Leskovаc, May 2016.

How to start up a company or sole proprietorship

You have a good idea, you know how to put it into practice, you are skilled at communication with people, potential partners, you do not lack enthusiasm,

you are ready for new ventures.

In addition, you must be willing to become acquainted with legal regulations which will have to be dealt with when starting up a company or sole proprietorship and

which will follow you during the whole business.

Being acquainted with the regulations is not a waste of time but a way to protect your rights, make your businesseasier and operate in accordance with the law.

If you have decided to start up your own business, you should know whether you want to start your business as an ENTREPRENEUR (natural person) or a BUSINESS ENTITY (legal person).

This guide will introduce you to all legal forms for the registration of your business and help you register your sole proprietorship or company quickly and easily.

Legal regulations

Relevant regulations applied in the process of registration in Business Entity Register are:

• Law on companies ;

• Law on the Procedure of Registration in the Agency for Business Registers;

• Law on state-owned companies;

• Law on cooperatives ;

• Decision on the amount of fees for registration and other services provided by TheAgency for Business Registers ;

In accordance with the above mentioned regulations the following legal forms shall be entered in the Register:•company;•entrepreneurs

COMPANY

Company is a legal person that runs the business with the intention of gaining profit, and acquires the feature of legal entity in accordance with the Law on Registration

LEGAL FORMS OF BUSINESS ENTITIES•Limited Liability Company (LLC),•Partnership Company,

•Limited Partnership,

•Joint-stock company .

Limited Liability Company - LLCThe most common legal form of companies in Serbia is a limited liability company or abbreviated LLC. This legal form is popular because the company members/investors do not pay company liabilities with their personal assets, unless misusing the rules on limited liability. As a result, in case of the bankruptcy of the company in this form the risk is the lowest: If it operates badly, it can go bankrupt, and then it must pay off to its creditors the amount of the invested contribution.

Partnership Company - PCA Partnership Company is an association of two or more partners, natural or legal persons, who are jointly or severally responsible with their whole assets for company liabilities.

Limited Partnership - LPA Limited Partnership is a company that has at least two members, out of which at least one entity is responsible jointly and severally for paying company liabilities (general partner), and at least one person is jointly responsible for paying up to the amount of agreed contribution. (Limited partner).

Joint-stock Company - JSCJoint-stock Company is founded by one or more natural/legal persons, shareholders, and the basic company’s share capital is divided into a number of shares with equal amounts. Among the most important advantages of such form of organization is limited liability of a shareholder. Stockholders are materially liable for the results of business operations of the company up to the value of their shares and that value is the most they can lose if the company does not operate well. Shareholders are not responsible with their entire assets for possible company liabilities and debts, but only with the capital invested in the company.

ENTREPRENEUR

An entrepreneur is a competent natural person who does business with the intention of making profit and who is registered in accordance with the law.The entrepreneur is liable for covering any business debts with his entire personal assets and the assets gained by doing the particular business are included, as well.

Before starting the description of the registration process, we will show you some of the differences between the entrepreneur and the company:

ENTREPRENEUR COMPANY

The entrepreneur has the status of a natural person and he is liable for covering all business debts with his entire personal assets.

The owner of the company is a legal entity who in the form of LLC is liable for covering any debts with the company assets, in other words, the founders liability to debt is limited to the extent of amount originally invested.

They can pay income tax in a lump sum determined by the local government, if they have an annual turnover less than 6 million dinars, if they are not in VAT system, if they do not deal with wholesale, the hospitality industry, real estate transactions. In this case they can be engaged in single-entry bookkeeping.

A company pays capital gains tax on the basis of bookkeeping records, that is, the results reported in the annual financial reports.

If the annual turnover on the account is less than 8 million dinars then the entrepreneur does not operate in VAT system, however if the annual turnover is over 8 million, the entrepreneur must report to the competentTax Administration paying of this tax..

Companies are VAT payers..

Sole proprietorship cannot change its form; two sole trade business organizations cannot be merged into one. It is first necessary that the sole trader be deleted from the register and then the request for establishing new sole business organization to be submitted.

They can establish branches for performing other activities, while complying with the prescribed requirements.

The sole trader can be deleted by submitting the registration form on the date the form has been submitted. Closing the sole trader business does not have consequences for creditors because they can recover outstanding debts from the owner even after closing the sole trader business. .

