Conversion of Share Capital to Euro

With the euro becoming the national currency from the 1^st of January 2023, most of us are focused on the expected changes in the price of products and services, the level of wages and the cost of living. However, a change will be also visible in the share capital of every company.

Namely, the Companies Act prescribes the amounts of share capital and the minimum value of individual shares or business shares for each company, depending on its legal form.

With the introduction of the euro, the kuna amounts of the share capital will necessarily have to be converted into euro at the fixed exchange rate of 7.53450, following the guidelines in the new amendments to the Companies Act.

Until now, the Companies Act prescribed the value of the share capital as follows:

• Joint-stock company (d.d.) – the minimum amount of share capital is HRK 200,000, and the minimum nominal amount of a share is HRK 10.00 (larger nominal amounts of shares must be multiples of the amount of HRK 10.00)
• Limited liability company (d.o.o.) – the minimum amount of share capital is HRK 20,000, and the minimum nominal amount of a business share is HRK 200.00 (larger nominal amounts of business shares must be multiples of 100)
• Simple limited liability company (j.d.o.o.) – the minimum amount of share capital is HRK 10.00, and the minimum nominal amount of the business share is HRK 1.00 (the amounts of business shares must be a whole number)

Law on Amendments to the Companies Act Official Gazette 114/2022, on the 3^rd of October 2022 determined the new minimum amounts of share capital, shares and business shares in euros as shown in the table below:

Accordingly, in the case of joint-stock companies and simple companies with limited liability, the larger nominal amounts of shares or business shares must be whole numbers, while in the case of limited liability companies, the larger amounts of minimum business shares must be multiples of 10.

The conversion of share capital to euros will not happen overnight, so the amendments to the Companies Act stipulate the deadlines within which companies must make the conversion from kuna to euro:

• Joint-stock companies – must harmonize the amounts of the share capital and all shares during the first capital change, merger, share split or exchange of shares with a nominal amount for those without this amount by January 1^st, 2024 (deadline 1 year from the introduction of the euro)
• (Simple) Company with limited liability – they must harmonize the amounts of share capital and all business shares during the first change of capital, merger, division of business shares by January 1^st, 2026 (deadline 3 years from the introduction of the euro)

When harmonizing the amount of share capital in euros, the decision on harmonizing is made by the general assembly or the assembly of the company. In the case of a limited liability company, the decision of the company’s assembly must be in the form of a notarial document. If during the adjustment there is an increase in the share capital, legal and statutory reserves, and capital reserves as well as reserves from profit, retained profit and undistributed profit of the business year can be used. If there is a reduction in the share capital during the reconciliation, the difference can be used to cover loss or to be entered into the capital reserves. Of course, when reducing the share capital, care should be taken to ensure that it is not less than the minimum prescribed amounts.

It is important to note that if companies do not act in accordance with the provisions of the law within the legally prescribed period, it will be considered that from the first day after the expiry of the period there is a reason for the termination of the company, which will be entered in the court register ex officio.

It can be concluded that it is particularly important for all companies to prepare in time for the conversion of their share capital into euros in accordance with the law and within the agreed period, so that they can continue their operations without hindrance. Likewise, by mathematically recalculating the new minimum amounts in euro at a fixed exchange rate to kuna, the kuna amounts are lower than the previously prescribed amounts, therefore companies will not be put in a situation where they must pay additional capital.

For further assistance and/or information, please contact Ms. Lara Supek, Senior Accountant, in our Eurofast office in Zagreb, Croatia at zagreb@eurofast.eu

Lara Supek
Senior Accountant
Eurofast Zagreb
zagreb@eurofast.eu