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LIABILITY OF MEMBERS OF THE BOARD OF DIRECTORS AND COMPANY MEMBERS IN REPUBLIC OF CROATIA

The government of the Republic of Croatia has noticed a frequent practice of funding new limited liability companies with the purpose of evading payment of public duties as well as obligations toward workers. The Tax Act amendment of 2012 seeks to disable the business activity between affiliated companies which transfer their losses from one company to another and issue fictive invoices.

According to the Companies Act, company members are liable to the extent of the legal capital with exceptions provided both by the Companies Act and amended Tax Act, when company members are personally liable with all their assets in case of using the company to damage it’s creditors.

A member of a company will be held personally liable with all his assets for the obligations of the company if he abuses the principle of non- liability for companies’ obligations and if he for example:

-uses the company to achieve a forbidden goal

-uses the company to damage creditors

– conducts the company’s asset illegally as if it were his own

– diminishes the company’s property in his favour or in favour of another person although he knew or should have known that the company won’t be able to settle its debts.

The members of the board of directors who violate their responsibilities are jointly liable for damages caused to the company. In case of dispute the members of the board of directors have to prove that they acted with the diligence of a prudent businessman.

The new Tax Act from 2012 introduces the liability of representatives of the natural and legal persons if they, while conducting their business, unlawfully achieved the reduction of taxes or grant of tax benefits. In such case, the representative is, together with the tax debtor, a tax guarantee for the unpaid tax and interests.

The accountant of the company, the person responsible for the authenticity of financial records and abettors are payment guarantees for all the unpaid taxes and interests.

After all the aforementioned changes of the tax legislation in 2012, one can expect a series of proceedings against company members and board directors who have been abusing the principle of non- liability for companies’ obligations.

It is also to be expected that companies in the Republic of Croatia will be increasingly using the services of tax advisers, since the tax system in the Republic of Croatia is becoming more complex and severe towards the company members and board directors who try to abuse the principle of non- liability for companies’ obligations.