Closing the company can be done on the following grounds:

1. After the completion of the procedure of liquidation or Forced liquidation,

2. After the completion of bankruptcy procedure,

3. Due to the decision or termination of the existence of the founders ofthe branch of a foreign company,

4. Due to the change in status resulting in eliminating some of theparticipants from the Register of Companies.

If you have definitely decided which legal form you are going to choose, you can start the registration process by submitting the registration form to the Agency for Business Registers – organizational unit in Leskovac.

The applicant could be either you or a person authorized by you as an attorney.

The procedure of establishment is completed within 5 days from the date of the submission of complete documentation. Together with the registration of establishment you will simultaneously get the registration number, tax identification number (TIN) and the number of health insurance issued by National Health Insurance Fund. The registration number is assigned by National Statistics Fund by means of The Agency for Business Registers.

The process of starting up a company

How to start up a company in four steps:

Step 1: Agency for Business Registers

1.Unique registration application of legal persons and other entities and registration in the uniqueregister of taxpayers,

2.Memorandum of Association of the company with notarized signatures of company members,

3.Certificate of identity of company members (for domestic natural person – photocopy of identity card, and for foreigners –photocopy of the passport, that is, photocopy of identity card, if issued to a foreigner, in other words registration certificate ifthe founder is not registered in the Register kept by the Agency for Business Registers,

4.Decision on the appointment of the attorney if not determined by Memorandum of Association,

5.Attorney’s signature notarized by the competent authority of notarization,

6.Decision on the appointment of the President and members of the supervisory board if the system of management is two-tier and President and the members of the supervisory board are not appointed by Memorandum of Association.

7. Bank certificate of the payment of financial participation, if participation is being paid into the company to foundation, in otherwords, the agreement of members on the estimation of non financial participation or the estimation of financial participation,if the participation is paid into the company to foundation (this certificate is not indispensable, but there is an option left to thefounder to make a decision at which point he is going to pay financial participation, the final deadline is 5 years from theadoption of Memorandum of Association) ,

8. Certificate of payment of fees of establishment in the amount of 4,900.00 RSD to the account of the Agency for BusinessRegisters (account: 840-29770845-52, model 97, see the reference number by clicking on the following link).

Check whether the name of the company in question is reserved

See the complete classification of activities

When submitting registration application for company establishment the fee for registration and publication of Memorandum of Association in the amount of 1,000.00 RSD should be paid* *.Note:

-For registering a Joint-Stock Company in addition to Memorandum of Association the company Statute signed by the company members is also required,-Instead of bank certificate of payment of financial participation/deposit Certificate of credit institutions on paid shares in cash should be submitted, in other words, estimation by the authorized valuer of the value of non financial participation or Confirmation of the competent authorities on the estimation of the value of non financial participation in accordance with the law.

* 4.900,00 dinаrа = 39,97 € according to the official average exchange rate on May 4,2015;* * 1.000,00 dinаrа = 8.16 € according to the official average exchange rate on May 4,2015;

Step 2: Seal making

After the issuance of the Decision on the registration of the company and Confirmation of tax identification number in the Agency for Business Registers, it is necessary to make a stamp of the company (stamp engraver chosen by the founder of the company).Step 3: Open an account in a commercial bank

1. Photocopy of the decision on registration of business entities (original submitted for inspection (Agency for Business Registers),Note: Always check whether the bank requires just a copy or a notarized copy. The rules are not the same with all banks regarding this document,2. Photocopy of the decision on the tax identification number (original submitted for inspection) (Agency for Business Registers),3. A photocopy of Memorandum of Association (original submitted for inspection),4. A copy of the Decision on appointment of the attorney, if not defined in Memorandum of Association,

5. OP form ï Notarized signatures of authorized persons, notarization can be performed in any of the authorities competent for notarization (local community, the municipal assembly, courté) The bank takes the original OP form,

6. Request for opening an account (the form of the bank),7. The contract on account opening and keeping in two copies (the bank form),8. Specimen signature card in three copies (the bank form),9. Copies of identity cards of persons authorized to represent,10. Stamp of the company.

