applied business law

2

Title: APPLIED BUSINESS LAW

Editor: Veljko Trivun, PhD

Authors: Veljko Trivun, PhDVedad Silajd`i}, MScFatima Mahmut}ehaji}, MScMia Mrgud, BSc

Publisher: School of Economics and BusinessUniversity of Sarajevo

Editor in Chief: DeanVeljko Trivun, PhD

Translation: Milica Babi}, MA

Language Editing: Michael Mehen

Reviewers: Mili} Simi}, PhD[efkija ^ovi}, PhD

Circulation: 300

Printed by: „VMG-Grafika“, d.o.o. Mostar

Person in charge of print: Vencel Pralas

CIP - Katalogizacija u publikaciji Nacionalna i univerzitetska biblioteka Bosne i Hercegovine, Sarajevo

346(075.8)

APPLIED business law / Veljko Trivun ... [et al.] : [translation Milica Babi}] . - Sarajevo : School Economics and Business Universitv of Sarajevo, 2009. - 476 str. ; 24 cmGlossary: str. 441-470. - Bibliography: str. 471-476

ISBN 978-9958-25-030-9 1. Trivun, Veljko COBISS.BH-ID 17617670

Copyright © 2009 by School of Economics and Business, University of Sarajevo. All rights reserved. No partof this book may be reproduced, stored in retrival system, or transmitted, in any form or by any means, without theprior permission in writing of School of Economics and Business, University of Sarajevo.

TABLE OF CONTENTS

PREFACE -------------------------------------------------------------------------- 15

LIST OF ABBREVATIONS ------------------------------------------------------ 17

1. INTRODUCTION - DEFINITION OF TERMS ----------------------------- 19

2. LEGAL SYSTEM OF BOSNIA AND HERZEGOVINA -------------------- 23

3. LEGAL FORMS OF COMPANY LAW: SOURCES OF LAW ------------- 27

4. FUNDAMENTAL CONCEPTS ABOUT STATE AND LAW --------------- 33

4.1. Legal norm, legal system, sources of law, and sources of business law ---------------------- 364.1.1. Legal norm and elements of legal norm --------------------- 36

4.1.1.1. Legal norms by the subject and scope of regulation --------------------- 37

4.1.1.2. Legal norms by the degree of disposition specification --------------------------- 39

4.1.2. System of law and its elements ------------------------------- 404.1.3. Legal documents ------------------------------------------------ 42

4.1.3.1. General legal documents ----------------------------- 424.1.3.2. Individual legal documents -------------------------- 44

4.1.4. Sources of law and their hierarchy --------------------------- 454.1.5. Sources of business law and their hierarchy ------------------ 45

4.2. Subjects and objects of law ------------------------------------------ 464.2.1. Legal subjects ---------------------------------------------------- 46

4.2.1.1. Natural persons as subjects of law ------------------- 474.2.1.1.1. Legal, business, offence and

working capacity of natural persons --- 474.2.1.2. Legal persons as subjects of law -------------------- 49

4.2.1.2.1. Legal, business and offence capacity of legal persons ---------------- 49

TABLE OF CONTENTS 3

5. FUNDAMENTALS OF LAW OF OBLIGATIONS -------------------------- 51

5.1. Concept and characteristics of law of obligations and obligation action ------------------------------- 53

5.2. Types of obligations --------------------------------------------------- 545.2.1.Obligations by kinds of action --------------------------------- 545.2.2.Obligations according to the way

of determining the obligation action -------------------------- 545.3. Subjects of obligation-law relations -------------------------------- 55

5.3.1.Plurality of subjects in the obligation ------------------------- 555.3.2.Change of subjects in the obligation -------------------------- 56

5.3.2.1. Cession ------------------------------------------------- 565.3.2.2. Assumption of a debt --------------------------------- 58

5.4. Sources of obligations ------------------------------------------------- 585.5. Cessation of obligation ----------------------------------------------- 605.6. Effect of time on legal relations -------------------------------------- 62

6. LABOUR LAW ----------------------------------------------------------------- 65

7. COMPANY LAW -------------------------------------------------------------- 73

7.1. Subject of Company law---------------------------------------------- 757.2. Classification of companies ------------------------------------------ 76

7.2.1. Corporations ----------------------------------------------------- 777.2.2. Partnerships ----------------------------------------------------- 79

7.3. Distinguishing companies from other forms of organization ------------------------------------------------ 80

7.4. Companies in the European Union law -------------------------- 827.5. Special forms of company organization -------------------------- 847.6. Company branches --------------------------------------------------- 847.7. Associated companies ------------------------------------------------ 857.8. Forms of company associations

in comparative legal systems ---------------------------------------- 877.9. Consortium-type association of companies ---------------------- 897.10.Joint-stock company organs ---------------------------------------- 91

7.10.1. Company’s general meeting --------------------------------- 917.10.2. Company’s supervisory board ------------------------------ 93

APPLIED BUSINESS LAW4

7.10.3. Company’s management ------------------------------------- 967.10.4. Company’s secretary ----------------------------------------- 977.10.5. Company’s audit board -------------------------------------- 97

8. COMPANY’S LIABILITY ----------------------------------------------------- 99

8.1. Liability in the founding stage of a company ------------------- 1018.2. Liability of corporations --------------------------------------------- 1048.3. Liability of partnerships --------------------------------------------- 1078.4. Company’s liability for obligations of other legal subjects --- 1088.5. Founder’s liability for company obligations -------------------- 1108.6. Piercing the corporate veil ------------------------------------------ 111

9. COMPANY STATUS CHANGES -------------------------------------------- 115

9.1. Merger by formation of a new company ------------------------- 1189.2. Merger by absorption ------------------------------------------------ 1219.3. Division ------------------------------------------------------------------ 1229.4. Change in company form ------------------------------------------- 1239.5. Legal and economic consequences of status changes ---------- 125

10. SYSTEMS OF ESTABLISHING COMPANIES --------------------------- 127

10.1. Normative system of establishing companies ---------------- 12910.2. System of law --------------------------------------------------------- 13010.3. System of concessions ----------------------------------------------- 13010.4. Licensing system ---------------------------------------------------- 13110.5. Legal regime of application --------------------------------------- 131

11. COMPANY IDENTIFIERS ------------------------------------------------ 133

11.1. Company name ----------------------------------------------------- 13511.2. Company activity --------------------------------------------------- 13711.3. Company registered office ---------------------------------------- 13811.4. Other company identifiers ---------------------------------------- 140

TABLE OF CONTENTS 5

12. LEGAL OPERATIONS WITH A COMPANY ----------------------------- 143

12.1. Forms of disposing of a company ------------------------------ 14512.2. Agency and representation of a company ---------------------- 146

12.2.1. Agency of corporations -------------------------------------- 15112.2.1.1. Agency of corporations in domestic law -------- 152

12.2.2. Agency of partnerships -------------------------------------- 15412.2.2.1. Agency of partnerships in domestic law --------- 155

12.2.3. Special forms of agency ------------------------------------- 15612.3. Power of attorney --------------------------------------------------- 160

12.3.1. Power of attorney in domestic law ------------------------ 16212.3.2. Legal grounds for establishing the legal

relation of power of attorney ------------------------------ 16512.3.3. Establishing the legal relation of power of attorney ----- 16612.3.4. Attorneys-in-fact ---------------------------------------------- 16812.3.5. Cessation of POA --------------------------------------------- 170

12.4. Procuration ---------------------------------------------------------- 17112.4.1. Procuration in domestic law --------------------------------- 173

12.5. Ban on competing with a company — competition clause ------------------------------------------------------------------ 176

12.5.1. Ban on competition in domestic law ---------------------- 177

13. ENTERING BUSINESS ENTITIES INTO THE COURT REGISTER --- 181

13.1. Data for the court register ----------------------------------------- 18313.2. Procedure for filing with the court register -------------------- 188

14. FORMS OF BUSINESS CESSATION ------------------------------------ 193

14.1. Bankruptcy as a form of business cessation ------------------- 19514.2. Bankruptcy law and its effects ----------------------------------- 19914.3. Debtor in bankruptcy, creditors in bankruptcy

and bankruptcy proceedings ------------------------------------- 20114.4. Organs for conducting bankruptcy proceedings -------------- 20714.5. Introduction — reorganization plan

in bankruptcy proceedings --------------------------------------- 20814.6. Preparation of debtor’s reorganization ------------------------- 210


14.7. Voluntary liquidation as a form of business cessation ------- 21214.8. Other forms of business cessation -------------------------------- 21314.9. New bankruptcy legislation in B&H ---------------------------- 215

15. REGULATIONS OF BOSNIA AND HERZEGOVINA IN THE DOMAIN OF FOREIGN DIRECT INVESTMENT ------------ 221

16. JOINT LEGAL REGULATIONS IN THE DOMAIN OF ESTABLISHING AND EFFECTUATING FREE ZONES ------------ 229

17. JOINT LEGAL REGULATIONS IN THE DOMAIN OF COPYRIGHT, RIGHTS RELATED TO COPYRIGHTS AND INDUSTRIAL PROPERTY RIGHTS AND/OR PATENT RIGHTS ----------------------------------------------------------- 233

18. PROTECTION OF CONSUMERS IN BOSNIA AND HERZEGOVINA ------------------------------------------ 239

19. SETTLEMENT OF DISPUTES - SYSTEM OF COURTS AND ARBITRATION ----------------------------------------------------- 245

19.1. System of Courts in Bosnia and Herzegovina ---------------- 24719.2. Arbitration ----------------------------------------------------------- 251

20. CONTRACT OF SALE ------------------------------------------------------ 255

20.1. Concept, signing and elements of a sale contract ------------ 25720.1.1. Concept, features and effect of a sale contract ------------ 25720.1.2. Contract formation -------------------------------------------- 25920.1.3. Special techniques of contract formation ------------------ 260

20.1.3.1. Standard contracts ---------------------------------- 26020.1.3.2. Bill of Sale ------------------------------------------- 26020.1.3.3. Order ------------------------------------------------- 26120.1.3.4. Electronic contracts -------------------------------- 261

20.1.4. Essential elements of a contract of sale -------------------- 26620.1.4.1. Object ------------------------------------------------ 26720.1.4.2. Quantity ---------------------------------------------- 268

TABLE OF CONTENTS 7

20.1.4.3. Price, structure and manner of ascertaining price ------------------------------ 268

20.1.4.3.1. Ascertainment of price by means of a coercive document ---------------- 269

20.1.4.3.2. Ascertainment of price by means of contract ------------------------------- 270

20.1.4.3.3. Ascertainment of price by means of dispositive regulation --------------- 270

20.1.4.3.4. Change of price ------------------------- 27120.1.5. Non-essential elements of a contract of sale -------------- 272

20.1.5.1. Quality ----------------------------------------------- 27220.1.5.2. Packaging -------------------------------------------- 27420.1.5.3. Transport clauses ----------------------------------- 275

20.2. Seller’s obligations -------------------------------------------------- 27520.2.1. Delivery -------------------------------------------------------- 27620.2.2. Warranty for material deficiencies -------------------------- 27720.2.3. Warranty for legal deficiencies

(protection from eviction) ----------------------------------- 27920.2.4. Invoicing ------------------------------------------------------- 280

20.3. Buyer’s obligations -------------------------------------------------- 28120.3.1. Payment of price ---------------------------------------------- 281

20.3.1.1. Form of payment ----------------------------------- 28120.3.2. Examination of goods ---------------------------------------- 28220.3.3. Acceptance of delivery --------------------------------------- 283

20.4. Objections ------------------------------------------------------------- 28320.4.1. Complaint of material deficiencies ------------------------- 28420.4.2. Complaint of legal deficiencies ----------------------------- 286

20.5. Seller’s liability ------------------------------------------------------ 28620.5.1. Liability for tardy delivery ---------------------------------- 28620.5.2. Liability for material deficiencies -------------------------- 28720.5.3. Liability for legal deficiencies ------------------------------ 287

20.6. Buyer’s liability ------------------------------------------------------ 28720.6.1. Liability for tardiness in sending the packaging ---------- 28720.6.2. Liability for tardy acceptance of delivery ----------------- 28820.6.3. Buyer’s tardiness in the payment of price ----------------- 288


21. CONTRACT OF AGENCY - AGENCY IN INTERNATIONAL TRADE ----------------------------------------------- 289

21.1. Concept of agency --------------------------------------------------- 29121.2. Types of agent’s authority and types of agency --------------- 29221.3. Sources of law -------------------------------------------------------- 29321.4. International commercial agency contract --------------------- 294

21.4.1. Object of the contract --------------------------------------- 29521.4.2. Price / commission ------------------------------------------- 29521.4.3. Obligations of a commercial agent ------------------------- 29621.4.4. Principal’s obligations --------------------------------------- 29721.4.5. Liability of participants in the contract -------------------- 29721.4.6. Cessation of the contract ------------------------------------- 298

22. CONSTRUCTION CONTRACT ------------------------------------------- 299

22.1. Concept of the contract and sources of law -------------------- 30122.2. Parties and formation of contract ------------------------------- 302

22.2.1. Preceding actions -------------------------------------------- 30322.2.1.1. Investment program and

technical documentation -------------------------- 30322.2.1.2. Approval for construction ------------------------- 30422.2.1.3. Selection of contractor and

formation of contract ----------------------------- 30522.3. Essential elements of the contract ------------------------------- 307

22.3.1. Object ---------------------------------------------------------- 30722.3.2. Price ------------------------------------------------------------ 30822.3.3. Due date -------------------------------------------------------- 31022.3.4. Contractual fine ----------------------------------------------- 31022.3.5. Premium to the contractor ---------------------------------- 31122.3.6. Warranty period for the quality of work ------------------- 31122.3.7. Written form of the contract --------------------------------- 311

22.4. Investor’s obligations ----------------------------------------------- 31122.4.1. Preceding obligations ---------------------------------------- 31122.4.2. Introducing the contractor to the work --------------------- 31222.4.3. Supervision of construction --------------------------------- 31222.4.4. Payment of the price ----------------------------------------- 313

TABLE OF CONTENTS 9

22.5. Contractor’s obligations ------------------------------------------- 31422.5.1. Preceding obligations ---------------------------------------- 31422.5.2. Maintaining construction records --------------------------- 31522.5.3. Sound performance of work --------------------------------- 31622.5.4. Reporting on surplus of work ------------------------------- 31722.5.5. Allowing supervision ---------------------------------------- 31722.5.6. Guarding the construction site ------------------------------ 31822.5.7. Tidying-up the construction site ---------------------------- 318

22.6. Taking-over of the structure -------------------------------------- 31922.6.1. Technical examination and certificate for occupancy ---- 31922.6.2. Taking-over of structure or work --------------------------- 31922.6.3. Final acceptance of structure or work ---------------------- 320

22.7. Liability of participants in the business ------------------------ 32022.7.1. Liability of designer, provider

of opinion on land, and investor ---------------------------- 32122.7.2. Contractor’s liability ----------------------------------------- 321

22.8. Special kinds of deals ----------------------------------------------- 32222.8.1. ‘Turnkey’ ------------------------------------------------------- 32222.8.2. Other special kinds of construction contracts ------------- 322

23. INSURANCE CONTRACTS ----------------------------------------------- 325

23.1. Concept of insurance and of insurance contracts ------------ 32723.2. Formation and form of contract --------------------------------- 328

23.2.1. Insurance policy ----------------------------------------------- 32923.3. Elements of contract ------------------------------------------------ 331

23.3.1. Parties ---------------------------------------------------------- 33123.3.1.1. Insurer ------------------------------------------------ 33123.3.1.2. Insurance contractor -------------------------------- 331

23.3.2. Object of insurance ------------------------------------------- 33123.3.3. Risk ------------------------------------------------------------- 33223.3.4. Premium ------------------------------------------------------- 33323.3.5. Insured amount ------------------------------------------------ 33323.3.6. Duration of insurance ---------------------------------------- 334


23.4. Parties’ obligations -------------------------------------------------- 33523.4.1. Insured person’s obligations --------------------------------- 335

23.4.1.1. Providing information about the risk ------------ 33523.4.1.2. Payment of premium ----------------------------- 33623.4.1.3. Notification of the insured case

and change of risk ---------------------------------- 33723.4.1.4. Care of the insured item --------------------------- 338

23.4.2. Insurer’s obligations ------------------------------------------ 33823.4.2.1. Payment of indemnity ------------------------------ 33823.4.2.2. Other obligations of the insurer ------------------- 339

23.5. Accumulation of requests for indemnification and multiple insurance ------------------- 340

23.6. Classification of insurance ---------------------------------------- 34123.7. Reinsurance ---------------------------------------------------------- 34123.8. Cessation of insurance contract ---------------------------------- 342

24. HARMONIZATION OF B&H LAWS WITH EU LAWS IN THE DOMAIN OF E-LEGISLATION --------------------- 345

24.1. The concept of E-business ----------------------------------------- 34724.2. Sources of law relevant for making

contracts via electronic messages, i.e. using ICT ------------- 34824.3. Sources of law in the European Union ------------------------- 34924.4. Sources of law in B&H -------------------------------------------- 35224.5. New trends in contracting ----------------------------------------- 35524.6. Preliminary contacts (Internet advertising) ------------------- 35624.7. Written consent ----------------------------------------------------- 35724.8. Elements of contract making ------------------------------------- 357

24.8.1. Offer ------------------------------------------------------------ 35724.8.2. Acceptance ---------------------------------------------------- 358

24.9. Technology of concluding contracts ----------------------------- 35924.10. EU Laws & B&H Laws: Harmonisation ---------------------- 360

TABLE OF CONTENTS 11

25. SECURITIES ----------------------------------------------------------------- 363

25.1. Common legal elements of securities ---------------------------- 36525.1.1. About securities in general ---------------------------------- 36525.1.2. Types of securities -------------------------------------------- 36725.1.3. Cessation of rights under securities ------------------------ 370

25.2. Shares ----------------------------------------------------------------- 37025.2.1. Concept, legal characteristics and essential

elements of shares ------------------------------------------- 37025.2.2. Types of shares ----------------------------------------------- 37225.2.3. Rights and obligations of shareholders -------------------- 37225.2.4. Issue of shares ----------------------------------------------- 37425.2.5. Share trading ------------------------------------------------- 37825.2.6. Classes and series of shares --------------------------------- 37825.2.7. Own shares ---------------------------------------------------- 380

25.3. Bonds ------------------------------------------------------------------ 38125.3.1. Concept, legal characteristics and

essential elements of bonds --------------------------------- 38125.3.2. Types of bonds ------------------------------------------------ 382

25.4. Bill of exchange ----------------------------------------------------- 38425.4.1. Concept and economic functions

of a bill of exchange ----------------------------------------- 38425.4.2. Elements of a bill of exchange ------------------------------ 38525.4.3. Bill-related actions ------------------------------------------- 391

25.4.3.1. Issuing a bill of exchange -------------------------- 39225.4.3.2. Negotiation of a bill -------------------------------- 39225.4.3.3. Acceptance of a bill of exchange ---------------- 39625.4.3.4. Bill guarantee (aval) -------------------------------- 39725.4.3.5. Payment of a bill of exchange -------------------- 39825.4.3.6. Recourse -------------------------------------------- 39925.4.3.7. Protest ------------------------------------------------ 40025.4.3.8. Acceptance for honour supra protest ------------- 40125.4.3.9. Duplication and copies of a bill ------------------- 40325.4.3.10. Securing a claim under a bill -------------------- 40325.4.3.11. Amortization of a bill of exchange -------------- 40425.4.3.12. Claims and objections under a bill -------------- 40425.4.3.13. Unjust enrichment and other

requirements of civil law ----------------------- 405


25.4.4. Types of bills of exchange ----------------------------------- 40525.4.5. Limitation and cessation of rights

and obligations under a bill of exchange ------------------ 41025.5. Check ------------------------------------------------------------------ 411

25.5.1. Concept, economic role, similarities and differences compared to a bill of exchange ---------- 411

25.5.2. Essential and non-essential elements of a check --------- 41325.5.3. Check-related actions ---------------------------------------- 41425.5.4. Types of checks ----------------------------------------------- 42025.5.5. Offences under the Law on Checks ------------------------ 42225.5.6. Limitation and cessation of relationship

under the Law on Checka ----------------------------------- 422

NOTES ----------------------------------------------------------------------- 423

GLOSSARY ----------------------------------------------------------------- 441

REFERENCES ------------------------------------------------------------- 471

LAWS AND REGULATIONS ------------------------------------------ 475

TABLE OF CONTENTS 13

PREFACE

This textbook presents business students with an introduction to thelegal system and its operation. An Bosnian jurisdictional focus isused, particularly in relation to the analysis of legal structures. However, where possible within the scope of an introductory module,reference is also made to trends in European and International law.The application of law to and within business is the central focus ofthe module.

While no single text can encompasss all there is to know about thelaw, Applied Business Law offers students a basic understanding ofboth their legal rights and responsibilities.

This textbook aims to provide students with:

1. An introduction to the legal system of Bosnia and Herzegovina,2. An understanding and knowledge of the fundamental concepts

abuout state and law as it relates to business, 3. An understanding of the fundamentals of law of obligations and

employment related law,4. A recognition of how legislation directs, constrains and protects

businesses and business customers, 5. A knowledge of the key legal responsibilities of managers and

directors, 6. The ability to appraise the functions and duties of various com-

pany officers,7. The ability to examine the advantages and disadvantages of in-

corporation in company law, 8. An introduction to regulations of Bosnia and Herzegovina in the

domain of foreign direct investments, free zones, copyrights,rights related to copyrights and industrial property rights,

9. An understanding of the general principles of protection of consumers and settlemtent of disputes system of courts and arbitration,

PREFACE 15

10. An understanding and knowledge of contract law (contracts ofsale, agency, construction, insurance and e-contracts),

11. An understanding and knowledge of securities law (shares, bonds,bill of exchange and cheque).

On module completion, students will be in a position to: Identify anddiscuss the various sources of business law; Identify the necessaryelements for a valid contract.; Discuss and apply the principles of negligence.; Identify the important elements of a contract of employment.; Describe the legal consequences of incorporating acompany; Identify and discuss the duties and obligations of variouscompany officers.; Compare and contrast the institutions of the European Union.

We hope you enjoy using this text and find it a useful tool to dealwith the challenges you encounter both now and in the future.

Please accept our thanks for using this text and its ancillary mate-rials. We know that you will receive good instructions. This coupledwith your promise to attend class regularly, to keep up with your assignments, and to do well on test will have positive impact on yourfinal sucess.

This textbook is prepared primarily for students of Business studiesat Sarajevo Business School. No part of this book may be reprodu-ced, stored in retrival system, or transmitted, in any form or by anymeans, without the prior permission in writing of Sarajevo BusinessSchool.

ABLaw TeamVeljko Trivun, PhD

Vedad Silajdžić, MScFatima Mahmutćehajić, MSc

Mia Mrgud, BSc

Sarajevo, February 2009.


LIST OF ABBREVATIONS

Art. — Article B&H — Bosnia and HerzegovinaBos. — Bosniancf. — confer, compare withCro. — Croatiand.d. — dioničko društvo, joint-stock companyd.n.o. — društvo neograničene solidarne odgovornosti,

general partnershipd.o.o. — društvo ograničene odgovornosti,

limited-liability companye.g. — exempli gratia, for exampleECPD — European Center for Peace and DevelopmentEIP — electronic instruments of paymentEngl. — Englishetc. — et cetera, and so onEU — European UnionFB&H — Federation of Bosnia and HerzegovinaFDI — foreign direct investment FLoRBE — Framework Law on the Registration

of Business Entities in B&HFr. — FrenchGerm. — GermanGTZ — Germany Society for Technical Cooperationi.e. — id est, that isibid. — ibidem, the same placeICC — International Chamber of Commerce ICSID — International Centre for Settlement of Investment

DisputesID — identification documentIT — information technologyk.d. — komanditno društvo, limited partnershipk.d.d. — komanditno društvo na dionice,

limited stock partnershipLat. — Latin

LIST OF ABBREVATIONS 17

LC — Law on ConstructionLoBoE — Law on Bills of Exchange LoBP — Law on Bankruptcy ProcedureLoC — Law on CompaniesLoCC — Law on Commercial CompaniesLoCh — Law on ChecksLoCiP — Law on Civil ProcedureLoCP — Law on Consumer ProtectionLoCRR — Law on Copyrights and Related RightsLoCuP — Law on Customs PolicyLoEP — Law on Enforcement ProcedureLoFI — Law on Foreign InvestmentsLoFT — Law on Foreign Trade Policy of B&HLoLP — Law on Liquidation ProcedureLoO — Law on ObligationsLoRBE — Law on Registration of Business Entities

in the Federation of B&HLoSC — Law on Securities CommissionLoSR — Law on Securities RegisterLSM — Law on the Securities Marketop. cit. — opus citatum, cited in the workp. — pagePOA — power of attorneypp. — pagesRS — Republic of SrpskaSFRY — Socialist Federal Republic of YugoslaviaTRIPS Agreement — Agreement on Trade-Related Aspects

of Intellectual Property RightsUC — Special Usages on constructionUNCITRAL — United Nations Commission on International

Trade LawUS — United StatesWTO — World Trade Organization


1ChapterINTRODUCTION - DEFINITION OF TERMS

Chapter 1

INTRODUCTION - DEFINITION OF TERMS

In comparative terminology, law schools have traditionally used theterm Company Law for this subject matter of study. It is a fairly newdiscipline, studied in all law and business schools. Different schoolshave used different terms, including Corporation Law, Business Law,Companies Law, Law of Associations and Law of Commercial Com-panies. We prefer to use two terms: Business Law and Company Law.The first term designates the academic discipline, though the termCompany Law is more suitable for this discipline and its content.Business Law is a broader discipline and includes various matterssuch as different business contracts — especially contracts of sale — se-curities and laws on competition. Our course provides a middle wayof sorts, suited for students of economics. We intend to introduce thefollowing issues to our students:

a) basic knowledge of companies, especially limited liability com-panies and joint stock companies

b) securities, especially shares, bills of exchange, checks and bondsc) bankruptcy and liquidation legislationd) regime of foreign direct investmentse) regime of free zones f) basic knowledge of law of obligationsg) basic knowledge of labor law, h) basic knowledge of competition lawi) contracts of salej) insurance contractsk) agencyl) construction contracts

Chapter 1 INTRODUCTION - DEFINITION OF TERMS 21

m)loan agreementsn) license contractso) Intellectual property rights,p) Protection of consumers andq) Dispute resolution regime.

Above all we want to introduce our students to the issues of the legalsystem of Bosnia and Herzegovina. Understanding these specific issues is a prerequisite for studying Business Law and CorporationLaw. Understanding the legal system of Bosnia and Herzegovina isalso necessary for other economics courses which concern banking,insurance, government finance, securities and international businesslaw.


2ChapterLEGAL SYSTEM OF BOSNIAAND HERZEGOVINA

Chapter 2

LEGAL SYSTEM OF BOSNIA AND HERZEGOVINA

The legal system of Bosnia and Herzegovina has been determined bythe specifications set forth in our constitution, which itself resultedfrom the Dayton Peace Accord. Bosnia and Herzegovina is the resultof the dissolution of the former SFRY, and its general framework isthe Agreement for Peace in Bosnia and Herzegovina (B&H). B&H isbased on a complex system consisting of two entities: the Federationof B&H and the Republika Srpska. The Federation of B&H itself iscomprised of ten cantons, each of which has a significant degree oflegislative power. The only territorial and political units within theRepublika Srpska are municipalities. The territorial and politicalstructure of B&H is extremely complicated and unbalanced. Besidethe two entities, each with their own constitution, there is also theBrcko District, which was established by the OHR after arbitration.The Brcko District is under the direct authority of the central gov-ernment of B&H and has recently abolished laws and regulationspassed by the Republika Srpska and the Federation of B&H. Nu-merous nuances regarding the division of legislative powers resultedfrom such a complex system. Thus, there are laws that are uniformthroughout the territory of B&H as a whole, and laws that exist solelyin the territory of the Republika Srpska, or the Federation of B&H, orwithin the cantons individually. Without going into a full list of theregulations, the essential thing to understand with regard to this subjectis legislation at the level of the Federation of B&H, and joint legislationat the level of B&H, as well as their harmonization with the interna-tional community’s requirements and various international organiza-tions and associations, all of which are imposed as a prerequisite forEU accession and international integration. Special attention must bepaid to company law legislation, because it exists on the entity leveland represents the present situation of the legal system of B&H.

Chapter 2 LEGAL SYSTEM OF BOSNIA AND HERZEGOVINA 25

Therefore, this subject matter is limited by the existing legal situationand refers to two previously emphasized issues: joint legal regulationsat the level of B&H as a state and harmonization of these regulationswith the requirements related to EU accession and international inte-gration. In addition to regulations at the level of B&H, particular attention should be paid to entity regulations, by now largely harmo-nized with state-level provisions.

The first and highest legal basis for joint legislation at the state levelis given by the constitution of B&H of 1995, the same year as theDayton Peace Accords. The following issues have been defined byArticle III.1 of the B&H Constitution as the responsibilities of B&Hinstitutions: foreign policy, foreign-trade policy, customs policy, mon-etary policy, financing and paying the international commitments ofB&H; emigration, refugees and asylum, the carrying out of interna-tional and inter-entity police, joint and international communications,the establishment, maintenance and regulation of inter-entity trans-port and air transport. For the purpose of maintaining sovereignty,territorial integrity, political independence and international legal per-sonality, additional competences have been provided by Article IIIof the B&H Constitution, under item 5.


3ChapterLEGAL FORMS OF COMPANYLAW: SOURCES OF LAW

Chapter 3

LEGAL FORMS OF COMPANY LAW: SOURCES OF LAW

Legal and natural parties both domestic and foreign who intend to run a business in B&H should know that the relevant regulationsconcerning business were enacted at the following levels:

1. State of Bosnia and Herzegovina, among which the most important are:• Law on Policy of Foreign Direct Investment in B&H (1998),• Law on Foreign Trade Policy (1998),• Law on Customs Policy and Customs Tariff (1998, subsequent

alternations),• Law on Competition (2005),• Law on Concessions (2002),• Law on Free Zones (2002),• Law on Industrial Property Rights in B&H (2002),• Law on Copyright Rights in B&H (2002).

Further idiosyncrasies of the legal system of B&H (hereinafter referredto as: LS B&H) emerge from the fact that the number of legal regulationsthat are uniform throughout the territory of B&H as a whole is stillrelatively small, implying additional difficulties related to a joint ap-proach towards the international community. Only after the new lawon the Council of Ministers passed did the number of joint ministriesat the state level increase from three to eight. Regardless of the international community’s tendency to enhance the authority of theCouncil of Ministers, its powers are still limited. Much more workwill be necessary for the further development of LS B&H. Moreover,as for legislative competences, the role of the High Representativefor B&H should be emphasized, who is directly responsible for the

Chapter 3 LEGAL FORMS OF COMPANY LAW: SOURCES OF LAW 29

existence of any current joint structures that deal with vital economicand political issues.

Taking into consideration that this matter became relevant only in2002, we shall start, by enumerating the joint regulations passed at thestate level in that year, as well as those passed earlier that have significance with regard to economic policies. In 2002, the followinglaws were enacted and proclaimed by the High Representative: TheLaw on International and Inter-entity Road Transportation (The Official Gazette of B&H No: 1/00); the Law on Free Zones in Bosniaand Herzegovina (The Official Gazette of B&H No: 3/02); the Lawon Patent Rights in Bosnia and Herzegovina (The Official Gazette ofB&H No: 3/00); the Law on Copyright and Related Rights in Bosniaand Herzegovina (The Official Gazette of B&H No: 7/00); the Lawon the Distribution, Regulation and Operation of the Electrical PowerSystem in Bosnia and Herzegovina (The Official Gazette of B&HNo: 7/00); the Law on Civil Service in the Institutions of Bosnia andHerzegovina (The Official Gazette of B&H No: 12/00); the Law onthe Bases of the Public Broadcasting System and the Public Broad-casting Service in Bosnia and Herzegovina (The Official Gazette ofB&H No: 13/00); the Law on Consumer Protection in Bosnia andHerzegovina (The Official Gazette of B&H No: 17/02); the Law onConcessions in Bosnia and Herzegovina (The Official Gazette ofB&H No: 32/02); the Law on Aviation in B&H (The Official Gazetteof B&H No: 32/02) and the Law on the Council of Ministers of B&H(The Official Gazette of B&H No: 38/02). Of the more importantlaws from the period up to 2002, the following should be mentioned:the Law on Foreign Direct Investment Policy in Bosnia and Herze-govina (The Official Gazette of B&H No: 1/97); the Law on ForeignTrade Policy (The Official Gazette of B&H No: 7/98) and the Law onthe Customs Policy of Bosnia and Herzegovina (The Official Gazetteof B&H No: 21/98).

2. Entities, the Federation of Bosnia and Herzegovina (the Federationof B&H) and the Republika Srpska (RS) and the following regu-lations are of special importance:


a) In the Federation of B&H:• Law on Companies (1999, important amendments in 2003 and

2008),• Law on Foreign Investments (2001) and registration rules• Law on the Securities Market (2008)• Law on Securities Commission (1998)• Law on Securities Register (1998)• Law on Bankruptcy Procedure (2003)• Law on Liquidation Procedure (2003)• Law on Concessions (2002)• Law and other regulations on the registration of business entities

(2004 and 2005)

b) In Republika Srpska:• Law on Enterprises (1998, alternations in 2002)• Law on Foreign Investments (2002) and registration roles• Law on Securities, Commission and Central Register (1998)• Law on Bankruptcy Procedure (2003)• Law on Liquidation Procedure (2003)• Law on Concessions (2002)• Law and other regulations on the registration of enterprises

(2004)

3. In the Federation B&H there are Canton-level acts (10 Cantons) inthe field of business referring to the improvement of the local businessoperations, exploitation of local natural resources (concessions),development of tourism and co-operative farming.

The rules of the Commissions and Register of Securities/Central Register (rule books, standards, instructions, and the 38 acts so farbrought by the Securities Commission in the Federation of B&H) area very important source of information. There are also the rules ofthe stock market in Sarajevo (SASE) and those of Banja Luka(BLSE), as well as self-organized brokers. The allowed autonomylevel of company members indicates that company documents — articles of incorporation (memorandum of association) and the statute(company’s constitution) - are very important.

Chapter 3 LEGAL FORMS OF COMPANY LAW: SOURCES OF LAW 31

It should be pointed out that the Brčko District is an individual andindependent regulation area.

There is also a novel institution named the Directorate for EU inte-grations, which is grounded by a separate law on the Council of Min-isters of B&H (Article 23 thereof), and is responsible for coordina tingthe activities of the governmental bodies of B&H, participating in theactivities and/or preparing drafts and proposals of policies, laws, aswell as other provisions and guidelines related to the execution ofworks that B&H is obliged to undertake in order to be included inEuropean integration processes. In addition, the Directorate dealswith other work related to giving initiatives and consulting on issuessuch as the coordination of processes and activities of B&H govern-mental bodies, all of which are related to the fulfillment of obligationstowards European integration.1

The competence of the Directorate for European Integration is closelydefined as harmonizing the B&H system with standards for acces-sion to the European Union (community law), checking the compli-ance of all drafts new laws that are submitted to the Council ofMinisters by the ministries and administrative organizations, alongwith directives from the White Book preparations of the associatedcountries of Central and Eastern Europe for integration in EU internalmarket and the procedures for fulfilling requirements of the relevantdirective. Furthermore, it is obliged to harmonize activities of the administrative bodies and institutions in B&H with correspondingactivities required for European integration. This Directorate, as atechnical-operative body, is in charge of contacts with the EuropeanUnion. The Directorate for the European Integration is also responsiblefor coordinating the implementation of decisions made by the com-petent bodies and institutions of B&H, the two entities and the BrckoDistrict regarding all the activities necessary for European integra-tion; participating in the activities such as drafting laws or other regulations and guidelines that refer to the affairs B&H is obliged toundertake within the accession process; and acting as the main oper-ative counterpart of the European Union’s institutions within the sta-bilization and accession processes, as well as coordinating theEuropean Union’s support to B&H.


4ChapterFUNDAMENTAL CONCEPTSABOUT STATE AND LAW

4.1. Legal norm, legal system, sources of law, and sources of business law

4.2. Subjects and objects of law

Chapter 4

FUNDAMENTAL CONCEPTS ABOUTSTATE AND LAW

In a broader sense, state (Ger. Staat; French État) is an organizationof the ruling class with the monopoly of physical coercion, organ-ized by a special system of rules (law) that subjects the populationwithin a given territory to its sovereign rule and in this way, in thegiven society, maintains the manner of production and political rela-tions which are in the ruling class’ interest. The elements of the statedefined thus include: territory, population, existence of sovereignpublic authorities, i.e. the unlimited legal possibility of governingbased on the monopoly for physical coercion2, and legal order.

In a more narrow sense, the concept of state implies the state orga -nization or state apparatus. State organization, a state as well thoughin a more narrow sense, is a hierarchically constituted and legally organized system of organs that have, at their disposal, the monopolyfor physical coercion and power to create rules of conduct. A statedoes not exist beyond society; it is its integral part. Consequently, theimpact of state based on the monopoly for physical coercion still hasa limited effect. A state is power, but it is not a power beyond society.

Discussions on what is law (Germ. Recht; Fr. droit), what is its rolein a society, what are its foundations, as well as numerous other questionshave been asked ever since ancient Greece. Participants in discus-sions about the concept of law have reached very diverse answers.Kant’s judgment that “lawyers are still searching for a definition oftheir concept of law” still applies. According to the proposition byItalian philosopher of law Del Vecchio, “everyone approximatelyknows what law is, but the accurate definition of law causes conside -rable difficulties”.3

Chapter 4 FUNDAMENTAL CONCEPTS ABOUT STATE AND LAW 35

Law is a concept that is ascribed various meanings, but is regularlyused to signify (in an objective sense) a category of social norms thatare formally valid in a given society (normativistic definition of theconcept), or that are actually applied (realistic definition of the concept), or that should be valid (natural-law definition of the concept) or, in a subjective sense, to signify authorities by a givenlegal subject based on a legal norm (subjective law)4.

In the broadest sense, ‘law’ signifies the legal system5. It is a set ofrules of conduct by subjects in a society systematically organized onthe principles of hierarchy, the non-achievement of which in social relations is sanctioned by a special organization with a monopoly forphysical coercion (state)6. Elements of the legal system are: legalnorm, legal institution, branch of law, and field of law.

4.1. Legal norm, legal system, sources of law, and sources of business law

4.1.1. Legal norm and elements of legal norm

A legal norm defines relations in a society so that changes in these relations set up boundaries; one can thus speak of occurrences that arewithin these boundaries and are in accordance with the legal normand occurrences that exceed or violate the boundaries and are, accordingly, opposed to the legal norm.

A legal norm is a social norm that regulates relations in a societywhere, necessarily and permanently, there is a possibility of misun-derstanding and conflict. The legal norm directs these relations toward desirable and optimum conditions. The legal norm is writtenand regularly includes sanctions.7 Every legal norm is created andsanctioned in an organized way by an easily definable state or socialsubject.

Each legal norm consists of two main elements. The first element isdisposition, and the second is sanction. However, there are legal


norms that, besides these, have two more elements: hypothesis of disposition and hypothesis of sanction.8

From this, one can derive a “formula” for the composition of a legalnorm:

LN= (HD) + D + (HS) + S

The hypothesis of disposition is part of a norm that defines the factual situation, or facts that must exist in order for the disposition,the main part of the norm, to be applicable.9 Hypothesis of dispositionis the prerequisite for applying the disposition itself.

Disposition (or requirement) is a defined rule of conduct. It is part ofa legal regulation (norm) that contains rules of citizens’ conduct in agiven case.10 It is a requirement, i.e. the obligation to perform a givenaction that can consist of acting — facere or non-acting — non facere.

The hypothesis of sanction consists of the description of the violationof disposition or offence. An offence is an action that is opposed todefinitions contained in dispositions. The hypothesis of sanction (de-finition of a offence, prohibited action) is a prerequisite for the im-plementation of the sanction. The hypothesis of sanction is thedescription of the action that represents a violation of disposition.11

A sanction is part of legal norm that contains a rule of conduct by thesubject who has violated the disposition, and by a state organ authorized to exercise an appropriate measure toward the violator. A sanction is a rule of conduct that will be implemented if the dispo-sition has been violated. A sanction is thus a secondary rule of behaviour, as opposed to a disposition as a primary rule.

4.1.1.1. Legal norms by the subject and scope of regulation

Since legal norms determine numerous and diverse forms of behaviour,they vary in terms of both content and form. It would be difficult, ifnot impossible, to classify norms by subject, since they regulate a


number of areas and relations in a society. The form is more visible,and it is therefore possible to classify legal norms by this feature.Classification criteria vary, and legal norms are grouped in a fewways based on these criteria.

With respect to whether a legal norm pertains to an indefinite numberof cases of the same kind, or whether it regulated a specific relation-ship, norms are classified into general and individual. General normsare those that pertain to an indefinite number of subjects of an accu-rately defined kind of relationship. This kind of norm is directed toall those that find themselves, or may find themselves, in the situationstipulated by the disposition hypothesis of the norm.12 The number ofactual cases where this kind of norm is valid is theoretically infinite.One can therefore claim that general norms regulate their subject ofregulation in advance. Individual legal norms are those addressedprecisely to the named as the subject of a particular relationship.13

Therefore, an individual norm can also be issued in reverse, since therelationship it regulates has already occurred.

With respect to the area of social life they regulate, and the branch oflaw they belong to, norms are classified into: civil-law, criminal-law,administrative, constitutional, etc. Civil-law norms regulate civil-lawrelations, i.e. relations that arise between subjects based on things,actions and property. Criminal-law norms regulate criminal-law relations, i.e. those that encompass the protection of specific inter-ests of society and state, and some fundamental cultural values fromindividuals’ conduct that insult or threaten these interests and values14.

Substantive-law norms are those that direct primary social relations15,i.e. the norms that regulate relations among people, subjects of law,in a society. Procedural-law (or formal) norms, on the other hand,regulate conduct of the subjects that ought to execute the legal norm,primarily state authorities (court, prosecution authorities).


4.1.1.2. Legal norms by the degree of disposition specification

It is important to distinguish legal norms based on the degree of free-dom of conduct left to those the norm itself pertains to, i.e. based onthe degree to which the disposition is specified or unspecified. Themore specified the disposition, the more one has to comply with it —one must behave in compliance with the rule.

By the degree of specification, legal norms can be classified into thefollowing cognitive categories.

Cogent (strict) legal norms bind to accurately specified conduct anddo not leave subjects any freedom in the choice of conduct pursuantto such a norm. Pursuant to this type of norm, the subject is bound tobehave strictly in accordance with the norm, literally pursuant to itscontent, and always under the threat of sanction. Such norms (anddispositions) are also called absolutely specific and categorical legalnorms.

Alternative norms bind to one out of a few anticipated rules of con-duct, each of which is equally important and purposeful.16 In this case,a subject has the freedom to choose one of the few conducts providedfor in the disposition. Regardless of which rule is included in thenorm he complies with, he acts in pursuance with the norm.

Dispositive norms are those that leave subjects full freedom to regulatemutual relations as long as this freedom is within the legal orderframework. Such norms include the disposition according to whichsubjects may behave in different ways, but have the autonomy to define a new disposition themselves. These norms are also called alternating / replaceable legal norms.

Discretionary legal norms leave to the subjects that execute the norms(state authorities) the freedom to act in the way they deem the best inan actual case. These are the norms that give discretionary authorityto a state organ, but always within the law.


There are also legal norms the disposition of which includes an insufficiently specified concept (standard). These standards have arelative meaning, while the rule depends on various conditions andcircumstances, as well as on the understanding of the environmentitself. This means that a concept (standard) can be different at a giventime, under different circumstances, in another region, in another social group, etc. Standard conduct is deemed to be the conduct thatis typical, that is average under the same given circumstances, or thatmost frequently occurs in a given environment and at that time.Norms with legal standards are issued for the situations where it is notpossible to categorically set a rule of conduct, due to a series of various actual circumstances. For this reason, these norms are alsocalled flexible legal norms.

4.1.2. System of law and its elements

System of law (legal system) is a set of general legal norms distributedbased on their content (social relations they regulate), into a numberof smaller or larger units linked into a whole.

There are three major systems of law in the world: Continental European, Anglo-Saxon (common-law) and Religious — Traditional.The Continental European legal system is based on a written codifiedlaw. In this system, the constitution and laws are at the top of the hi-erarchical structure as a source of law. Most legal norms are includedin these major sources of law. In addition, an important role in thissystem is played by other sources of law, such as court practice, legalscience, documents of social organizations, customs, etc.

The Anglo-Saxon legal system is mainly based on rules developedin courts. The basic source of law is a previous court case (precedent).A precedent is a case that happened before and serves as an exampleor justification for subsequent similar cases.17 Due to the great sig-nificance of precedents, there is great truth in the rule that an Englishjudge is a slave of the past and a despot of the future, since he isbound by the decisions of deceased predecessors, and binds futuregenerations with his own decisions.18 In addition to court cases,


Anglo-Saxon law has been experiencing an increasing significance oflaws. Since the United Kingdom is now part of the European Union,provisions and decisions by the European Council and the Commissionhave recently been included in the country’s legal system.19

The Religious — Traditional system of law is a legal order the sourcesof which can be found in holy books (Torah, Qur’an, and other relatedwritings). Application of this legal system can be found across thewhole world, to a lesser or greater degree. Most countries in the presentworld implement the principle of separation between church andstate. This means that a legal system is universally applicable to theentire society, with the recognition of the autonomy of churches incompliance with the law or concordat. In this way, it is possible foreven the extremely secular countries to allow a limited autonomy inthe implementation of religious-traditional legal norms for individualreligious communities in the respective country (e.g. the rights ofJews in Canada and Great Britain). There are also countries wherethe described separation of state from the church has not been com-pleted, and the religious-traditional legal system has full or prevail-ing use in the regulation of social relations (e.g. the Kingdom ofSaudi Arabia and the Vatican).

Elements of the system of law are: legal norm, legal institution,branch of law, and field of law.20

Legal norm is the fundamental element of a system of law. A legal institution is a harmonized and organized set of legal rules that encompass and regulate a single social relationship21 (e.g. marriage,ownership, property, criminal offences). A branch of law is a set oflegal norms regulating a series of related legal institutions22 (e.g. con-stitutional law, family law, law of inheritance/succession, civil law,civil procedural law, criminal law, criminal procedural law, businesslaw, administrative law, financial law, law of obligations, labour andsocial law, copyright law, and law of industrial property). A field oflaw is created by grouping of related branches of law.23 There are sixmajor fields of law: substantive and procedural, public and private,national and international law.24


4.1.3. Legal documents

4.1.3.1. General legal documents

General legal documents regulate social relations in a coherent way.These are documents that include a general legal norm.25 Generallegal documents include: constitution, act, bylaws, general documentsof social organizations, customary law and court decisions with thecapacity of precedent.

A constitution is the highest legal document in a state, i.e. the highestand fundamental law in a state. A constitution establishes state, political, and legal order, and all the documents and actions of authorities and citizens must comply with it.26 A constitution is there-fore both a legal and a political document. Most world countries havea written constitution. Actually, a written constitution implies a setof norms in writing that regulate state organization. An unwritten constitution is a system of constitutional customs that exist in a givencountry that regulate basic issues of state organization. Examples ofcountries that do not have a written constitution include Great Britain,Saudi Arabia and Israel. The structure of a constitution consists of apreamble, normative part, annexes, and amendments (in the countrieswhere the constitution changes with the constitutional amendmenttechnique).27

The preamble is the introductory part of a constitution, does not include norms and is not a legally shaped text. The normative part isthe most important part of a constitution. It includes provisions onhuman and citizens’ fundamental rights and freedoms, and principlesupon which the state is founded. Annexes, i.e. appendices, are partsof the constitution that make up its separate part due to their speci-ficity. An amendment is a way of changing the constitution. Actually,an amendment corrects or changes a part in the normative part of aconstitution.

Act is a general legal document of the highest legal force followingthe constitution, and this is its definition in the substantive sense. Inthe formal sense, an act is a general legal document that establishes


the rights and obligations of an unspecified circle of persons in anabstractly described situation, based on a constitution. An act ispassed by a legislative authority in a legislative procedure. The classicdefinition by Modestin of the tasks of acts from the Digest is “Legisvirtus haec est: imperare, vetare, permittere, punire“ (The power ofact is to order, to prohibit, to allow, to punish).28

Bylaws are passed within the framework of an act, and are aimed atits execution.29 Bylaws are general legal documents typically passedby political-executive and administrative bodies and are aimed at theelaboration and concretization of acts. They can also be passed bylegislative bodies, though not according to a legislative procedure.As general imperative legal documents, they are used to “makecloser” and adjust abstract and more general rules contained in acts,and are aimed at their more proper use. As such, bylaws are of sec-ondary and derivative nature compared to legislative documents,which are initial and original. Bylaws are issued by the governmentor a relevant ministry. The most important feature of these normativedocuments is that they cannot form the basis for subjects’ authoritiesand obligations beyond those determined by law. Bylaws are alsopassed based on and in compliance with the law. They include: decrees with a legal force (legal documents that substitute law in exceptional situations — e.g. extraordinary circumstances, immediatewartime conditions, war), decrees, orders, decisions, etc.

The general documents of non-state organizations include rules ofvarious social organizations based on which they are constituted asorganizations and legal persons.30 For instance, they include statutes,rulebooks on employment, rules of procedure, and collective agree-ments. These documents represent the organizations’ distinctive autonomous right in issues regulating their internal constitution andfunctioning, as long as they are within the framework of the legalorder.31

A custom becomes a source of law (customary law) due to a long-last-ing identical conduct (objective element) if there exists a legal con-viction of its mandatory nature (subjective element). Consequently,customary law arises more or less spontaneously, unintentionally, and


by the repetition of established social norms if there is legal aware-ness (opinion iuris) of compulsoriness.

A court ruling is an individual legal document, which means that itcontains an individual legal norm pertaining to the actual case. How-ever, the individual legal norm in a ruling can turn into a generalnorm. In this way the ruling becomes a rule for all future similarcases. Such a ruling is called ‘precedent’, and law based on prece-dent is called ‘common law’32. Court rulings with the capacity ofprecedent are thus also general legal documents.33

4.1.3.2. Individual legal documents

Individual legal documents mostly imply the concretization of a general document. This concretization is aimed at allowing the implementation of general legal norms through actual human doings.If an individual legal document contains an actual disposition and anactual sanction, it is a complete individual legal document. If an individual legal document contains only the disposition or only thesanction, it is an incomplete individual legal document.

A binding document of a state authority or organization executingpublic authorities, passed in a separate administrative procedure, is anadministrative document.34

A legal transaction is an individual legal document of a non-state sub-ject, passed by the subject based on the authorization in the legalorder and within it, and which is binding based on this fact.35

A court document is an individual legal document passed by specializedcourt organs in a separate court proceeding.36 All the court decisionsare classified into rulings and procedural decisions. Decisions in theform of ruling are passed when the court decides upon a subject ofdispute, i.e. on a claim.37 The court always passes the ruling in writing. This decision always has the form of a separate document.A ruling serves to achieve the content of court function, which in turnconsists in the implementation of general legal norms on individual


life situations. The court passes a procedural decision when it takesa stand on an issue that does not directly pertain to a subject of dis-pute but arises with respect to debate and deciding upon the subjectof dispute.38

4.1.4. Sources of law and their hierarchy

In legal science, a source of law typically implies the manifestationwherein legal norms are passed and acquire the mandatory power ina society39. Since there is a distinction between sources of law in theformal and substantive sense, the cited definition corresponds withthe concept of law in the formal sense. Accordingly, a source of lawin a formal sense is a general legal document, i.e. a document thatcontains a general legal norm that applies to all the cases it providesfor. In the substantive sense, a source of law is a social relationshipthat causes a legal regulation and thus becomes a legal, i.e. legallyprotected relationship.

In the Continental European legal system, of which Bosnia andHerzegovina is a part, sources of law in the formal sense include onlygeneral legal documents, thus constitution, law, bylaws, etc., as opposed to the Anglo-Saxon system, where individual legal docu-ments, primarily rulings, form a source of law.

The hierarchy of the sources of law is based on their legal force, andlooks as follows: (1) constitution; (2) acts; (3) bylaws; (4) generaldocuments of non-state organizations; (5) customs, and (6) court documents.

4.1.5. Sources of business law and their hierarchy

A constitution is a legal source of each branch of law, including businesslaw. As a source of business law, a constitution functions as a sourceof law to the extent to which social and economic systems are sub-jects of constitutional regulation.40 The constitution of Bosnia andHerzegovina and constitutions of the Entities are sources of business


law only indirectly. This means that the matter of business law is regulated by acts and bylaws that are lower than acts. The most important bylaws as sources of business law include decisions, decrees and orders by executive authorities. Customs were sources ofbusiness law for a long time. Thus, until the passage of the Law onObligations in 1978, customs were the main source of business law.Special sources of customary law are usages (Germ. Usancen), whichrepresent a “generally adopted business-law practice”41. Usages arecodified business customs systematized in codes that are alwayspassed by non-state organs. They are classified as either general or special.

4.2. Subjects and objects of law

4.2.1. Legal subjects

Legal subjects include people and social formations that have legalobligations and legal authorities with respect to legal objects. A legalsubject is primarily a human individual, but not always. Legal subjects also include a number of institutions, most frequently organizations granted, by the legal system, special legal authoritiesand obligations, different from authorities and obligations of each ofits members. Both individuals and organizations as legal persons canhave their assets, i.e. they can be owners. Both individuals and organizations may form legal transactions and, based on these, can belegally bound and legally authorized. Both individuals and organiza-tions may commit offences and be liable for them, i.e. be subject tosanctions.42 These two types of legal subjects have their separatenames. A human individual is a natural person, while social formations recognized a legal subjectivity by the legal system arelegal persons.

The possibility of a subject of law to bear powers and obligations iscalled its legal capacity.43 It is necessary to distinguish legal capacityfrom business capacity — the capacity for the subjects of law to acquire rights and obligations, and take legal actions by their expressions of will. Each subject of law has the legal capacity by the


very fact he is a subject. However, he must not also have a businesscapacity. A child acquires legal capacity as soon as it is born. It caninherit something immediately, receive something as a gift, e.g., acquire property rights, in the actual case. However, since it is notyet aware, it cannot do so by its own action, but by another person’saction (agent, guardian).44 Business capacity should also be distin-guished from the capacity to be legally liable, i.e. a subject’s capacityto be liable for obligations due to a prohibited action or offence.

4.2.1.1. Natural persons as subjects of law

According to positive law in B&H, each person becomes a subject oflaw at birth. Historically viewed, not every human being was deemedto be a subject of law. In Roman law, slaves were not considered subjects, but rather objects of law. In medieval feudalism, subjectsof law were not equal; their legal capacity rather depended on theirsocial class. Before the First World War, there were even some Eu-ropean countries (Tsarist Russia) that excluded some categories ofthe population, e.g. Jews, from enjoying some civil rights. A similarsituation existed in Germany under National Socialism.45

Pursuant to Article 2 of the Constitution of Bosnia and Herzegovina,all natural persons are equal in their rights.46

4.2.1.1.1. Legal, business, offence and working capacity of natural persons

For a natural person to be legally capable, it is necessary to be bornalive, i.e. to give signs of life. He needs not be capable of living(French Code civil required the vitality of a child as a prerequisitefor legal capacity). In order to acquire legal capacity, a natural personshould also have a human shape. The rule that subjectivity is acquiredby birth has an exception in the conceived but unborn child. As earlyas in Roman law there was a rule infans conceptus pro iam nato habetur,quotiens de commodis eius agitur. Pursuant to this rule, the conceivedchild is to be deemed born if it is in his own interest (nasciturus).


Pursuant to B&H law, natural persons come of age when they are 18years old, or when a minor marries before coming of age. Accordingto Anglo-American law, true business capacity is acquired at the ageof twenty-one.

Business capacity is a legal condition whereby a subject of law cantake willful actions relevant for law. This is the possibility to acquirelegal capacity, the possibility to acquire rights and obligations byone’s conscious actions, and conscious expressions of will.47

There are three degrees of business capacity: full business capacity,limited business capacity, and business incapacity. Full business capacity is the capacity of a major or a married minor (emancipation)to make business deals. Persons with limited or partial business capacity may, as a rule, make legal deals. However, such legal dealsare valid when approved by a legal representative of the person withlimited business capacity. A legal deal made by a person with a limitedbusiness capacity is called a ‘lame’ legal deal (negotium claudicans).Persons with business incapacity cannot make legal deals at all. It istheir legal representatives that make legal deals on their behalf.48

A natural person’s capacity to be liable for his illegal actions is calledoffence capacity, i.e. the capacity to be legally liable. Offence capacityarises at the age of seven, with the refutable assumption that he is incapable of committing an offence. A minor that has turned 14 yearsof age has full offence capacity if he is mentally sane.

Persons at the age of 15 have working business capacity, i.e. the capacity to become employed and dispose with their personal incomeand property they gained by their work, independently and withoutparents’ or guardians’ approval.

Every natural person must possess attributes by which it differs fromother natural persons. Attributes of a natural person as a legal subjectare: name, abode and residence, citizenship, as well as a unique iden-tification number.


4.2.1.2. Legal persons as subjects of law

A legal person is a social formation with a legal capacity recognizedby a legal system. This means that the legal system can recognize asocial formation as a legal subject, i.e. holder of rights and obliga-tions, although such a formation is completely different from a humanbeing, from a natural person. A legal person is created by establish-ment, and ceases with deletion from a proper registry where his statusdata are kept. The following elements are needed for the recognitionof a legal person capacity of an organization:

1) that there is a firm and single legal organization;2) that such an organization has a goal, for the purpose of which it

was established;3) that it has independence and its own existence;4) that it has its own assets.

Just as a natural person, a legal person must possess attributes that determine its legal subjectivity. By their kinds and features, the attributes are adjusted to the specifics of a legal person as a subjectof law. They include: name, residence or head office, and citizenshipor membership.49

4.2.1.2.1. Legal, business and offence capacity of legal persons

Legal persons have a special legal capacity as opposed to natural persons’ general legal capacity. Legal persons have been founded inorder to achieve a defined goal. Consequently, their legal capacityshould match the goal.

Business capacity means the acquisition and exercise of rights byone’s conscious actions and expressions of will. Since legal personshave neither conscience nor will, their business capacity must be recognized based on other criteria. Thus, a legal person appears as asubject in legal relations, and exercises its business capacity through


expressions of will by natural persons that make up parts of its organs.Legal persons acquire their business capacity at the moment of theirestablishment.50

Since a legal person’s organs can also take an illegal action whiledoing the business activities of a legal person, it is also necessary torecognize a legal person’s offence capacity, and make it liable for of-fences.51


5ChapterFUNDAMENTALS OF LAW OF OBLIGATIONS

5.1. Concept and characteristics of law of obligations and obligation action

5.2. Types of obligations5.3. Subjects of obligation-law relations5.4. Sources of obligations5.5. Cessation of obligation5.6. Effect of time on legal relations

Chapter 5

FUNDAMENTALS OF LAW OF OBLIGATIONS

5.1. Concept and characteristics of law of obligations and obligation action

The word ‘obligation’ draws its origin from the Latin word obligation,which means commitment, pledge, from the root in the verb obligare,which means oblige, obligate, bind. The term obligation in modernlaw was taken from Roman law, and in its original meaning could betranslated as: to tie with a lace. This reminds us that in the originalRoman law a debtor was liable for a debt both financially and physically. An obligation may imply a relationship between at leasttwo persons, one of whom is authorized to require the other to do ornot do something.52

In the objective sense, law of obligations is a set of legal norms regulating obligation relations.53 In the subjective sense, law of obli-gations is a given person’s (creditor’s) authorization or right to require given conduct from another person (debtor).54 An obligation-lawrelationship is a legal relationship between two persons, where oneperson is bound to perform a given action to the other person, whilethe second person has a right, i.e. authority, to require the first personto do it.55 An obligation action is the conduct by participants in the ob-ligation relationship, required for the obligation to be fulfilled. Theobligation action can consist of giving (dare) a thing (Lat. res); inacting (facere); in non-acting (non-facere), i.e. in refraining from action, in neglecting to do something; or in bearing (pati), i.e. enduring,allowing the debtor to do something he otherwise should not do.56

Chapter 5 FUNDAMENTALS OF LAW OF OBLIGATIONS 53

5.2. Types of obligations

5.2.1. Obligations by kinds of action

Obligations are strictly personal if it is only the debtor and no oneelse that is bound to perform the action; other obligations are non-personal, i.e. the action can be performed by someone else for thedebtor.57 With respect to whether the obligation action can be performed in a given, i.e. short time period, or the performance lastslonger, obligations are momentary or permanent.58

With respect to whether the obligation action is divisible or indivisible,obligations are classified as divisible and indivisible. A divisible obligation can be fulfilled in two or more parts. With such a fulfill-ment, the obligation keeps its original meaning. Indivisible obliga-tions are those that have to be fully fulfilled, since its division intoparts would threaten its essence and decrease its value.59

An obligation from an obligation relationship can be fulfilled by asingle action, regardless of whether the action lasts a short or longtime. It is a simple obligation. An obligation can also be such that thedebtor is bound to take a few actions, all of which together make upthe object of obligation. These are compound or complex obliga-tions.60 Obligations can be pecuniary or non-pecuniary, depending onwhether the debtor is bound to give creditor money, a thing or to door not to do something.61

5.2.2. Obligations according to the way of determining the obligation action

A special or individual obligation is the one where the action thedebtor is bound to take is known. This action is specially determined,and the obligation can be fulfilled only by taking it.62

In the case of generic obligations, as opposed to individual ones, theobject of obligation is not sufficiently determined. Only the kind,


genus of a thing or action of obligation has been determined, while itis less important for parties to the obligation relationship which thingor action it will be when fulfilling the obligation.63

In an alternative obligation, the object of obligation may include twoor more actions, and the debtor is bound to take only one of them.64

In a facultative obligation, the object of obligation is a clearly deter-mined action. The debtor may also be authorized to fulfill the obli-gation by taking another, also clearly determined action.65

Natural obligations are those that are not legally protected. They cannot be obtained through court, although they are legally reco -gnized.66 An example of natural obligation would be an obligation,i.e. a debt that is limited.

5.3. Subjects of obligation-law relations

Subjects in an obligation relationship may include legal and naturalpersons.67 An obligation as a bilateral legal relationship is establishedbetween at least two persons. These persons are the subjects of the relationship. One subject is the holder of the right (creditor), while thesecond is the holder of obligation (debtor). The relations may arisebetween a natural and a legal person, and vice versa. They can arisebetween a natural and a natural, and a legal and a legal person.

5.3.1. Plurality of subjects in the obligation

One speaks about plurality of obligation subjects when at the sametime an obligation involves a few creditors and a few debtors.68 Whenthe obligation action is divisible, and the relation between plurality ofobligation subjects such that each creditor is authorized to requireonly its part of the claim, i.e. each debtor owes only its part of a debt,such an obligation is distributed or simple common obligation.69


In the case of a plurality of subjects in a single obligation, their mu-tual relation may also be regulated in such a way that co-debtors arebound to perform an entire action, while all the co-creditors are au-thorized to require the entire action, regardless of whether the actionof obligation is divisible. These are solidary obligations (analogousto common-law joint and several obligations).70

5.3.2. Change of subjects in the obligation

Parties that participate in a legal relationship can change, except in acase of strictly personal relations. If an obligation experiences achange on the creditor’s side, that is called a cession of the claim. Ifthe subject is changed on the passive, or debtor’s side, it is calledtaking over a debt, or an assumption of the debt.71

5.3.2.1. Cession

Cession (Lat. cessio; Germ. Zession) is a transaction whereby the pre-vious creditor (assignor, Germ. Zedent), by means of a contract, trans-fers his claim to his co-contractor, a new creditor (assignee, Germ.Zessionar), while both the debtor (Lat. cessus) and the debt remainthe same.72


CONTRACT OF CESSION

1) AssignorD.O.O. “Eko” Sarajevo, Ferhadija # 5, represented by ________________

2) CessusD.D. “Promo” Sarajevo, M.M. Baseskije # 17, represented by _____________

3) AssigneeD.D. “Espro” Sarajevo, Titova # 10, represented by ________________

Legal bases for this contract of cession:

A) Contract of the sale of goods in the amount of 18,259.00 BAM, with “Promo” as the buyer and“Eko” as the seller.

B) Contract on maintaining business premises in the amount of 18,259,00 BAM, with “Espro” as theservice provider, and “Eko” as the beneficiary.

Fill in the empty boxes in the enclosed Contract of cession.

CONTRACT OF CESSION

Entered into on this day of _____________ among:1. _________________ (assignor)2. _________________ (cessus)3. _________________ (assignee)

Art.1.This Contract regulates mutual obligations, i.e. claims between the assignor and the assignee, so thatthe assignor _______ cedes its claims from the cessus __________ based on _________ to the assignee.

Art.2Assignee _________________ agrees to take over its due claim in the amount of _____________ basedon _______________ from the cessus __________________ .

Art. 3The amount set by the Preceding Article of the Contract will be paid by the cessus to the assignee infavour of the assignee’s account ________________________ .

Art. 4This contract is irrefutably binding for all the parties, and in case of dispute over the provisions of thiscontract, the competent court shall be at the seat of the assignor.

Art. 5This contract is made out in 6 copies, two for each respective signatory.

ASSIGNOR CESSUS ASSIGNEE____________ ____________ ____________


5.3.2.2. Assumption of a debt

An assumption of a debt (Lat. intercessio) is the name for a transac-tion where a debt can be taken over in full, so that the debtor is fullyexempt from the obligation, while a new subject, who takes over thedebt (new debtor), receives the obligation. This is taking over a debtin the full sense of the word, since the changed subject of obligationis on the debtor side (Lat. intercessio privativa). However, it is possible to take over a debtor obligation in the way that the old debtoralso remains, with a new one being specified (cumulative assump-tion of a debt, Lat. intercessio cumulativa).73

5.4. Sources of obligations

Legal facts and conditions that form the basis of obligations aresources of obligations.

The most frequent source of obligations includes legal transactions(Lat. negotia) in general, particularly contracts. A contract includesexpressions of will by two or more persons. These persons contractthe emergence of a defined obligation relation, which means that theyare bound to perform the contracted actions.74

Unilateral civil-law transactions (Lat. negotia unilateralia) are thosewherein the obligation as a bilateral legal relation arises by an expression of will by one person only.75 They include issuing securi-ties and public promise of reward. A public promise of reward is astatement of will by a public announcement, whereby the rewardpromissory commits himself that he will give a reward to the personwho performs a given action, or achieves success, or fulfils a condi-tion. Examples of this legal concept, i.e. source of obligation, are the selection of the best architectural design, beauty contest, job announcements, etc.

Causing damage or civil offence (Engl. tort; Germ. Delikt) is a sourceof obligation, in the way that the person that caused the damage to another person through an unlawful action is bound to indemnify the


latter for the damage, unless he proves that the damage occurred withno fault of his.76

a) Liability based on culpability is also called subjective liability(fault liability). Culpability is here viewed as a relation betweenthe perpetrator of the harmful action toward the action. The pointis that the perpetrator of the harmful action was aware or had tobe aware that he would cause damage to a second person by suchan action. In this form of liability, the B&H legal system adoptedthe system of assumed culpability, in case of common negli-gence. The damaged party is here in a more favourable positioncompared to a graver degree of culpability (intention), the exis-tence of which has to be proved by the damaged party. In thisform of civil-law liability, the committer of damage is typically anatural person and, less frequently, a legal person as well.

b) In case of objective liability (strict liability), as a stricter form of liability, culpability is not a prerequisite for liability, and causalityis assumed. A liable person can still be exempted in cases pro-vided for by law. Contrary to subjective liability, in this form ofliability the culpability of the perpetrator causing the damage isnot an essential element, and one is liable for the damage by thevery fact of damage occurrence. These are things and activitiesthat, based on their pro -perties or function and utilization, pro-duce an increased degree of threat to the environment (personsand property). Examples of dangerous things may be: a car, con-struction machinery, gas, petrol, etc. The most frequently citedexample of dangerous activities is construction in all its mani-festations. In case of objective liability, the liable person is theowner of the thing (more frequently a legal, and less frequentlya natural person), or the person that performs the dangerous activity.

Damage is a decrease in social resources, or someone’s property(common, pecuniary damage), and prevention of their increase (diminished benefit), as well as causing physical or psychologicalpain or fear to another person (non-pecuniary damage).77


Unjust enrichment or acquisition without foundations (Lat. condictiosine causa) as a source of obligation creates the obligation to returnwhat was received without foundations. When someone obtains orreceives something and thus increases its property, and has no legalgrounds for doing so, he is said to have acquired wealth without foun-dations (without reason, justification, unjustly).78 The obligation consists of the requirement for the person whose assets have increased, the one enriched, to return, i.e. compensate the other partywhose assets have decreased, the impoverished, for what has passedto the former party’s assets from the latter’s without foundation.

If someone takes an action in good faith in another person’s interest,and without the latter’s authorization, it is called management without mandate or “management of another’s affairs” (Lat. nego-tiorum gestio).79

5.5. Cessation of obligation

When an established obligation fulfils its goal, it is quite under-standable that it ceases to exist. Fulfilment of obligation is followedby the cessation of the right that corresponds with this obligation,since the obligation and right from obligation are conditioned andcannot be separated from each other.80 Ways of cessation of obligationcan be viewed according to whether they cease by the subject’s will,or the cessation is associated with the occurrence of given legalfacts.81

The fulfilment (Lat. solutio) implies the proper performance of the action that was the object of the debtor’s obligation.82

The impossibility of fulfilling an obligation — An obligation will ceasein this way if the debtor proves that circumstances have arisen that resulted in the impossibility to fulfil the obligation, and he cannot be blamed for them.83 If nobody can fulfil the obligation, this is objective impossibility, while if it is the contractual party that cannotfulfil it, though another person can, the impossibility is subjective.


The impossibility relevant at the moment of contract formation iscalled initial impossibility. When the impossibility occurred after theobligation has been determined, it is called subsequent impossibility.Impossibility can be both full and partial. The debtor is liable for bothpartial and full impossibility of fulfilment (that occurred after the obligation has been determined). The debtor is liable even if he is notresponsible for the impossibility that occurred after he fell behindschedule.84

Compensation (Lat. compensatio) is mutual settlement of one party’s(creditor’s) claims with the mutual counter-claim by the other party(debtor).85 The parties can also agree that each of them will enter mutual claims into a single account (current account, Lat. conto corrente). At times, each party will close its account and settle claims.The balance shall be paid by the party whose debt is higher, and it canalso be transferred to the new current account.86

Novation (Lat. novatio) — an agreement between the obligation subjects aimed at replacing the existing obligation with a new one,results in the cessation of obligation, although the existing one has notbeen fulfilled.87

Confusion (Lat. confusio) — If, in an obligation, the creditor anddebtor consolidate into a single person, the obligation ceases, since noone can claim from himself nor owe to himself.88 The most exemplarycase of this way of obligation cessation is universal and singular succession. Universal succession implies transfer of all the testator’srights and obligations to the successor, while singular succession implies transfer of only some of the testator’s rights to the successor.

Waiver of debt (Lat. pactum de non petendo) — The agreement between the creditor and debtor on the waiver of debtor’s obligationtoward the debtor results in the cessation of obligation. The waiver ofdebt requires both the creditor’s acceptance and debtor’s approval.89

Lapse of time — Lapse of time leads to the cessation of the so-calledpermanent obligation. Obligations are not aimed at lasting forever,and therefore even the obligations named permanent cease after a


given time has expired. E.g., a rental relationship is permanent, butit also ceases after a specified time has elapsed.90

Cancellation (Lat. renuntiatio) is one of the ways of the cessation of a permanent obligation relation, based on a unilateral expressionof will by one obligation subject. A notice results in the cessation ofobligation at a specified future time.91

Death — As a rule, death of one of the obligation subjects does not re-sult in the cessation of obligation, since rights and obligations pass onto successors. The only obligation that ceases is the one associatedwith the creditor’s or debtor’s personality.92

5.6. Effect of time on legal relations

Time can affect legal relations in a twofold way: destructively andconstructively. In the first case, one speaks of limitation, while in thelatter of prescription. One should here mention the concept of preclusion,which is also a result of the impact on time on legal relations.

Limitation is the loss of claim due to non-fulfilment of a content ofsubjective right through a time period defined by law.93 Limitation isdue to the destructive effect of time on legal relations. Actually, dueto the lapse of time provided for by law, and under the condition ofnon-exercise of the right, the legal relation is destructed, i.e. ceases.The point is that the possibility to exercise the right in a coercive way,i.e. by lodging a claim in a material sense, ceases.94 Time periods forlimitation are provided for by law, and subjects cannot shorten or prolong them on their own. Such a provision in the contract would notproduce a legal effect.

There are also circumstances that lead to the cessation of limitation.These reasons are provided for by law, and in the case of cessation oflimitation due to these circumstances. When these circumstancescease to exist, the limitation starts anew. The concept of limitationinterruption is also acknowledged. It is the occurrence of extraordinarycircumstances, usually in the manifestation of a force majeure. In the


course of these circumstances, the limitation is not counted. Whenthey cease, the limitation continues to run, although the duration ofthe circumstances is not included in the limitation time period.

Prescription (usucaption) is a concept opposite to limitation. Whenthe legally determined time has expired, a given factual relation turnsinto a legal, i.e. legally protected, relation. Prescription is alwaysabout acquiring a real right (ownership or servitude) based on conscientious possession of a thing within a time period provided for by law.

The effect of time on legal relations is also manifested through preclu-sion. Preclusion, or a preclusive time period, is the time within whicha right has to be exercised in order to be preserved. Thus, preclusivetime periods are strict legal time limits within which a subject musttake specific actions if he does not want both the claim and a subjec-tive right to cease.95 Preclusive time periods in the substantive sensemust be distinguished from preclusive time periods in the proceduralsense.96


6Chapter LABOUR LAW

Chapter 6

LABOUR LAW

For a certain time, and in some European countries before the SecondWorld War, labour law was studied within the field of commercial/business law. There are many institutions that both business law andlabour law as branches of law take an interest in: the organization ofcompanies, i.e. commercial societies, administrative and managementorgans, business and working capability, legal subjectivity, commercialor business contracts. Besides, the central subject of business lawstudies — status of commercial subjects — is also a segment of labourlaw, due to the fact that commercial subjects are the most frequent andnumerous employers based on the employment contract of labouremployment.97

It can be claimed that the sources of labour law are all the generaldocuments of a legal character that appear as sources of otherbranches of law as well, while the specific source of labour law is associated with collective agreements.98 Still, a characteristic ofsources of labour law is that they include a number of diverse legalnorms that continuously change, since labour relations are changeable,living and applicable social relations. Legal sources appear as sourcesof law in the substantive sense, and, with respect to the forms inwhich the true content of law, as sources in the formal sense.

We accept the opinion that sources of law, and therefore sources oflabour law as well, cannot be determined for all times and for all legalsystems. It is for this reason that the determination of sources oflabour law should start from the positive law of each country.

Starting from this criterion, as well as from the viewpoint of labourlaw scholarship, sources of labour law can most appropriately be classified by the following groups:

Chapter 6 LABOUR LAW 67

1. state regulations99;2. collective agreements;3. general employer’s documents — sources of autonomous law;4. international sources of labour law;100

5. customary law;6. court practice.

An employer is a natural or legal person that provides a job to the employee based on an employment contract. An employee is anatural person whose employment is based on an employment contract. Formation of an employment contract between an employerand an employee results in employment. An important characteristicof employment is that it is a legal relationship that is, for its entire duration, formed and agreed upon between an actual person (worker,employee) on the one hand, and an actual employer on the other.

The essential elements of employment are: voluntariness; personal,labour-law and functional bond; inclusion in the working process;and the exercise of rights and obligations in the workplace, pertainingto work and for the work’s sake.

Voluntariness is the first essential element of employment, since employment is created as a voluntary relation between two legal subjects — an employer and an employee. The principle of voluntarinessin terms of the content implies the right to the choice of occupation,choice of work and place where the work will be performed. Accordingly, employment is primarily a voluntary relation betweentwo subjects. Both subjects freely decide upon whether and whichsubject will form an employment relation.101 Out of a few interestedworkers, the employer freely selects the applicant for employmentthat suits best the necessary psycho-physical qualities, professionalqualities, experience and other capabilities. There is an accordance of both subjects’ wills, and the concretization of these wills in thedocument of employment results in the establishment of an employ-ment relation and the acquisition of rights and obligations based onwork performance.


The personal, labour-law and functional bond as an essential elementof employment indicates that employment is a specifically personalrelation, which implies that, from the moment of starting the employment until the cessation of employment, the employee has theobligation to personally and exclusively perform certain jobs andwork tasks within his position. An employee cannot transfer his obligations or rights to another person who would perform the jobsand tasks of his position on his behalf. It is because of the emergence,duration and cessation of employment, as an exclusively and onlyspecific personal relation between the employee and the employer,that the personal, labour-law and functional bond is an essential element of employment.102

Inclusion in the work process organized by the employer is directlyassociated with the previous two elements. Employment implies theinclusion of the hired person into the work environment, which ismanifested in permanent, regular and continuous performance oftasks and jobs of the position and which, as a rule, is the employee’sregular and main occupation. Inclusion in the work process should be done in the way and under the conditions determined in the document on employment. The very act of starting to work is the firstmanifestation of the contracted wills, and therefore the fulfillment ofassumed obligations.103

Exercise of rights and obligations acquired in the workplace, associatedwith work and on occasion of work, as an essential element of employment implies the execution of the employment content itself.Employment-related rights and obligations determine the position ofthe parties in the employment: employer and employee. Thus, therights, obligations and liabilities of the employment subjects are theemployment content. Employment relation is a bilaterally bindinglegal relation, since each party has both rights and obligations to theother party. The employee’s basic right is the right to a salary, whichalso implies the employee’s basic obligation to personally performthe jobs of his position according to the employer’s instructions, inaccordance with the nature and kind of work, and in accordance withregulations and the employment document. The employer’s basic


right is to determine the place, conditions and ways of performingthe work, complying with regulations and employee’s rights, i.e. theemployer’s basic obligations are associated with the payment ofsalary and securing, for the employee, conditions for safe work, incompliance with regulations.

A person looking for a job, just as a person who gets a job, cannot beput into a less favourable position due to his race, colour of skin, sex,language, religion, political or another opinion, national or social origin, income, birth, or any other circumstance, membership or non-membership in a political party, membership or non-membershipin a trade union, physical or emotional difficulties with respect to engagement, education, promotion, conditions and requirements ofwork, calling the employment off, or other issues resulting from employment.

A collective agreement, rules of employment or employment contractcannot determine less or more favourable rights than the rights determined by law, unless it is expressly provided for by law.

An employment contract can be formed for an indefinite or definitetime period. An employment contract is formed in a written or oralform. An employment contract in the written form particularly includes data on: name and office of the employer; full name, resi-dence and abode of the employee; duration of employment contract;date of the commencement of work; place of work; position wherethe employee is employed with a short job description; length andschedule of working hours; salaries, benefits, allowances and payment periods; duration of vacation; notice periods which are bindingfor both the employer and the employee; and other data pertaining towork conditions determined by the collective agreement.

An employment contract cannot be formed with a person youngerthan 15 years of age. A person between 15 and 18 (minor) can be employed under the condition that he obtains a certificate from anauthorized physician or relevant healthcare institution proving thathis health conditions are adequate for performing these jobs.


An employee cannot make deals in the activity his employer is involved in on his or someone else’s account without the employer’sapproval. The employer and the employee can include, in the con-tract, the term that the employee cannot get a job with another personthat is the employer’s competitor for a given time upon the cessationof the employment contract, and no longer than two years upon the cessation of the contract, and that he cannot make deals wherebyhe competes against the employer on his own or a third party’s account.

