „Off. Herald of RS“ Nos. 52/2019)