Step 4: Opening tax payer card

1. Photocopy of the Decision (original submitted for inspection) on registration of business entities in the Register (Agency forBusiness Registers),

2. Photocopy of the Decision (original submitted for inspecton) on the tax indentification number (Agency for BusinessRegisters),

3. Copy of Memorandum of Association (original submitted for inspection),4. Copy of the decision on attorney appointment, if not defined in Memorandum of Association,

5. OP form – Notarized signatures of persons authorized to represent, notarization can be performed in any authoritycompetent for such purposes (original submitted for inspection),

6. Specimen signature card of persons authorized for managing funds in the account,7. Agreement on opening and keeping client account in the bank,

8. Form PDP – Tax registration for advance – final determining capital gains tax of legal persons,

9. Form EPPDV – Application for registration of value added tax payers,

10.Certificate of employment, if the person is employed then Letter of Certification and the Insurance application arerequired, in case of being a pensioner, then Certificate of retirement is required,

11. Certificate of ownership of business premises or lease contract.

Necessary documents:

• Unique registration application - Company• Form OP• Form PPDG• Form EPPDV• Form PDP• Law on Companies• Law on registration in the Agency for Business Registers

The procedure of establishment of sole proprietorship

How to start up sole proprietorship in four steps:

Step 1: Аgency for Business Registers

1. Unique registration form of establishment by legal persons or other entities and registration in the unique register of taxpayers,2. Certificate of entrepreneurs’s identity (for domestic natural person – a copy of identity card, and for people who do not have

Serbian citizenship – a copy of passport, that is, copy of identity card if issued to a foreigner),3. Certificate of payment of fee in the amount of 1,500.00 RSD to the Agency for Business Registers account (account: 840-

29770845-52, model 97, reference number can be found by clicking on the following link),

4. If an entrepreneur is registered for performing the activity for which the prior consent of the competent authority is requiredas a condition for registration, it is necessary to submit the original of the decision of the competent authority or its notarized copy to Agency for Business Registers.

Step 2: Seal making

After the issuance of the Decision on the registration of the company and Confirmation of tax identification number in the Agency for Business Registers, it is necessary to make a stamp of the company (stamp engraver chosen by the founder of the sole proprietorship).

Step 3: Opening an account in commercial bank

1. Photocopy of the decision (original submitted for inspection) on registration of business entities (Agency for BusinessRegisters),

2. Photocopy of the decision (original submitted for inspection) on tax identification number (Agency for Business Registers),

3. OP form – notarized signatures of persons authorized to represent, notarization can be performed in any of theauthorities competent for notarization (local community, municipality assembly, court),

4. Request for account opening (form of the bank),5. Agreement on account opening and keeping in two copies (the bank form),6. Specimen signature card in three copies (the bank form),7. Copy of the identity card of the founder of the sole proprietorship,

8. Stamp of the company.

Step 4: Opening tax payer card

1. Copy of the decision (оriginal submitted for inspection) on registration of business entities in the Register (Agency for Business Registers),

2. Copy of decision (original submitted for inspection) on tax administration number (Agency for business Registers),3. OP form – Notarized signatures of persons authorized to represent, notarization can be performed in any of the

authorities competent for notarization (original submitted for inspection),4. Specimen signature card of the persons authorized for managing the funds on the account,5. Contract on opening and keeping client’s account in the bank,6. Form PPDG1 – income tax application,

7. Form EPPDV - Application for keeping records of value added tax payers (if an entrepreneur wants to become a VATtaxpayer,Note: Entrepreneurs who decide to keep records of business books as ‘lump-sum payers’ cannot be VAT payers.

8. Certificate of employment (if the person is employed then Letter of Certification and Insurance registrationare required, on the other hand, if the person is a pensioner Certificate of retirement is required,

9

.

Certificate of ownership of business premises or lease contract,10. Copy of the identity card of the founder of the sole proprietorship.

Necessary documents:

• PPDG form• OP form• EPPDV form ;• PDP form

After you have registered your company or sole proprietorship, we will introduce you to ‘Support package’ to beginners in business that include free training and grants for starting up their own business.

The National Employment Service offers grants for new jobs or for self-employment with the aim of employing the unemployed registered at the National Employment Service.

Development Fund of the Republic of Serbia offers favourable loans for beginners in business (start-up loans), and beginners can also get investment loans, loans for permanent working capital, long-term and short-term loans, loans for old crafts, etc.

Loans are approved for building/upgrading/reconstruction/аdaptation/sаnitation/purchase of business/production and industrial facilities or for purchasing new equipment from authorized distributor or equipment manufacturer.

Development Agency of Serbia (DAS) as an agency of the Government of the Republic of Serbia offers a wide range of services, including support for direct investment and export promotion, and implementation of projects aimed at improving competitiveness, regional development and the reputation of Serbia.

Small legal persons and entrepreneurs with revenues lower than 50 million RSD annually have been exempted from paying company name display fee (tax on business signs).All the investors who invest in production and storage facilities are exempted from paying fees for land development.

In addition to the above mentioned incentives, the Republic of Serbia and the City of Leskovac offer various other national and regional incentives about which you can get further information in the Agency for Local Economic Development of the City of Leskovac.