The employer is bound to allow the employee to become familiarwith the regulations on employment and regulations in the field of work safety within thirty days starting from the employee’s firstday on the job. The employer is bound to render the employee capa-ble of work in a way that ensures the protection of the employee’slife and health, and prevents the occurrence of accidents. The employer is bound to ensure the necessary conditions for work safety,which ensures the protection of the employee’s life and health, in pursuance with the law. Employee protection particularly includesthe protection of minors, protection of women and motherhood, and protection of an employee that is temporarily or permanently incapable of work.

An employment contract ceases:

1. upon the employee’s death;2. through an agreement between the employer and the employee;3. when the employee reaches 65 years of age and 20 years of

employment insurance, i.e. 40 years of employment insurance,unless the employer and employee agree otherwise;

4. on the day of passing a valid decision on the establishment ofthe loss of working capability;

5. by the employer’s or employee’s notice;6. with the expiration of the definite time period the employment

contract has been formed about;7. if the employee has received a prison sentence longer than three

months — on the day the sentence begins;


8. if the employee becomes the subject of a security measure, disciplinary or protective measure longer than three months —on the day when executing the measure starts;

9. by a decision of a relevant court resulting in the cessation of employment.

An employee has a work record, which is a public document. It is issued by the relevant authority responsible for labour. On the firstday on the job, the employee hands in the record to the employer,while the employer issues a written receipt about it. On the day of employment contract termination, the employer is bound to returnthe work record to the employee, while the employee returns the receipt to the employer.

A contract for the performance of temporary and occasional jobs canbe formed in the case of performing temporary and occasional jobs,under the following conditions:

a. that the temporary and occasional jobs have been determined inthe collective agreement or in the employment rules,

b. that temporary and occasional jobs are not the same as tasks forwhich the contract of employment for a definite or indefinitetime is formed, full or part time, and that they do not last forlonger than 60 days during a calendar year.

The person who performs temporary and occasional jobs must havea break during work under the same conditions as employed staff andother rights, pursuant to regulations on pension and disability insurance.For performing temporary or occasional jobs, a written contract is formed. The contract should include the kind, way, time limit forperforming the jobs, and remuneration for the completed job.


7Chapter COMPANY LAW

7.1. Subject of Company law 7.2. Classification of companies 7.3. Distinguishing companies

from other forms of organization 7.4. Companies in the European Union law 7.5. Special forms of company organization 7.6. Company branches 7.7. Associated companies 7.8. Forms of company associations

in comparative legal systems7.9. Consortium-type association of companies 7.10. Joint-stock company organs

Chapter 7

LABOUR LAW

7.1. Subject of Company law

Company law encompasses a set of rules that regulate company formation, operations, structure and the authority of organs, organi-zation, liability regime, as well as the conditions and forms of theircessation. This legal discipline can be defined in another way as well.Company law is an independent legal discipline which studies thelegal regime of companies, both the general legal regime and the legalregime of each individual company. In this way, this separate legaldiscipline is distinguished from business law, due to the complexityof subject matter being studied, independent sources of law, as wellas an increasing degree of specialization and the need for a separatestudy of individual legal institutions.

The goal or mission for establishing an individual company is thebasis for distinguishing companies from other types of associations.104

The basic goal of forming companies is making profit, while in thecase of other types of associations the goal is the satisfaction of cer-tain interests that are not of a profit-making nature. This narrowerunderstanding of company is justified for a few reasons. Its mission,motives for establishment, way of organizing, rules pertaining to financial operations, disclosure and calculation of profit, tax obliga-tions, rules pertaining to bankruptcy and regular liquidation are onlysome of the reasons justifying the distinction. This claim is furthersupported by the regulations of comparable legal systems which, asa rule, in their introductory provisions, define a company as a formof organization established for making profit.

Chapter 7 COMPANY LAW 75

7.2. Classification of companies

Companies are generally classified as:

a) corporations, andb) partnerships

Regardless of this general classification, companies are further classified as:

a) joint-stock company (Bos. dioničko društvo), which can be ofthe closed and open type, whose shares are issued through pub-lic offer, and which meets one of the criteria provided for by law,

b) limited-liability company (Bos. društvo ograničene odgovornosti),c) general partnership (Bos. društvo neograničene solidarne od-

govornosti), andd) limited partnership (Bos. komanditno društvo), which can be an

“ordinary” limited partnership and limited stock partnership(Bos. komanditno društvo na dionice), if its subscribed capital isdistributed to shares.

This is the classification given by the Law on Companies in the Federation of B&H (LoC). Joint-stock and limited-liability companiesare corporations, while the remaining two forms belong to the partnership type.

The existence or introduction of another type of company beyondthose that have been defined as such by the Law105 is not possible.Viewed comparatively, the Law on Commercial Companies of theRepublic of Croatia106 classifies companies by:

a) general partnership (Cro. javno trgovačko društvo)b) limited partnership (Cro. komanditno društvo)c) silent partnership (Cro. tajno društvo)d) joint-stock company (Cro. dioničko društvo)e) limited liability company (Cro. društvo sa ograničenom

odgovornošću), andf) economic interest association (Cro. gospodarsko interesno

udruženje).


A general partnership and limited partnership are partnerships, whilejoint-stock companies, limited-liability companies and economic interest associations are corporations107. A silent partnership appearshere as a new legal category. It is not a separate form of company butrather a legal and business structure that does not have legal person-ality or its own name. It is a separate contract of the law of obligationsbased on which a silent partner invests money, objects or rights intoan already existing company in order to participate in the division ofprofit and bearing losses. This is a contract based both on the law ofobligations and company law.

7.2.1. Corporations

The classification of companies as either corporations or partnershipsis a traditional one. Corporations are a special form of business organization, with prominent property interests or elements. The interests of capital dominate over the personal features of members,i.e. the founders of company. Property interests are expressed in partnerships as well, but the tie between members of a partnership isfar stronger. It is also founded on family or extended family relations.This element is missing in corporations, which does not mean thatthese elements cannot be present in certain forms of this kind of organization. Corporations may be joint-stock companies or limitedliability companies. Entity laws classify corporations in the sameway, as joint-stock companies and limited liability companies, except that the Republika Srpska uses another name for joint-stockcompanies — Bos. akcionarsko društvo.

Corporations can be established by one or more persons. Founderscan include legal and/or natural local and foreign persons. The Lawon Companies determines the minimum equity needed for the estab-lishment and doing business. It is because, contrary to the membersof partnerships, members of corporations (shareholders and membersof limited-liability companies) are not liable for the company’s obli-gations with their property.108 Exceptions include cases of abuse de-fined by Law, which will be discussed later. There are minor andspecific limitations to the transfer of members’ shares in equity to


third persons, mainly in limited-liability companies.109 Members’rights to participate in the management and distribution of profit areproportional to their share in equity. In terms of management, mem-bers have the right, though not the obligation, to participate in thework and decision-making at the general meeting.110 Pursuant to theLaw, a company has to form organs that manage it, run its affairs andrepresent it.

A joint-stock company can be established by one or more founders.The company is established by means of a contract on the establish-ment of a company, i.e. memorandum of association. Exceptionally,when a company is established by a single founder, the founding document is the decision on the establishment. Besides the foundingdocument, a joint-stock company must have its statute. Legal theoryknows of two ways of establishing joint-stock companies: simulta-neous and successive. The company is established in a simultaneousway when all the shares are bought by founders, and in a successiveway when founders buy an agreed number of shares, while the remaining shares are bought by other persons based on a public invitation for subscription and payment of shares. Thus, the joint-stock company’s equity is divided into parts which are represented byshares. The law prescribes the minimum amount of equity, which is50,000 BAM. A joint-stock company must form its organs. Shareholders in a joint-stock company are not liable for the company’s obligations, except in cases provided for by law.

A limited-liability company is a company the equity of which is divided into portions called membership interests. It can be estab-lished by one or more founders. Founders’ interests can vary, andeach founder can have only one membership interest. Members arenot liable for the company obligations, i.e. they are liable only up tothe amount of their interests. The law prescribes the minimum equity, which is 2,000 BAM, wherein the amount of individual contribution can be no lower than 100 BAM. Besides the foundingdocument, the company has its statute. It forms the company organs.


7.2.2. Partnerships

Partnerships include: general partnership, limited partnership, andlimited stock partnership. This classification is used in the LoC. TheLaw on Enterprises (LoE) uses the term ‘ortačko društvo’ for a com-pany with unlimited solidary liability, i.e. general partnership, anddoes not recognize limited stock partnership. The difference betweenLoC and LoE in this form of partnership is the fact that general part-nerships for the purpose of the LoE can be founded only by naturalpersons, which is not the case with a general partnership in the LoC.111

This form of company can also be founded by legal persons. Indeed,the LoC says that this type of company is founded by at least two ormore persons without specifying whether natural or natural and legalpersons as legal subjects. However, provisions pertaining to the formsof cessation of this type of company determine that the company cancease to exist if the legal person as a company member ceases to exist,i.e. in case of its bankruptcy.112 Besides this term, the term ‘javno trgovačko društvo’ is also used to describe this form of organizationof persons. Regardless of different names, this type of partnership ischaracterized by the prevalence of personal elements. The existenceof personal elements does not mean that the goal of establishing thesecompanies differs from the goals present in companies of the corpo-ration type. Profit making is the essential goal of these companies aswell. The basic difference from corporations is in the regimen of liability for obligations in legal and business operations.

The characteristic of partnerships is that they have no less than twomembers, wherein at least one member is liable for the company’sobligations with his entire property. Consequently, the Law does notprescribe the minimum equity capital needed for their establishmentand operations. Apart from this, all companies, including partner-ships, are liable for their obligations with their entire assets113. In caseof partnerships there are limitations in the transfer of membership interests to third persons, which should be viewed in the context ofsignificance of members’ personal features, their mutual connectionsand trust. Company members that are liable for the company’s obli-gations (members of general partnerships and general partners in limited


partnerships) have the right and obligation to manage the companypursuant to the memorandum of association. They generally haveequal rights to the participation in managing the company and distri-bution of gained profit. These companies are characterized by the ab-sence of organs and statute, which are features of corporations.Fundamental operation-related issues are regulated by the memorandumof association. Members are authorized to run the business and act ascompany’s agents.

A general partnership is a company with at least two persons who arejointly and severally liable for the company’s obligations114. Such acompany may have more members, and they are all jointly and severally liable for the company obligations with their entire property.The company is established through a memorandum of association.The members’ contributions are of equal value and may includemoney, objects, rights and provided services. They become the companyassets separated from the members’ property. All the company mem-bers have the right and obligation to manage the company pursuantto the memorandum. Accordingly, they generally equally participatein the distribution of profit and in covering losses.

A limited partnership is a partnership with no less than two members:a general partner and a limited partner, although there may be more.These two types of members have different status within the company. General partners manage the company and are jointly and severally liable for the company’s obligations, with their entireproperty. Limited partners do not manage the company and are not liable for its obligations, i.e. they are liable only up to the amount oftheir contributions.

7.3. Distinguishing companies from other forms of organization

It is not difficult to distinguish between companies and other formsof organization. This is the distinction between “profitable and non-profitable” forms of organization. The basis for the distinction are


the motives for establishment and goals to be achieved. The motivesfor establishing companies are the achievement of the drafted goalsin the articles of incorporation in order to achieve the basic goal, i.e.making profit, on a common basis and different contributions. Non-profit forms of organization have completely different motivesfor organization. They consist in the desire and intention of a groupof people or founders to get involved in given activities in an organizedway. In order to take certain actions, they need legal personality. Thegoal of these forms of legal persons is not profit making but simplythe satisfaction of certain needs, which can be of various kinds. Thesecan be intentions of an ecological nature, charitable activities, pro-tection of a given population’s interests, e.g. those of retirees etc., allwithout the intention to make profit. These forms of organization operate according to an entirely different set of regulations. They arelegally bound to disclose their results but in a completely differentway and on a different basis. Among other things, these forms of organization do not disclose their profits, and calculate operation results according to different rules compared to companies. Their organs are structured in a different way, and their operations are controlled by other state organs. They typically appear as citizens’associations and foundations, i.e. endowments.

Public enterprises are a separate form of organization. They are aform of business organization the ownership structure of which isdominated by the state capital. It is the capital owned by a state organizational form. The organizational form and level of state organization depend on community level and community organiza-tion. These may be enterprises on a municipal, cantonal, entity orstate level, such as in the case of Bosnia and Herzegovina. Further, italso depends on the kind of economic activity. These are activities of the so-called public sector, i.e. activities treated as those being performed in the interest of all citizens. These are also activities thatshould, as a rule, be performed on unified technical and technologicalbases. Without this prerequisite, their appropriate functioning wouldnot be possible.


7.4. Companies in the European Union law

Within European Union law the following profitable forms of businessorganization can be recognized:

a) European economic interest group, andb) European company or European enterprise (Societas Europea).

Non-profitable forms of organization include:

a) European cooperative society,b) European insurance company, andc) European association.

One of the basic rights within European Union law, the so-called natural and legal persons’ right of abode, provides the legal basis forfree engagement in commercial activities within the territory of EUmember countries. This implies conducting business through the existing companies or operating by establishing new companies. Thefreedom to establish an enterprise is determined by the EuropeanUnion founding act.115 This implies that all forms of restrictions anddiscrimination are abolished by introducing the so-called nationaltreatment for companies formed before the establishment of the European Union and by introducing the obligation to gradually eliminatenational laws in the transition period.116 The directives of the EU oblige member countries to adopt them in their legal system unreservedly. The harmonized European supranational law excludesthe implementation of national law which is opposed to EU law.

Besides the rules related to the establishment of these forms of organization, the Treaty on establishing the European Communityprovides for the obligation and harmonization of national regulationspertaining to the organization and operations of classical forms of companies. This subject matter is regulated by directives. A totalof eleven directives have been issued to date, most of which pertainto joint-stock company operations. The directives regulate the following:


a) protection of shareholders’ and third parties’ interest,b) formation and elements of a joint-stock company’s statute,c) changes in equity capital and merging shares,d) content and publishing of business reports;e) liability of joint-stock company’s organs;f) status change of joint-stock company merger;g) preparation of consolidated balance sheets;h) auditor appointment;i) mandatory data that have to be published by branches andj) issues pertaining to operations and establishment of single-

member companies.

Rules pertaining to European company operations provide that it hasthe form of a joint-stock company with legal personality in the EU member states, which is engaged in commercial activities andwith minimum equity of 100,000 euros.117 This form of company canbe established neither simultaneously nor successively, but has to beestablished by an already existing company with the seat registeredin the European Union. Other occurrences of a European companywould be:

a) formation of a holding company in the form of limited-liabilitycompany;

b) creation of a joint subsidiary by the already existing limited-liability companies;

c) transformation of the existing companies into a European company, and

d) giving permission to the existing European companies’ subsidiaries to establish new subsidiaries.

European economic interest grouping118 is a form of interest-basedassociation aimed at the mutual association of the already existingcompanies. Founders can include natural and legal persons governedby both private and public law. Legal persons, as founders, must havea registered office within the territory of an EU member country,while natural persons have to be involved in a form of industrial,craft, commercial or agricultural activity. The memorandum of asso-ciation is a contract. Registration confers full business capacity on


the grouping throughout the European Union. The rule on EEIG of 1989 does not determine the minimum amount of equity. The goalof establishing a grouping is not profit making, but only the mem-bers’ cooperation within the agreed fields of their common economicactivities. The grouping organs are: the members’ assembly and a manager or managers, depending on the regulation by the memo-randum of association. LoCC has almost identical solutions. This attempt is a positive shift toward timely harmonization between national legislation and the EU law.

7.5. Special forms of company organization

Besides the classifications described above that cover the five different forms of business organization, there are some other classi-fications. These are general forms of companies, although there arealso special forms of organization. However, regardless of their par-ticularities, they are still included in one of the five listed forms ofcompanies. These specialized forms would include all the forms oforganizations subject to one of the lex specialis. These are: commercialbanks, micro-credit organizations, insurance companies, investmentfunds, stock exchanges and public enterprises. What is specific forthese forms of organization is that the LoC is a general legal docu-ment applied to the regime of their establishment and operations; if the LoC treats certain issues differently, lex specialis will be applied. Also, if an issue is not regulated by lex specialis, LoC provisions will be applied by analogy.

7.6. Company branches

The LoC and LoE do not pay particular attention to a branch, i.e. apart of a comapny. The LoC establishes that a company can havebranches outside its seat, and that these are business units that do nothave the capacity of a legal person but can perform all the activitieswithin the company’s activity entered in the register and thus acquirerights and obligations for and on behalf of the company. Branches


are registered with the registration court, where the company itself isregistered with the court register of companies.119 The LoE defines abranch in a similar way, by describing the part of an enterprise onlyin a terminological and linguistic sense. The LoE prescribes that thefounding document of a partnership, or statute of corporation, can es-tablish that the part of the enterprise has certain competencies in legaloperations, separate accounting, and a separate sub-account in ac-cordance with the law. Besides, the part of the enterprise does nothave the capacity of a legal person.120 There is no such provision inthe LoC, although it can be understood that the founding documentis obliged to define branches or at least the possibility of their estab-lishment, their technique of accounting and presenting business results, and their opening of a separate account, in compliance withpositive regulations, to allow monitoring of the off-site branch as apoint of expenditure and income. Without such a possibility, it wouldcertainly be far more difficult to monitor its operations, present itsbusiness results and determine its profitability and thus the need forits further business existence. The very name of the branch, i.e. partof enterprise, should not be understood as an imperative norm interms of its mandatory language use. Depending on the type of activity, the following names can be found: branch for commercialbanks, plant, business unit, business object number 1, department,etc. The branch name can also be determined by a separate law. Anexample for this is the Law on Banks.

7.7. Associated companies

According to the LoC121, associated companies include a parent company and its subsidiary, companies with cross-holdings, holdingand concern (Germ. Konzern). The Law also recognizes other formsof associations between companies, such as association through acontract, consortium, franchising, business association, businessunion, business system, pool, etc., although it does not define them.A parent company is defined as a company that has a majority inte-rest in another company’s equity, or which has the right to appoint themajority of the other company’s supervisory board, i.e. that has themajority vote in general meeting, pursuant to the contract signed with


this company. The other company is then defined as a subsidiary. Aparent company with the majority interest in equity is defined sepa-rately, as a company that has over 50% votes in the subsidiary’s general meeting, directly or indirectly through another company andbased on over 50% interest in the other company’s equity.

The parent company may give binding orders, decisions or instructionsto the subsidiary, and it may also happen that it makes the subsidiarydo something to the latter’s own detriment. The parent company isbound to compensate the subsidiary for the caused damage if it hasled it to conduct a legal transaction detrimental to itself, do, or fail todo something to its own detriment. A claim for damages on behalf ofthe subsidiary can be made by the subsidiary’s shareholders andmembers, as well as by its creditors pursuant to the law. Besides theparent company, the jointly and severally liable debtors will includemembers of the parent company’s management, and members of thesubsidiary’s management if they have violated their duties, exceptwhen they acted according to the instructions of the parent company’smanagement. If the subsidiary’s bankruptcy has been caused by acting pursuant to binding orders, decisions or instructions by the parent company, the parent company will also have joint and severalliability for obligations to bankruptcy creditors. There is no feedback,so that the subsidiary has no liability in case of the parent company’sbankruptcy.

Companies with cross-holdings are associated companies where eachcompany has an interest in the other company’s equity. The subsi-diary can acquire shares and interests in the parent company and exer-cise the voting right on this basis.

A holding consists of a parent company and one or more subsidiariesassociated through single business coordination by the parent company based on a contract of business coordination. In this case,the individual companies are called holding companies. If the parentcompany is involved in other activities besides the single businesscoordination, the companies make up a concern, the individual companies being concern companies. Holding and concern may alsobe formed by companies not dependent on each other.


Within associated companies, LoC also regulates a business associ-ation as a legal person established by two or more companies in orderto improve their respective businesses and align their activities,though not in order to achieve profit. Rights of business associationmembers cannot be expressed in securities. In legal operations, business association acts on its own behalf and for the account of itsmembers, and on its members’ behalf and for their account. It is liablewith its assets for taken obligations. Members are liable in the wayprovided for by memorandum of association, or by a contract with a third party.

7.8. Forms of company associations in comparative legal systems

Associations of companies, i.e. enterprises in comparative legal systems, are done in various ways and on different bases. Basically,the association amounts to the fact that the association allows thedomination or control of one company over the other. This control isperformed institutionally, in that the companies are associated interms of status, and these changes are registered in appropriate registers, including the court register of companies. Another form ofassociation is contractual association, which is time-limited in termsof its duration and typically serves only to carry out a given businessundertaking. German legislation thus recognizes following:

a) concern (Germ. Konzern)b) legally independent companiesc) subsidiary and parent companiesd) companies with cross-holdingse) companies managed based on a separate entrepreneurial contract,

which can have various forms, from management agreements,lease contracts, contracts on the transfer of profit, etc.

According to the French Act on Commercial Companies, a parentcompany exists when a company, directly or indirectly through othercompanies, holds part of the capital which suffices to allow it the


majority of votes at the general meeting, or when it has a majority ofvotes at the subsidiary’s general meeting based on a separate agreementsigned with other members or shareholders. This form of control exists when a company has over 40% of votes. French law providesfor a special form of the so-called branch/subsidiary, which impliesa company where another company owns over half of its capital.These are the kinds of subsidiaries or companies that are controlledby the parent company.

English law recognizes the concepts of a holding, or parent companyand subsidiary. The conditions are prescribed when a company is tobe considered a subsidiary or a holding company, respectively. Thus,it is necessary:

a) for the holding to be a shareholder in the subsidiary and to con-trol the composition of its management,

b) for the holding to own over 50% of the subsidiary’s equity, andc) when a subsidiary is at the same time a subsidiary of a company

that is already a third company’s subsidiary — the so-called sub-subsidiary or the subsidiary’s subsidiary.

Holding is a form of association among a few companies where thefactual control over the controlled companies is achieved by virtue ofowning ordinary shares, as well as multiple-vote shares. The controlmay also be tiered, in that it spreads over a few companies, and wecan thus have first, second, third, etc. parent companies. A holdingcompany can be a financial holding, the “activity” of which is formingcompanies, managing these companies, and their financing. This typeof holding does not perform an operational manufacturing, industrialor trading activity. There are also controlling holdings, which manageother companies by virtue of the ownership over the majority packageof shares; investment holdings, which have factual control overshares issued at the moment the most favorable for them; and, interms of activity, pure and mixed holdings. Legal techniques of holdingformation vary, and include formation of new companies where it already has the majority share in equity; taking over other companies;status changes; association of a few companies; transfer of property


from one company to another; investment in the existing companyor recapitalization.

As opposed to holding, the concept of concern in the German law isbased on the control of a few companies through uniting management.Two or more enterprises are grouped under single management bythe parent or dominant company. Concern can be formed on the basisof a contract which grants domination over other enterprises. Thistype of concern is also called a contractual concern, and contractmodes can vary. They may be management contracts or contracts onthe transfer of profit. Factual concern is the most similar and relatedto concern, since it is based on the factual domination of one companyover the subsidiaries. The basis of factual domination is reflected in the fact that the parent company has the capital control over subsidiaries by virtue of owning the majority of shares. The thirdform of concern is domination achieved by virtue of owning 100% or95% shares of each subsidiary. This is called incorporation; in thisconcept, minority shareholders cannot have over 5% shares but, inreturn, they have the right to replace their shares with parent company’sones or else, to ask to be reimbursed for their value.

U.S. law recognizes the legal construct of a ‘trust’. A trust is createdby gaining control over other companies, by means of gaining control over subsidiaries’ shares. The control can be achieved by buying shares or taking them over through status changes of mergersby formation of a new company or by absorption without establishinga new company. Control can be achieved in still another way, i.e. bygaining factual control over some companies by buying sharesthrough a third party which, in this case, has the capacity of commission agent.

7.9. Consortium-type association of companies

A special form of contractual association of companies is a ‘consor-tium’, which implies an association aimed at carrying out a givenbusiness venture.122 Association is achieved based on the contractual


law, without forming a new legal subject. The goal is to achieve time-limited grouping and the association of a few business subjects inorder to carry out a given business venture. Consortium participantsare exclusively companies. Again, this does not result in the organi-zation of a separate legal person. A consortium is often identified witha joint venture. A joint venture is a kind of joint undertaking resultingfrom U.S. business practice. The U.S. legal system used to include aban for companies to form partnerships. In order to evade this ban, alegal and business construct called a joint venture was created, whichis also widespread in the continental legal regime. This means that thebasic difference between consortium and joint venture constructs isthat in the latter, the participants in a business undertaking form anew company that is to carry out the intended business undertaking.This is a so-called corporate joint venture; there is also a contractualjoint venture, which does not include the formation and registrationof a new company but which rather regulates mutual relations on acontractual basis. In continental law, a consortium is organized in adifferent way. In most cases, it is organized based on contractual lawnorms and, as a rule, it is an unnamed contract of business law.123 Anexception is the Italian law, the civil code of which defines consor-tium as a form of interest-based association that appears as an internaland external consortium.124 As for our legal system, the legislationdoes not recognize the consortium-type of association or organization.In business practice, such a form of company operations is very frequent. It is most often manifested in carrying out bidding proce-dures and granting contracts for higher values. Thus, in certain demanding investment undertakings, a single company can rarely sat-isfy all the requirements defined in tender documentation. This results in a kind of association, which is typically of a contractual nature. Such a form of association is the most frequent in assigningdemanding construction works, and in the regime of assigning contractsthrough public procurement. It can be claimed that in our law this isa form of companies’ association aimed at carrying out a given businessundertaking, and that it is an unnamed contract of business law. All the rules pertaining to its formation have to be governed by thegeneral rules of contractual law. At the same time, there is no ban inour law, or any sort of limitation as to whether this association ofcompanies will be made exclusively on a contractual basis, or by


forming a new company. If a new company is to be organized, it canbe organized for a limited time period, until the completion of thebusiness undertaking, or for an unlimited duration, when the companywill continue to exist even after the business undertaking has beencompleted. In both cases its establishment and operations are subjectto the rules of corporate law.125

7.10. Joint-stock company organs

Joint-stock company organs include:

• General meeting,• Supervisory board,• Management (board),• Secretary, and• Audit board.

7.10.1. Company’s general meeting

The company’s general meeting consists of shareholders. As a rule,the shareholders’ general meeting takes place at the joint-stock com-pany’s seat. The general meeting is chaired by the Chairperson of thegeneral meeting. The chairperson and members of supervisory board,director and members of the management have to attend the generalmeeting. In joint-stock companies with a single shareholder, the general meeting’s authorizations are exercised by the shareholder.The general meeting is held at least once a year. The general meetingis convened by the supervisory board, and the costs of general meetingare born by the joint-stock company. The request for convening thegeneral meeting can be submitted by:

1. a shareholder or a group of shareholders with over 10% of thetotal number of voting shares;

2. a member of the supervisory board;3. audit board.


The general meeting can pass decisions if shareholders with over 50%of voting shares are represented, personally or through a proxy. Theshareholders’ general meeting decides upon:

1. increase or decrease of equity;2. issue of new shares of the same class, in the amount higher than

a third of the total nominal value of all the joint-stock company’sshares;

3. issue of shares of a new class;4. annual financial statement, with the reports by auditor, supervi-

sory board, and audit board;5. distribution of profit and dividend payments;6. way of covering loss;7. merger with other enterprises and merger by absorption of other

enterprises to the joint-stock company, or that of the joint-stockcompany to another enterprise, except for the merger or mergerby absorption of a subsidiary;

8. split and cessation of the joint-stock company;9. changes in the joint-stock company’s form;

10. purchase, sale, exchange, leasing or other transactions with as-sets, directly or through subsidiaries during the business year, inthe scope greater of a third of the bookkeeping value of the joint-stock company’s assets;

11. sale and purchase of assets the value of which ranges between15% and 33% of the bookkeeping value of the present joint-stock company’s assets, if such a transaction has not previouslybeen approved by a unanimous decision of the supervisoryboard;

12. appointment and release of individual members of the supervi-sory board;

13. appointment of an external auditor, and appointment and releaseof audit board members;

14. establishment, reorganization and liquidation of subsidiaries, andapprovals of their statutes;

15. remunerations for members of the supervisory board and auditboard;

16. amendments to the statute;


17. exempting fixed assets in non-privatized companies; and 18. other issues essential for the joint-stock company’s operations,

pursuant to the law and the joint-stock company’s statute.

From the day of the public announcement of the shareholders’ general meeting, a shareholder is entitled to inspect, on the joint-stockcompany premises, the financial statement, together with reports bythe auditor, supervisory board and audit board, and other documentspertaining to the proposals of decisions included in the general meeting agenda.

The general meeting decides by the majority of voting shares, exceptfor issues from lines 8, 9, and 16, which are decided upon by the two-thirds majority of represented voting shares.

A shareholder’s proxy must possess the power of attorney for repre-senting the shareholder, signed by the shareholder — natural person,or the shareholder’s agent — legal person. The proxy has to submitthe written power of attorney for representing the shareholder to thevoting board.

7.10.2. Company’s supervisory board

The supervisory board consists of a chairperson and no less than twomembers, appointed and released by the shareholders’ general meeting,with the total number of supervisory board members necessarilybeing odd. The chairperson and members of the supervisory boardare appointed simultaneously for a period of four years. A single person can be appointed the chairperson or a member of supervisoryboard a few times, with no limitations.

The following persons cannot be the chairperson or a member of thesupervisory board:

1. those sentenced for an offence and white-collar crime incom-patible with a duty in a supervisory board, five years starting


from the day of the sentence coming into effect, excluding thetime of jail sentence;

2. persons who are prohibited, by a court sentence, from perform-ing activities within the competency of the supervisory board;

3. persons over 65 years of age on the day of appointment.

A candidate for a supervisory board member can be proposed by ashareholder or group of shareholders with no less than 5% of votingshares. Candidates with the greatest number of votes are proclaimedmembers of the supervisory board at the general meeting. In the firstconstituting session of supervisory board, the board elects one of itsmembers the chairman of supervisory board.

The director and a member of the joint-stock company’s managementcannot be the chairperson and a member of the supervisory board ormanagement board in companies or institutions. The chairperson andmembers of the supervisory board sign a contract with the joint-stockcompany, which is approved by the shareholders’ general meeting.On behalf of the joint-stock company, the contract is signed by the director, pursuant to the general meeting’s approval.

The joint-stock company’s supervisory board is responsible for:

1. overseeing the joint-stock company’s operations;2. overseeing the management’s work;3. adopting management’s business reports upon semiannual and

annual statements, together with income statements and theprofit-and-loss account and auditing reports;

4. submitting, to the shareholders’ general meeting, an annual state-ment of the joint-stock company’s operations, which has to include the auditor’s report, report on the supervisory board andaudit board operations, and business plan for the forthcomingbusiness year;

5. electing the chairperson of the supervisory board;6. proposing distribution and ways of using profit, and ways of

covering loss;


7. approving the purchase, sale, exchange, lease and other transactionswith assets, directly or through subsidiaries during a businessyear, within the scope of 15% to 33% of the bookkeeping valueof the company’s total assets;

8. appointing chairpersons and members of the remuneration com-mittee and appointment committee;

9. establishing temporary commissions and defining their compo-sition and tasks;

10. convening the shareholders’ general meeting, and11. approving issues of new shares of the existing class in the

amount of up to a third of the sum of nominal value of the ex-isting shares, and determining the amount, time of sales andprice of these shares, which cannot be lower than the averagemarket value of the existing shares of the same class over 30consecutive days prior to the day of decision.

The supervisory board chairperson and members are bound to perform their responsibilities and duties in accordance with the share-holders’ and joint-stock company’s interests, and are not allowed to perform an activity competitive to the joint-stock company’s activities without informing and approval by the other members of thesupervisory board.

The supervisory board chairperson and members are bound to reportall the essential data pertaining to the joint-stock company’s opera-tions when proposing the issue of new, or redemption of their ownjoint-stock company’s shares and other securities. The supervisoryboard chairperson and members are bound to report, to the supervi-sory board, each direct or indirect interest in a legal person withwhich the joint-stock company has or intends to have a business relationship.

The supervisory board chairperson and members are jointly and sev-erally liable for the damage caused by failure to perform or improperperformance of their duties. The supervisory board chairperson andmembers are liable for the damage suffered by the joint-stock com-pany if, contrary to the provisions of the law, the joint-stock com-pany’s statute and shareholders’ general meeting’s decisions, they:


1. returned the payments to shareholders;2. paid a dividend to shareholders;3. paid interest to joint-stock company’s bond holders;4. underwrote, acquired or redeemed shares;5. sold the company’s assets;6. made payments after the joint-stock company has become

insolvent;7. prolonged the terms of loan repayments to the joint-stock

company;8. issued shares based on a conditioned increase of equity.

7.10.3. Company’s management

Company’s management is in charge of:

1. organizing work and managing operations,2. representing the joint-stock company, and3. is liable for the legality of operations.

The joint-stock company’s management consists of the director andexecutive officers. The director chairs the management, manages operations, represents the joint-stock company and is liable for the legality of its operations. The management members’ term of officeis four years. Position, authorities, responsibilities and rights of themanagement are regulated by a contract. The procedures of a joint-stock company’s management election, appointment, release fromduty, composition and manner of decision-making are regulated bythe statute.

The director’s position, authorities, responsibilities and rights are regulated by a contract between the supervisory board and the director.An executive officer organizes operations, represents the joint-stockcompany and is liable for the legality of operations in the tasks andto the extent defined in the director’s written document. The execu-tive officers are appointed and released by the supervisory board uponthe director’s proposal, for the period the director is appointed for.


The executive officer’s salary and other material rights are regulatedthrough a contract between the director and executive officer, withthe previous approval by the supervisory board.

The director and executive officers are bound to report, to the super-visory board, each direct or indirect interest in a legal person withwhich the joint-stock company has or intends to have a business relationship.

7.10.4. Company’s secretary

A joint-stock company has a secretary. The procedures of companysecretary’s election, appointment and release from duty are regulatedby the company’s statute. The secretary’s salary and other materialrights are regulated through a contract. The secretary is in charge ofkeeping the shareholders book, the registry of the minutes of share-holders’ general meetings and supervisory board’s meetings, andkeeping documents defined by the law and the joint-stock company’sstatute, except for financial statements. The secretary is authorizedto execute decisions by the shareholders’ general meeting, supervi-sory board and the director. The secretary is in charge of preparingsessions and taking minutes of the shareholders’ general meetingsand the supervisory board’s meetings.

7.10.5. Company’s audit board

A joint-stock company establishes an audit board. The chairpersonand a member of audit board cannot be a member of the supervisoryboard and management, employee or a person with a direct or indi-rect financial interest in the joint-stock company, except for the salarybased on this position. Remuneration and other rights of the auditboard members are regulated through a contract, based on the share-holders’ general meeting decision.


The audit board is bound to perform an audit of the semiannual andannual statements, and an audit of the joint-stock company’s financialoperations upon the request of shareholders with no less than 10% ofvoting shares, and to submit the report thereon to the shareholders’general meeting and supervisory board, no later than eight days uponthe audit completion.

The audit board is authorized to convene a session of the supervisoryboard and the shareholders’ general meeting when they believe thatthe shareholders’ interests have been jeopardized, or when they detectirregularities in the activities by the supervisory board’s chairpersonor members, director or members of the management.


8Chapter COMPANY’S LIABILITY

8.1. Liability in the founding stage of a company 8.2. Liability of corporations8.3. Liability of partnerships8.4. Company’s liability for

obligations of other legal subjects8.5. Founder’s liability for company obligations8.6. Piercing the corporate veil

Chapter 8

COMPANY’S LIABILITY

Company liability implies a few legal and economic aspects. Liabilityimplies a few forms, both in terms of the kind of company and interms of the individual stages of its existence. Liability is inheresthroughout in the company’s overall operation, starting from its establishment to the cessation of its existence. The very cessation of existence can lead to a special type of liability of the founders, i.e.former company owners. Whether only the company, or the person incharge will be liable for the company’s obligations, or the liabilitywill be cumulative, depends on a few factors. It will depend on thecompany type, the company member’s position, and the factual cir-cumstances that caused the company’s liability. There is a differencebetween a company’s liability and the liability of its members, i.e.founders. Corporations are subject to a different liability regime compared to partnerships; in limited partnerships there is also a difference in liability between the two kinds of its members. There isalso the abovementioned difference with respect to the company’s liability in different stages of its existence.

8.1. Liability in the founding stage of a company

In order to establish a company, the act of registration itself has to bepreceded by taking a number of obligations necessary for a companyto be established in the first place. These can include obtaining loans,acquisition of required equipment, signing contracts, e.g. on leasingbusiness premises, future staff recruitment, etc. These activities nec-essarily lead to the need, in actual cases and examples, for a personto be authorized as a legitimate representative of a company that hasyet to be registered, i.e. founded. The LoC does not attach the necessary

Chapter 8 COMPANY’S LIABILITY 101

significance to this issue at all. It only provides that a company ac-quires its legal personality on the day of its registration in the courtregistry of companies, and that no one can act on behalf of the company before its registration. As a consequence of this, the LoCspecially provides that a person who acts contrary to this provision isliable for the obligations created with his entire property, and if a fewpersons act together, they have unlimited solidary liability for the obligations taken.126 Since someone has to be liable for obligations tothird parties, the LoC chose a logical solution, although there are different solutions in some comparative legal regimes. In its sectionon the joint-stock company’s memorandum of association, the LoCstates that the memorandum of association shall include a provisionabout the full names of the persons who represent a joint-stock com-pany in the procedure of its establishment. By analogy, this provisioncan be applied to the establishment of a limited-liability company.127

What would the concept of representation imply in this case? Repre-sentation is treated as acting on behalf and on the account of a company in relations of non-property nature, as opposed to the legaltransaction of agency, which implies acting on someone else’s behalfand on someone else’s account in transactions of a property nature.Due to the strict regime of liability for obligations taken in the foundingstage of a company we tend to interpret this concept in a narrowersense. It would be a person authorized by other founders to legiti-mately act on their behalf and acquaint third parties with the fact thatcertain activities are being conducted in order to register a companyand make it a legal entity. Agency would also be present when, basedon a special proxy, a third party were entrusted with conducting certain legal transactions directed exclusively toward registering acompany. It would not make sense that only the given person takesthe entire liability upon himself, particularly when it is known that theagent acts on someone else’s behalf and on someone else’s account.This would be a joint representative, who can also be an agent if heis capable of taking legal actions before courts and, possibly, otherstate authorities, directed exclusively toward registering the company.It is unfeasible in practice to register a company and obtain legal andbusiness capacity without the founder taking given actions, on behalfand on the account of the company that is only to obtain legal


personality. In these situations, the problem will arise if the companyis not registered or if the obligations taken in this founding stage ofthe company are not fulfilled. In this case, the problem would be solved by applying general rules of law of obligations pertainingto fulfilling contractual obligations. Since this would be a case of natural persons’ liability, it is unnecessary for the LoC to mention theunlimited solidary liability. Natural persons shall always be liable fortheir obligations with all their property. Since these are tasks and obligations taken on behalf of a future legal person, it would sufficeto include only the provision that founders are jointly and severallyliable for the obligations taken.

Comparable legal systems recognize a special legal form called a pre-company.128 There are numerous and different legal understandings ofthe type of legal construct this is. Thus, some say that it is a civil-lawpartnership, pre-contract or company in the process of establishment,or else a contract being signed in favour of a third party.129 One canalso say that it is a special legal construct, or a sort of legal fictionwhich feigns the existence of a company of civil character, created inthe moment of closing a legal transaction that represents a legal basisfor registering a company. A company that exists from closing thelegal transaction which is the basis of the company until its registrationin the court register, i.e. until the cessation of the company by applyingthe appropriate provisions on the cessation of the company that isstill to be founded as a legal person, is called a pre-company.130 A pre-company is created and ceases to exist by signing the contract on theestablishment of a company, i.e. by passing a decision on the estab-lishment in the case of a single-member company. The memorandumof association should regulate mutual relations among founders them-selves, regardless of the concept adopted in this form of liability. Thisis particularly significant in comparable legal systems which recognizethe legal form of a pre-company. A pre-company ceases to exist withthe company’s registration in the court register, or by abandoning itsestablishment, or else with the court declining to register the company due to non-fulfilment of prerequisites required by law.


8.2. Liability of corporations

All companies, regardless of their type, are liable with the company’sentire property. Founders of joint-stock companies and founders oflimited-liability companies are liable up to the value of their shares,i.e. interests.131 This also applies to members that have subsequentlyjoined the company. The exception is the application of rules pertaining to the legal institution of piercing the corporate veil. Thisliability stretches to all kinds of obligations incurred regardless ofwhether they are contract or non-contract based. Liability applies toall types of obligations regardless of their origin and basis. Corporateliability should be distinguished from the already described risk ofthe company founders. Although company owners are liable only upto the value of their contributions, their interest in the overall bookvalue of the company’s assets will also be affected. Actually, regardlessof the fact that company owners do not own the company by virtueof owning its shares or interests in company, this investment is stillan expression of the value of their share in the company’s assets.

The concept of assets is a rather complex category and deserves special attention. This statement applies to the entirety of their assets.It includes both movable and immovable assets, and monetary resources, unpaid receivables, notes receivable, and interests or sharesin other companies. Further, assets also include intellectual propertyrights, copyrights, and industrial property rights. Finally, they alsoinclude the so-called intangible assets or goodwill, which mostly expresses a company’s market position. All these legal and economiccategories are expressed in financial terms, in company books kept incompliance with special laws and bylaws. We can see that assets actually imply an entirety of rights belonging to either a natural or alegal person. Assets have the feature of unity, in that they are a unityof rights and obligations. They can increase or decrease, but are always associated to a single subject of law, either a natural or a legalperson. Apart from this, there may also be co-owners’ associations,between both natural and legal persons. A company’s assets may increase or decrease in the course of its business. Their decrease or increase is reflected on the book and market value of company members’ investments. Thus, as a rule, assets cannot belong to more


than one person. The LoC uses the concept of book assets of a com-pany in a few places.132 This category includes the entire assets of acompany in the way described above, which is recorded in books andwhich is recorded in other business documents as well. The value ofassets expressed in books should be distinguished from its actual ormarket value. The actual or market value can be higher or lower thanthe value expressed in the company’s books. The assets value will al-ways be a factual issue and will depend on market circumstances.When assets decrease below a minimum defined by law, liquidationproceedings or bankruptcy proceedings are ordered, depending onthe conditions in the business’ books. This will be determined by a decision of the competent regular court, dependent on the conditionspresented in the books. This is the so-called principle of the integrityof equity. In the course of a company’s operations, its equity can decrease and increase, but it must never decrease below the minimumdefined by law. By selling shares in the capital market they do notsell a part of the assets but rather a given obligation or claim right. Bybuying shares, the new owner does not acquire a real right. The onlyreal right he acquires is the right of ownership over the share as asimple security. Essentially, what he gains is the claim over a givenamount of money depending on the market value of the share. Naturally,in no case do we have the possibility for our issuer to reimburse usfor our money upon our request. The money has been invested and wecan use it only in the way provided for by law. In all known registers,the entire company assets are registered only in its name. Shares andinterests in corporations are part of their property as natural persons;the only difference is that they are managed according to special regulations pertaining to company operations. Ownership over sharesand interests in companies is an inheritable category. In case of theirowner’s death, shares and interests are included in the inheritances.The fact that company members are not owners of its assets is furtherproven by the provisions pertaining to, for example, the exit of a member of limited-liability company from the company. The com-pany shall pay the equivalent value of his interest. It is the marketequivalent of his interest on the day of the cessation of his membershipin a limited-liability company.133 A similar regulation applies to thejoint-stock company obligation to buy out employees’ shares by paying for them the fair market value on the day of the cessation of


employment.134 The LoC provides a specific measure that fully supports the abovementioned understanding. It states that a companyis bound to buy out shares of a shareholder who gave the supervisoryboard a signed statement that he is opposed to the proposal of generalmeeting decisions that cause significant changes in the company orshareholders’ rights. This obligation shall be fulfilled within threemonths starting from the day of receiving the request, with the payment at the fair market value.135

When founding a company, its future members freely choose whetherthey will establish a company, which type of company they will select, and which activity it will engage in. Members, i.e. owners ofa company, also freely decide upon the company management, withinlimits set by law. They can do it by themselves, particularly in theinitial stage of operations, or they can entrust third parties with the administration and management tasks. At present, it is done based onspecial management contracts. In doing so, they retain their owner-ship role whereby they can always change the terms and regime of administration and management through decision-making in organs.Company members also have the freedom to change initial terms pertaining to activities, and the kind of activity, organization structure,etc. The type of company will determine its way of delegating administration and management functions. These legal categories are accompanied by a special regime of liability for members of management and the supervisory board. Which regime of liabilitywill exist also depends on the type of company, and on the fact as towhether there is a legal obligation to form certain company organs.

With respect to the company members’ participation in its businessresults, they are free in the selection of the distribution of profit andcovering losses. Whether the profit will be distributed or part of itwill be distributed and another part reinvested, or the entire profitreinvested, depends on their decision. They are also free to choosewhether they will cover for losses or go bankrupt. In this way, theychoose the legal, fiscal, and other economic and legal consequencesthemselves. In the field of property, members of corporations exercisetheir rights in the company by virtue of ownership over shares, i.e. interests. This cannot be overridden, except by obtaining the power


of attorney from other members to represent their interest in certainmatters. Which consequences this will cause the company itself againdepends on its members’ will. Company members are even free toliquidate the company if they do not want to be involved in a com-mercial activity any longer. The motives and reasons for making sucha decision are completely irrelevant. This decision should only be theresult of their freely expressed will. In case members’ disagree regarding this decision, the issue will be resolved in the manner defined by the memorandum of association, and if it does not includesuch provisions, in compliance with the general rules contained inacts on business law, and in compliance with the general rules of lawof obligations.

8.3. Liability of partnerships

Partnerships are liable for their obligations with the entire company’sproperty, and members of such companies are also liable with theirentire property not invested in the company. This form of liability isalso called unlimited solidary liability. In this form of liability, all themembers of the general partnership are equal. There is some differencein the case of limited partnerships, since its members have differentpositions in the company. Thus general partners are liable for thecompany’s obligations, just as members of a general partnership, i.e.unlimitedly, jointly and severally, while limited partners are liableonly up to the value of their contribution. This strict regime of liabilityhas its rationale in the fact that personal elements prevail in this typeof company, which is the main reason for such a form of liability.Why are limited partners exempt from this liability? The reason liesin the fact that they are secret partners, and are not registered in thecourt register, nor appear in public or in business relations. Regard-less of the legal possibility for them to be entrusted with the functionof representation, upon the approval by all general partners, they stilldo not exist for the legislator in a formal sense. The only relevant facthere is their registration with the court register of companies. Thereare certain exceptions to these rules. These pertain to property thatcannot be the subject of execution according to the rules of executionprocedure. Another exception is the spouses’ property. It has a special


regime and can be the subject of execution in only two situations.The first is when spouses have the capacity of general partnershipmembers, and the second, when spouses have the capacity of generalpartners (in limited partnership). How will the creditors be paid incases that involve the carrying out of execution or bankruptcy proceedings? The sequence of payments would start with the payment out of the company’s assets, and if the assets do not suffice,payments would be made out of the personal, non-invested propertyof the company members. Their liability is solidary, and since they areequal in everything, from joint management, agency, representation,contributions, profit-sharing and risk-sharing, they have the right ofrecourse. The right of recourse would be activated if one or somemembers paid somewhat more than the others, and while settling anobligation or in case of carrying out the bankruptcy proceedings, ora form of execution in execution proceedings.

8.4. Company’s liability for obligations of other legal subjects

The basic form of liability is liability for one’s own obligations. Thisis an imperative liability, which is also called the full liability. Inpractice, the company’s name frequently includes the designation‘full-liability company’. Even without this designation, this goeswithout saying, since this is an imperative norm. This kind of liabilitycovers the entire assets except for the assets which are exempt fromexecution pursuant to the rules of execution proceedings. Bankruptcyproceedings recognize only the res publice exemption from execution,i.e. goods in general use.

A company’s independent liability for its own obligations can be “reinforced” so that it is also liable for other legal subjects’ obliga-tions. What would the concept of other legal subjects include? In thefirst place, these would be the so-called affiliated persons, or othercompanies that have the capacity of a dependent company (subsidiary).It is the liability of the so-called parent company (dominating company), or the company with majority shares in a joint-stock


company or with majority interest in a limited-liability company. Inthe case of carrying out the bankruptcy proceedings over a subsidiary,if the creditors are not settled, the parent company is liable for the remaining obligations. There is no feedback in case of bankruptcyproceedings over the parent company.136 How is the parent companyliable? It is liable unlimitedly, jointly and severally, i.e. with the entire company assets. The prerequisite for such a strict form of liability is the case when the bankruptcy resulted from carrying outthe obliging orders, decisions or instructions by the parent company.Besides this kind of liability in the bankruptcy proceedings, the parent company is bound to compensate the subsidiary for the damageif it has led it to conduct a legal transaction detrimental for itself, ordo or fail to do something to its own detriment.137

Secondary liability also exists in the case of introducing statuschanges. This liability, regardless of the type of status change, arisesby virtue of legal succession or universal succession. This form of liability includes only the obligations incurred up to the moment ofstatus change. This liability is solidary and unlimited, and representsthe form of liability defined by law, so that a contractual provisionthat would exclude it would be absolutely void. The LoC introduceda novel approach to the area of status changes. Actually, the decisionon merger by formation of a new company, merger by absorption, division or change of form of a company is made based on the reor-ganization plan prepared by the management and supervisory boardor another organ of each participant if authorized as such by the memorandum of association.

Secondary liability can also arise from a change in company form. Itis a distinctive transformation of a company from one to another organizational form. The most frequent form of this transformation isencountered in the transformation of joint-stock companies into limited-liability ones. The reasons for this are numerous. The basicones include a simpler regime of management, non-mandatory formation of organs and lesser cost needed for financing the work ofmandatory organs in a joint-stock company. In this transformation,the new company fully takes on all the obligations of the previouscompany that is being extinguished, i.e. deleted from the court


register. The new company is the universal legal successor of the previous company. The previous company is not liquidated since itsoverall assets are transferred to the newly formed company.

A separate form of liability is the company’s liability for damagecaused by its employees and organs of the company itself. The organs, its members and employees work on behalf and on the account of the company. The company is liable for damage incurredto third parties based on their unlawful decisions or, for example, employees’ unprofessional work. The third party addresses the claimto the company, which has the opportunity of recourse to the employee or organ members, but not to the organ. The consequencessuffered by the employee or an organ member will depend on itslabour-law status. The employee can be dismissed i.e. the employmentcontract can be terminated, while the contract on the engagement of an organ member, if not an employee, can be terminated for the period of office. The form of liability of a member of company organwill depend on the type and manner of the damage caused. The issueof damages is separately regulated.

8.5. Founder’s liability for company obligations

Founders are liable for the company’s obligations in the way described above. The liability of corporation founders is differentfrom that of partnership founders. In the case of corporations’ liability,regardless of the fact that founders are liable only up to the value oftheir contributions, they also bear the entire risk in that the overallcompany assets will be the subject of general execution. This regu-lation only highlights the separation of personal property from company assets. Any creation of illusion or identity between thesetwo separate property and legal categories would lead toward possibleapplication of rules related to the legal institution of piercing the corporate veil. The latter refers to natural persons’ liability for obli-gations of the company they founded. If a company is founded by a company, the latter shall be liable for the subsidiary’s obligations in the already described way. If a company founder is the “state”, andthis can include municipality, city, canton, entity, district or state


itself, then it is liable for its obligations, since it has the capacity ofboth a legal person and a founder. If a company founder is from another sovereignty it is liable for company obligations in the way described above, and regardless of whether it is a natural or a legalperson.

8.6. Piercing the corporate veil

Piercing, or lifting the corporate veil, as a legal institution has foundits place in all comparable legal systems. There is no difference between Anglo-Saxon and European continental legal circles with respect to defining the basic postulates of this legal institution. Indeed, it draws its origin from the Anglo-Saxon legal system. Theonly differences pertain to the manner of its definition. This legal institution has found its place in all the legal regimes that regulatethe concept of companies in a traditional way. Owing to its postulates,the need to distinguish between the corporate from personal propertyof natural persons as company founders is emphasized. Its postulatesare also directed toward levelling the difference that arises in case ofliability for fulfilling corporate obligations.

Liability is one of basic features of companies, and when decidingon a company type, businessmen mostly opt for corporations. Themotive can be found in the fact that the liability regime is far morefavourable. They are liable only up to the value of their contributions,i.e. shares. Assets of this type of companies have to be considered asseparate from the founders’ personal property. However, when thecompany is used for achieving unlawful goals, the legal institution ofpiercing the corporate veil is activated. In this case, the advantages ofcorporation owners cease and the terrain of unlimited solidary liabilityis entered. They are just as liable as partnership owners. In comparativelegislations, this issue is generally resolved in two ways. The firstcase implies use of the general clause method, or the numerus claususmethod. Some countries do not deal with this legal institution at allbut rather leave its resolution to judicial practice. The company, as a subject of law, is separated from the legal subjectivity of its members. The fact that liability is separated does not necessarily


mean that activities are allowed that are aimed at concealing the trueintentions of company owners, or getting around law and, particu-larly, taking actions characterized as a criminal offence. In practice,this is most often the case with single-member corporations. Theyare the most suitable form of manipulations, and that is why solu-tions in comparable legal systems and judicial practice, which in thecase of single-member companies imply unlimited, joint and severalliability with entire property for obligations taken in legal and businesstransactions, are not unfounded. Piercing the corporate veil is muchsimpler in single-member companies than in “well-established” corporations, which have been operating on a legal basis for a longertime period, and where business interests are intertwined, etc. Piercingthe corporate veil is much easier in single-member companies. Generally,this is far easier in limited-liability companies than in joint-stockones. The basic goal is to prevent frauds to conscientious third parties, and to prevent abuses by artificially “set up” or “installed”companies. The possible ways of piercing the corporate veil cannotbe explicitly determined. It is a matter of factual circumstances, andcourt judgment, from one case to another. One example is the veryfrequent case of using a company to achieve certain private goals.This is the most frequent case, which includes a distinctive symbiosisbetween private property and corporate assets. Most often, these arecases of using the company and its name in order to achieve personalgoals, i.e. goals that are not compatible with company goals. The prevailing view in our practice is that private property and corporateassets are identical.

With respect to the legal framework, the LoC has regulated this issueby means of the numerus clausus principle. A single article of theLoC regulates the liability of corporation members and partnershipmembers. It provides that each member of a general partnership andthe general partner in limited partnership is liable for company obligations unlimitedly, jointly and severally with his entire property.Naturally, it is implied that claims will primarily be paid out of thecompany’s assets, and only then out of personal property. A share-holder in joint-stock company, owner of an interest in limited-liabilitycompany, and limited partner are not liable except when:


a) they use the company to achieve their personal goal which is incompatible with the goals of other members and company asa whole;

b) manage company assets as their own property;c) use the company for cheating or harming their creditors;d) effect a decrease in the company’s assets in their own favour, or

third parties’ favour, or make the company take obligations although they know or must have known that the company is notor will not be capable of fulfilling them.

The legal measures prescribed by the LoC can be considered modern.Special forms of abuse can occur in cases determined by separateacts. They primarily include provisions of bankruptcy and liquidationlegislation, particularly sections pertaining to voidable actions, or actions taken before the opening of bankruptcy proceedings withoutremuneration or with slight remuneration.


9ChapterCOMPANY STATUS CHANGES

9.1. Merger by formation of a new company9.2. Merger by absorption9.3. Division9.4. Change in company form9.5. Legal and economic consequences

of status changes

Chapter 9

COMPANY STATUS CHANGES

Status changes are the manifestations of various transformations inthe course of a company’s operations. These are legal and factual actions conducted in compliance with the law which are the basis forchanges in the legal identity of an individual company, and universalsuccessions pertaining to the rights and obligations of the precedingcompany. Companies can merge by formation of a new company orby absorption and divide. These are exclusively status changes, whichimply that each status change brings about the emergence of a newcompany as a legal entity. They should always be distinguished fromvarious forms of contractual connections between companies, whichare typically aimed at achieving a business or entrepreneurial under-taking within a specified time period. Status changes should also bedistinguished from changes in company form. In practice, the reasonsfor a change in the company’s organization form can include the needto do business based on different principles. It is for this reason thatjoint-stock companies are typically transformed into limited-liabilitycompanies. The reverse situation is less common.

In any case, status changes always result from autonomous decisionsby company owners, and are due to specific economic changes or necessity. What is particularly necessary to provide is the legal andeconomic protection of creditors and conscientious third parties. Regardless of their type, status changes always lead to the cessationof one of the companies involved. This is not a case of company liquidation but rather of the cessation of its existence based on legalor universal succession. A company ceases to exist based on the company owner’s autonomous will, or by force of law and based onthe freely expressed will of the company’s owner. According to theLoC, status changes are mergers by formation of a new company,mergers by absorption, and divisions.138

Chapter 9 COMPANY STATUS CHANGES 117

9.1. Merger by formation of a new company

A merger by formation of a new company includes the associationof two or more companies of the same or different organization formsinto a single new company. This is a case of the merging of two or morecompanies in order to establish a new company without conductingthe liquidation procedure. This is a form of universal succession in thesense of taking over the rights and obligations of transferor companies.The decision on this status change is made at the shareholders’ general meeting in the case of corporations, or by all the companymembers in the case of partnerships. The decision must be made byall the companies that merge, and it must be the same; otherwise itcould not be the subject of implementation. The decision must resultfrom the freely expressed will by the owners or organs of companiesthat merge. What kinds of companies can merge? Every form of status change, as in the transformation from one form of company toanother, must be registered with the court register of companies. Itregisters the cessation of existence of one or more companies, andthe establishment of a new company or companies. Registration is alegal obligation, or else it will not have a legal or economic effect onthird persons. The process includes the registration of transferor com-panies and transferee companies, and a separate entry is made for thecompany which is liable for the transferor companies’ liabilities. Inthe case of corporations, there are doubtlessly no obstacles pertainingto their merger. Any combination within the two types of corporationsis possible. However, in the case of merger between an open joint-stock company with another company, the result of the merger has tobe a new open joint-stock company.139 Is it possible to carry out a status change of merger by formation of a new company between corporations and partnerships? According to the LoC, such statuschanges of merger would not be possible.

Regardless of whether it is a case of status change of merger by forma-tion of a new company, merger by absorption or division, just as withthe change in company form, a so-called reorganization plan has tobe made.140 The reorganization plan is drawn up by the managementand supervisory board, or by another organ of the company partici-pating in the status change or company transformation, authorized


by the memorandum of association or statute. Which organ could itbe, besides the management and supervisory board? Only the auditboard could be entrusted with this demanding task, but it would makesense that the supervisory board with the company managementshould have priority. The reason for this is the fact that these two organs, primarily the supervisory board, appear as proposers to thegeneral meeting. The legislator also prescribes the mandatory elements of the reorganization plan. The reorganization plan includes:

a) data on participating companies, i.e. forms, names and registeredoffices of participating companies and transferee companies;

b) ownership rights of shareholders or transferor companies in thetransferee company;

c) description, valuation and distribution of transferor companies’assets and liabilities that are transferred to the transferee company, together with the auditor’s report;

d) the date from which the shareholders of the transferee companywill be entitled to participate in profit, and the conditions thataffect this right, and

e) the date from which the transactions of transferor companies willbe treated as being those of the transferee company for accountingpurposes.

Besides the listed elements, in the case of the status change of a company division, the reorganization plan has to include following:

a) the share exchange ratio;b) the terms relating to the allotment of shares or interests, and the

amount of cash payments;c) any rights in transferee companies to be allotted to the holders of

shares or other securities in the transferor company to which anyspecial rights attach; and

d) description and allocation of assets and liabilities that are beingtransferred to each transferee company.

The entire undertaking or business acquisition cannot proceed basedonly on the mandatory legal statements and reorganization plan. Thelegislator prescribes that the participating companies’ reorganization


plan must include the auditor’s written report on participating com-panies’ accounting statements.141 This indicates that it should be arule that the reorganization plan is drawn up by an independent au-diting company, i.e. a company registered for such activities, whichemploys the suitable number of so-called certified auditors. The au-ditor’s written report itself includes:

a) indication of methods used in determining the share exchangeratio;

b) auditor’s opinion on whether the appropriate method was used,indication of value which would be arrived at if another methodwere used, and their opinion on the relative significance of eachof the methods in determining the share exchange ratio; and

c) description of the valuation problems faced by the auditor, ifthere were any.

Acting in compliance with profession rules is particularly prominenthere. The LoC introduces a special, though not new, form of liability.142

The claim that this kind of task should be handled almost exclusivelyby authorized auditing companies is supported by legal provisions aswell. Actually, members of the company management, and other persons that were drawing up the reorganization plan, as well as auditors who reviewed it and provided their opinion for participatingcompanies, are jointly and severally liable to participating companiesand their shareholders or members for any damage if they did not actin compliance with profession rules when determining the share exchange ratio during the company merger, division or change ofform. These are special profession rules prescribed by InternationalAccounting Standards, as well as by the rules of auditors’ profe ssionalorganizations. Any form of false or fraudulent presentation of thestate of business books and financial statements leads to the activationof such a form of liability. As natural persons who perform or used toperform a given function, members of the management shall bejointly and severally liable with all their property, while the auditingcompany will be jointly and severally liable as a legal person, with theentire company assets. If, however, an individual auditor was engagedbased on a contract, he will be as liable as the members of manage-ment, i.e. as a natural person, with his entire private property.


9.2. Merger by absorption

The LoC prescribes that a company can also be merged in a way oftransferring its assets and liabilities, without a regular liquidation procedure, to another company, which in turn becomes its legal oruniversal successor.143 This status change is, in fact, the status changeof a merger by absorption. It is possible only between forms of corporation, i.e. only between forms of partnership. The LoC againdoes not recognize the possibility of a status change of merger by absorption between, for example, a general partnership and a joint-stock company. There are no limitations to the combinations betweencompanies of the same type. Exceptionally, an open joint-stock company can merge only with another company which will meet oneof the criteria for an open joint-stock company upon the merger.144

Regardless of the way in which this status change (merger) is conducted,the legal and economic consequences will be the same. Transferorcompanies cease to exist, and the newly-founded company or, in thiscase, the company that emerges as the transferee, becomes the universalsuccessor of all the rights and obligations, for which it is jointly andseverally liable with all the company assets. These changes must beregistered in the court register of companies so that these facts aremade known to the public, which in turn includes creditors, businesspartners, all conscientious third parties, regulatory state authorities, aswell as state authorities that exercise certain forms of control overmeeting fiscal obligations.

What can be the goal of implementing this status change? The goalshould be exclusively of a business nature, and should result in themerger of two companies that would be better positioned comparedto their competition due to using their now joint comparative advan-tages. Therefore, which of the two proposed varieties the merging entities will choose is the result of their business agreement. If theirmarket position is approximately the same, they will choose the variety that can be called neutral, and which includes the establishmentof a new company to which all the assets and asset-based rights andobligations of the companies merged in this way will be transferred.If one of the entities has a dominant market position compared to theother participant in this status change, they will decide for the status


change of merger by absorbing one company by the other withoutconducting the regular liquidation procedure. Implementation of thisstatus change can also be aimed at some illegal activities. Thesewould include avoiding obligations to creditors, or avoiding payingfiscal obligations. The court register of companies is authorized toimplement this status change. This is prescribed separately, and theLoC thus provides for the court register of companies obligation todecline to register the establishment of a company, among otherthings, if the founder is the majority owner in a company that hasoutstanding liabilities to creditors, or outstanding taxes.145 By usingthe analogia legis method, this provision has to be applied to othercases of some forms of status changes as well. This norm is of an imperative nature and, among other things, is aimed at preventingcertain forms of abuse, fraudulent behaviour, tax and contributionevasion, and harming creditors and third conscientious persons.

9.3. Division

A division is a form of status change where one company is dividedinto two or more companies by division, i.e. the transfer of assets andliabilities, without conducting a regular liquidation procedure. Thisstatus change can be carried out in the following ways:

a) by absorption, whereby the company being separated transfersthe entire assets and liabilities to two or more existing compa-nies, or

b) by establishing new companies, when the company being divided transfers the entire assets and liabilities to two or morenew companies.146

In both cases, the new companies established by the division havejoint and several liability, which means that the newly establishedcompanies, or enterprises, are liable for the obligations of the dividedcompany, jointly and severally, with the entire assets of the new company. Besides the decision at the general meeting, the imple-mentation of this status change must be preceded by the partition ofassets of the company being divided. This means that it requires a


partition, i.e. consolidated balance. Pursuant to the LoC, it is neces-sary to prepare a reorganization plan in the manner described above.It goes without saying that the decision cannot be made at the generalmeeting before shareholders have gained an insight into the proposedconditions of the partition balance, i.e. the reorganization plan. If thestatus change is carried out in such a way that a company is dividedand its parts are absorbed into two or more existing companies, thenthe process requires a general meeting decision by each of the participating companies. In the other case, if this status change is carried out by establishing new companies, only the decision of thecompany being divided is necessary.

9.4. Change in company form

As opposed to status changes leading to the establishment of newcompanies, or to the absorption of existing companies into other existing companies, the change in company form implies a change inthe “form” of the company. It means that it is transformed from oneform to another without changing the ownership structure. Assets,name, as well as other identification features of the company itself remain the same. The LoC dictates that a closed joint-stock companycan change its form only into a limited-liability company, and basedon the decision at a shareholders’ general meeting, which must bemade by a two-thirds majority of voting shares, and so that share-holders receive interests in the limited-liability company proportionalto their previous share in the joint-stock company’s equity.147 An openjoint-stock company cannot change its form at all148, while a closedjoint-stock company cannot be transformed into a general partnership,limited partnership, or limited-stock partnership. Furthermore, it isprovided that the equity of a limited-liability company formed in thisway cannot be lower than the minimum prescribed by the LoC. Thisprovision is superfluous, since the minimum equity for a limited-liability company is 2,000.00 BAM, and for a joint-stock company is50,000.00 BAM. Therefore, it is quite clear that by complying withthe principle of equity integrity, a situation where the amount of equity is below the minimum provided by the LoC is impossible. Thepreceding decision relating to the change in company form in this


way is made by the Securities Commission. The application is submitted by the joint-stock company itself, and it must be signed bythe members of the supervisory board who voted for the proposal ofdecision on the change in company form, and by the members ofmanagement who proposed the reorganization plan and the decisionon the change in the organizational form of the joint-stock company.The Securities Commission has a legal obligation to pass their deci-sion within 60 days from the day of receiving the proper applicationby the joint-stock company. The decision is made in pursuance withthe rules of administrative procedure; if the joint-stock company isnot satisfied with the decision, its fate will depend on the appeals procedure, again pursuant to administrative procedure rules. If thedecision by the Securities Commission is favourable, the change inorganization form will be entered in the court register of companies,the contribution ledger will be opened, and the appropriate changes,i.e. deletions from the Registry of securities, will be made.

With respect to the change in the limited-liability company form, theLoC provides that it can change its form into a joint-stock companybased on the decision at the general meeting made by a two-thirdsmajority vote by all the company members.149 By making such a decision, all the members of the limited-liability company are nowentitled to shares proportional to their interest in the limited-liabilitycompany equity. The number of shares to be acquired will depend onthe share’s nominal value. In this case, the LoC provision, wherebya joint-stock company formed in this way must have a minimum equity prescribed by the LoC, i.e. 50,000.00 BAM, makes sense. Thischange in form also requires the submission of an application, andapproval by the Securities Commission. Based on the SecuritiesCommission’s decision, changes in the court register of companiesare made, as well as the appropriate entry in the Registry of securi-ties. With respect to the procedure before the Securities Commission,the same rules as in the previous case apply. A limited-liability com-pany that meets the criteria for an open joint-stock company is boundto change its form into a joint-stock company.150


9.5. Legal and economic consequences of status changes

Regardless of the manifestation, status changes always lead to appropriate changes both in legal and in economic terms. Legal consequences include the following:

a) companies participating in status change cease to exist,b) companies participating in status change are deleted from the

court register of companies,c) companies participating in a status change do not cease to exist

pursuant to the bankruptcy procedure, or a regular liquidationprocedure,

d) the newly-formed company appears as a successor of all therights and obligations of companies that entered the procedure ofstatus change,

e) owners of companies that have ceased to exist, based on the implementation of status change, can be liable for the taken obligations only if the legal institution of piercing the corporateveil is activated.

Economic consequences result from the basic and listed legal conse-quences. Essentially, they are reflected in the fact that the newlyformed company is jointly and severally liable for the obligationstransferred by the companies that have ceased to exist. Another economic consequence consists in the fact that the newly formedcompany becomes the holder of all the rights and obligations of thecompanies that have ceased to exist, including ownership over theentirety of its assets, and certain property rights that were related tothe transferor companies. Keeping in mind the fact that status changescannot occur unless tax obligations, as well as obligations pertainingto other fiscal giving, have been met, the concept of piercing the corporate veil can hardly be activated, in the economic sense. However, this possibility cannot be excluded since some obligationsthat were not stated can appear subsequently.


ChapterSYSTEMS OF ESTABLISHING COMPANIES10

10.1. Normative system of establishing companies10.2. System of law10.3. System of concessions10.4. Licensing system10.5. Legal regime of application

Chapter 10

SYSTEMS OF ESTABLISHING COMPANIES

Although the so-called normative system is considered to be the prevailing system of establishing companies, there are other systemsas well. These are:

a) normative system,b) system of law,c) system of concessions,d) system of applications, ande) licensing system.

The complexity of organizing separate forms of companies leads tothe implementation of the combination of two or more systems of establishing companies in such individual forms. Generally, the procedure of establishing companies is elaborated by separate legaldocuments. Basic norms are contained in the LoC, but there are alsoseparate laws regulating this subject matter, which prescribe the prerequisites companies have to meet in order to be registered withthe competent registration court.151 These special laws and bylawshave the character and legal nature of lex specialis.

10.1. Normative system of establishing companies

The normative system is considered dominant both in our legal systemand in others. The essence of this system is that a law prescribes requirements for company establishment. All natural and legal per-sons that meet general and special requirements provided for by lawobtain the right to register a company. Establishment of a company is

Chapter 10 SYSTEMS OF ESTABLISHING COMPANIES 129

completed with the act of its registration, where the registration courtis authorized to question meeting the requirements determined bylaw. All the potential founders are equal, including foreign legal andnatural persons. Any limitations are determined by a separate law.152

Besides, the normative system prevails because it is applicable to allforms of company organization, including special cases when addi-tional establishment requirements are prescribed by lex specialis.Other regimes of company establishment can thus be considered asaccompanying this one.

10.2. System of law

System of law implies that a company is established by means of aspecial law or another administrative document. This system was characteristic of the period of administrative management of economic trends.153 However, it has been preserved to this day in certain sectors significant for conducting activities of general inter-est which, in turn, is an expression of the need to satisfy citizens’ requests. Another term for these activities is utility services. Althoughthese companies are formed in accordance with special laws, they areregistered as one of the two forms of corporations. Besides, theseforms of organization also have to undergo the registration regimewith the authorized registration court.

10.3. System of concessions

The system of concessions originated in the Middle Ages, and was associated with granting permits to conduct, typically, trading activities.It has been preserved to this day regardless of its apparently archaicelements. The existence of an unavoidable legal regime of goods ingeneral use makes this system applicable for establishing certaincompanies that operate based on a granted concession, or based ongranting a special form of approval. This system can also be relatedto granting concessions for conducting certain activities of generalinterest. Indeed, this is a combination of the normative regime and the


concession regime of company establishment. In this system the company establishment is also completed by registration with the authorized registration court.154

10.4. Licensing system

The licensing system applies to special forms of organization, whena special law of the lex specialis nature, provides the basis for estab-lishing these companies. These are licenses granted by state regula-tory organs. In the case of commercial banks, this is the BankingAgency, and in the case of insurance companies, the SupervisoryAgency. A license from the Securities Commission is necessary incases of successive establishment of joint-stock companies. Theseregimes can also be found in comparative legal systems in a similarform. In this regime of company establishment, the procedure of itsestablishment is also completed by registration with the authorizedregistration court.

10.5. Legal regime of application

The regime of application is applied in cases when starting a givencompany requires an application. The application is submitted to theauthorized state organ, which is also determined by a separate law.This regime is necessary and is usually present in recording foreigninvestments.155 The reasons for this include both the need to keeptrack of economic happenings in this area, i.e. collecting statisticsand, above all, the fact that each state wants to use the available dataon foreign direct investment to issue special incentives and benefits,as well as to harmonize the entire FDI regime with numerous international conventions and assumed obligations towards the international community. This system is also accompanied by manda-tory company registration with the competent registration court.

Chapter 10 SYSTEMS OF ESTABLISHING COMPANIES 131

Chapter COMPANY IDENTIFIERS11

11.1. Company name11.2. Company activity11.3. Company registered office11.4. Other company identifiers

Chapter 11

COMPANY IDENTIFIERS

Companies have their identifiers defined by law. The essential reasonfor the existence of company identifiers is their distinction in legaland business transactions. In this context, registered companies withgiven identifiers also enjoy certain legal protections.

The basic mandatory company identifiers are:

a) company name,b) company activity and c) registered office.

There are other identifiers as well, the mandatory ones being:

a) registration number,b) tax number, c) custom number,d) banking account etc.

11.1. Company name

The company name is the name under which a company operates.The company name is a mandatory company identifier required bylaw. The company name is the name under which a company operatesand by which it is identified in legal and business transactions. Thecompany name is one of the basic company attributes required forthe registration in the court register of companies. The Law on Registration of Business Entities in the Federation of B&H (hence-forward: LoRBE) provides that the general information entered intothe main register by the competent registration court include: com-

Chapter 11 COMPANY IDENTIFIERS 135

pany name and registered office, i.e. full names and residences of allfounders (owners) of the registry subject. The same provision is foundin the Framework Law on the Registration of Business Entities inB&H (henceforward: FLoRBE).156 A company is separated from itsfounders in terms of assets; consequently a distinction must be madeboth in terms of legal identifiers and in terms of the company nameitself.

Naming corporations requires the mandatory designation of the company form in the full company name. A limited-liability companyis designated with the abbreviation d.o.o., while the joint-stock company is abbreviated as d.d.. This is the only legislator’s requirementfor corporations; however, this does not mean that it is forbidden toinclude other, for example, personal elements into the company nameof these forms of companies. Including personal elements in the corporations’ names is frequent in practice. This statement is particularlytrue of single-member companies, the company names of which frequently include surnames, first names and various acronyms.157

As opposed to corporations, personal elements are mandatory for thepartnership names. Thus the company name of a general partnershiphas to include:

a) surname of at least one member,b) designation that the company has more than one member, with

the appropriate citation like: and company, and sons, or in another way158, and

c) the legal abbreviation d.n.o.

If the name of this company type includes a surname that is alreadypresent in a previously registered company name, it must include another element, e.g. middle name or something else, which wouldundoubtedly distinguish it in legal and business transactions. Naturally,it must be an element of an exclusively personal nature.159


The company name of limited partnership and the company name oflimited stock partnership have to include the following elements:

a) surname of at least one general partner andb) legal abbreviation k.d. or k.d.d. respectively.

Naming the company is a legal obligation both in the memorandumof the association and in all the other subsequent legal documents ofthe company itself. This is a legal obligation for all company types.This legal obligation also applies for parts of an individual company,regardless of their names.160 Parts of enterprises have to appear underthe company name as well.

11.2. Company activity

Activity is the economic activity conducted by a company. Activityis frequently called the field of business. Activity itself implies a setof a few activities registered by a company in the court register. Inpractice, companies register a greater number of activities, typicallythose they assume could be their field of business. Field of businessis only part of the registered economic activity being conducted, uponthe approval by a competent professional team. The team, in turn, de-termines which activities an individual company is capable of interms of staff, organizational and technological capabilities. The activity is conducted in order to achieve the business goal, i.e. profitmaking through the manufacturing or service function, and some-times both functions together.

Companies must register their activity, i.e. have it filed into the courtregister. The LoC prescribes that the legal personality is acquired onthe day of registration in the court register.161 The very act of regis-tration in the court register is not a sufficient prerequisite for startingthe registered activity. The additional prerequisite is obtaining a document by a competent state organ (inspection team) on fulfilling,above all, technical requirements for conducting a given activity. A company can thus be engaged only in the activity for which it


satisfies special requirements according to a decision by the competentstate administrative organ. Special requirements for conducting individual activities are regulated by numerous bylaws and depend on the type of activity. In most cases, these special conditions are prescribed by relevant ministries or by entity-level governments.162

11.3. Company registered office

A company registered office is its mandatory element, i.e. it representsa constituent part of the company name. The LoC defines a registeredoffice as a site which is registered as a registered office in the registerof companies, and which is also determined by the memorandum ofassociation or statute. We believe that the registered office must bedesignated in both documents.163 According to the LoE, a companyregistered office is a site where the business is run, and if it is run ata few sites, the company registered office is considered a place wherethe management is situated. It explicitly prescribes that a companyregistered office is registered with the court register, while in the LoCit is implied from other provisions of the LoC. LoC prescribes thatbranches are registered only in the court register in the registrationcourt where the company is registered.164 Parts of the enterprise, i.e.branches, should be subject to the same regulation, namely that thebranch name must include its seat, with the mandatory citation of theregistered office of the company itself. This is necessary for:

a) determining liability, b) determining the court competency in disputes, c) executing decisions, and d) in order to identify and protect conscientious third parties’

interests.

Thus, the registered office is a mandatory element of the name, andeach company can have only one registered office. Determination ofregistered office itself is a matter of the freely expressed companyfounders’ will. The registered office is typically defined as a sitewhich is also the site whence business is managed. The LoC regulationmay be more practical since the company registered office does not


necessarily have points of contact with the site where economic activity is conducted. The management seat is, then, fairly broadlydefined. What can management mean, first of all? The wording ofthe LoC implies that this is a director or collective management. Depending on the company type and complexity, this can be viewedfrom a broader perspective, regardless of the fact that in practice itimplies only the organ of company operations management. Further,management can be collective, and its members do not have to workfrom the same site. The present modern means of communication,particularly for signing contracts, allows managing company busi-nesses from different sites, regardless of where they are in the world,and the deals can be considered as ones made between the presentpersons. In this case, the management seat must be understood as thesite which is registered in the court register. Typically, the company’sregistered office can also be used to find the site where managementruns and manages the company business and operations. Besides, acompany registered office can also be a site where no activity is con-ducted or where its management is not seated.

The reasons for the mandatory determination of a company seat arenumerous. The registered company seat serves to determine the competence of a municipal court which is competent for registrationin the court register of companies. A company registered office servesto determine:

a) competence of the court with respect to all subsequent changespertaining to the registration of mandatory elements in the courtregister of companies,

b) competence of the municipal court which protects the companyname by official duty, and during the very act of company registration,

c) company seat is also relevant to determine local jurisdiction ofthe actually competent court in resolving mutual disputes between the company founders,

d) further, in accordance with litigation procedure, the court com-petence in business disputes is determined based on the regis-tered office of the company,


e) the registered office of a company also serves to determine thecompetent court for executing deeds on monetary resources andmovable objects,

f) conducting labour-law and administrative disputes is also guidedby the company’s registered office,

g) in executing bankruptcy proceedings, the exclusive competenceof municipal court is decided upon depending on the registeredoffice of the bankruptcy debtor.

11.4. Other company identifiers

Besides the listed identifiers, which determine the company type andidentification elements, companies have other identifiers that presentlyappear as mandatory. The goal of establishing these identifiers isachieving as full identification of a company as possible compared to others. These are identifiers pertaining to the legal obligation ofopening and registering tax, customs, registration and identificationnumbers. They would also include the mandatory citation of a com-pany transaction number in official correspondence, together with thenaming of commercial banks where the accounts have been opened.These would be additional mandatory identifiers of an individualcompany without which it could not appear in legal and businesstransactions. These special and additional identifiers are prescribed byseparate laws and bylaws. LoRBE orders the registration court wherea company is registered to obtain the tax identification number andcustoms number.165 Tax identification number and sub-number areunique for the entire territory of Bosnia and Herzegovina. The reasonsfor declining to issue this number can include the existence of the taxdebt of the registration subject. These can be both natural and legalpersons that appear as the company founders. This provision verypractically allows the prevention of so-called tax evasion, i.e. evad-ing the obligation of paying taxes. This also removes the possibilityfor an existing company that does not pay taxes or does not pay themin a timely manner to establish a new company, and transfer all its operations to it in order to evade both paying taxes and obligations toward third parties in business transactions. Other company identifiersmay include its optional elements that further contribute to visual


recognition of the company’s name and the company itself. Thesemay range from logos and trademarks to various designer brands,wording, abbreviations, slogans used in trading, etc. Which identi-fiers will be used in these cases also depends on the type of company.Thus, partnerships will necessarily include the surname of one, someor all of the founders. These personal identifiers can be constituentoptional elements of corporations as well. This is a matter of free decision by company founders. Whether these elements will be specially protected also depends on the company owners’ will. Inbusiness practice, we can encounter the identity of company nameand a trademark in this situation. The recognition will be made basedon the designation on the protected trademark, where the manner ofidentification of protected trademarks is determined by national legislation.


Chapter LEGAL OPERATIONSWITH A COMPANY12

12.1. Forms of disposing of a company12.2. Agency and representation of a company12.3. Power of attorney12.4. Procuration 12.5. Ban on competing with

a company — competition clause

Chapter 12

LEGAL OPERATIONS WITH A COMPANY

Legal operations with a company imply the existence of a few manifestations. The forms of disposing a company can be classifiedin various ways. Some are provided for by law, while others resultfrom business practice. Thus, certain forms of operations with companies can proceed even when they are not provided for by positive legal documents. With respect to the methods and techniqueof operations with individual companies, it is necessary to determinethe difference between corporations and partnerships. The differenceis that partnerships require approval by all the members of this typeof company, while disposing of a corporation requires a two-thirdsmajority, or another qualified majority that should be defined by itsstatute. In the case of corporations, it is also possible to dispose of acompany without its owners’ will. This solution is characteristic onlyof joint-stock companies, which can, in a separate procedure, be takenover by another company, under the terms defined by a separate legaldocument. This case will be discussed later. Companies can be takenover without their owners’ will in another situation as well. It is thecase of taking over a company pursuant to the forced execution overmortgaged, i.e. the burdened interest, of one of the owners, or co-owners of a company.

12.1. Forms of disposing of a company

Disposing of a company is the form of activities of some of its members, i.e. founders, who want to produce given legal and eco-nomic consequences by expressing their free will. Motives can be ofa varied nature. It can be an expression of will that one does not wantto do business any longer, an expression of will to capitalize on theresults of the operations so far by selling the company, reasons of

Chapter 12 LEGAL OPERATIONS WITH A COMPANY 145

private nature, etc. For this will to be exercised, it should have a legalform. There are a few manifestations of disposing of the company’sassets, i.e. its possible sale or something similar. This can be mani-fested at some stage of a company’s operations, as well as at the stageof its transformation in terms of en bloc sale, or sale of shares, or justan interest, depending on what type of company it is. In the stage ofa company’s work and operations, the most frequent form of disposinginclude the fulfillment of the legal function of agency, representation,and procuration. Due to varied legal and economic consequences andreach, these will be discussed separately. In the stage of sale, or transferof the ownership over a company, we can speak of its sale, statuschanges, leasing, assigning for management through so-called management contracts, or a category that is close to civil law, whichis called inheriting ownership rights.

12.2. Agency and representation of a company

Agency implies taking legal actions on someone else’s behalf and onsomeone else’s account. In a company, the legal agent is, ex lege, itsdirector, or chairman of the management, if it is a collective. Thestatute can also define a wider circle of managers or employees asthe company’s agents. The statute or another separate documentshould demarcate authorities in case there is more than one agent.This also applies to the collective management. There are no specialrestrictions with respect to the number of agents. According to thiscriterion, agency can be classified as a legal, statutory, or contractualagency, or agency based on the unilateral expression of will in theform of power of attorney. Legal documents that regulate the subjectmatter of company operations and activities recognize legal agencyex lege, while legislative documents regulating the obligation rela-tions speak of signing contracts and legal transactions through agentspursuant to authorizations that can be included in law, statute or othernormative document. Both categories of these legal documents arerelevant for company operations. There is the obligation for allagents, both legal and statutory ones, to be registered as such in thecourt register of companies. There is also the obligation in the case ofchanges within the circle of persons authorized to act as agents. The


fact that the director or the chairman of a company’s management isauthorized, ex lege, to act as an agent does not imply that this factdoes not have to be registered in the company register. Authorities indomestic, and particularly in foreign trade, are registered separately.If there are any restrictions, particularly in terms of agency up to a defined value of individual business transactions, they must also berecorded. This is very important due to the regime of liability and validity of the contracts signed under this legal institution if thegranted authorities are exceeded. The existence of authority to act asan agent of a company involves the authority to sign various docu-ments. These in turn include monetary instruments of a varied natureand purpose. They can include transfer orders for paying for goodsand services, tax duties, orders for opening letters of credit and issuingbank guarantees, signing cheques or issuing bills of exchange, liability on bills, their endorsements or providing guarantee for a business partner. Out of the listed business and monetary transactions,a separate power of attorney is required only for liability on bills ofexchange. With respect to others, the very fact that someone is a com-pany’s legal agent does not automatically imply that he is authorizedto sign monetary documents. For a person to be authorized to signthem, he must have his signature deposited with a commercial bank,and the acceptance of a deposited signature requires proof in the formof a transcript from a court register. These rules, which are pursuedby commercial banks, prevent the possibility of discrepancy betweenthe factual and recorded state of affairs, which in turn makes companieskeep the factual state in the court register of companies updated, atleast in terms of this legal category.

There is a special circle of persons who are agents by employment.This category is introduced by the Law on Obligations (LoO).166

These are traveling salesmen in companies, who are authorized tosell goods “in the field” within the granted power of attorney. Thespecific feature of this circle is that traveling salesmen work out of thecompany’s registered office, pursuant to a special power of attorney.If there is any doubt, it should be understood that they are not authorized for signing contracts but rather for collecting offers only.If he is not authorized to sign contracts, and does so nevertheless, thecontract will be valid if subsequently approved by a legal agent.


A traveling salesman does not, ex lege, have the authority to chargea selling price nor give credit. He needs a special power of attorneyfor these business and legal activities. The LoO stipulates a specialpower of attorney only with respect to selling with deferred payment;in practice, however, a traveling salesman most often has the authorityboth for charging the selling price and for selling goods on credit.Besides, a traveling salesman is authorized to receive complaints, onbehalf of the company, due to defects on the sold goods, and otherclaims pertaining to executing the signed contracts, and to take allthe necessary actions for preserving the rights of the “principal”.167

In some companies there is a special category of employees who perform tasks related to the daily signing of sales contracts and/orproviding services of various monetary value. These are, as a rule,staff at counters in commercial banks, post offices, insurance agents,as well as salespeople in retail outlets, etc. The speed of business operations development and the increasing number of its manifestedforms have led to a widening of the circle of such persons. Authorityfor taking certain legal and other actions can be given to a person outside a company. This is the situation with, for example, giving awritten power of attorney to a lawyer’s office, or signing a specialcontract whereby the authority is transferred to a third person. Grantingsuch authorities is not recorded in the court register of companies.However, since it is granted by a legal or another company agent, hecannot grant an authority beyond those that apply to him. It is only theconsistent implementation of the legal principle that no one can transfer,to someone else, more rights than belong to himself. Agency can alsobe manifested as the so-called indirect agency through commissionand mediation contracts. Newer forms include franchising and factoring, which have grown into separate legal and economic institutions.

As opposed to agency, representation is a separate category. This is nothing else but appearing on behalf of, but not on account of acompany. There is no legal obligation that would subsequently leadeither to business changes, or certain economic effects. Which situationsare these? This is the representation of a company in, for example,various chamber bodies, protocol receptions, etc. Tasks of represen-tation can be performed by legal agents themselves, or else by any


employee who is granted a mandate to do so. Who will represent acompany in an individual situation depends on the significance of theinvitation itself, or the institution that sent it.

Essentially, agency implies acting on behalf and on the account ofthe principal, within the limits of the granted authorities. The LoO isthe basic legal document that defines the concept of the legal institutionof agency. This is regulated by other legal documents as well: theLaw on Companies, the Law on Litigation Procedure, the Law onAdministrative Procedure, and the Law on Public Procurement ofBosnia and Herzegovina. The relationship between LoO and otherlegal documents that regulate the postulates of this legal institution isthat LoO is a substantive regulation. The LoC considers a company’smanagement its agent.168 A company’s management organizes workand manages its operations, acts as the company’s agent and repre-sentative, and is liable for the legality of its operations. Companymanagement consists of the persons who are authorized to managethe company operations by articles of incorporation or statute. Otherpersons can also act as company agents, in the same way and withinlimits defined by articles of incorporation or statute, and in compliancewith the law.

It is through agency that the principal’s will is expressed through anagent. The agent takes over both the rights and obligations within thelimits of the mandate granted. Such actions can also lead to conse-quences that can be detrimental for the principal. What the relation-ship between the agent and principal will be in case of detrimentalconsequences is a factual issue. It will be resolved for each individualcase. Further, consequences may vary depending on whether a naturalor a legal person appeared as the agent. The reason for this is that thelegal person’s liability includes a regime of liability of persons liablefor the legality of its work and actions. Practical situations can varyand can have various manifestations. Thus, for example, if a lawyerloses a commercial lawsuit, it can be due to the omission to act, lackof skill, or a realistic state of affairs. One can also mention a situationwhen an agent signs a contract detrimental for a company. This canbe due to a lack of skill, which cannot exempt him from possible liability, or else due to the desire to gain unlawful property benefit.


In both hypothetical cases, liability is of a subjective nature, based onguilt, with which in the latter case may indicate an criminal offence.This issue will be discussed in the section dealing with the liability ofcompany management and the supervisory board.

Acting beyond the limits defined by law, articles of incorporation,statute or other special written document has appropriate conse-quences. The LoC provides that the persons entrusted with perform-ing defined tasks within company activities are authorized to take allactions and close deals that are typically performed, or arise out of thetasks they are entrusted with.169 The company shall be liable for obligations created on its behalf by the person authorized if this person has overstepped his authorities, provided that the third persondid not know or could not know of the existence of oversteppingauthority. The recourse regime of the agent’s liability against possi-ble damage is not our priority. How has the LoO resolved this issue?The LoO provisions provide that the principal is bound only if theyhave approved the overstepping caused by the agent.170 Such an approval has a retroactive effect unless something else has beenagreed upon and if the principal, in a reasonable time period, doesnot approve of overstepping authority, it has to be considered that theapproval has been declined. If the third person did not know, or couldnot know of overstepping the authority, they can claim that they donot consider themselves bound by contract immediately after gainingknowledge of the overstepping, and without waiting for the principalto declare their view on the approval. It follows, from these provi-sions, that the third persons acting in good faith do not enjoy full legalprotection in those cases of an agent’s overstepping of authorities.The dilemma is resolved by the fifth paragraph of this Article, whichsays that if the principal declines to approve of the overstepping of au-thority, they and the agent are jointly liable for the damage caused,and suffered by a conscientious third party. Naturally, this case requires the good faith of the third party, i.e. that the person did notknow or could not know of the existence of restrictions in agency.The LoO has adopted the principle of consolidation or ratification inoverstepping authority.171


12.2.1. Agency of corporations

Agency of corporations should be viewed separately from agency ofpartnerships. The reasons are manifold, but boil down to the fact and“philosophy” of what principles these two types of companies are organized on, operate under and abide by. In partnerships, personal elements reveal their prevailing character in performing the functionof agency as well. Elements that have to be taken into account include basic principles relating to the level and relations in terms ofthe level of equity, submission of application, agency and represen-tation, and delegating authority to individual members or third personsoutside the company itself. Personal elements prevail here, so thatthis characteristic inevitably reflects on the function of agency. Inmost cases, this function is performed by partnership members who,at the same time, reveal a symbiosis between the ownership and managing functions. Such a relationship inheres in this type of company, where all business management proceeds in a narrow andfairly closed circle of founders and owners. Corporations are charac-terized by the relationship of capital, which is particularly prominentin joint-stock companies. This relationship is dominant in limited-liability companies as well, although these can also have prevailingpersonal elements, particularly at their founding stage. Regardless ofthis factual issue, the emphasis in both cases is on the separation be-tween the ownership and management functions and components.This inevitably leads to specialization and delegating the agency function to an individual, by specialization, but increasingly to agenciesand specialized companies dealing only with certain types of businessand professional services. These include, for example, bookkeepingand accounting service providers, auditing services, legal services,searching for specific professions on the market, investment advisors,brokerages and dealerships, banking services, etc. Their type andchoice depend on the activities of the corporation itself, and on thekind of activity and other operations it is occasionally or permanentlyinvolved in. These were only some of the reasons why the subjectmatter of agency in these two types of companies is discussed separately.


12.2.1.1. Agency of corporations in domestic law

The function of legal agent in corporations is performed by the companydirector in one-member companies.172 The LoC separately deals withcompany management, within provisions pertaining to the establishment,operations and dealings of joint-stock companies. The law definescompany management as what organizes operations and managesdealings, acts as an agent and represents a joint-stock company, andis liable for the legality of its operations. Management is chaired by the director; he also manages operations, acts as an agent and represents the joint-stock company, and is liable for the legality of itsoperations. Since the LoC deals only with the company’s manage-ment, by analogia legis it is implied in cases when a company’s management is an individual. According to the LoC’s provisions,agency and management in joint-stock companies are exclusivelytasks of the management as a collective body; however, the amend-ments to the LoC partly eliminated this linguistic dilemma in itsamended Article 275. It is now a norm that a joint-stock companymanagement consists of a director, or a director and one or more executive officers, as determined by the statute.173 It is a matter of thefounder’s free will how they regulate the issue, organization, andcomposition of the management. This provision is an inevitable andconstitutive statute element. This provision should be of an imperativenature.174 However, the amendments to the LoC say that the “mana -gement of a joint-stock company consists of a director, or a directorand one or more executive officers, as determined by the statute.”There is obviously a conflict between the two LoC articles, and thisissue should be regulated by the articles of incorporation, or the memorandum of association and, of course, the statute, all of whichshould define whether the joint-stock company’s management is organized as individual or collective.175 Using the resolutions of comparable legal systems, it should be stated that a joint-stock company management can be organized either as individual or as collective. There is no doubt about provisions pertaining to the activities and operations of a limited-liability company. The law hasprescribed that a company’s operations are managed by the management,which also acts as its agent. The management of a limited-liabilitycompany consists of one or more persons, who do not have to be


company members. If the management consists of more than onemember, the articles of incorporation or statute regulate the authoritiesand liabilities of the members of the management.176 With regard toits composition, which is particularly prominent in the provisions pertaining to operations of limited-liability companies, the LoC devotes only one article to its management. For everything else, provisions pertaining to activities of joint-stock company managementapply, pursuant to Art. 310 of the LoC.

If a company’s management is collective, one should distinguish theliability of the director, as the chairman of the management, from thatof executive officers, as members of the management. The LoC provides that an executive officer organizes activities, acts as agentand represents a joint-stock, and therefore a limited-liability company,and is liable for the legality of its operations, in the scope defined bythe director’s written document. With respect to other authorities, theLoC remains consistent in terms of the scope of regulating such animportant function, and prescribes only that the director grants a writ-ten authority to one of the executive officers to replace him in case ofhis unavailability, and defines his authority. The first question thatarises here regards the director’s written document whereby he giveswritten authority to individual executive officers. The law says thatit is the director’s decision. Besides the decision, the scope of au-thority can in any case be defined by the articles of incorporation,and by the company statute. The next question is who is liable forexecutive officers’ acts. If, within the delegated authorities, an exec-utive officer oversteps the authorities granted upon him, his actionswill be considered legally null and void, but from the viewpoint of theLaw on Obligations these are relatively null and void legal activities.The deadline for their annulment is three years, and by analogia legis,the same rules apply as in the case of actions by legal agent beyondhis authorities. The legal transaction taken by an executive officercan be consolidated by the company’s chairman of the management.A situation in which an executive officer has done a job that is not allowed, or is unlawful, is different. Is the chairman of managementliable in this case? Since it has been regulated that the director or thechairman of the management is liable for the legality of operations,he cannot avoid liability for the unlawful actions of an executive


officer. Such a view can be justified from two perspectives. The firstis the liability of the chairman of the management to act with a goodbusinessman’s care, so that he can always be liable for his associates’actions based on neglecting to exercise due care in performing hisfunction of a legal agent. The second is found in the LoC provisionthat determines that executive officers are appointed by the supervi-sory board, but from a circle of candidates proposed by the director,as chairman of the management. In this way, the chairman of the management always backs actions by executive officers as his clos-est associates appointed by the supervisory board upon his proposal.If an analogy were to be made with liability in certain forms of namedcontracts of business law, this would be the liability for choice, andat the same time liability for activities.

12.2.2. Agency of partnerships

The function of an agency in partnerships is basically different fromthat in corporations. Since, regardless of the partnership type, theprinciples of its establishment and operations are the same, the functionof agency is consequently achieved through equality of all partners.This is also the basic postulate of other comparable legal systems.The legislator provides for the possibility for these issues to be regulated in a different manner; however, if this is not so, it is ex legepresumed that all partners, i.e. founders, collectively act as agents or,in a limited partnership, this would apply to all general partners aspublic partners. How this issue will be regulated is up to the company’sfounders, i.e. owners. These issues can be regulated in a differentmanner, but such regulations must be defined by the articles of incorporation or statute, and recorded in the court register. The basiclegal regulations themselves are fairly impractical with respect to theneeds of modern business operations, since they imply that each partnercan act as an independent agent of the company. This issue shouldbe regulated in a creative way, and in this context the most practicalsolution seems to be one that resolves the issue by granting theagency function to the director, i.e. the management in a partnership.Authority can also be granted to third persons, outside the circle of


founders of this type of company. In this case as well, authority mustbe defined by the articles of incorporation, or statute, and alsorecorded in the court register.

12.2.2.1. Agency of partnerships in domestic law

The LoC prescribes that in a general partnership, each member canact as its agent unless otherwise determined by the articles of incor-poration.177 Such a solution is impractical and inapplicable in practicebecause of its consequences. We can imagine a situation where wehave five founders and members of a general partnership, and whereeach member has authority to act as an agent in terms of taking legalactions in legal operations producing economic consequences. Withoutwork coordination, negative repercussions on activities and operationswould be likely to follow soon after. Therefore, a far more practicalsolution would be one whereby the articles of incorporation authorizeonly some members to individually act as the company’s agents,while the other members cannot do so. An even more practical solutionwould be to appoint one of the members as a director who wouldnow, ex lege, act as a legal agent. Naturally, this should be regulatedby the articles of incorporation, and requires the approval by all company founders. It is understood that the function of agency forindividual, specific activities can be granted to third persons outsidethe company itself. These include the already described specific tasksperformed by specialized companies or individual experts. Such taskshave already been listed in the discussion of the function of agencyin corporations. If this issue has not been separately regulated by thearticles of incorporation, approval of all the company members is required. If the articles of incorporation granted the function ofagency to one of the partners, or the company director, it is impliedthat he can give power of attorney to third persons for taking legal actions on behalf and on account of the company itself. Such a position would not apply to cases where there is a restriction on theagency for such a person, since the articles of incorporation can introduce the obligation to give advance approval of such a legalagent’s actions.


Agency of limited partnership, as the second basic type of partnership,also has some unique elements. The reason for this is that such a company has two kinds of members. The first include general partners, while others are limited partners of this type of company.Since limited partners do not appear in legal and business operations,they do not participate in agency, representation or management. Itfollows from this regulation that general partners are the persons whoact as agents or represent the company and manage it.178 In this typeof partnership, rules pertaining to activities and operations of generalpartnerships are applied by analogia legis.179 With respect to limitedpartners, they can perform agency and management functions onlypursuant to authority granted by all the general partners together. Thedecision must be unanimous, so that if one of the general partners, regardless of their number, refuses to give their approval, the limitedpartners will not receive authority. The law says nothing on whetherthe approval must be recorded in the articles of incorporation, or thestatute. If such a regulation has been issued, it has to be compliedwith; otherwise, a written document giving a limited partner individualauthorities would be required. Since limited partners are still members of this type of company, their authorities should be enteredinto the court register. Two kinds of authority should be distinguishedhere. In the first case, these are authorities included in the regular operations, such as, for example, the daily signing of contracts; sucha type of authority should be entered in the court register. In the second case, if the authority is granted to a limited partner only for aone-time task, it requires only a written power of attorney that can beissued either by all the general partners or by one or some of them,provided they were given the authority to do so by the others. In thecase of one-time power of attorney, limited partners do not have to beconsidered third persons, but they require a written document, i.e. authority.

12.2.3. Special forms of agency

Special forms of agency appear in cases when a person is ex legeauthorized to act as a legal agent. It means that this is not the functionof a legal agent, but rather the same function regulated by a separate


legal norm, or defined in accordance with a special legal document.It is quite natural that a broader circle of persons act as agents thanhas been determined by the very function of a legal agent. This circle of people can be fairly wide, and is determined by the facts ofthe kind of activity the company is involved in, as well as by the factof the scope and the number of staff this activity is performed by. Authorities for this type of agency can result from the following legalbases:

a) authority based on a special legal norm,b) authority based on a special legal document,c) authority based on the legal agent’s will,d) authority based on collectively expressed will by a corporate

organ, ande) authority based on collectively expressed partners’ will in

partnerships.

Authority based on a special legal norm is contained in a legal document beyond the basic legislative document regulating the establishment and operations of individual types of companies. A typical example of this kind of norms and legal documents is theLoO, parts of which apply to company activities and operations.These are special kinds of tasks treated as tasks of agents by employment.180 They, in turn, are natural persons who have the status of employees in a company and who, based on their authoritiesand duties, have the right and obligation to close some legal transactions.Generally, such persons do not have to have the capacity of an employee, but can be hired on a contract basis, although this situationis less common. This would be the case in the circumstances wherea certain employee involved in such kinds of tasks is replaced for acertain period of time due to his justified absence from work. It is amatter of national labour legislation how this issue will be resolved,and exclusively with regard to the employee’s legal employment status. Such an employee can also be hired temporarily, or on a contract basis. From a legal viewpoint, the first variety is more desirable for both conscientious third parties and natural persons.Who should be considered an agent by employment? These wouldinclude all the employees who are, in accordance with their legal


position in a company, authorized to close given kinds of legal tran -sactions, i.e. to sign contracts.181 This circle of employees includesall salespeople, e.g. all salespeople in a company’s retail outlets; allemployees in charge of commercial tasks authorized to sign contractson retail sales, wholesales or future sales. This circle of tasks also includes legal transactions based on which certain employees are authorized to sell products and services, and others to purchase, forexample, products, raw materials, equipment, etc. In service industries,this circle of employees again includes all those authorized to signcertain types of contracts. These would be banking officers that can give out withdrawals or receive deposits, insurance company employees authorized to sell insurance policies or offer other kindsof services in this branch. In the present conditions of fast legal andbusiness operations, the list could go on forever. Who should be considered an agent by employment can be a factual issue as well,which means that it does not have to be specially determined whichemployees are agents by employment. In some cases, it would belegally and technically impossible. This issue is significant in caseswhen some of the agents overstep their granted authority. In this caseas well, protection of the interests of conscientious third partiesshould be the priority, and by analogia legis, LoO rules pertaining toactions by legal agents beyond the authorities granted by law orstatute should be applied. In the case of such actions by an agent byemployment, the company is exempt from liability only if it can beproven that the third parties knew or could know of such actions. Itshould be noted here that there has been little mention of statutoryagents, and it follows thereof that these issues, including the issue ofan agent by employment, have to be regulated by the companystatute. Such a solution would be impractical, and a more modernconcept should be used, according to which such authorities can alsobe regulated in a different way. Actually, as opposed to legal agents’authorities, the actions of agents by employment should not be entered in the court register of companies. One can only imagine thesituation of entering the authorities of all the counter staff in a largercommercial bank. These authorities can be granted by a special normative document that regulates employment relations, or job descriptions which clearly and prominently reveal the type of authority. The legal grounds for granting such authority results from


authority that has been granted and delegated to a company’s legalagent. These authorities must be entered in the court register of companies. The grounds for delegating authorities can be twofold:

a) company statute and/or articles of incorporation,b) special decision by a competent organ in corporations and/orc) unanimous decision by all partners in a partnership.

For this delegation of authority to have a legal effect, it is necessaryfor the legal agent to act within the scope of his granted authority.

Special kind of authority granted in accordance with a special legalnorm include giving power of attorney. Due to its legal significance,it will be separately discussed in the following text on the legal relation of agency. The basic rule is that in this case, the authority isgranted to persons who do not have a status of legal employment ina company, or those who do have it but a special legal norm requiresa special power of attorney for taking given legal actions, providedby the legal agent.

Authority for agency pursuant to a special legal document can befound in the legal documents that are the source of company law.These legal documents include laws regulating the subject matter of conducting a bankruptcy procedure and regular liquidation procedure.This subject matter is, only basically, regulated through LoC, thoughwithin general provisions where bankruptcy and liquidation are mentioned only as some of the legal grounds for the cessation of a company’s existence. This case is completely opposite to the previous one. Actually, the previous case concerned the performanceof a given type of tasks based on the authorities gained with the dayof starting employment, and based on the employer’s freely expressedwill, and based on authorities resulting from positive legal documents. In the latter case, legal grounds are also included in thepositive legal document, but the employer’s and/or company owner’swill is missing. This situation is understandable since it is a casewhere positive legal documents are imperatively applied, based uponwhich all authority is ex lege transferred from previous legal agents,attorneys-in-fact and procurators to a temporary agent, i.e. a trustee


in bankruptcy. Since this special subject matter of company law, i.e.bankruptcy law, will be separately discussed, that chapter will sepa-rately describe all the legal consequences of opening a bankruptcyproceeding. The same applies to the regular liquidation procedure.One can only say here that the application of these legal concepts ismore proof and a graphic example of the difference between actingin the form of a company and legal person in general as opposed toan individual’s acting as a natural person. This is another proof of theclose and inseparable link between the state community and its directand indirect conduct toward companies. In this case, the state indi-rectly, through the institution of a trustee in bankruptcy, exercises itsinfluence on one of the segments of company operations so that,based on one of the basic legal consequences of starting a bankruptcyproceeding, all the authority given legal agents, attorneys-in-fact andprocurators, stop. Their ownership position has no importance what-soever. Pursuant to a legal document, an authorized body takes overall the legal authority and prerogatives. In addition, all the authoritiesof company organs cease, and consequently all the actions by theseindividuals and organs are legally null and void if taken after the startof the bankruptcy proceeding. The legal position of the companyowners is absolutely insignificant in these cases. Actually, they failedto prove themselves as entrepreneurs, i.e. they failed to operate pro fitablyon the market. This also justifies the view that the basic goal of establishing and operating a company is achieving profit through operations, which must be in accordance with legal norms. Negativeoperations lead, among other things, to the consequence that such abusiness entity is removed from the business environment. In such asituation, we can see that the state exercises its legal prerogatives aswell. Their activation also leads to assuming the authority required forthe disposal of the assets of the already over-indebted company.

12.3. Power of attorney

Power of attorney (POA) is a legal relationship whereby a given person, named principal, authorizes another person, named attorney-in-fact, to act as his agent. In our legal system, power of attorney remains defined through norms listed in the LoO.182 Traditionally,


issues of the power of attorney are regulated by national civil codifi-cations, and this seems to be a general trend both in European conti-nental law and in the Anglo-Saxon legal system. Due to specificelements in company operations, individual laws regulating this sub-ject matter also contain provisions. In some special laws, particularlythose regulating operations of financial institutions, and businessesand authorizations for taking actions on stock exchanges, we findspecial provisions on who can take certain actions in the capital mar-ket. Special provisions may include those contained within the legalframework of business legislation, those pertaining to the legal andstatutory agency of companies, and provisions pertaining to the specialtype of so-called broadest commercial POA, which is called procurationin company law. The reason for this is that the legal conceptions ofagency and power of attorney in the linguistic sense are practicallysynonyms, and their differences include certain nuances that mostlypertain to who is the holder of agency, and who is the holder ofpower-of-attorney. In addition, both the agent and attorney-in-fact acton behalf and on account of the principal. Agency finds its legalgrounds in the law, while power of attorney finds its legal grounds inthe written power of attorney, the legal grounds for which are againfound in a legal document. The second difference also includes thefact that agency is, as a rule, exercised by a person who has a legalemployment status with the company, while in the case of POA, theseare mostly persons who do not have such a status. This concept seemslogical since the volume and speed of business transactions at presentrequire certain traditional aspects of some legal measures to be regulatedthrough lex specialis. Such a legal treatment of agency, and particularlypower of attorney, and the existence of the legal concept of procuration,found exclusively in the sphere of company law, lead to a special kindof symbiosis between company law and law of obligations with respect to these legal concepts. The norms of the law of obligationsthemselves obviously do not suffice to thoroughly explain the sphereof POA pertaining to company activities and operations. It seems necessary for them to be supplemented with company law regulations,and numerous special legal documents, the number of which increaseswith the increasing complexity of legal and business operations. Thusthe LoO provisions pertaining to agency and, particularly, POA, arepresently insufficient to fully regulate certain aspects of this legal


concept. The LoO itself has regulated the basic scope of this legalconcept in a traditional way, and pursuant to the principle of uniformityof LoO norms. Thus, LoO norms pertaining to postulates of this legalconcept equally apply to actions by both legal and natural persons,while special norms are found in some special sources of companylaw.

12.3.1. Power of attorney in domestic law

Power of attorney in domestic law is a legal relationship whereby authorization is given to act as an agent of either a natural or a legalperson. Since this is the domain of company law, we are interested inthe domain of POA pertaining to the agency of individual types ofcompanies. Why do attorneys-in-fact appear besides legal agents?They appear in cases when legal agents are unable to take certain actions of agency. The reasons for legal agents’ inability to take certain actions may be their unavailability, which is a less commoncase, or — more often — the fact that legal agents do not have the specific knowledge and skills necessary for competent state organs.In practice and in daily language, power of attorney is identified withtasks performed by lawyers, and at the same time with tasks performed by lawyers before courts and, less frequently, before othercompetent state bodies. The fact is that, in practice, most POA actions proceed in this way and in this form, but POA can pertain toother purposes as well. Business operations today require an inter-disciplinary approach, which includes elements of varied professions,knowledge and skills. For some kinds of specific business undertakings,attorneys-in-fact can include economists, different engineering professions, medical doctors, licensed forensic experts, etc., depend-ing on the subject the to which the POA pertains. The legal transactionof POA itself requires a legally defined written form, and the POAitself can also be given on a standardized form where certain specificelements are entered. POA can be time-limited or unlimited, and territorially limited or unlimited. The rule is that POA is given for adefined period of time, and for a defined territory. If the POA is not time limited, it is valid until it is revoked, and if it is not terri-tory-limited, restrictions pertain to actions beyond the borders of


sovereignty of the territory where the company whose legal agent hasgiven the said POA is registered. Restrictions are found in positivelaws of another state and they can vary. Restriction most often appears in actions by lawyers and authorized forensic experts. It canbe freely said that the comparative solution is uniform, so that whenappearing before state bodies in other states, particularly beforecourts, legal actions can be taken only by lawyers and forensic expertsregistered in that state, in compliance with their national regulations.One of the fundamental rules is that performance of lawyer tasks is conditioned by the citizenship of the country where the lawyer’spractice is performed.

The scope of POA is defined by the principal’s will; therefore, basedon the general POA, only legal actions within the scope of the so-called regular operations can be taken.183 The scope of regular operations is defined, in this case, by the LoO. Whatever the LoOprescribes as requiring a special POA is beyond the scope of regularoperations. Other tasks beyond the scope of regular operations require obtaining a special POA. Cases involving a special POA areregulated by the LoO. Other special forms of POA can be prescribedby lex specialis. The LoO provides for a special POA in the follow-ing cases:

a) taking up liability on a bill,b) signing a guarantee contract,c) signing a settlement contract,d) signing a contract on a selected court, i.e. a contract on dispute

resolution by arbitration, ande) renouncing a right without reimbursement.

Are there more situations that do not enter the scope of regular operations, beyond the enumerated cases? In company law, this possibility can be determined by the statute or articles of incorporation,in that the enumerated cases are broadened. The broadening of enumerated cases is also mandatory when the POA is given for tasksthe financial effects of which exceed the scope of authorizations bythe agent who gives this POA. This scope is defined either by the articles of incorporation and/or statute, and by a legal document as


well. Law is imperative here, so that the articles of incorporation andthe statute cannot go contra legem the imperative legal norm. In anycase, there is no legal obligation for issuing, revoking or cancellingPOA to be recorded in the court register, as opposed to agency andprocuration. POA can also be subsequently restricted or revoked insituations when the principal has renounced this right. It follows fromthe wording of the norm that renouncing POA agreed upon by contractproduces no legal effect.184 It is only if the recall of POA has violatedthe contract on order, contract for services by an independent con-tractor, or another contract that the attorney-in-fact is entitled to receive damages. Recall or restriction of the granted POA will notproduce any legal effect to conscientious third parties if the latter didnot or could not know of the restriction or recall of this POA. This isa situation identical with that of an attorney’s-in-fact actions beyondthe granted authorization or, generally, beyond the authorization whenthe POA has already been withdrawn and a conscientious third partydid not know or could not know of such a situation, just as in the caseof agents’ activities beyond those provided for by a legal act or statute,as well as by the articles of incorporation.185 The legal consequencesare the same. Owing to this regulation, the principal becomes entitledto damages if the described circumstances arise, except in the casewhere the attorney-in-fact himself did not know or could not know ofthe restriction or recall of the POA. The fact whether, in both cases,the attorney-in-fact knew or could know of the POA restriction or recall will be a factual issue, which will be judged depending on thecircumstances of the actual case. The POA should be restricted or revoked in the same way in which it was granted, i.e. in written form.The very act of limiting or revoking a POA should reach the attorney-in-fact before he takes an actual legal action if it is to produce a doubt-less legal effect. In these cases, when the receipt of recall or restrictionof the POA in question can be proven, it will not be necessary to separately prove whether the attorney-in-fact knew or could know of such a principal’s conduct. In order to avoid unnecessary cases of proving certain circumstances, the most desirable variety is notification of the attorney-in-fact in writing. It is only when the action is taken in such a way that there will be no dilemmas with respect to attorney’s piercing the legal capacity.


12.3.2. Legal grounds for establishing the legal relation of power of attorney

Legal grounds for granting power of attorney are included in twokinds of general legal documents. These are the following documents:

a) articles of incorporation and/or statute of the company, andb) a legal document.

The legal grounds for granting power of attorney can also be foundin an individual legal document. Such a document can be an individualdecision by a competent organ in a company, whereby the director orchairman of the management are granted authorization to issue powerof attorney to a defined legal or natural person. Regardless whichlisted legal documents provide grounds for issuing the POA, the attorney-in-fact is bound to act in in accordance with the mandategranted. Acting beyond the granted mandate produces legal and economic consequences described in the previous section. In practice,in a few cases, these issues are resolved by regulating the authorizationto give POA by the articles of incorporation or statute. It is a rule thata POA is issued by the company’s director or chairman of the management within his legal and statutory authorities. This practicecan also be observed in cases of granting the POA for legal actionsboth within the scope of regular operations, and those beyond. Situations where a special decision by a company organ is requiredfor granting a POA is rare. These could include the supervisory boardor co-owners if a supervisory board has not been formed in a limited-liability company, and when all the co-owners exercise their author-ity. The law recognizes a special concept, the so-called businesspower of attorney.186 Business power of attorney is nothing else buta power of attorney granted, within authorities provided by law, toan attorney-in-fact to take certain legal actions. This concept of a specialbusiness POA pertains only to work and actions on behalf and on theaccount of a company, and by analogia legis, these provisions on business POA are also applied to the work and actions of a shop-keeper, i.e. a private entrepreneur.187 There are some restrictions tobusiness POA prescribed by the Law.188 The business POA holdercannot, without a separate authorization:


a) alienate or burden real estate,b) take upon himself liability on a bill,c) take guarantee liabilities,d) take a loan, ande) conduct legal proceedings.

A business POA can be limited to a given kind of task, and these restrictions will produce a legal effect on conscientious third partiesonly if they knew or could know of the existence of the restrictionsat issue. Due to the lack of legal obligation to enter the act of givingPOA in the court register, it is reasonable to ask how third persons canknow of the scope of the attorney’s-in-fact authorizations. This issueis resolved in a practical way, by submitting the POA by the attorneyhimself, and in cases of the attorney’s appearance before courts andother state organs, the POA is enclosed with the writ itself. The already described cases of an agent by employment or authorizationsfor persons conducting defined tasks, and authorizations for travellingsalesmen, are special cases. Cases pertaining to legal grounds for giving POA to some persons during bankruptcy proceeding or regularliquidation will be discussed separately.

12.3.3. Establishing the legal relation of power of attorney

The legal relation of power of attorney is based on two sources. Thefirst is the existence of legal authorization, as general legal groundsfor granting the POA, and the second is an actual, i.e. individual, doc-ument by the authorized person in a company to issue an individualPOA. Issuing a POA requires the existence of both legal grounds.The legal authority itself is not sufficient for issuing a POA. Whetherthe authorization for issuing POA is required depends on the articlesof incorporation or statute. The existence of legal grounds is a sufficientand legally proper basis for granting POA. Third parties’ referenceswith the lack of these legal grounds would not be justified. Issuing thePOA by a legal agent, within his legal and statutory authorities,should be considered quite sufficient and valid in relying on this kindof legal transaction. However, until the POA is issued in a specialwritten form prescribed by law, there is no legal relation of POA


regardless of the form of authority for its issuing. Further, the exis-tence of legal grounds does not necessarily mean that the POA has tobe issued. It is a matter of the will of the company owner, or personsauthorized to act as agents, whether they will issue the POA to a givenperson, mostly per the need that has arisen. Issuing the POA can belimited or conditioned by given facts or events. These restrictions canbe of various kinds, without necessarily being related to the level, orvalue behind the legal relation that had to be taken upon the issuedPOA. Issuing the POA can be conditioned with giving a consent orapproval by the competent organ or company owner. If, for example,issuing any form of POA is conditioned with the permission of the supervisory board in a joint-stock company, and the chairman of themanagement gives a POA without the necessary approval, the questionarises as to whether its issuance is legally valid with respect to con-scientious third parties who rely in the trustworthiness of the issuedPOA. The rule that has been mentioned a few times already, i.e. thatthe legal system protects conscientious third parties, applies here aswell. The only condition is that the third parties did not know or couldnot know that the POA was granted beyond the specially prescribedrules, in this example a joint-stock company. Another question ariseshere: What happens if the POA, by a legal agent, was issued withoutthe permission of a competent organ but within his statutory and legalauthorities? There is also the case when the legal relation of POA wasestablished without the permission of the competent body in a company,but beyond statutory and legal authorities. The legal consequencesare the same in both cases. It is a matter of the company’s owners’free will to define special rules pertaining to POA issuance. Whetherthey will be restrictive or not depends only on their free will as company owners. The legislation makes no restrictions and does notprevent company owners from being more restrictive. If the statute orarticles of incorporation say nothing particular about the establish-ment of legal relation of POA, a legal agent has the authority to establish the legal relation of POA, but only within his authorizations.By analogia legis the legal transaction of POA can subsequently bevalidated by a competent organ’s decision, and legal actions takenbased on the issued POA will be legally valid. Otherwise, the legal relation does not exist, but conscientious third persons are entitled to damages under the previously described condition. What is


happening with the attorney-in-fact in these cases, and is the attorney-in-fact to be considered a conscientious third party if he has taken alegal action pursuant to a POA that is not legally valid? We believethat the attorney-in-fact with the POA established a fiduciary rela-tion of trust, which is typically of a lasting nature in practice. In thesecases, the attorney-in-fact has both the right and the obligation tocheck all facts and possibly the existence of prerequisites for grant-ing the POA. Omissions of this kind, which cause damage to consci-entious third parties cannot excuse the attorney-in-fact, nor exempthim from liability for possible damages. In the case of suffered harm,the attorney-in-fact will be liable in the recourse procedure, and theconscientious third party will address his claim to the company thatissued the POA, i.e. whose person is authorized for agency tasks.Such a regulation stems from the fact that the attorney-in-fact acts onbehalf and on the account of the company, i.e. just as its legal agent.Since the company itself is liable for damage caused by its legalagent’s actions to third persons, and regardless of whether he actedwithin or beyond the granted authorities, the same regulation is to beapplied to actions by the attorney-in-fact. The way in which this legalrelation will be resolved in a recourse procedure is a completely different issue.

12.3.4. Attorneys-in-fact

Attorneys-in-fact are persons authorized to act as company agents.In general, attorneys-in-fact are persons authorized to act as agents ofboth legal and natural persons. Since we, within the legal disciplineof company law, are not interested in acting on behalf of natural per-sons or legal persons generally, we will here focus on acting on be-half of companies. Thus certain rules pertaining to acting on behalfof companies, and the legal concept of POA are somewhat differentfrom those found within the Law on Obligations. A POA can be granted either to a natural or a legal person. In the case of naturalpersons, taking legal actions based on POA requires the attorney’s-in-fact full business capacity in order to be able to take legal actionswith property consequences on someone else’s behalf and account.The LoO includes nothing special about the need for full business


capacity by the agent or attorney-in-fact, but if these legal actions aretaken by such natural persons, such a legal transaction is to be considered revocable, in accordance with general postulates of obli-gation law. With respect to legal persons, they must be recorded in thecourt register, and have full legal and business capacity to appear inlegal and business operations. These are not necessarily legal personswith the special properties of a company. Legal actions based on thelegal transaction of POA can also be taken by the legal persons thatare not registered as a company. In practice, this can be a more frequent situation. You can thus entrust a lawyer’s office with POAtasks, or special tasks on behalf and on the account of a company canbe performed by specialized agencies that have not been registered inthe company form. However, some tasks of agency, if it has been specially regulated by a lex specialis, can be performed only throughlegal persons within the company’s capacity. Thus, for example, youcan act as an agent of foreign companies only if you are registered asa company. A specific form of agency through POA is taking legal actions in the protection of copyright and industrial property rights.These tasks can be performed only by agencies and legal persons thathave a special permission. We should mention, at this point, the difference encountered in the legal transaction of agency compared tothe contract of agency. It is a named, formal, lucrative and commu-tative contract of business law, whereby the agent is bound to permanently, on behalf and on the account of its principal, performthe following legal tasks:

a) sign contracts with third parties,b) mediate between third parties and their principal, andc) sign contracts with third parties on behalf and on the account of

their principal.

Such legal tasks of agency can be performed only by legal personsregistered for this kind of activity. In legal terms, one can also discussthe scope of the nominant contracts on mediation and, particularly,commission tasks. These special contracts of business law are still asubject matter of the contract section of business law. They could appear as a subject of separate discussion within the legal disciplineof company law only in judging whether a person acted on someone


else’s behalf and account, or on his own behalf and on someone else’saccount, such as the case with the legal transaction of commission.This is significant when judging the form and degree of the agent’s,i.e. attorney’s-in-fact’s, liability.

Attorneys-in-fact can appear as both natural and legal persons. Asnatural persons, attorneys-in-fact can include:

a) company employees without the capacity of attorneys-in-fact byemployment,

b) company employees with the capacity of attorneys-in-fact byemployment, and

c) third persons without the capacity of company employee.

Attorneys-in-fact can also include legal persons. Attorneys-in-factwith a legal person’s capacity can include:

a) companies specialized in legal transactions of agency,b) other companies, andc) other legal persons without a company capacity.

We can see that the circle of persons that can appear as attorneys-in-fact is fairly wide. It is only one of the reasons for separate study ofthis legal concept within the legal discipline of company law. Thespecifics are obvious and are conditioned by the specifics of this legaldiscipline, and the specific requirements and the needs of modernbusiness operations. Such decisions are known to some lex specialis,which are the general and particular sources of company law.

12.3.5. Cessation of POA

One of the ways of cessation of the legal concept of POA has alreadybeen mentioned, though in a somewhat different context.189 BesidesPOA recall, other ways of POA cessation include:

a) POA recall,b) Cessation of existence of the legal person that granted the POA,


c) Temporary or permanent prohibition to perform activities for thelegal person, by an administrative document of a competent stateauthority,

d) Withdrawing the license or permission to the legal person thatobtained authority to perform legal actions of POA pursuant tolex specialis,

e) Attorney’s-in-fact death,f) Loss of business capacity of a natural person as an attorney-

in-fact,g) Cessation of existence of the legal person that is holder of the

POA, i.e. the attorney-in-fact,h) Emergence of a legal consequence of opening a bankruptcy or

liquidation procedure over the legal person with the capacity ofattorney-in-fact,

i) Expiration of the time period, if the POA was granted for a defined period of time,

j) Completion of a legal transaction for which the POA wasgranted,

k) Emergence of a resolution, i.e. termination prerequisite, if it wasspecified in the contract on POA.

Each of these reasons for POA cessation could be discussed sepa-rately. This would be legally relevant only in cases including the economic consequences of the cessation of the legal relation of POA.This is a factual issue, and therefore each form of the cessation ofPOA existence should be related to factual circumstances, i.e. condi-tions. One should also take into account facts and circumstances suchas whether the legal transaction has been completed, whether legaland economic consequences of the taken legal transaction are present,what the legal grounds are for the cessation of the legal relation ofPOA, and other relevant elements.

12.4. Procuration

Procuration is a special form of business authorization related to taking legal actions on behalf and on account of a company. It drawsits origin from the German legal system, and today it is a typical form


of commercial or business POA. Viewed comparatively, procurationis legally defined in two ways. It is done within codifications of either obligation or commercial law. At the time of its passage, theLoO did not provide for the existence of the legal concept of procu-ration, probably due to the existence of a completely different conceptof business entity organization compared to the present one, a classicand traditional concept in other ways as well. It was certainly alsodue to the prevailing concept of public property in the organizationand operations of companies. Due to the fluidity in such a propertyconcept of property right holders, there was no need for this legalconcept to be legally regulated within the LoO’s general postulates.With the return to the classic and traditional concept of company organization, commercial codifications regulated the postulates of thelegal concept of procuration. Compared to other persons authorized toact as company agents, a procurator appears as a person who has thebroadest scope of authorizations. It is identified as a ‘procurator’;‘procuration’, ‘per procuram’ or any similar name that unambigu-ously indicates that it is a procurator. Which actions can a procuratortake in legal and business operations? A procurator can take all thelegal actions relating to the company’s activities and operations. Thisspecial type of commercial POA implies that a procurator can closedeals within the company’s regular operations. These would includelegal transactions such as contracts of sales, services, loans, credit,etc. These would also be employment contracts, and thus the termi-nation of such contracts. Procurators are also authorized to take legalactions relating to conducting certain kinds of legal disputes. Thisimplies the direct taking of certain legal actions before courts in businessand arbitration disputes, and also the authority to give POA or authorization to other persons to take certain actions in business andother disputes. This is not to say that a procurator transfers the authority he has to someone else. He transfers, to another person,only the authorization to, for example, act as the company agent in aprecisely defined business dispute because he does not have the specific knowledge, skill, etc. Naturally, these should be disputes thatare directly related to the company’s activities and operations. Otherwise, there is a prohibition for the procuration to be transferredto another person. In comparable legal systems, such a levelled legalsolution does not exclude the described legal situation of giving


individual authorizations for taking individual legal actions. This isa consequence of the fact that if, for example, a legal agent is authorized to give a special POA, why not give the same right to theprocurator, whose authorities are, ex lege, far broader than the legalagent’s.

12.4.1. Procuration in domestic law

Procuration is a special kind of POA which is, as such, regulated byLoC provisions. According to the LoC,190 procuration is a written authorization for taking all legal actions and doing transactions onbehalf and on account of a company, except the transfer and mortgageof real estate, if it is not specially included in the authorization. Itmeans that, if nothing has been included, the procurator cannot alienateor mortgage real estate attached to the company in its books. Theprocurator can do this only if this is explicitly stated. Otherwise,procuration restrictions that are not defined by law have no legal effect. The restrictions cannot be introduced by the articles of incor-poration, statute, or any other document in the company. What else requires a special authorization for a procurator? This is also requiredwhen the procurator appears as a party to the contract with the companyitself, and signs contracts on his behalf and on his account, or on hisbehalf and on someone else’s account. These are LoC regulationswhich are described later on. Procuration is also defined as the broadestcommercial POA, and from this viewpoint it should not include anyrestrictions. If nothing has been stated, it is considered that the procu-ration is granted for the entire company, although it can be granted fora branch, which should be explicitly stated and recorded in the courtregister of companies. Procuration is granted only to natural personswith a business capacity. These natural persons do not have to havea capacity with the company. They can include employees, founders,or third parties outside the company. In business practice, procurationis frequently used so that the founders, who do not perform managingfunctions in a company, can maintain full control over its operations,and particularly over the disposing of its assets. Thus, when we meeta person who identifies himself as a procurator, we should believethat he is the company’s founder or owner. This is not necessarily a


rule, but there are no reasons to grant procuration to someone who isnot the company owner. It would suffice to give authorization foragency for a given task, or a group of similar tasks. Procuration itselfcannot be transferred to another person, and the procurator has a legalobligation to explicitly say so when appearing as such. Further, procu-ration can be both individual and collective, which means that it canbe granted to a few natural persons. In the collective, or joint procuration,each procurator appears independently when acting as a companyagent, provided that it is not stated that it is a joint procuration. If itis explicitly stated that it is a joint procuration, legal actions of agencytaken by procurators are legally valid only if taken by all the procu-rators together. The legal actions taken in this way are also legallyvalid if taken by a single procurator from the joint procuration, butprovided that there is either previous consent by the other procuratorsor a subsequent approval, which is an act of ratification. When thirdpersons make expressions of will toward an individual procurator,they will have a legal effect for other procurators as well. The existenceof some form of guilt on the part of an individual procurator from thejoint procuration, or knowledge of some legally decisive facts, willhave a legal effect on the procuration principal, regardless of whetherthe other procurators knew about it. The law separately provides thatall changes relating to the procuration must be recorded in the courtregister of companies. Thus it is mandatory to record authorizationsfor alienating or mortgaging real estate, granting special authorizationto sign contracts with the company itself when the second party tothe contract is the procurator himself, joint procuration, procurationfor company branches, procuration recall and granting a new procu-ration, i.e. a change in procurator. Besides, there is the obligation for the procurator to deposit his signature in the court register of companies. The LoC describes two reasons for the cessation of procu-ration: recall by the company, and termination by the procurator. Thereasons also include the procurator’s death, since it cannot be an inheritable category, and loss of business capacity. With respect togranting and withdrawing procuration, the LoC says that these actions are taken by the company itself. In any case, it cannot beclaimed that it is done by the director or the chairman of the board.This will be discussed separately. The LoE decisions are similar tothose in the LoC.191 There are similarities both in individual and joint


procuration192, scope of authority, and restrictions relating to the disposing of and mortgaging of real estate, and the way of grantingand revoking the procuration as well as the obligation to enter theprocuration in the court register of companies.

The LoC’s decision pertaining to granting procuration deserves special discussion. The LoC provides that the procuration is grantedby the company itself. Who in a company would be authorized togrant procuration? This needs to be separately discussed for corpo-rations and partnerships, respectively. In partnerships, the procura-tion is undoubtedly granted by all partners in a general partnership,and by all general partners in a limited partnership. In corporations,we should distinguish situations in the two different types of companies.If it is a limited-liability company, with one member, the situation isirrefutable. The founder and owner grant the procuration, and can doso in two ways. The first way is to grant it during the company foun-dation, through its articles of incorporation. The second way is to doso by a special decision by the founder and owner. Since the LoCstates that the procuration is granted by the company193 in compliancewith the articles of incorporation and statute, the question arises as toin what capacity it is done by the founder of a one-member company.According to the LoC’s sections pertaining to the disposal of property,this is the function of the general meeting. Actually, pursuant to theprovisions in Art. 310 of the LoC, the provisions of this Law on joint-stock companies also apply to a limited-liability company if not otherwise regulated by separate provisions of the law. Since LoC provisions pertaining to the establishment and operations of a limited-liability company say nothing about the issue, provisions regulatingthe establishment and operations of a joint-stock company should beapplied. With respect to the supervisory board authorities,194 theseprovisions provide that the supervisory board makes the decision ondisposing of the assets when approving of the purchase, sales, replacement, lease or other transactions directly or through subsi -diaries, during a business year, in the range of 15%-33% of the bookvalue of the entire assets of a joint-stock company. This decision bythe supervisory board must be unanimous; if not, the decision willbe made at the general meeting. This raises the question of whomakes decisions on disposing of the value of up to 15% of the book


value of the entire assets of a joint-stock company. This authority isheld by the director, or company management, provided there are no restrictions. Solutions encountered in business practice vary. Inone-member companies, its founders are typically its directors, andthe authorities in legal operations are recorded without restrictions. Incompanies where the ownership function is demarcated from themanagement function, restrictions are recorded, always expressed asa monetary value. Such a situation is the most common in large joint-stock companies, where the management function is performed byprofessional managers. These are mostly commercial banks and insurance companies. Decisions about disposing of joint-stock company’s assets of over 33% of the book value of the entire assetsare made at a general meeting. This provision is of an imperative nature, based on the principle of authority hierarchy, and the principlethat a company organ cannot be divested of the defined scope of authorities defined by law. This leads to the logical conclusion that thedecision on granting procuration should be made at the general share-holders’ meeting. Naturally, all this applies to cases where the decisionon granting procuration has not been made during the establishmentof the company. Analogously, and pursuant to the regulations in Art.310, par. 1 of the LoC, these provisions are to be applied to a limited-liability company as well. It means that regardless of whether it is aone-member company or a company with several owners, and regardless of its capital type, the decision is a function of the generalmeeting of an actual company.

12.5. Ban on competing with a company – competition clause

Membership in a company implies that in the course of such a relationcertain business and related activities are banned as such, or are subject to a given kind of approval, in terms of the obligation to provideinformation to an appropriate organ in a company on such an activity.The selection must be made immediately regarding business and otherrelated activities, and the positions held by an individual company member. The positions of individual company members vary


depending on whether it is a corporation or a partnership. There isalso a difference in cases of one-member corporations, and corpora-tions with a few members. The very ban on competition implies thatnatural persons with a given status in a company cannot perform thegiven activities that would be incompatible with the existence of sucha position. The question arises as to whether this circle of personscan be widened to, for example, employees or natural persons who donot have a position or a legal employment status in the company. Another question is whether a certain person is subject to the clauseon the ban on competition if it is provided for by a special legal document. The existence of lex specialis is inevitable in these casesas well, particularly in special forms of organization. Another questionthat arises is that of complying with the ban on revealing a trade secret, and the connection between this legal concept and the clauseon the ban on competition. Due to the possibility of the existence ofpoints of contact between the two legal concepts, trade secrets will beseparately discussed in this section. It will be addressed within thecontext of the ban on competition.

12.5.1. Ban on competition in domestic law

The law has defined the circle of people who, due to their position,are subject to the laws on competition. The LoC identifies them as thefollowing:

a) member of a general partnership,b) general partner in limited partnership.c) a member of a limited-liability company,d) a member of the management in a limited-liability company,e) a member of the supervisory board of a joint-stock company,f) a member of the management in a joint-stock company, andg) procurators.195

These persons are subject to the ban on participating in an activitywhich is, or could be, in competition to the activity of the companywhere they perform one of the entrusted tasks. The enumerated functionsexclude the possibility that they are performed by a person who has:


a) the capacity of an employee in another company who performsthe same or similar activity, or

b) the capacity of an independent entrepreneur.

The LoC mentions the capacity of an employee and the capacity ofan entrepreneur, but from a linguistic viewpoint, there should obviouslybe a conjunction between these two terms, and this ban should applyeither to an employee in another company or to a person who has thecapacity of an independent entrepreneur, provided that the activity ofthis company or enterprise is of the same or a kindred nature com-pared to the former company’s activity. With respect to the specialLoC provisions pertaining to the work and conduct by organs, i.e.members of the supervisory board, the LoC provides for the ban onperforming activities competitive to the activity of a joint-stock company without the provided information and approval by othermembers of the supervisory board.196 Pursuant to Art. 310, the provisions of this article can also be applied to the work of the supervisory board in a limited-liability company, in cases when it isorganized. The LoC starts from the fact that the ban on competitionexists in two situations, as follows:

a) the activity is already competitive, orb) the activity may be competitive.

This means that the legislation includes the effect of this legal concept as early as in the situation when there is a potential threat ofthe banned existence of competition. Strictly viewed, in the narrowestsense of the term, a registered competitive activity in a company orentrepreneur would suffice for the effect of the application of thislegal postulate. We opt for this more narrow and restrictive interpre-tation, where the effect of legal consequences of this legal conceptshould also be viewed in a situation where there is a potential threatof the occurrence of harmful consequences. In case of damage, itsvalue will be estimated depending on the factual circumstances ofeach actual case. The duration of the ban pertains to the entire timeperiod of performing some of the enumerated functions, or the existenceof some of the capacities, although the ban can also be prescribed fora longer duration. In order to allow reference to this longer duration,


it should be defined by the company’s articles of incorporation orstatute.197 This duration can be no longer than two years after the cessation of a given capacity. This norm is of an imperative nature,so that the duration can be determined for a shorter, but not a longertime period. Defining a period longer than two years would have nolegal effect. If its duration of the scope is not determined as longer bythe articles of incorporation or statute, the norm is to be viewed in itsnarrowest meaning, and pertains only to the period when some of theenumerated capacities exist. At this point, the question as to whetherit is allowed to widen the circle of people the ban applies to can bediscussed.


ChapterENTERING BUSINESS ENTITIES INTO THECOURT REGISTER13

13.1. Data for the court register13.2. Procedure for filing with the court register

Chapter 13

ENTERING BUSINESS ENTITIES INTO THE COURT REGISTER

Subjects of entry into the court register include all business entitiesthat are obligated to do so by entity laws and those of the Brcko District.198 According to the FLoRBE, the following entities are entered into the register: all forms of companies and their associations,public enterprises, institutions with public authority, establishments,public corporations, business associations, co-operatives, co-operativealliances and other entities as defined by a separate law in the FederationB&H.199 Similar definitions can be found in the legislation of boththe RS and Brcko District. This means that registration is obligatoryfor all the business entities that appear in legal and business operations,as well as entities with so-called public authority, such as school establishments, state institutes, agencies, etc. The very act of registrationleads to the fact that the business entity has obtained the possibilityto appear in legal and business, i.e. economic, operations as described.Naturally, other prerequisites are also necessary, but entry into thecourt register can be considered the first instance of a company acquiring a legal and business capacity.

13.1. Data for the court register

Data entered in the court register are dealt with by both the LoC and LoE, and by the LoRBE and the FLoRBE. In cases of doubt ordifferences in regulations, the LoRBE is to be considered the lex specialis, although it must be in accordance with the FLoRBE’sregulations. LoRBE and FLoRBE regulations are identical. The registration court can require only the information determined by thelaw. No other proof beyond this can be required. Entity regulations in

Chapter 13 ENTERING BUSINESS ENTITIES INTO THE COURT REGISTER 183

this field are in full accordance. The data are classified as either general or specific. They are the same for both entities. The generaldata include:

a) firm and seat, i.e. full name and seat of all the founders/ownersof the subject of entry;

b) object of entry;c) firm and seat of the subject of entry;d) abbreviated name of firm / subject of entry;e) RNS, taxation and identification number;f) form of the subject of entry;g) full name and position of the authorized representative/agent of

the subject of entry;h) extent of authorities of the representative/agent of the subject of

entry;i) amount of agreed (subscribed) equity;j) amount of the capital paid in cash;k) amount of the capital in things and rights;l) percentage of participation of each individual founder in the

capital of subject of entry (in cash, things and rights);m) the business activity of the subject of entry, along with codes for

business activity groups, provided for in the valid classificationof business activities.

The data include specific data that must be entered into the court register, including data on the parts of a company, mutually relatedsubjects of entry, and status changes, i.e. changes in the general or special data important for legal operations. As such, special data include: branches or the business units of the subject of entry; ties toa subsidiary; the merger (by formation of a new company) betweentwo or more subjects of entry; merger by absorption of one or moresubjects of entry to another subject of entry; divisions of subjects ofentry into two or more subjects of entry; changes in the form of thesubject of entry, and cessation of the subject of entry.

Registration of a branch, as part of a company, requires registeringinto the court register the following obligatory special data: firm and


seat of branch or business unit of the subject of entry; activity of thebranch or business unit of the subject of entry; name, number anddate of the document on the establishment of the branch or businessunit of the subject of entry, and the full name of the person authorizedfor representing the branch or business unit of the subject of entry.

Special data are required for subsidiaries as well: status changes ofmergers by formation of a new company, mergers by absorption anddivisions of the subjects of entry and the registration of cessation/removal of the subject of entry. These are the data that will allow forthe easy identification and linking of the subjects being registeredand subjects being removed from the court register. These data arenecessary, since the new legal successor to the obligations and rightsof a company that ceases to exist should be known. This is also necessary for the sake of protecting and informing third conscientiousparties when entering legal and business operations. It is also a rulethat everyone who relies on the data entered in public registries whenacting in legal operations cannot be liable for any resulting damage.

For the existence of general and special data on registration in thecourt register to be proven, they must be documented appropriately.These documents, in turn, are called registration documents. Theymainly include, for natural persons, identification documents; whenproving the existence of equity they include a certificate by com-mercial bank; when establishing joint-stock companies they includethe appropriate decision by the Securities Commission. They also include the statute of the subject of entry and the appropriate decisionson the appointments of authorized persons for representation in domestic and international operations. Additional and special documentsare required for special forms of organization. This pertains to joint-stock companies; banks or other financial organizations; joint-stockinsurance companies; public enterprises; enterprises with public authority; business associations; co-operatives and co-operative alliances, and a special entry, i.e. the entry of the highest commercialpower of procuration. FLoRBE provisions specify the proofs required,which in turn depend on the type of subject and requirements resultingfrom lex specialis.200


Special documents are also necessary for registering a change in datasignificant for legal operations. This is extremely important due tothe protection of creditors’ and conscientious third parties’ interests.These data are as follows: change of firm, seat of the subject of entry,activity of the subject of entry, persons authorized for representationin domestic and international operations, and change of founders.Non-registration or delayed registration of these changes can havedamaging consequences for conscientious third parties, creditors inparticular. The persons in charge of the company itself are responsiblefor recording the listed changes in a timely manner. It happens quitefrequently that changes in status issues significant for a business’operations are not recorded and registered in a timely manner. Thisleads to discrepancies between the actual and formally registeredsituations. Besides the listed requirements, it is also necessary torecord and register the following changes: increase and decrease in a joint-stock company’s equity; increase and decrease in a limited liability company’s equity; payment of the remaining part of subscribed equity, as well as initiation and cessation of membership.

As a separate obligation in registering the necessary data, the LoC201

provides for the registration of identification information on members,contributions and liability for the obligations of the company withregard to interest and shares in the company. These include the following:

a) full name and address of residence, or firm and address of seat,of the members of a general partnership, limited partnership andlimited liability company;

b) amount of agreed (subscribed) and paid-in equity of a joint-stockcompany and limited liability company;

c) amount of agreed (subscribed) and paid-in contributions of thelimited partners in a limited partnership or members of a limitedliability company;

d) total number and amounts of membership interests, expressedin percentage of participation in equity for each member of thelimited liability company, and

e) a symbol for class, number and nominal value of joint-stockcompany shares, by classes.


The listed data could be required additionally for registration, but thequestion of rationale arises. Without dealing with the need to registerthese data, which arose in the amendments to the LoC, their purposefor the LoRBE and the FLoRBE is not clear, particularly when oneconsiders that LoC itself provides for regulating the procedure forbeing entered into the court register by a separate law, and regulationsissued based on the law. We believe that these provisions are redun-dant, and find particularly unclear the rationale for the provision thatdictates recording limited partners as secret members of a limitedpartnership. Such a solution departs from comparative law solutions.In addition, the LoC prescribes the obligation for entry into the courtregister at the start of a company’s liquidation or bankruptcy proceeding, including the full name and residence address of thetrustee in liquidation or bankruptcy, and the date of termination orcompletion of the procedure. This is a necessary notifying entrywhich, in accordance with the provisions of the Law on BankruptcyProcedure (LoBP) and the Law on Liquidation Procedure (LoLP),requires recording all the data from decisions on opening these procedures in all the registries, including the court register of companies.In this case, the purpose of this entry is to inform creditors and protect the interests of conscientious third parties. When observingthese LoC provisions, one can say that they are out of context and, assuch, unnecessary. In future revisions to the law they should bedeleted, as they only create confusion.

What is considered substantial and what should be an integral part ofthe law pertaining to the court register is the provision regulatingwhen an application for registration of a company will be rejected.These are the following cases:

a) invalidity of a founding document;b) if before applying for registration of the establishment of a com-

pany in the court register contributions in the amount determinedin the founding document have not been paid, as by law;

c) if the activity or goal of operations is against the law;d) if the company founders cannot found a company according to

the law;


e) if the founder is a majority owner in a company that has outstanding due obligations to creditors, or outstanding taxes;

f) if the founder or one of founders is a member of an existing gen-eral partnership, or a general partner in a limited partnership;

g) if the founder or one of founders is the only member of a limitedliability company that is undergoing a bankruptcy or liquidationprocedure, or if a claim has been filed against the company byone or more creditors whose outstanding and unpaid claims surpass half of the company’s equity.202

In addition, the law introduces the obligation for courts, administrativebodies and other institutions that are authorized by law to performsupervision over the establishment and/or operations of companies,issuance and trading in securities, to urgently notify the court register,in writing, of any knowledge gained while executing their authoriza-tions that has cast a doubt on the completeness and accuracy of thedata and documents filed with the court register.203 The reach of theprovisions of the previous two articles should be brought into the context of how they are observed in practice, i.e. to what degree theycan be implemented and controlled. Some cases, such as unpaid fiscal obligations or initiated bankruptcy or liquidation procedure,can indisputably be documented by enclosing the appropriate certificates,while other individual cases listed above are hardly provable, i.e. applicable. A line from Art. 60 of the LoC illustrates this irrationality.If you have an equity of 2,000.00 BAM in a limited liability companyand are involved in a business litigation whose value exceeds1,000.00 BAM, you would be prevented from establishing anothercompany.

13.2. Procedure for filing with the court register

The registration procedure is conducted by municipal courts whichhave subject-matter jurisdiction. The decision is made by a singlejudge. Territorial jurisdiction is determined depending on the proposedseat of the company. The Framework Law on the Registration ofBusiness Entities in Bosnia and Herzegovina only provides the basicsof implementing the registration procedure, while detailed provisions


can be found in entity laws and those of the Brcko District. LoRBEprescribes that the founder of a business entity submits the applicationin person or through an authorized representative/agent i.e. attorney.Applications for registration can also be submitted online, if it is possible to submit and check the electronic signature.204 This is thequalified electronic signature or the so-called secure electronic signature, as named by legislation.205 The implementation of theseprovisions awaits the establishment of accredited institutions for issuing secure electronic signatures and the courts’ capacity to useappropriate information technology to process electronic applications.Private and public institutions accredited with the Institute of Accreditation of Bosnia and Herzegovina are in charge of this procedure of certification.206 The applicant him/herself is personallyresponsible for the veracity of the data presented in the application.207

The applicant can withdraw the application any time before a validdecision has been issued; in this case, the registration court terminatesany further procedure. The application itself can be filed with anyregistration court, and it must be forwarded to the competent regis-tration court, i.e. the local court of the applicant’s seat. If the subjectof entry includes the operations of one or more branches, i.e. parts ofa company the seat of which is within the territory of another regis-tration court, the competent organ is the registration court where thecompany itself is registered. A change in seat in the way previouslydescribed leads to a change in the territorial jurisdiction of the registration court.

Due to frequent abuses in the procedure of business registration, particularly with so-called phantom or non-existent firms, we mustwelcome the introduction of legal requirements for the registrationcourt to check the identity of the applicant or founder. The registra-tion court is obligated to accept the application, but not to process itbefore conducting the described check. Besides the check of the applicant’s identity, the court checks the exclusivity of the firm — sub-ject of entry and the payment of stamp duty. The applicant’s identityis checked based on a valid ID or travel document. With respect to theexclusivity principle, its reach pertains to the already described case,when two or more companies involved in the same or similar activityare registered in the area of the same registration court, under the


same or a similar firm.208 The full identity of companies is an ex legeobstacle for continuing the procedure, and the court is obliged to request the company change its name. These court competencies arelimited only to the territory of each municipal court, and will hopefullybe extended throughout all of the territory of B&H by means of IT.

In further registration procedures, the registration court examines theexistence of formal and material prerequisites for registration. Theformal prerequisites are the following: that the application was submitted by an authorized person; that the application was submittedin the prescribed form and signed by the applicant; that all the required documents were enclosed within the application, and thatthe accepted documents have the proper content and were issuedthrough the appropriate procedure.

With respect to material prerequisites, the legislation requires the registration application be in accordance with the law and other regulations determining the obligation of entering defined data.Within no more than three days, the registration court has to check thevalidity of the submitted application and all the necessary proofs thathave been enclosed. If there are any deficiencies, the court has togrant an additional 30-day deadline for making the required corrections.Pursuant to the principle of formality and truthfulness, the court examines the application without hearing. The hearing is scheduledonly in case there is doubt as to the veracity of certain data.

The registration court issues decisions in the form of orders and decisions. Orders govern issues of a procedural nature, while decisionsconcern meritum, i.e. acceptance of the application and its registrationor rejection. Naturally, the decision also rules on all later changes tothe data related to the status of the already entered, i.e. registered,company. The application can be rejected only in cases provided forby the law and within its reach. With respect to procedural rules, thereis no possibility for a suspension of proceedings, nor restitutio in integrum.209 The FLoRBE further prohibits the revision and repetitionof procedure on an already valid decision. If the law itself does notregulate certain issues, provisions of the law regulating litigation procedure will be applied.


With respect to legal remedies, interested parties can file an appeal tothe decision on registration within eight days, starting from the dayof receiving the decision. Interested parties include subjects of entrythemselves, as well as any legal or natural person having some legalinterest. Upon the filed appeal, the competent registration court canagree with the appeal if they establish that it is grounded, and resolvethe case in another way. The competent registration court can alsodismiss the appeal if they establish that it is overdue, or incomplete,or is not allowed. If the court of original jurisdiction dismisses theappeal, it is forwarded to the court of appeal, i.e. cantonal courts inthe Federation of B&H.

The registration court’s decisions are altered when the court has misjudged the validity of enclosed documents, misinterpreted the presented facts, or interpreted facts correctly but applied the materialregulation incorrectly. The decision becomes valid and the registrationinto the court register is made only upon the decision by the court ofsecondary jurisdiction, if the appeal is resolved, i.e. case is not returned to the registration court for re-examination.

The procedure of removal from the court register is a separate one.The registration court is in charge of this procedure as well, and anyone with a legal interest can apply. An application can be submitted within 15 days of learning about the entry and no longerthan 90 days from the day of the publication of the decision in the Official Gazette of the Federation of B&H. The removal can also bemade ex officio. The registration court is obligated to deliver all thedecisions on registration, changes of data in the register, and removalfrom the company register to:

a) Indirect Taxation Authority;b) municipality and canton according to the seat of the subject of

entry;c) Bureau of Statistics;d) Chamber of Commerce;e) Pension and Disability Insurance Agency according to the seat

of the subject of entry;


f) relevant customs administration if the subject of entry is regis-tered in foreign trade operations, and

g) relevant regulatory bodies for special forms of organization, suchas the Securities Commission and the Registry of Securities forjoint-stock companies, the Banking Agency for commercialbanks, and the Insurance Supervisory Agency for insurance companies.

The introduction of this obligation creates prerequisites for developinga single database of all business entities registered on B&H territory.We believe that the obligation of submitting the decision on registrationto the Indirect Taxation Authority should be particularly singled outand welcomed, both from the aspect of records and from the aspectof efficient collection of fiscal duties from companies.

The deadline for issuing a decision on company registration is fivedays starting from the day of submitting proper and documented application. If there are certain deficiencies, the registration courtuses an order to order the subject of entry to remove them, and shalldismiss the registration if the latter does not comply.


Chapter FORMS OF BUSINESSCESSATION14

14.1. Bankruptcy as a form of business cessation14.2. Bankruptcy law and its effects14.3. Debtor in bankruptcy, creditors

in bankruptcy and bankruptcy proceedings14.4. Organs for conducting bankruptcy proceedings14.5. Introduction — reorganization

plan in bankruptcy proceedings 14.6. Preparation of debtor’s reorganization14.7. Voluntary liquidation as a form

of business cessation14.8. Other forms of business cessation 14.9. New bankruptcy legislation in B&H

Chapter 14

FORMS OF BUSINESS CESSATION

Business cessation is an unavoidable occurrence in a company’s workand operations. The subject matter of business cessation involves fourkinds of regulations. Above all, there is the fundamental Law onCompanies, i.e. regulations on both company establishment and op-erations and the major reasons and ways in which companies maycease to exist. It is followed by special regulations for individualforms of organizing, including the Law on Banks, the Law on InsuranceCompanies in Private Insurance, and the Law on Investment Funds.The third group of regulations includes those that regulate this subject matter in the most thorough way. These are: the Law on Bankruptcy Procedure and the Law on Liquidation Procedure, whichare examples of lex specialis. Finally, there are special laws that areused as supplements in bankruptcy proceedings: the Law on LitigationProcedure and the Law on Enforcement Procedure. Besides bank-ruptcy and voluntary liquidation, the forms of cessation also includestatus changes, which are forms of business cessation in a conditionalsense. Why conditional? Because in this form of business cessation,rules pertaining to bankruptcy and voluntary liquidation are not applied, but are rather replaced by rules pertaining to universal succession. Since the latter are a subject of a separate discussion,these forms of business cessation will be presented separately.

14.1. Bankruptcy as a form of business cessation

The passing of the new Law on Bankruptcy Procedure and the Lawon Liquidation Procedure in Bosnia and Herzegovina and in the Federation of B&H brought about changes in the field of bankruptcyand liquidation law, which will in turn require substantial changes ineconomic life, judiciary and numerous other institutions that in-

Chapter 14 FORMS OF BUSINESS CESSATION 195

evitably accompany the normal course of economic flows. The prepa-ration of these laws was also followed by appropriate amendments to,or adoption of, new laws in the field of litigation and enforcementprocedure, since these are legal disciplines the rules of which are applied as supplements in the field of bankruptcy law. One of theaims of all these changes is the increased efficiency in conductingbankruptcy, and adjusting local legislation to the requirements of international institutions and integrations, which in turn is a prere -quisite for B&H EU accession and integration. Due to discrepanciesbetween the previous Law on Bankruptcy and Liquidation and theregulations of the LoC, certain amendments to the LoC were made aswell, particularly provisions concerning the process pertaining to theconduct of company liquidation. The LoC was amended for otherreasons as well.

There are no special rules in the European Union pertaining to bank-ruptcy proceedings, and member states are thus given a relativelyhigh degree of legislative independence, as opposed to some otherareas regulated by Community Law directives. In the CommunityLaw, bankruptcy is regulated with the EU Insolvency Regulationwhich deals with issues of court jurisdiction and the recognition of insolvency procedures in some of the EU member states.210 The lawof the member state where the respective bankruptcy proceedingswere opened — lex concursus211 is given precedence. This Regulationdoes not treat bankruptcy proceedings in a uniform way. The reasonfor this is the fact that there are significant differences among themember states’ laws. The European legal system is believed to include54 different types of bankruptcy procedures, which prompted theEU’s formation of a special working group which concluded that national bankruptcy-law documents do not contain sufficient commonbases that would justify uniform regulation on the subject matter ofbankruptcy law. The special working group drew up the Principlesof European Insolvency Law, which provide the foundation for theappropriate degree of harmonization of EU countries’ bankruptcylaws. We will describe some basic postulates of the harmonized rulesof bankruptcy law. Insolvency proceedings should be a combinationof the debtor’s general execution and reorganization, whereby the judicial proceedings must be conducted in a suitable way and must be


open to the public. The insolvency proceedings are supervised bycompetent judicial authorities pursuant to national regulations, andare conducted by bankruptcy administrators, who must be independentand impartial. Administrators are empowered to manage and disposeof the debtor’s assets. With respect to the debtor’s assets, they includeassets belonging to the debtor at the opening of the proceedings, aswell as those acquired in the course of the proceedings. With respectto the individual legal effects of opening the insolvency proceedings,they range in accordance with classic regulations that already existwithin individual national legal systems. Certain legal actions under -taken by the debtor within a certain time period before the opening ofthe proceedings can be subject to annulment. These are the so-calledvoidable legal actions aimed either at defrauding some creditors or favoring some of them. Special rules pertain to the reorganizationplan, which can be presented by the debtor or the administrator. Persons affected by the opening of the proceedings, i.e. creditors inbankruptcy, must declare their opinion on the reorganization plan.Upon being approved by vote, the reorganization plan must be approved by the court, and it binds all persons involved in the bank-ruptcy proceedings. If the reorganization plan is not presented or approved by vote, the bankruptcy proceedings are closed by sales,i.e. converting the debtor’s assets into money in order to pay creditors.The debtor may be allowed to manage and dispose of the assets, sellingthem off himself, although under supervision.

The scope of this regulation is limited. It is applicable only if thedebtor’s registered office is within the territory of the EU. In othercases, the regulation does not have the direct application effect, andnational legal regulations will be applied instead. However, if a companyheavily in debt has a subsidiary in one of the EU member states, rulesfrom the regulation will not apply. Actually, rules from the regulationpertain only to bankruptcy proceedings conducted over the debtor.The regulation does not treat rules pertaining to the so-called con-solidated bankruptcy proceedings. Further, the regulation is appliedto the so-called collective bankruptcy proceedings. This term impliesmore than one set of proceedings conducted within larger proceedings,i.e. bankruptcy proceedings. The regulation limitations are also related to the entities it applies to. Thus, the regulation does not apply


to bankruptcy proceedings conducted over commercial banks, insurancecompanies and investment ventures. With respect to the recognitionof its enforceability, the regulation refers to rules pertaining to therules of the Brussels Convention on Jurisdiction and the Enforcementof Judgments in Civil and Commercial Matters. In cases when bank-ruptcy proceedings rules are applied pursuant to the regulation, threekinds of proceedings are possible. These are:

a) main proceeding,b) secondary proceeding, andc) territorial proceeding.

The main proceeding itself can be opened in an EU member statewhere the debtor has its centre of business interests. The centre ofbusiness interests can be defined as a centre where the company’s office is registered, or as a location where the company’s managementis seated. In the case of the main proceedings, legal effects must berecognized in all the member states. Secondary proceedings can beopened in any territory where the debtor has a registered branch. Territorial proceedings are those that are opened toward a branchprior to the opening of the main bankruptcy proceedings. With respect to the recognition of decisions passed in the bankruptcy proceedings by a court of an EU member country that is competentpursuant to the regulation, they will be recognized in all the memberstates from the moment they become valid pursuant to the rules ofthe country where the bankruptcy proceedings were opened. Specialrules pertaining to individual actual situations apply to the choice ofapplicable law pertaining to the conduct of individual bankruptcyproceedings. This subject matter is also combined with the rules of international private law. Based on the above, it is completely reasonable to believe that the scope of the regulation will be morenoticeable in the future, particularly due to the fact that an increasingnumber of business entities operate in two or more EU member states.This is particularly evident in cases of establishing branches or sub-sidiaries. In a nutshell, the number of bankruptcy proceedings associatedwith the territory of a single country is decreasing. In legal terms,conducting bankruptcy proceedings over the assets of a debtor that issituated within the territory of two or more EU member states makes


it more complex to enforce, and inevitably requires interdisciplinarityand the inclusion of postulates from more than one legal discipline.

14.2. Bankruptcy law and its effects

Bankruptcy law is a complex legal category, since it includes legalnorms and concepts of a few legal disciplines and branches of law.Besides the norms of substantive law, it contains norms of a proce-dural character, which are included solely within the bankruptcy law.Since special procedural rules, within the bankruptcy law, do not suffice, the provisions of litigation and enforcement procedure, againas separate legal disciplines, are applied as supplements within bank-ruptcy law. In addition, we encounter the application of legal regula-tions pertaining to company establishment and operations, as well asfinancial regulations. These are only some of the reasons behind thefact that bankruptcy law is one of the most complex legal disciplines,inevitably involving economic disciplines as well. Fairly frequently,this subject matter encroaches on the sphere of criminal law, since ina number of cases bankruptcy is due to various forms of illegal actions. Bankruptcy proceedings themselves require the skills andprofessionalism of both the bankruptcy court and all the other subjectsinvolved in the bankruptcy proceedings. They include, above all, thetrustee in bankruptcy and permanent court experts, as well as employees commissioned by the trustee in order to complete thebankruptcy proceedings.

Bankruptcy itself is a form of so-called general enforcement over theassets of a debtor in bankruptcy, who is unable to pay debts, within atime period set down by law, and aimed at paying the outstandingdebts to creditors, in a manner pursuant to the procedure provided forby law. Bankruptcy can be viewed as a consequence of a long-lastinginsolvency, i.e. inability to pay, which is the reason why a businessentity could not settle its obligations, which in turn can be varied andconcern various entities.212 Bankruptcy should be distinguished fromthe enforcement procedure, since enforcement procedure involvesenforcement only on the part of a debtor’s assets and is aimed at settling a defined outstanding debt. Enforcement does not affect the


further operations and survival of the company as a legal person, i.e.a subject of the law. Bankruptcy is conducted when a heavily indebted business entity can no longer perform its business functionat all, while enforcement is conducted in the case of an enforced collection of a defined claim within regular business operations.

Bankruptcy should also be distinguished from liquidation proceedings,since these two terms are frequently confused both in everydayspeech and in practice. Liquidation is a way of ceasing a company’soperations and existence where the issue of payment to creditors isnot involved. In the case of liquidation, the estimated value of thebusiness entity’s assets is higher than the creditors’ claims. If it turnsout, during a company’s liquidation, that its assets cannot settle theclaims, the procedure will proceed pursuant to rules pertaining tobankruptcy. Thus, liquidation is conducted for other reasons, definedby law, and does not involve the issue of an inability to pay, i.e. thebusiness entity’s heavy indebtedness. This was one of the reasons forseparating the subject matter of bankruptcy from the subject matterof liquidation into two separate legal projects.

With respect to the legal and economic effects of the bankruptcyand/or liquidation of a company, the end goal is the sale of the entireassets of the debtor or entity under liquidation, respectively, in orderto repay creditors in the former case, and, in the latter, to repay creditorsand give the rest of the assets to the entity’s owner(s). Both proce-dures are aimed at the cessation of a legal person’s existence, wherebyit is struck from the court register upon their closure. The aim ofbankruptcy proceedings is to remove, from economic and legal operations, insolvent and heavily indebted companies that do notcomply with financial discipline in their business activities, and thatdo not settle their financial liabilities on a regular basis. By its insol-vency and failure to meet outstanding debts, the debtor damages otherentities, i.e. its creditors. Bankruptcy proceedings are conducted inorder to indemnify creditors, and for them to be repaid collectivelyand proportionally from the bankruptcy estate. In the course of bank-ruptcy proceedings, it is also possible to conduct the debtor’s restructuring in order to maintain its operations, with the creditors’consent.213 In the case of bankruptcy, the economic effects themselves


are reflected in the sales of the entire assets of the heavily indebtedand insolvent debtor, and collection of its possible claims in order torepay creditors through payment ranks defined by law. The economicgoal of liquidation is also the sales of a company’s assets in order tosettle possible creditors’ claims. Pursuant to enforcement procedurerules, the subject of sales does not have to be the entire assets of thesubject of liquidation, and the scope of enforcement will depend onthe value of assets against outstanding claims. If a part of the assetsremains, it will be assigned to the founders, i.e. owners of the companybeing liquidated. Separate substantive rules pertaining to the conductof liquidation proceeding are set down for each individual form ofthe company by LoC provisions; thus, provisions of the LoC are alsoapplied as supplements with respect to reasons or grounds for con-ducting liquidation proceedings.

14.3. Debtor in bankruptcy, creditors in bankruptcy and bankruptcy proceedings

The law defines a debtor as a legal person whose assets are the subjectof bankruptcy proceedings, or as an individual debtor which, in turn,implies a general partner in a limited partnership or members of ageneral partnership. According to the LoC’s terminology, these wouldinclude all four forms of companies, as well as other forms of organization (e.g. various forms of cooperatives, traders, etc.) regis-tered in the legal person’s capacity pursuant to special regulations. A debtor in bankruptcy used to be defined as an enterprise and another legal person involved in a registered business activity withinthe territory of the Federation B&H, according to the standard classification of activities. The concept of debtor in bankruptcy isnow obviously defined in a broader way, particularly since the intro-duction of the novelty that bankruptcy can also be conducted overpublic corporations i.e. public enterprises. Bankruptcy proceedingscannot be conducted over the assets of the Federation of B&H, munici -palities, cities and public funds that are partly or fully financed fromthe state budget. The above-cited definition of entities that cannot besubjects of bankruptcy proceedings should also include Cantons in


the Federation of B&H. With respect to the relationship toward thedebtor that manufactures armament and military equipment, theseproceedings require previous approval by the Federal Ministry of Defence. By amendments to the bankruptcy legislation and the reform of defence forces carried out in Bosnia and Herzegovina, thisauthority was transferred to the relevant entity ministries. In the Federation of B&H it is the Ministry of Energy, Industry and Mining.Approval not granted within 30 days from receiving the notice by thebankruptcy judge will be considered a granted approval. A separatedefinition applies to the situation when the Federal Ministry of Defence, or Ministry of Energy, Industry and Mining declines to grantapproval. In this case, it is the Federation of B&H that is jointly andseverally liable for the debtor’s liabilities. It is a legal form of jointand several liability introduced pursuant to a separate regulation, theLaw on Bankruptcy Procedure (LoBP). This regulation is derivedfrom previous legislation, the only change being that bankruptcy proceedings required the approval by the relevant federal ministry inthe previous legislation, while this liability is now transferred to theappointed official. Changes in the LoBP, within the reform of theB&H defence forces, transferred this right to the Federal Ministry ofEnergy, Industry and Mining. Regardless of the form of the organi-zation of the debtor, the bankruptcy proceedings will be conductedpursuant to enforcement procedure rules, i.e. pursuant to provisionsof the Law on Enforcement Procedure (LoEP) in terms of the sellingof assets. With respect to other legal entities that could be subject tobankruptcy proceedings, we can provide the information that therewas an initiative for the bankruptcy proceedings to be conducted overheavily indebted natural persons as well. This is the achievement ofregulations in modern bankruptcy legislation. This initiative has notbeen adopted at this stage.

The debtor’s inability to pay, as well as the so-called threatening inability to pay, is taken as the reason for opening the bankruptcy proceedings. Inability to pay exists when the debtor is unable to settle its outstanding financial liabilities within the uninterrupted duration of thirty days. Threatening inability to pay exists when, according to predictions, the debtor will not be able to settle its liabilities as they become due. For this reason, it is only the debtorwho can initiate the bankruptcy proceedings.


We can see that a novelty in the LoBP is the broader circle of entitiesthat can be subject to bankruptcy proceedings. There was an initiativeand suggestion by the participants in the drafting of the LoBP towiden the circle of debtors in bankruptcy to natural persons or indi-viduals. This is a special legal regulation known in market economycountries, which has its historical tradition in the institution of thedebtors’ prison. It was concluded that such a solution would be pre-mature and therefore it was not included in the LoBP draft. It wouldhave included the sale of the property of the heavily indebted naturalperson who is unable to pay his/her outstanding debts incurred in different ways. In our law, this problem is resolved by enforcementprocedure rules, based on valid court judgments, or other documentswith the capacity of an enforceable document. However, what hasbeen introduced as a novelty is a regulation in the LoBP stating thatupon the closure of the bankruptcy proceedings, creditors can asserttheir remaining claims toward the individual debtor pursuant to thegeneral rules of civil law. This allows founders, i.e. owners, to besued in order to use seizure of their private property for settling creditors’claims. This possibility existed even before, and its implementationwas allowed by the provision in Article 6 of the LoC, which constitutesa kind of piercing of the corporate veil, and can be used for enforcementon the private property of company owners. It is unknown whetherthis regulation has ever been used in our judicial practice before. Thenew LoBP regulation opens the possibility for the implementation ofthis legal institution, the more so since it specifically defines whatthe concept of the so-called ‘associated person’ implies. Besides, thelaw has preserved the possibility to refute debtor’s legal actions detri-mental to creditors, or performed in order to favour individual cred-itors. The time limit for performing voidable actions for disposalwithout indemnity or with minimum indemnity has been prolongedto five years retroactive from the day of submitting the proposal foropening bankruptcy proceedings. The new regulation in the LoBPpertaining to enforcement on the property of a general partner in alimited partnership and member of a general partnership is actuallyonly an additional clarification of the application of LoC regulationspertaining to the property liability of owners in partnerships. Com-parable legal systems have similar regulations, in that they makepartners liable for company obligations with their entire property,


including that not brought into the company, i.e. jointly and severally.The joint property of spouses is exempt from this form of liability, except if the spouse agreed for this property to be the subject of enforcement, or if the spouse him/herself is a member of such a company.With respect to the scope of enforcement over private property notbrought into a partnership, or a special kind of partnership, these limits and rules are defined by the rules of enforcement procedure, i.e.determined through the LoEP. These would include the application ofthe principle of sociality so that the debtor, as a natural person, couldkeep a certain level of money income and property sufficient for hissupport and the support of his family. All these are cases of the legaleffect of special legal regulations, so that each of them deserves aseparate elaboration.

Persons authorized to apply for opening bankruptcy proceedings caninclude the debtor in bankruptcy and any debtor’s creditor that has alegal interest in the bankruptcy proceedings. The proposal for openingbankruptcy proceedings has to be submitted in writing with the appropriate explanation, i.e. the submission of appropriate evidence.This was preserved from a previous law, which is not practical sincethis circle should be expanded to other entities that have and expressed legal and economic interest in the bankruptcy proceedingsover the indebted company. These would above all include appropriatecompetent state bodies such as the revenue administration, financialpolice, other bodies authorized to control the legality of operations,e.g. the Securities Commission in the case of joint-stock companies,and commercial banks that deal with payments. There is no valid reasonfor the court not to accept an initiative, i.e. proposal, by these bodiesfor opening bankruptcy proceedings, particularly when they seemjustified.

In the new law, as in the previous one, creditors in bankruptcy include only the creditors who lodge their claims in writing within alegally determined time period. The lodgement of the claim has toinclude the identification data for the creditor, the legal basis and theamount of the lodged claim, as well as the number of the creditor’stransaction account. Claims in foreign currency have to be reportedin the local currency. This provision, which was present before as


well, is aimed at a more consistent implementation of the principle ofmonetary nominalism and at regulating liabilities pertaining to thecurrency to be collected in the bankruptcy proceedings in cases of international bankruptcies, or in cases when the bankruptcy pro-ceedings involve enforcement of recognized court judgments and enforceable titles coming from another country. The novelty includesthe obligation of the interim trustee to meet the employees’ claimsand contributions, but only if the employees remained with the company. The effect of this provision in terms of the previous employees’ rights is limited, since the claims due under the contractof employment and lodged by the debtor’s employees who did notstay with the company are met for the past eight months at most, upto the day of the opening of the bankruptcy proceedings, but only atthe level of the minimum wage determined by law. The effect of thisprovision is limited, in that claims originating from the period of interim administration are paid before these employees. Besides, theso-called bankruptcy estate creditors from the period of the bankruptcyproceedings should also be paid before this category of employees,regardless of the fact that the latter are classified as creditors of higherpayment ranks. This is because, as in the previous law, bankruptcy es-tate creditors are the first to be paid and these, in turn, include thecosts of the bankruptcy proceedings and bankruptcy estate debts. Inthe further procedure of lodging claims, creditors with rights of exemption and rights to separate satisfaction are registered separately,since they have separate positions pursuant to the new law. The LoBPregulations pertaining to the two creditor categories are lessfavourable compared to the previous legislation. All the lodgedclaims are entered into a special table, which — together with lodge-ments and documents — represents an official document displayed onthe court premises and submitted for review to all participants at leasteight days prior to the hearing for examining claims. The LoBP alsoprovides for the possibility of the subsequent submission of claims,provided that the trustee proposes it. Actually, the information onopening the bankruptcy is not available to a certain circle of creditorsat any given point of time, and this solution was thus adopted forpractical reasons. Subsequent submissions would include all thelodgements that are justified in cases when a possible creditor was unable to lodge their justified claim in due time. If a certain lodged


claim is disputed at the examination hearing, the creditor is directedto litigation in order to establish the disputed claim. A bankruptcy estate can be distributed only after the decision establishing claimsand their payment ranking has come into effect. The only exceptionallowed is that the trustee can perform partial distributions, upon hisown estimate, but not towards creditors of lower payment ranks. Theintroduction of the new regulation pertaining to payment ranks willbe discussed separately.

Since separate regulation of international bankruptcy is a special novelty in the LoBP, it should be noted that, pursuant to regulations,the bankruptcy court in jurisdiction in the Federation of B&H is com-petent exclusively for conducting bankruptcy proceedings against adebtor with the registered office within the territory of the FederationB&H. If it has been proven that the centre of the debtor’s businessactivity is abroad, and that their office is registered in FB&H, thecourt in FB&H will be competent for conducting the bankruptcy proceedings if, pursuant to the law of the country where the debtor isactually headquartered, the bankruptcy proceedings cannot be openedon these grounds. In the reverse case, when the debtor’s office is registered abroad and the centre of their business activity is in FB&H,the bankruptcy court that has territorial jurisdiction is exclusively theone in the jurisdiction of which the centre of the debtor’s businessactivity is situated. The aforementioned novelty in the new bank-ruptcy legislation is that the bankruptcy council as a mandatory organin conducting bankruptcy proceedings is abolished, and replaced bythe creditors’ meeting as a mandatory organ in these kinds of proceedings. The bankruptcy council of the court that has subject-matter jurisdiction used to be a mandatory state organ, while the cred-itors’ meeting, i.e. the board of creditors, used to be an optional organ.It means that one of the basic principles of bankruptcy law has beenpreserved, i.e. that bankruptcy proceedings are conducted by non-judicial bodies as well, in this case the trustee, the creditors’ meetingand the board of creditors. In previous legislation, the relationshipbetween judicial and non-judicial bodies for bankruptcy proceedingswere of a hierarchical nature, although every body in the bankruptcyproceedings had the authority set down for it by law. The very existenceof the bankruptcy council had its rationale, particularly in the use of


procedural rules and rules pertaining to appellation procedure againstdecisions of the bankruptcy judge. Pursuant to the LoBP, except forthe trustee, whose work is legally supervised by the bankruptcy judge,the relationship between bodies in bankruptcy proceedings is not ofa hierarchical nature. The authority of each body in the bankruptcyproceeding derives directly from the law. Pursuant to the LoBP, theorgans for conducting the bankruptcy proceedings are: the bankruptcycourt, bankruptcy judge — single, interim trustee, trustee, creditors’meeting, interim board of creditors, and the board of creditors. The in-terim trustee and interim board of creditors are not mandatory organs,and whether they will appear in bankruptcy proceedings will dependon the bankruptcy judge’s decision. We will see, from the wording ofthe legal provisions, that they have left room to not appoint the boardof creditors either, since the law states, in a few places, that individualdecisions are passed by the creditors’ meeting if the board of creditorshas not been appointed.

In terms of the jurisdiction pertaining to liquidation procedure, theLoLP regulates that the proceedings will be conducted by a courtwhich is competent for conducting bankruptcy proceedings, mean-ing the competent municipal court pursuant to the rules describedabove. Organs for these proceedings include the liquidation court andthe liquidator. There are some special rules pertaining to the liquidator,compared to the trustee, which will be discussed separately. Theserules result from the specifics and differences between liquidationand bankruptcy proceedings. These specifics are mainly due to thedifferences between the two types of proceedings.

14.4. Organs for conducting bankruptcy proceedings

The LoBP introduces an entirely new concept pertaining to the juris-diction of the organs which are to conduct the bankruptcy proceedings.With respect to the court’s jurisdiction, the subject-matter jurisdic-tion of the Cantonal court has been preserved as the competent courtfor conducting the bankruptcy proceedings according to the legal person’s head office or an individual debtor’s domicile. With thechanges in regulations pertaining to the jurisdiction of regular courts,


bankruptcy proceedings are now the responsibility of municipalcourts, which are now competent for conducting the procedure ofcompany registration as well. The bankruptcy council as a manda-tory state organ in conducting bankruptcy proceedings is abolished,with only the bankruptcy judge remaining, as a single judge. Thebankruptcy judge conducts and manages the bankruptcy proceedings,from the submission of the proposal for opening the bankruptcy proceedings until its closure. The bankruptcy judge’s authorities havenow been reduced, with the LoBP giving him the right to appoint experts in the bankruptcy proceedings, appoint an interim trustee, appoint members of the interim board of creditors, appoint the trustee,and perform legal supervision over the interim trustee’s work and thetrustee, pursuant to the LoBP’s provisions. Naturally, the most important function is legal supervision, resulting from the assumptionof the trustee’s expertise, both in the framework set down by theLoBP and in terms of the application of all the other legal regulations,due to the already highlighted issue of the bankruptcy proceedings’complexity and multidisciplinarity.

A substantial expansion of the trustee’s jurisdiction and authoritiesin conducting the bankruptcy proceedings is one of the most significantnovelties of the LoBP. A trustee is now the “master” of the bankruptcyproceedings, particularly since a far higher degree of expertise in hiswork is now required, i.e. passing a professional exam pursuant to aspecial program given by the Ministry of Justice. Obligations of theFederal Ministry of Justice include passing regulations on reim-bursements and awards for experts, interim trustee, trustee, and members of the board of creditors.

14.5. Introduction – reorganization plan in bankruptcy proceedings

Previous bankruptcy legislation included a special concept pertainingto the attempt to heal an insolvent business entity, i.e. the business entity which is the subject of open bankruptcy proceedings. Its pur-pose was to offer the possibility to make a special kind of agreement


during the bankruptcy proceedings between the debtor and creditorswhose claims are higher than 50% of the claims reported by creditorswith voting rights. The forced settlement could be proposed by bothcreditors and the debtor himself.214 For the forced settlement to havea legal effect, it was necessary to obtain approval by the bankruptcycouncil of the bankruptcy court in the form of a decision, while theforced settlement itself had a legal effect on all the creditors, regardlessof whether they participated in voting, and regardless of how theyvoted. It was a distinctive kind of waiver, i.e. write-off, of part of thecreditors’ claims toward the debtor, though only within the relationshipset down by law. If the debtor did not meet his obligation set downin the agreement in the forced settlement, creditors used to exercisetheir right to be reimbursed in the enforcement procedure, for a reduced, rather than full claim from the debtor, and also directly, fromthe debtor’s guarantors. Approval of the forced settlement meant boththe closure of the bankruptcy proceedings and the cessation of anylegal consequences of opening it.

In addition to the forced settlement, the previous legislation acknowledged two other options that did not directly lead to the company’s removal from the business environment. These were thelegal concepts of debt conversion and sales of the debtor in bank-ruptcy. Thus the bankruptcy council, upon the previously obtainedapproval by creditors and the debtor’s opinion, could decide to:

• convert the creditors’ claims into equity in the company that isthe subject of the opened bankruptcy proceedings, or

• sell the debtor as a legal person by public auction, or by meansof direct negotiation, provided that this is of improving the payments to creditors.

The new bankruptcy legislation introduces an entirely new category,previously unknown in our legal system, namely the debtor’s reor-ganization, which is based on a bankruptcy plan.215 This legal con-cept, within bankruptcy proceedings, provides far broader and greaterpossibilities for the debtor’s economic recovery. The measures determined by the bankruptcy plan also include options that were established by the previous bankruptcy legislation. What is novel in


the new legislation is the far wider circle of measures that can betaken, as well as the greater authority given the trustee in this respect.In addition, the legislation provides the possibility, depending on thecircumstances in the case, to even diverge from the law in order toconduct the debtor’s reorganization determined by the bankruptcyplan. Some of the goals of conducting this procedure are that, by payments to the creditors based on carrying out the bankruptcy plan,the debtor is exempt from all its remaining obligations towards creditors,that the supervision is introduced over the implementation of thebankruptcy plan, and that all the legal consequences that arose byopening the bankruptcy proceedings are repealed, so that the debtorcould obtain the best conditions possible to normally resume its operations.

14.6. Preparation of debtor’s reorganization

Upon opening the bankruptcy proceedings, the trustee and debtor cansubmit the bankruptcy plan to the bankruptcy court aimed at the reorganization of the debtor’s operations, no later than by the finalhearing for the distribution of the bankruptcy estate. The bankruptcyplan submitted after the final hearing would not be taken into consideration. The debtor has the possibility to submit a bankruptcyplan together with the proposal for opening the bankruptcy proceedings.In addition, the creditors’ meeting is authorized to order the trustee todraw up a bankruptcy plan, and the latter is bound to submit the bank-ruptcy plan to the bankruptcy court within 30 days starting from thedate of the creditors’ meeting. Depending on the circumstances of thecase, this due date can be prolonged by another 30 days. The due dateprolongation can be approved only by the bankruptcy court. Advisorybodies in the preparation of the bankruptcy plan include the trustee andthe board of creditors, if established, as well as an individual debtor.

It has been said that the bankruptcy plan provides the possibility to diverge even from LoBP provisions pertaining to the realization anddistribution of the bankruptcy estate aimed at the debtor’s reorgani-zation; thus, a bankruptcy plan is particularly able to achieve following:


• leave, to the debtor, the entire or part of their assets aimed at thedebtor’s resuming further operations,

• transfer part or the entire debtor’s assets to one or more existingpersons or persons that are to be founded, with the assumptionthat these are legal rather than natural persons,

• merge the debtor by absorption to another legal person, or mergeit with one or more legal persons by formation of a new company; in this case, it would require the approval by the otherlegal persons,

• sell all or part of the debtor’s assets with or without rights to separate satisfaction,

• distribute all or part of the debtor’s assets across creditors,• convert creditors’ claims into membership interests or contributions

in the debtor as a company,• determine the way to pay creditors,• settle or change rights to separate satisfaction,• decrease or postpone the payment of the debtor’s liabilities,• convert the debtor’s liabilities into a loan,• accept the guarantee or provide insurance for the debtor’s

fulfilment of obligations,• regulate the debtor’s liabilities after the bankruptcy proceedings

have been closed,• issue new shares, etc.

The above review of possibilities provided with the goal of thedebtor’s reorganization reveals that the legislator enumerated the possibilities only numerus clausus, but also left a free space for participants in the bankruptcy proceedings to broaden the range ofthese options. What other possibilities these could be will depend onthe circumstances of the actual case, without excluding the possibilityto combine two or more enumerated measures. This is the way to provide a far broader range of legal and economic possibilities thatshould be aimed at the debtor’s reorganization, leading to their economic recovery and resumption of business operations. Each ofthese measures certainly deserves comment, but only their applicationand court practice will show whether they will be effective, and whatthe consequences of their application are.


14.7. Voluntary liquidation as a form of business cessation

The separation of bankruptcy proceedings from liquidation proceedingsresulted in the resolution of certain contradictions that used to existin the liquidation proceedings compared to the regulations in the LoC.This law used to include special provisions pertaining to liquidationfor every form, i.e. type of company. In this respect, the LoLP prescribes that the provisions on liquidation proceedings from theLoC which are opposed to the LoLP cease to be valid starting fromthe date LoLP came into effect. Since the LoC itself underwentchanges, we will see which provisions these are compared to the basicversion of the LoC. In terms of a joint-stock company, these are theprovisions of Articles 301-308, since they deal with the rules of theprocedure for conducting a joint-stock company liquidation. The provisions of the LoC pertaining to limited-liability company liquida-tion are Articles 369-374, since they regulate the rules for conductingliquidation proceedings. Amendments to the LoC have not introducednovelties in the operations of general and limited partnerships. Sinceno special rules pertaining to the liquidation of these two companytypes were provided, this part of the LoC will not change.

The previous regime of the bankruptcy law, i.e. the universal law, applied rules pertaining to bankruptcy proceedings to liquidation proceedings by analogy. This concept has been preserved since it isprescribed that liquidation proceedings be conducted by the court thatis, pursuant to the LoBP, in charge of conducting bankruptcy pro-ceedings as well, or the Cantonal court according to the head officeof the company being liquidated. Organs in the liquidation proceedingsinclude the liquidation judge and liquidator. The liquidation judge isa single judge assigned these tasks through an annual or another typeof schedule. There are some specifics pertaining to the appointmentof the liquidator; if we tried to make an analogy it would be to thework of the trustee in bankruptcy proceedings. This difference is dueto the basic difference in the reasons for conducting the two types ofproceedings. Since in the case of liquidation proceedings there is areasonable assumption that the value of the assets of the companybeing liquidated is higher than the claims, there is no doubt regardingthe payment of potential creditors’ claims. For this reason, there is


no need to perform a number of actions and tasks pertaining to thework by a trustee in the bankruptcy proceedings. The only exceptionis when in the course of the liquidation proceedings it is establishedthat prerequisites for conducting bankruptcy proceedings have beenmet. In this case, the liquidator is bound to submit the proposal foropening the bankruptcy proceedings within 15 days. Further proceedings will then be conducted pursuant to LoBP provisions.

It is a rule that a member of the past organ that acted as the companyagent is appointed the liquidator. It is the chairman of the management,or director if he is independent, since these are the company’s legalagents. It is also possible for the court to appoint another person suitable as a liquidator, in cases where there are indications that voluntary liquidation through past members of the managementwould not be ensured. The LoLP gives the following authorizationsand tasks to the liquidator:

• he is bound to make an inventory of assets and liabilities of thecompany being liquidated and submit it to the liquidation judge,

• he is bound to guarantee for the accuracy and completeness ofdata being presented before the competent court;

• he is bound to cooperate with the liquidation judge;• he takes into possession the assets without delay;• he encashes the assets of the liquidation subject;• he is bound to pay for the costs and taxes of the court, the taxes

and costs of his administration and other necessary administrationcosts out of the assets of the liquidation subject, in advance;

• he is bound to satisfy creditors’ claims proportionally to the levelof their shares in claims as soon as he has at his disposal sufficientmeans for distribution;

• he is bound to submit an account of his actions to the liquidationcourt, and to submit to the court written certificates for review.

14.8. Other forms of business cessation

Other forms of business cessation include all the ways that have beenenumerated so far, and that are included in other chapters by virtue of


systematization. Indeed, there are certain subtleties, primarily relatedto the kind and occurrence of legal consequences and individual reasons for the cessation of business. The other forms aside frombankruptcy and liquidation proceedings include the following cases:

a) every form of business cessation based on carrying out one of theenumerated forms of status changes,

b) cessation of existence ex lege, when changes in positive legaldocuments order the adjustment of a company status in time periods set down by law, and the adjustment is not done;

c) as a consequence of a legal measure, a permanent ban on busi-ness activity based on a valid court or administrative documentby a competent state authority;

d) cessation of existence of a company that was another companyfounder, regardless of the fact whether it is a corporation or apartnership. In the case of partnerships, one only needs to distinguish the situation where the company appears as one oftwo founders of a partnership from the situation when despitethe cessation of this company, two or more founders remain inbusiness;

e) death of a natural person who was the only founder of a certaincorporation form if the heirs do not want to continue business;

f) death of a natural person in partnerships, if the partnership wasfounded by two natural persons, and heirs of the deceased naturalperson do not express the desire to participate in managing thecompany’s operations.

This would exhaust all the reasons, i.e. grounds, for the cessation ofa business. The abovementioned reasons reveal that the reasons for the cessation of a business can be classified into three major categories. These are:

a) status changes,b) bankruptcy proceedings, andc) liquidation proceedings.

Status changes themselves, depending on their kind, also result in thecessation of a business; this case, however, does not lead to liquidation


proceedings over the company that will cease to exist. It rather leadsto a distinctive form of universal succession resulting from two legalgrounds. The first ground is found in the general authorizationgranted by the positive legal document, while the second one is foundin the decisions of competent organs, i.e. company’s general meetings,which execute the status change. All the other cases of the cessationof a business can be subsumed under either bankruptcy or liquidationproceedings. This has already been discussed in detail and it is evident that the difference between the two types of proceedings isonly in the kind of reasons for which some of them are conducted.The ultimate legal consequences are the same, with the main one contained in the fact that the company ceases to exist and is struck offfrom the companies register.

14.9. New bankruptcy legislation in B&H

The bankruptcy legislation sector, as well as matter related to businesscessation, have sustained considerable modifications with regard tothe previous legislation. Except for the establishment of new legalinstitutions, the necessary harmonization with the Law on Companiesin the Federation of B&H and the Law on Enterprises in the Republicof Srpska, respectively, has been completed. With regard to the afore-said legal sectors that have been regulated mutually at the state level,this legal matter remains within the competence of the entity gov-ernments. Its importance reflects the level of harmonization, whichhas been considerable, and it is the result of the resolution of both theLaw on Bankruptcy Procedure and the Law on Liquidation Procedure.Both laws were written by experts from both entities, a Germanlawyer, and experts in bankruptcy legislation — all organized by theGerman cooperative, GTZ.216 This kind of work has resulted in theharmonization of resolutions and led to only negligible differencesbetween regulations at the entity level. Such an approach should serveas a model for future work, in order to achieve as high a degree aspossible of harmonization between the RS and FB&H. The importanceof his approach is all the important when considering that in the future there will be a greater prevalence of entity-level regulationsrelative to those at the state level.


Reforms in the bankruptcy legislation sector are the result of the international community’s requirements for the accession of B&H tointernational integration processes. These reforms are a prerequisitefor economic reform, taking into consideration the existing economicsituation and especially the privatization process. The inherited economic structure, and the existence of social and state capital, respectively, needed reforms in this sector, which had been largelyinherited from the former SFRY, with some modifications. In general,well-known legal institutions had changed hands, which transitiondemanded modifications. In its present circumstance as a transitionalcountry, efforts are being made to strengthen the market economy inB&H and to improve its foreign investment process. Hence, the reforms in this sector were unavoidable. The privatization processshould be encompassed by the new bankruptcy legislation so thatcompanies which cannot continue their business operations can bedeemed bankrupt. On the other hand, companies that can go on withtheir business operations should be enabled to re-organize. The newbankruptcy legislation introduces the following key amendments:

1. The procedure becomes simpler, since the bankruptcy council, asan obligatory authority, is abolished,

2. The trustee in bankruptcy becomes the most important subject inthe bankruptcy procedure, while the bankruptcy judge only performs the legislative monitoring of his work,

3. The trustee’s in bankruptcy function becomes a professional onedemanding special academic qualifications, including the completion of training and examinations determined by the Ministry of Justice,

4. The creditors’ meeting and the board of creditors, which protectthe creditors’ interests, have been instituted as obligatory authorities in the bankruptcy procedure,

5. Payment of bankruptcy creditors is done according to a paymentarrangement that was lacking in the prior legislation,

6. Special measures are provided for re-organizing the insolventdebtor which, with regard to prior solutions, gives much widerpossibilities for the recovery of the insolvent debtor,

7. The introduction of a category of international bankruptcy.


In the bankruptcy legislation, the greatest attention should be paid tothe bankruptcy plan and the re-organization of the insolvent debtor,respectively. The legislation offers a wide range of possibilities,providing the chance for some deviation from the legal provisionsconcerning the disposal of the insolvent debtor’s property. The following are the most significant measures: the selling off of the insolvent debtor’s assets, the continuation of the debtor’s business incertain areas, merging the insolvent debtor to another business company, writing off a part of the creditor’s receivables and/orclaims, converting the creditor’s claims into a credit, converting thecreditor’s receivables into the debt equity ratio of a member by virtueof one’s share in the insolvent debtor as a corporation, allocating theinsolvent debtor’s property to the creditors, taking over credit obligations, determining the method of payment and/or settlementwith the creditor, taking over a guarantee or giving assurance for thefulfilling obligations of the insolvent debtor, and other measures thatemerge as useful depending on the concrete circumstances. Credi-tors, voting separately according to the bankruptcy succession, mustapprove the bankruptcy plan. An approval by the bankruptcy court isalso required in order to put the bankruptcy plan into force. All theparticipants who take part in the reorganization implementation mustbe vested with the same rights. All the agreements contrary to thatmust be null and void. By its enforcement, all legal consequences resulting from the bankruptcy procedure become invalid and the insolvent debtor carries on with his business operations. A decisionon stopping a bankruptcy procedure can be made as well, and can beimposed as obligatory, as is the introduction of supervisory oversight.This oversight concerns monitoring that the provisions of the bank-ruptcy plan are met. This duty can be performed by the trustee in bankruptcy, the board of creditors or the bankruptcy court itself.After an expiration period of three-years, obligations regarding thismonitoring cease.

A special novelty in the bankruptcy legislation is the introduction ofthe category of international bankruptcy. It was necessary to settle issues related to: the action of an insolvent debtor within the territoryof another country, existing business activities in two or more coun-tries, existing property within the territory of two or more countries,


as well as implementing the decisions of foreign courts. The goal ofthese regulations is also to have better and more effective protectionof foreign direct investments and/or introducing a higher degree oflegal security. The cantonal court, on whose territory an insolventdebtor has a registered head office, is exclusively competent for theimplementation of bankruptcy procedure over an insolvent debtorwho has its head office on the territory of the Federation of B&H.The bankruptcy procedure includes the entire property of the insolventdebtor no matter whether that property is on the territory of the Federation of B&H or abroad (the main bankruptcy procedure). Thetrustee in bankruptcy, as legislated in the Federation of B&H, isobliged to report in the foreign bankruptcy procedure on the claimsreported in that procedure in the Federation, if it is required from himand if the creditor of the receivables gives him authorization. Thetrustees in bankruptcy are obliged to share all legally allowed expla-nations that might be useful for implementing those procedures. General rules valid in the Federation of B&H are applied regardingthe acknowledgment of the decisions of foreign courts.

Proposals for initiating a bankruptcy procedure are submitted to thebankruptcy court whose jurisdiction covers the location of the insolventdebtor’s headquarters in the Federation of B&H. The effects of therecognized party in the court decision for initiating a bankruptcy procedure are determined according to the legislation of the state inwhich the procedure takes place. The foreign trustee in bankruptcy isentitled to require the initiation of a bankruptcy procedure in the Federation of B&H (special bankruptcy procedure). In the case of afailure to recognize foreign court decisions on initiating a bankruptcyprocedure, it can be initiated in the Federation of B&H due to theequal account settling of the insolvent debtor’s creditors. The LoBPprovisions on recognizing a foreign court decision to initiate a bank-ruptcy procedure will be applied upon recognizing a foreign courtdecision on the approval of the compulsory accounts settling or thebankruptcy plan.


The new bankruptcy legislation of B&H has been harmonized according to contemporary regulations and recommendations fromthe international community. The new legislation allows for more extensive possibilities for reorganizing and recovering an insolventdebtor, as well as initiating a bankruptcy procedure over a legal entity that is permanently insolvent. Harmonization of this matter, atthe entity level, marks a considerable improvement for B&H. In thefuture, bankruptcy legislation should further harmonize certain legaland economic issues at the entity level.


Chapter

REGULATIONS OF BOSNIA AND HERZEGOVINA IN THEDOMAIN OF FOREIGN DIRECT INVESTMENT15

Chapter 15

REGULATIONS OF BOSNIA AND HERZEGOVINA IN THE DOMAINOF FOREIGN DIRECT INVESTMENT

The foreign direct investments sector (hereinafter referred to as: FDI)is, in the current business environment, among the more importantsectors. FDI presents a very significant source of investment, since itis primarily useful for the host country. In the legal system of B&H,the notion of FDI is defined by Article 2 of the Law on Foreign Investments (LoFI) as a form of business undertaking that can consistof acquiring an existing investment, creating a new one or enlargingan existing one. The legal definition of FDI in itself includes well-known elements and potentiality, no matter whether the investment isexclusively in money, investment into the initial capital of the businesscompanies or through stocks and bonds.

The basic laws concerning FDI at the level of the International Community that have strongly influenced the regulations stipulatedin the LoFI have been defined by the United Nations General Assembly Acts as follows:

1. The Resolution on the permanent sovereignty over natural resources,

2. The Declaration on establishing a new economic project,3. The Charter on the economic rights and obligations of states,

and4. Resolution 3362 — Development and international economic

cooperation.

Chapter 15 REGULATIONS OF BOSNIA AND HERZEGOVINA IN THE DOMAIN OF FOREIGN DIRECT INVESTMENT 223

There are also multilateral conventions, listed separately, including:

1. The Convention on investment disputes resolution betweencountries and citizens of other states and

2. The Convention on multilateral agency for giving investmentassurance.

Besides those stated above, the following also concern FDI:

1. The General Agreement on Trade in Services,2. The Agreement on intellectual property trade aspects,3. The Agreement on foreign investment conditions that influence

trade,4. The Guide for foreign investing,5. The Guide for transnational corporations and6. The Guide for handling World Bank foreign direct investments.217

Regarding the local sources of law that cover FDI, in addition to theLoFI, the Law on Foreign Trade Policy of B&H (LoFT) has a system-atic role, as well as a series of bylaws that include provisions for theaforesaid laws. The most important bylaws on implementation include:

1. The Decision on the establishment of an agency for promotingforeign investment in B&H (The Official Gazette of B&H, No.:16/98),

2. The Decision on the establishment of an agency for issuing guar-antees against political and war risks to foreign investors andtradesmen (The Decision No.: 011-286/97),

3. The Decision on determining the conditions and procedures forobtaining an exemption from customs duty for equipment imported on the basis of a foreign person’s order (The OfficialGazette of B&H, No.: 9/98),

4. The Rule book on standards for covering a loss in a case of expropriation (The Official Gazette of B&H, No.: 18/98),

5. Instructions on determining reciprocity in the process of foreigndirect investment (The Official Gazette of B&H, No.: 18/98),

6. Instructions on the registration of foreign direct investment (The Official Gazette of B&H, No.: 22/99).218


The aforesaid laws and bylaws have been harmonized with certaininternational conventions in order to satisfy their basic principles, including: respecting state sovereignty over natural resources and/orproperties in common use; non-interference into interior political relations and respect for the domestic legal system; proper indemnityrights in case of nationalization; freedom of invested and gained assets transfer; national treatment of investors; priority of the domestic judiciary and clauses pertaining to most privileged nationstatus.219 Special principles are also incorporated into the legal systemof B&H. Among them, the following are emphasized: freedom ofinvestment into all economic and non-economic activities, exceptinglimitations with regard to the military industry and public informationsector, wherein investments cannot exceed 49%; reduction of operatingexpenses over investment, guaranteed legal security with regard tothe application of legal provisions yet to be passed - which only appliesif a foreign investor accepts it - and the provision of customs and taxrelief according to the conditions defined by the Law.

Implementation of the procedure for FDI has been based on the princi-ple of a “one stop agency,” whose basic mandate arises from a singlelaw and a single state institution.220 In the comparable legal systems,this principle has been respected in full. Therefore, this procedure inlegal system of B&H has been applied to the LoFI, along with two ad-ditional instructions: Instructions on the registration of foreign directinvestment and Instructions on determining reciprocity in the processof foreign direct investment (The Official Gazette of B&H, No.:18/98). Each foreign investment must be filed with the Ministry ofForeign Trade of B&H, as well as the relevant ministry at the entitylevel. The procedure is relatively simple due to the fact that there isno need for so-called prior approval from any competent state authority, excepting FDI in the military industry and the public information sector. The FDI procedures themselves are defined in theLoFI and a liberal FDI regime prevails.221

Regarding FDI and foreign investors’ obligations, these originatefrom the spirit and principles of legal system of B&H and the following basic obligations: respect for local legal provisions of B&Hand its entities; payment of customs and taxes; proper business book-


keeping and the preparation and submission of financial accounting,auditing and other reports, all according to the legal provisions of thehost country. The foreign investor’s rights include: free choice of thebusiness bank through which the flow of cash assets will be recorded;freedom of transfers in the convertible currency; the right to employemployees from abroad and national treatment with regard to ob-taining and realizing ownership rights over estates. In addition to theaforementioned, foreign investors have the right to certain benefits,including: customs duty exemption — excepting filing fees — underthe condition that it concerns equipment for performing the registeredactivities and that FDI lasts at least 5 years; tax relief for a durationof 5 years, under the condition that the FDI amounts to at least 20%of the initial capital of the corporation in which the investment isbeing made, and the aforementioned stabilization clause that offersthe unilateral commitment of the host country that provisions thathave yet to be passed will not be applied to foreign investment unlessthe foreign investor agrees to it. In the domain of foreign investors,the practical import of this is that the benefits are valid even if theyare in conflict with legal provisions passed after the investment hasbeen made.

Understandably, the protection of FDI in legal system of B&H occupiesa special place, considering the unstable political and economic situation in B&H. The first form of protection refers to harmonizationof state / foreign investor relations - specifically cases where the state,as a partner, violates or breaches or has the intention to violate orbreach its contract with a foreign investor. These kinds of state actshave the character of so-called “crawling expropriation”. Further-more, there is also protection in case of war breaking out and waracts that result in damage. War, which is considered a force majeureaccording to the relevant United Nation regulations, is defined insuch a way that the host state has an obligation to render adequateprotection to foreign investors in the case of a state of emergency,but not as a burden on obeying conditions that are set with respect tothe principles of most favored nation status. A special aspect of protection refers to the protection of foreign investors in cases whenthe state employs one of the following procedures that encroach on the property rights of the foreign investor: expropriation,


nationalization, confiscation and commandeering. Without explainingthe essence of certain enumerated legal institutions, what is funda-mental to this formulation is that legal system of B&H has providedcontemporary solutions that have a common basis — compensationapplied in instances of state intervention into the foreign investor’sproperty rights. Of course, if such circumstances arise, an elementaryquestion arises — namely the estimated value of the appropriated propertyor property rights. Special questions are related to the effectivenessof compensation, its procedure and the urgency of its realization.222

Taking into consideration that, in every activity, there is the possibilityof disputes arising, and that in this regard FDI is no different, themanner in which disputes are resolved deserves special treatment.Since disputes related to FDI concern economic relations that arisebetween states, the first method of resolving disputes is through diplo-macy. An amicable resolution of disputes, also known as conciliation,can also be taken into consideration. If certain results are achieved inthis way, they are obligatory for both parties. Dispute resolution withregard to FDI can also be done through authorities that exist in cer-tain international regional organizations, with the most important au-thority on such matters being the World Trade Organization (WTO).If a dispute is tried between the foreign investor and the host country,the dispute is most often entrusted to domestic courts. This is theconsequence of adopting the Calvo doctrine, according to which foreigners cannot have a more advantageous position than local citizens, and thus fall under the host country’s jurisdiction, withoutthe right to ask for diplomatic protection. Among the institutionalizedforms of investment disputes resolution in FDI, the International Centerfor the Resolution of Investment Disputes has a special place and of-fers institutionalized arbitration that has been established by the Con-vention on the Resolution of Investment Disputes resolving, of whichB&H is a signatory. This institution is included within the system ofthe World Bank. The existence of institutionalized arbitration doesnot exclude the possibility of contracting the authorization of anyother permanent arbitration, including, for example: arbitration at theInternational Chamber of Commerce seated in Paris; the EuropeanArbitration Court; or the Arbitration Court of the Chamber of Commerce in Zurich. In the legal system of B&H, institutional


arbitration is handled by the Arbitration Court at the Chamber ofCommerce of B&H. The competence of this arbitration is defined bya contract between the contracted parties, providing that a contracton the arbitration competence can be concluded regarding a certaindispute as well as regarding future disputes that can arise out of a certain legal relation. In the domain of arbitration, the most importantmultilateral conventions are:

1. Geneva Protocol on Arbitration Clauses, 2. Geneva Convention on Implementing of Foreign Arbitration

Decisions,3. New York Convention on Acknowledging and Implementing

Foreign Arbitration Decisions, 4. European Convention on International Commerce Arbitration,5. Washington Convention on Investment Dispute Resolution

between States and other States’ Citizens,6. UNCITRAL Provisions on Arbitration, UNCITRAL Regulations

on Reconciliation and UNCITRAL Model of Law on Interna-tional Commerce Arbitration and

7. Regulations of the European Economic Community ArbitrationCourt.

Resolving disputes at the International Court in the Hague is the lastmethod of settling investment disputes. This court instance representsthe permanent authority of the United Nations to resolve disputes between United Nations member states, as well as disputes in whichthe parties in dispute are different international organizations.


Chapter

JOINT LEGAL REGULATIONS IN THE DOMAIN OF ESTABLISHING AND EFFECTUATING FREE ZONES16

Chapter 16

JOINT LEGAL REGULATIONS IN THE DOMAIN OF ESTABLISHINGAND EFFECTUATING FREE ZONES

Free zones also present one of the key elements of the implementationof a single economic policy. Hence this field of economic activity ispartially based upon joint regulations as well as entity regulations.223

The basic legislation in this domain is the Law on Customs Policy(LoCuP) in B&H, in which a free zone is defined as those parts of thecustoms territory of B&H or facilities placed on that territory that areseparated from the rest of its parts, the goods stored in which are notconsidered imported goods. According to the LoCuP, a free zone is apart of the customs territory of B&H and is managed by whomeverestablished it, wherefore the free zone has the status of a legal entity.It obtains its business and legal ability by being filed in the court reg-ister like other business associations. Approval related to the free zoneoperation’s start-up is passed by the Council of Ministers of B&H, inthe form of a consensus, and all based on the prior agreement of theEntities’ Governments or the Brčko District Government.

Free zone establishment has been liberalized, thus its establisher canbe one or more local and/or foreign natural or legal entities registeredin B&H. The associated and applicable regulations by which a freezone operation’s start-up is controlled include:

a) The Law on Customs Policy, b) The Law on Customs Tariff of B&H and c) The Law on Foreign Trade Policy of B&H.

Chapter 16 JOINT LEGAL REGULATIONS IN THE DOMAIN OF ESTABLISHING AND EFFECTUATING FREE ZONES 231

In free zone operations, the elementary principles are the investmentof capital and re-transferring of assets and profit. Therefore, capitalinvestment in the free zone territory, the transfer of profit and the re-transfer of the deposit are free and are done according to the validlegislation of B&H and the entities. Free zone beneficiaries pay taxesand contributions according to the valid regulations of the entitiesand the Brčko District, depending on which the free zone is locatedin. Free zones, according to their conception, should present one ofthe means to induce business investments and install certain productionand processing capacities within the free zone itself in order to perform import for further export and in the manner determined bythe legal regulations. In order to achieve the basic economic functionof a free zone, an establisher is bound to prove the economic justifi-cation of the zone’s establishment by submitting an description of itsintentions and aims. The competent ministry of the entity evaluatesthe economic justification of a free zone’s establishment. Furthermore,it is prescribed that the establishment of a free zone is econo micallyjustified if one can estimate, on the basis of its description and attached evidence, that the value of the goods exported from the freezone will exceed at least 75% of the total value of the manufacturedgoods over a 12 month period. At the same time, this is the most important criterion related to the justification of the free zone’s establishment and operation. If in the 12 month period requirementsrelated to the application of this criterion are not met, the Council ofMinisters will, upon the proposal of the relevant entity ministry, makea decision on the termination of the free zone’s operations. At thesame time, the free zone’s operation permit can be deprived if thefree zone establisher or beneficiary does not respect the operatingconditions prescribed by the Law, or with the cessation or obsoles-cence of reasons or conditions on whose basis the approval was originally issued.


Chapter

JOINT LEGAL REGULATIONS IN THE DOMAIN OF COPYRIGHT, RIGHTS RELATED TO COPYRIGHTSAND INDUSTRIAL PROPERTY RIGHTS AND/OR PATENT RIGHTS17

Chapter 17

JOINT LEGAL REGULATIONS IN THE DOMAIN OF COPYRIGHT,RIGHTS RELATED TO COPYRIGHTSAND INDUSTRIAL PROPERTY RIGHTS AND/OR PATENT RIGHTS

Because the domain of intellectual property rights is characterizedby a high degree of international unification with regard to its regu-lations, this field of law is among the more interesting. Intellectualproperty rights are fundamental human rights that are undividedlytied to a man’s personality and, as such, are protected according to thetop international standards on human rights.224 The reform of theB&H legislation in this domain has been necessary as a prerequisitefor joining the World Commerce Organization and signing the TRIPSagreement — an agreement on the commercial aspects of intellectualproperty. The importance of intellectual property rights and their uniform regulation has increased due to their considerable role andparticipation in world trade, as well as due to efforts to stop the illegal reproduction and sale of copyrighted material. The reform oflegislation in B&H legislation in this domain has been done in sucha way that the two previously cited laws have been passed unani-mously in B&H and are, in this sense, incorporated into the part of theuniform legal system of B&H.

According to the Law on Copyrights and Related Rights (LoCRR),the basic issues according to the International Community’s require-ments are the following:

Chapter 17 JOINT LEGAL REGULATIONS IN THE DOMAIN OF COPYRIGHT, RIGHTS RELATED TO COPYRIGHTS AND INDUSTRIAL PROPERTY RIGHTS AND/OR PATENT RIGHTS 235

1. The right on leasing has been instituted, as prescribed by TRIPS,2. All rights related to copyrights — the rights of phonograph man-

ufacturers and organizations for radio and broadcast - have beeninstituted and regulated according to the Rome Convention,

3. Database protection, as a collection of authorial works, has beeninitiated and computer programs are now classified into speciallyprotected work being treated as a written literary work,

4. Harmonization of penalty sanctions according to the new methods of breaching copyright and rights related to copyrights,

5. Harmonization of the violation of the Law has been conformedto the new methods of violating copyrights and the rights relatedto copyrights,

6. Specifying civil and/or civil law protection,7. Special customs custody measures over imported authorial

works have been introduced, 8. Rights duration terms have been extended for artists, performers,

as well as holders of other related rights,9. The right to translate a work, without the author’s consent, has

been abolished,10. The right to broadcast authorial works, without the author’s con-

sent, and to perform, without the performer’s consent, have beenabolished,

11. The duration of copyrights has been extended to 70 years,12. The basic property rights of the author have been defined more

adequately, as well as the right to copy, put into circulation, inform publicly and broadcast,

13. The author’s work created during employment is treated moreadequately, especially if it concerns computer programs anddatabases,

14. Special penalty sanctions have been introduced for criminal offences against natural persons, especially sanctions for offences against legal entities and those responsible in a legalentity,

15. Authorization of the B&H court has been introduced for criminaloffences and violations defined by this law.

Contemporary regulations have been accepted by the LoIP regardingpatent rights as the second category of intellectual property rights.


Obtaining and protecting copyrights and related rights, as well aspatent rights, is done by a single statute at the state level of B&H,namely the statute for standards, measures and patent rights (here-inafter called the “statute”). The exception refers to the copyrightsand rights related to copyrights, whereas problems related to theirprotection can be dealt with and solved by the authorized agency registered for those jobs. The only condition set by LoCRR is thatthe agency that has been authorized and/or has an approval by thestatute. The LoIP has considerably redesigned certain patent rights, sothe following categories are subjects of protection:

1. Invention protected by a regular patent (20 years) and a patentwith a shorter duration (10 years),

2. Brand eligibility for differentiating goods and services is protected by trademark,

3. A new form of a product is protected by industrial design and4. A mark that specifies the geographical origin of the product is

protected by a geographical mark.

According to the LoIP, rights that are acquired can be classified as either material or moral rights and the same are acquired by admissionand registration of the patent. The material rights of a patent includeexclusive rights of economic utilization and usability in accordancewith the law. The moral rights of the inventor and author of industrialdesign, respectively, are rights to be indicated in the application andin all the documents related to patents and industrial design. Regardingthe protection of patent rights in B&H, foreign natural and legal entities have the same rights as domestic natural and legal entitiesand those persons equal to them if they are in accordance with theinternational conventions and contracts signed and/or ratified byB&H, or with the administration of the reciprocity whose existenceis presumed until the opposite is proved. Novelties in the LoIP include: the definition of industrial design which protects the wholeor a part of a product which is new, of an individual character interms of special features, lines, contours, color, shape and/or material.By the term product, in the context of the aforesaid definition, any industrial or trade product is understood, including the parts for assembling them into a complex product, groups or compositions of

Chapter 17 JOINT LEGAL REGULATIONS IN THE DOMAIN OF COPYRIGHT, RIGHTS RELATED TO COPYRIGHTS AND INDUSTRIAL PROPERTY RIGHTS AND/OR PATENT RIGHTS 237

products, packing, modern patterns, graphic symbols and topographicmarks, excluding computer programs and semi-conductive products.The prior indication of the product origin mark has been redefinedand now is marked as a geographic mark and understood the same asmarks that indicate a good’s origin from a certain territory, region orplace on that territory in which a specific quality, reputation or anyother characteristic can be related to its geographical origin. Thename of goods can also be registered with a geographical mark thathas become known by its long use in economic trade as an indicationthat the goods originate from a specific locality or region. Besidesthose already listed, a geographical mark can also be used for indi-cating natural products, including agricultural, industrial or tradeproducts. Specific novelty in patent rights, as well as in copyrightsand its related rights, is specific and improved forms of patent rightsprotection. In addition to classic civil and civil-legal protection, tempo-rary measures have been provided, as well as measures related to providing evidence - and the customs authorities’ measures relatedto removing or destroying imported goods - if it seems possible thatthe exclusive patent holder’s rights could be violated by the import ofcertain goods into the country. Criminal offences, as blanket (applicablein all instances) criminal offences — since the same are not providedfor in the criminal law - are a separate group of penalties. In additionto criminal offences, there is a special category of punishable offences,namely economic offences that introduce pecuniary fines for violatorsand the legal entities and responsible persons of legal entities.

For this group of patent rights, B&H court is competent for initiatingcriminal offence procedures defined by this law, as well as for makingdecisions in the second instance. The entity-level courts are competentfor initiating procedures for violations defined by this law. By its tran-sitional provisions, LoIP maintained the validity of patent rights thathad been recognized by decisions of the Federal Institute for Patentsof the former SFRY till March 1, 1992, provided that the administra-tive procedure had been terminated before the Statute or that it is inaccordance with the Madrid agreement on international trademarkregistration before the World Intellectual Property Organization.


ChapterPROTECTION OF CONSUMERS IN BOSNIAAND HERZEGOVINA18

Chapter 18

PROTECTION OF CONSUMERS IN BOSNIA AND HERZEGOVINA

As a separate legal discipline in developed countries, protection ofconsumer rights is constituted as a separate set of rights or is consideredwithin competition rights. This very important matter is defined byuniform legislation in B&H and all the issues related to the condi-tions and methods of selling to consumers or the delivery and sale ofproducts or services rendered within a registered activity, regardlessof their legal, organizational or property profile, are defined in thesame place and in contemporary usage.225 According to the operatingrequirements of contemporary business, the legislation is divided intocertain sectors, as follows: sale of products and rendering of services;declaring (identification of products); responsibility for a product;guarantee of a product or service, warranty; guarantee of health, referring to foodstuffs and products of general use; advertising ofproducts and services; sales; sale of electric power, water, telecommu -nication, municipal and other services; door to door sales (direct sales);distance sales; consumer credits; insurance; electronic instruments ofpaying; tourist package arrangements; renting of a tourist facility fora certain time or time sharing; contract provisions; holders of consumer protection; inspection monitoring and administrative measuresand legal protection of consumers. The most important novelties introduced by Law on Consumer Protection (LoCP) refer to the protection of consumers over utilizing and rendering of services, respectively, in the domain of public companies’ activities, electronicbusiness operation and legal protection of consumers through certaininstitutions, both at the level of B&H and entities, as well as throughcivil-legal measures of protection.

Chapter 18 PROTECTION OF CONSUMERS IN BOSNIA AND HERZEGOVINA 241

Special attention has been paid to the electronic instruments of payment(hereinafter referred to as EIP) meaning the instruments of distancepaying that enable the user and the owner to access their financialmeans on the account at a certain deposit institution and transfer cashvalue wherefore an identification number or other proof is required.By the term EIP, the LoCP refers to the following: credit and charg-ing cards; selling cards (business companies’ cards) by which post-poned charging of the account is enabled, as well as the applicationof telecommunication and house banking. The notion “electronicmoney” (e-money) is being introduced. It is an instrument that includes a card for memorizing cash values or a computer buffer inwhich cash values are stored electronically and enable its owner oruser to transfer cash values. Regulations related to EIP refer to:money transferring by means of EIP, except payments ordered or realized through financial institutions and depositing and drawing outcash by means of EIP from the devices such as automatic teller machines in or out of EIP buildings or other legal entities that are allowed, on the basis of the contract, to accept EIP. The EIP refersneither to paying by check nor the EIP guarantee functions and certain EIP cards related to paying by check.

In legal system of B&H, a specific consumer protection system isbeing introduced by LoCP. Subjects responsible for protection of consumers in B&H include the Ministry of Foreign Trade and Economic Relations of B&H, the Council of Competitors of B&H,the Council for Protection of B&H Consumers, the Ministry of Commerce of the Federation of B&H, the Ministry of Trade andTourism of the Republic of Srpska, the Office for Competition andProtection of Consumers in the Federation of B&H and the Republicof Srpska, associations of consumers, educational institutions, mediaand printed publications and inspection and other authorities accordingto the Law. As for inspection monitoring and administrative measures,the LoCP provides two groups of measures, as follows: stoppage ofproduct sales and advertising until certain irregularities are eliminated.Regarding the system of sanctions, there are only pecuniary fines provided as sanctions for offences, depending on the kind of offence.The pecuniary fines are provided for legal entities as well as for the responsible person in the legal entity. The legal protection of


consumers is realized by taking a legal action to the relevant court.Legal entities authorized to take a legal action and competent to protect the rights and interests of consumers are business associationsor chambers of which the businessman against whom the action isbeing taken is a member. The reasons for taking a legal action are: application of unacceptable general conditions for business operationsin legal operations with consumer contracts and, when concluding aformal agreement in already printed forms, offering printed formsthat contain provisions disadvantageous for a consumer or opposedto good business practice and LoCP provisions. Concerning theclaim, the authorized claimant is entitled to require determination of the contract or the parts of the contract nullity, general businessconditions and the content of the printed forms.

Chapter 18 PROTECTION OF CONSUMERS IN BOSNIA AND HERZEGOVINA 243

ChapterSETTLEMENT OF DISPUTES - SYSTEM OF COURTS AND ARBITRATION19

19.1. System of Courts in Bosnia and Herzegovina19.2. Arbitration

Chapter 19

SETTLEMENT OF DISPUTES - SYSTEMOF COURTS AND ARBITRATION

19.1. System of Courts in Bosnia and Herzegovina

The system of courts in B&H reflects the complex organization ofthe state. By territorial competence, courts can be classified as B&H,District of Brčko, RS and Federation of B&H courts. According tomaterial competence, there are constitutional courts, courts of lawand courts for misdemeanors. When B&H became a member of theCouncil of Europe, the need for a special B&H Court for HumanRights ceased to exist. It will be abolished this year. The court sys-tems are accompanied by systems of prosecution, state attorneys, barassociations and court police. The High Judiciary and ProsecutionCouncil of B&H law is entrusted with nomination and other issuesconcerning the status of judges and prosecutors. Each level of stateorganization has its procedural laws. Laws on public notaries havebeen passed in both entities and their implementation started last year.

The state of B&H has two courts: the Constitutional Court and theCourt of Bosnia and Herzegovina. The first is regulated by the Dayton Agreement. The Court of B&H is much younger. It was established in 2002 and its organization is still ongoing.

Art. VI of Annex IV to the Dayton Agreement regulates the Consti-tutional Court of B&H. The duty of this Court is to support the state’sconstitution. It consists of nine judges elected by entity parliamentsfor a term of five years. The Court resolves disputes between the entities and the state of B&H and acts as the court of second instancefor constitutional issues addressed to it by any other court in B&H.

Chapter 19 SETTLEMENT OF DISPUTES - SYSTEM OF COURTS AND ARBITRATION 247

The B&H Court has the duty to provide for the effective implemen-tation of B&H state competencies and human rights within the territoryof the whole country. The Commission for Nomination of Judges proposes the judges to the parliament of B&H who elects them. The Court has penal, administrative and appellate competencies. Accordingly, it has three chambers with at least five judges in each.

The penal chamber, a panel of three judges, renders judgments forcrimes foreseen in the B&H Penal Code and other B&H laws. Infringements against the unity of the B&H market, industrial property rights, copyrights and consumer protection fall within thecompetencies of this chamber. This chamber also decides on inter-national penal law issues and on conflict of competencies betweencourts of the Federation of B&H, the Republic of Srpska and theBrčko District.

The administrative chamber, a panel of three judges, passes judgmentson the legality of enforceable general and individual administrativeacts, including those related to foreign trade and FDI. Property disputes between the state of B&H and its entities, the state and theBrčko District, Republic of Srpska or the Federation of B&H, as wellas conflict of competencies between their courts, are also within thecompetencies of this chamber.

The appellate chamber has appellate jurisdiction on judgments passedby the penal and administrative chambers. It consists of a panel offive judges.

The Brčko District has a Lower Court and Appellate Court. The electionof judges and the competencies of these courts are regulated by thelaws of the District.

According to the Constitution of the Republic of Srpska, in the RSthere is a Constitutional Court. It has seven judges elected by its parliament after the nomination of a High Judiciary and ProsecutionCouncil of BH. Its primary task is to determine the constitutionalityof laws and the legality of other general acts. In addition, it passes


judgments on conflicts of competencies between the legislature, administration and judiciary and on conflicts of competencies between the RS, cities and communities. The Constitutional Courtcan initiate procedures at the request of the President of the Republic,parliament and the government and on its own decision to do so.Other issues are regulated by the Law on the Constitutional Court.

The Constitution sets principles which courts and public prosecutors’offices must respect. On these grounds the Law on Courts of Law organized the structure and function of the judicial system. There are three levels of these courts: 26 primary courts for one or morecommunities, 5 district courts for the territory of two or more primary courts and the Supreme Court of the Republic of Srpska. Following the division of competencies is important from a busi-nessman’s point of view. Lower courts handle:

• criminal law cases if the penalty prescribed by law is less than15 years;

• civil law cases;• labor law disputes;• business cases;• company status law cases.

District courts have appellate jurisdiction. As the courts of the first instance they adjudicate:

• criminal law cases if the penalty prescribed by law is more than15 years;

• industrial property, copyright , unfair competition and anti-trustcases;

• auditing, bookkeeping and taxation disputes.

The Supreme Court of the Republic of Srpska acts as the appellateand cassation court. It also resolves competencies disputes betweencourts and takes care about the unified implementation of the law byall courts. Misdemeanor courts are also organized in two instances.These are the lower court and appellate court.


The Federation of B&H’s constitution established the ConstitutionalCourt. It has nine judges elected by parliament after the nominationof the High Judiciary and Prosecution Council of B&H. Its primarytask is to resolve competencies disputes between the Federation, cantons and communities. Assessment of the constitutionality of lawsis limited by procedural means, while the Constitution does not explicitly mention the right of this Court to examine the legality ofother acts. The decisions of the Constitutional Court are binding.

The Constitution and the Law on the Supreme Court of Federation ofB&H regulate the organization and competencies of the SupremeCourt. It has a minimum of nine judges. A larger number can be prescribed by the law. They act in panels of five judges or in a generalsession, when the law prescribes it. It is an appellate and cassationcourt for the decisions of the cantonal courts if they have allegedly violated federal laws and by-laws. The Supreme Court of the Federationof B&H also resolves competencies disputes between the cantonalcourts. With regard to foreign trade and investments, the authority ofthe Supreme Court is important in deciding on the legality of enforceable administrative acts of federal organs. Judgments of theCourt are final and binding. The Supreme Court has the right andduty to initiate the procedure for assessment of the legality of lawsand other regulations, if those issues arise before the Supreme Court.

There are no federal misdemeanor courts for offences of federal legislation. Instead, the federal Law on Misdemeanors gives ministries the power to decide in the first instance acting throughcommissions or individuals. The Federal Misdemeanor Council actsas an appellate body.

In accordance with the Federation of B&H Constitution every cantonhas to have both a community and cantonal court. Their organizationand competencies are regulated by cantonal constitutions and specific laws. Cantonal courts are always appellate courts. Their firstinstance competencies depend on cantonal laws, but do not varygreatly. It would be wise to consult a local lawyer on this issue beforestarting a business in the Federation of B&H.


Misdemeanor courts are also established at the cantonal level. Theyare competent for violations of cantonal laws and by-laws. Communitycourts are the first instance courts, while cantonal courts have onlyappellate jurisdiction.

19.2. Arbitration

B&H law enables all methods of extra-judicial settlement of businesslaw disputes, including amicable resolution, mediation, conciliationand arbitration. The history of arbitration dispute resolution in B&His 120 years old. B&H law divides arbitrations into domestic and for-eign arbitrations. Subjects in domestic arbitration can be only B&Hcitizens or between B&H subjects and foreign subjects. The law allows both ad hoc and institutional arbitrations.

In case of dispute, the parties have two possibilities: to settle the dispute by internal arbitration (ad hoc), or with international arbitration.

The practice in Bosnia and Herzegovina indicates that the arbitrationclause is provided for by the founding document (contract on foun-dation). According to those arbitration clauses, each party in a disputeappoints one arbitrator, at their discretion, and the appointed arbitratorselect a president. The arbitration defines the procedure and its decision is final. In case of obstruction by one party, the court hascertain authorities (i.e., the appointment of arbitrators).

The law in B&H respects the principle of the autonomy of the willsof the parties, which enables agreement on international arbitration.Agreement on the relevant material law for the disputable relationsbetween the business entities is also allowed.

As a successor state of the former SFRY, B&H acceded to the majority of international conventions on arbitration:

• Geneva Protocol on Arbitration Clauses, 1923;• Geneva Convention on the Execution of Foreign Arbitral

Awards, 1927;


• New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958;

• European Convention on International Commercial Arbitration,1961 and

• Washington Convention on Settlement of Investment Disputesbetween States and Nationals of other States (ICSID), 1965.

UNCITRAL Arbitration Rules from 1976 also play a major role inour arbitral practice.

The domestic sources include:

• The Law on Conflict of Laws;• Civil procedure laws of the entities;• The Foreign Trade Chamber of Commerce Law and• The Rules on Organization and Procedures of the Arbitral Court

of the B&H Foreign Chamber of Commerce, 1999

Arbitration of the B&H Foreign Chamber of Commerce has been established but has not begun to function. It will be replaced by arbitration of the Foreign Trade Chamber of Commerce, which isforeseen in art. 20 of the FTCCA. There are no other institutional arbitrations in B&H. That is why ad hoc arbitrations will resolve thebulk of disputes in the near future. We will emphasize their legalregime in a brief description based on the Federation of B&H Law onCivil Procedure (LoCiP).

If parties can autonomously dispose with their rights, they can makearbitral agreements for existing or future disputes that might arisefrom a concrete legal relation. In order to be valid, an arbitral agreementmust be in writing. It may be incorporated into the general conditionsof dealing as well. The number of arbitrators must be uneven. Thereasons for taking exception to the arbitrator are the same as thosefor judges.

The LoCiP contains detailed provisions preventing one party fromobstructing arbitral dispute resolution by refusing to nominate its arbitrator. In such cases, the court that would have been competent for


the dispute if the parties have not concluded the arbitral agreement,nominates the missing arbitrator. Each party can sue for annulment ofthe arbitration clause it the parties cannot agree on the arbitrator theyshould nominate jointly. The same goes if the third person empoweredto nominate the arbitrator cannot or does not want to nominate an arbitrator.

Arbitration may resolve a dispute ex equo et bono only when partiesexplicitly decide to. If the parties did not agree on the substantivelaws and procedure relevant for their dispute, arbitrators in ad hocarbitration shall determine it. In spite of this, the LoCiP outlines procedural milestones. Parties can always decide to terminate the procedure by amicable settlement. If they do not do so, an arbitrationaward has the power of enforceable judgment. Parties may agree in advance on the possibility to appeal to the arbitration of second instance.

The arbitral award can be annulled by the plea in an abatement filedwith the court that would have been competent for the dispute if theparties have not concluded arbitral agreement. According to theLoCiP , the reasons for this can be:

• the arbitral agreement does not exist or is not valid;• the arbitral panel had not been composed or did not pass an

award in accordance with the agreement or LoCiP;• the award does not contain the reasoning or the signatures of the

arbitrators;• the arbitration stepped out of its competencies and powers;• the award is unconstitutional;• the reasons for reopening of the court procedure exist in the

arbitral procedure.

An arbitral award that has not been passed on the territory of B&H,or that has been passed in B&H but under the procedural rules of aforeign state, is a foreign arbitral award. The relevant internationalconventions and LCL regulate its recognition and enforcement inB&H. We shall emphasize only LCL rules.


The party asking for recognition and enforcement must submit to theDistrict court in the Republic of Srpska or cantonal court in B&H theoriginals or certified copies of the award and arbitral agreement. If ina foreign language, an official translation is also necessary.

The court shall refuse to recognize and enforce a foreign arbitralaward under one of the following conditions:

• B&H law does not permit arbitration for such a dispute;• the B&H court is exclusively competent for the dispute;• recognition or enforcement would be contrary to the constitu-

tion of the Federation of B&H or the Republic of Srpska;• there is no reciprocity with the state the award belongs to;• the arbitral clause was not executed in writing;• the arbitral clause is not valid;• the party who lost the case had not been duly informed on the ap-

pointment of arbitrators or had not had the opportunity to use itsrights;

• the arbitral panel was not composed in accordance with the ar-bitration clause

• the arbitration stepped out of its competencies and powers;• the award is not final or enforceable;• the sentence of the award is contradictory or not understandable.

Essentially, the conditions of LCL are the same as the assumptions forrecognition and enforcement set forth in the New York Convention.


Chapter CONTRACT OF SALE2020.1. Concept, signing and elements of a sale contract20.2. Seller’s obligations20.3. Buyer’s obligations20.4. Objections20.5. Seller’s liability20.6. Buyer’s liability

Chapter 20

CONTRACT OF SALE

20.1. Concept, signing and elements of a sale contract

20.1.1. Concept, features and effect of a sale contract

A sale is a legal transaction that normatively regulates the exchangeof goods for money and places it under state protection. In this way,economic operations are built upon by a legal operation — the exchange of ownership rights over the goods for ownership overmoney. From a legal aspect, a sale contract results from the agreementbetween parties whereby one of them — the seller — binds himself todeliver the goods which are the object of sale to the other party — thebuyer — and to transfer the strongest ownership right over it, while thebuyer binds himself to deliver, to the seller, a specified amount ofmoney and transfer the strongest ownership right over it to him.

The legislative definition of a sale contract is included in the Law onObligations (henceforward: LoO). According to the Law, “a contractof sale binds the seller to deliver the goods he sells to the buyer so thatthe buyer acquires the disposition right, i.e. the ownership right, withthe buyer to pay the specified price to the seller”. The LoO Draft ad-justs the definition of a contract of sale to the new economic and legalsystem. “A contract of sale binds the seller to transfer, to the buyer,the right of ownership over the sold goods and deliver them to himfor this purpose, while binding the buyer to pay the specified price inmoney and take over the goods.”

The diversity of ownership rights appearing in transactions, the greatnumber of kinds of subjects, as well as inequality of objects, aimsand features of exchange have brought about the emergence of threebasic types of sales contracts. These are sales of civil, business and

Chapter 20 CONTRACT OF SALE 257

international business law. Subjects of civil sales include local andinternational natural and legal persons of civil law, and subjects ofbusiness or commercial law when acting beyond the registered objectof their respective businesses. A civil sale is therefore conducted spo-radically and unprofessionally, and its basic goal is the acquisition ofan object’s utilization value. The objects of such sales can includeimmovable things as well. In sales of a civil nature, modern ways ofdoing business have brought about the increasing development ofsome new ways of operating. These are, above all, distance sales,using up-to-date information and communication technologies bymeans of the Internet, web advertising, etc. This is accompanied bynew forms of payment by means of electronic money and electronicsignature.

A contract of sale is a chargeable, mutually binding and commutativecontract. In an economic sale, the chargeability is implied, and a contract is therefore existent even if the price has not been specifiedby the parties’ agreement. The commutative quality implies the reciprocal identity of parties’ obligations and rights: what is an obligation for one party is a right for the other.

A contract is formed by the agreement between the parties and is consensual. Its occurrence or effect does not require the delivery ofthe goods which are the object of the contract. Generally, a contractis informal, i.e. the agreement between parties is achieved in anyform. In some exceptions, the law prescribes a written form of contract for individual kinds of sales. The form then acquires the capacity of an essential element. Our law does not recognize the proving form (ad sollemnitatem).

The legal consequences or effects of a contract of sale include thetransfer of ownership from the seller to the buyer, or the emergenceof the obligation to deliver the goods. A contract of sale can, thus,have property-law and obligation-law effects.


20.1.2. Contract formation

Modern law transcends the concept of the formation of a contract ofsale and other contracts that restricts the process only to the actionsof offer and acceptance. Legally protected negotiations are the latestlegislative expansion of the procedure of closing the deal. Currently,the procedure of contract formation includes the following stages:potential stages, necessary stages, contract perfecting, and state interference in the field of the emergence of individual contracts.

The potential stages of contract formation include, first of all, pre-liminary contacts, as unilateral factual, commercial actions wherebyone person invites another to negotiate, or asks for information inorder to make the decision on starting the negotiation. The secondstage includes negotiation as two-sided parties’ contacts with theclearly expressed aim of starting the process of determining the participants’ intention with respect to the future contract. The parties’consent fixed in writing reached during the negotiation, which pertains to individual parts of the contract, is called punctation. Thefinal, third stage includes the so-called preparatory contract, which isthe product of a contract reached through negotiation. The preparatorycontract provides a basis for sending a “firm offer.”

The necessary stages of contract formation include giving an offerand acceptance. Both stages are complex and mutually connected.By its legal nature, an offer is a unilateral civil-law transaction; itemerges through a statement by a single subject and creates an obligation only for him. The offeror’s obligation is to stick to the offerwithin the period stated in the offer or, if there is none, in the dispo -sitive regulation.

Since an offer typically creates a strict obligation for the offeror, special procedures have been developed to place the person that isthe offeror in the economic sense of the word in the legal position ofthe offeree. These special procedures include: public invitation fortenders, pre-qualification bidding and offering collection. In complexand high-value contracts, the three procedures are carried out basedon the previously developed tender. The tender is prepared or ob-


tained by the person who is the offeror in the economic sense, and theofferee in the legal sense of the word. The tender is a thoroughlydrawn and compulsory form of offer, which contains all the necessaryelements except for the price.

Acceptance is a statement or behavior of the offeree that indubitablyindicates the offeree’s consent to the offer. A contract can thus beclosed by facta concludentia (declaration of will implied by conduct)as well and, under special conditions, it can also be formed by si-lence. Since silence implies the offeree’s completely passive conduct,it can be considered acceptance if the following conditions have beenmet: a permanent business relationship between the offeror and offeree with respect to the specified (not any) kind of goods, and theofferee’s failure to declare that he declines the offer within the provided timeframe or immediately.

20.1.3. Special techniques of contract formation

20.1.3.1. Standard contracts

Business-law sales are always conducted professionally, and theirmost common objects are movables specified by classes. These features, in the conditions of mass operations, regularly lead to theformulation of certain elements and regulations in contracts of thesame kind. This forms the basis for a number of types and forms, andgeneral business conditions, which tend to be applied equally to allparticipants in business. They are therefore called standard contracts.They provide formulated contract elements in advance. The essentialelements are determined to the greatest extent possible. Most frequently, the agreement refers to the quantity as the object deter-minant, and the price amount.

20.1.3.2. Bill of Sale

A bill of sale is a written receipt of an orally formed contract. It is provided on a previously determined and printed form, or in an


ad hoc drawn form. Since a bill of sale is not a written form of con-tract, the latter is valid even when a bill of sale has not been given orsigned. The capacity of the compulsory contractual form of a legalsale transaction can be attached to a bill of sale only through an in-dubitable agreement between parties.

20.1.3.3. Order

An order is an offer if the buyer, based on previously gathered infor-mation, uses it to express a serious intention to form a specified contract, defined in the document. If the buyer sends an order basedon the already received seller’s offer, then it has the legal character ofan acceptance. Such an order must correspond with the offer in alldetails. If there are differences between the order and the offer, it hasthe legal features of a counter-offer. Finally, when the contract hasalready been signed, the order has the capacity of evidence and abookkeeping document.

20.1.3.4. Electronic contracts

Electronic contracts are contracts formed by means of InformationCommunication Technologies (henceforward: ICT), i.e. contractswhere both the offer and acceptance of the offer have been providedelectronically. The specifics of electronic contract formation are primarily manifested in the materialization of the expressions of will(offer and acceptance of offer) by the parties to the contract in anelectronic form. Publication of the electronic document on a website,message authentication and sender’s identification in e-messages sentby e-mail (open systems), or in another way agreed upon by the parties for sending and receiving e-messages (closed systems) are important issues. Contract formation via electronic messages andusing ICT involves search processes (e.g. searching the offeror’s website), giving an offer and acceptance, authorization of paymentand payment itself as a form of acceptance by facta concludentia.


The buyer accesses the seller’s website, browses data on productsand services, and prepares an order which must be in a standardizedform from the website (standard-form contract). Thereupon, he givesan order which, depending on the wording on the seller’s websitemay be given in the form of an offer or acceptance (depending onwhether an offer has been given or a solicitation made to give offers).The software installed on the seller’s website receives the informationon the order, including the description of the product or service andthe total price, shipment and delivery. When the seller receives the acceptance in the prescribed standardized form provided on the website, a notice of the received order (notification) will be sent electronically to the acceptance sender, i.e. order sender, and payment instructions will be provided.

In a traditional environment, transactions are conducted directly,‘face-to-face’. Participants involved in the transaction can verify theother partner’s identity in different ways (e.g. through ID, driver’s license, travel document, etc.). This itself implies security.

In electronic trade, traditional tasks still have to be performed, butthey must be completed in a different way. An electronic environmentrequires the same level of security, but requires different techniques.This is served by the electronic/digital signature, which serves to con-firm the authenticity of the message content (proof that the messagehas not been changed on its way from the sender to the buyer), andto provide a warranty about the message sender’s identity.

The basis of digital signature is formed by the content of the message itself. Using defined cryptograph algorithms, the sender firstcreates a writing of a fixed length (e.g. 512 or 1024 bytes) out of hisarbitrary-length message, which completely reflects the message content. It practically means that each change in the message contentleads to a change of signature. He then codes the thus-obtained inscription with its secret key, and forms a digital signature he sendstogether with the message.


The most developed and safest way of electronic contracting is reachingan agreement via the Trade Partnership Agreement (TPA). This kindof agreement specifies the terms and conditions under which partiesto the contract will form electronic contracts, i.e. do business elec-tronically. These agreements are based on the application of EDI(Electronic Data Interchange), which allows automatic electronictransactions. The EDI system allows the offeror and offeree to use e-messages to send offers and acceptances, i.e. form contracts, in a secure way, within the closed system. This way of doing businessprevails in the B2B trade, i.e. e-commerce between companies.

Besides the standard essential elements, an electronic offer shoulddefine, in a clear way:

• the distinction between the offer and solicitation for giving offers;

• a clause on the general business terms;• a clause on the restrictions or exclusion of liability for specified

cases;• applicable law;• manner of contract formation;• delivery or the manner of fulfilling contractual obligations;• price, currency and way of payment;• geographic limitations.

The offeror must clearly specify, in his electronic message or a document either via e-mail or website, whether it is an offer or solicitation to give offers. If the content of the e-mail or website indicates that it is an offer, the offeree forms the contract by simpleacceptance, in this case by observing the procedure for contract formation (e.g. double-clicking on the question asked on the websiteas to whether you accept the offer), and the offerer is bound by thecontract formed in this way. If it is a case of solicitation for offers orsolicitation for negotiation, the sender keeps the right to choose thecontracting partner. This way of e-business typically uses e-mail.Sending e-catalogues of products and services, or sending advertise-ments and other promotional documents are considered solicitationsfor giving offers.


Standard business terms are almost always incorporated into the contract itself, and consequently must be clear in the offer as well.There are three types of ways of presenting the standard requirementsfor an offer on a website:

• hyperlink shown in the bottom of the site, where a simple clickreveals the standard terms of the offer;

• hyperlink in a sentence that may read: by clicking the ‘I accept’button you have confirmed that you are aware of and that you accept the terms of the offer;

• a section of the offer that must be read first in order to be allowed to click on the ‘I accept’ button and thus form a contract.

The clause on limiting or excluding liability for specified cases is acontractually permitted way of limiting the offeror’s liability forevents that may occur without the offeror’s guilt and responsibility.For the clause to have effect, it must result from negotiation betweenthe parties to the contract rather than through imposing, i.e. for oneparty to exploit its dominant position. These rules are generally accepted and apply even in cases of electronic contract formation.

Internet and e-commerce do not recognize the concept of state borders. Therefore, determining which law is applicable may presentsome difficulty. An additional problem for entering clauses on thelimitation or exclusion of liability is posed by the variety of legal regulations and exoneration clauses in the laws of states whose citizens may appear as contracting parties: e.g. an offeror seated in the EU sends an offer via e-mail to clients in the USA, Japan andNorway. For this reason, it is recommended that an electronic offerdefine the applicable law. If this is not the case, the offeror must knowwhether the national laws of the countries where their potential clientsare seated allow the exoneration clause, and to what extent and forwhich cases they may be included in the contract.

Besides the usual clauses on limitation or exclusion of liability, e-commerce via websites includes clauses on the exclusion of liabilityfor damage caused by:


• attacks by computer viruses, worms, Trojan horses, and otherdestructive software;

• interception of received messages;• changes in the terms of the website or of the website’s content;• changes in the goods specifications made on the website.

Since the Internet does not recognize geographic or state borders, determining the applicable law is more important in electronic businesstransactions than in more traditional ways of doing business. If the applicable law is not specified in the offer itself, a possible disputedue to a contract formed in this way will open the conflict of laws andjurisdictions as previous issues. Consequently, the offeror most oftenincludes a clause on the applicable law on their website or in a mes-sage sent via e-mail. The literature cites the following wording as agood example: “A contract made via this website is fully subject tothe law of the offeror’s seat — English law, and is considered to bemade in England; the form, content, fulfillment and validity of thecontract is judged according to English law, and the English courtshall have exclusive jurisdiction for resolving disputes due to a contract made through this website, as well as any dispute that aroseby using this website.”

The method and procedure for accepting the offer, validity and termsof the offer are a mandatory part of an electronic offer. Due to thedifferent perspectives of national laws on when an offer is received,and due to the particular features of the Internet as a medium andmeans (hardware and software) by which an offer is sent, an offermade electronically has to include the information on when a contract is considered to have been formed.

As a rule, the clause on the manner of contract formation providesthat all the orders have to be given in the standardized form found onthe website (standard-form contract). Further, it is provided that acceptance does not bind the company unless it receives it. Finally,electronic offers also include explanations of the very procedure ofgiving acceptance (for example: by double-clicking on the questionasked on the website as to whether you accept the offer). When thecompany receives the acceptance in the standardized form given in


the offer on the website, the notification will be sent electronically tothe acceptance sender, i.e. the order sender.

When doing business over the Internet, you are doing business withthe whole world. If the goods and services offered are available onlyin some countries, the offeror must include, in their offer, the “geographic limitations” clause, which specifies which clients fromwhich countries the offer refers to. If this clause does not exist, the offeror risks being bound by unwanted contracts, i.e. contracts theycannot fulfill, and thus is liable to damages due to non-fulfillment ofthe contract.

In electronic business, the offeror specifies, in the offer, the way ofgiving acceptance, which is mandatory for the offeree. The offerorspecifies the way of giving acceptance, i.e. specifies the software application through which the acceptance is given (for example, double-click on the box which says that the terms from the offer areaccepted, and that you fully agree with the elements of the offer, or simply by giving an order for payment, which represents the acceptance by facta concludentia).

Giving acceptance by facta concludentia is not rare in e-business.The technological revolution has made this possibility unique, and itmost frequently appears in the form of a buyer’s giving a paymentorder over the seller’s website, which has to be considered an acceptance. The effect of a valid acceptance is the formation of a contract. The adopted moment of its formation is the theory of acceptance, i.e. when the electronic message that represents the acceptance enters the offeror’s information system.

20.1.4. Essential elements of a contract of sale

The essential elements of a contract are those components that give,to the contract, the features of a defined type of legal transaction,through either specific content or characteristics that correspond tothe parties’ common intention. In business law, the essential elementsof a contract of sale always include an object, a thing. Quantity andprice have this quality only under certain circumstances.


20.1.4.1. Object

Movables are an object characteristic of commercial sales. These caninclude goods, energy or securities. Special legal regimes are provided for sales of energy. A thing as an object of sale is a limitedpart of nature that can be put under human control and rule, and if itis factually and legally movable. In order for a thing to be an objectof sale, it has to be in legal trade (in commercio). The trade can belimited or unlimited.

According to the existence criterion, an object of sale can include aperished, existing or future thing, i.e. goods. According to Art. 459 ofthe LoO, “A contract of sale has no legal effect if the goods to whichthe contract refers to have perished at the moment of its formation.”The effect of partial perishing depends on business customs and on whether the purpose of the contract has been threatened or not.Generally, the buyer may choose whether they will terminate the contract or abide by it with a proportionate decrease in price. However,the contract remains valid by force of law if partial perishing doesnot interfere with the achievement of the purpose of the contract, orif there is a business custom, for a given thing, which requires preser-vation of the contract (in favorem contractus). The buyer then has theright only to have the price decreased.

The goods can be defined by generic (generic goods) or distinctivefeatures (individualized goods). Generic definition also representsthe minimum qualitative definition of goods. In terms of quantity,goods can be accurately specified or specifiable. In a contract, thegoods that are the object of sale have to be described at least to a degree that makes them specifiable.

The object of sale may include one’s own or someone else’s goods.The situation that arises by selling someone else’s goods is similar tothat of a contract the object of which is a future thing. The seller assumes responsibility to acquire the property right by the time ofdelivery, and transfer it to the buyer. If they fail to do so, they are liable for being late, i.e. for termination of the contract. However, aconscientious buyer who did not, or did not have to know that they


are buying goods from a non-owner, may terminate the contract andask for damages if, due to a legal deficiency, they are not able toachieve the purpose of the contract.

20.1.4.2. Quantity

Quantity is the physical, spatial and quantitative specification of thegoods which are the object of sale. Quantity is always an integral part of the object of sale. Its legal qualification depends on the significance of the quantity for the achievement of the purpose of transaction, and on the consequences due to irregular fulfilmentof the contract in terms of quantity.

Quantity is an essential element of a contract if it has been made explicit, if the nature of the goods points to it, and if it is required bya specific circumstance of the actual transaction. In all other cases,quantity is a non-essential element of a contract. Regardless of legalqualification, quantity is always specified in a contract. There are nocoercive or dispositive regulations that could replace the agreementbetween parties.

Quantity may be specified by the contract. The specification is madeby an indubitable definition within the adopted system of measures.It may, but does not have to be, the meter-decimal system. In order fora contract of sale to exist, quantity must be at least specifiable. This,in turn, means that the agreement between parties must include elements that allow the establishment of what they exactly want interms of quantity. Actualization of these elements is both a legal anda factual issue.

20.1.4.3. Price, structure and manner of ascertaining price

Price is the value compensation for the provided goods and the trans-ferred property right over it. In a legal sense, price is an essential elementof the contract, and represents a primarily monetary counter-value ofthe object of sale and property right over it.


The structure of price is very complex. Price includes the monetarycounter-value of the goods’ net weight unless the contract explicitlyprovides that it also includes the weight of packaging (“gross fornet’). Since, in accordance with dispositive rules, the seller is boundto obtain packaging, the costs thus incurred must also be included inthe price. This rule will not apply if there is an explicit agreement between parties about the opposite, or when it is required by the featuresof the packaging. The costs of the trade of goods in a narrow sense,including taxes, shipping and handling, expenditures for preparationsfor delivery or storage, etc. are, as a rule, included in the price in theamounts that have to be accrued by the seller to the place and time ofdelivery. Other “dependent costs” are included in the price accordingto the same criterion. It should be noted that special regulations ontaxes, customs, and other procedures related to the trade of goodsmay include solutions different from those described above.

In the notes on the essential elements of sale it was said that this contract in business law exists even when it does not specify a price.It is ultimately stated based on the rule of dispositive character. There-fore we believe that the view that price must be specified or at leastspecifiable in a contract is justified. The ways in which the price is determined include coercive regulation, contract and dispositive regulation.

20.1.4.3.1. Ascertainment of price by means of a coercive document

Generally, companies “form prices freely based on market condi-tions”. However, the needs of managing economic policy, preventionof monopolistic agreements or behaviour, and placement of productsfrom commodity reserves may lead to a smaller or greater interventionby state (administration) organs in the field of prices. The Federationof Bosnia and Herzegovina, i.e. the entities in Bosnia and Herzegovina,are in charge of price control.

When legal conditions have been met, measures of direct price control are prescribed by the Entity government. It can determine:


fixed prices, highest prices, structure of highest prices, maintainingprices at the existing or specified level, and retail margins. Thesemeasures also include the possibility for the government to prescribeby giving its consent with prices, or to condition the change in priceswith the prior notification of the government. In the case of certainagricultural products, the government may also prescribe protectiveprices, either as guaranteed, or as “minimum-buyout prices”.

20.1.4.3.2. Ascertainment of price by means of contract

Price formation by means of a contract is the most frequent case inpractice. Price is entered in a contract as specified or specifiable. Priceis considered to be specifiable when the contract contains “sufficientdata by means of which it could be specified” (Art. 462, par.1 and 2 of LoO).

There are basically three techniques to determine the contracted price.Results obtained by their application are valid even if the specifiedprice is “poor”, when it is not an equivalent for the delivered goodsand transferred right. The former consists of its individual contract-ing, either based on parties’ estimates, or based on methodologiesthat are mandatory by law. The second way is the use of trade terms.Their meaning can be determined in dispositive regulations. The Lawon Obligations does so only for the “current price”. If it has been contracted without any accurate details, “the buyer owes the pricedetermined by official records in the market of the seller’s location atthe time when the fulfillment was due,” i.e. delivery of the goods.The third method is price calculation according to the sample taken.

20.1.4.3.3. Ascertainment of price by means of dispositive regulation

If the price is neither specified nor specifiable in the contract, thebuyer has to pay the price that was “regularly charged by the seller atthe time of contract formation” (Art.462, par.2 of LoO). If there is no


regular seller’s price, it is deemed that the “reasonable price” has beencontracted. According to the legal definition, the “reasonable price isconsidered to be the current price at the time of contract formation”(Art. 462, par. 3 of LoO). The ‘reasonable price’ differs from the ‘current price’ only by the time of specification. The former is relatedto the time of delivery, and the latter to the time of contract formation.Finally, if the reasonable price cannot be determined either, the contracted price is deemed to be one “determined by courts accord-ing to the case circumstances” (Art. 462, par. 3 of LoO). If neitherparty starts the procedure for specifying the price through the court within the limitation period, the contract of sale should be considered non-existent.

20.1.4.3.4. Change of price

The change of price implies its subsequent, different specificationcompared to the price in the contract. The ways in which this isachieved may be various. They can be classified as either those basedon dispositive regulations and those based on the contract itself. According to the principle of the autonomy of will, seller and buyerare, within legal limits, always authorized to change the price throughsubsequent agreement. The LoO contains two institutions that canlead to a change of price based on a request by one party only. The first is the termination or change of contract due to changed circumstances (Art. 133-136 of the LoO). The second is excessivedamage (Art. 139 — 140 of the LoO). General rules on excessive damage will, however, be difficult to apply to business-law salessince unawareness, i.e. the impossibility of awareness of the true value of the goods, is the prerequisite for submitting a requestpursuant to this principle.

In addition, parties can provide conditions under which, and ways inwhich, the specified price will be changed in the contract. The firstand most frequent way is including an escalation clause in the contract (Art. 397 of the LoO). The second type of clauses that revisethe price are index clauses (Art. 396 of the LoO).


20.1.5. Non-essential elements of a contract of sale

The non-essential elements of a sale transaction are those parts of thecontract that do not have to be included either by the nature of thetransaction or for contract formation consequent to the parties’ keygoals. Still, specification of non-essential elements is extremely significant both in an economic and legal sense. In this way, partiesachieve the full adjustment of the contract to their actual needs. It isfor this reason that non-essential elements are a frequent cause of dispute. Besides the essential elements of sale, all the other transactioncomponents have the legal character of non-essential elements by assumption. The opposite may be prescribed or contracted. What is described above clearly shows that the number of non-essential elements is extremely great. We will discuss only those that have notyet been described, or will not be described later on. These elementsare quality, transport clauses, and packaging.

20.1.5.1. Quality

Quality is a set of chemical, physical, aesthetic, functional and otherfeatures of the goods that make them usable either for the purposesit is typically used for, or for special purposes resulting from the contract’s or transaction’s circumstances. It is the set of features of thegood that make it fit for the purpose. As opposed to quantity, qualitycan be specified by coercive or dispositive regulations. Quality is specified by a coercive regulation when it is of special interest for a broader social community (health, security, exports, armed forces, etc.)

Quality is specified by the agreement between parties in a few wayswhich can be applied independently or combined. In the latter case,one should be careful that it does not result in contradictory or ambiguous outcomes. When specifying quality, the description in thecontract uses wording and / or drawings to define all or some of theindividual features of the goods. For many goods, their trade has already established ways to describe quality, and it is well knownwhich features attention should be paid to. The second way, fairly


frequent in practice, is to determine quality according to a sample ormodel. A sample is a small quantity of the goods, the features ofwhich must be matched by the entire contracted quantity. Quality canalso be specified by means of a model, which implies a body that represents features and dimensions of an industrial or craft product,or part thereof, that is the object of sale.

Quality can also be determined by specification. Specification implies “any contract provision that specifies the features and rangeof the goods”. If the specification determines only some features ofthe goods, those that have not been provided for must satisfy two criteria: be in accordance with specified features, and correspond withwhat is established in the trade. If the agreement between partiesstates that the buyer has to deliver the specification upon contract formation, there is a special kind of contract — specification sale. It isalso regulated in the Law on Obligations (Art. 539). The essence oflegal rulings is that, after the deadline for providing specification bythe buyer has expired, the seller can choose whether to terminate thecontract or to make the specification himself. The seller’s specificationis valid if the buyer does not provide his own — i.e. a different specification in a reasonable timeframe upon receipt of the notificationof the seller’s specification.

Quality can also be determined by type. Type is a set of features withwhich a type of good appears in trade and that is more or less knownto a broader circle of consumers. Type is denoted by a special name(e.g. Vlasic cheese).

Parties can contract quality by referring to standards. Standards arerules on the organization and manner of production, and on the productas the result thereof. They can be international, national, industrial orinternal. If there is more than one standard for a single good, and theparties have not specified which they prefer, “the standard valid atthe seller’s location is valid” (usage 142).

Finally, quality can also be contracted by using special technicalterms. Their meaning is defined either in dispositive regulations or inusages, i.e. business customs. In our country the most important termsof this kind are defined in the General Usages.


If quality has not been prescribed or contracted, it will be determinedpursuant to dispositive regulations. According to dispositive regula-tions, if the seller does not know the purpose of generic goods, theyhave to give goods of “average quality” (Art. 311, par. 1 of LoO).The seller can also properly fulfill their obligation by deliveringgoods of better quality, which “cannot be below average quality (rule146, par. 2). The seller that knows the purpose for which the buyerwill use the goods “has to deliver goods of suitable quality” (Art. 311,par. 2 of LoO). This knowledge of purpose may be equated to a situation where the seller has to know what the goods will be used for.Such a solution reinforces the buyer’s business position, since itmakes it easier to prove the seller’s negligence or malpractice.

20.1.5.2. Packaging

Packaging is a thing, or means of packing, and consequently a propertyvalue as well. It may also be defined as the protective wrapping ofgoods. Packaging can be classified in different ways. Judicially, themost important classifications are consumable and non-consumablepackaging, and usual and original (“original packaging”). Pursuant toArt. 75 of the Law on Standardization, “products in their originalpackaging” are those “that were packaged before being launched ontothe market in a way that ensures that the content of packaging cannotbe changed, spent, or used without opening or damaging the packaging,which is aimed at offering the packaged product to the immediateconsumer, i.e. user”. Packaging should be distinguished from the protection of goods that are not packaged. Packaging is an essentialelement of the contract if it has been prescribed or explicitly contracted. In all other cases, it is a non-essential element.

Packaging may be specified by coercive regulations. The basis and elements for doing so are provided by the Law on Standardization(Art. 74). Accurate details are provided by bylaws. The cogent regimenis characteristic of packaging that has a sanitary significance in thebroadest sense of the word, from the packaging of food to radioactivesubstances. The second source of rules on packaging is the actualcontract. Parties agree upon packaging by describing it, using technical


terms or referring to individual usages. These include a well-devel-oped system of technical, business and legal norms on packaging individual kinds of goods. If the contract says nothing on the issue ofpackaging, then General Usages require the seller to ensure the usualpackaging.

20.1.5.3. Transport clauses

Transport clauses are technical trade terms whereby the seller and thebuyer agree upon a series of issues significant for fulfilling the contract of sale. These include: organization of delivery, organiza-tion of transport, bearing costs of delivery and transport, formation ofthe contract on transport insurance and bearing the cost of the insurance,as well as the transfer of risk from the seller to the buyer. In additionto these, depending on the type of clause and the source for deter-mining its content, transport clauses can also regulate other issuessuch as: paying custom duties, acquiring permits, etc.

The International Chamber of Commerce in Paris (1936) codified themost important transport clauses. The document by means of whichthis was done is named INCOTERMS (International CommercialTerms). Revisions of INCOTERMS were made in 1953, 1967, 1976,1980, and 2000. INCOTERMS include only the rules on interpretingindividual transport clauses. Their content can be expanded or narroweddown by the contract. Owing to the extremely extensive content ofsome clauses, it is done relatively rarely in practice. Therefore, the application of the meaning of individual clauses in INCOTERMS ismost common.

20.2. Seller’s obligations

The seller’s obligations are duties to perform certain actions resultingfrom the contract of sale. The basic duties include: delivery, warrantyfor material deficiencies, warranty for legal deficiencies, and invoic-ing. These obligations will be the subject matter of a separate presentation.


Accessory obligations relate to fulfilling the main obligations and tothe regime of the seller’s liability. There are various classifications forthis group of obligations, two of which need to be singled out: takingcare of goods and notifying. The obligation to take care of goods isthe joint duty of co-contractors (Art. 520 — 522 of LoO). It rests uponthe seller when, due to the buyer’s tardiness with delivery accept-ance, the risk has passed to the buyer, and ownership over the goodsremains with the seller (Art. 520, par. 1 of LoO). In our country, theobligation to notify the buyer on all the moments relevant for the formation and fulfilment of the contract is the implementation of theprinciples of conscientiousness and honesty.

20.2.1. Delivery

The delivery of goods, or their delivery to the buyer or buyer’s agentand putting the goods at the buyer’s disposal, is the seller’s main obligation. It is inseparably tied to the transfer of risk and passing ofproperty, and is therefore the characteristic duty of a contract of sale.“Delivery” implies the system of factual and legal actions the sellerhas to take pursuant to all relevant sources so that the buyer acquiresthe possession and ownership of the goods. The complexity of thiscategory requires a special elaboration of its elements. Delivery mustconsist of at least one factual and one legal action. Which materialand legal action will be included in the delivery system depends onthe same factors as the entire system of the seller’s obligations. It is essential to notice that, besides sources of law, the customs and circumstances of the actual transaction are included therein. Thismakes the delivery a factual issue as well.

The object of delivery is a broader concept than the “object of contract”.The object of delivery includes both the object of sale and otherthings that determine the delivery and upon which the action of delivery is made. According to Art. 468 of LoO these are accessoriesand benefits from the goods (e.g. fruits and rent). LoO requires thegoods to be delivered in a “proper condition”. This wording impliesthe delivery of the contracted goods, rather than another goods (aliud),etc. The LoO requires the goods to be without material deficiencies.


The effects of delivery are its legal consequences. The effects of thedelivery depend on the concept of the contract of sale in every legalsystem, i.e. on the definition of the effects of the contract itself. Incommercial sales, i.e. business-law sales, the stress shifts from thetransfer of property to the transfer of risk. It is therefore possible todiscuss the effects of delivery by discussing the transfer of risk. Riskis the possibility of the occurrence of damage to the object of sale,damage that would be caused by non-indemnifying harmful activityby any person, not only a contracting partner, or by a harmful eventnobody is liable for.

Transfer of risk from the seller to a buyer who is not tardy with acceptance of delivery or taking actions that affect delivery is primarily regulated by the contract. In this case, parties have at theirdisposal two techniques: the first is the possibility for the parties toagree expressly, describing the solution they want; the second, whichis a more frequent solution, is for the parties to use transport clauses.If the contract does not regulate this issue, the dispositive rules ofArt. 465. of the LoO will be applied: “until the delivery of the goodsto the buyer, the risk of accidental perishing or damage is born by theseller, and by delivering the goods the risk passes to the buyer”. The“delivery” of the goods, pursuant to the LoO’s terminology, shouldimply delivery that corresponds to the terms of the actual contract.

20.2.2. Warranty for material deficiencies

Warranty for material deficiencies is the seller’s warranty to the buyerthat the sold goods have no physical properties that would impederegular and uninterrupted, prescribed, usual or contracted use. It canalso be defined as the seller’s warranty to the buyer that the deliveredgoods will correspond with what was provided by the contract. Legalqualification of this warranty is not dubitable. It is an integral part ofthe contract by the nature of transaction. It is included in the contractof sale whenever it is not explicitly excluded and to the extent to which it is not limited by the contract itself. The positive legal definition of material deficiencies is included in Art. 479. of the LoO.According to the Article:


“A deficiency exists:

1. if the goods do not have properties needed for their regular useor trade;

2. if the goods do not have the necessary properties for the specialuse the buyer acquires them for, and which would be known tothe seller or had to be known;

3. if the goods do not have properties and features that are explicitlyor tacitly contracted or prescribed;

4. when the seller delivers goods which are not identical to the sample or model, except when the sample or model are shownonly for the sake of information”.

The deficiencies that are specified by coercive regulations, regularpractice in trade and / or customs are called objective. Those that existcontrary to the expressly or tacitly contracted properties of the object of sale, which insult the actual buyer’s interests and goals, aresubjective deficiencies.

According to the kind of characteristics that do not correspond withthe contract, deficiencies can be classified as either qualitative (defi-ciencies in the narrow sense of the word), or quantitative. Accordingto the criterion of visibility, deficiencies are classified as either visible or hidden. The first group includes those that can be noticedat a usual external examination of the goods — “within sight”. Hiddendeficiencies are those whose establishment requires a special proce-dure of checking the properties of the goods or their use. Removabledeficiencies are those the correction of which is possible without asubstantial decrease of the usable or merchantable value of the goods.Irremovable are those where the correction is either impossible ormakes no economic sense. According to scope, deficiencies can besubstantial or unsubstantial. Substantial deficiencies lead to the an-nulment or decrease of the merchantable or usable value of the goods.Unsubstantial deficiencies do not decrease the value of the goods inany way. Finally, according to their impact on the contract, deficienciescan be essential or unessential. The former prevent the achievementof the purpose of the contract. Unessential deficiencies may causedamages, but do not affect the very existence of the contract.


For a warranty for material deficiencies to exist, conditions providedby law must be fulfilled. All the conditions must be fulfilled cumu-latively. First of all, the deficiency must be present at the moment ofrisk transfer. In some exceptions, the obligation of warranty and, consequently, liability exists even when the deficiency occurred afterthe transfer of risk if it is the result of a cause that existed before thatmoment. The second condition for the existence of the obligation ofwarranty is that at the moment of contract formation the deficiencies“were not known to the buyer or could not remain unknown” (Art.480, par. 1). The third condition is that the obligation of warranty isnot completely excluded or limited by the contract. The obligation ofwarranty will exist regardless of such a clause, if the deficiency wasknown to the seller or if he imposed it using his “special monopolis-tic position” (Art. 486, par. 2 of LoO). The fourth condition is that thegoods have not been sold at an “auction sale” (Art. 487 of LoO). Thefifth condition is the proper complaint of material deficiencies.Strictly viewed, the complaint is not a prerequisite for the emergenceof the obligation of warranty, but is a necessary assumption for keepingthis seller’s duty in force. Actually, expiration of preclusive deadlinesfor complaints results in the expiration of the obligation of warrantyitself, and consequently in the seller’s responsibility on this basis.

20.2.3. Warranty for legal deficiencies (protection from eviction)

Warranty for legal deficiencies is the seller’s warranty to the buyerthat the transferred right has no deficiencies that would prevent theemergence or duration of the buyer’s property rights, i.e. that woulddecrease or restrict the exercise of this right, and thus the quiet possession of the sold goods.

Like material ones, legal deficiencies can be classified according toa few criteria, namely, those that: exclude, decrease or restrict thebuyer’s right (Art. 508 of the LoO). According to the scope of impacton the goods and the right of property over them, this theory classifieslegal deficiencies as either full or partial. The right which, from thebuyer’s standpoint, represents a deficiency can be of the nature of apublic-right or a private-right (Art. 514 of LoO). Among private property


rights the most frequent ones are real rights (ownership, mortgage,servitude). In commercial sales, extreme significance is attached tothose that have an obligation origin (pledge), or that result from theright of intellectual property (right to patent, model or sample, i.e. industrial design; trademark).

For a deficiency to exist it is essential that the interference is legal. Itcan be made both by means of an action and in the form of an objection,and by directly pointing out some third party’s rights. By its legal nature, the warranty for legal deficiencies is a natural component ofthe contract; it exists whenever it is not expressly or tacitly excludedby the agreement between parties. The existence of a warranty forlegal deficiencies requires the cumulative fulfilment of legal prereq-uisites. The deficiency must be present at the moment of the transferof property right from the seller to the buyer. The second condition isthat the buyer is conscientious. The third condition is that the warranty is not excluded or restricted by the contract. The fourth condition is informing the seller about the deficiency, i.e. the complaintabout it (Art. 509 of LoO).

20.2.4. Invoicing

Invoicing is one of the seller’s obligations. An invoice can be definedas the seller’s statement of will given in the form of a written document,whereby he requires the buyer to pay the price from the contract andpossibly other expenditures incurred related to the contract. Besidesthe request for payment, an invoice always contains some elementsof the contract as well: object, quantity, unit price, transport clause,and the total amount of price. The functions of an invoice are numerous. First of all, it is a request for the payment of the price.Further, an invoice is an extremely important bookkeeping document.In addition, an invoice is an extremely important piece of evidence.Depending on the stage in negotiation or contracting, an invoice canhave two more functions. It can represent the offer to form a contractor the acceptance of an offer. The legal price regimen allows anotherway of using an invoice. It can be a means for reviving a contractthrough stating the price precisely by the seller.


20.3. Buyer’s obligations

The buyer’s obligations are his duties to perform activities that resultfrom the contract of sales. In our law, the buyer’s basic obligationsare: paying the price, examination of goods, receiving the delivery,and notifying about material deficiency (complaint), if one exists.

20.3.1. Payment of price

Payment is the buyer’s basic and most important obligation. Its fulfilment is the main reason and cause for which the seller forms acontract. Payment of price is without any doubt the buyer’s contractualobligation. The content, object of the payment obligation is not identicalwith the price. The obligation of payment is, as a rule, greater than theprice itself, since it includes other expenditures as well, primarily thevarious costs of the trade of goods.

20.3.1.1. Form of payment

The form of payment implies the instruments of payment and actionstaken related to them, as well as the entire system of procedures thebuyer has to do in order to perform his duty pursuant to the contractand coercive financial regulations. The instruments of payment arethe means by which, pursuant to regulations on payment and dealingwith securities, monetary obligations are fulfilled.

As the first form of payment, the Usage provides depositing “a monetaryamount on the creditor’s current account with the bank which is in thecountry”. The second big group of payment instruments includes theso-called instruments of money transfer. The Law on Financial Transac -tions gives priority to the transfer order, which orders the bank totransfer the money to the seller’s account (Art. 12 of LoFT). Out ofthe others, usages regulate payments by transfer order and chequeorder (usages 189 and 196). It should be added that this group of instruments may also include a postal money order.


The third significant group of payment instruments consists of secu-rities. Fourth, payment can also be made by a letter of credit. A letterof credit is an abstract legal transaction which binds the issuing bank,based on the contract with the buyer, to “pay a given amount ofmoney” to the beneficiary, i.e. the seller, “if the conditions cited in theorder for opening a letter of credit have been met until the due time”(Art. 1072 of LoO). Finally, payment can also be made by means of reckoning. The Law on Financial Transactions mentions only compensation (Art. 12, par. 2), but does not exclude others: cession(Art. 436-445 of LoO), and assignation (Art. 1020 — 1034 of LoO).

20.3.2. Examination of goods

Pursuant to Art. 481 par. 1 of LoO, “the buyer is bound to examinethe received goods in the usual way, or have them examined.” Thusin our law the check for material deficiencies is the buyer’s obligation.Examination of goods in order to check the existence or non-exis-tence of material deficiencies is a system of factual and legal actions,together with their modalities, that should be taken in order to reacha relatively certain and legally relevant view on whether the propertiesof the delivered goods conforms to what was provided for by the contract. The examination of goods consists of a series of related fac-tual actions that follow the explicit or tacit expressions of will relatedto performing given procedures and the assessment of their results.The significance of the examination of goods in order to establish the(non)existence of material deficiencies is great. In an economic sense,the buyer in this way checks if he receives what he should pay forpursuant to the contract. Viewed legally, the examination of goodsare an irreplaceable means of a trustworthy stating of the facts related to the conformity of goods delivery according to the terms ofthe contract, and for providing evidence of these facts. Consequently,both the examination and the complaint represent “acts of vigilance”,i.e. the buyer’s alertness.

Pursuant to both continental and B&H law, examination is the obligation of the buyer. Pursuant to Art. 481, par 1. of LoO the examination must be made in the “usual way”. The usual way is


determined according to customs at the examination site, businesscustoms of the given trade branch, the nature of the goods and thecircumstances of the examination. The General Usages for the tradeof goods as a trustworthy way of examination provide for committeeexamination.

20.3.3. Acceptance of delivery

The acceptance of the delivery or “taking over the goods” is a systemof factual and legal actions that the buyer, pursuant to the contract,has to perform so that the seller can deliver the goods and transferthe property right over it. Delivery and acceptance of goods are thus“complementary concepts”, but in practice they are not necessarily included in a single process of the transfer of goods. Just as with delivery, acceptance consists of at least one factual and one singlelegal action.

Taking over the goods consists of taking the necessary actions toallow the delivery, and carrying the goods away (Art. 519 of theLoO). Which of the buyer’s activities are needed for the seller to beable to perform the delivery depends on coercive regulations, contracts,business customs, the nature of the goods, and the circumstances ofthe actual deal. Therefore, the more complicated the sales transaction,the greater the number of buyer’s activities; there will be more activities in distance sales than in situ sales; and more in successivethan in one-time delivery.

Another kind of action that achieves the obligation of acceptance is“carrying the goods away”. With such wording, the legislator wantedboth to relieve the seller of care for the goods and clearly define themoment of acceptance.

20.4. Objections

In the broadest sense, objections can be considered to be the state-ments by the contractual creditor, buyer or seller, whereby he informs


the debtor that he does not believe the contract has been properly fulfilled. Both in our and in comparative law, objections are alsocalled complaints, i.e. notifications of deficiencies. Objections are directed toward: the trustworthy statements of facts, prompting thedebtor to fulfil the obligation himself, or to fulfil it properly, preserving the right to correct the damage and out-of-court resolutionof disputes. Out of all the described functions, preservation of rightto damages is the most important.

The objection of non-fulfilment or improper fulfilment can be madefor the breach of any obligation. Both the buyer and the seller canobject. However, the significance and qualification of objections differ. The most significant objections made by the buyer are thosedue to tardiness of delivery, lack of observing the warranty that thegoods have no material deficiencies, and breach of warranty that thetransferred right has no legal deficiencies. On the seller’s side, themost important objection is due to the buyer’s tardiness with payingthe price.

20.4.1. Complaint of material deficiencies

A complaint of material deficiencies is a legal action, a statementwhereby the buyer notifies the seller that the delivered goods have,according to his findings and opinion, an actual material deficiency,and whereby he advises the latter on his intention to use some of therights he has on this basis. The complaint of material deficiencies isthe buyer’s obligation, and it is a prerequisite for preserving the rightto damages.

The objection is made by the buyer directly or through his authorizedattorney. The complaint is addressed to the seller or his attorney. Thecontent of the complaint is very complex. The first essential elementof the content is a detailed description of the deficiency. The secondelement of content, without which a complaint cannot exist, is the invitation to the seller to examine the goods in order to make surethat the complaint is really justified. The third condition is that it mustbe seen, from the complaint, that the buyer is making it with the


intention to use one of the rights he has associated with the uncon-firmed goods. In our law, these rights do not have to be accuratelystated. However, if the buyer does so, he has then used the option andcannot subsequently change his claim for damages. Finally, the complaint as a rule lists documents and evidence that the buyer hasat his disposal. If the manner of sending the complaint is defined bythe contract, only objections sent pursuant to the contract will bevalid.

The timeframe for making the complaint is the moment at which, orthe period within which, all the actions related to seller notificationon the material deficiency must be completed. In our law, parties arefree to agree upon the timeframe for objections. If they fail to do so,the regulations of the LoO will apply. If the seller was not conscien-tious, i.e. if the deficiency “was known to the seller or could not haveremained unknown” (Art. 485 of the LoO), the buyer has, at his disposal, an unlimited time to lodge a complaint. The buyer’s right inthis case does not cease even after the expiration of the objectivedeadline of six months upon the delivery.

When the seller is conscientious, the time of complaint depends onwhether the deficiency is visible or hidden. If both parties were presentat the delivery, and if the examination was made at that time, “theseller is bound to report his objections due to visible deficiencies immediately otherwise he loses the right that belongs to him on thisbasis.” The expression ‘immediately’ is a legal standard that points tothe increased degree of urgency. It practically means that the buyermust object as soon as he detects the deficiency and no later than ina reasonable time upon the time of delivery. The reasonable time isone needed and sufficient for a proper buyer to draw up the complaint(Art. 481, par. 2 of LoO).

The timeframe for complaints regarding hidden deficiencies is defined by subjective and objective timeframes. They must be main-tained cumulatively. The subjective timeframe starts from the day ofdetecting the deficiency. In contracts of business-law sales, its durationis determined by the “without delay” standard. The day of delivery isalso the starting day of the objective timeframe of six months, within


which the complaint to the conscientious seller can be made. The objective timeframe is preclusive; its expiration ends both the buyer’sright to reparation of damage, and the procedural possibility to makethe objection.

20.4.2. Complaint of legal deficiencies

A complaint of legal deficiencies is a statement whereby the buyernotifies the seller that the transferred right has not been constituted atall or has not been constituted in the scope and in the way providedfor by contract, and whereby he advises the latter of his intention touse some of the rights belonging to him on this basis.

The first deviation of the regime of complaint of legal deficienciesfrom the rules of objection to material deficiencies is the content ofthe complaint. The nature of legal deficiencies is such that provingthereof is regularly made by a third person, who states that he has astronger right over the sold goods than the buyer. Therefore, thebuyer’s duty with respect to accurately stating legal deficiencies isstricter. The buyer has to notify the seller at least of the third person’srequest, in full.

20.5. Seller’s liability

20.5.1. Liability for tardy delivery

“A debtor is tardy when he does not fulfil the obligation within thetimeframe determined for the fulfilment” (Art. 324, par. 1 of LoO).Consequently, the seller’s tardiness with delivery is a fact of non-fulfillment of the obligation of putting the goods at the buyer’s disposal at the time defined by the contract or based on the contract.Liability for tardy delivery is a unilaterally binding obligation rela-tionship, the subject of which is correcting the damage in kind or inmoney, to the extent to which the damage is due to the tardiness.Since the seller’s guilt for tardiness is assumed (Art. 263 of LoO),this kind of liability can be qualified as subjective. The common


characteristic is that, except in fixed contracts, it is insisted upon thatthe contract be kept in force and be fulfilled.

20.5.2. Liability for material deficiencies

Liability for material deficiencies is due to non-fulfilment or improperfulfilment of the seller’s obligation of warranty that the goods haveno material deficiencies. This liability can be defined as a unilaterallybinding obligation relationship whereby the buyer has the right to re-quire, from the seller, some of the legally provided actions of thereparation of damage due to the existence of material deficiencies.For this liability to exist, the damage must be manifested as a hiddendeficiency. The seller’s guilt is not a prerequisite for the emergenceof liability, and is qualified as objective. Liability for material defi-ciencies covers the liability to repair damages due either to qualitativeor quantitative deficiencies.

20.5.3. Liability for legal deficiencies

Liability for legal deficiencies results from non-fulfilment of theseller’s obligation of warranty that the transferred right has no deficiencies. By its features, it is identical to the liability for materialdeficiencies: it is objective and dispositive. However, the nature offeatures for which the warranty is given, and the specifics of thebreach that lead to a resolutions in cases of liability for legal deficiencies, are not encountered in the case of repairing damagesdue to material deficiencies.

20.6. Buyer’s liability

20.6.1. Liability for tardiness in sending the packaging

The buyer is tardy when he does not deliver the packaging at the con-tracted time. If the deadline for this action has not been provided forby the agreement between parties, the packaging is deemed to have


been delivered in time “if it reached the seller as early before the ex-piration of deadline for delivery as the circumstances require, for theseller to be able to perform timely packaging and delivery of goods”(usage 229, par. 4). Non-compliance with these provisions constitutestardiness in package delivery.

The seller has, at his disposal, two basic options: keeping the con-tract in force or its termination. In the first case, he also has the rightto damages for improper fulfilment of the contract, and in the secondthose due to the termination of the sale contract. The cessation of contractdue to the will of one party, i.e. the seller, is possible only upon theunsuccessful expiration of the subsequent deadline for proper fulfilment.

20.6.2. Liability for tardy acceptance of delivery

B&H law explicitly defines the acceptance of delivery as a buyer’sobligation. Therefore, the consequences of tardiness are generally thesame as in other cases of debtor’s liability on this basis. If the buyeris tardy with the acceptance of delivery, the seller is bound to guardthe goods with due diligence of a prudent businessman at the buyer’srisk and cost (Art. 520, par. 1 of LoO). The seller has the right to exempt himself of this obligation by giving the goods for safekeepingor by selling it. In commercial sales, giving the goods for safekeepingis primarily and most frequently done by storing the goods in a publicwarehouse. Such a procedure “has the effect of depositing it with acourt” (Art. 329, par. 2 of LoO).

20.6.3. Buyer’s tardiness in the payment of price

Tardy payment of price exists when the buyer does not fulfil its ob-ligation to pay in due time. Untimely payment is judged pursuant tothe terms of the actual contract, and provisions of dispositive sourcesthat were not put out of force by the agreement between parties. Li-ability for tardy payment is objective. In addition, the obligation ofreparation of damage is subject to some specific rules. These prima-rily refer to penalty interest, and the seller’s right to terminate thecontract due to the buyer’s tardiness in the payment of price.


ChapterCONTRACT OF AGENCY - AGENCY IN INTERNATIONAL TRADE21

21.1. Concept of agency 21.2. Types of agent’s authority and types of agency21.3. Sources of law21.4. International commercial agency contract

Chapter 21

CONTRACT OF AGENCY - AGENCY IN INTERNATIONAL TRADE

21.1. Concept of agency

Agency in its broadest sense is acting for someone else. It can bemanifested by factual and legal actions — statements of will. If state-ments of will made on someone else’s behalf and on someone else’saccount “produce a legal effect directly toward the principal”, thensome continental systems speak of agency in the legal-technicalsense. Other statements of will belong to “representation”. There arethree subjects in agency: the principal, agent and a third party. A relatively independent legal relation arises between each of these respectively, and therefore agency, viewed as a whole, is a complexlegal structure.

According to the basis of its occurrence, agency can be classified as:legal, statutory, based on the document of relevant judicial or administrative organ, or contractual (power of attorney). The scope ofauthority provides the possibility of double classification of agency.First, if the agent is authorized to give an unlimited number of state-ments, agency is general. If the number of statements is actually spec-ified, it is special agency. Secondly, regardless of the scope ofauthority, agents can be unlimited, independent or more or less limited— non-independent in their activity. Limitation may refer to the formof activity, territories, time, circle of third parties, and other relevantfactors. The Law on Obligations recognizes the following kinds ofagency: power of attorney (Art. 89-94), business power of attorney(Art. 95 and 96), traveling salesman’s authorities (Art. 97), and the so-called employment power of attorney — one that results from the

Chapter 21 CONTRACT OF AGENCY - AGENCY IN INTERNATIONAL TRADE 291

position related to forming and fulfilling certain contracts, typical oftrade (Art. 98).

Anglo-Saxon law recognizes all the previously listed kinds of agencyand similar institutions. The historical development of customs, i.e.court decisions as a source of law, and special judicial techniques resulted in specific decisions here as well. These are primarily mani -fested in the existence of a unique higher institution of agency.“Agency is a relationship between two persons whereby one, calledan agent, is legally considered to represent another, a principal, insuch a way that he is capable of influencing the principal’s legal position toward strangers based on this relationship, in that he willform contracts or dispose with property.” The field of agency in commonlaw systems includes a series of special contracts, the most significantbeing: commission, forwarding contract, mediation, storage contractand commercial agency.

The field of agency spreads to the Internet as well. Thus, in commonlaw, there is the established term ‘electronic agent’, which refers tocomputer software that automatically processes received offers or orders, and automatically sends confirmations on the reception of or-ders via e-mail, which in turn have the capacity of accepting receivedoffers. The legal viewpoint of common law is that an agent is “theperson hired to do something instead of another person”, i.e. that anagent is considered to be “a person who represents another person intransactions and acts for him.” The question arises as to how computersoftware, which does not have the capacity of a natural or legal person, and therefore the possibility to act on someone’s behalf, canappear as an agent? For these reasons, common law agency viewsthe ‘electronic agent’ as any other means used by a person for communication with third parties.

21.2. Types of agent’s authority and types of agency

An agent’s authority is his legally recognized capacity to act for theprincipal, and create rights and obligations for him with third parties.The basic classifications of authorities are actual and apparent. “An


actual authority is the authority actually given to the agent by theprincipal based on the contract formed between the two, or based ona subsequent ratification.” Compared to the expressed authority, animplied actual authority is a legally sensitive category resulting fromthe nature of the task the agent has been hired to perform.

One of the most important classifications of agency is one based onthe principal’s exposure to a third party. If the third party does notknow they are dealing with an agent, the agency is called undisclosed.In this type, differences between continental and common-law ordersare the biggest. When a third party knows that they deal with theagent, but is unfamiliar with the principal’s person, the agency is partially disclosed or unnamed. Finally, if the third party knows theyare dealing with and agent, and who the principal is, it is a disclosedor named agency.

The second group of classifications is made according to various criteria. They are of both a legal and factual business character. Thelegal regimen of most cases can be considered as well known; consequently, we are only providing a review of agency classificationsfor this group:

a) general and special,b) regular and sub-agency,c) ordinary and del credere,d) commercial and non-commercial. A special importance in

commercial agency is attached to factors, brokers, freight forwarders, and procurement agents.

21.3. Sources of law

Commercial agency in Bosnia and Herzegovina is regulated bysources of local and international business law. A contract on com-mercial agency was first regulated by Articles 790-812 of the Lawon Obligations. Pursuant to Art. 790 of LoO, “A contract of commercial agency binds the agent to continually take care that thirdparties form contracts with his principal, by mediating between third


parties and the principal, and, when the authority is granted, to formcontracts with third parties on the principal’s behalf and account,while the latter is bound to pay a given compensation, or ‘commission’,for each contract formed.”

The most important general interstate source is the Convention onAgency in the International Sale of Goods, passed in Geneva on February 17th, 1983. Since its entering into force requires ten ratifi-cations or accessions, the Convention is not binding yet. Its significanceis still great, since the Convention is the authoritative codification of the existing rules, and a successful compromise between theAnglo-Saxon and continental systems.

The Convention is applied in situations where “one person, an agent,has authority or purports to have authority on behalf of another person, the principal, to conclude a contract of sale of goods with athird party.” Out of the autonomous sources of international businesslaw, the most important one is certainly the Guide of the InternationalChamber of Commerce in Paris (henceforward: ICC) for formingcontracts on commercial agency.

21.4. International commercial agency contract

An international commercial agency contract is the result of an agreementbetween parties with head offices in different states whereby one ofthem, the agent, binds himself to continually research market andcontact clients with the purpose of negotiating for the principal andwith reimbursement, and if necessary and with the granted authorityto form contracts on the principal’s behalf and account. The charac-teristics of such a contract are:

a) permanent activities for the principal;b) taking legal and factual actions;c) acting on someone else’s behalf and on someone else’s account;d) binding to act, rather then to achieve a given result, except in del

credere commercial agency;


e) assumption of general order: the principal explicitly gives special orders;

f) agent’s relative independence in activity;g) existence of a special relationship of trust between the agent and

the principal — (fiducia); this fact gives the characteristics of aninuitu personae transaction to this contract;

h) agent’s duty to act in good faith and in the principal’s interest.

21.4.1. Object of the contract

The object of the contract are activities of negotiating and/or formationof a contract with third parties by the agent on the principal’s behalfand account. Regulation of commercial agency in B&H law allowsfor the definition of the essential elements of this transaction pursuantto the regulations themselves. These include: the person registeredfor foreign-trade agency as an agent and the written form of contract,the entire territory of B&H as the area of agency, a production program that defines the object of the contract, and the minimum duration of the agency relationship. The object and price of the contractare determined by the Law on Obligations to be natural elements.

21.4.2. Price / commission

Price is the reimbursement for the agent’s delivered services. It includes the commercial agent’s regular business costs. The principalis separately charged for extraordinary costs. The conditions underwhich the principal has to accept these costs have to be specially determined in the contract. The principal has to accept and pay thecosts he has specially ordered or subsequently approved. The price isdetermined as the “commission”, i.e. as a percentage of the sales theagent has made possible for the principal. It is expressed in the localcurrency. Expression in foreign currency depends on the coerciveregulations of the agent’s state of residence.


21.4.3. Obligations of a commercial agent

The obligations of a commercial agent can be presented through eightbasic obligations. The first obligation of a commercial agent is continuous processing of the market and finding potential co-nego-tiators. The legal literature emphasizes the agent’s obligation to ad-vertise his principal’s products and services, and to organize theexhibition of his goods at trade fairs. The second, and the most important obligation, is continuous mediation for his principal andthe formation of contracts on his behalf and account — if there is a spe-cial authority for doing so. A commercial agent differs from a contractmediator by continuous activity, while he differs from a commissionagent by the authority to legally appear on the principal’s behalf.

The third obligation is to inform the principal on the market condi-tions and deals in progress. The information must be accurate andtimely, since the principal bases his business decisions on the datareceived from the agent. This obligation also includes information onthe permanent clients’ solvency, and changes in regulations.

The agent has to act in the principal’s interest, which is considered hisfourth obligation. This is the obligation that is implicitly contained ineach contract of commercial agency. The fifth obligation is for theagent to act with a due duligence of an expert, i.e. care that is suitablefor the described standards. This duty is even more important, sincea commercial agent independently decides on the way in which hewill fulfill the principal’s order and obligations based on it. The sixthobligation is that the agent must keep a trade secret. The obligationrefers to all of the data on the principal, the principal’s partners, andrelations between the agent and the principal. The seventh obligationis giving account and enduring control. The seventh agent’s duty is toreturn to the principal, “upon the contract’s expiration”, “all the thingsthat were given to him for use in the course of the contract’s exis-tence” (Art. 800 of LoO).


21.4.4. Principal’s obligations

The principal’s obligations can be classified into seven obligations.The first obligation is to allow the agent to perform tasks for the purposes described in the contract. The principal must first providethe material and documentation. The principal must take all the measuresfor preserving the contracted agent’s exclusivity, which is consideredhis second obligation. The third is the principal’s right to “accept ordecline the formation of a contract prepared by the agent by his ownwill”, although he is “bound to inform the agent on his decision withno delay”. In the case of declining, in some legal systems the agentdoes not have the right to a commission. The ICC Guide suggeststhat the right to decline the secured client be explicitly provided forin the contract. The fourth obligation is to pay the commission. It hasto be performed pursuant to the contract, including in special casessuch as exclusive agency and repeat orders.

The fifth obligation includes payment of other remunerations for theagent’s activity, those that are not included in the commission andare not part of costs. The duty under discussion appears in two basicforms: the agent’s guaranteed minimum income, and remunerationfor clients given in cases when the principal has the right to directlynegotiate with partners found by the (exclusive) agent, as well as forthe loss of clients in case of contract termination. The sixth obligationis to inform the agent on intended changes in business policy, andtheir capabilities during the contract of agency itself. The seventh ob-ligation is respecting the agent’s right of retention or lien.

21.4.5. Liability of participants in the contract

The reason for liability is failure to perform or poor performance ofcontractual obligations. The form of liability depends on whether thelegal transaction remains in force or ceases to exist. In both cases, liability is in principle based on guilt. The principal’s liability in thetwo situations may be founded on causality. It is then called objectiveliability. The first is tardiness in paying the due obligations toward theagent, primarily the commission. The second exists when, in the case


of contract termination, the principal owes the agent reimbursementfor lost clients, i.e. “lost commission” (Art. 811, par. 3 of LoO).

The principal and the third party are, as a rule, parties to the contractformed through the commercial agent’s activity. For fulfilling theirobligations, they are liable pursuant to the rule applicable for thegiven legal transaction. The agent and the third part are mutually liable when, pursuant to the rules of agency, the relationship betweenthe principal and the third party does not occur; this is the case whenthe third party did not know, nor have to know that the agent actswithout authority or beyond his limits. The parties to the contract, i.e.the liable persons, then include the agent and the third party, and ruleson the principal’s and third party’s liability are then applied.

21.4.6. Cessation of the contract

Cessation of commercial agency means that there is no longer a relationship of agency and representation between the principal andthe agent. Due to the different legal bases for the emergence of authorities in Anglo-Saxon systems, and their impact on the Conventionon Agency, these two systems speak of the ‘cessation of the agent’sauthorities’. Continental systems use the term ‘cessation of contract’.Pursuant to Art. 17 of the Convention on Agency, there are three basicways a cessation of authorities, i.e. agency, occurs. They follow theAnglo-Saxon legal technique, but also cover the cases known in continental systems. We will discuss them together. These are:

a) cases provided for by the agreement between the agent and theprincipal, which most frequently include: expiration of contractand subsequent agreement between parties on the termination ofcontract,

b) cessation of transaction(s) for the purpose of which the authoritywas created, i.e. by contract fulfillment,

c) recall by the principal, or cancellation of authority by the agent,regardless of whether they agree with the contract or not.


Chapter CONSTRUCTION CONTRACT22

22.1. Concept of the contract and sources of law 22.2. Parties and formation of contract 22.3. Essential elements of the contract 22.4. Investor’s obligations 22.5. Contractor’s obligations22.6. Taking-over of the structure22.7. Liability of participants in the business22.8. Special kinds of deals

Chapter 22

CONSTRUCTION CONTRACT

22.1. Concept of the contract and sources of law

A construction contract is a contract for services by an independentcontractor whereby the contractor is bound to construct a given structureon a given site, or perform other construction work on such a site oron an already existing structure, according to a given design and inthe contracted time limit, while the employer is bound to pay him agiven price for this work.

By legal definition, the construction contract is a contract for servicesby an independent contractor. Consequently, the contractor, as a charac -teristic debtor, does not take up the obligation of work but rather theobligation of achieving the contracted result. By its properties, theconstruction contract is chargeable, mutually binding, synallagmatic,and a formal legal transaction. It is also characterized by a great intertwinement of coercive legal — administrative and dispositive —property elements.

The most important sources of law for construction contracts are acts.These can be classified as either pertaining to property or adminis-trative. Among dispositive regulations, the most significant is the Lawon Obligations. Construction contracts are referred to in Art. 630-647. If these do not regulate certain issues, Art. 600-629, whichcontain the general rules on contract for services by an independentcontractor, will be applied accordingly. Regarding coercive regula-tions, those that refer to individual issues of financing constructionshould be mentioned, specifically Art. 29-34 of the Law on ForeignTrade Policy, which regulate issues when the contract includes a foreign element. The federal regulations are very extensive. They can be classified into two groups. The first regulates urban and

Chapter 22 CONSTRUCTION CONTRACT 301

communal conditions for the formation and fulfillment of constructioncontracts, and supervision by inspection. The second relates to waysof forming construction contracts. Procedural issues comprise themajority of these documents’ content. The most important amongthem are the Law on Regional Planning, the Law on Constructionand the Law on Construction Land of the Federation of B&H.

Sources of commercial law of an autonomous character that demandmentioning include the Special Usages on construction (hencefor-ward: UC). They represent the codification of business customs inthis field. Presently, their use is conditioned by agreement betweenparties in all cases where they contain solutions contrary to the LoO’sdispositive provisions.

22.2. Parties and formation of contract

According to LoO’s terminology, persons that assume obligationsand rights based on the agreement include the employer and the contractor. In rules and practice the terms investor and constructorare also used. They have the properties of parties. The constructioncompany involves other subjects as well: architects, designer’s organizations, consulting engineers, those specialized in supervision,administrative bodies, and utility organizations that grant approvalsfor the project (electric-power supply, waterworks and sewage, post,gas, etc., land registry office, cadastre). Conditions are prescribed thatall these persons, except for the investor, must fulfil before their registration for performing the activity in which they are involved.

Any legal or natural person registered for performing the activity of construction may appear as a contractor. Only legal persons registered for the activity may be involved in the constructions ofstructures.

For the construction contract to be a business-law transaction, the investor must also be a business entity. The investor may be either anatural or a legal person on whose behalf and on whose account thestructure is constructed and other interventions on the land are made.


The investor must bestow designing, design control, construction andsupervision over the construction to legal or natural persons registeredfor performing the respective activities (Art. 18 of Law on Construc-tion, henceforth LC). The legislator tends to stipulate that all majorphases of the construction business may be performed only by specialized organizations and persons. Such a solution is justifiedsince the construction business, by its legal nature, is a dangerous activity. Thus, the tasks of designing, supervision over constructionand the design review are entrusted only to legal or natural personsregistered for their respective activities.

22.2.1. Preceding actions

22.2.1.1. Investment program and technical documentation

The construction of structures and construction, assembly, and otherworks in general can commence based on an investment program andinvestment-technical documentation. Obtaining these is the firstgroup of preliminary activities an investor has to complete in order toform a contract.

An investment program is a study that shows what kind of structureit is, provides the analysis of conditions for its construction, andproves that the construction of the structure, or performance of givenworks, is economical, profitable, and socially justified, and that thetechnological process, or exploitation, i.e. functionality of the structureis purposeful. The investment program needs to contain the followingdata: description of the structure, its purpose, capacity, production-technology and exploitation concept, production and exploitationschedule, characteristics of the structure, equipment, plant and assembly, and reasons for the choices, market analysis and opportu-nities for the sale of goods or services, analysis of conditions for thestructure construction and exploitation, necessary working capital,amount of preceding investment, sources of finance, analysis of basiceconomic indicators, particularly profitability, duration of construction,start of exploitation, etc.


The investment-technical documentation is a study that technicallyelaborates the production-technology and concept of the structure,and offers technical solutions for its construction. By the nature oftask, it covers various projects, such as construction, technologicalwork, fittings, and other projects. The Law requires the existence ofa ‘feasibility study’. Based on the parties’ agreement, it may be preceded by a ‘general design’ (preliminary design). In practice, ageneral design is typically developed, since it provides a basis forgranting urban permit. Between the general design and feasibilitystudy one frequently encounters the so-called ‘main design’ (detaileddesign), i.e. one that offers comprehensive and detailed solutions re-lated to the scheduled structure and/or works. Investment-technicaldocumentation is prepared by natural and legal persons registered forthese activities. The investor forms a written contract with a designer,who draws up the investment-technical documentation. The samecontract can provide for both the development of the investment program and investment-technical documentation.

Designs that form part of the technical documentation must be reviewed. Revision is performed by organizations registered for developing the given technical documentation, or parts thereof (Art. 22 of LC). Certain types of structures may also require prescribed technical control by state bodies or authorized organizations,conditions related to fire protection and work safety.

22.2.1.2. Approval for construction

Upon obtaining the investment study and reviewed technical docu-mentation, and paying costs related to the structure, the investor mustobtain an approval for construction. In practice, it is often called abuilding permit. By granting approval for construction, the competentadministrative authority confirms that all the requirements providedfor by the LC and the Law on Regional Planning have been met, andthat therefore the investor may start the construction of the designedstructure, or the actual work.


The procedure of submitting the application and the procedure ofgranting approval for construction are regulated in the LC in greatdetail. Here, it suffices to list only a few points. First, approval isgranted by the municipal administrative office in charge of constructionworks on the territory where the works are to be performed (Art. 32of LC). For some structures, it is stipulated that it is the cantonal ad-ministrative authority that is in charge of granting approvals for build-ings specially cited in the Law. Second, in the approval procedure, theadministrative authority checks if the technical documentation hasbeen prepared pursuant to urban permit, law and regulations pertainingto the construction. Third, the approval has to be granted or declinedwithin 30 days starting from the day of the application submission. Itceases to be effective if works do not start within the time periodstated in the approval. Approval for construction is valid for two yearsstarting from the day of the validity of the approval. Upon the investor’s request it can be prolonged for another year if the conditionsof construction have not changed. The very commencement of construction without a granted approval is a criminal offence carryinga 1-3 year prison sentence (Art. 74 of LC). The Law also stipulatesfines as sanctions for minor offences.

22.2.1.3. Selection of contractor and formation of contract

The legal regime of contractor selection includes rules on the mannerof deciding on the constructor and the procedure for the implemen-tation of the selection process. The investor independently decideson whether they will select the contractor by means of public biddingprocedure (public invitation for tenders), collection of tenders or bydirect negotiation. When the investor is a person acting based on private property, he independently decides upon the way of selectingthe constructor, regardless of the object of the contract. There is oneexception, however. When the performance of investment work inB&H is entrusted to a foreign contractor, he must be selected eitherbased on public bidding procedure or by collecting tenders (Art. 32of the Law on Foreign Trade Policy). Legal persons owned by thestate and beneficiaries of budget funds are subject to a special legalregime. This is the aforementioned regime on public procurement.


Public bidding procedure is also called a public invitation for tenders.This is a unilateral civil-law transaction whereby the investor publiclybinds himself that he will receive and consider all the tenders for theformation of a construction contract that correspond with the conditionsin the public invitation, or that he will also take other actions relatedto the possible formation of the particular contract. By this techniqueof contractor selection, an investor that is an offeror in an economicsense legally acquires the position of the offeree.

A tender is a set of documents that accurately and thoroughly determines:the uniform content of offers, except for price, an investor wants toreceive, and the investor’s procedure with the offers obtained in thisway. As a rule, a tender contains a few elements. The first is the guidefor offerors. In it, the investor informs potential offerors on all therelevant actions and elements of filling in the tender form, submissionof offers, possible changes of the offer, and on the procedure theywill conduct the offers. Second, a tender includes general and, if necessary, particular conditions for the construction of the actualstructure or performance of works. These general and particular conditions are typically very extensive and have the characteristics ofself-regulating contracts. Further, a tender contains a collection offorms: from forms for obtaining information, through standard offerand forms for contracts to warranties that have to be enclosed with theoffer. This part of the tender may include forms for (technical) speci -fications, such as lists of equipment, reference lists, and lists of staff.If these elements are set, they form a separate part of the tender. Finally, a tender contains all the necessary plans and designs.

The procedure for examining, selection and granting tenders is verycomplex. Its stages are: reception of offers, public opening of offers,assessment of offers, the decision of administrative bodies on the unsuccessful tender or on the selection of one or more of the mostsuitable contractors (Letter of Intent), negotiation with the selectedapplicant and formation of the contract (Letter of Acceptance).

Collection of tenders consists of inviting a certain circle of contractorsdirectly, rather than through a public invitation, to submit their offers for construction or work. In our law, the circle of persons the


invitation will be sent to have to be determined by a pre-qualifica-tion bidding if it follows the regime on public procurement.

A contract can be formed without conducting the procedure of public invitation for tenders or a pre-qualification bidding only incases determined by the law. These can be classified into two groups.The first includes the situations where a bidding procedure is not necessary at all. These are cases where the construction is ceded: afternatural disasters and other unforeseen events with the purpose of removing their harmful results; in order to achieve defined programsof residential construction and infrastructure facilities; on facilitiesthat are of special significance for national defense and based on anagreement between the investor and contractor on mutual financingof the construction. The second group of cases where it is possible toform a contract by direct negotiation pertains to situations that require some sort of bidding procedure. If either the public invitationfor tenders or pre-qualification bidding fails, the investor has the rightto form the contract by direct negotiation. This rule is present only inthe public procurement regime, although in this case it is necessaryto obtain the approval of the Ministry of Finance of the Federation of B&H.

A construction contract is a formal legal transaction by force of law(Art. 630, par. 2 of the LoO). It is formed when the agreement hasbeen reached in writing. It can be achieved either by signing a singledocument or by an exchange of letters of identical content. It is forthis reason that in the second case the construction contract is deemedto be formed on the day of the reception of the letter of acceptance.

22.3. Essential elements of the contract

22.3.1. Object

The object of the construction contract is defined in Art. 630 of theLoO in a twofold way: as a ‘building structure’ and as ‘constructionwork’. The concept of ‘structure’ is defined by enumerating examplesof structures (buildings, dams, bridges, etc.), and by listing the es-


sential properties of building structures. These properties include sizeand complexity (Art. 631 of the LoO). Art. 2 of the LC defines con-struction as the performance of preparatory works, constructionworks, installation and assembly of equipment, finished constructionelements and structures, as well as other interventions in this area. A ‘building structure’ is considered to be a building structure that ispermanently connected to the ground and that consists of a constructedsystem and installed equipment that make up a technological wholewithin a technological process, as well as autonomous facilities thatare permanently connected to the ground. The object of the transactionis defined either directly in the contract or, more frequently, by referringto technical documentation. According to UC 11, technical docu-mentation always forms part of the contract.

22.3.2. Price

The price is the compensation owed by the investor to the contractorfor the achieved result: the structure or completed construction work.The price is always ascertained by an agreement between the parties.The basis for contracting the price is the bill of quantities, althoughthe price does not have to correspond with the amount that the investor determined in the priced bill of quantities. There are threebasic ways in which the price is ascertained. The first is a flat-rateascertainment, i.e. giving the total price for the entire construction(Art 635 of the LoO). This method can also be used for part of thestructure, or work (UC 22). The second and most frequent methodused in practice is ascertainment of price as a sum of unit prices forindividual works. As a rule, the price of material is not separated fromthe price of work; rather a single price is given that incorporates thetwo. Unit prices are expressed according to the bill of quantities. Finally, the price can be ascertained by citing the expression‘turnkey’, or another phrase of a similar meaning.

There are a few kinds of works the costs of which make up the price.They are not given equal treatment. First of all, the price always includes the value of works listed in technical documentation, primarily in the bill of quantities. Further, the price depends on the


relation between the amount of works stipulated in the contract andthose that are actually necessary, i.e. on ‘surpluses’ and ‘shortages’ ofworks (UC 9). If their impact on price has not been separately contracted,special usages on construction provide that unit prices are also applied to the surpluses or shortages of work, if they do not exceed10% of contracted amounts (usage # 22). The second relevant kind ofwork includes so-called ‘unforeseen work”. This is work the “under-taking of which was necessary to ensure structural stability or to pre-vent damage, and were caused by the unexpectedly hard nature ofthe ground, the unexpected appearance of water or by other extraor-dinary and unexpected events” (Art. 634 of the LoO). The contractorhas the right to equitable compensation for such work. If it leads to aconsiderable increase in the price, the investor can also terminate thecontract. Third, additional work — those that were neither contractednor necessary do not affect the price. Parties must separately agree ontheir amount (UC 35).

The contracted price can be changed. If the contract does not containseparate provisions on price modification, the contractor that is nottardy bears the price increase up to 2%. If the contractor is tardythrough a fault of his own, he bears the burden of price increase upto 5%. In this case, the basis for determining the percentage is notthe total value of work but rather the part thereof that has delayed thecontractor. The increase of prices of elements based on which theprice was ascertained that arose after the contractor has fallen behindschedule are fully born by the contractor himself (Art. 636 of theLoO). Even when it was provided that the price would not change if,after the contract has been formed, prices of those elements increase,the price is still changeable. The contractor then bears increases of upto 10%, while the investor bears the rest (Art. 637 of LoO).

Equal treatment of parties led the legislator to secure the right to decrease prices to the employer when prices of elements based onwhich the value of the structure or work was ascertained are falling.If the contractor is not behind schedule, the employer is entitled to decreases that do not exceed 2% or, in the case of fixed prices, 10%.If the contractor is behind schedule, all decreases in price go in the investor’s favour (Art. 639 of the LoO).


An agreed change in prices can be made subsequently, when changesoccur, or in advance. As early as when the contract is being formed,it can include a price escalation clause and an index clause. The firstinstrument is almost regularly encountered in practice. Its legalregime is generally the same as that in the contract of sale. The indexclause is regulated in a special usage on construction number 25. Pursuant to this usage, the index clause could be applied when costsof living change by 5%.

22.3.3. Due date

The due date is the moment by which, or the period within which,the structure or construction work has to be completed. The Law onObligations contains no particular provisions pertaining to the timeperiod in which the contractor is bound to fulfill its basic obligationnot in the part regulating contract for services by an independent contractor nor in the part regulating construction contract. Conse-quently, this transaction is also subject to general rules. They are interpreted and amended by special usages 36-44 as customarynorms. In practice, the due date is typically specified as a time period.It is most frequently done by determining the dynamics of the work.

22.3.4. Contractual fine

The contract provides for the payment of a contractual fine if the con-tractor falls behind schedule. As usual in the case of a contractualfine, the contract may provide for the payment of a specified amountby contracted periods (e.g. 5,000 BAM for each day behind schedule),or as a percentage of the value of uncompleted works for a specifiedtime (e.g. 2% of contracted and uncompleted works for each day behind schedule), or in the same way but by a progressive rate (e.g. 2%for each day for the first ten days behind schedule, 4% for the next tendays behind schedule, etc.). It is deemed that the fine has been contracted for untimely fulfilment of contractual obligations if it hasnot been contracted otherwise. The amount cannot exceed 5% of thetotal price of work.


22.3.5. Premium to the contractor

The contractor that is behind schedule in fulfilling its obligations owes,to the investor, payment of the contracted fine pursuant to their agree-ment. The premium exists in order to stimulate the contractor to ful-fill his obligations before the due date, and to make his position equalto the investor’s. The premium is subject to the same legal regime asthe contractual fine. In each actual deal, parties must agree upon theconditions for using this institution, and upon the amounts owed by theinvestor to the contractor for fulfilling the obligations before the due date.

22.3.6. Warranty period for the quality of work

Warranty periods for the quality of work are another essential element of the contract, to the degree to which the regime of usingspecial usages exists. They last two years for the quality of work unlessthe contract or rules provide otherwise (UC 85). UC 104 determinesa separate period for the stability and safety of the structure, which isten-years long starting from the day the structure is handed over. Forthe installed equipment, the so-called transferred warranty by the contractor applies (UC 87).

22.3.7. Written form of the contract

Pursuant to the LoO, a construction contract is an essential elementof the deal. The written form is imposed as a prerequisite ad sollem-nitatem and ad probationem.

22.4. Investor’s obligations

22.4.1. Preceding obligations

Based on their occurrence, or their legal nature, the investor’s obli-gations can be classified as either administrative or contractual. If the


criteria include the time of occurrence, the obligations are classifiedinto preceding, in the course of construction, and upon the completionof construction. The preceding obligations include: preparation of thestudy, provision of technical documentation with reviewed designs,acquisition of funds, conducting the chosen method of contractor selection in accordance with the law, obtaining approvals for the construction and observance of the written form of contract. We willnot describe the investor’s obligations in the course of constructionby their legal nature. Since obligations of an administrative and propertynature intertwine, we will describe them in logical order, followingthe regular course of construction work.

22.4.2. Introducing the contractor to the work

Introducing the contractor to the work implies fulfillment of the employer’s obligations without the previous fulfillment of which theactual commencement of works is either not possible or not legallyallowed (UC 45). The obligation is a complex one. The investor mustfirst of all deliver the construction site. It, in turn, implies an ordered,secure lot with clearly marked basic elevations and axes. A site isconsidered ordered only if it allows the contractor, among otherthings, a factual and legal possibility to access the lot where the workis performed. Besides the delivery of the construction site, the investor must deliver the following to the contractor: technical doc-umen tation with the necessary number of copies, the building permitand the receipt that the funds have been approved. Special minutes aretaken on the fulfillment of this obligation, and are entered in the construction journal. The formalities pertaining to the fulfillment ofthis obligation reflect its significance. It is from the moment of the introduction to the work that the time period for the construction ofthe structure, or performance of work, begins.

22.4.3. Supervision of construction

In the broadest sense, construction supervision is a system of materialand legal activities of professional examination of rationality,


up-to-datedness, the quality and legality of documentation, proce-dures, materials and work needed to construct a structure, and of thestructure itself. In a narrower sense, this supervision encompassesonly the professional control performed over all the elements and moments of the work during construction. In the narrowest sense,construction supervision implies only the control over performanceof work by the investor, either himself or through a specially hiredperson.

Pursuant to Art. 21 of the LC, supervision can be bestowed, on the investor’s behalf, only to a person registered for construction workthat employs at least one engineer with a degree, five years of expe-rience and certification for each kind of work being supervised. Information on the supervisory organ must be submitted to the properinspectors. The object of the investor’s supervision is extremely complex. It is regulated by coercive regulations, contract and Specialusages on construction when they are included in the sources of law.It particularly includes: the type, amount and quality of work, materialsand equipment (UC 99), compliance with technical documentationand regulations relevant to structural stability and safety.

22.4.4. Payment of the price

Payment of the price is the investor’s basic obligation. Due to thecomplexity of the construction deal, it is more complex in this thanin most other business contracts. The main characteristics of payments in the construction business have a continuous nature, anobligation that is fulfilled before, during and after the completion ofa structure or work.

Payment before the commencement of executing the structure/worksis made by advance payment. The contractor does not have a legalright to advance payment, and it therefore has to be contracted in advance.

During the performance of work, payments are made based on invoices. In the construction business, these are called “certificates of


payment”. Special usages on construction regulate the “interim cer-tificate” in great detail (UC 58-65). This is an invoice that is made forthe works performed over the period of the previous month. Theworks are determined based on the construction journal and construction book where the situation on the site is entered daily. Theinvoice details the amount of work performed based on specificationsprovided in the technical documentation. Their value is determinedaccording to previously ascertained prices.

So-called progress certificates of payment are also used in commonpractice. A progress certificate is made out for work performed in agiven phase, or a part of the structure. It is based on the constructionbook. The content of this certificate of payment is the same as that ofan interim one. However, the amount is determined in another way:the total value of the part of the structure is decreased by what is already paid based on interim certificates.

Upon the completion of the structure or work, the final settlementand payment between the parties is made (UC 116-121). The basisfor the payment is made up from the so-called “final certificate”. Itis drawn up and submitted to the investor upon “completing the handover of the performed work” (UC 62). It contains data reached by thecommission for acceptance of structure or work, a joint body of theinvestor and contractor that examines the conformance and qualityof the performed work using the technical documentation. Theamount due for payment is determined by establishing the value ofundisputed work that has been performed and decreasing by theamounts paid based on interim and progress certificates. The due datefor paying this is 15 days after acceptance.

22.5. Contractor’s obligations

22.5.1. Preceding obligations

Preceding obligations for contractors are few. They have a coercivecharacter, and pertain to property law and administration. The firstgroup includes compliance with the written form of the contract, and


the second examination of technical documentation, reporting thecommencement of work and taking safety measures.

Examination of technical documentation before the commencementof work is the contractor’s administrative obligation (UC 176). A special usage # 13 provides that the contractor is “bound to study, indue time and in detail, the technical documentation which forms thebasis for the contracted work, and ask the employer for explanationof insufficiently clear details”. The contractor also has the adminis-trative obligation to report on the commencement of work. It mustdo this no later than eight days before the commencement of work.The report is submitted to the proper inspection organ of the authorityresponsible for construction work.

Taking safety measures is also a public-law obligation. The contractormust take all the necessary measures in due time to protect the following: the structure and work, equipment and material, staff,passers-by and traffic, and neighbouring structures, pursuant to validregulations and the circumstances of the work.

22.5.2. Maintaining construction records

The significance and complexity of the construction business requireaccurate, constant documentation throughout performance of thework. Consequently, coercive regulations state that it is the contractor’sduty to maintain appropriate records (Art. 47 of LC). Their numberand content are not regulated equally, but cover approximately the same content. As a rule, these records consist of the constructionjournal and the construction book.

In the construction journal, the contractor enters daily data on thecommencement and completion of individual projects and theiramounts. In addition, the journal must document all the importantevents either pertaining to the performance of work or that may affecttheir quality (temperature, rain, material testing, inspections, etc.).Orders and remarks by the investor or his supervisory organ are giventhrough the journal. Almost all of the relevant communication


between the parties regarding the performance of work goes onthrough the journal. It therefore makes sense that it is signed by bothparties. The journal is signed daily. The construction book contains citations on the completion of individual phases of work and for regulating relations between parties pertaining to this phase. It is alsosigned by both parties. The construction book is one of the sources ofdata for the progress certificates.

22.5.3. Sound performance of work

Sound performance of works is a characteristic obligation of the entire contract and the contractor’s fundamental activity. Its properfulfilment is covered by a series of administrative, dispositive (Art. 632-634 of LoO), and contractual provisions, as well as the provisions of the Special Usages on construction (UC 75-82). Theunity of public-law and obligation elements, typical of a constructioncontract in general, is particularly clearly manifested in this obligationregimen. Since, by its legal nature, a construction contract is a contract for services by an independent contractor, “The contractor isbound to complete the work as agreed and pursuant to the rules ofthe job” (Art. 607 of LoO). This primarily means that he must fullycomply with the main design and feasibility studies, investment-technical documentation and other plans, as well as with documentsthat form an integral part of the contract. In addition to these contractual elements, the contractor must also comply with the public-law regulations pertaining to them: technical standards, compul-sory standards, regulations on safety, etc. He must do all of the abovehonestly and conscientiously, acting with due professional care.

If, during the performance, the contractor notices deficiencies or ambiguities in the design, he must notify the supervisory organ or theinvestor without delay. The investor is bound to provide the requiredexplanations of technical documentation, and his view on the defi-ciencies pointed out to him in due time and in writing. If the author-ized person does not respond to the warning, and it concernsdeficiencies that pose a public threat, the contractor is bound to notifythe inspection organ about it. In case of acute danger, the contractormust halt work temporarily on his own initiative.


The contractor must use the material he obtains from the investor.The material is handed over on the site, pursuant to the contracteddynamics of work (UC 93). The obligation and costs of keeping areborn by the contractor. The contractor must build with a material heobjects to only if it is required by the investor. The request must be made in writing, typically through the construction journal. Thecontractor must complete the work in due time. The time was alreadydiscussed within exposition of essential elements of the contract.Therefore, we will only point out that the time schedule of work,which is the integral part of the investment-technical documentation,can turn partial deadlines into independent units, non-compliancewith which leads to delays to the contract.

22.5.4. Reporting on surplus of work

As with reporting on design deficiencies, reporting on a surplus ofwork can also be included as an obligation concerning the proper andconscientious performance of work. Art. 633 of the LoO providesthat “for each deviation from the construction design, or contractedwork, the contractor must obtain written approval by the employerand designer pertaining to his authorship. If he fails to do so, “he can-not require an increase in the contracted price for the work performedwithout such an approval”. This refers to a so-called surplus of work.Reporting thereon should be done without delay, through the construction journal and in other ways stipulated in the contract. Thecontractor can perform unforeseen work without the employer’s previous approval if he could not obtain the approval due to thework’s urgency (Art. 634 of the LoO). Unforeseen works in terms ofthis provision, are deemed to be those that fulfil two conditions: thosearising from force majeure and the possibility of causing damage bythreatening structural stability or in other ways.

22.5.5. Allowing supervision

Allowing the supervision to which the investor is entitled is a con-tractor’s coercive, dispositive and customary duty (LC, Art. 603 of the


LoO, UC 100). The nature of this obligation is determined by the employer’s right to conduct supervision, and by the Special Usageson construction (UC 99-102). The contractor must do his best to allowthe employer to exercise his supervisory authorities. This primarilyimplies allowing access to the construction site and warehouses, andproviding evidence on the quality of the utilized equipment and work(UC 80). It also includes calling for testing, being present at the tests,performing individual work in the presence of the supervisory organ,allowing on-site trials, revealing individual work, taking samples, etc.Remarks resulting from supervision are entered into the constructionjournal or given in another way, though always in writing.

22.5.6. Guarding the construction site

Guarding the construction site “from the commencement of work tillthe taking-over by the employer” (UC 109) is a contractual obligationthat should not be confused with the administrative duties of takingsafety measures of a public nature. It includes all the actions necessaryto preserve the work, materials and equipment from destruction, theftor deterioration. The costs of guarding the site are born by the contractor. He also bears the risk of damage caused by failure in performing this duty.

22.5.7. Tidying-up the construction site

The contractor’s last obligation preceding those within the phase ofhanding over the structure or work is tidying-up the construction site.The contractor has this obligation even upon the termination of thecontract. If nothing has been contracted in particular, it is regulatedby UC 126. Upon completion of the work, or upon termination of thecontract, the contractor is bound to withdraw the staff and equipment,and the remaining material and waste at his own expense. He mustalso remove temporary facilities and clear up the land. The costs oftidying up the surroundings are either contracted separately or withinthe overall deal. This is done in accordance with the zoning plan as well.


22.6. Taking-over of the structure

22.6.1. Technical examination and certificate for occupancy

The community’s interest in the result of the construction contract,and the coercive character of a great part of the entire activity’s regulation, both affect the investor’s taking over of the structure. Thefirst stage in taking over the completed structure comprises its public-law control and acceptance by the authority that issued the approvalfor construction. Technical examination is a system of administrativeand professional procedures whereby a specially appointed commission“establishes whether the structure has been built in accordance withthe technical documentation which formed the basis for granting the approval for construction, and whether the structure has been constructed pursuant to technical regulations, standards and generalrules” the application of which is mandatory or necessary in order toprevent the structure’s harmful effect on the environment. Applicationfor technical examination is submitted by the investor, contractor, orboth. It is submitted to the authority that issued the approval for construction. The application must include data on who issued theapproval for construction and when it was issued, its number and dateof issuance. Upon accepting the application, the authority is bound toperform the technical examination within 30 days (Art. 50 of LC).

22.6.2. Taking-over of structure or work

Taking-over the structure or work involves a system of professionalprocedures conducted by the parties or their representatives aimed atestablishing the conformity of the structure/work with the contract. Itis also called provisional acceptance of finished structure or work.The timing of the acceptance can be determined in a few ways. If thelegislation does not prescribe anything, this procedure will be con-ducted before the technical examination, simultaneously with it andafter technical examination, i.e. obtaining the certificate of occupancy.The request may be submitted by either party after the contractor hasnotified the investor that the works are completed (UC 110). Parties


are bound “to start taking-over and the final settlement without delay”(UC 111).

22.6.3. Final acceptance of structure or work

Final acceptance of structure or work is an examination conductedby the parties upon the expiration of warranty periods. It is conductedby a commission appointed by the investor and contractor. The objectof control is the appearance of possible hidden defects in the structureor work that could not be detected at the time of provisional accept-ance. Final acceptance is also conducted based on documentation andinsight into the structure’s conditions. Detected defects are stated inthe minutes and the time limit for their removal is determined. If thecontractor does not remove them, the investor can do so by himselfor through third parties, though at the contractor’s expense. As a rulethe removal is funded from withheld amounts of up to 2% of theprice. As soon it is established that there are no defects, or that theyhave been removed, the final settlement between the parties starts.When amounts in this invoice are paid, relations between the partiesbased on the regular course of business stop.

22.7. Liability of participants in the business

The complexity of the construction business leads to the appearanceof a few participants whose actions, independent or related to theother persons’ activities, affect the contract outcome. Therefore, eachof them can be liable independently or in relation to other participantsfor non-performance or improper performance of the constructioncontract. These persons include: the designer, the organization thatprobes the land and gives its opinion on land suitability, the investor,the contractor, and the sub-contractor.


22.7.1. Liability of designer, provider of opinion on land, and investor

Pursuant to general rules, the designer is liable for damages due to hisomissions in design. In one case, his liability is aggravated. First, heis liable for structural defects that pertain to its solidity if they become manifest within ten years starting from the take over of thework. The defects must be such that they threaten structural stabilityand safety. The defects can be due to errors in design or land properties,if these were determined by the designer himself. The designer canneither exclude nor restrict this liability by a contract. Both the employer and any owner of the structure within the ten-year warrantyperiod has the right to sue (Art. 644 of the LoO).

The professional geo-physical organization that gave its opinion onland suitability for construction is liable for structural stability withina period of ten years, the same as the designer.

The investor is liable for his monetary obligations pursuant to generalrules on this type of obligation. He bears damages on the structuresonly if they are due to his orders. A prerequisite for this is that he waswarned by the contractor on the possibilities of the occurrence ofharmful effects.

22.7.2. Contractor’s liability

The contractor’s liability is primarily one of a criminal nature. Non-compliance with the most important administrative obligationsis a economic offence, i.e. a minor offence. An offence exists whenwork is performed in the protective infrastructure zone contrary tothe purpose it was set up, as well as in the case of performance ofwork without an approval for construction. Criminal and minor offences are provided against (Art. 74-81 of LC).


Property-law liability can be classified into three basic groups ofcases. The first pertains to the solidity of the structure. In this respect,the contractor is liable for his activities in the same way as the de-signer (Art. 644 of the LoO). The second group includes liability fordefects in the structure and works that do not affect its stability. Ifboth the contractor and designer are liable for the damage, each ofthem bears part of the indemnification proportionate to the liability.

22.8. Special kinds of deals

22.8.1. ‘Turnkey’

In a construction contract, ‘turnkey’ implies a construction deal wherethe entire structure and all the works necessary for its completion arecovered by a single price, and is opposed to contracts where price isascertained as a flat-rate. Surplus of work, urgent unforeseen work orforeseen work that do not need to be done (deficit of work) have noeffect on the price. The ‘turnkey’ contract shows some properties thatdo not occur in construction contracts of the general type. The first iscontained in Art. 640 of LoO: when the contractor’s side includes afew subjects with this capacity, they are jointly and severally liable tothe employer. Second, the contractor very frequently acquires the material. Third, it is a business rule that the contractor here securessupervision as well. Fourth, the contractor regularly appears as a commission agent. Finally, the regime of his liability is stricter. Thisoccurrence is reflected in the transfer of the burden of evidence tothe contractor, and the decrease in the number and effects of clauseson limitation, i.e. exclusion of liability.

22.8.2. Other special kinds of construction contracts

Civil engineering is a field of construction that emerged from businesspractice and implies the “creative application of scientific principlesand experiences in all the phases of an undertaking — from providingideas, preparation of studies to various types of advice in the


implementation of the project, conducting supervision, etc.” Presently,this definition is the closest to the general concept of engineering.There are also ‘operating and consulting engineering.’

A contract for investment construction has also emerged from businesspractice. It can be defined as an agreement whereby the contractorcommits himself to the investor, for a compensation, that he will perform one or more related actions needed for the given structure,or part thereof, to be delivered in a specified time period for utilization,in pursuance with the contract and the rules of the profession. It isdistinguished from a construction contract in that the construction ofthe structure or performance of construction works cannot be the con-tractor’s only obligation. Delivery of investment equipment, as a sep-arate sales deal, can also be included in the construction contract,though not as the only object of the contract. It must be related to anaction necessary for completion of the undertaking (building, assembly, putting into operation, etc.).


Chapter INSURANCE CONTRACTS23

23.1. Concept of insurance and of insurance contracts 23.2. Formation and form of contract 23.3. Elements of contract 23.4. Parties’ obligations 23.5. Accumulation of requests

for indemnification and multiple insurance 23.6. Classification of insurance 23.7. Reinsurance 23.8. Cessation of insurance contract

Chapter 23

INSURANCE CONTRACTS

23.1. Concept of insurance and of insurance contracts

Insurance is a broader concept than an insurance contract. First of all,it refers to all the legal regulations of an individual insurance, ratherthan to the part based on the agreement between parties. Second, interms of activity, there is a significant difference between insuranceand a contract. The law classifies all the insurer’s activities into twobasic groups. The first group includes “insurance tasks.” These are“formation and fulfilment of contracts of insuring property and persons, formation and fulfilment of contracts of coinsurance andreinsurance, measures for preventing and decreasing risks that endanger insured property and persons, measures for preventing anddecreasing damage and other insurance tasks”. The law defines “otherinsurance tasks” as well. These include “tasks of mediating in con-tracting insurance, agency in insurance, monitoring risk, monitoringand estimating damage, sales of remnants of the destroyed insureditems, providing legal assistance and other intellectual and technicalservices in insurance.” An insurance company can perform bothgroups of tasks on its own behalf and on its own account, on some-one else’s behalf and someone else’s account — as an agent, and on itsown behalf and on someone else’s account — thus, as a commissionagent. “Other insurance tasks” may be performed by “legal and natural persons for an insurance company or for the insured based ona contract”.

The legal definition of an insurance contract is provided in Art. 897of the LoO. According to it, “an insurance contract binds an insurancecontractor to associate a given amount in an insurance community, i.e.a risk community (insurer) based on principles of mutuality and solidarity, while the community is bound to pay the compensation,

Chapter 23 INSURANCE CONTRACTS 327

i.e. the contracted amount to the insured or a third person, or do some-thing else if the event that represents the insured case occurs.” The features of an insurance contract are: synallagmaticity, charge-ability, formality, and in some cases properties of the third-party-beneficiary contract.

23.2. Formation and form of contract

In our practice, insurance is formed by a contract, and an insurancecontract is formed based on a written offer. There are questionnaireforms filled in by the person who wants to form an insurance contract,which serve as an offer. The legal effect of offer varies. In some legalsystems, the offer is not binding at all. In others, it binds the offerorfor a certain time, while in the third, it is binding only for somebranches of insurance.

Pursuant to the Law, the written offer binds the offeror in an eight-dayperiod starting from its arrival to the insurer. The offeror can alsospecify a shorter period. In life insurance, if the insurance requires amedical check-up, the offer binds the offeror for a thirty-day period.Thus, the time period during which the offeror is bound by his offerfor forming an insurance contract is determined by law, unless theofferor has specified a shorter period (Art. 901 of the LoO).

If the offer corresponds with the terms under which the insurer provides such insurance, the insurer is deemed to have accepted theoffer and the contract is considered to be formed when the insurer receives the offer. If they do not want to form a contract, they arebound to notify the offeror on the rejection of the offer within the period of the offer’s validity. In the case of personal insurance, thecontract is deemed to have been formed on the thirty-first day fromthe reception of the offer. Formation of a term assurance contract onthe death of a third person requires the latter’s written consent. It canalso be provided in the policy.

The Law on Obligations provides for three ways of forming a contract. It takes as a rule that an insurance contract has been formed


when contractors sign the insurance policy or the insurance certifi-cate. The second way is applied when someone submits a writtenoffer for forming an insurance contract to the insurer, and the insureraccepts or does not reply that they decline the offer. If the offer doesnot deviate from the terms under which the insurer provides the proposed insurance, and the insurer does not decline the offer withineight days (or thirty days if a medical check-up is required), the contract is deemed to have been formed. Finally, the insurance termsand conditions can provide that for some cases the contractual relationship from insurance may be created by the mere payment ofa premium (Art. 901 and 03). Particularly when some assets (in trans-port) need to be urgently insured, it is assumed that the contract hasbeen formed when the insurer confirms that they accept the offer overthe telephone.

In mandatory insurance, the parties’ obligations and rights are deter-mined by law and insurance rules, and arise even without forming acontract, as soon as the insured submits the application, and as soonas he pays the premium. In mandatory insurance of passengers inpublic transport, a passenger is considered insured if the prescribedconditions have been met (if he was near the place of departure orarrival of the means of transport and if he proves that he intended totravel), regardless of whether the carrier has formed a contract withthe insurer. Thus, the contract has been formed by facta concludentia.

23.2.1. Insurance policy

The insurer issues an insurance policy (from Latin word policere —promise) on the insurance contract formed. Pursuant to the law, a pol-icy must include the following data: parties to the contract, insureditem or person, risk covered by the insurance, duration of insurance,and the time period of coverage, sum insured or information on it ifthe insurance is unlimited, premium, date of issuing the policy, andthe signatures of contractual parties. The insurance terms and condi-tions (policy conditions) must also be printed on the policy. If this isnot done, the policy must include a clause that general and specialpolicy conditions are an integral part of the contract, and that these


conditions have been provided to the insurance contractor (Art. 902of the LoO). A life insurance policy must also include the full nameof the person whose life the policy pertains to, his date of birth andthe event or time period the emergence of which gives the right toreceive the payment of the sum insured — insured case (Art. 943 of the LoO).

What has been written in the policy has the priority over general andspecial terms and conditions; consequently, in case of discrepancy,the text of the policy applies. If there is a discrepancy between aprinted and a “handwritten provision” of the policy, “the latter will beapplied” (Art. 902, par. 5 of the LoO), since it is deemed that it expresses the true will of the parties. The “handwritten provision”should also imply subsequently added ones. The way they are addedis legally irrelevant.

A policy may temporarily be replaced by an insurance certificate. Incase of larger facilities and items that are particularly exposed to risk— and whose insurance requires inspection by an insurer’s expert — alonger time may pass from the submission of insurance application tothe formation of the contract and payment of premium. In this pe-riod, the insurer is not bound, and the item is exposed to risk. In orderto avoid harmful consequences for the insured, an insurance certificateis issued in such cases. It is a written document whereby the insurernotifies the insured that they accept the latter’s offer and will takeover the insurance immediately. Thus, the insurance certificate hasthe character of an insurance document, but is temporary: it lasts untila policy is issued. The insurance certificate includes the same elements as a policy.

An insurance policy is a security. According to the contractors’ agree-ment, it can be made out to a specified person, to order and to bearer.A life insurance policy can be made out to a specified person or toorder. It cannot be made out to bearer. It can also be used as a pledge.When it is made out to order, it can be pledged as collateral by an endorsement (Art. 902, per. 6 of the LoO). Policies are typically classified into: maritime and land; individual and collective; individualand general; valued and unvalued, and cargo and casco policies.


23.3. Elements of contract

23.3.1. Parties

23.3.1.1. Insurer

An insurer is a legal person or organization whose activity includesproviding insurance tasks. An insurer can form insurance contractswhen they meet legal prerequisites, conditions from the decision, i.e.memorandum of association, and when they register for performingthese activities.

23.3.1.2. Insurance contractor

An insurance contract is typically formed in one’s own name and onone’s own account. Consequently, the insurance contractor and theinsured are as a rule the same person. The contractor insures theiritem, or property interest in property insurance, and their life, i.e. bodily integrity in personal insurance. In the insurance of persons,the contractor can insure the life, i.e. bodily integrity, of a third person, and our law considers the third person insured as well. “Anyperson that has an interest for the insured case not to occur, since theywould incur a material loss otherwise” can be a party to a contract onproperty insurance (Art. 924 of the LoO).

23.3.2. Object of insurance

Definition of the object of insurance depends on the understanding ofits nature. Some believe that it is the item or person being insured,others — that it is the interest, still others — that it is the risk. The objectof insurance should be viewed as the property the normal existenceof which the parties are interested in, the one that protection fromrisk is being provided, and the one the contract has been formedaround. Viewed in this way, the object in property insurance can include things, animals, incorporeal things (loan insurance, liabilityinsurance), or persons in the case of life and accident insurance.


23.3.3. Risk

For an object to be insured, it must be exposed to risk. This is thefundamental prerequisite for insurance, and an essential element of aninsurance contract. Where there is no risk, there is no insurance — thisis the fundamental rule both in property and insurance of persons. Inthe insurance business, risk implies a few things. A possibility of theoccurrence of an economically harmful event, i.e. an event due towhich damage on the object of insurance may occur is always considered a risk. Risk also implies the danger itself, the event one isinsured against. For an event to be considered a risk, two basic conditions are needed: the possibility of its occurrence and its suitability to cause the consequence it is insured against.

Risk primarily implies an element of uncertainty. It is not certainwhether the event against which one is insured will happen to the insured object. Generally viewed, it happens, but it is not knownwhether this event will be harmful to the insured object. Or else, if itis certain that the event will occur related to the insured object, it isnot known when it will occur. Uncertainty is an essential, decisiveelement of risk. If it is not present, there is no risk and consequentlyan insurance contract. It is for this reason that the event should be afuture one. If the insured case has already occurred at the moment of contract formation, or has been occurring, the contract is null and void.

Uncertainty as an essential factor is a prerequisite for the third characteristic of risk as well: at least partial independence from thecontractor’s will. The contractor should primarily imply the insurancecontractor. The contractor’s capability to affect the occurrence of riskis estimated objectively, rather than subjectively. The personal proper-ties of the insurance contractor are not legally relevant in this case.

The law sets forth two more conditions for risk to be covered by insurance. First, that the link between the insured and insured propertyis protected by law, legal (that the items are not stolen) or, in the insurance of persons, that the activities when the person is exposedto risk are not illegal (injury while breaking and entering). Secondly,


for an event to be taken as risk against which one is insured, it shouldbe repetitive. This is required for the following reasons. Repetition ofan event that causes damages, or that poses a threat, creates a feelingof a need for protection. The second reason for the requirement ofthe repetition of the event insured against is of a technical nature: theprobability of the occurrence of an economically harmful event, thedegree of its strength and the amount of damage are calculated bymeans of special mathematical methods.

Insurance can apply to one or more risks. Some kinds of insuranceallow only insurance from a few risks (maritime insurance). Depending on its characteristics, risk is classified into: objective andsubjective, pure and speculative, general and individual; constant andvariable; basic and supplementary; and wartime and political risk.

23.3.4. Premium

Premium is the amount paid by the insurance contractor into the insurance fund as the price for risk taken up by the insurer. The premium amount is calculated for individual branches and types of insurance. Its amount depends on the degree of probability of the occurrence of the harmful event, i.e. for the occurrence of risk. Premium is determined by tariff, depending on the risk the propertyor persons are insured against. Premiums are calculated by a proba-bility calculation. As a source of the insurer’s income, the premiumis specified by the tariff made up by each insurer. The amount of premium in an actual contract results from the application of tariffrates on the given elements of the individual deal. In tariffs and policies, it is expressed as a single amount, although premium is acomplex category.

23.3.5. Insured amount

The insured amount (insured sum) in the contract is the specifiedvalue of property interest which is concentrated in the object of insurance for the contractor. It differs from the indemnity based on


insurance. Indemnity implies the amount paid by the insurer to the in-surance beneficiary from the insurance fund when the event providedfor by the contract happens, when the risk covered by insurance occurs. In property insurance, the indemnity is not contracted. It depends on the damage suffered by the insured on the insured propertywhen the risk provided for by the contract occurs, thus, when thedamage-producing event happens. However, the indemnity also depends on the insured amount, which is always subject to negotiations.If the contract includes coverage, then the dispositive rule wherebythe contract is formed with the highest insured amount applies (Art.934, par. 5). It is contained in the insurer’s documents.

In the insurance of persons, the insured amount, which represents theamount of indemnity, is contracted. It is the insured amount, ratherthan indemnity, that is entered in the policy. However, the indemnityis the goal of contract, particularly in property insurance, and it depends on the insured amount. Consequently, the indemnity as acontract element is specifiable, and elements for its specification include the insured amount and value of items in the case of propertyinsurance. In the insurance of persons, this role is played by theamount insured.

The rules, i.e. terms and conditions of property insurance provide thevalue at which individual kinds of items are insured. Thus, buildingstructures are insured at the price of construction decreased by thewear-out rate; goods and materials in stock are insured at the pur-chase, i.e. market price, depending on which is lower; means of transport,machinery, devices, and fittings are insured at the purchasing pricedecreased by the technical and economic wear-out rate; valuables,models, plans, documents — according to the agreement, etc.

23.3.6. Duration of insurance

The duration of insurance is the period within which the insured iscovered by insurance. Its length has a vital effect on the size of riskand the premium amount. Duration of insurance is first determined by


the contract. It can be done by expressed specification of the start andend of the time period in which the insurer’s obligation exists, or byreference to the general terms and conditions of doing business. Parties are also free to form a contract for an indefinite time. As a rule,the period of insurance is identical with the duration of the contract.

The basic dispositive rule of Art. 922 of the LoO distinguishes themoment of forming a contract from the moment when it comes intoforce. An insurance contract “produces its effect starting from thetwenty-fourth hour of the day specified as the starting day of the insurance period in the policy.” Exceptions are provided for in somespecial cases. First, if it has been contracted that the premium is paidat once and when signing the contract, the insurance lasts not from the day specified in the policy but rather from the day following thepremium payment (Art. 914). Secondly, when the insurance certificateis provided, the insurance takes effect from the day of policy issuance.

If the duration of insurance has been contracted, it ceases at the endof the last day in the period (Art. 922 of LoO). Besides, the insuranceceases with the expiration of the contract, either for legal reasons ordue to the cancellation by one of the parties to the contract.

23.4. Parties’ obligations

23.4.1. Insured person’s obligations

23.4.1.1. Providing information about the risk

Data on the item or the person being insured that can be significantfor the assessment of risk are provided by the insurance contractor.When forming the contract, the contractor is bound to report to the insurer all the circumstances significant for the assessment of riskthat are known to them, or that could not remain unknown (Art. 907of the LoO). Since the insured does not always know which circum-stances are significant for risk assessment, these questions should be asked by the insurer.


Almost all the rules, i.e. insurance terms and conditions, contain theprovision that, when forming the contract, the insured is bound toprovide true data on the circumstances that can be of significance forthe assessment of threat, and which are known to them, or could notremain unknown. The insured has the same obligation throughout thecourse of the contract’s duration as well.

Our law takes into account the conscientiousness of both the insurancecontractor and the insurer. If the insurance contractor intentionallyprovided untrue data, or failed to disclose a circumstance that couldbe significant for the risk assessment, so that the insurer would nothave formed such a contract if they had known the actual state of af-fairs, the insurer can ask for the annulment of the actual contractwithin a three-month period provided for by law. If the insurance contractor did not do it intentionally, the insurer can either decide toterminate the contract, or propose an increase in the premium proportional to the increased risk. If the insurance contractor doesnot accept the proposal for the increase in premium, the contractceases by force of law.

The insurer that knew or could know that the received data are untrueat the moment of contract formation, or that the contractor failed todisclose some information, cannot exercise their right for this reason.They can no longer refer to the untruthful application or failure todisclose information in order to terminate the contract, or ask for anincreased premium. The same applies when the insurer has learned ofsuch circumstances in the course of the insurance’s duration.

23.4.1.2. Payment of premium

The insurance contractor is bound to pay the premium. However, theinsurer is bound to receive the premium from anybody that has a legalinterest for it to be paid. If nothing has been particularly contracted,the premium is paid at the site where the insurance contractor has itshead office, i.e. residence. The premium is paid at the contracted timeperiods. If it is due at once, it is paid when the contract is formed, or


when the policy is delivered (Art. 912 of the LoO). As a rule, it is paid in advance, and can be contracted to be paid semi-annually,quarterly, or over other time periods.

Attention should be paid to the circumstance where the insurer’s obligation of indemnification, i.e. of paying the insured amount, arisesonly after the insured has paid the premium. This fully corresponds withthe nature of insurance as the organized collection of means throughpremiums, in order to secure from risk. However, if it has been contracted that the premium should be paid upon the contract’s formation, the insurer’s obligations start from the day provided for bycontract as the day of the start of insurance (Art. 913 of the LoO).

At present, all kinds of insurance have adopted that the fixed premium, calculated by the insurer, is paid. Variable premiums arerarely used, except in mutual insurance. Mutual insurance exists whenthe interested parties associate in order to perform mutual insuranceand specify their rights and obligations themselves. The insurer drawsup a price lists of property insurance premiums, which contain tablesfor all kinds of property insurance. It classifies individual items according to risks and sites, and provides premium rates.

Sanctions for non-payment of premiums in life insurance differ fromthose in property insurance. In life insurance, if the premium is notpaid when due, the insurer warns the contractor and gives them adeadline for the payment of the overdue premium. The deadline can-not be shorter than 30 days. If the premium is not paid, the insurer canterminate the contract. The insurer cannot terminate the contract ifthe premiums for at least three years have been paid up to that time.In this case, they will decrease the insured amount to the amount ofthe surrender value of the insurance policy.

23.4.1.3. Notification of the insured case and change of risk

As soon as the insured case occurs, and no later than three days afterit, the insured is bound to report it to the insurer, so that the insurercan check the conditions and determine the damage, i.e. the harmful


consequences of the case (Art. 17 of the LoO). If the insurance contractor did not participate in the increase of risk, the deadline fornotification is 14 days (Art. 914 of the LoO). The deadline for noti-fication on the decrease of risk has not been determined, since it is inthe contractor’s interest to notify the insurer thereof as soon as possible. The increase or decrease of risk in property insurance leadsto the right to request a change of premium. If the other party declines the request, the interested party may terminate the contract(Art. 914 and 916 of the LoO). In the insurance of persons, it is theinsured person’s obligation to notify the insurer if the risk has increased due to a change of occupation.

23.4.1.4. Care of the insured item

The insured is bound to take due care of the insured property andmaintain it in order. They have to take all the necessary measures andperform contracted activities in order to remove threats due to the occurrence of the insured case. The general rules on property insuranceprovide that the insurer has the right to decrease indemnity, accordingto the assessment of circumstances, to the degree to which the damageis due to the insured person’s failure to observe the prescribed measuresand take the specified actions. The obligation of care is extended evenafter the insured case has occurred. The insured is bound to take allthe measures of saving the threatened property and prevent the increase of damage. If there are instructions for doing so (e.g. in caseof fire), they are bound to follow these instructions. If the insuredfails to do so then the insurer has the right not to indemnify them forthe part of damage due to this omission.

23.4.2. Insurer’s obligations

23.4.2.1. Payment of indemnity

Upon establishing that the insured case has occurred, the insurer isbound to pay indemnity, i.e. the contracted insured amount to the insured, i.e. policyholder, if the policy was issued to the bearer.


The deadline for indemnity payment is no longer than 14 days fromthe day of receiving the notification that the insured case has occurred. If the amount of obligation is not determined in this periodthe insurer is bound to pay the advance, i.e. the part of the indemnitythat is not disputable, if it is required by the authorized person (Art.919 of LoO). If the existence or the amount of the insurer’s obligationis disputable, the payment deadline of 14 days starts from the daywhen these are ultimately established.

The procedure that establishes the existence of obligation of indem-nification and its amount is very complex. We will list its basic stages.The first is the establishment of the insured case. The second stage isthe estimate of damage. The third stage is determining the amount ofthe indemnity. The basic principle that applies to indemnifying inproperty insurance is that the amount of indemnity cannot be higherthan the amount of damage.

In life insurance, the insured amount is paid to the insured or insurancebeneficiary when the contracted case occurs, i.e. when the insureddies or reaches a given age. In accident insurance that has not causeddeath, only part of the insured amount is paid, depending on the degree of disability due to the accident.

23.4.2.2. Other obligations of the insurer

The insurer is first bound to ensure the coverage of their insurance obligations through reinsurance or coinsurance if they could not coverthem with premiums and reserves.

Second, the insurer has to organize their economic activity in confor mityto the economic principles of insurance. This implies the possibility topermanently secure fulfillment of their insurance-based obligations.

The obligation of the insurer is to make their general documentswhich determine the economic basics of their business, such as insurance rules, tariffs, insurance terms and conditions, etc. availableto the public.


Fourth, the insurer is bound to notify the insured on the insuranceterms and conditions. For this reason, their acquisition agents informfuture insured persons on the rules and terms under which insuranceis provided. Some insurance policies contain printed excerpts fromrules, or terms and conditions. It is the insurer’s legal duty to providerules or insurance terms and conditions to the insured when forminga contract, and to warn the latter that they are an integral part of theinsurance contract. In addition, they have to issue the policy or another insurance document to the insured after they have formed aninsurance contract.

Finally, because of the nature of the business and the techniques of insurance organization, the insurer is bound to organize protectionfrom risk and, to this goal, organize and take measures of preventionand repression, to create various funds and strengthen them.

23.5. Accumulation of requests for indemnification and multiple insurance

Insurance covers both the risks of the effects of force majeure and ofharmful human activities. In some kinds of insurance, insurers coverthe damage without enquiring whether there is any liability of a thirdparty. Thus, insurance also covers damages caused by torts for which there is a liable person and which can also be indemnified pursuant to civil law rules. This is particularly the case with manda-tory insurance.

Generally, we adopt the theory of protection from risk as dominant.Our law belongs to a group of laws that make the distinction betweenproperty insurance and insurance of persons in this domain. In propertyinsurance, there is no accumulation of requests for indemnification.The insured can be indemnified only on a single basis, according totheir choice: based on insurance or based on a third party’s tort. In lifeinsurance, the insured or insurance beneficiary can fully exercise theirright to indemnity from the liable person, and receive the insuredamount from the insurance contract. Thus, there is an accumulationof requests in this case.


The question arises as to whether the insured can receive indemnityfrom two or more insurers if the same property or the same personwas insured with them for the same time from the same risks. Whathappens, then, with indemnity in case of double and multiple insur-ance? In case of multiple insurance, each insurer is liable for the fulfillment of his obligations in full. This is understandable, since thesum of all the indemnities is not higher than the value of the insureditem.

23.6. Classification of insurance

Classifications of insurance into various groups depend on the criteriaupon which the classification is made. The most frequently adoptedclassification of insurance, accepted in our law as well, is property in-surance, insurance of persons, and maritime insurance. According tothe way in which it is created, insurance is classified as either voluntaryor mandatory. Voluntary insurance is created by the parties’ will,based on the contract, while mandatory insurance must be formed,pursuant to legal provisions.

Each of the main insurance groups is classified into types. The typeof insurance refers to the kind of risk, the kind of threat from whichone is insured with respect to the characteristics, usability of items orpersons covered by the same rules of insurance, i.e. the same insuranceterms and conditions.

23.7. Reinsurance

Reinsurance is the insurance of the insurer and is therefore called“risk distribution”. It serves to secure the means for paying indemnityand insured amounts when the insurer’s means do not suffice. In thiscase, the reinsurer provides means for indemnity and payment of in-sured amounts to the insurer. Reinsurance does not give rise to directrelations between the reinsurer and the insured, although the reinsurergenerally shares the position of the insurer toward the insured.


Through reinsurance, the insurer transfers part of the risk to anotherinsurer by paying part of the premium, while the reinsurer bindsthemselves to participate in the payment of indemnity, i.e. the insuredamount. Therefore, reinsurance is a means of sharing risk. The reinsurerretains the insurance of part of the risk for himself, while ceding the other part to the reinsurer. He also participates in the premium to the same degree. When the insured case occurs, both participate inindemnification proportionally to the parts for which they took upthe risk.

Reinsurance is exercised based on a contract, and occurs in a fewforms. It can be established based on the insured amount or based on damage. In the latter case, it can be organized as excess of lossreinsurance, and excess of annual loss reinsurance.

23.8. Cessation of insurance contract

It is deemed that an insurance contract has not even been formed, thatit is null and void, if at the moment of its formation the insured casehas already occurred, or was in the process of occurrence, or if it hasbecome certain that it will occur. The fact that it was certain that theinsured case cannot occur has the same consequence (Art. 898, par.2 of the LoO). In these situations, parties are bound to return to eachother what they received based on the contract.

If in the course of the insurance duration the object of insurance is destroyed due to an event not provided for in the policy, the contractceases to exist in the future (pro futuro). The insurer is then bound toreturn, to the insured, a proportionate part of the premium. The samesolutions also apply for the destruction of one or more items when thecontract includes a few items (Art. 928 of the LoO).

If the period of insurance has been contracted, the contract ceases toexist on the last day of the period (Art. 922). Bankruptcy over the in-surer also leads to the cessation of the contract by force of law.


A contract of property insurance also ceases due to non-payment ofpremiums that are due after the deal has been made. By law alone, thecessation begins when thirty days from the premium maturity elapse,provided that the insurer immediately and by registered letter notifiedthe insured on the premium maturity. If it was not done immediately,the contract ceases after thirty days from the delivery of the regis-tered letter notifying the insured on the expiration of the deadline forthe payment of due premiums has passed (Art. 913).

When the insured unintentionally provides incorrect data or fails toprovide the necessary information, the insurer can decide to terminatethe contract or to increase the premium proportionately to the newly-established size of risk. If, in the latter case, the insured does not accept the proposal for the premium increase within fourteen days,the contract is terminated by law (Art. 909 and 914 of the LoO).

The contract can be terminated by one party’s statement of will whenthere are conditions provided by law. We will not deal with the generalrules here, rather with the possibilities of unilateral termination provided for each of the parties as given by the Law on Obligations.

The first case when the insurer has the right to unilateral terminationis when the insured intentionally submits an untruthful applicationof fails to disclose relevant data. Furthermore, the insurer can terminatethe contract if, in the period after its formation, the risk increases somuch that they would not form a contract under such circumstancesat all. Finally, the insurer can also terminate the contract when theover-insurance was made due to the insured person’s fraud. The sameright pertains to the insured as well (Art. 932 of the LoO).

Besides the three situations described above, the insured has the rightto terminate the contract when the insurer declines to decrease thepremium because the risk decreased after the contract was formed.Finally, in theory the insured has the general authorization to termi-nate the contract at any time. Naturally, they should then owe anycompensation caused by such an action.


ChapterHARMONIZATION OF B&H LAWS WITH EULAWS IN THE DOMAINOF E-LEGISLATION24

24.1. The concept of E-business 24.2. Sources of law relevant for making

contracts via electronic messages, i.e. using ICT24.3. Sources of law in the European Union 24.4. Sources of law in B&H 24.5. New trends in contracting 24.6. Preliminary contacts (Internet advertising) 24.7. Written consent 24.8. Elements of contract making 24.9. Technology of concluding contracts 24.10. EU Laws & B&H Laws: Harmonisation

Chapter 24

HARMONIZATION OF B&H LAWS WITH EU LAWS IN THE DOMAIN OF E-LEGISLATION

24.1. The concept of E-business

E-business is a general concept that encompasses all the forms ofbusiness transactions or information exchange performed using information and communication technology (ICT) between compa-nies, between companies and their customers, or within companiesthemselves. It includes electronic trade in goods and services. E-busi-ness can be viewed from various perspectives. From the communi-cation perspective, e-business represents the electronic delivery ofinformation, products and services, and electronic payment usingcomputers and other communication networks. From a business perspective, it is the application of technology aimed at automatingbusiness transactions and operations. From the perspective of services, e-business is a tool that allows for the reduction of operatingcosts with a simultaneous increase in service quality and speed of delivery.

Contract law is the foundation of every economic system. Each saleof goods or services, as well as property transfer, is based on contracts. Contract law, which has historically been associated withwritten contracts on paper and personally signed by parties to the contract, is facing a new challenge. This is the challenge of signingcontracts in a new digital era by exchanging electronic messages bymeans of ICT. The law of ever-increasing complexity and strictnessin e-business standards is particularly evident in this area.

Chapter 24 HARMONIZATION OF B&H LAWS WITH EU LAWS IN THE DOMAIN OF E-LEGISLATION 347

The technique of making electronic contracts has become unique,particularly due to the medium in which the electronic contract ismanifested (the emergence of the Internet), the manner of negotiating,and the hardware and software resources used when expressing willingness to sign contracts (electronic messages, electronic signatures,legal officers’ electronic stamps). The significance of e-legislationfor Bosnia and Herzegovina is reflected in the fact that it is a prereq-uisite for development and for overcoming the lag that B&H has suffered due to historical circumstances. Legal regulation of ICT usehas had extremely favorable effects. This is the source of its drivingpower and synergy.

The most important problems of e-business relate to the techniquesof making contracts via electronic messages using ICT, and the iden-tification of the signatory and verification of the signed electronicrecord’s authenticity in case of dispute. These problems are addressedin the laws of both the EU and B&H. A contract made via electronicmessages and using ICT (the term ‘electronic contract’ will be usedhenceforth, since it is the most frequently used in comparable legalsystems) has quite a distinctive formation technique, different fromthe technique of formation for standard contracts, both in Europeanand B&H contract law.

24.2. Sources of law relevant for making contracts via electronic messages, i.e. using ICT

E-business has been on the upswing in recent years. Since it relatesto global trade, which knows no borders, numerous barriers were immediately observed, including the lack of appropriate legal regu-lations.226 In order to remove legal barriers227 and speed up e-businessdevelopment, a number of international organizations started to regulate this domain.228 The most important subjects of norms include: commercial documents; e-signatures; e-accounts; e-contracts;e-banking; e-payments. Naturally, this does not include all of themanifestations of e-business. Each of the categories listed implies a separate system and classification according to specific kinds of


individual deals. International organizations active in this domain thatparticularly deserve mention include: the UN Commission for Inter-national Trade Law (UNCITRAL); the International Chamber ofCommerce (ICC); the International Maritime Committee (CMI); theEconomic Commission for Europe — RG.4 (CEFACT), and the European Economic Community — European Union. The most important regulations related to e-commerce on the international andregional level include229: UNCITRAL’s model law on electronictrade; the International Maritime Committee’s Rules for electronicbills of lading; the EU Directive on certain legal aspects of e-commercein the internal market; the European Parliament and Council’s Directive on the Community framework for e-signatures; the Europeancode of conduct in the field of e-payments; UNCITRAL’s model lawon international funds transfer; International Chamber of CommerceRules on standby letters of credit and UNCITRAL’s model law on e-signatures.

24.3. Sources of law in the European Union

The European Union has issued a number of directives/guides pertaining to e-business.230 They can roughly be classified into threeareas: ICT regulation, e-business and intellectual property231. Thelegal philosophy behind these regulations is horizontal unification.Contrary to the approach of other international organizations, the EUinsists on the following characteristics of national laws’ unification:obligatoriness, establishing minimum common contents, horizontaleffect, freedom in selecting the method of agreement and the possi-bility for private subjects to refer to these guides based on their directeffect.232

Interestingly, the EU has not renounced the soft law technique in thisdomain.233 The most significant example of its kind is the EuropeanEDI agreement234, which represents the European Commission’s recommendation for the organization of electronic data exchange,Action Plan e-Europe 2002, and the preparatory documents of Action Plan e-Europe 2005.235


The European model EDI agreement was passed in 1994, and repre-sents the Recommendation by the EEC Commission for the legal aspects of EDI (electronic data exchange). The agreement consistsof fourteen articles which pertain to the following issues: subject andscope, definitions, contract validity and formation, admissibility ofdata as evidence, processing and acknowledgement of the receipt of messages, message security, confidentiality and protection of personal data, operational requirements for EDI, technical specificationsand requirements, liability, dispute resolution, applicable laws andeffects, modifications, terms and severability.236 The model agreementpoints to the use of UN/EDIFACT standards. The basic flaw of theEDI agreement is that it does not bind third parties that are not parties to the transaction, nor does it apply to the Internet.

The E-Commerce Directive (2000/31/EC) does not pertain to the entirety of e-business but rather to information society serviceproviders. It deals with five major issues: establishment of an infor-mation society, defining the concept of commercial communication,making on-line business transactions, mediators’ liability and implementation.

The most important novelty of the Directive’s proposals is the establishment of information society service providers. The Directiveattempted to set a legal framework for certain aspects of electroniclegal and business traffic, which primarily encompasses undertakingand providing information society services, the service provider’s responsibilities related to information, contracting, and the serviceprovider’s liability.

The Directive requires member states to ensure, in their respectivenational legislations, the possibility for concluding and legal acknowledgement of contracts made by electronic means. In elec-tronically concluded contracts, the information society serviceprovider is obliged to clearly inform the customer at least on:

• different technical steps to follow to conclude the contract;• whether or not the concluded contract will be filed by the service

provider and whether it will be accessible;


• the technical means for identifying and correcting input errorsprior to the placing of the order;

• the languages offered for the conclusion of the contract, and• codes of conduct the service provider subscribes to, and

information on how those codes can be consulted electronically.

The entrepreneur has to acknowledge the receipt of the recipient’sorder without undue delay and by electronic means.237 Contract termsand general conditions provided to the recipient must be made availablein a way that allows him to store and reproduce them. These solu-tions do not apply to contracts concluded exclusively by exchange ofe-mail or by equivalent individual communications.238 The provisionspertain to contracts concluded over web sites.239

The Directive of the European Parliament and Council on the Community framework for electronic signatures was adopted in1999.240 It is heavily influenced by the Guide of the AmericanLawyers’ Association on digital signatures and UNCITRAL’s Modellaw on e-signature.241 The Directive is based on technologically neutral standards in ensuring requirements for signature security andcertification institution.242

The Directive establishes two forms of electronic signature: electronicsignature and advanced electronic signature. According to the Directive,electronic signature means the messages in an electronic form thatare attached to or are logically associated with other electronic messages, and serves as a method of authentication.243 Advanced electronic signature is defined functionally, by determining the requirements an e-signature must meet in order to be qualified as advanced. Advanced electronic signature shall be admitted, relativeto the data in the electronic form, the effect equal to the handwrittensignature on a paper-based document (Art. 5 of the Directive). The requirements on advanced e-signatures must meet and pertain to therelationship between the signature and the signatory, and the signatureand data.244 Article 2 of the Directive states that an advance electronicsignature means an electronic signature that meets the following requirements:


• that the signatory’s identity can reliably be established based onthe signature;

• that the system in use has been created with no known flaws thatcould endanger its authenticity;

• that protection measures exist that prevent use without the willof the signatory whose identity it is connected with;

• that any change in data related to the signature can be disco -vered, and

• that it has been certified by an authorized provider of certifica-tion service.

For the purpose of establishing the legal security of participants in e-commerce by means of e-signature, a third party is introduced,namely the certification service provider (hereinafter: certificationinstitution).245 It is an “entity, legal or natural person who issues cer-tificates or provides other services related to electronic signatures.”In order to be considered reliable, a certification institution has tomeet certain requirements before and after issuing a certificate. Theobligatory requirements relate to having appropriate staff, technicalsecurity, and financial sources sufficient to cover the risk of damageliability. By issuing the certificate, the certification body becomes responsible for the damage caused to any legal or natural person thatrelies upon the certificate (Art. 6 of the Directive).

24.4. Sources of law in B&H

The B&H legal framework was devised in four basic ways: by taking over the regulations of ex-SFRY, by entities’ legislative activities,by cantonal legislation and by passing regulations of the state ofB&H. Due to the date of their origin, the regulations assumed werenot designed in accordance with ICT needs. The new regulations ofentities, cantons and B&H require the use of ICT in certain areas.246

The Law on Electronic Signature at the state level in B&H was passedon November 14th, 2006 (The Official Gazette of B&H, issue 91/06),and takes effect six months upon publication. The Law regulates thebases of the formation and use of e-signature, and the provision ofservices related to e-signature and certification. Before the Law was


passed, the Central Bank passed two decisions pertaining to signaturecertification and authorization. Several questions were raised in theexisting legal environment about these decisions.

The first question relates to the legal basis, i.e. competence of theCentral Bank for passing decisions on the subject. The second issueis of a material nature: are the issues regulated by these decisionsones that can be regulated by a decision at all, or should they be reg-ulated by law, as in other countries. Third, the domain of the deci-sion implementation can be disputable from the moment it isimplemented beyond banks’ operations.247 Finally, the fourth issueconcerns legal-policy and is of a philosophical nature. Passing theseDecisions was often justified by the phrase “it is better to have anyregulation than none.” We believe that the justification quoted is notacceptable. It can start the practice of passing “any” regulations bynon-competent organs. Keeping in mind the non-unification of B&H,the pragmatism described can make the work of building a legal sys-tem suitable for e-business development considerably more difficult.

The Decision on the minimum requirements that a certification organissuing qualified certificates for e-business must meet (hereinafter:Decision) was passed on March 27th, 2002.248 The Decision prescribesthe minimum conditions that have to be met by a qualified certificationbody that wants to issue certificates for a qualified electronic signatureused for signing payment orders issued in an electronic form whenperforming payment transactions in convertible marks, and elementsthat have to be incorporated in a qualified electronic certificate.249

The Decision regulates the qualified certification body related to payments, while the same issue related to commercial transactionsremains unresolved.250

The Decision on regulations for determining elements for electronicsignature authenticity (hereinafter: Decision) was passed in order toensure the security of payment transactions in internal payments byelectronic means. Regardless of the fact that payments are madewithin closed systems based on contracts between a given number of contractual parties, it prescribes conditions that regulate the authenticity of e-signatures on a payment order.251 Here are the most


important regulations of the Decision. A payment order issued in anelectronic form must be signed with a qualified electronic signature.252

An e-signature has the equal validity of a hand-written signature certified by a stamp. Its legal force or admissibility as evidence cannot be denied solely for the reason of its being in an electronicform, for not being based on a qualified certificate or certificate issued by a qualified certification body, or for not being created usingthe means for generating a qualified electronic signature.

The Law on Electronic Signature of B&H was passed on November14th, 2006 (The Official Gazette of B&H, issue 91/06), and takes effect six months upon its publication. The Law regulates the basesof e-signature formation and utilization, and the provision of services related to e-signatures and their certification.

The Law’s provisions can also be implemented in closed systems thatare fully regulated by contracts among a known number of contractualparties, if their implementation has been agreed upon.253 The Law’sprovisions are also implemented in open electronic communicationwith courts and other institutions, except when a separate law deter-mines otherwise.

The Law provides that an e-signature can be used in legal and business traffic formed by procedures of different security levels andbased upon certificates of different classes. The legal effect of e-sig-natures and their use as evidence cannot be excluded due to the factthat the e-signature is available only in an electronic form or that it isnot based on a qualified certificate, or a qualified certificate by anauthorized certifier, or because it was not formed using technicalmeans and procedures from this Law.254

Article 5 of the Law provides that a secure e-signature meets legal requirements for a personal signature, the written form in particular,if not otherwise determined by a separate law or agreement betweenthe parties to the contract. This can be considered one of the mostimportant provisions of the Law, since it guarantees that courts shalladmit electronic documents signed by a secure e-signature as equi -valent to written documents signed personally, and thus facilitate the


provability of electronic contract, i.e. a contract signed using ICT incase of a legal dispute.

The Law on Consumer Protection in B&H (The Official Gazette ofB&H, issue 25/06 of 04/04/2006) paid due attention to e-business. InChapter X and Chapter XIII, the Law on Consumer Protection inB&H (henceforth: LoCP) provided for the possibility of distancesales, and the possibility for payments using some electronic meansof payment.

A distance sale contract is defined as any contract pertaining to thesale of products or services organized by a trader using the means fordistance sales,255 and is made between a trader and a consumer. Distance means or distance communication is defined as any meanswithout the actual physical presence of the trader and the consumer.Examples included are: printed materials, letters, print advertise-ments, message with the order, catalogues, video-telephones with a screen, telefax, radio, TV, cable TV, e-mail etc. It is evident that theLoCP, when defining means of distance communication, used thepossibility for these kinds of contracts to be made by another meansof connection and communication that may appear in the future. Thisis independent of the opinion that provisions of the Law on Obliga-tions (Art. 40, paragraph 2) allow a contract to be signed by means ofconnections through e-mail.

The LoCP’s provisions pertaining to distance contracts do not applyto contracts made via vending machines, contracts on real estate salesexcept for their rent, and contracts made during auctions.

24.5. New trends in contracting

A contract is the result of the parties’ agreement resulting from theconcurrence of the parties’ will, or more accurately, the concurrenceof expressions of will. Requirements that have to be met include theparties, the object of the contract, the basis on which the deal is beingmade, and the procedures of reaching concurrence, all of which areregulated by the national contract law or, in the case of international


contracts, by the relevant sources for general rules on contract law.256

The evolution of economic relations and commercial technologies is reflected in the process of contract formation.257 It is especiallypresent in contracting258 via electronic messages using ICT.259 As a result, changes in the meaning of certain principles and the emergenceof new solutions are particularly clearly visible in this area.260

We will describe the most important among them. The emphasis shiftsfrom will to the expression of will, which is interpreted objectively, inaccordance with standards implemented in business operations. Theautonomy of will remains the fundamental principle of contracting,with imminent observance of the pacta sunt servanda principle. Newregulations of the Law on Obligations are being developed, and in-clude offer revocation, silence as acceptance, relativization of thewritten form, introduction of an electronic form of contracting, etc.The new techniques of contracting and proof are also being developed,such as standard-form agreements and general terms of operationson the offeror’s web sites, etc. New procedures of contract makinghave also been recognized, including contracts via electronic messages and using information and communication technologies.

The overall changes in the contract-making process have resulted261

in a new division of actions and stages of contract making. Presently,offer and acceptance with all their modifications make up the obli gatorystage of the contract-making procedure. It is preceded by the possibleor optional negotiating stage. Optional stages are classified into preliminary contacts, negotiations, written consent, and occasionallypreparatory contracts. ICT use has raised the most new issues in thearea of preliminary contacts, and we will therefore focus only onthese.

24.6. Preliminary contacts (Internet advertising)

As is the case in contracting itself, preliminary contacts in the newmedium also differ from the classical way of doing business.262 Thebiggest change occurred in the legal treatment of advertising. In the classical way of doing business, advertising is not a preliminary


contact. Internet advertising is. There are a variety of factors that demanded this resolution, but the most important are the interactivityof web sites and e-mail messages. Owing to these, messages consti-tute one-sided advertising as well as the means, place and way of obtaining all the necessary information before starting negotiationsand concluding the contract itself.263

24.7. Written consent

Electronic contracting is primarily based on concluding contractsusing standard-form contracts where negotiation is not possible. Contract making is automated (e.g. double click on the question onthe web site as to whether you accept the offer), which also preventsthe defining and the separate wording of individual clauses.

If a web site includes a request for an offer, the offer must be in astandardized form, which is nothing else but a standard-form contract on the web site that the offeror has to fill in. Negotiationsand written consents are theoretically possible and can appear only incontracts signed via e-mail.264

24.8. Elements of contract making

24.8.1. Offer

A proposal for contract making addressed to one or more specifiedpersons represents an offer if it is sufficiently defined and if it pointsto the offeror’s intention to be bound in case of acceptance.265 Thisdefinition determines the essential elements of offer as a unilaterallegal transaction. What is unique to electronic contract making andthe source of its greatest risk is not in the interpretation of the parties’will but rather the materialization of their expressions of will in anelectronic form.266 Publication of an electronic document on a website, message authentication and sender’s identification in e-mail messages (open systems), or in another way agreed upon by the


parties for sending and receiving electronic messages (closed systems) are significant issues.267 Careless statements given in thisway, or a poorly constructed web site, can result in unwanted offerssent to the whole world in open systems, or to a number of personsin closed systems. Furthermore, it can result in binding to unwantedcontracts by acceptance of the offer by the offeree.268 In order to avoidthis risk, an electronic offer should clearly define the following, besides its essential elements:

• distinction between the offer and request for offers;• clause on general terms of acceptance;• clause on limiting or excluding responsibility for certain cases;• applicable law;• manner of contract concluding;• delivery, or way of executing contractual obligation;• price, currency, and way of payment;• geographic limitations.

24.8.2. Acceptance

Acceptance is the statement or another behavior by the offeree that indicates his consent to the offer. If the offeror has defined the wayof communicating acceptance in its offer, it is binding for the offeree.This is the most frequently used way in e-business. The offeror determines the way of communicating acceptance, i.e. determines thesoftware application over which the acceptance is given (e.g. doubleclick on the box saying that the terms from the offer are accepted,and that you fully agree with the elements of the offer, or simply byplacing payment order, which represents acceptance by facta con-cludentia). Giving acceptance by facta concludentia is not rare in e-business. The technological revolution has made this option unique,and it is most frequently manifested in the buyer’s placing a paymentorder over the seller’s web site, which must be considered to be acceptance. The effect of proper acceptance is the formation of a con-tract. The moment of its formation is defined according to the theoryof acceptance, i.e. when an electronic message representing the acceptance enters the offeror’s information system.269


24.9. Technology of concluding contracts

Concluding a contract via electronic messages and using ICT involves browsing processes (e.g. browsing the offeror’s web site),270

making offers, their acceptance, authorization of payments and payment itself as a way to accept by facta concludentia.271

The buyer accesses the seller’s web site, browses data on productsand services, and prepares an order which has to be in the standardizedform from the web site (standard form contract). Having done so, heplaces an order which, depending on the web site’s formulation, canbe placed in the form of either an offer or acceptance (depending ifthe offer was given, or the request for offers made). The software installed on the seller’s web site receives the order information, including the description of product or service and the total price,shipping and handling. When the seller receives the acceptance in theprescribed standardized form found on the web site, the notificationon the received order will be electronically sent, i.e. to the order formsender, and the payment instruction will be given.

The process of contracting starts when the buyer sends the initiatingrequest to the seller. The seller receives the request and sends thereply. The reply includes the seller’s certificates, which will later beused for message encryption. The buyer receives the certificate andgenerates a request for purchase, which he will send to the seller. A request for purchase is an electronic message which consists of twoparts, including a double signature. The two parts of the message arethe order instruction, required by the seller, and the payment instruction, required by the buyer. The buyer sends the request forinitiating the purchase to the seller. The seller receives the buyer’srequest for initiating the purchase and sends back the reply, whichincludes certificates. The verifier’s certificate will be used for the protection of payment information sent to the seller. The seller is connected to the verifier’s system, which will provide him with acopy of the verifier’s certificate. The seller’s certificate will be usedfor the protection of the order instructions sent to him. The seller thenreceives the request for initiating the purchase. The seller generatesthe reply message and signs it digitally by passing the reply through


a hash function (a function that grinds the message, i.e. transforms itinto an algorithm). A message summary obtained in this way is codedwith the seller’s private key, which results in the electronic signature.The seller sends, to the buyer, a reply, e-signature, his certificate,which includes a public key and the verifier’s certificate, which includes a public key — the key of the exchange. 272

In the next step, the buyer sends the request for payment to the seller.This message consists of two parts: the order instruction, processedby the seller, and the payment instruction, processed by the verifier.273

The seller processes the message, including the request for purchase.274

The buyer receives the seller’s reply, telling him that the request forpurchase has been accepted, and that he can expect the product delivery provided there is enough money in his account.275 Paymentauthorization ensures the transaction approval by the credit card issuer (credit card holder’s financial institution). This approval guaran -tees, to the seller, that he will receive the money for the ordered prod-ucts or services, and he can then carry on with delivery of the productor provision of the service requested by the buyer.

24.10. EU Laws & B&H Laws: Harmonisation

The significance of e-legislation for B&H is reflected in the fact thatit is a prerequisite for development and overcoming the lag that B&Hhas suffered to due to historical circumstances. The overview of themost important regulations pertaining to e-business and e-signatureclearly shows the legality of harmonizing solutions at the interna-tional level. The first area that reflects harmonization is the techniqueof concluding contracts electronically. The second area of harmo-nization pertains to legal security. It is first achieved by the stan-dardization of technical and technological requirements, and then bythe legal treatment of the evidentiary force of the electronic contractform. In all the sources it is equal to other evidentiary resources, sothat courts can no longer reject, as evidence, a document only because it has been signed in an electronic form. These regulationshave by no means changed the general resolutions of the contract law,and they therefore also apply to contracts signed by means of ICT.


Thus, the final conclusion is necessarily the view that the only difference between signing contracts by exchanging electronic messages and using ICT and the classic way is the technique of concluding contracts and the medium in which it is done.

The technological properties of the Internet, as the medium throughwhich these contracts are concluded, make the technique of concluding electronic contracts unique within all the legal systemsand legal traditions existing in the European Union. The significanceof the EU as a B&H partner and the process of the latter’s accessionto European integration imposes the need to harmonize B&H lawwith Acquis communautaire. The Law on Electronic Signature ofB&H, as well as drafts of the Law and provisions on e-business thathave been prepared, satisfied this very need both from a legal perspective and from the perspective of the society of B&H.

Tracking the general development of legal regulation of e-businessand the need to start negotiations on the SAA with the EuropeanUnion, the Council of Ministers of Bosnia and Herzegovina, in partnership with UNDP B&H (a development program of the UnitedNations) have prepared a complex set of laws and rules that representthe future of e-legislation in Bosnia and Herzegovina. It includes thealready adopted Law on Electronic Signature of Bosnia and Herze-govina, and the drafts of laws on specific legal aspects of electroniclegal and business operations in B&H; rules on the measures and procedures of the use and protection of e-signature and advanced e-signature, resources for the creation of e-signature and advanced e-signature, and systems of certifying and mandatory insurance ofthe provider of qualified certificate issuing services; technical rulesand terms for connecting the systems for e-signature certification;rules on the registration of the of electronic signature certificationservice providers who issue the qualified certificates; and rules forrecording e-signature certification service providers.

It is reasonable to expect that the adoption and implementation of thislegislation in B&H will speed up its accession to the European Unionand progress with regard to developed countries. The reasons for thiscan be seen in the fact that, in the modern world, only regulated ICT


use and a properly constituted information society can allow for a better and more fulfilling life for an individual. E-legislation is aninevitable instrument in accomplishing this.

E-business standards are becoming increasingly complex. This lawalso applies to the domain of concluding e-contracts. The techniqueof concluding e-contracts is becoming increasingly unique due to themedium where an e-contract is manifested, which is primarily the Internet. The specifics are primarily reflected in the person’s identi-fication, manner of negotiating, determining and authenticating contract contents, the utilization of hardware and software resourcesused when expressing the will to sign a contract (e-messages, e-sig-natures, e-stamps of legal persons), contract perfection and applicablelegal regimens. This proves the hypothesis that legal resolutions pertaining to concluding electronic contracts differ from the standardmethods of concluding contracts, in national laws and internationalregulations, only in terms of technique.


Chapter SECURITIES2525.1. Common legal elements of securities 25.2. Shares 25.3. Bonds 25.4. Bill of exchange 25.5. Check

Chapter 25

SECURITIES

25.1. Common legal elements of securities

25.1.1. About securities in general

Securities are a source of obligations based on unilateral expressionof will.276 From the issuer’s viewpoint, a security is a written documentwhereby the issuer binds himself to fulfill the obligation written in thedocument to its lawful holder (Art. 234 of the LoO). From the securityholder’s viewpoint, a security can be defined as an instrument, of a prescribed form, which includes a written property right that itslawful holder can exercise toward the issuer.277

There are two types of rights related to securities: the right to the security and the right under the security. Right to the security is thereal right on the instrument itself in the physical sense, while the rightunder the security is the property right incorporated in the instru-ment.278 The right to the security and the right under the security areclosely related, and transfer of the security implies the transfer ofboth.279

The legal regimen of securities is far stricter compared to that of contract law, which is reflected in the strict form of issuing, taking actions, the narrow circle of objections, short deadlines for taking actions, the urgency of the proceedings and, in some cases, themandatory participation of a state authority. This subject matter isgenerally regulated by imperative legal norms.280

Chapter 25 SECURITIES 365

The legal sources regulating this subject matter are numerous. TheLaw on Obligations (LoO)281 contains general (common) rules on securities (Art. 234-261), and those pertaining to documents of title (warehouse receipt, bill of lading, negotiable waybills) withinindividual contracts. Goods-related securities are regulated morespecifically by special laws. The bill of exchange is regulated by theLaw on Bills of Exchange (LoBoE)282, which is also the model lawfor some other securities, while a check is regulated by the Law onChecks (LoCh)283. These two laws were passed based on the uniformrules contained in international conventions (three conventions in thefield of bill-of-exchange law of 1930, and three conventions on thecheck law of 1931). The Law on Out-of-Court Proceedings(LoOCP)284 includes rules on the instruments of annulment.

The Law on the Securities Market (LSM)285 regulates securities(shares, bonds, warrants, treasury bills, commercial papers and certificates of deposit). For the purpose of the Law, a security is trans-ferable document in a dematerialized form — an electronic record, issued in a series and granting rights toward the issuer, as well as allowing the transfer of those rights, in compliance with laws and decisions on issue (Art. 2 LSM). At that, securities issued in a seriesare securities from the same issuer, issued simultaneously and grantingidentical rights (Art. 6 par. 5 LSM). In our country, the tasks of registering, recording and maintaining data on these securities, aswell as tasks related to their transfer are performed by the Registry ofsecurities (Art. 2 of LoSR)286. The Securities Commission is an independent specialized institution of FB&H which ensures the implementation and oversees the enforcement of laws and other regulations pertaining to the issuance and trading of securities (Art.2 and 11 of LoSC)287. Special provisions on shares can also be foundin the the Law on Companies (LoC).

The economic and legal significance of securities is great. Dependingon the type of security, they can serve as instruments of: payment,long-term lending, short-term lending, capital accumulation, transferof goods and guaranties.288


The essential elements, i.e. the mandatory parts of securities, definedby law (Art. 235 of the LoO) are:

1. designation of the type of security;2. company name and registered office / name and residence of the

issuer;3. company name or name of the person the security is made out to

/ on whose order it is made out / designation to the bearer;4. accurately defined issuer’s obligation;5. place and date of the issue, and the serial number*;6. signature / facsimile of the issuer’s signature*;

(*when a security is issued in a series)

Separate laws regulate other constituent parts that are essential aswell. A document that does not include any of the essential elementsis not valid as a security.

25.1.2. Types of securities

In terms of their characteristics and specific features, securities can beclassified according to various criteria.289

Depending on the content of their incorporated rights, securities areclassified into:

1. corporate securities (equity securities or personal-right securities)— these include the right to membership in a company of a joint-stock type, as well as granting the right to participate in the company’s property interests and, as a rule, to participation inmanagement (e.g. a share);

2. real-right securities — they include a real right, which can be exercised only based on the security (e.g. warehouse receipt);

3. obligation-right securities — these include a claim (e.g. bill of exchange).


Depending on the manner in which the right holder is designated onthe security, securities can be:

1. bearer securities — creditor is any conscientious holder (e.g.bearer check);

2. securities (payable) to a named person — the creditor is named(e.g. a share);

3. securities to order - creditor is the person named in the securityand any other person ordered by the named person (e.g. bill ofexchange).

Depending on their maturity, securities are classified into:

1. term securities — term for maturity is accurately defined and writtenon the security (e.g. a bill of exchange payable at a fixed periodafter the date of issue);

2. sight securities (a vista) — the debtor is bound to fulfill the obli-gation as soon as the creditor submits the security (e.g. check);

3. securities without a defined maturity — securities with no maturity date written (e.g. share).

Depending on the subject of the obligation included, securities areclassified into:

1. commodity securities (negotiable documents of title) — the subject of obligation is an object (e.g. negotiable waybill);

2. financial securities — the subject of obligation is money (e.g. billof exchange).

Depending on the issuer, securities are classified into:

1. public-law securities (securities with public trust) — issued by astate, entity, canton, city or municipality (e.g. state bond);

2. private-law securities — issued by business entities, banks, andother financial institutions (e.g. a share).


Depending on the income they bring to the holder, the following se-curities can be distinguished:

1. fixed-income securities (e.g. bond);2. variable-income securities (e.g. share);3. securities without income (e.g. check).

Depending on their relation to basic business, securities are classi-fied into:

1. abstract securities — the basis of obligation cannot be seen, andthe security will be valid although the basic business has flaws(e.g. check);

2. causal securities — the economic and legal purpose of issue canbe observed, and the request to fulfill the obligation arising fromthe security is justified only if the basic business is legally worthy (e.g. warehouse receipt).

Depending on the manner and scope of issue, securities are classi-fied into:

1. individual securities — issued individually for each case (e.g. billof exchange);

2. mass securities — issued in series, in a number of copies, in thesame form (e.g. share). Trade effects are mass securities with amarket or stock exchange price, and are negotiable (e.g. share).

Traditional securities are those with which one can request the delivery of items (e.g. warehouse receipt), while disposition securitiesare those with which one can dispose of items.

For the purpose of the Law on the Securities Market, securities include short and long term securities issued in a series. At that, short-term securities are those that come to maturity within one year,namely warrants, treasury bills, commercial papers and certificates ofdeposit. Long-term securities include shares and bonds. For the purpose of the LSM, securities are registered and made out to anamed person (Art. 6 LSM).


25.1.3. Cessation of rights under securities

Rights and obligations under securities cease pursuant to290 generalrules on the cessation of obligation (upon fulfilling the obligation indicated in the security, limitation, waiver of debt, novation, com-pensation or confusion), and special rules pertaining to securities.

The special ways in which a cessation of rights can occur include:security annulment, buyout, amortization, mortification, and the issuance of a new instrument. A buyout occurs in the case of corporatesecurities. It results in the cessation of the security’s validity, and thusany rights under it. Amortization can be required for lost, stolen or inany way vanished securities made out to a named person or to order(Art. 260 of LoO). The court, in out-of-court proceedings, will thenpass a decision whereby the holder of the annulled document may request the fulfillment of the obligation or issuance of a new instru-ment (Art. 230 of LoOCP). Mortification is a private-law procedureof declaring a security null and void, based on an agreement betweenthe debtor and creditor, and has to be permitted by law for the givensecurity. The security holder that suffers damages to the extent that itis not suitable for trade and its truthfulness and contents can be established with certainty can, at his own expense, request the issuance of a new security, the damaged one being returned to the issuer (Art. 259 of the LoO).

25.2. Shares

25.2.1. Concept, legal characteristics and essential elements of shares

The term share (stock) has three major meanings: it is part of a company’s equity capital, a set of rights and obligations related to themembership in a company, and an equity security (Art. 7 LSM) thatincorporates defined management and property rights.291


The legal characteristics of shares are due to their function as a corporate security. Shares can be issued by joint-stock companies andlimited stock partnerships. Other types of companies and natural persons can acquire shares and trade in them, but cannot issue them.A share is a long-term investment security the economic function ofwhich is capital accumulation; it serves to establish a membership(shareholding) relation between a company and a permanent investor,which includes property-right and management relations292. Contraryto bonds, shares do not mature. In our legal system, shares are dematerialized (electronic records), undivisible (rights under theshare cannot be split to more than one person in case of inheritance),and are registered (Art. 6 LSM and Art. 194 of the LoC). Shares bringvariable income (dividend, superdividend) and, together with bonds,they are typical trading effects. They are negotiable (transferredthrough a legal transaction on ownership transfer), and fungible (itmakes no difference for the buyer which shares he will obtain as longas they provide the appropriate kind and scope of rights). It is possibleto merge and split shares of the same class, which will be discussedin more detail further on in the text.

A joint-stock company’s equity capital is divided into shares (Art.107 of the LoC), and the sum of nominal values of all the company’sshares equals its equity capital. Nominal value of a share cannot beless than 10.00 BAM (Art. 127 of LoC). As a rule, the market valueof a share differs from its nominal value (it can be lower, the same orhigher). A change in market value does not affect the share’s nominalvalue or the company’s equity, but it does affect the value of share-holders’ property.293

The essential elements of a share (and a bond) are the mandatory elements of a security as set by the Law (Art. 8 LSM). The contentof a share is determined by the memorandum of association, i.e. bythe decision on share issue in case of subsequent issuances. Shares arerecorded at the securities account with the Registry, which issues tothe owner a certificate of securities account. The securities accountcertificate includes all the securities the owner has in his accountmaintained by the Registry (Art. 206 LSM).


25.2.2. Types of shares

There are a few classifications of shares. According to the manner ofdetermining their value, two types of shares are distinguished:

1. par value shares — shares with nominal value which include thewritten amount the share is made out to (e.g. 100 BAM), and

2. quota shares — which do not include the written nominal valuebut rather the amount of the share participation in the company’sequity, typically expressed as a fraction (e.g. 1/100,000 of equity). This kind of share is not very widespread.

Depending on the type of investment, shares are classified into:

1. cash — they are bought with payments in money, in domestic orforeign currency, and

2. in kind — which are acquired by payments in kind (objects and/orrights).

25.2.3. Rights and obligations of shareholders

The shareholding relation consists of the company’s and shareholders’rights and obligations. A distinction is made between shareholders’standard rights and obligations, and rights above and below the standard level.294

Shareholders’ standard (normal) rights and obligations include thoseresulting from the nature of the shareholding relation, and are possessed by each shareholder, i.e. share underwriter, regardless ofthe type and class of shares.

The shareholder’s standard obligations include:

1. payments for the share in money or in kind (objects and rights)pursuant to the memorandum of association or the decision onshares issue,


2. reporting the acquiring ownership of shares to the SecuritiesRegistry,

3. acceptance of conversion, denomination, share merger or split,if the company makes a decision on them, which is approved bythe Securities Commission,

4. keeping the trade secret, confidential information and documents.295

The memorandum of association, the decision on issue, and thestatute can define other obligations as well. A shareholder shall be liable in case of failure to fulfill, or improper fulfillment, of his obli-gations; sanctions can include paying interest, contractual penalties,and damages.

Shareholders’ standard rights include:

1. management rights, which include: the right to vote by the principle “one share, one vote”, participation in work and deci-sion-making at the shareholders’ general meeting, nominatingcandidates for the supervisory board and the right to be electedto the board, right to information on company activities and busi-ness, and on essential facts related to each member of management,access to business-related documents, right to refute generalmeeting decisions, acquiring a certificate on the owned shares,and access to his own securities account in the Registry, etc, and

2. property rights, which include: participation in the distribution ofcompany’s profit proportionate to the share in equity, participationin the distribution of company assets remaining after bankruptcyor liquidation, purchasing, selling and pawning of shares.296

Ordinary (common) shares typically ensure standard rights. Althoughshareholders have the right to participate in the company’s profit, thecompany is not bound to pay dividends. The general meeting can de-cide not to pay dividends to ordinary shareholders, regardless of thebusiness results. One should also distinguish between the scope andtype of rights. The basis for determining the scope of shareholders’rights is formed by the shares’ nominal value and the number ofshares owned compared to the company’s equity.


Rights above the standard rights ensure certain advantages either withrespect to property or management rights, in terms of the type andquality of the rights, and their acquisition is related to the fulfillmentof different requirements controlled by the Securities Commissionfor each share issue separately. Those rights above standard ones aredefined as:297

1. preferential rights — rights of shareholders who hold preferredshares, cumulative or participating, which can be manifested inpriority to: dividend payments, balance of liquidation or bank-ruptcy estate, accumulated and outstanding dividends, and inright to superdividends, etc., and

2. employee rights — company employees have the possibility toacquire shares through issue by way of a private offer, with adiscount, for free from the company’s equity, or based on an employment claim, and the guaranteed price of share buyout.They can also have legal restrictions in terms of disposing withdividends or cessation of rights ex lege.

Shareholders are residual creditors, as they are entitled to all the company’s assets and profit that remain after the other creditors havebeen taken care of. If nothing is left, they will receive nothing. Preferred shareholders are given priority over common ones, although this right follows the right of other company creditors in thesequence of payments.298

Rights below the level of standard rights are possessed by holders ofnon-voting (dividend) shares. In this case, the shareholders do nothave voting rights, but do have standard property rights.299

25.2.4. Issue of shares

The issue of shares can be effected through public or private offering(Art. 2 LSM), which is decided upon by the issuer, depending on thegoals they want to achieve and who is buying shares. Shares are issued through a public offer if the public invitation is sent to an unknown number of parties, using public media outlets (Art. 2 LSM).


Private offering (private placement) is an issue of securities whereinvitations for subscription and payment of securities are sent to aknown buyer: institutional investors, shareholders or issuer’s employees, or up to 20 persons defined as external investors. An institutional investor is a local or foreign legal person acting as an investment fund, pension fund, a bank, insurance or reinsurance company or another legal person whose registered business activityallows it to assess the value of a future investment into securities. Anexternal investor is a local or foreign legal or natural person who isnot a shareholder or an employee of the issuer, nor an institutionalinvestor (Art. 2 LSM). Private offering is simpler, easier and cheaperthan a public offering of shares (no public offering and publication ofresults required, shortened prospectus).

The process of issuing shares, or more accurately securities in termsof the Law on Securities Market (Art. 25 LSM), includes:

1. making a decision on the issue;2. signing a contract between the issuer and the bank (depository);3. signing a contract between the issuer and the Registry;4. submission of a request for approval of the Commission to issue

securities;5. a decision by the Commission on the issuer’s request;6. publication of a prospectus and a public invitation for subscrip-

tion and payment of shares (in case of a public offering);7. the actual subscription and payment of shares;8. confirmation and publication (in case of a public offering) of

results of the issue;9. entry of a successful issue into the registry of issuers maintained

by the Commission and entry of the securities into the buyer’saccounts maintained by the Registry.

The issue of shares is based on a decision made at the general meetingor by the supervisory board, if authorized. The memorandum of association for a joint-stock company also determines the first issueof shares. The mandatory content of the decision on securities issueis defined by law (Art. 26 and Art. 47 LSM).


The issuer is obliged to sign a contract with a bank acting as the depository (the depository bank) in order to establish a temporary account, used for depositing payments made for the purchase of securities, and a contract with the Registry, to maintain records of issued shares, if such a contract has not been signed previously.

A request for approval of the Commission to issue securities, be it ina public or private offering, is submitted to the Commission by the issuer or by founders when establishing a joint-stock company. Sucha request must include documents prescribed by the Law, includinga decision on share issue and a proposed prospectus (Art. 29 and Art.49 LSM, Art. 114 LoC). The Commission may approve such a request, it may request its amendment or removal of shortcomings, orit may refuse it (Art. 30 LSM). When deciding to approve the issue,the Commission confirms that the issuer has acted in compliance withthe law and other regulations, and that the prospectus contains all thenecessary elements (Art. 31 LSM). The Law also defines cases thatdo not require an approval by the Commission (Art. 54 LSM). In issues of shares, those include: issue on the occasion of a simultaneousestablishment of a joint-stock company in compliance with the Lawon Companies, issue of new shares as payment of dividends, increaseof the nominal value of shares and issue on the basis of conversionof convertible bonds into shares.

Based on the decision on the approval of share issue through a public offering, the applicant publishes the public invitation for thesubscription and payment of shares in the form of an advertisementin at least one daily newspaper distributed in the entire territory ofthe Federation, with the full text of the shares prospectus or infor-mation as to where the prospectus may be obtained free of charge, aswell as a web address of the stock exchange or another regulated public market where the shares are listed (Art. 36 LSM). The publicinvitation, including the prospectus, represent a general offer.300 Thegeneral offer is a proposal for signing a contract made to an undefinednumber of persons, which includes the essential elements of the contract it is intended for (Art. 33 of the LoO). The prospectus shouldcontain sufficient information on the issuer, allowing for an assessmentof its financial position and potentials, as well as information on therights under securities (Art. 32 and Art 33 LSM).301


The public offering can be ended before the expiration of the sub-scription and payment deadline once all the securities offered havebeen subscribed and paid for. The issuer may also withdraw from theissue, in cases provided for by the Law (Art. 39 LSM). An issue isconsidered successful if the amount set by the decision on the issueas the lowest acceptable for a successful issue has been subscribedand paid within the prescribed time (Art. 40 LSM).302

Upon expiry of the deadline or after a successful subscription andpayment, the depository bank submits to the Commission and the issuer a written report on the number of shares subscribed and paidfor (Art. 40 LSM). Based on the report, the Commission passes a decision on the success (or failure) of the public offering and deliv-ers it to the issuer and Registry. The issuer is then bound to publishthe results of the public offering of shares, i.e. the report on the totalamount and number of subscribed and paid shares, and in case of afailed issue, also the data on the manner and term of return of thepayments made (Art. 41 LSM). In case of a private offering, the depository bank submits to the Commission and the issuer a writtenreport on issue results (Art. 51 LSM).

Conversion, denomination, merger and split of shares are performedbased on the issuer’s decision and approval by the Commission. Con-version of shares includes the withdrawal of all the shares of one classand simultaneous issue of new shares of another class (e.g. the conversion of preferred into ordinary shares). Denomination impliesthe withdrawal of all shares of one nominal value and simultaneousissue of new shares of the same class with proportionately decreasednominal value (e.g. ordinary shares with the nominal value of 100BAM are replaced with the same number of ordinary shares with thenominal value of 80 BAM). Merger of shares is the withdrawal of allshares of one nominal value and simultaneous issue of new shares ofthe same class, in order to replace existing shares with fewer newshares of greater nominal value (e.g. 2 ordinary shares valued at 10BAM for one share valued at 20 BAM). On the other hand, in thecase of a share split there is a simultaneous issue of new shares ofthe same class, in order to replace existing shares with more newshares of lower nominal value (e.g. one ordinary share of 20 BAM inexhange for two ordinary shares of 10 BAM each) (Art. 55-56 LSM).


25.2.5. Share trading

Shares and other securities are freely transferable. Trading in securi-ties implies sale and purchase as well as any other legal transactionthat may serve as the basis for a transfer of ownership over a security(Art. 2 and Art. 10 LSM). Share trade may take place at the stock exchange or at another regulated public market (Art. 133 LSM).Trade may be restricted pursuant to Article 10 of the LSM. Thus,shares acquired through private offerings may not be sold, pledged ascollateral or otherwise transferred for the period of one year from thedate of entry into the Registry except for cases defined by the Law(Art. 53 LSM).

The basis for acquisition or transfer of the ownership rights over securities may be: a legal transaction, decisions related to issue, courtruling, ruling by other competent bodies, or legislation. The owner-ship right over security is acquired at the moment of entering into theowner’s securities account with the Registry. Rights arising fromownership of securities are acquired, restricted or terminated bymeans of entry into the Registry (Art. 9 LSM).

Third parties may acquire lien, usufruct, repurchase or pre-emptiverights over securities (Art. 11 LSM).

25.2.6. Classes and series of shares

A class of security denotes all the securities falling within the sametype and generating the same rights and duties (Art. 2 LSM). Sharesthat contain the same rights and have the same nominal value belongto the same class (Art. 195 of LoC). A company may have and simultaneously issue one or more classes of shares. A series impliesthe ordinal number of the issue of shares of the same class.303

According to Anglo-Saxon legal theory, there are four basic classesof shares.304


1. Ordinary (common) shares typically grant standard rights.2. Preferred (preference) shares include special rights, primarily

property rights, which are greater than the rights included in ordinary shares. There are cumulative preferred shares that grantthe right to collect outstanding dividends in arrears before thedividend payment to ordinary share owners, and noncumulativepreferred shares, which do not grant the right to accumulate theoutstanding dividend and receive payments in subsequentyears.305 There is also a distinction between participating preferred shares, which grant the right to a higher dividend (superdividend or superprofit) compared to the shares of otherclasses, but not priority in collection. Holders of such shareshave the right both to the dividends that belong to preferredshares and to participate in the distribution of the portion ofprofit that belongs to the holders of ordinary shares. As opposedto these, holders of nonparticipating preferred shares do not participate in the distribution of the portion of profit that belongsto the ordinary shareholders.

3. Dividend shares, or non-voting shares, grant only the right tocollect dividends, and do not grant the right to vote. Holders ofsuch shares do not take part in management and in some laws arenot even considered company members.

4. Employee shares differ from other classes in terms of the conditions and ways of their acquisition, the subjects that canacquire them (employees) and the restrictions on their disposal.

Our Law on Companies implicitly defines common, preferred andemployee shares as separate classes. Ordinary shares include the rightto take part in management, distribution of profit and distribution ofassets remaining after bankruptcy or liquidation (Art. 194 of LoC). A shareholder has the right to one vote for each ordinary share. A company cannot issue shares that grant the right to more than onevote per share (Art. 199 of LoC). Preferred shares are those that include the right to demand precedence in collecting dividends and aproportionate portion of the balance of assets after the joint-stockcompany’s liquidation, with limited voting rights. The total nominalvalue of preferred shares may amount to not more than 50% of the joint-stock company’s equity (Art. 219 of LoC). The economic


literature defines preferred shares as securities that provide fixed dividends, which makes them similar to bonds, and different fromordinary shares.306 Interpretation of Art. 207 of the LoC leads to theconclusion that our Law also implies preferred shares with a fixedincome. Dividends are paid to preferred shareholders as well only ifthe company’s business was successful.307 Employee shares includethe same rights as common ones, except in cases provided for by theLoC. The decision on share issue, in accordance with the statute,more accurately regulates the conditions and way of acquiring, trans-ferring and buying out these shares. They can be transferred only toother employees and retired company employees, and the companyis bound to buy them out at an equitable market value on the day theiremployment ends. The rights included therein cease at the death or cessation of employment with the issuer. The sum of the nominalvalues of all the employee shares cannot be higher than 5% of thejoint-stock company’s equity (Art. 217-218 of the LoC).

25.2.7. Own shares

A joint-stock company cannot, directly or indirectly through anotherperson acting on its behalf and on the company’s account, subscribeits own shares (Art. 225 of LoC), since it opposes the essence of theissue of shares, which is aimed at raising capital. Since in some casesit may be necessary to acquire one’s own shares in order for the company to prevent damage, collect claims, or offer them to employees etc., joint-stock companies are allowed to acquire theirown shares based on a general meeting decision and, exceptionally,decisions by the supervisory board (Art. 227 of LoC), but not throughsubscription. Acquisition of own shares is a covert return of the paiddeposits to shareholders, and in a non-transparent way it decreasesthe company’s equity.308 The total nominal value of own shares thata company acquires must not be higher than 10% of the equity capital (Art. 225 pf LoC), and the company has to resell or withdrawthem within a year (Art. 228 and 230 of LoC). A joint-stock company may not exercise rights under their own shares that theyhave acquired.


25.3. Bonds

25.3.1. Concept, legal characteristics and essential elements of bonds

A bond is a debt security that gives the holder the right to collect thenominal amount (principal) and the interest or any other income thatmay be generated pursuant to the Law and the decision on bond issue(Art. 2 LSM). In other words, a bond is a security whereby the issuerunconditionally commits themselves to the holder to pay the par value(principal) with a fixed or variable interest, and sometimes even agiven amount of a share in profit, upon maturity. It is a security thatincorporates the obligation right to a given monetary claim. The obligation relationship is of a long-term and lending character. Fromthe viewpoint of its economic function, a bond is an instrument oflong-term lending and capital mobilization309. In our country, bondsare issued in a dematerialized form, as electronic records.

The legal characteristics of bonds result from their conceptual defi-nition and economic function. Issuers of securities, thus issuers ofbonds, include legal persons, the Federation, cantons, cities and municipalities in the Federation, as well as other levels of governancein Bosnia and Herzegovina (Art. 22 LSM). A bond is a long-term (theterm of maturity is usually between five and thirty years) debt andcredit security. It is a financial security that bears income in the formof interest, fixed or variable, and sometimes a share in profit. It is atrading effect, and is negotiable and fungible. Dematerialized securitiescan only be registered, since otherwise it would not be possible toidentify the holder.310 The essential elements of a bond, as those of ashare, are defined by the Law on the Securities Market (Art. 8 LSM).

The issue and trade of bonds are effected in the same way describedabove in the section on the issue and trade in shares (pursuant to LSMprovisions). It should be added that issue of bonds may not be restricted to current owners of securities of the same issuer, nor topersons linked to the issuer. The volume of bonds issued by companiesmay not exceed the amount of their equity capital as on the date whenthe decision on issue is made (Art. 24 LSM).


The usual clauses on the rights of the issuer and bond holder in com-parable legal systems include:

1. guarantee clause — includes the guarantee by another legal person (e.g. a bank) that the bond issuer will pay all (full) or partof the (partial) obligations under the bond;

2. conversion clause — provides the possibility, for the holder, toconvert his bond with the issuer for other securities (e.g. shares,new bonds), money or actual goods;

3. redemption clause — gives the right to the issuer to redeem thebonds by paying out the debt before the set maturity;

4. guarantee of non-redemption clause — the issuer guarantees tothe bond holder that the bond will not be redeemed in a giventime period (e.g. five years);

5. refinancing (refunding) clause — the issuer is entitled to redeemthe existing bonds through the issue of new bonds; and

6. sinking fund clause — the issuer is bound to withdraw a certainnumber of bonds sequentially through payouts over set time periods.311

25.3.2. Types of bonds

Bonds are classified according to various criteria.312 Depending onthe issuer’s position, there are:

1. state, government and municipal bonds — bonds with a publictrust, the issue of which is aimed at financing infrastructure development projects of a public character, and sometimes evencovering budget deficits (e.g. state bonds from, bonds issued byvarious forms of state organization, state institutions and publicenterprises); and

2. corporate bonds — bonds issued by a corporation.

Our law defines bonds as long-term securities with a maturity dateover one year. (Art. 6 LSM). Bearing this in mind, bonds can be classified as: short-term, with a maturity shorter than five years,


medium-term with a maturity from five to twenty years, and long-term with a maturity of over twenty years. There are also bonds without a fixed maturity date, which are similar to shares.

Depending on the form of amortization, distinctions are made between bonds that can be amortized:

1. at once — at maturity the entire amount of par value with the interest is paid out, or the interest has already been partially paidout;

2. gradually — according to the amortization schedule, so that annuities are paid out over given periods; and

3. perpetual bonds — where only the interest, and not the principalis paid out, and there is no debt amortization.

Depending on the degree of guarantee, there are:

1. debenture bonds (unsecured bonds) — bonds with no specialguarantee, whereby the issuer guarantees with their entire assets,rather than part;

2. secured bonds — bonds backed by collateral including securities;3. mortgage bonds — bonds backed by mortgages over real estate;

and4. guaranteed bonds — where the security is provided by a third

person (e.g. bank) for the issuer.

Depending on the income they bring, bonds are classified into: fixedrate bonds, floating rate bonds, indexed bonds (where the interest ratedepends on an index), non-interest-bearing or discount bonds (sold ata discount), and participating bonds (which yield interest and parti-cipation in the issuer’s profit). Floating rate bonds can be classifiedfurther according to the way in which the interest rate is determined.

Depending on the terms of payment, there are bonds with semi-an-nual and annual interest payments.


Depending on the exchange possibilities, bonds can be:

1. convertible bonds — allow exchange for other bonds, shares, currencies or actual goods;

2. non-convertible bonds - the issuer prevents conversion;3. bonds with limited conversion — the issuer has limited conver-

sion to ordinary shares and other bonds;4. bonds with warrants — include the option which entitles the

holder to a later purchase of another security of the issuer at afixed price.

Depending on the currency of denomination, one can distinguish be-tween local-currency bonds, foreign-currency bonds, and bonds de-nominated in two different currencies.

Depending on the territory, bonds are classified into:

1. local bonds — traded within a single country, with both the buyerand issuer local persons, and

2. foreign bonds — traded in a foreign market, the buyer and issuerbeing from different countries.

25.4. Bill of exchange

25.4.1. Concept and economic functions of a bill of exchange

A bill of exchange is a security whereby one person (drawer of a bill)gives an unconditional promise that they will pay a given amount ofmoney, or whereby they give an unconditional order to a second person (drawee) to pay a certain sum of money either to, or to theorder of, the person specified on the bill (payee).313

Depending on who will pay the bill’s sum there are two basic typesof bills of exchange:


1. promissory note, whereby the issuer (promissor) unconditionallypromises to pay the bill’s sum to the person specified on the bill(promisee or payee), and

2. “drawn” bill of exchange or draft (henceforward: bill of exchange), whereby the issuer gives an unconditional order toanother person to pay the bill’s sum to the person specified onthe bill, or to its order, to a third person.314

With respect to the economic functions of a bill of exchange, one cansingle out its functions as an instrument to secure payments, meansof payment, and means of lending. Presently, banks often use a billof exchange as a means to secure the return of a loan, whereby theloan a beneficiary submits to a bank entails the debtor drawing a billof exchange on himself. A bill of exchange can also serve as a meansof lending, when the determination of the term of maturity allows forthe delayed collection of a claim.315

25.4.2. Elements of a bill of exchange

There are different theories on the time when individual elementsshould be included in a document for it to have the character of a billof exchange. According to an older theory, the theory of unique action, all the elements must be included at the moment of the bill’screation, i.e. simultaneously, in a single handwriting and in ink. Sincesuch an understanding did not suit the needs of modern trading, amodern theory of bills of exchange was developed, omission theory,which allows for the successive complementation of a bill of exchange with elements that the issuer omitted when first issuing it.In doing so, all the elements of the bill of exchange required by lawhave to be entered in the instrument at the moment of its submissionfor payment, and there is a legal assumption that the issuer has authorized each conscientious holder of the bill of exchange to enterthe missing essential elements in the document.316


The essential elements of a bill of exchange (Art. 3 of LoBoE) are:

1. designation that it is a bill of exchange,2. unconditional order to pay a specified sum of money,3. drawer’s signature,4. drawee’s name,5. payee’s name,6. place of issue,7. place of payment,8. date of issue, and9. designation of maturity (Example 1).

The essential elements of a promissory note are the same, except thatthere is no drawee (Art. 106 of LoBoE).

The essential elements can be classified into those that have to beexplicitly specified and existent at the moment of the draft presentmentfor payment, and those that can be assumed although not explicitlyspecified on the bill of exchange, i.e. the assumed essential elements.317 In the case of a bill of exchange, these include the placeof issue, the place of payment and maturity.

The expression “bill of exchange” must be included in the text (notas a title, in order to avoid forgery) in the language in which the billof exchange is issued at the moment of issuance. If not, it could be anordinary civil-law obligation, rather than a bill of exchange. In prac-tice, the most frequently used is a blank form, which is issued by thestate or an authorized organization, where the term ‘bill of exchange’is already printed (Example 1).318


Example 1: Essential elements of a draft note

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 594 and 600

Payment of the bill’s sum cannot be conditioned319. The order mustbe made out for a certain sum of money (it cannot include the claimon goods), and the sum is usually written both in words and in numbers. It may happen that the two sums differ and in this case, thesum denoted by words will be valid. If the sum payable is writtenseveral times in words or several times in numbers, the lowest amountwill apply (Art. 8 of LoBoE). The type of money should also be specified on the bill; if it is not, it is assumed that the payment shouldbe made in the type of money that has the legal exchange rate in theplace of payment.320

The drawer as the issuer must have business capacity and must signthe bill, since he is the only debtor under the bill at the moment of itsissuance. If the drawer is a legal person, the authorized persons’ signatures must be accompanied by the company’s name, and as arule the bill is stamped. A few drawers can be listed (co-drawers),and they can be only joint (cumulative) debtors. The drawee is theperson that should make the payment, and it can be any person with


business capacity. The payee is a creditor, a natural or legal person towhom the bill’s sum should be paid. The bill may include a fewdrawees and/or payees, alternatively or jointly.321

The place of issue is an essential, but not a necessary element, sinceif it is not included there is a legal assumption that the draft has beenissued at the place written next to the drawer’s signature. It is only ifthe latter place is not written that the bill of exchange becomes nulland void. If the draft does not include the place of payment, it is believed that it is the place written next to the drawee’s name. In thecase of a promissory note, it is assumed that the place of payment isthe place marked as the place of issue, i.e. the place of the issuer’sregistered office, since there is no drawee (Art. 4 and Art. 107 ofLoBoE). The designation of the date of issue does not have to betruthful, and a bill of exchange can be pre-dated or post-dated.

The date of maturity, i.e. the time when the bill of exchange has to bepaid, can be determined in a few ways, and accordingly there are afew types of bills of exchange (Art. 34-38 of LoBoE):

1. bill of exchange with maturity at a given date (bill of exchangepayable on a fixed date) — maturity is fixed and accurately determined by a date (e.g. on June 1st 2009 pay …) or custom-ary expressions (early in the month of or primo, in mid month ofor medio, late in the month of or ultimo) — Example 1;

2. bill of exchange payable at a fixed period after the date of issue— maturity is determined by the expiration of the written timeperiod from the issuance of the bill of exchange (e.g. six monthsstarting from today pay… or six months starting from the issuance pay…);

3. sight bill of exchange — payable at sight, matures whenever it issubmitted for payment within the time period provided for by law(a year after the issuance), which the drawer can shorten or prolong,and endorsers only shorten (e.g. at sight pay …) — Example 2;

4. bill of exchange payable at a fixed period after sight — it first hasto be submitted to the drawee for acceptance, and the draweethen enters the date from which maturity is then calculated (e.g.three months after sight pay …).


Bills of exchange with cumulatively or alternatively written matu-rity, designation of the final due date for payment, a date of maturitythat would occur before the date of issuance, installment payments,as well as with two or more maturities are all null and void.322 A billof exchange with no maturity written on it is considered to be a sightbill of exchange (Art. 4 and Art. 107 of LoBoE).

Besides its essential elements, a bill of exchange can contain other,non-essential elements, i.e. bill clauses, the (non)inclusion of whichdoes not affect the validity of the document as a bill of exchange. Themost frequent among them are listed and described in Table 1.

Table 1: Non-essential elements of a bill of exchange (draft clauses)323


No. Bill clause: Meaning:Example of writing on a draft:

1

duplicate clausedata on the number of the bill copy, ifthe bill is issued in more than one copy

pay for this first bill, or pay for this second bill

single clausea clause written if one does not want thebill to be issued in more than one copy

pay for this single bill, or pay for this only bill

2designation to the order of

the bill is negotiable to order* pay to the order of N.N.

3

clause on currency(clause on effectivepayment in a foreign currency)

drawer determines that the bill shall bepaid in the indicated type of money

pay... 10.000 euros effectively or in euros

4collateral clause (recovery clause)

describes the remuneration received by the drawee

pay ... and deposit to myaccount or pay ... and deposit to N.N’s account

5clause on the received value

shows the relationship between the drawerand the payee, i.e. what the payee'scounter-obligation has been or is expected

value received in kind orvalue received in money

6notice clause(clause about no-tice)

indicates whether the drawee, before accepting the order from the bill,should wait for the drawer’s notice

with or without notice

7 cancellation clauseentered in case of issuing a bill in a fewcopies, to ensure the payment of the billamount to the holder of a specified copy

pay for this first, and not for other bills

* by force of law, a bill is negotiable to order, whether this is written on it or not** is effective to everyone if written by the drawer, and if written by the endorser or guarantor only

to them*** valid only for the endorser who wrote it

Example 2 shows the non-essential elements of a bill of exchangefrom Table 1, indicated by numbers.


No. Bill clause: Meaning:Example of writing on a draft:

8restrictive clause (negative clause toorder)

the bill is transformed into a security payable to a named person and can betransferred only by cession

pay for this bill to N.N., but not to his order

9clause without cost or withoutprotest**

bill holder is exempt from the obligation to raise protest in order to avoid excessive cost

with no cost or without protest

10clause without obligation or without recourse***

endorser excludes his liability pursuant to the Law on Bills of Exchange as a recourse debtor to subsequent bill holders

without my obligation

11 interest rate clausecan be entered by a drawer in bills of exchange payable at sight or at a fixed period after sight

1% interest rate

12indication ofaddress

more accurate address of drawer, drawee, etc.

Br~anska br. 5

Example 2: Non-essential elements of a bill of exchange

Note: Example for a clause without obligation (# 10) can be seen in Example 8

25.4.3. Bill-related actions

Rights under the bill of exchange arise, are transferred, change orcease by taking specified actions by the creditor, debtor or a thirdparty. A distinction is made between basic bill-related actions, whichinclude issuance, transfer, acceptance, bill guarantee, payment, acceptance for honour, duplication, and transcripts of bills, and actions aimed at the preservation of bill rights, which include recourse, protest, amortization and the lodging of the bill claim.324

Each person from the bill of exchange can authorize a proxy for taking a bill-related action, and their relationship is resolved pursuantto the rules of the Law on Obligations. Taking bill-related obligationsrequires a special power of attorney (Art. 91 of the LoO). If the proxyexceeds his authorizations, he becomes a joint and several debtorunder the bill.325


25.4.3.1. Issuing a bill of exchange

A bill of exchange is issued by a drawer, and the action of issuanceconsists in filling in the form and adding the issuer’s signature. In accordance with omission theory, it is not necessary to fill in a blankbill form, since each holder is authorized to fill in the missing elements by the time of its presentment for payment, but the drawer’ssignature is mandatory at the time of issuance (Example 1). A legalperson signs a bill of exchange by means of the authorized persons’signatures and a stamp. Illiterate persons and those who are otherwiseunable to write can bind themselves by placing their fingerprint on thebill and having this certified by the appropriate court. A blind persons’ signature on a bill of exchange is valid only if certified by acourt (Art. 99-100 of LoBoE).326

The drawer must have the business capacity for the bill issuance to bevalid. The capacity to take obligations under the bill is called a passive capacity under the bill. On the other hand, active capacityunder the bill is a person’s capacity to be a creditor under the bill ofexchange.327

25.4.3.2. Negotiation of a bill

A bill can be transferred by cession and by endorsement. Cession isthe assignment of the claim through a contract between the prior creditor (assignor) and a third party (assignee), who becomes a newcreditor328. In this way, securities payable to a named person are trans-ferred (Art. 42 of the LoO), so-called non-negotiable securities.

Endorsement is a specific way of transferring securities to order,whereby the prior bill holder (endorser or guarantor) transfers therights under the bill to a new holder (endorsee). As a rule, it is written on the back of the bill, and therefore its name ‘endorsement’(in dosso — on the back). It can also be written on an allonge and inexceptional cases on the face of the bill (only full endorsement). Theright under the security can thus be transferred further, which leadsto a series of endorsements (chain of signatories). Each signatory in


a series of endorsements, which are guarantees to all the subsequentsignatories, is also the creditor to all the prior signatories. The first endorser is always the payee, since he is the first creditor under thebill. The endorsement must be unconditional, and the written condi-tion is always disregarded329. Partial endorsement is null and void(Art. 13 of LoBoE).330

The form of endorsement is not prescribed by law. Words should beused that make it clear it is an endorsement. It is usual to write: Payto the order of N.N. or Pay to N.N. or Instead of me, pay to N.N. orFor me to N.N. The endorser has to put his signature on it since he becomes the debtor, as one becomes a debtor under a security only bymeans of a signature. It is also usual to write the date and place.331

With respect to form,332 an endorsement can be full and blank (withonly the endorser’s signature) — Example 3 and Example 4.

Example 3: Full endorsement Example 4: Blank endorsement

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 594 and 596

In the case of a blank endorsement, the endorsee is the person thatholds the bill. He can do the following with the bill: transfer it to another person with a full or blank endorsement, fill in the blank withhis name and transfer it further or present it for payment, fill in theblank endorsement with the name of another person and deliver thebill to that person (his signature is not on it, and therefore there is noobligation), or give the bill to another person without writing or signing anything (Art. 15 of LoBoE).333


Depending on the reason for the endorsement, distinctions can bemade between ownership (the endorsee becomes the owner of bill, aspreviously described), procuration and pledge endorsement.334 Procura-tion endorsement is used in order to give a person power of attorney.The endorser authorizes the endorsee to exercise various rights underthe bill of exchange and perform some actions on his behalf and onhis account, by writing the appropriate clause: Pay to N.N. as a proxy,or Pay to N.N. as a power of attorney or Instead of me, to N.N. thevalue for payment (Example 5). The proxy (endorsee) does not acquire ownership rights over the bill, and if he should want to en-dorse it, he can do so only as a transfer of power of attorney. Pledgeendorsement is used to pawn the bill for a creditor’s right that has itsbasis in a legal transaction beyond the bill. It is written: Pay to N.N.in value for insurance or Pay for me to N.N. in value for the security(Example 6). The security creditor (endorsee) has all the rights underthe bill, but he can transfer it further only by an procuration endorsement, and if the bill’s amount is paid to him, he is bound to deliver a possible surplus above the amount of his claim to the endorser.335

Example 5: Procuration endorsement Example 6: Pledge endorsement

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, pp. 597-598


Restrictive endorsement revokes the capacity of bill transferabilityto the order, by adding, to the statement on transfer: not to the orderor not to his order (Example 7). In this case, the endorser is not liableto persons to which the bill is endorsed later on (Art. 16 of LoBoE).He cannot permanently transform the bill into a restrictive bill (billpayable to a named person), since only the drawer is authorized to doso. By means of a qualified endorsement (endorsement without recourse), the endorser excludes his liability of the bill being acceptedand paid out, through adding the so-called fear clause: with no obligationor without guarantee or without my further obligation or I am not responsible for payment, etc. (Example 8). A recurring endorsementexists when a bill is endorsed to the drawee, drawer or a prior endorser, since the obligation recurs to a party to whom it alreadyhad belonged (Example 9).336

Example 7: Restrictive endorsement

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 595 (Example 7)


Example 8: Endorsement without recourse337

Example 9: Recurring endorsement

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 599

25.4.3.3. Acceptance of a bill of exchange

Acceptance is an action under the Law on Bills of Exchange (state-ment) whereby the drawee confirms that he accepts the obligationunder the bill by writing an appropriate clause and his signature onthe bill.338 In this way, the drawee, i.e. acceptor, becomes the maindebtor (the drawer was the debtor before that), while other signatorieson the bill become secondary (recourse) debtors. The bill holder acquires the right of recourse towards the former, i.e. the right tocharge them if the main debtor does not pay. The acceptor’s obliga-tion is direct and independent.

Pursuant to our law, the statement of acceptance is written on the faceof the bill, and its form is not prescribed (Example 1). The signatureis usually accompanied by: I admit or I accept or received (full acceptance). It is a legal assumption that the drawee’s signature on


the face of the bill is considered an acceptance, specifically a blankacceptance.

Before maturity, a bill can be presented for acceptance by the billholder. It depends on the holder’s will and if he does not do so, andthe drawee declines payment upon maturity, the holder will not beable to materialize a claim against the drawee, because his signatureis not on the bill. There are exceptions to this rule, since the drawer(in the first two cases the endorser as well) can specify, in a bill, thatit is to be necessarily presented for acceptance, be necessarily presented for acceptance in a specified time period, not be presentedfor acceptance at all, or not be presented for acceptance before a speci-fied time. The drawer can not prohibit presentment for acceptance ifit is a bill payable at a fixed period after sight or a domiciled bill ofexchange. Bills payable at sight are not presented for acceptance asa rule (Art. 22-24 of LoBoE).

When a bill is presented for acceptance, the drawee may fully acceptthe bill, partially accept the bill, ask for a day to decide (deliberationperiod), or refuse to accept the bill. The acceptance must be unqualified.If it is conditioned, it is considered declined, and the bill is valid. Theacceptance does not have to be dated, except when the bill is payableat a specified time after sight, and when it is specified that the billhas to be presented for acceptance in a given time period. When thedrawee delivers the accepted bill to the creditor, the action of acceptance is final and the acceptance irrevocable (Art. 25-30 ofLoBoE).339

25.4.3.4. Bill guarantee (aval)

An aval is a bill guarantee, i.e. a signed written statement (full aval)or only a signature (blank aval) on the bill whereby a person guaranteesthat the debtor under the bill for whom he grants his aval (honouree)will fulfill his obligation under the bill, i.e. pay the bill.340 An aval isgranted only for payment (not for other bill-related actions and obli-gations) of the full bill amount (complete aval) or part of it (partial


aval). The person giving the aval is liable directly to the creditor,solely and solidary, i.e. just as the person he guarantees for, and thereforethe guarantee in the bill-of-exchange law differs from a guarantee inthe Law on Obligations (Art.31 and 33 of LoBoE).

An aval can be given by any person with a passive bill-of-exchangecapacity except for the main debtor under the bill. The statement ofan aval is written on the bill (on the face or back), or on the allonge,and can be expressed by the words: as a guarantor, per aval, I gua -rantee for payment, etc. It is a legal assumption that each signature onthe face of a bill or on the allonge is considered to be an aval, exceptthe drawer’s and drawee’s signatures (Art. 31-32 of LoBoE). On theother hand, a signature only on the back of the bill represents a blankendorsement. The person giving the aval has to specify which debtorfrom the bill he guarantees for (e.g. as a guarantor for N.N.), and ifhe fails to do so, it is a legal assumption that the aval refers to thedrawer (Example 1). A hidden aval or giro is given by signing thebill in the capacity of the endorser, drawer, or drawee.

25.4.3.5. Payment of a bill of exchange

Debt under a bill of exchange is claimable and the creditor is boundto present the bill for payment on the day it falls due, or two workingdays upon its maturity to the main bill debtor (Art. 39 of LoBoE),and to the domicilee if the bill is domiciled, since the debtor does notnecessarily know who the creditor is due to the bill transfer. If a billfalls due during a state holiday, payment should be claimed the nextbusiness day. A bill payable at sight is presented for payment at anytime within a year starting from the date of issue, if the term has notbeen specified otherwise (Art. 35 of LoBoE). If the creditor does notpresent the bill for payment in due time, each debtor under the bill isauthorized to deposit the sum payable with the court of the originaljurisdiction at the place of payment at the creditor’s expense, risk anddamage (Art. 43 of LoBoE). A bill of exchange can be paid before itfalls due, per agreement between the creditor and the debtor.


The payer is bound to examine the validity of a series of endorse-ments, but not the validity of the endorser’s signatures (Art. 41 ofLoBoE), and decline to pay if he knows or must know that the billbearer is not its legal holder. As a rule, the entire bill amount is paidout, and the debtor can then request the delivery of the bill of exchange, the statement of payment on it and, if the bill was issuedin more than one copy, the delivery of the copy with the acceptanceclause. The debtor can also make a partial payment, which the creditor cannot decline, and request it to be written in the bill and awritten receipt to be made out as well (Art. 40 of LoBoE).

Obligation under the bill of exchange ceases completely only whenthe bill is being paid out by the main debtor under the bill (acceptor,promissor or drawer if the bill of exchange has not been accepted).

25.4.3.6. Recourse

If the drawee declines to accept or pay a bill, fully or partially, the billholder acquires the right to address recourse debtors, and the procedureconducted therein is a recourse procedure. Recourse debtors are allthe persons who, as bill signers, guarantee to the creditor that the billwill be paid out, and they include the drawer, endorsers and guarantors(people who have given an aval). Right of recourse is the right pursuant to which a bill holder may request a bill payment from re-course debtors, and also the right of a recourse debtor who paid outa bill to request the reimbursement of the paid amount from priorsigners of the bill (redemption recourse).341 Thus, those recoursedebtors whose signatures are closer to the main debtor’s signature arein a more difficult position (Art. 48 of LoBoE).

Types of recourse include the following:

1. maturity recourse or recourse due to non-payment, conducted ifthe main debtor fails to pay the bill of exchange fully or partiallywhen it falls due, and


2. recourse before maturity, conducted in the following cases: non-acceptance of a bill, fully or partially; the drawee’s or acceptor’sinability to pay (open bankruptcy or forced liquidation over theassets, stopped payment, unsuccessful execution over the assets);and the drawer’s inability to pay (open bankruptcy or forced liq-uidation over assets) if the bill cannot be presented for accept-ance (Art. 44 of LoBoE).342

Recourse debtors are liable jointly and severally, directly and inde-pendently. A creditor’s recourse claim includes the non-paid or non-accepted bill amount, interest (if it was written on the bill), costsrelated to recourse and penalty interest since maturity, and can be addressed to any recourse debtors regardless of the sequence in whichthey signed the bill (to each individually, simultaneously to a few ofthem, or to all of them together). In case of recourse before maturity,a discount is subtracted from the sum payable (Art. 49-50 of LoBoE).A redemption recourse claim may refer to the paid amount, interestsince the day of redemption, and costs.

25.4.3.7. Protest

Protest is a bill-of-exchange legal action taken in order to preserve theright under the bill toward recourse debtors, and at the same time apublic document which truthfully determines that the debtor has notperformed a specified action from the bill and proves that the billholder or his attorney has duly taken all the necessary actions towardthe main debtor, but that they remained unsuccessful. Protest is a prerequisite for recourse and is required for activating the bill liabilityof recourse debtors and lodging a bill claim against them; conse-quently only the main debtor’s liability remains.343

Depending on the reasons for protesting a bill, there are differenttypes of protest:

1. protest due to non-acceptance or partial acceptance — taken because the drawee has declined to accept the bill fully or partially;


2. protest due to non-payment or partial payment — used becausethe acceptor refused to pay the bill amount fully or partially;

3. protest due to non-dating of the acceptance — used because theacceptor did not write the date of acceptance in case when thebill is payable at a specified time after sight;

4. perquisite protest — used by the holder of bill duplicate or copyasking for the delivery of the accepted bill copy from the copyholder, in order to be able to request the bill payment from theacceptor.344

The protestant is a person that protests a bill (a bill holder or his attorney or a holder of a bill duplicate or copy), and the protestee isa person against whom a protest is made (drawee, acceptor, holder ofthe accepted copy of bill, etc.). A bill is protested upon declining tofulfill an obligation under the bill in a short time provided for by law(the so-called protest term) with the court locally applicable for theprotestee. A protest authority invites the protestee to fulfill the obligation under the bill due to which the bill was protested. If theprotestee complies with the request, the proceedings are stopped. Ifhe does not, the protest authority draws up a protest document, whichis recorded in the protest registry, which has the character of a public record, and delivers it to the protestant.

If the acceptance or payment is declined, there is also the obligationof notifying, which is not a prerequisite for preserving the right ofrecourse. Thus, a bill holder is bound to notify his endorser anddrawer upon protesting the bill, and each endorser should further no-tify the prior endorser and his guarantor. If a bill contains the clause“without cost” or “without protest”, the bill holder is not bound toprotest it, but should notify about it.

25.4.3.8. Acceptance for honour supra protest

Acceptance for honour supra protest is a bill-of-exchange legal actionwhereby a person (acceptor for honour) accepts or pays a bill insteadof a bill debtor (honouree) in cases when a bill holder has acquired aright of recourse under the bill.345 This action removes the recourse


only toward the honouree and persons whose signatures on the billfollow his, and not toward the honouree’s predecessors. An acceptorfor honour can be any person with a passive capacity with regard tothe law on bills of exchange, except for the acceptor, and can be anacceptor for any recourse debtor.

Depending on the manner of acceptance for honour supra protest, itcan be either on call or spontaneous. In cases of an acceptance forhonour on call (addresses in need or addresses in necessity), thedrawer, endorser or person giving the aval determine the person whowill be an acceptor for honour (addressee) by writing the appropriatestatement on the bill (e.g. In case of need, address N.N. or AddressN.N.) about whom the bill holder should address if conditions for re-course are met, and who becomes the acceptor for honour upon ac-cepting the call. If a person acts as an acceptor for honourspontaneously, by his own free will and without a call (order) it is aspontaneous acceptance for honour. In this case, the bill holder candecline the acceptance if he does not want a spontaneous acceptorfor honour as a debtor, but not the payment (full or partial).

Depending on the reason for the acceptance for honour supra protest,a distinction is made between acceptance for honour due to non-acceptance, and acceptance for honour due to non-payment. An acceptance for honour due to non-acceptance can occur in cases whenthe holder of a bill that can be presented for acceptance is authorizedto recourse before maturity. The acceptor for honour writes the state-ment of acceptance on the bill, for whom he accepts (e.g. I accept infavour of N.N.) and signs his name. If he does not specify an honouree, it is legally assumed that it is the drawer. The acceptor forhonour does not become the main bill debtor, but is rather as liable ashis honouree. If a person pays a bill for the honour of an honouree inorder to remove recourse, it is an acceptance for honour due to non-payment, and the bill holder is bound to receive the payment(Art. 56-64 of LoBoE).


25.4.3.9. Duplication and copies of a bill

A drawer can issue a bill in a few identical copies, whereby each copyis deemed to be original and has its own number (written by thedrawer). In this way, the creditor insures against the case of the lossof a bill. Each bill holder may require the issuance of new copies ofthe bill, unless a single clause is included therein, by addressing hisimmediate predecessor, which in turn addresses his, and it continuesto go on in accordance with the series of endorsements until reachingthe drawer. A duplicate goes back in the same way, it being signedalong the way. By the payment of one (specified, if the cancellationclause is written on the bill) copy the obligation ceases, since all thecopies make up a single obligation. For this reason, if a single copyis sent for acceptance it must be specified on all of the others, andthe name of the depository who has the accepted copy, and who isbound to keep it and present it to the duplicate holder upon request.

Each bill holder has the right to make a transcript, i.e. a copy of a billthat must include everything the original does, with a note that it is atranscript, information who holds the original, and where the tran-script ends and the original text starts (e.g. end of transcript or orig-inal starts). The transcript can thus be endorsed and guaranteed as anoriginal, but cannot be presented for acceptance. As opposed to thistranscript of a bill, a plain transcript can also be made which only es-tablishes that there is such a bill (Art. 65-69 of LoBoE).

25.4.3.10. Securing a claim under a bill

Besides the previously described personal bill guarantees (aval, acceptance for honour and giro), a bill creditor may use lien and retention as a means of securing claims under a bill, with certain privileges compared to the holder of these rights in civil law. Thecreditor may ask the lienee to make a written statement of the lien. Incase of non-payment, he can request, from the court, public sale of thelien without a claim and the lienee’s interrogation. The creditor canthen himself (without court mediation) cash the claim or bill, and


keep the liened claims (Art. 88 of LoBoE). He can keep the debtor’smoney, securities, proofs of claims or movable things that havelegally come to his possession, even if he does not have the right tolien (Art. 89-91 of LoBoE). There are two types of retention:

1. upon the bill maturity or regular — the right of retention is acquired when the bill holder acquires the right to sue the billdebtor;

2. before the bill maturity or qualified — the right of retention is acquired in case of the debtor’s inability to pay.346

25.4.3.11. Amortization of a bill of exchange

Amortization of a bill of exchange is an out-of-court proceedingwhereby a lost bill (stolen, burnt down …) is pronounced null andvoid (amortized).347 This softens the strict principle of incorporation.The holder of the lost bill submits the proposal to a court and presents appropriate evidence, upon which the court, by means of announcement in the Official gazette of B&H, invites the person whoholds the bill in his hands to present it to a court. If no one appears indue time, the court pronounces the bill of exchange null and void,and informs all the involved parties thereof. The bill document is thenreplaced by the court decision, and the creditor can exercise his claim.On the contrary, if a person shows up and presents the bill to a court,the amortization proceedings stop, and if he declines to deliver it, thecreditor is advised to start a lawsuit whereby he should prove hisownership (Art. 92-95of LoBoE).

25.4.3.12. Claims and objections under a bill

By means of a bill claim in a lawsuit (bill lawsuit) preceded byprotesting a bill in due time, a bill holder can exercise his bill requests, i.e. requests resulting directly from the bill, which can be directed toward an acceptor, a drawer in case of a draft or a promissorin case of a promissory note, as well as the endorsers, guarantors, andacceptor for honour. There are two types of claims under a bill:


1. regular — lodged against the main bill debtor, and2. recourse — lodged against recourse debtors.348

Objections that can be raised in the bill-of-exchange law are restrictedto those based on the debtor’s personal relationship with the creditorwho lodges a bill request; they are based on the bill document (objective objections), or arise from the debtor’s personal relationwith a prior bill holder, if the present holder knew or had to knowthat there is an illicit action due to which the debtor may lodge anobjection (bill holder’s negligence). A conscientious bill holder cannot be the subject of claims based on the bill debtor’s relation witha prior bill holder that cannot be seen on the bill document.349

25.4.3.13. Unjust enrichment and other requirements of civil law

Requirements under civil law related to bill transactions that can beexercised through a civil law claim include: a claim based on the unjust enrichment, a claim based on damage caused due to missednotification, an acceptor’s claim aimed at coverage against the drawerwhen he has paid out the bill, and rei vindicatio (the bill owner’sclaim against the possessor).350

A drawer, acceptor and endorser whose obligations under the billceased due to limitation or failing to take actions prescribed by lawin order to maintain bill rights are liable to the bill holder if they have accumulated wealth at his expense. A claim in case of unjustenrichment expires in three years. (Art. 87 of LoBoE).

25.4.4. Types of bills of exchange

It has already been said that depending on the person paying the billamount, bills of exchange may be classified as either a promissorynote or a draft. There are a few sub-categories of draft:


1. “regular” bill of exchange — the drawer, drawee, and payee aredifferent persons (Example 1);

2. bill of exchange payable to drawer’s order (to one’s own order)— the drawer and payee are the same person, and an appropriateclause is written (e.g. pay to me or pay to my own order) — Example 10;

Example 10: Bill of exchange payable to drawer’s order

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 591

3. bill of exchange drawn on the drawer - in which a drawer and adrawee are the same person (the drawer draws the bill to himself)— Example 11;


Example 11: Bill of exchange drawn on the drawer

Source: Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava,

drugo izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 590

4. bill of exchange drawn on the drawer and payable to his order —the same person appears as a drawer, drawee and payee, whichis rarely seen in practice (Example 12).

Example 12: Bill of exchange drawn on the drawer and payable to his order




Depending on the trading it is used in, and the function it has, a billof exchange can be:351

1. commercial — used in one-time short-term business relations resulting from a trading contracts, aimed at the fulfillment of theother contractual party’s obligation (e.g. payment of sale price orproviding services), and

2. financial — used in long-term lending and other financial rela-tions. The most common variety of the financial bill of exchangeis a loan bill of exchange, which serves as a collateral for a loan,and mainly occurs as a draft drawn on the drawer with a loanbeneficiary as drawer and a drawee.

Depending on the form and content of the bill document at the moment of issuance, a bill of exchange can be:

1. complete — at the moment of issuance it contains all the essentialelements, and

2. blank — temporarily incomplete, does not include all the essentialelements at the moment of issuance.

A blank bill of exchange is issued in accordance with omission theory,in that a signature or signatures are made on a blank form, and distributed such that their roles necessary for the bill to be valid aredetermined. It can include only the drawer’s or the acceptor’s signa-ture, and essentially is not valid, since it cannot be paid incomplete.As a rule, there is a contract between the issuer and recipient of sucha bill that is beyond the bill transaction, and based on which the billwill be filled out with the necessary elements later on, pursuant tothis contract.352


Example 13: Domiciled bill of exchange



There are also other types of bills of exchange. A domiciled bill of exchange is a bill where the place of payment is different from theplace written as a registered office or residence next to the drawee’sname, and a bill where the drawer specified that it will be paid by an-other person (domicilee) instead of the drawee. The drawee remainsthe same since this person does not enter the bill of exchange relationship at all. A circular bill of exchange is an accepted bill is-sued by the bank to a person that deposited a certain amount of moneywith it, and is used as an instrument of payment, particularly in international payments. A commission bill of exchange is a bill issued (drawn) for a third person’s account, whereby the drawer as a commission agent draws the bill for the account of his businesspartner (client), pointing it out to the drawee with a collateral clause(Example 14).


Example 14: Commission bill of exchange



25.4.5. Limitation and cessation of rights and obligations under a bill of exchange

The law prescribes actions and time frames that must be observed inorder to preserve the rights under the bill. If this is not done, rights ofrecourse are lost, and only the main debtor has an obligation under thebill. The sum payable can be collected from him pursuant to the Lawon Bills of Exchange until expiration of limitation period. Limitationperiods differ depending on who the debtor is.353Claims against theacceptor pursuant to the Law on Bills of Exchange are limited to threeyears upon the bill’s maturity; after this date, if the acceptor has acquired wealth without foundations, he is bound to pay damages forthree more years pursuant to civil law. Claims toward the drawer andendorsers expire a year upon protesting the bill (upon maturity, if theclause “without costs” has been included), while endorsers’ claimsagainst each other and endorsers’ claims toward the drawer expiresix months after the bill’s redemption, i.e. lodging a claim for collection (if it has been lodged). The limitation period for the persongiving the aval is as long as it is for the person whom he guaranteed(Art. 80-86 of LoBoE).


Rights and obligations under the bill can cease by payment of the bill,loss of rights toward certain debtors, amortization (if the decision onamortization has not been requested and made), annulment (the billholder writes an appropriate statement on the bill, e.g. not valid orannulled), waiver of debt for the main debtor, compensation, novation(by writing the appropriate statement, e.g. received goods instead ofthe bill sum), and confusion (temporarily, since the same bill can beput into further circulation). Prolongation of a bill is a typical way ofnovation under bill-of-exchange law, whereby instead of the presentbill, a new one is issued with a new term of maturity.354

25.5. Check

25.5.1. Concept, economic role, similarities and differences compared to a bill of exchange

A check (cheque) is a security whereby the issuer (drawer) gives anunconditional order to the drawee to pay at sight (on demand) thespecified amount of money to the check beneficiary (payee) out of hisaccount. In B&H, only a bank that makes the payment from thedrawer’s collateral may be a drawee. Since the national law of theplace of payment is competent for the assessment of check capacityof drawee, checks payable in our country may have only a bank as adrawee, while checks payable abroad may have either a bank and another business entity or another person (non-trader) as drawee, ifthe law of the country where the check payment is made prescribesso (Art. 5 of the Law on Checks, henceforth LoCh).355

A check is payable at sight, and as such it represents a means of cashless payment, a payment instrument. Upon being released intocirculation, it circulates independently of the transaction for which itwas issued.

A check belongs to the same group of securities as a bill of exchange,and consequently the rules of the Law on Bills of Exchange apply byanalogy on many issues of the check law. These are the rules per-taining to differences in the money amount, validity of signatures,


endorsement, aval (except for the drawee’s aval), payment, recoursedue to non-payment, recourse amount, notification, joint and severalliability, force majeur, duplication, changes to the check and falsechecks, protest (except due to non-acceptance and based on tran-script), limitation, unjust enrichment, right of lien and retention,amortization and conflicts of law (Art. 26 of LoCh). The differencesbetween a check and a bill of exchange are listed in Table 2. The similarities and differences between these securities will be discussedin more detail further on in the text.

Table 2: Differences between a check and a bill of exchange

* checks payable in the country** three ways of determining the refusal to pay


Differences: Check Bill of exchange

Economic function Payment instrument Lending instrument

Drawee personality Bank only*Any person with business capacity

Sufficient funds in the drawer's account

Mandatory at the moment of issue

Not mandatory

Specification of payeeNot mandatory, can be made out to the bearer

Necessary

Maturity Payable at sight Specified on the bill

Acceptance, acceptance for honour, domiciliation, interestrate and other specified clauses

No Yes

ProtestNot unconditionally needed for recourse**

Condition for recourse

Partial payment, duplication and transcripts

In general no Yes

Recall Possible Not possible

Endorsement to drawee Receipt of payment Possible

Claim from basic transaction Exists Does not exist

25.5.2. Essential and non-essential elements of a check

The essential elements of a check include a specification that it is acheck (which appears in its text), an unconditional order to pay aspecified amount of money from the drawer’s account with thedrawee, the drawee’s name, the place of payment, the place and dateof issue, and the drawer’s signature (Art. 4 of LoCh). They must bewritten on the check when issuing it, since omission theory is not ac-cepted in the case of a check.356 The assumed essential elements, i.e.the existence of which are assumed by law, include the place of issue,the place of payment (as with a bill of exchange), and the payee’sname (Art. 6 and 8 of LoCh). If the place of issue is not specified, itis assumed that it is the place written next to the drawer’s signature,and in the case of the place of payment, that the place is specifiednext to the drawee’s name. If in those cases the place is not specifiednext to the drawer’s signature or next to the drawee’s name, the instrument is not valid as a check. A check without a payee’s speci-fication is valid as a bearer check (payable to bearer). No maturity isspecified on the check (it is payable at sight), and if a different clauseis written, the document is not valid as a check. In practice, checkforms (blank forms) are printed, with some essential elements written in advance. At the moment of issuing a check (not its creation),the drawer must have the authorization to dispose of the funds. Thecollateral for a check must be in money, but not necessarily in cash.The circumstance that there is not enough collateral does not result inthe check being null and void, but it does result in the drawer’s liability for issuing a false check.357

As opposed to a bill of exchange, writing some clauses on a check isnot allowed. Allowed and disallowed clauses, with the same defini-tions as those in bills of exchange, are listed in Table 3.


Table 3: Allowed and disallowed clauses on checks

Source: Trifković, M., Simić, M. and Trivun, V. (2004), Poslovno pravo: ugovori, vrijednosni

papiri i pravo konkurencije, II izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 377

If any of the disallowed clauses are written on the check, they are ig-nored, and the check is valid.359

25.5.3. Check-related actions

Basic check-related actions include the issuance, transfer, aval, payment, recall and duplication of a check, while actions aimed atpreserving and exercising rights under the check include protest, recourse, securing claims under the check, amortization, and check-related claims. These actions can be taken personally or through anattorney. Compared to the bill-of-exchange law, it is evident that someactions do not apply to checks (acceptance and acceptance for honour supra protest), while others (aval, protest, presentment, etc.)are specific primarily due to the non-existence of acceptance. On the other hand, the action of recall is not known in the bill-of-exchange law.

It is believed that check acceptance is opposed to the nature of this security, which is an order to pay at sight, and its presentment forpayment is aimed at payment, rather than acceptance. In some coun-tries, there are certain actions by a drawee the legal meaning of which


Allowed clauses: Disallowed clauses:358

1. to order2. not to order (restrictive)3. without protest4. without obligation5. with or without notice6. on currency (effectiveness)7. on exchange rate8. for account

1. on acceptance2. on interest rate3. on domiciliation4. on sight5. on drawer’s non-liability6. on the number of check copies (except in

nostro checks)

is the same as acceptance (e.g. check certification in the USA), orthey represent only the statement that there is collateral at the moment of check issue (e.g. marking (fr. viser) a check, in Franceand Italy).360

The Law on Checks and the Geneva Convention on Checks do notrecognize acceptance for honour as a check-law action. There areopinions, in legal theory, that spontaneous acceptance for honour isacceptable and possible since it is aimed at facilitating check payment.361

1. Check issuance — As with a bill of exchange, the capacity of beinga debtor under a check, issuing or transferring a check is called passive check capacity, and any person with the business capacityhas it. Any person with legal capacity has active check capacity, i.e.the capacity to be a creditor under the check.

A check must be filled at the moment of issue (omission theory doesnot apply). It may be drawn only to the bank where the drawer hascollateral he can dispose of through the check, based on a prior explicit or tacit agreement with the bank. The collateral for the entirecheck amount has to be present at the moment of check issuance, i.e.at the moment of delivering the check to the drawee, has to be availableand in money. The collateral is not an essential element, and the lackthereof does not imply that the check can be voided. The legal basisof the check-law relationship is a contract on the check between thedrawer as a bank client and the bank (drawee), which regulates therights and obligations of the parties to the contract under the issuanceand payments of the check, and which can be a constituent part of ageneral contract.362

One can issue a check drawn on himself (drawer and drawee are thesame person) payable to a name or to order, as well as a check payable to his order (drawer and payee are the same person).363 Abearer check where the drawer and drawee are the same person is notvalid (Art. 8 of LoCh).


2. Transfer of check — A check can be transferred by endorsement,cession and delivery. A bearer check is transferred by a simple deliveryfrom person to person, i.e. by tradition (Art. 10 of LoCh and Art. 241LoO), whereby a bearer check also includes a check without the spec-ification of the payee, and a check to a name followed by the words‘or to the bearer’ or another expression with the same meaning (Art.8 of LoCh). Since each conscientious security holder is a creditor, no writing on the security or informing the debtor on the transfer are necessary.364 Any other check, although not explicitly drawn to order, is transferred by endorsement. A check where the drawerwrote the words ‘not to order’ or another expression with the samemeaning (check “to a name” — non-negotiable check) is transferredonly in the form and the effects of the simple cession (Art. 10 of LoCh).

Endorsement must be unconditional, and any included condition is ignored. Neither a partial endorsement nor the drawee’s endorsementis valid since the bank cannot transfer the check. An endorsement tothe bearer of a check made out to a name or to order is valid as ablank endorsement, while an endorsement to the drawee is valid as areceipt of payment of the check amount. A recurring endorsement ispossible in that the check will be endorsed to the drawer or a prior endorser, but a pledge endorsement is not possible. There is no blankendorsement in a bearer check, and if anyone except the drawee putshis signature on the back without a statement of endorsement, he willbe liable for giving the drawer an aval (Art. 11 of LoCh). By meansof a full endorsement, a bearer check may be transformed into a check“to a name” or an order check (Art. 10 of LoCh).

3. Aval — Avals are rarely used with checks. An aval is a legal gua -rantee whereby someone guarantees, with his signature on thecheck, that the check amount will be paid, fully or partially365. It canbe given by any person with the business capacity, except for thedrawee (Art. 13 of LoCh), whose aval would essentially mean an ac-ceptance which, in turn, is not allowed with checks. It can be givenfor a drawer or an endorser by writing an appropriate statement, or bysignature only on the face or allonge of the person who gave the aval


(as with a bill of exchange). Contrary to a bill of exchange, the meresignature on the back of the bearer check signifies an aval for thedrawer. The liability of the person who gave the aval is direct, inde-pendent, and solidary to the position of a honouree.

4. Check payment — A check is payable at sight, and the check beneficiary is bound to present it to the drawee for payment within theperiod determined by law. Table 4 lists timeframes for paying checksin our country. The exception is a circular check, which can be presented for payment within six months from the day of issue (Art.15 of LoCh).

Table 4: Timeframes for payment of checks in B&H

* calculated from the date of issue

A check that was not presented for payment within the provided time-frame becomes prejudiced and the creditor loses rights of recourse.366

Such a check may be presented for payment, and the drawee (bank)is bound to pay it if it has not been recalled and if there is no otheragreement with the drawer (Art. 18 of LoCh).

A check can be paid in different ways, and the legal effect is the sameas with a bill of exchange. Prior to payment, the bank is bound to verify the check and the authorization of the person presenting it, while it is not bound to verify the endorsers’ signatures. It can accept the check, dishonour it or ask for it to be adjusted to the law


Timeframe:* Place of issue: Place of payment:

8 days Place A in B&H Place A in B&H

15 days Place A in B&H Place B in B&H

20 days European country B&H

60 days Non-European country B&H

if possible. As a rule, the check amount is paid in full when thedrawee may require the delivery of a check with the receipt on it indicating that it has been paid. A partial payment is also possible,which the check holder can decline, and in case of such a payment thedrawee may request for it to be recorded on the check, along with theissue of a receipt for the paid amount (Art. 19 of LoCh).

5. Check recall — Check recall is an action whereby the drawer, underthe conditions provided for by law, withdraws his order, i.e. prohibitsthe drawee to pay the check amount to the check beneficiary out of his collateral.367 The recall can be:

1. general — whereby the payment of all the checks drawn by thedrawer to the drawee is prohibited in advance, if the time fortheir presentment for payment has expired;

2. individual — which specifically prohibits the payment of each individual check.

The following are cases of check recall:

1. before due date for presentment for payment, when only checks“to a name” and “to order” can be recalled, and only by indi-vidual recall, and

2. upon due date for presentment for payment, when payment ofany check can be prohibited by general or individual recall.368

If the drawee pays a check despite the recall, the payment does notburden the drawer’s account. On the contrary, if a check has not beenrecalled, the drawee is bound to make the payment of the checkamount upon the expiration of the due date for presentment for pay-ment as well. The drawer shall be liable for incurring damage to thecheck beneficiary if upon the expiration of the date he has disposedof the collateral and has not duly recalled the check (Art. 18 of LoCh).

6. Protest — Compared to a bill of exchange, for a check there arefewer reasons for protesting since there is no act of acceptance. Refusal to pay can be established in one of three ways: by a publicdocument (protest for non-payment), by the drawee’s signed and


dated statement on the check, which is recorded in the registry ofprotests, and by a dated receipt of the clearing institution (Art. 22 of LoCh). This must be done before the time for the presentment ofthe check for payment expires. If the check is presented for paymenton the last day and has not been paid, it can be protested only on thefirst following working day. Otherwise, the check beneficiary loseshis right of recourse. If the clause “without protest” has been written,a protest is not necessary.

7. Recourse — If the payment of a duly presented check has been declined, the check holder can exercise recourse against the endorsers, drawer and the persons who gave the aval (Art. 22 ofLoCh). The prerequisite for recourse is protesting in due time, or anappropriate statement of non-payment. As in the case of a bill of exchange, the liability of the check signer is independent, joint andseveral. The drawer is liable for payment to any check beneficiaryand cannot be exempted from this liability (Art. 9 of LoCh). Thedrawee’s signature is not on the check, which means that his obligationtoward the drawer is of a civil-law nature (obligation under the contract). He is not bound or liable to the check beneficiary (he andthe check beneficiary are not in a legal relation at all).369

8. Check duplication — It is allowed to duplicate checks issued in thecountry and payable abroad, addressed to a name or to order. In doingso, each copy must include its serial number, since otherwise each copy is valid as a separate check (Art. 23 of LoCh). The Law on Checks does not recognize the concept of transcripts. Plain transcripts (copies) may be made, which have the legal force of plainevidence.

9. Other check-related actions — In the case of check amortization,the same rules are applied as in the case of a bill of exchange. The amortization of a bearer check is a problem because it is almostimpossible to submit proper evidence of such check identification to a court, and it is also aggravated by the fact that each conscien-tious acquirer becomes its legal holder pursuant to the theory of legalillusion.


Lien and retention can both serve as a means of securing the claimunder the check. Provisions of the Law on Bills of Exchange are applied to the rights of lien and retention.

A check beneficiary can exercise the protection of his rights by lodg-ing one of three claims he has at his disposal:

1. recourse claim — a check claim lodged against recourse debtorsincluding the drawer, when all the previously described actionshave been taken but the collection of the check amount hasfailed;

2. claim out of basic transaction370 - regular civil lawsuits the legalbasis of which is the transaction that was the reason for issuingor transferring the check (e.g. a sales contract), lodged againstthe drawer or direct endorser (Art. 25 of LoCh). As opposed tothe recourse claim, this type of claim can be lodged when acheck has become prejudiced or the limitation periods have expired, provided that its use is not excluded and that the checkbeneficiary has returned the check document to the person he islodging the claim against.371

3. unjust enrichment claims — civil-law claims lodged against thedrawer or direct endorser when conditions for lodging a claimout of basic transaction have not been met.

25.5.4. Types of checks

Depending on their place (country) of issue and payment, checks canbe classified as either “loro” checks, issued abroad and payable inB&H, and “nostro” checks, issued in B&H and payable abroad.

Depending on the specification of the check’s beneficiary, there arechecks “to a name” — non-negotiable checks (clause: not to order), “toorder” — order checks (clause: to order written next to the payee’sname), “to bearer” — bearer checks (clause: pay to the bearer, or thepayee’s name has not been specified), and alternative checks, wherethe payee is alternatively specified (e.g. pay to N.N. or to the bearer).


Depending on the purpose and special techniques used, there are afew types of checks:372

1. cash check — the check amount is paid in cash at the bank (acrossthe counter);

2. account-only check — cash payment is forbidden (includes theclause: “pay through the account”), and the check is paid onlythrough the account (Art. 21 of LoCh) by transferring the checkamount from the drawer’s account to the check beneficiary’s account;

3. crossed check — a check whose face is crossed with two diagonalparallel lines, and which can only be collected through a bank,i.e. it is not paid to the holder directly but rather to his bank account. Crossing may be (Art. 20 of LoCh) general (there isnothing written between the lines, or there is the word: bank oranother term with the same meaning, and the check can be col-lected through any bank), and special (the name of a particularbank is written between the lines, and only this bank can collectthe check). General crossing can be turned into special crossing,but not vice versa.

4. circular check — a check issued by the bank-drawer to the checkbeneficiary who has the collateral at the bank, inviting therebyall its branches and affiliated banks to pay it. The economic aimof issuing it is to make certain payments from other businesstransactions by endorsing the check (which is made out to order);

5. traveler’s check — a variety of circular check used to pay for services in traveling and tourist business, issued by banks ortourist agencies in favour of the payee, who uses it to pay forservices. These checks are made out to a name and to roundedfigures, and business entities that receive them cannot endorsethem;

6. check for consumer loan — a variety of crossed check issued bya bank that is a drawee at the same time, which has approved aloan to a given person;

7. documentary check — at presentment for payment, the payee must submit the documents specified on the check for inspection.


25.5.5. Offences under the Law on Checks

Issuing a bad check (a check that is not honored because the accountcontains insufficient funds) results in the drawer’s administrative-lawliability (Art. 29 of LoCh) for a minor offence (a given percentage ofthe missing check amount), property-law liability to the check bene-ficiary in the form of full damages compensation (simple damage andlost profit) and, if he knew that the account conatined insufficientfunds, criminal liability for the criminal offence of issuing and put-ting into circulation a bad check. In certain cases, sanctions apply tothe drawer’s actions whereby, upon the check’s issuance, he blocksthe account, thus disabling the payment of the check amount. Punishable minor offences also include drawing a check without adate or with an untruthful date; taking, transferring and paying sucha check, if the omissions are known; drawing a check to another person rather than a bank; canceling of the general or special crossingon a crossed check and turning a special crossing into a general crossing(Art. 28 of LoCh).373

25.5.6. Limitation and cessation of relationship under the Law on Checks

The limitation periods of recourse claims for checks are shorter thanthose for a bill of exchange. The check holder’s claims toward theendorsers and drawer expire in six months starting from the expirationof the due date for its presentment for payment. Endorsers’ claimstoward each other and the drawer expire in six months starting fromthe date of check redemption, or from the date when an action wastaken with the court for payment (Art. 24 of LoCh). Besides paymentand limitation, rights and obligations under checks cease in the sameways as rights and obligations under bills of exchange.374


NOTES

1 For a closer look at the harmonization of the legal system within the European Union see: Bovis, C.(1997), Business Law in the European Union, Sweet and Maxwell Ltd., pp. 17-19.

2 Simić, M. and Trifković, M. (1999), Poslovno pravo: osnovi prava i obligacija, privredna/trgovačkadruštva, Ekonomski fakultet u Sarajevu, Sarajevo, pp. 1-5

3 Visković, N. (1996), Država i pravo, Studentska štamparija, Sarajevo, p. 834 ____ (2007), Pravni leksikon, Leksikografski zavod Miroslav Krleža, Zagreb, p. 12145 Holland, J. and Webb, J. (2006), Learning Legal Rules, 6th ed., Oxford University Press, USA, p. 2.6 Simić, M. and Trifković, M., op. cit., p. 3.7 Visković, N., op. cit., p. 122.8 The so-called conditional norms have all the four elements, as opposed to unconditional norms,

which have only three elements, i.e. they do not have the hypothesis of disposition.9 Lukić, R., Košutić, B. and Mitrović, D. (2001), Uvod u pravo, Službeni list SRJ, Beograd, p. 338.

10 Klaić, B. (1989), Rječnik stranih riječi, Nakladni zavod MH, Zagreb, p. 310.11 Simić, M. and Trifković, M., op. cit., p. 6.12 Simić, M. and Trifković, M., op. cit., p. 9.13 E.g., the accused Maja Majic is bound to pay costs of the offence procedure in the flat amount of

10,00 BAM within 15 days starting from the validity of the decision.14 ____ (1989), Pravna enciklopedija, Savremena administracija, Beograd, p. 693.15 Visković, N., op. cit., p. 157.16 Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z. (2003), Praktikum poslovnog prava, drugo

izmijenjeno i dopunjeno izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 17.17 Goldman, A.J. and Sigismond, W.D. (2001), Business Law: Principles and Practices, 5th Ed.,

Houghton Mifflin Company, Boston-New York, USA, p. 6.18 ____ (1960), The Migration of Common Law, London, p. 1.19 Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z., op. cit., p. 19.

NOTES 423

20 Simić, M. and Trifković, M., op. cit., p. 12.21 Perić, B. (1992), Država i pravni sustav, Narodne novine, Zagreb, p. 170.22 Visković, N., op. cit., p. 257.23 Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z., op. cit., p. 21.24 An example of elements of the legal system. Example 1: An investigation is launched against a given

person when there is a reasonable suspicion that the person has committed an offence. (legal norm)— INVESTIGATION (legal institution); CRIMINAL PROCEDURAL LAW (branch of law); PROCEDURAL LAW (field of law).

Example 2: A debtor can settle the debt he has to the creditor with what the creditor owes him, if bothdebts refer to money or other exchangeable things of the same kind and same quality, and if both aredue (legal norm) COMPENSATION (legal institution) LAW OF OBLIGATIONS (branch of law);SUBSTANTIVE LAW (field of law).

25 Pravna enciklopedija, op. cit., p. 1030., also in Simić, M. and Trifković, M., op. cit., p. 17.26 Bačić A. et al. (1990), Leksikon temeljnih pojmova politike: abeceda demokracije, Školska knjiga,

Zagreb, p.113.27 Sokol, S. and Smerdel, B. (1990), Ustavno pravo, Informator, Zagreb, p.113.28 Visković, N., op. cit, p. 157.29 Sokol, S. and Smerdel, B.,op. cit., p. 25.30 Visković, N., op. cit., p. 174.31 More in: Muhić, F. (1983), Teorija prava, Svjetlost, Sarajevo, p.101.32 Lukić, R. (1991), Uvod u pravo, Naučna knjiga, Beograd, p.252.33 The ruling passed in 1647 in the case Paradin v. Jane was in force for over 300 years as a guiding

case, i.e. general rule in resolving disputes pertaining to non-fulfillment of contract due to changedcircumstances. In this case, the defendant was bound to pay damages due to non-fulfillment the ob-ligation from the contract for renting land. In spite of circumstances in which the debtor could notenjoy the rented land (the land was occupied by an enemy army), the court requested the fulfillmentof obligation i.e. payment of the contracted price, pursuant to the ‘absolute contract’ principle. The‘absolute contract’ principle implies following: “if one binds oneself by a contract, with no barriersand conditions to do something, he cannot evade the liability due to non-fulfillment by proving factsor events that made the fulfillment pointless or even impossible”.

34 Ibid, p. 27.35 Ibid, p. 27.36 Ibid, p. 27.37 Čalija, B. and Omanović, S. (2000), Gra�ansko procesno pravo, Univerzitet u Sarajevu, Pravni

fakultet, Sarajevo, p. 252.38 Ibid., pp. 251-2.


39 Čobeljić, Đ. and Kovač K. (1960), Privredno pravo sa osnovima gra�anskog prava i radnimodnosima u privredi, Savremena administracija, Beograd, p.22.

40 Simić, M. and Trifković, M., op. cit., p. 79.41 Spaić, V. (1957), Osnovi gra�anskog prava, Veselin Masleša, Sarajevo, p.84.42 Visković, N., op.cit., p. 192.43 Pravna enciklopedija, op.cit., p. 1051.44 Gams, A. and Đurović, Lj. M. (1990), Uvod u gra�ansko pravo, Naučna knjiga, Beograd, p. 93.45 Ibid., p. 94.46 Constitution of Bosnia and Herzegovina, Art. 2: Enjoyment of rights and freedoms provided for in

this article or in international agreements cited in Annex 1 of the Constitution shall be secured forall persons in Bosnia and Herzegovina, without discrimination on any basis, such as gender, race,colour, language, religion, political or other opinion, national or social origin, links with minorities,property, birth, or other status.

47 Simić, M. and Trifković, M., op. cit., p. 40.48 Vedriš, M. and Klarić, P. (1996), Gra�ansko pravo, Narodne novine, Zagreb, p. 32.49 Simić, M. and Trifković, M., op. cit., p. 41.50 Čobeljić, Đ. and Kovač K., op. cit., p. 34.51 Ibid., p. 42.52 Bikić, A. (2004), Obligaciono pravo: Opći dio, Univerzitetska knjiga, Sarajevo, p. 13.53 Jakšić, S. (1960), Obligaciono pravo, Veselin Masleša, Sarajevo, p. 9.54 Bikić, A., op. cit., p. 7.55 Simić, M. and Trifković, M., op. cit., p. 45.56 Ibid., p.48.57 Simić, M. and Trifković, M., op. cit., p. 50.58 Ibid., p.50.59 Ibid., p.50.60 Ibid., p.51.61 Ibid., p.51.62 Simić, M. and Trifković, M., op. cit., p. 52.63 Ibid., p.52.64 Ibid., p.52.65 Ibid., p.53.66 Ibid., pp.53 and 54.

NOTES 425

67 Simić, M. and Trifković, M., op. cit., p. 54.68 Ibid., p.55.69 Ibid., p.55.70 Ibid., p.56.71 Simić, M. and Trifković, M., op. cit., p. 58.72 Ibid., p. 58.73 Simić, M. and Trifković, M., op. cit., p. 58.74 Simić, M. and Trifković, M., op. cit., p. 61.75 Ibid., p.61.76 Simić, M. and Trifković, M., op. cit., p. 61.77 Consanguinity of the deceased and close relatives (father and sons in the actual case) is the basis of

the right for compensation for suffered emotional pains due to the loss of a close relative, while thedegree of mutual emotions, care and attention affects the amount of damages while, as a rule, it doesnot affect the right to compensation.

From the rationale:

The fact of kinship (father and sons in the actual case) ) is the basis of the right for compensationfor suffered emotional pains due to the loss of a close relative (Art. 201, par. 1 of LoO).

However, the amount of compensation for this form of non-material damage is affected by the circumstances, i.e. relations between the deceased and relatives that exercise their right to compensation, and particularly whether these were relations with the expressed emotions, care andattention assumed for a given degree of consanguinity. A greater intensity of emotional pain is assumed for the loss of a close relative, if this was a case of such relations.

Circumstances which courts establish, actually that no plaintiff, regardless of the distance, attendedthe father’s funeral nor requested the postponement thereof, nor visited his grave for the following14 months, and without assessing the citations of a claim and audit that plaintiffs had not been visiting the father before either (lower-degree decisions do not include these facts), does not ex-clude their rights to compensation but rather point out that the plaintiffs did not suffer emotional painsof such an intensity that would, pursuant to criteria from Art. 200 of LoO and criteria of the courtpractice justify the adjudication of compensation of 5,000 DM to each of them, and that the sufficient compensation would be for each of them to receive 3,000 DM. (Ruling of Supreme Courtof FB&H number Rev-272/99 of 24/02/2000)

78 Simić, M. and Trifković, M., op. cit., p. 62.79 Simić, M. and Trifković, M., op. cit., p. 62.80 Bikić, A., op. cit., p. 316.81 Bikić, A., op. cit., p. 316.82 On Jan. 11th, 2000, buyer K. and seller P. formed a contract of sale of a fridge of the Zanussi brand

for the amount of 1,500 BAM, with the payment delayed for three months. Seller P. delivered thefridge immediately after the formation of contract. On April 11th, 2000, buyer K. paid the sale pricein full. In this way, K. has fulfilled the obligation from the contract and the obligation has ceased.


83 IN the “Rebus” shopping mall, person X. and person Y. formed a contract on the lease of business

premises. The contract was formed on March 22nd, 2000, under the condition that the contract starts

being executed on July 5th , 2000. In the meantime, the “Rebus” center burned to ashes due to light-ning. Since this created an objective impossibility to execute the contract, the lessee is not bound tofulfil the obligation of payment the rental price.

84 Babić, I. (1997), Leksikon obligacionog prava, Službeni list SRJ, Beograd, p. 197.85 Bikić, A., op. cit., p. 265. Person A. claims from person B. the amount of 2,000.00 BAM based on

a loan, and at the same time person B. claims from person A. 2,000.00 BAM based on the damagecaused. In this case, A. and B. are simultaneously a creditor and debtor to each other, and both mustfulfil their respective obligation (payment of 2,000.oo BAM each). Instead of each of them makingthe payment, both claims are settled for each other. The compensation is made by a unilateral ex-pression of will by either the creditor or the debtor.

86 Simić, M. and Trifković, M., op. cit., p. 67.87 Example 1: Person A. owes 200.00 BAM to person B. due to a sale. Novation will occur if persons

A. and B. agree that person A. owes to person B. the amount of 200.00 BAM but based on a loan.Example 2: Person X. sold person Y. his flat and at the same time, on the same day, formed a rentalcontract. Person B. sold person C. his car but at the same time formed a contract on renting the same car.

88 D.O.O. “Lav” Marka Marulica 17, Sarajevo owed, to enterprise D.D “Mak”, Mula Mustafe Baseskije3, Sarajevo, the amount of 5,000.00 BAM, based on a sale contract. After some time, they formeda contract on merger, i.e. status changes occurred. Companies “Lav’ and “Mak” merged into enter-prise “Gama”. Since this status change resulted in the creditor and debtor combining into a singlelegal person, the obligation ceased since, by universal succession, the debt and the claim passed tothe “Gama” company.

89 Person A. and person B. formed a piecework agreement. The object of the contract was the fittingof wiring in the house owned by person A. A fixed price of 5,000.00 BAM was contracted. The pay-ment of price was contracted in installments, with the first installment due immediately upon thecompletion of work, and the second six months after payment of the first installment. After threemonths, person A married person’s B. daughter. For this reason, person B. waived the remainingdebt to person A.

90 Person A. and person B. formed a rental contract for five years, with this time period being an es-sential element (fixed term). After five years, the obligation ceases.

91 Bikić, A., op. cit., p. 272.92 If a famous rock singer dies, his obligation of appearing at a concert from the contract formed with

concert organizer does not pass on to his successors.93 Vedriš, M. and Klarić, P., op. cit., p. 148.94 Simić, M. and Trifković, M., op. cit., p. 38.95 Vedriš, M. and Klarić, P., op. cit., p. 150.96 Gams, A. and Đurović, Lj. M., op.cit., p.235.

NOTES 427

97 Dedić, S. and Gradaščević Sijerčić, J. (2005), Radno pravo, II novelirano i prošireno izdanje, Pra-vni fakultet Univerziteta u Sarajevu, Sarajevo, p. 51.

98 Dedić, S. and Gradaščević Sijerčić, J., op.cit, p. 6399 Law on Labour of Federation of Bosnia and Herzegovina (Official Gazette of Federation B&H,

issue 43/99, 32/00, 29/03) and Law on Labour of Republika Srpska (Official Gazette of RS, issue38/00, 40/00, 41/00, 47/02, 38/03, 20/07)

100 These sources are in turn classified as: a) universal and regional international sources, with con-ventions and recommendations by the International Labour Organization being the most significantfor the B&H law; UN documents from the field of economic and social relations, primary and sec-ondary sources of law of the European Union, and documents of the European Council; b) bilateraland multilateral inter-state and international contracts. For more details on the international sourcesof labour law see: Dedić, S. and Gradaščević Sijerčić, J. (2005), Radno pravo, II novelirano i pro-šireno izdanje, Pravni fakultet Univerziteta u Sarajevu, Sarajevo , pp. 73-87.

101 Dedić, S. and Gradaščević Sijerčić, J., op. cit., p. 165.102 Dedić, S. and Gradaščević Sijerčić, J., op.cit., p. 166.103 Dedić, S. and Gradaščević Sijerčić, J., op. cit., p. 167.104 For the basic criterias for determining subjects in domestic law, see Simić, M. and Trifković, M.

(1999), Poslovno pravo: osnovi prava i obligacija, privredna/trgovačka društva, Ekonomski fakultetu Sarajevu, Sarajevo, p. 95.

105 Law on Companies, which will be quoted as the LoC (The Official Gazette of Federation B&H,issue 23/99, 45/00, 2/02, 6/02, 29/03, 68/05, 84/08, 88/08 and 07/09).

106 Law on Commercial Companies (National Gazette, issue 113/93) will henceforward be quoted as:LoCC.

107 Art. 2 of LoCC.108 Art. 6 of the LoC109 Vilogorac, E. and Dizdar, M. (2000), Zakon o privrednim društvima — objašnjenja i komentar,

Revicon, Sarajevo, p. 18110 Art. 199 of the LoC.111 Law on Public Procurement of Bosnia and Herzegovina (Official Gazette of B&H, issue 49/04).112 Art. 92 of the LoC.113 Art. 5 of the LoC.114 Art. 78 of the LoC.115 Treaty establishing the European Community of 1957, Art. 52 and 54.116 Art. 58, line 1 of the Treaty establishing the European Community.117 For more detail see: Vukadinović, R. (2001), Pravo Evropske unije, Megatrend, Beograd, p. 190118 Economic Interest Grouping-EEIG; Europasche Wirtschaftliche Interessenvereinigung-EWIV.


119 Art. 11 of LoC.120 Art. 7 of LoE.121 Art. 45-50.c of the LoC.122 For details about consortium-types of association, see: Stojiljković, V. (1997), Ugovor o konzorciju,

doctoral dissertation, Pravni fakultet u Beogradu, Beograd.123 This is the case, in, e.g., France, Germany, the Netherlands, and Switzerland.124 Articles 2602-2615 of Italian civil code.125 Business practice includes the formation of a special company called a Special Purpose Vehicle or

SPA for short. It is formed in order to achieve an accurately defined business goal; after the goal hasbeen achieved, the company is liquidated or is subsumed into a member participant in the businessundertaking.

126 Art. 5 of LoC.127 It is the implementation of Art. 310 of the LoC, which provides that the LoC provisions on joint-stock

companies are applied to limited-liability companies if not otherwise regulated by separate LoCprovisions.

128 E.g. Law on Commercial Companies of the Republic of Croatia, French law, German law, and Aus-trian law. They differ only in which legal instrument defines the status of a pre-company. As opposedto these, English law acknowledges the founder’s fiduciary obligation to the company that will onlybe registered. U.S. law speaks of the personal liability by future company members if a contractwith a third party is signed before the company is registered.

129 On individual legal understandings of the legal regime of pre-company, see more in: Vasiljević, M.(1999), Poslovno pravo, Savremena administracija, Beograd, pp. 38 and 39.

130 Barbić, J., Pravo društava, op. cit., p. 148.131 Art. 6 of LoC, and Art. 53 of the LoE, which additionally provides that an entrepreneur is liable

with his entire property.132 Thus, Art. 246 of the LoC.133 Thus, Art. 342 of the LoC.134 Art. 218. of the LoC.135 Art.255 of the LoC.136 Art 50.a par. 1 of the LoC.137 Art. 50.a par. 2 of the LoC.138 Art. 62 of the LoC.139 Art. 291 of LoC140 Art. 64 of LoC141 Art.66 of the LoC.142 Art.67 of the LoC.

NOTES 429

143 Art. 62, par. 2 of the LoC.144 Art. 291 of the LoC.145 Art. 60 of the LoC.146 Art. 62, par.3 of the LoC.147 Art. 287 of the LoC.148 Art. 62, par. 5 of the LoC.149 Art. 361 of the LoC.150 Art. 62 of the LoC.151 LoRBE and FLoRBE.152 Thus, in the foreign direct investment regime, approval of investment into business subjects of

military industry and public communications is limited by the foreign investment maximum of 49%;Art. 2 of LoFI.

153 Cf: Law on Establishing Public Enterprise ‘Electric Utility of Bosnia and Herzegovina’, laws on es-tablishing cantonal public utilities, and Law on Public Roads establishing the Directorate of Roadsin the Federation B&H, etc.

154 An example for this system is also provided by the regime for establishing free zones, since in theB&H legal regime their establishment requires approval by entity-level governments.

155 In the B&H legal regime, thus, the obligatory recording of foreign investments is done based onspecial bylaw Directives for FDI registration (Official Gazette of B&H, issue 22/99), the constitu-tive section of which is the Form for registration of foreign investment.

156 Article 10.157 In comparative practice, particularly in the US corporate law, companies recognizable in business

world that are typically registered as joint-stock companies are very frequently recognized by theirfounders’ personal elements. The examples include: John P. Morgan; Henry Ford; John Rockefeller;William Hewllet i David Pacard; William Boing; William Procter; Michael Dell; Conrad Hiltona;Kng Gillette, Lamont du Pont; James McKinsey; Harry Warner, etc.

158 It could be: Mujezinović and sons, Mujezinović and company or, if a general partnership is foun-ded by two natural persons, the company name could include both surnames, or the surname of onlyone of them, e.g. Mujezinović and Muhić, or only Mujezinović and others, or Mujić and others.

159 Thus, it can be named Mujezinović S. Ismet, etc.160 In practice, different terms are used for organizational parts of companies: thus, branch according

to Art. 11 of LoC; part of enterprise according to Art. 23 of LoE; business unit; part of enterprise;branch in commercial banks, etc.

161 Art. 5 of the LoC162 Starting a business before obtaining the decision by the competent state organ on satisfying special

requirements is sanctioned by Art. 375 of the LoC with the fine for minor offence ranging from 500to 15,000 BAM.


163 Art. 10 of LoC.164 Art. 11 of LoC.165 Art. 74 of LoRBE.166 Art. 97 and 98 of the LoO.167 The LoO mentions a representative, which implies a legal or another kind of agent who represents

the will of a company as a single collective.168 Art 33 of the LoC.169 Art. 24 of LoC.170 Art. 87 of LoO.171 The measure in compliance with the General Usages of main state arbitration was quite interesting.

Thus Usage number 39 provided that if the other party was conscientious, i.e. if it did not know orcould not know of exceeding the authority, such a contract was binding for the authority provider.In the opposite case, if the other part knew or could have known of exceeding authority and signedthe contract anyway, such a contract was binding for the authority provider but only within the lim-its of the authority granted.

172 Art. 275-278 of the LoC.173 Art. 275, par. 2 of the LoC.174 Art. 239 of the LoC.175 Thus in Vilogorac, E. and Dizdar, M., op. cit., p. 411, “the management acts as a collective company

agent, whereby the scope of executive officers’ authority for agency is determined by the companydirector’s decision.”

176 Art. 347 of the LoC.177 Art. 82-87 of the LoC.178 Art. 100-102 of the LoC.179 Art. 96 of the LoC.180 Art. 98 of LoO.181 General usages for transactions with goods have regulated this issue in the way whereby the agent

by employment is considered to be any person entrusted with given duties which, by the regularcourse of things, result in the authority to sign certain types of contracts.

182 Art. 89-98 of LoO.183 Art. 91 of LoO.184 Art. 92, par. 1 of LoO.185 Art. 93 of the LoO.186 Art. 95 and 96. of the LoO.187 Art. 96 of the LoO.

NOTES 431

188 Art. 95., par. 2 of the LoO.189 Art. 93 and 94 of the LoO.190 Art. 26 of the LoC.191 Art. 43-49 pf the LoE.192 In the LoE, joint or collective procuration is called collective procuration, which means that the dif-

ference is only a linguistic one, i.e. that a synonym is used.193 Granting procuration is discussed only in Art. 27 of the LoC. “A company can grant a procuration

to one or more natural persons, in pursuance with the articles of incorporation and statute.”194 Art. 269, par. 1, line 7 of LoC.195 Art. 34 of the LoC.196 Art. 270 of the LoC.197 Art. 34, par. 2 of the LoC.198 Art 3, par. 1, point f) of the LoC199 Art. 5 of FLoRBE.200 See provisions of Art. 22-32 of the FLoRBE for more details.201 Art 56. of the LoC.202 Art. 60 of the LoC.203 Art. 61 of the LoC.204 Art. 48, Par. 2 of the FLoRBE.205 The B&H legal system has finally been complemented by the Law on Electronic Signature in Bosnia

and Herzegovina (The Official Gazette of B&H, issue 91/06); Art.3 — definitions.206 Art. 15 of the Law on Electronic Signature.207 Art. 15 of the LoRBE.208 Art 52 of the FLoRBE209 Art. 57 of FLoRBE.210 European Council Regulation no. 1346/2000.211 For more details see Baltić, M. (2003), ’Načela evropskog stečajnog prava sa posebnim osvrtom na

Evropsku Uredbu o stečajnim postupcima’, Revija za evropsko pravo, Centar za pravo Evropskeunije i Udruženje za pravo Evropske unije, Beograd, pp. 43-45.

212 Čolović, V. and Milijević, N. (2004), Stečajni postupak, Udruženje pravnika Republike Srpske,Banja Luka, p. 27.

213 Junačko, Z. (2004), Stečajni zakon — komentar i sudska praksa, Poslovni zbornik, Zagreb, pp. 13-15.214 For details see: Vasiljević, M. (1999), Poslovno pravo, Savremena administracija, Beograd, pp. 315-317;

and Simić, M. and Trifković, M. (1999), Poslovno pravo: osnovi prava i obligacija, privredna/trgovačka društva, Ekonomski fakultet u Sarajevu, Sarajevo, pp. 279-280.


215 See in particular in the US Federal Bankruptcy Act.216 The basic legal source, as well as the fundamental base for work in this domain was The German

Bankruptcy Law, 2001 version.217 See: Trifković, M. and Omanović, S. (2001), The International Business Law and Arbitration, Faculty

of Economics - Sarajevo, pp. 120-130.218 Ibid., p.131219 On the principles, see: Đurović, R. (2000), The International Commercial and/or Corporate Law,

Savremena administracija, Beograd, p. 35-57. 220 Trifković, M., op.cit., p.139.221 See: Mlikotin-Tomić, D. (1999), The International Trade Law, Školska knjiga, Zagreb, p 77.222 See: Trifković, M., op. cit. p. 511-515.223 On free zone functioning, see: Trifković, M., op. cit., p. 159-161 and Đurović, R., op. cit., p. 73-74.224 About the international legal protection see: Besarović, V. (2000), Intellectual property, Čigoj

štampa, Beograd, pp. 212-232 and 350-365.225 On the international sources regarding the sector of the consumer’s rights see: Vilus, J. (1996), Legal

Protection of Consumers, Eco-Tech, Beograd, pp. 2-38.226 For more detail see Panian, Ž. (2002), Izazovi elektroničkog poslovanja, Narodne novine, Zagreb,

pp. 22-130.227 Cf. Commission of the European Communities (2004), Legal Barriers in E-business: The results of

an open consultation of enterprises, Commission Staff Working Paper, Brussels.228 Cf. Vilus, J. (2000), Elektronsko trgovačko pravo, Evropski centar za mir i razvoj (ECPD) Uni-

verziteta za mir UN, Beograd, pp. 5-56229 Cf. UNDP ICT - Forum, (2003), Infrastructure of An Information Society, Legal Infrastructure of In-

formation Society, Conference material, Sarajevo, pp. 7-45230 Cf. ____ (2002), A Guide for Business to The Electronic Commerce (EC Directive) Regulations

2002, Department of Trade and Industry.231 Cf. UNDP ICT - Forum, (2003), Infrastructure of An Information Society, Legal Infrastructure of In-

formation Society, Conference material, Sarajevo, pp. 7-45232 Trifković, M. (2001), Me�unarodno poslovno pravo, Ekonomski fakultet u Sarajevu, Izdavačka dje-

latnost, Sarajevo, pp. 60-70.233 Edwards, L. (2004), The New Legal Framework for E-Commerce in Europe, Hart Publishing, pp.

141-211.234 Cf. http://english.vipgroup.net , last visit on 12/02/2005235 Walden, I. and Hornie, J. (2000), E-Commerce Law and Practice in Europe, A Publication of the

ECLIP Network Woodhead Publishing.236 For more details see: Edwards, L. (2004), The New Legal Framework for E-Commerce in Europe,

Hart Publishing, pp. 211-256

NOTES 433

237 Cf. Walden, I. and Hornie, J. (2000), E-Commerce Law and Practice in Europe, A Publication of theECLIP Network Woodhead Publishing, pp. 123-211. UNDP ICT - Forum, (2003), Infrastructure ofAn Information Society, Legal Infrastructure of Information Society, Conference material, Sarajevo,pp 7-45

238 More detail in Hedly, S. and Aplin, T. (2002), Statutes on IT and E-Commerce, Oxford UniversityPress, pp.33-67

239 Cf. ____ (2002), A Guide for Business to The Electronic Commerce (EC Directive) Regulations2002, Department of Trade and Industry.

240 More detail on http://europa.eu.int, last visited on 12/01/2005241 For more, see http://www.eurunion.org, last visited on 10/11/2004242 Cf. ____ (2002), A Guide for Business to The Electronic Commerce (EC Directive) Regulations

2002, Department of Trade and Industry.243 Cf. Reed, C. and Angel, J. (2003), Computer Law, Oxford University Press, p. 334244 Cf. Walden, I. and Hornie, J. (2000), E-Commerce Law and Practice in Europe, A Publication of the

ECLIP Network Woodhead Publishing, pp. 123-211245 More in Hedly, S. and Aplin, T. (2002), Statutes on IT and E-Commerce, Oxford University Press,

pp. 33-67. Walden, I. and Hornie, J. (2000), E-Commerce Law and Practice in Europe, A Publica-tion of the ECLIP Network Woodhead Publishing, pp. 123-211. More in Edwards, L. (2004), TheNew Legal Framework for E-Commerce in Europe, Hart Publishing, pp. 211-256

246 Cf. UNDP ICT - Forum, (2003), Infrastructure of An Information Society, Legal Infrastructure of Information Society, Conference material, Sarajevo, pp. 7-45

247 Ibid.248 Cf. UNDP ICT - Forum, (2003), Infrastructure of An Information Society, Legal Infrastructure of

Information Society, Conference material, Sarajevo, pp. 7-45249 Decision of the Central Bank of B&H on minimum requirements that have to be met by a qualified

certification body issuing qualified certificates for e-signature, (The Official Gazette of B&H, issue10/02)



252 Decision of the Central Bank of B&H on regulating rules for determining elements for e-signaturetruthfulness (The Official Gazette of B&H, issue 10/02).

253 Article 2 of the Law on Electronic Signature.254 Article 4 of the Law on Electronic Signature.255 Cf. UNDP ICT - Forum, (2003), Infrastructure of An Information Society, Legal Infrastructure of

Information Society, Conference material, Sarajevo, pp. 7-45


256 Cf. Commission of the European Communities (2004), Legal Barriers in E-business: The results ofan open consultation of enterprises, Commission Staff Working Paper, Brussels.

257 More in Hedly, S. and Aplin, T. (2002), Statutes on IT and E-Commerce, Oxford University Press,pp. 33-67. Walden, I. and Hornie, J. (2000), E-Commerce Law and Practice in Europe, A Publica-tion of the ECLIP Network Woodhead Publishing, pp. 123-211. More in Edwards, L. (2004), TheNew Legal Framework for E-Commerce in Europe, Hart Publishing, pp. 211-256

258 More in Draškić, M. (1986), Zaključivanje ugovora o prodaji, Beograd, pp. 8-111.259 Cf. DiMatteo, L.A. (2004), The Interpretive Turn in International Sales Law, Northwestern Journal

of International Law and Business, pp. 1-28260 Cf. Bender, D. (1982), Computer Law: Evidence and Procedure, Mathew Bender New York.261 Cf. Treitel, G.H. (1995), Law of Contract, Sweet and Maxwell, London, pp. 23-47262 More on http://www.ebusinesslex.net last visited on 12/01/2005.263 Cf. Pink, S.W. (2001), The Internet and E-Commerce Legal Handbook, Prima Lifestyles, pp.

373-431.264 More in Sparrow, A. (2003), E-Commerce and the Law: The Legal Implications of Doing Business

Online, FT Managements Briefings, Financial Times Prentice Hall, pp. 44-190265 More in Bagby, J. (2002), The Legal and Regulatory Environment of E-Business Law for the Con-

verging Economy, South Western College Publishing, pp. 12-33.266 Cf. Bagby, J. (2002), E-Commerce Law: Issues for Business, South Western College Publishing, pp.

321-509.267 Miller, R. (2001), Law for E-Commerce, South Western College Publishing. and Cheeseman, H.

(2003), Business Law: Legal, E-Commerce, Ethical and International Environments, Prentice Hall.268 Canton, D.R. and Millar, J.E. (2002), Legal Landmines in E-Commerce, McGraw-Hill Education,

pp. 7-9.269 Edwards, L. (2004), The New Legal Framework for E-Commerce in Europe, Hart Publishing. and

Simmons & Simmons (2002), Communication Practice E-Commerce Law: Doing Business Online,Copenhagen Business School Press, p. 54

270 Armstrong, C.J. (1999), Staying Legal: A Guide to Issues and Practice for Users and Publishers ofElectronic Resources, Library Association Publishing.

271 Cf. ____ (2002), A Guide for Business to The Electronic Commerce (EC Directive) Regulations2002, Department of Trade and Industry.

272 Cf. Dickson K.W. Chiu (2004), A Three-layer Architecture fo E-Contract Enforcement in an E-ServiceEnvironment, IEEE.

273 Cf. Angelov, S. and Grefen, P. (2003), B2B eContract Handling - A Survey of Projects, Papers andStandards, University of Twente, The Netherlands.

274 Ibid.

NOTES 435

275 Cf. Dickson K.W. Chiu (2004), A Three-layer Architecture fo E-Contract Enforcement in an E-ServiceEnvironment, IEEE. and Angelov, S. and Grefen, P. (2003), B2B eContract Handling - A Survey ofProjects, Papers and Standards, University of Twente, The Netherlands.

276 Trifković, M., Simić, M. and Trivun, V. (2004), Poslovno pravo: ugovori, vrijednosni papiri i pravokonkurencije, II izdanje, Ekonomski fakultet u Sarajevu, Sarajevo, p. 311

277 Jovanović, N. (2001), Emisija vrednosnih papira: pravna razmatranja, PS Grmeč — Privredni Pre-gled, Beograd, pp. 17-18

278 Trivun, V., Silajdžić, V., Mahmutćehajić, F. and Grbo, Z., op. cit., p. 572279 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 314280 Ibid., p. 311281 Law on Obligations (The Official Gazette of FB&H, issue 2/92, 13/93, 13/94 and 29/03)282 Law on Bills of Exchange (The Official Gazette of FB&H, issue 32/00 and 28/03)283 Law on Checks (The Official Gazette of FB&H, issue 32/00)284 Law on Out-of-Court Proceedings (Official Gazette of FB&H, issue 2/98 and 39/04)285 Law on the Securities Market (Official Gazette of FB&H, issue 85/08)286 Law on Securities Register (Official Gazette of FB&H, issue 39/98, 36/99 and 33/04)287 Law on Securities Commission (Official Gazette of FB&H, issue 39/98, 36/99 and 33/04)288 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 315289 Ibid., pp. 320-324290 Ibid., pp. 328-329291 Simić, M. and Trifković, M., op. cit., pp. 203-204292 taken from: ibid., pp. 204-205293 Vilogorac, E. and Dizdar, M., op. cit., p. 306294 taken from: Simić, M. and Trifković, M., op. cit., p. 207295 taken from: ibid., p. 207296 taken from: Simić, M. and Trifković, M., op. cit., p. 208297 Ibid., p. 209298 Mishkin, F.S. and Eakins, S.G. (2005), Financijska tržišta + institucije, četvrto izdanje, MATE, Zagreb,

pp. 258-259299 Simić, M. and Trifković, M., op. cit., p. 210300 Simić, M. and Trifković, M., op. cit., p. 194301 A shortened prospectus is prepared in cases of issue through public offering amounting up to 100,000

BAM and private offering irrespective of the value, as well as in cases of payment of dividend bymeans of shares issue, increase in the nominal value of shares and issue of securities for the purposeof merger, split, conversion and denomination of shares (Art. 33 par. 6, 48, 54-55 LSM).


302 The amount may not be less than 60% of the total number of securities as set by the decision on theissue. Exceptions apply in cases of issues amounting to the value of 100,000 BAM (total amount)and private offerings (no less than 90%) — Art. 40 and Art. 52 LSM.

303 Simić, M. and Trifković, M., op. cit., p. 215 and 217304 Ibid., pp. 215-217305 Vilogorac, E. and Dizdar, M., op. cit., p. 310306 Mishkin, F.S. and Eakins, S.G., op. cit., pp. 258-259307 Vilogorac, E. and Dizdar, M., op. cit., pp. 310-311308 Ibid., p. 345309 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 395-396310 Vilogorac, E. and Dizdar, M., op. cit., p. 308311 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 399-400312 Ibid., pp. 403-408313 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 331314 Ibid., p. 331315 Hadžiahmetović, J. (2002), Mjenica u platnom prometu, Revicon, Sarajevo, pp. 28-29316 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 333317 Ibid., p. 339318 Ibid., p. 334319 In Anglo-Saxon law, the payment order may be related to the fulfillment of a condition, and such a

draft is called non-operational.320 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 335321 Ibid., pp. 335-337322 Ibid., pp. 337-338323 Ibid., pp. 341-344324 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 344-345325 taken from: ibid., p. 344326 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 344-345327 taken from: ibid., p. 344328 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 325329 Anglo-Saxon law allows entering conditions in an endorsement.330 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 346331 taken from: ibid., p. 346

NOTES 437

332 Hadžiahmetović, J., op. cit., p. 92333 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 347334 Hadžiahmetović, J., op. cit., pp. 98-99335 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 347-348336 Taken from: ibid., p. 348337 Hadžiahmetović, J., op. cit., p. 100338 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 348-349339 Before returning the bill, a drawee can strike through the written acceptance and it will be believed

that he declined to accept the bill.340 Taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 351341 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 354342 Ibid., p. 354343 taken from: ibid., p.356344 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 356345 taken from: ibid., p. 357346 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 361-362347 taken from: ibid., p.362348 taken from: ibid., p.363349 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 363350 Ibid., p.364351 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 365-368352 Ibid., p.366353 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 370354 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 370-371355 Ibid., p.373356 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 376357 taken from: ibid., p.376358 in some countries, it is allowed to write some of the listed clauses (e.g. clause of acceptance in the

forms of check certification, etc.)359 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 377360 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 378361 Ibid., p. 378362 Ibid., p. 379


363 Ibid., p.380364 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 328365 taken from: ibid., p. 382366 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 383367 Ibid., p.384368 Ibid., pp.384-385369 Trifković, M., Simić, M. and Trivun, V., op. cit., p. 386370 As opposed to a bill of exchange, a check is not a completely abstract legal transaction, and the

connection between check and basic transaction is maintained.371 taken from: Trifković, M., Simić, M. and Trivun, V., op. cit., p. 388372 Trifković, M., Simić, M. and Trivun, V., op. cit., pp. 390-393373 taken from: ibid., p. 389374 taken from: ibid., p. 394

NOTES 439

abstract securities — apstraktni vrijednosni papiri

accept the formation of a contract — prihvatiti sklapanje ugovora

acceptance — akcept, prihvatacceptance for honour — intervencijaacceptance for honour due to

non-acceptance — intervencija zbog neakceptiranja

acceptance for honour due to non-payment — intervencija zbog neisplate

acceptance for honour on call — pozivna intervencija

acceptance for honour supra protest — intervencija

acceptor — akceptant acceptor for honour — intervenijent accessory obligations — sporedne obaveze accident insurance — osiguranje od

nesretnog slučaja account-only check — obračunski

(virmanski) čekaccumulated and outstanding dividends

— kumulirane a neisplaćene dividendeaccumulation of requests — kumuliranje

zahtjevaacquire — steći acquiring permits — pribavljanje dozvolaacquisition agents — akviziteri

acquisition without foundations — sticanje bez osnova

act — zakonactive capacity under the bill — aktivna

mjenična sposobnostactive check capacity — aktivna čekovna

sposobnostactivity - djelatnostacts of vigilance — akti vigilancije

(budnosti kupca)actual authority — stvarno ovlaštenjeactual material deficiency — konkretan

materijalni nedostatakactual work — konkretni radoviad sollemnitatem, Lat., (form) — dokazna

formaadditional work — naknadni radoviaddress in necessity — adresa u nuždi address in need — adresa po potrebiaddressee — adresat administrative authority — organ upraveadministrative body — organ upraveadministrative dispute — upravni sporadministrative document — upravni aktadministrative procedure — upravni

postupakadministrative-law liability —

administrativnopravna odgovornostadvance payment — avansaffiliated bank — korespondentna banka

GLOSSARY 441

GLOSSARY

A

agency — agencija, zastupanje, zastupstvo

agency based on the document of relevant judicial or administrativeorgan — zastupništvo zasnovano naaktu nadležnog sudskog ili upravnogorgana

agency of corporations — zastupanje društava kapitala

agency of partnerships — zastupanje personalnih društava (društava lica)

agent — agent, zastupnikagreed equity — ugovoreni kapital alienate real estate — otu�iti nekretninuallonge — alonž, produžetak mjeniceallowed clauses — dopuštene klauzuleallowing supervision — omogućavanje

nadzoraalternative check — alternativni čekalternative norms — alternativne normealternative obligation — alternativna

obligacijaamendment — amandman, dopunaamicable resolution of disputes —

prijateljsko rješavanje sporovaamoritization — amortizacijaamortization schedule — amortizacioni

planannuities — anuitetiannulment — pobijanje, poništenjeapparent authority — prividno ovlaštenjeappeal — žalbaappellation procedure — žalbeni

postupakapplicable law — mjerodavno pravoapplicant — podnosilac prijaveapplication for registration of

a company — prijava za upis osnivanjaprivrednog društva

appointed official — imenovani funkcioner

appointment committee — odbor za imenovanje

approval — odobrenjeapproval for construction — odobrenje za

gra�enjearbitration — arbitražaarbitration court — arbitražni sud arrear (to be in) — zaostati u plaćanju

dugova articles of incorporation — osnivački akt,

odluka ili ugovor o osnivanjuprivrednog društva

ascertaining price — odre�ivanje cijeneassembly — montažaassembly works — montažni radoviassessment of offers — procjena ponudaassets — imovina društva, aktivaassignation — asignacijaassignee — cesionar, novi povjerilacassignor — cedent, stari povjerilacassociated companies — povezana društvaassociated person — povezano liceassociation through a contract —

povezivanje ugovorom assumption of general order —

pretpostavka opštosti nalogaassumption of the debt — intercesija at sight — po vi�enjuattorney — punomoćnikattorney-in-fact — punomoćnikauction sale — prinudna prodaja,

aukcijska prodajaaudit board — odbor za revizijuauthority — ovlaštenjeauthority provider — davalac ovlaštenjaautonomous law — autonomno pravoaval — aval, mjenično jemstvo, mjenična

garancijaaverage quality — srednja kakvoća (srednji

kvalitet)axis — osovina


bad check — ček bez pokrićaban on competition — zabrana

konkurisanjabanking account — bankovni račun,

transakcijski računBanking Agency — Agencija za bankarstvobankruptcy — stečajbankruptcy administrator — stečajni

upravnikbankruptcy council — stečajno vijećebankruptcy court — stečajni sudbankruptcy creditors — stečajni

povjeriocibankruptcy estate — stečajna masabankruptcy estate creditors — povjerioci

stečajne masebankruptcy estate debts — dugovi

stečajne masebankruptcy judge — stečajni sudijabankruptcy law — stečajno pravobankruptcy plan — stečajni planbankruptcy procedure — stečajni

postupakbankruptcy proceeding — stečajni

postupakbankruptcy proceeding, closing —

stečajni postupak, zatvaranje, zaključenje

bankruptcy proceeding, conducting —stečajni postupak, sprovo�enje

bankruptcy proceeding, opening — stečajni postupak, otvaranje

basic and supplementary risk — osnovni i dopunski rizik

basic duties — osnovne dužnostibearer — donosilacbearer check — ček na donosiocabearer securities — vrijednosni papiri na

donosioca, cirkulacioni papiri

bidding procedure — licitacijabilateral legal relation — dvostrani pravni

odnosbill amount — mjenična svotabill bearer — donosilac mjenicebill claim — mjenična tužbabill clauses — mjenične klauzulebill document — mjenična ispravabill guarantee — mjenično jemstvo, avalbill guarantor — avalista, mjenični jemac bill lawsuit — mjenična parnicabill of exchange — mjenicabill of exchange — trasirana mjenicabill of exchange drawn on the drawer —

trasirana vlastita (sopstvena) mjenicabill of exchange drawn on the drawer

and payable to his order — trasiranavlastita (sopstvena) mjenica po vlastitoj (sopstvenoj) naredbi

bill of exchange payable at a fixed period after sight — mjenica naodre�eno vrijeme po vi�enju

bill of exchange payable at a fixed period after the date of issue —mjenica na odre�eno vrijeme od izdavanja

bill of exchange payable on a fixed date— mjenica sa dospjelošću na odre�enidan, dnevna ili kalendarska mjenica

bill of exchange payable to drawer’sorder (to one’s own order) — trasiranamjenica po vlastitoj (sopstvenoj)naredbi

bill of exchange with maturity at a givendate — mjenica sa dospjelošću naodre�eni dan, dnevna ili kalendarskamjenica

bill of lading — konosman, teretnicabill of quantities — predmjer radovabill of sale — zaključnicabill-of-exchange law — mjenično pravobill-related actions — mjenične radnje

GLOSSARY 443

B

binding to act — obavezivanje na radblank acceptance — bjanko akceptblank aval — bjanko avalblank bill of exchange — bjanko mjenicablank endorsement — bjanko indosament blank form — blanket, mjenični blanket,

formularboard of creditors — odbor povjerilacabodies in bankruptcy proceedings —

organi stečajnog postupkabond — obveznicabonds denominated in two different

currencies — obveznice denominiraneu dvije različite valute

bonds with annual interest payments —obveznice sa godišnjom isplatom kamata

bonds with limited conversion — obveznice sa ograničenom konverzijom

bonds with semi-annual interest payments — obveznice sa polugodišnjom isplatom kamata

bonds with warrants — obveznice savarantom

book assets of a company — knjigovodstvena imovina društva

bookkeeping document — knjigovodstveni dokument

branch — filijala, podružnicabranch of law — pravna granabreach of warranty — prekršaj garancijebroker — brokerbuilding permit — gra�evinska dozvolabuilding structure — gra�evinaburden real estate — opteretiti nekretninuBureau of Statistics — statistički ured,

zavod za statistikubusiness activity - djelatnost business association — poslovno udruženjebusiness association — zajednica društava business capacity — poslovna sposobnost

business cessation — prestanak poslovanja, prestanak postojanja privrednih društava

business entity — poslovni subjekatbusiness law — poslovno pravobusiness litigation — privredni spor,

parnicabusiness operations — poslovni prometbusiness power of attorney — poslovna

punomoćbusiness system — poslovni sistembusiness union — poslovna unijabusiness unit — poslovna jedinicabuyer — kupacbuyer’s account — račun kupcabuyer’s alertness — budnost kupcabuyer’s tardiness with delivery

acceptance — kupčeva docnja sa prijemom isporuke

buyout — otkupbylaws — podzakonski akti

cadastre — katastarcancellation — otkazcancellation clause — kasatorna klauzulacancellation of authority — otkaz

ovlaštenjacantonal administrative authority —

kantonalni organ upravecapital paid in cash — kapital uplaćen

u novcucapital paid in things and rights —

kapital uplaćen u stvarima i pravimacargo and casco policies — kargo i kasko

polise osiguranjacash check — isplatni (gotovinski,

blagajnički) čekcash shares — gotovinske dionice


C

cashless payment — bezgotovinsko plaćanje

cassation court — kasacioni sudcausal securities — kauzalni vrijednosni

papiricausing damage — prouzrokovanje štetecentre of business interests — centar

poslovnih interesacertificate — certifikat, potvrda certificate by commercial bank — potvrda

poslovne bankecertificate for occupancy — odobrenje za

upotrebucertificate of deposit — certifikat o

depozitucertificate of payment — situacija (ugovor

o gra�enju)certificate of securities account — potvrda

o stanju na računu vrijednosnih papiracessation of authorities — prestanak

ovlaštenjacessation of companies — prestanak

privrednih društavacessation of contract — prestanak ugovoracessation of limitation — prekid zastarecessation of membership — prestanak

članstvacessation of obligation — prestanak

obligacijecession - cesijacession of the claim — ustupanje tražbine

(cesija)cessus, Lat. — dužnik, cesuschairman of the management —

predsjednik uprave chairperson — predsjednik,

predsjedavajućichairperson of supervisory board —

civil law — gra�ansko pravocivil offence — gra�anski deliktcivil procedure — gra�anski postupak,

parnični postupak

claim — tužba, potraživanje, tvrdnjaclaim for collection — tužba za naknaduclaim for damages — odštetni zahtjevclaim out of basic transaction — tužba iz

osnovnog poslaclaimable — potraživ class — klasa (dionice)class of security — klasa vrijednosnog papiraclassification of business activities —

klasifikacija djelatnosticlause about notice — klauzula o

izvještajuclause on currency — klauzula o moneticlause on effective payment in a

foreign currency — klauzula o efektivnom plaćanju u stranoj valuti(klauzula o moneti)

clause on the general business terms —klauzula o opštim uslovima poslovanja

clause on the received value — klauzula oprimljenoj vrijednosti, klauzula valute

clause on the restrictions or exclusion ofliability for specified cases — klauzulao ograničenju ili isključenju odgovornosti za odre�ene slučajeve

clause without cost — klauzula bez troškova

clause without obligation — klauzula bezobaveze

clause without protest — klauzula bez protesta

clause without recourse — klauzula bezregresa

clauses on the rights of the issuer andbond holder — klauzule o pravima izdavaoca i imaoca obveznice

clearing institution — obračunska ustanova

closed joint-stock company — zatvorenodioničko društvo

co-drawers — satrasanti

GLOSSARY 445

coercive document — prinudni aktcoercive regulation — prinudni propiscogent (strict) legal norms — kogentne

(striktne, stroge) pravne normecoinsurance —saosiguranjecollateral — kolateral, zalogcollateral clause — klauzula o pokrićucollection of forms — zbirka obrazacacollection of tenders — prikupljanje

ponudacollective agreement — kolektivni ugovorcollective bankruptcy proceeding —

kolektivni stečajni postupakcollective procuration — skupna

(zajednička) prokuracommandeering — prisvajanje commercial agency — trgovinsko

zastupanjecommercial agent — trgovinski zastupnikcommercial bill of exchange — poslovna

(robna, trgovačka) mjenicacommercial paper — komercijalni zapiscommission — komisioncommission — provizijacommission agent — komisionarcommission bill of exchange — komisiona

mjenicacommission for acceptance of structure

or work — kolaudaciona komisija(ugovor o gra�enju)

committee examination — komisijski pregled

commodity securities — realni, stvarni,robni vrijednosni papiri

common damage — obična štetacommon law — precedentno pravocommon negligence — obična nepažnjacommon shares — redovne dionicecommunal conditions — komunalni uslovicommutative — komutativan

companies managed based on a separate entrepreneurial contract —društva kojima se upravlja na osnovuposebnog preduzetničkog ugovora

companies with cross-holdings — društvasa uzajamnim učešćem

company activity — djelatnost privrednogdruštva

company branch — podružnicacompany founders — osnivači privrednog

društvacompany identifiers — obilježja

privrednih društavacompany law — kompanijsko pravo, pravo

privrednih društavacompany liability — odgovornost

privrednog društvacompany name — firma, ime privrednog

društvacompany obligations — obaveze

privrednog društvacompany organs — organi društvacompany register — registar društavacompany secretary — sekretar društvacompany’s registered office — sjedište

društvacompany’s seat — sjedište društvacomparative law solutions —

uporednopravna rješenjacompensation — kompenzacija,

prebijanjecompensation — naknadacompetent court — nadležni sudcompetition clause — klauzula

konkurencijecomplaint — reklamacija, žalbacomplete aval — potpuni avalcomplete bill of exchange — potpuna mjenicacomplex obligation — složena obligacija


compound obligation — sastavljenaobligacija

concern - koncernconcern companies — društva koncernaconciliation — pomirenje conclude a contract — zaključiti ugovorconcurrence — slaganje, pristanak conduct court proceeding — voditi

sudski sporco-negotiators — saugovarači

(sapregovarači)confiscation — konfiskacija confusion — sjedinjenje, konfuzijaconscientious third party — savjesna treća

strana (osoba)consolidated bankruptcy proceeding —

konsolidovani stečajni postupakconsortium — konzorcijconsortium — konzorcij constant and variable risk — konstantni i

varijabilni rizikconstitution — ustavconstitutional court — ustavni sudconstruction book — gra�evinska knjigaconstruction contract — ugovor o

gra�enjuconstruction journal — gra�evinski

dnevnikconstruction site — gradilišteconstruction supervision — gra�evinski

nadzorconstruction works — gra�evinski radoviconstructions of structures — gra�enje

gra�evinaconstructor — gra�evinarconsulting engineering — savjetodavni

inžinjeringconsumable — potrošnacontra legem — protiv zakonacontract — ugovor

contract for investment construction —ugovor o investicionoj izgradnji

contract for services by an independentcontractor — ugovor o djelu

contract formation — zaključivanje ugovora

contract fulfillment — ispunjenje ugovoracontract mediator — trgovinski posrednik contract of agency — ugovor o agenciji

(zastupanju)contract of cession — ugovor o cesijicontract of sale — ugovor o prodajicontract on dispute resolution by

arbitration — zaključivanje ugovora oarbitražnom rješavanju sporova

contract on the death of a third person —ugovor za slučaj smrti trećeg lica

contract on the establishment of a company — ugovor o osnivanjuprivrednog društva

contract on the transfer of profit —ugovor o prenosu dobiti

contract perfecting — perfekcija ugovora

contract provisions — odredbe ugovoracontract’s existence — trajanje ugovoracontract’s expiration — prestanak

ugovoracontracted time limit — ugovoreni rokcontractual agency (power of attorney) —

ugovorno zastupanje (punomoć)contractual creditor — ugovorni

povjerilaccontractual fine — ugovorna kaznacontribution - ulogcontructor — izvo�ačconvening — sazivanjeconversion — konverzija, pretvaranjeconversion clause — klauzula o

konverziji

GLOSSARY 447

convertible bonds — konvertibilne(zamjenjive) obveznice

cooperative — zadruga corporate bonds — obveznice kompanija

(privatnopravnih subjekata)corporate securities — korporacioni

vrijednosni papiricorporations — društva kapitalacounter-offer — kontraponudacounter-value — protuvrijednostcourt decisions — sudske presude/odluke court document — sudski aktcourt expert — sudski vještakcourt for misdemeanors — sud za prekršajecourt judgment — sudska odlukacourt of appeal — apelacioni sudcourt of first instance — prvostepeni sudcourt of original jurisdiction —

prvostepeni sudcourt of second instance — drugostepeni

sudcourt of secondary jurisdiction —

drugostepeni sudcourt practice — sudska praksacourt premises — prostorije sudacourt register — sudski registarcourt ruling — sudska presudacredit security — kreditni vrijednosni

papiricreditor — povjerilaccreditors (in bankruptcy) — stečajni

povjeriocicreditors’ meeting — skupština povjerilacacriminal law — krivično pravocriminal liability — krivičnopravna

odgovornostcriminal nature — kaznena prirodacriminal offence — krivično djelocriminal offence of issuing and putting

into circulation a bad check — krivično djelo izdavanja i stavljanja upromet čeka bez pokrića

crossed check — precrtani (barirani) čekcrossing — precrtavanjeculpability — krivicacumulative assumption of a debt —

kumulativna intercesijacumulative preferred shares —

preferencijalne kumulativne dionicecurrency — valutacurrency of denomination — valuta na

koju glasi (vrijednosni papir)current account — konto-korent, tekući

računcurrent price — tekuća cijenacustom — običajcustom number — carinski brojcustomary law — običajno pravocustoms administration — carinska

uprava

damage — štetadamages — šteta, naknada štetedebenture bonds — obične obveznicedebt amortization — amortizacija dugadebt security — dužnički vrijednosni papirdebtor — dužnikdebtor (in bankruptcy) — stečajni dužnikdecision — odluka, rješenjedecision of administrative bodies on the

unsuccessful tender — odluka organaupravljanja o neuspjelom nadmetanju

decision on bond issue — odluka o emisijiobveznica

decision on company registration —rješenje o registraciji privrednogdruštva

decision on issue — odluka o emisijidecision on registration — rješenje o upisu

u sudski registar, rješenje o registraciji


D

decision on share issue — odluka o emisijidionica

decision on the establishment of a company — odluka o osnivanjuprivrednog društva

decision on the success (or failure) of thepublic offering — rješenje o uspjelosti(ili neuspjelosti) javne ponude

declaration of will implied by conduct —konkludentna radnja

decline the formation of a contract —odbaciti sklapanje ugovora

del credere agency — del credere agencija/zastupništvo

deliberation period — deliberacioni rokdelivery — isporuka, predajadenomination — denominacijadependent company (subsidiary) —

zavisno društvodependent costs — zavisni troškovidepositing with a court — polaganje

kod sudadepositor — deponentdepository — depozitardepository bank — banka depozitardesign (construction) — projekat

(gra�evinski)design review — revizija projektadesigner — projektant (ugovor o gra�enju)designer’s organization — projektantska

organizacijadesigning — projektovanjedetailed design — glavni projekatdetecting the deficiency — otkrivanje

nedostatkadetermining liability — utvr�ivanje

odgovornostidetrimental - štetandigital signature — digitalni potpisdiminished benefit — izmakla koristdirect negotiation — neposredna pogodbadirective — direktiva, smjernica

director — direktordisallowed clauses — nedopuštene klauzuledisclosed agency — otvorena agencija/

zastupništvodiscount bonds — diskontne obveznicediscretionary legal norms — diskrecione

pravne normedismiss the appeal — odbaciti žalbudisposal — raspolaganjedisposition — dispozicija, pravilo

ponašanjadisposition securities — dispozicioni

vrijednosni papiridispositive norms — dispozitivne normedispositive regulation — dispozitivni

propisdissolution of companies — prestanak

privrednih društavadistance sale — distanciona prodajadividend — dividendadividend shares — dividendne dionicedivisible obligation — djeljiva obligacijadivision — podjela division by absorption — podjela

pripajanjemdivision by establishing new companies

— podjela osnivanjem novih društavadocumentary check — dokumentarni

(dokumentovani) čekdocuments of title — instrumenti robnog

prometa domicile — prebivalište domiciled bill of exchange — domicilirana

mjenicadomicilee — domicilijat domiciliation — domiciliranje dominating company — vladajuće društvodraft - trasirana (vučena, trata) mjenicadraft clauses — mjenične klauzuledraw a bill — trasirati mjenicu, vući

mjenicudrawee — trasat

GLOSSARY 449

drawee’s endorsement — trasatov indosament

drawer — trasant, izdavalac mjenicedrawn bill of exchange — trasirana

(vučena, trata) mjenicadue date — rok due dilligence of a prudent businessman

— pažnja dobrog privrednikadue duligence of an expert — pažnja

dobrog stručnjakadue obligations — dospjele obavezedue professional care — pažnja stručnjakadue unpaid receivables — dospjela

nenaplaćena potraživanjaduplicate clause — duplikatna klauzuladuplication of bill - umnožavanje

mjenicedynamics of the work — dinamika radova,

dinamički vremenski plan radova

economic interest association — ekonomska interesna grupacija (gospodarsko interesno udruženje)

economic offence — privredni prijestupeconomic transgression — privredni

prijestupeffect of a sale contract — dejstvo ugovora

o prodajielectronic agent — elektronski agentelectronic contract — elektronski ugovorelectronic record — elektronski zapiselectronic signature — elektronski potpiselevations — koteemergence of authorities — nastanak

ovlaštenjaemergence of liability — nastanak

odgovornosti

employee — zaposlenikemployee rights — prava zaposlenihemployee shares — dionice zaposlenih,

radničke dioniceemployer — poslodavacemployer (construction contract) —

naručilac employment — zaposlenjeemployment certificate — radna knjižicaemployment contract — ugovor o raduemployment power of attorney —

punomoć po zaposlenjuemployment relation — radni odnosen bloc — sve zajedno, cjelinaen bloc sale — kolektivna prodaja endorse — indosirati endorsee — indosatarendorsement — indosament endorsement to drawee — indosiranje

(indosament) na trasata endorsement without recourse —

indosament sa klauzulom strahaendorser — indosantendowment — zadužbinaenduring control — trpljenje kontroleenforceable document — izvršna ispravaenforceable title — izvršni naslovenforced collection — prinudna naplataenforcement procedure — izvršni

postupakenforcement proceeding — izvršni

postupakentering business entitites — upis

privrednih subjekataentrepreneur — poduzetnikentrepreneurial contract — preduzetnički

ugovorenumerated cases — pobrojani slučajeviequitable market value — pravična tržišna

vrijednostequity — kapital, osnovni kapital


E

equity capital — osnovni kapitalequity integrity — integritet osnovnog

kapitala equity securities — vrijednosni papiri sa

učešćem escalation clause — klizna skala (klauzula)essential deficiencies — bitni nedostaciessential elements — bitni elementiestablishment of a company — osnivanje

privrednog društvaestimate of damage — procjena štete European association — Evropska

asocijacijaEuropean company - Evropsko društvoEuropean cooperative society — Evropsko

zadružno društvoEuropean economic interest group —

Evropska ekonomska interesna grupacija

European enterprise — Evropsko preduzeće

European insurance company — Evropsko društvo za osiguranje

eviction — evikcija (garancija za pravnenedostatke)

ex officio, Lat. — po službenoj dužnostiexamination hearing — ispitno ročišteexamination of goods — pregled robeexceeding authority — prekoračenje

ovlaštenjaexcess of annual loss reinsurance —

reosiguranje viška (godišnjeg) gubitkaexcess of loss reinsurance — reosiguranje

viška šteteexclusive agent — ekskluzivni

zastupnik/agentexecuting decisions — izvršne odlukeexecution procedure — izvršni postupakexecutive director — izvršni direktorexecutive officer — izvršni direktorexpenditures - izdaciexpert witness — vještak, sudski vještak

expressed authority — izričito ovlaštenjeexpropriation — eksproprijacija external auditor — vanjski revizorexternal investor — vanjski investitor

face of the bill — lice mjenicefacta concludentia, Lat. — konkludentna

radnjafactor — faktorfactual action — faktička radnjafacultative obligation — fakultativna

obligacijafailure to perform contractual

obligations — neizvršenje ugovornihobaveza

false check — lažni ček fault — krivicafault liability — subjektivna odgovornostfavourable rights — povoljnija pravafear clause — klauzula straha feasibility study — projekat za izvo�enje

(izvedbeni projekat)features of a sale contract — osobine

ugovora o prodajifield of business — predmet poslovanjafield of law — pravna oblastfinal acceptance of structure or work —

superkolaudacija (ugovor o gra�enju)final certificate — okončana situacija

(ugovor o gra�enju)final due date for payment — krajnji rok

plaćanjafinal hearing — završno ročištefinal judgment — pravosnažna,

pravomoćna presudafinancial bill of exchange — finansijska

mjenicafinancial liabilities — novčane obaveze

GLOSSARY 451

F

financial securities — novčani vrijednosnipapiri

fine — kaznafixed price — fiksna cijenafixed rate bonds — obveznice sa fiksnom

kamatom fixed-income securities — vrijednosni

papiri sa stalnim prihodomflat-rate ascertainment — paušalno

utvr�ivanjeflaw — nedostatakfloating rate bonds — obveznice sa

promjenljivom kamatomforce majeure, Lat. — viša silaforced execution — prinudno izvršenjeforced settlement — prinudno poravnanjeforeign bonds — inostrane obvezniceforeign direct investment — direktne

strane investicijeforeign trade operations —

vanjskotrgovinsko poslovanjeforeign-currency bonds — obveznice koje

glase na stranu valutuform of payment — način plaćanjaforma legalis, Lat. — zakonska forma,

bitna formaformal contract — formalni ugovorformal legal transaction — formalni

pravni posaoformal prerequisite — formalni usloviformal requirements of evidence (Lat.

ad probationem) — forma radi dokazivanja

formal requirements of law — forma upravu

formal requirements of validity (Lat. adsollemnitatem) — forma radi valjanosti

forms — obrasciforms for obtaining information —

formular za dobijanje informacijaforms of disposing of a company — oblici

raspolaganja sa privrednim društvom

forwarding contract — špedicijafoundation — fondacijafounder — osnivačfounding document — osnivački aktfranchising — franšizing free zones — slobodne zonefreight forwarder — špediterfulfilment — ispunjenjefull acceptance — puni akcept full aval — puni aval full deficiencies — potpuni nedostacifull endorsement — puni indosament fungible — fungibilan, zamjenjiv

general agency — generalna agencija/zastupništvo

general and individual risk — opšti i pojedinačni rizik

general business terms — opšti usloviposlovanja

general crossing — opće precrtavanjegeneral design — idejni projekatgeneral documents of non-state

organizations — opći akti nedržavnihorganizacija

general employer’s documents — općiakti poslodavca

general enforcement — generalna egzekucija

general execution — generalna egzekucijageneral legal documents — opći pravni

aktigeneral legal norms — generalne (opće)

pravne normegeneral meeting — skupština društvageneral offer — opšta ponudageneral partner in limited partnership —

komplementar u komanditnom društvu


G

general partnership - društvo neograničene solidarne odgovornosti,javno trgovačko društvo, ortačko društvo

general recall — opšti ili generalni opozivgeneric obligation — generična obligacijageographic limitations — geografska

ograničenjagiving account — polaganje računagoal of operations — cilj poslovanjagood businessman’s care — pažnja dobrog

privrednika, domaćinagood faith — dobra vjeragoods — robagoods-related securities — robni

vrijednosni papirigovernment bonds — obveznice vladegranting tender — dodjela ponudagross for net — bruto za netogrounded appeal — osnovana žalba,

utemeljena žalbagroup of companies — povezana društvaguarantee clause — klauzula o garancijiguarantee of non-redemption clause —

klauzula o garancijama za neiskupljenje

guaranteed bonds — garantovane obveznice

guaranteed minimum income — zagarantovani minimalni prihod

guarantor — žirant guide for offerors — uputstvo ponu�ačimaguilt — krivica

hand over a structure — primopredaja objekta

hard nature of the ground — teška prirodazemljišta

hearing - ročištehidden aval — skriveni avalhidden deficiencies — skriveni nedostacihighest commercial power of

procuration — najviše trgovinskoovlaštenje prokure

holding — holdingholding — holdingholding companies — društva holdingahonor — honorirati, platiti, primiti na sebe

(mjenicu, ček)honoree — honorathonouree — honorat host country — zemlja domaćinhypothesis of disposition — pretpostavka

(hipoteza) dispozicijehypothesis of sanction — pretpostavka

(hipoteza) sankcije

ilicit action — nedopuštena radnjaimmediately standard — standard odmah immovable assets — nepokretna imovinaimmovables — nepokretne stvariimpartial - nepristranimplied actual authority — prećutno

stvarno ovlaštenjeimpossibility of fulfilling an obligation —

nemogućnost ispunjenja obligacijein kind — u naturiin kind shares — naturalne dionicein situ sale — prodaja u mjestuinability to pay — nesposobnost za

plaćanje, platežna nesposobnostincorporated right — inkorporisano

pravoindemnifying harmful activity —

skrivljena štetna radnjaindemnity right — pravo na odštetu

GLOSSARY 453

H

I

independent entrepreneur — samostalni poduzetnik

index clause — indeksna klauzulaindexed bonds — obveznice sa indeksom Indirect Taxation Authority — Uprava

za indirektno oporezivanjeindividual and collective policies —

individualne i kolektivne polise osiguranja individual and general policies — pojedinačne i generalne polise osiguranja

individual legal documents — pojedinačnipravni akti

individual legal norms — individualne (pojedinačne) pravne norme

individual obligation — individualnaobligacija

individual procuration — pojedinačna prokura

individual recall — pojedinačni ili individualni opoziv

individual securities — pojedinačni ili individualni vrijednosni papiri

indivisible obligation — nedjeljiva obligacijainitiated bankruptcy procedure —

pokrenuti stečajni postupakinitiated liquidation procedure —

pokrenuti likvidacioni postupakinitiation of membership — pristupanje

članstvuinsolvency procedure — stečajni postupakinsolvency proceeding — stečajni postupakinstallment payments — isplata na rateinstitutional investor — institucionalni

investitorinstructions — uputstva instruments of annulment — poništenje

ispravainstruments of money transfer —

instrumenti doznakeinstruments of payment — instrumenti

plaćanja

insurance — osiguranje, posao osiguranjainsurance certificate — lista pokrićainsurance community — zajednica

osiguranjainsurance companies — osiguravajuća

društvainsurance contract — ugovor o osiguranjuinsurance contractor — ugovaratelj

osiguranjainsurance document — isprava o osiguranjuinsurance policy — polisa osiguranjainsurance rules — pravila osiguranjaInsurance Supervisory Agency —

Agencija za nadzor osiguranjainsurance task — posao osiguranjainsurance terms and conditions — uslovi

osiguranjainsured — osiguranik insured amount — osigurana vrijednost,

osigurana sumainsured case — osigurani slučajinsured item — osigurana stvarinsured person — osigurano liceinsured property — osigurana imovinainsurer — osiguravatelj, davalac

osiguranjaintangible assets — nedodirljiva aktivaintellectual property right — pravo

intelektualne svojineintercessio privativa, Lat. — privativna

intercesijainterest — kamatainterest in company — udio u društvu,

interes u društvuinterest rate clause — klauzula o kamati interference — uznemiravanjeinterim administration — privremena

upravainterim board of creditors — privremeni

odbor povjerilacainterim certificate — privremena situacija

(ugovor o gra�enju)


interim trustee (in bankruptcy) — privremeni stečajni upravnik

intertwinement — isprepletenostintroducing the contractor to the work —

uvo�enje izvo�ača u posaoinvestment program — investicioni programinvestment securities — investicioni

vrijednosni papiriinvestment study — investicioni elaboratinvestment venture — investicioni poduhvatinvestment work — investicioni radoviinvestment-technical documentation —

investiciono tehnička dokumentacijainvestor — investitorinvitation for subscription and payment

of securities — poziv za upis i uplatu vrijednosnih papira

invoice — fakturainvoicing — ispostavljanje faktureirregular fulfilment — neuredno ispunjenjeIrremovable deficiencies — neotklonjivi

nedostaciissuance — emisija, izdavanjeissuance and trading in securities —

emisija i promet vrijednosnih papiraissue — emitovati, izdatiissue of shares — emisija dionicaissuer — izdavalacissuing bank — akreditivna banka (banka

izdavalac akreditiva)

joint and several debtor — solidarnidužnik

joint and several liability — solidarnaodgovornost

joint and several obligation — solidarnaobligacija

joint procuration — skupna (zajednička)prokura

joint representative — zajednički predstavnik

joint venture — zajednički poduhvatjointly and severally liable — solidarno

odgovornijoint-stock company - dioničko društvo,

akcionarsko društvojoint-stock insurance company —

dioničko društvo za osiguranjejudgment — presudajudical practice — sudska praksajudicial authority — sudska vlastjudicial body — sudski organ, tijelojudicial decisions — sudske odlukejudicial proceedings — sudski postupakjudiciary — pravosu�e, sudstvojuridical — pravni, sudskijurisdiction — nadležnost jurisdiction ratione materiae — stvarna

nadležnost

keeping the contract in force — održa-vanje ugovora na snazi

kind of rights — vrsta prava

labour law — radno pravolack of observing the warranty —

nepoštivanje garancijeland registry office — zemljišno-knjižni

ured land suitability — podobnost zemljišta

(ugovor o gra�enju)

GLOSSARY 455

J

K

L

lapse of time — protek vremenalaw of obligations — obligaciono pravolawful holder — zakoniti imalaclawyer — advokat, odvjetniklease contract — ugovor o lizingulegal action — pravna radnjalegal agency — zakonsko zastupništvolegal agent — zakonski zastupniklegal base — pravni osnovlegal capacity — pravna sposobnost legal concept — pravni institutlegal conditions — zakonski uslovilegal consequence of opening a

bancruptcy procedure — pravna posljedica otvaranja stečajnogpostupka

legal deficiencies — pravni nedostacilegal dispute — pravni sporlegal documents — pravni aktilegal force of plain evidence — pravna

snaga običnog dokaznog sredstvalegal ground — pravni osnovlegal holder — zakoniti imalaclegal institution — pravna ustanova

ili institutlegal norm — pravna normalegal operations — pravni prometlegal person — pravno licelegal regulations — pravni propisilegal remedies — pravni lijekovilegal science — pravna naukalegal subjects — pravni subjektilegal successor — pravni sukcesor

(nasljednik)legal system — pravni sistemlegal transaction — pravni posaolegally binding decision — pravosnažno

rješenje, pravno obavezujuća odluka

legally independent companies — pravnonezavisna društva

legislation — zakonodavstvo

legitimate interests in the proceedings —pravni interes

lending instrument — instrument kreditiranja

Letter of Acceptance — Pismo (o) prihvata(nju)

letter of credit — akreditivLetter of Intent — pismo namjereliability for tardiness in sending the

packaging — odgovornost za docnju sa slanjem ambalaže

liability for tardy acceptance of delivery— odgovornost za docnju sa prijemom isporuke

liability insurance — osiguranje od odgovornosti

licensing system — sistem dozvolelien — zalog(a)liened claim — založena tražbinalienee — zalogodavaclife insurance — osiguranje životalife insurance — životno osiguranjelifting the corporate veil — probijanje

pravne ličnostilimitation — zastaralimitation interruption — zastoj zastarelimitation period — rok zastare, zastarni

roklimited partner — komanditorlimited partnership — komanditno društvolimited stock partnership — komanditno

društvo na dionicelimited-liability company — društvo

ograničene odgovornostiliquidation — likvidacijaliquidation court — likvidacioni sudliquidation judge — likvidacioni sudijaliquidation procedure — likvidacioni

postupakliquidation proceeding — likvidacioni

postupakliquidation subject — likvidacioni subjekat


liquidator — likvidator litigation — parnica, sporlitigation procedure — parnični postupakloan — zajamloan beneficiary — zajmoprimacloan bill of exchange — kreditna mjenicaloan insurance — osiguranje kreditalocal bonds — domaće obveznicelocal-currency bonds — obveznice koje

glase na domaću valutulodge a claim — podnijeti zahtjevlodgement — prijava lodgement of a claim — prijava

potraživanjalodging a bill claim — podizanje mjenične

tužbelodging of the bill claim — podizanje

mjenične tužbelong-term securities — dugoročni

vrijednosni papiriloro check — loro čeklost commission — izgubljena provizijalucrative — lukrativni

main debtor — glavni dužnik main design — glavni projekatmain obligations — glavne obaveze main proceeding — glavni postupakmaintaining construction records —

vo�enje knjiga o gra�enjumajority owner — većinski vlasnikmalpractice — nesavjesnostmanagement - upravamanagement agreements — upravljački

ugovormanagement board — upravni odbor,

uprava

management of another’s affairs —poslovodstvo bez naloga

management right — upravljačko pravomanagement without mandate —

poslovodstvo bez nalogamandatory insurance — obavezno

osiguranjemandatory state organ — obavezni

državni organmanner of contract formation — način

zaključenja ugovoramanner of fulfilling contractual

obligation — način izvršenja ugovorneobaveze

maritime and land policies — pomorske ikopnene polise osiguranja

market economy countries — zemljetržišne ekonomije

market value — tržišna vrijednostmarking (Fr. viser) a check — viziranje

čekamass securities — masovni vrijednosni

papirimaterial deficiencies — materijalni

nedostacimaterial prerequisite — materijalni uslovimaterial regulation — materijalni propismaturity — dospjelost, dospjećematurity recourse — regres o dospjelosti measures for preventing and decreasing

risks — mjere za sprečavanje i smanjenje rizika

measures of prevention and repression —mjere prevencije i represije

mediation — posredovanjemember of a general partnership — član

društva sa neograničenom odgov-ornošću

member of management in a joint-stockcompany — član uprave dioničkogdruštva

GLOSSARY 457

M

member of management in a limited-liability company — član uprave udruštvu ograničene odgovornosti

member of the supervisory board of ajoint-stock company — član nadzornogodbora dioničkog društva

membership interest — vlasnički udio udruštvu, članski udio

memorandum of association — osnivačkiakt, odluka ili ugovor o osnivanjuprivrednog društva

merchantable value — prometna vrijednost

merge shares — spojiti dionicemerger — spajanjemerger by absorption — pripajanje merger by formation of a new company

— spajanjemeritum (Lat.) — glavno, bitno pitanje u

postupkuminimum equity — minimalni osnovni

kapital minimum-buyout prices — minimalno-

otkupne cijeneminor — maloljetnikminor offence — prekršajminutes of general meeting — zapisnik

skupštinemomentary obligation — trenutna

obligacijamonetary claim — novčano potraživanjemoney income — novčani prihodmonitoring risks — snimanje rizika mortgage real estate — hipotekarno

opterećivati nekretninumortgage bonds — hipotekarne obveznicemortification — mortifikacijamovable assets — pokretna imovinamovables — pokretne stvarimultiple insurance — višestruko

osiguranje

municipal administrative office — opštinska služba uprave

municipal bonds — općinske obveznice,obveznice lokalnih vlasti

municipal court — opštinski sud municipality - opštinamutual insurance — uzajamno osiguranjemutually binding — dvostrano obavezanmutually binding legal transaction —

dvostrano obavezan pravni posaomutually liable — me�usobno odgovorni

named agency — otvorena agencija/zastupništvo

national treatment — nacionalni tretman nationalization — nacionalizacija natural obligation — prirodna (naturalna)

obligacija natural person — fizičko licenecessary notifying entry — nužni

obavještavajući upis necessary stages — nužne fazeneed for legal protection — pravni interesnegative clause to order — negativna

klauzula po naredbi (rekta klauzula) negative operations — negativno

poslovanjenegligence — nepažnjanegotiable — prenosiv, negocijabilannegotiable documents of title — realni,

stvarni, robni vrijednosni papirinegotiable to order — prenosiv po naredbi negotiable waybills — prenosivi tovarni

listnegotiations — pregovorinew debtor in assumption of a debt —

intercedent, preuzimalac duganominal amount — nominalni iznos


N

nominal value — nominalna vrijednostnominant contract — imenovani ugovornon-commercial agency — netrgovinska

agencija/zastupništvonon-consumable — nepotrošnanon-convertible bonds — nekonvertibilne

obveznicenoncumulative preferred shares — prefer-

encijalne nekumulativne dionicenon-essential elements — nebitni elementinon-indemnifying harmful activity —

neskrivljena štetna radnjanon-interest-bearing bonds — obveznice

bez kamate non-judicial body — vansudsko tijelo,

organnon-negotiable check — ček na imenon-negotiable securities — neprenosivi

vrijednosni papiri, rekta papirinonparticipating preferred shares —

preferencijalne neparticipativne dionice

non-pecuniary damage — nematerijalnašteta

non-pecuniary obligation — nenovčanaobligacija

non-personal obligation — neličnaobligacija

non-voting shares — nevotirajuće dionice,dionice bez prava glasa

normative system — normativni sistemnorms with legal standards — norme sa

pravnim standardimanostro check — nostro čeknotes receivable — potraživanja po osnovu

vrijednosnih papiranotice clause — avizna klauzulanotification of the claim — prijava

potraživanja, obavijest o zahtjevunotifying about material deficiency

(complaint) — obavještavanje o materijalnom nedostatku (reklamacija)

notion - pojamnovation — novacijanumerus clausus, Lat. — restricted number

object — predmetobject of contract — predmet ugovoraobject of insurance — predmet osiguranjaobjection — prigovorobjective and subjective risk — objektivni

i subjektivni rizikobjective deficiencies — objektivni

nedostaciobjective liability — objektivna

odgovornstobjects of law — objekti pravaobligation — obligacija, obavezaobligation action — obligaciona radnjaobligation of notifying — obaveza

notifikacije (obavještavanja)obligation relationship — obligacioni

odnosobligation right — obligaciono pravo obligation-right securities —

obligacionopravni vrijednosni papiriobligatory authority — obavezan organoffence — prekršaj, deliktoffence capacity — deliktna sposobnostoffer — ponudaofferee - ponu�enioffering collection — prikupljanje ponudaofferor — ponudilacofficial court premises — službene

prostorije sudaomission theory — teorija omisije,

propuštanjaon behalf of (someone) — u tu�e imeon the account of (someone) — za tu�i

račun

GLOSSARY 459

O

one share one vote — jedna dionica nosijedan glas

one-time delivery — jednokratna isporukaopen joint-stock company — otvoreno

dioničko društvooptional organ — fakultativni organorder — porudžbinaorder — zaključak u upravnom postupku,

zaključak u stečajnom postupku order check — ček po naredbiordinary agency — obična agencija/

zastupništvoordinary shares — obične dioniceorgans for conducting bankruptcy

proceedings — organi za sprovo�enjestečajnog postupka

organs in the liquidation proceedings —organi u likvidacionom postupku

out-of-court proceedings — vanparničnipostupak

out-of-court resolution of disputes — vansudsko rješavanje sporova

outstanding and unpaid claims — dospjela a neizmirena potraživanja

outstanding claims — (nenaplaćena) potraživanja

outstanding due obligations — dospjelenepodmirene obaveze

outstanding obligations — nepodmireneobaveze

overdue - zakasniooverdue premium — dospjela premijaover-insurance — nadosiguranjeoverstepping authority — prekoračenje

ovlaštenjaown shares — vlastite dioniceownership — vlasništvoownership endorsement — svojinski

indosament ownership right — pravo svojine, pravo

vlasništva

packaging — ambalažapacta sunt servanda, Lat. — ugovor je

zakon za ugovorne stranepar value — nominalna vrijednostpar value shares — dionice sa nominalnom

vrijednostiparent company — većinsko društvo,

društvo majkaparitally unnamed agency — djelimično

otvoreno zastupništvo/agencijapartial aval — djelimični aval partial deficiencies — djelimični nedostacipartial endorsement — djelimični

indosament partially disclosed — djelimično otvoreno

zastupništvo/agencijaparticipants in the contract — učesnici u

ugovoruparticipating bonds — participativne

obvezniceparticipating preferred shares —

preferencijalne participativne dionicepartnerships — personalna društvapassing of property — prenos (prelazak)

svojine passive capacity under the bill — pasivna

mjenična sposobnostpassive check capacity — pasivna čekovna

sposobnostpawning — davanje u zalog, zalaganjepawning of shares — davanje u zalog

dionicapay at sight — platiti po vi�enjupay on demand — platiti na zahtjevpayee — remitentpaying the price — plaćanje cijenepayment in kind — plaćanje u naturi

(stvarima i/ili pravima)


P

payment instrument — instrument plaćanja

payment ranks — isplatni redovipayments — platni prometpecuniary damage — materijalna štetapecuniary obligation — novčana obligacijapenalty interest — zatezna kamataPension and Disability Insurance

Agency — Zavod za penzijsko i invalidsko osiguranje

permanent obligation — trajna obligacijaperpetrator — štetnik, učinilac štetne

radnjeperpetual bonds — vječne obvezniceperquisite protest — perkvizicioni protest personal insurance — lično osiguranjepersonal-right securities — ličnopravni

(vrijednosni) papiripiercing the corporate veil — probijanje

pravne ličnosti placement of products — plasiranje

proizvodaplain transcript — obični prepisplant — poslovni pogon, postrojenjepledge — zalogpledge endorsement — založni indosament plurality of subjects in the obligation —

množina subjekata u obligacijipool — pul poor performance of contractual

obligations — neuredno izvršenjeugvornih obaveza

possesion — posjedpostal money order — poštanska uplatnicapostulate — postulat, zahtjev, postavkapotential stages — eventualne fazepower of attorney — punomoć,

punomoćstvopower of attorney recall — opoziv

punomoćiprecedence — prednost precedent — precedent, sudski slučaj

preceding actions — prethodne radnjepreceding obligations — prethodne

obaveze preclusion — prekluzijapre-company — preddruštvopre-emptive right — pravo preče kupnjepreference shares — preferencijalne

dionicepreferential right — razlučno pravo

(u stečajnom postupku)preferential rights — preferencijalna

(prioritetna) prava preferred shares — prioritetne dioniceprejudiced — prejudiciranpreliminary contacts — preliminarni

kontaktipreliminary design — idejni projekatpremium — premijapreparatory contract — pripremni ugovorpreparatory works — pripremni radovipre-qualification bidding — licitacija o

podobnostiprescription — održaj, dosjelostpreservation of bill rights — očuvanje

mjeničnih pravapreservation of the contract — očuvanje

ugovoraprice — cijenapriced bill of quantities — predračun

(ugovor o gra�enju)principal — glavnicaprincipal — principal, nalogodavacprinciple „one share one vote“ — princip

„jedna dionica nosi jedan glas“principle of conscientiousness

and honesty — načelo savjesnosti ipoštenja

principle of mutuality — načelo uzajamnosti

principle of sociality — načelo socijalnostiprinciple of solidarity — načelo

solidarnosti

GLOSSARY 461

private offer — zatvorena ponudaprivate offer(ing) — zatvorena ponudaprivate placement — zatvorena ponudaprivate property — privatna imovinaprivate-law securities — privatnopravni

vrijednosni papiriprobability calculation — račun

vjerovatnoćeprocedural decisions — rješenjaprocedural law — procesno pravoprocedural rules — procesna pravilaprocedural-law (formal) norms —

procesnopravne (formalne) normeprocedure for examining — procedura

ispitivanjaprocedure for filing with the court

register — postupak upisa u sudski registar

procedure of business registration — postupak registracije privrednih društava

procedure of lodging claims — postupakprijavljivanja potraživanja, postupakpodnošenja zahtjeva

procuration — prokuraprocuration endorsement — prokura

(punomoćnički) indosament procuration principal — davalac prokureprocurator — prokuristaprocurement agent — agent za

snadbijevanjeprogress certificates of payment —

obračunska situacija (ugovor ogra�enju)

prolongation of a bill of exchange — prolongacija mjenice

promisee — remitent kod vlastite (sopstvene, solo) mjenice

promissor — izdavalac vlastite (sopstvene,solo) mjenice

promissory note — vlastita (sopstvena,solo) mjenica

proper condition — ispravno stanjeproper fulfilment — uredno ispunjenjeproper inspection organ — nadležni

inspekcijski organproperty insurance — osiguranje imovineproperty liability — imovinska

odgovornostproperty nature — imovinska priroda,

imovinsko-pravna prirodaproperty right — imovinsko pravoproperty right — pravo svojineproperty right holder — titular prava

svojineproperty-law effect — stvarnopravno

dejstvoproperty-law liability — imovinskopravna

odgovornostproposal for opening the bankruptcy

proceedings — prijedlog za otvaranjestečajnog postupka

proposed prospectus — prijedlogprospekta

prosecution — progon, gonjenjeprospectus — prospektprotection of consumers — zaštita

potrošačaprotective prices — zaštitne cijeneprotest — protestprotest document — protestna

ispravaprotest due to non-acceptance or

partial acceptance — protest zbog neakceptiranja ili djelimičnog akceptiranja

protest due to non-dating of the acceptance — protest zbog nedatiranjaakcepta

protest due to non-payment or partialpayment — protest zbog neisplate ilidjelimične isplate

protest registry — registar protestaprotest term — protestni rok


protestant — protestant (lice koje podižeprotest)

protestee — protestat (lice protiv koga jepodignut protest)

proving form — dokazna forma provision — odredbaprovisional acceptance of finished

structure or work — kolaudacija(ugovor o gra�enju)

proxy — punomoćnik public auction — javna aukcija,

nadmetanje, prodaja, licitacijapublic bidding procedure — javno

nadmetanje (ponudbena licitacija)public document — javna ispravapublic enterprises — javna

preduzećapublic invitation — javni pozivpublic invitation for subscription and

payment of shares — javni poziv za upis i uplatu vrijednosnih papira

public invitation for tenders — ofertalnalicitacija

public invitation for tenders — ponudbenalicitacija

public media outlets — sredstva javnog informiranja

public offer(ing) — javna ponudapublic opening of offers — javno otvaranje

ponudapublic procurement — javne nabavkepublic record — javna knjiga

(protesta)public registry — javni registarpublic warehouse — javno skladištepublic-law securities — javnopravni

vrijednosni papiripunctation — punktacijapure and speculative risk — čisti i

špekulativni rizk

qualified electronic signature — kvalifikovani elektronski potpis

qualified endorsement — indosament saklauzulom straha

qualified retention — kvalifikovanipridržaj

qualitative deficiencies — kvalitativninedostaci

quality — kvalitetquantitative deficiencies — količinski

nedostaciquantity — količinaquiet possession — miran posjedquota shares — kvotne dionice

real estate — nekretninareal right — stvarno pravorealization and distribution of the

bankruptcy estate — unovčavanje iraspodjela stečajne mase

real-right securities — stvarnopravni vrijednosni papiri

reasonable price — razumna cijenareasonable timeframe — razuman rokrecall — opozivrecall by the principal — opoziv od strane

principalareceipt of payment — priznanica o

isplati receiving the delivery — prijem isporukereception of offers — prijem ponudareckoning — obračun, obračunavanjerecognized court judgments — priznate

sudske odluke

GLOSSARY 463

Q

R

recognized judicial decisions — priznatesudske odluke

record shares — voditi dionice (na računu)recourse — regresrecourse before maturity — regres prije

dospjelosti recourse claim — regresna tužbarecourse claim under a bill — regresna

mjenična tužbarecourse debtors — regresni dužnici recourse due to non-payment — regres

zbog neisplaterecourse procedure — regresni postupakrecovery clause — revalirajuća klauzularecurring endorsement — povratni

indosament redeem — otkupiti, iskupitiredemption clause — klauzula o pozivu na

iskupredemption recourse — iskupni ili

iskupljujući regres re-examination — preispitivanje, ponovno

odlučivanjerefinancing (refunding) clause — klauzula

o refinansiranjurefute — pobijatiregistered — registrovan, glasi na imeregistered branch — registrovana filijala,

podružnicaregistered letter — preporučeno pismoregistered offfice — sjedište privrednog

društvaregistration court — registracioni sudregistration documents — registarske

ispraveregistration number — matični/

identifikacioni brojregistry of issuers — registar emitenataRegistry of Securities — Registar

vrijednosnih papiraregular agency — redovna agencija/

zastupništvo

regular bill of exchange — redovna trasirana mjenica

regular claim under a bill — redovnamjenična tužba

regular courts — redovni sudoviregular liquidation procedure — redovna

likvidacija regular retention — redovni pridržaj regulations — pravila, propisi,

odredbe rei vindicatio, Lat. — reivindikacija,

reivindikacioni zahtjev reimbursement — naknadareinsurance — reosiguranjereinsurer — reosiguravačrelevant customs administration —

nadležna carinska upravaremovable deficiencies — otklonjivi

nedostaciremoval from the court register —

brisanje iz sudskog registraremuneration — naknadaremuneration committee — odbor za

naknaderenouncing a right without

reimbursement — odricanje od nekogprava bez naknade

reorganization — reorganizacija reorganization plan — plan

reorganizacijerepetition of procedure — ponavljanje

postupkareport on the total amount and

number of subscribed and paidshares — izvještaj o ukupnom iznosu i broju upisanih i uplaćenihdionica

reporting on surplus of work — obavještavanje o višku radova

representation — predstavljanjerepresentative — predstavnikrepurchase — reotkup


request for approval of the Commissionto issue securities — zahtjev Komisijiradi dobijanja odobrenja za emisijuvrijednosnih papira

res judicata (Lat.) — pravomoćnost,pravosnažnost

resell — ponovo prodati, otu�itiresidence — prebivalište residual creditors — rezidualni povjerilacresolution — odluka o zahtjevu stranke,

rješenjeresolved appeal — rješena žalbarestitutio in integrum (Lat.) — povrat u

prijašnje stanjerestrictive bill — rekta mjenicarestrictive clause — rekta klauzularestrictive endorsement — rekta

indosament retention — retencija, pridržajretention before the bill maturity —

pridržaj prije dospjelosti mjeniceretention upon the bill maturity —

pridržaj o dospjelosti mjenicerevenue administration — uprava prihodareview — revidiratirevision — revizijarevision of procedure — revizija postupkareviving a contract — oživljavanje

ugovoraright of exemption in bankruptcy

proceedings — izlučno pravo u stečajnom postupku

right of lien — pravo zalogeright of recourse — pravo regresa,

regresno pravoright of retention — pravo retencijeright to damages — pravo na naknadu

šteteright to exempt (obligation) — pravo da se

oslobodi (obaveze)right to reparation of damage — pravo na

popravljanje štete

right to separate satisfaction — razlučnopravo (u stečajnom postupku)

right to sue — pravo na tužburight to the security — pravo na hartijuright under the security — pravo iz hartijerisk distribution — izravnanje rizikarounded figure — okrugla cifrarules — uputstvarulings — presude

sale contract — ugovor o prodajisales of remnants — prodaja ostataka sample — uzoraksanction — sankcijascope of rights — obim pravasecondary debtors — drugostepeni dužnici secondary liability — sekundarna

odgovornostsecondary proceeding — sekundarni

postupaksecure electronic signature — sigurni

elektronski potpissecured bonds — obveznice sa zalogomsecured client — obezbije�eni klijentsecurities — vrijednosni papirisecurities (payable) to a named person —

vrijednosni papiri na ime (rekta papiri)securities account (with the Registry) —

račun vrijednosnih papira (kod Registra)

securities account certificate — potvrda ostanju na računu vrijednosnih papira

Securities Commission — Komisija za vri-jednosne papire

securities issued in a series — vrijednosnipapiri emitirani u seriji

securities market — tržište vrijednosnihpapira

GLOSSARY 465

S

securities to order — vrijednosni papiri ponaredbi

securities with public trust — vrijednosnipapiri sa javnim povjerenjem

securities without a defined maturity —vrijednosni papiri bez utvr�enog rokadospijeća

securities without income — vrijednosnipapiri bez prihoda

security annulment — poništenje vrijednosnog papira

security holder — imalac vrijednosnog papira

seizure — pljenidba, oduzimanjeself-regulating contracts —

samoregulirajući ugovoriseller — prodavacseparate creditor — razlučni povjerilac

(u stečajnom postupku)series — serijaservice contract — ugovor o djelu servitude — služnostsewage — kanalizacijashare — dionicashare capital — dionički kapitalshare in profit — učešće u dobitishare trading — promet dionicashare underwriter — upisnik dionicashareholder — dioničarshareholders book — knjiga dioničarashareholding relation — dioničarski odnosshortage of works — manjak radovashortcoming — nedostatakshortened prospectus — skraćeni prospektshort-term securities — kratkoročni

vrijednosni papirisight bill of exchange — mjenica po

vi�enjusight securities (a vista) — vrijednosni

papiri po vi�enju (a vista vrijednosnipapiri)

signatory — potpisniksigning a contract on a selected court —

zaključivanje ugovora o izabranom sudu signing a guarantee contract —

zaključivanje ugovora o jemstvusigning a settlement contract —

zaključivanje ugovora o poravnanjusilent partnership — tajno društvosimple obligation — jednostavna (prosta)

obligacijasimultaneous establishment — simultano

osnivanjesingle clause — solo klauzulasingle judge — sudija pojedinacsingle trader — trgovac pojedinacsingular succession — singularna sukcesijasinking fund clause — klauzula o

otplatnom fondusoft law — normativni tekstovi koji ne

pripadaju ni jednom od priznatih formalnih izvora prava (npr.deklaracije, rezolucije, odluke me�unarodnih tijela, itd)

sole proprietor — trgovac pojedinac, individualni trgovac

solidary obligation — solidarna obligacijasound performance of works — solidno

izvo�enje radova (ugovor o gra�enju)source of law — izvor pravaspecial agency — specijalna agencija/

zastupništvospecial crossing — posebno precrtavanjespecial obligation — specijalna obligacijaspecifiable price — odrediva cijenaspecification — specifikacijaspecification sale — specifikaciona prodajaspecified price — odre�ena cijenasplit — podjela split shares — podijeliti dionicespontaneous acceptance for honour —

spontana intervencija


stamp duty — taksastandard classification of activities —

standardna klasifikacija djelatnostistandard contract — standardni ugovorstandard offer — tipska ponudastandard-form contract — formularni

ugovorstate bond — državna obveznicastate interference — intervencija državestate of residence — domicilna država

(država prebivališta)statement of will — izjava voljestatus change — statusna promjena statute — statutstatutory agency — statutarno zastupništvostock — dionicastorage — skladištenjestorage contract — ugovor o skladištenjustrict liability — objektivna odgovornoststrictly personal obligation — strogo lična

obligacijastruck (off) from the court/company

register — izbrisati iz sudskog registra/registra društava

structures — gra�evinesub-agency — podagencija/zastupništvosub-contractor — podizvo�ač (ugovor o

gra�enju)subject of entry — subjekat upisasubject of liquidation — likvidacioni

subjekat, subjekat likvidacijesubject of obligation-law relation —

subjekt obligaciono-pravnog odnosasubjective deficiencies — subjektivni

nedostacisubjective liability — subjektivna

odgovornostsubject-matter jurisdiction — stvarna

nadležnostsubjects of law — subjekti pravasub-number — podbroj

subscribe — upisatisubscribed equity — upisani osnovni

kapitalsubsequent agreement — naknadni

sporazumsubsequent deadline — naknadni roksubsequent submission of claims —

naknadno podnošenje zahtjeva,naknadna prijava potraživanja

subsidiary — subsidijarno društvo, društvokći, zavisno društvo

subsidiary company — subsidijarnodruštvo, društvo kći, zavisno društvo

substantial deficiencies — znatni nedostacisubstantive law — materijalno pravosubstantive rules — materijalna pravilasubstantive-law norms —

materijalnopravne normesuccessive delivery — sukcesivna isporukasuccessor — nasljednik sue — tužiti suitable quality — odgovarajuća kakvoća

(kvalitet)sum insured — svota osiguranjasum payable — mjenična svotasuperdividend — superdividendasupervision by inspection — inspekcijski

nadzorsupervision over the construction —

nadzor nad gra�enjemsupervisory board — nadzorni odborsurpluses of works — viškovi radovasurrender value — otkupna vrijednostsuspension of proceedings — mirovanje

postupkasynallagmatic legal transaction —

sinalagmatični pravni posaosystem of applications — sistem prijavesystem of concessions — sistem

koncesijesystem of law — sistem prava

GLOSSARY 467

tacitly — prešutnotake a loan — uzeti zajamtake guarantee liabilities — preuzeti

obaveze jemstvatake upon himself liability on a bill —

preuzeti mjeničnu obavezutaking care of goods and notifying —

čuvanje stvari i obavještavanjetaking over a debt — preuzimanje duga taking safety measures — preduzimanje

mjera obezbje�enjataking up liability on a bill — preuzimanje

mjenične obavezetaking-over of the structure — predaja

objekta (ugovor o gra�enju)tardiness — docnja, kašnjenje, zaostalosttardiness in the payment of price —

docnja sa plaćanjem cijenetardy — docnja, kašnjenjetariff rates — tarifski stavovitax debt — poreski dugtax number — poreski brojtechnical documentation — tehnička

dokumentacijatechnical examination — tehnički pregledtender — tender, ponudaterm for maturity — rok dospjelostiterm securities — oročeni vrijednosni

papiritermination of contract — prestanak

ugovora, raskid ugovoratermination prerequisite — raskidni uslovterritorial jurisdiction — mjesna

nadležnost

territorial jurisdiction in civil procedure— mjesna nadležnost u gra�anskompostupku

territorial proceeding — teritorijalni postupak

testator — ostavilac, zavještalactheory of legal illusion — teorija pravnog

prividatheory of unique action — teorija

jedinstvene radnjething (Lat. res) — stvarthird-party-beneficiary contract —

ugovor u korist trećegthreatening inability to pay — prijeteća

platežna nesposobnosttidying-up the construction site —

ure�enje gradilištatime period of coverage — period pokrića time schedule of work — vremenski plan

radovatimeframe for objections — vrijeme

prigovorato the order of — po naredbitort — delikt, štetatrade effects — trgovački efektitrade secret — poslovna tajnatrademark — žigtrading contracts — ugovori robnog

prometatrading in securities — promet

vrijednosnih papiratradition — tradicijatraditional securities — tradicioni

vrijednosni papiritranscripts of bill — prepis mjenicetransfer — prenostransfer of goods — robni promet


T

transfer of real estate — prenos nekretnine

transfer of risk — prelazak rizikatransfer order — nalog za prenostransfer order — virmanski nalog

(virmanski ček)transferred warranty — prenesena

garancijatransport clauses — transportne klauzuletraveler’s check — putnički čektraveling salesman’s authorities —

ovlaštenja trgovinskog putnika treasury bill — blagajnički zapis, trezorski

zapisTreaty — ugovor o osnivanju Evropske

zajednicetrust — udrugatrustee in bankruptcy — stečajni upravniktrustworthy statements of facts —

vjerodostojno konstatovanje činjenicaturnkey — ključ u ruketype of rights — vrsta prava

uncompleted works — neizvršeni radoviunconfirmed goods — nesaobrazna robaundisclosed agency — zatvoreno

zastupništvo/agencijaundivisible — nedjeljivunessential deficiencies — nebitni

nedostaciunforeseen work — nepredvi�eni radoviuniform content of offers — jednoobrazan

sadržaj ponuda

unilateral action — jednostrana radnjaunilateral civil-law transaction —

jednostrani gra�anskopravni posao

unilateral expression of will — jednostrana izjava volje

unilaterally binding obligation relationship — jednostrano obavezniobligacioni odnos

universal law — jedinstveni zakonuniversal succession — univerzalna

sukcesijaunlimited solidary liability —

neograničena solidarna odgovornost

unpaid claims — neplaćena potraživanja

unpaid receivables — nenaplaćena potraživanja

unsecured bonds — obične obvezniceunsubstantial deficiencies — neznatni

nedostaciunsuccessful expiration — bezuspješni

protekunjust enrichment — neosnovano

bogaćenjeunjust enrichment claim — tužba zbog

neosnovanog obogaćenjaupswing — porasturban conditions — urbanistički usloviurban permit — urbanistička saglasnostusable value — upotrebna vrijednostusages — uzanseusucaption — dosjelostusufruct — plodouživanjeutilization value — upotrebna

vrijednost

GLOSSARY 469

U

valid court judgment — pravosnažna sudska odluka

valid decision — pravosnažno rješenje, odluka

valued and unvalued policies — valutiranei nevalutirane polise osiguranja

variable-income securities — vrijednosnipapiri sa promjenljivim prihodom

venue — mjesna nadležnostvisible deficiencies — vidljivi nedostacivoidability — pobojnostvoidable — pobojan voidable (legal) actions — pobojne

(pravne) radnjevolume of bonds issued — obim emisije

obveznicavoluntary insurance — dobrovoljno

osiguranjevoluntary liquidation — redovna

likvidacija, dobrovoljna likvidacijavoting share — dionica sa pravom glasa

waiver of debt — oprost dugawarehouse receipt — skladišnicawarrant — varantwarranty — garancijawarranty for legal deficiencies —

garancija za pravne nedostatkewarranty for material deficiencies —

garancija za materijalne nedostatkewarranty period — garantni rokwartime and political risk — ratni i

politički rizik

way of payment — način plaćanjawear-out rate — iznos rabaćenja (trošenja)winding up — likvidacija (privrednog

društva)within a legally determined time period

— u zakonom odre�enom rokuwithout delay standard — standard bez

odga�anjawording of the legal provisions — tekst

zakonskih odredbi, stilizacija odredbizakona

work record — radna knjižicawork safety — zaštita na raduworking capacity — radna sposobnostworking capital — obrtna sredstvawrite-off — otpis written document — pismena ispravawritten receipt — pismena potvrda

zoning plan — regulacioni plan


V

W

X

Y

Z

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LAWS AND REGULATIONS

1. Framework Law on the Registration of Business Entities inB&H (The Official Gazette of B&H, issue 42/04) — Okvirnizakon o registraciji poslovnih subjekata u BiH

2. Law on Bankruptcy Procedure (The Official Gazette of FB&H,issue 29/03 and 32/04) — Zakon o stečajnom postupku

3. Law on Banks (The Official Gazette of FB&H, issue 39/98,32/00, 41/02, 19/03 and 28/03) — Zakon o bankama

4. Law on Bills of Exchange (The Official Gazette of FB&H, issue32/00 and 28/03) — Zakon o mjenici

5. Law on Checks (The Official Gazette of FB&H, issue 32/00) —Zakon o čeku

6. Law on Companies (The Official Gazette of FB&H, issue 23/99,45/00, 2/02, 6/02, 29/03, 68/05, 84/08, 88/08 and 07/09) —Zakon o privrednim društvima

7. Law on Consumer Protection in B&H (The Official Gazette ofB&H, issue 25/06) — Zakon o zaštiti potrošača

8. Law on Electronic Signature (The Official Gazette of B&H,issue 91/06) - Zakon o elektronskom potpisu

9. Law on Enterprises (The Official Gazette of RS, issue 24/98,62/02, 66/02 and 38/03) — Zakon o preduzećima

10. Law on Insurance Companies in Private Insurance (The OfficialGazette of FB&H, issue 24/05) — Zakon o društvima za osigu-ranje u privatnom osiguranju

11. Law on Liquidation Procedure (The Official Gazette of FB&H,issue 29/03) — Zakon o likvidacionom postupku

12. Law on Obligations (The Official Gazette of RB&H, issue 2/92,13/93, 13/94 and 29/03) - Zakon o obligacionim odnosima

13. Law on Public Procurement of Bosnia and Herzegovina (OfficialGazette of B&H, issue 49/04) — Zakon o javnim nabavkamaBosne i Hercegovine

LAWS AND REGULATIONS 475

14. Law on Registration of Business Entities in the Federation ofB&H (The Official Gazette of FB&H, issue 27/05 and 68/05) —Zakon o registraciji poslovnih subjekata u FBiH

15. Law on Securities Commission (Official Gazette of FB&H, issue39/98, 36/99 and 33/04) — Zakon o komisiji za vrijednosne papire

16. Law on Securities Register (Official Gazette of FB&H, issue39/98, 36/99 and 33/04) — Zakon o registru vrijednosnih papira

17. Law on the Securities Market (Official Gazette of FB&H, issue85/08) — Zakon o tržištu vrijednosnih papira


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