Planning to start a business in Croatia? This comprehensive guide provides legal advice and expert guidance for successfully launching your venture.
Starting your own business is a mix of excitement and challenge, and Croatia stands out as a destination attracting entrepreneurs with its enchanting coast, rich cultural heritage, and attractive business climate. However, the process of company formation can be complex, especially if you’re not well-acquainted with local legal frameworks and regulations. In this guide, we’ll carefully walk through the steps needed to start a business in Croatia, focusing on understanding the differences between d.o.o. (limited liability company) and j.d.o.o. (simple limited liability company).
What are d.o.o. and j.d.o.o., and what are the basic differences?
D.o.o. is an abbreviation for “društvo s ograničenom odgovornošću” (limited liability company) and represents a type of business entity where the owners (members or shareholders) are liable for the company’s debts and obligations only up to the amount of their share in the company’s capital.
J.d.o.o. stands for “jednostavno društvo s ograničenom odgovornošću” (simple limited liability company) and is a specific form of business entity in Croatia. This form was introduced to facilitate the establishment of small businesses with fewer administrative barriers and lower initial capital.
The fundamental difference between d.o.o. and j.d.o.o. in Croatia lies in the required capital for formation, administrative complexity, and some operational aspects. Here are the key differences:
Initial capital:
• d.o.o.: Requires a minimum capital of 2,500.00 EUR, of which at least 625 EUR must be paid upon establishment, with the remaining capital amount to be paid within a year.
• j.d.o.o.: Can be established with a minimum capital of 1 EUR, making it more accessible for individuals or startups with limited resources.
Founders and ownership:
• d.o.o.: Can have one or more founders (natural or legal persons), with no specific restrictions regarding ownership structure.
• j.d.o.o.: Can have a maximum of five founders and one board member.
Administration and management:
• d.o.o.: Has slightly more complex requirements for bookkeeping, financial reporting, and generally more administrative obligations.
• j.d.o.o.: Is intended as a “simplified” form of d.o.o., with fewer administrative burdens and complexity, making it more attractive for smaller businesses or independent entrepreneurs.
Transition to another form of business entity:
• d.o.o.: Generally, remains as d.o.o. unless a transformation into another legal entity form (e.g., joint-stock company) is decided.
• j.d.o.o.: When the capital of a simple d.o.o. reaches the amount of a classic d.o.o.’s capital, the rules of the classic limited liability company start to apply.
While d.o.o. and j.d.o.o. are similar in offering limited liability to their owners, the key difference lies in the thresholds for initial capital and the level of administrative complexity. J.d.o.o. is designed to be simpler and more accessible, especially for those just starting a business, whereas d.o.o. may be more suitable for larger operations or those planning rapid expansion.
The process of establishing a d.o.o. or j.d.o.o.
- The process begins with selecting a company name, which you must check on the Court Register website to ensure it’s available. The rules around choosing a business entity name can be checked on the Central State Portal websites. After choosing a name, it’s necessary to define your company’s activities in accordance with the National Classification of Activities (NKD 2007).
- The next step involves a visit to the notary public who will authenticate the Statement of Establishment (if there’s only one founder) or the Articles of Association (if there are multiple founders). These documents must contain key information such as the company’s name, headquarters, and activities, capital, and the rights and obligations of the founders and management (directors).
- Following authentication, you’ll proceed with the payment of court fees, the cost of publication in the Official Gazette, and the prepayment of the share capital, which must be done in advance at a bank. The paid-up share capital will remain in the bank’s transitional account for now. The notary public will then forward the contract or statement to the Commercial Court.
- Upon completion of the registration, the Commercial Court will issue a Decision on Entry into the Court Register. Within 15 days of receiving this decision, you need to contact the State Statistical Office to get a Notification of the Classification of the Business Entity according to NKD 2007. This document will be required when opening a business bank account.
- After retrieving the Notification of Classification, the next step is to produce the company’s seal. The seal, along with the rest of the documentation, is brought to the bank to open the company’s business account and transfer the previously deposited share capital to the company’s account.
- The final step in the company formation process, typically handled by the selected accounting service, is filling out the RPO form (register of taxpayers). Along with the form, you need to attach copies of the following documents:
- Decision on Entry into the Court Register,
- Lease Agreement for the business premises,
- Accounting Services Agreement with your selected accounting service,
- Notification of the Classification of the Business Entity according to NKD 2007.
The total cost of opening a d.o.o. in the described manner is about 560 euros, not including the deposit of the share capital of 2,500 euros, which can then be used to cover initial operating costs. On the other hand, opening a j.d.o.o. costs approximately 235 euros plus the required capital of at least 1 euro.
The whole procedure can be done more cheaply online if you have a credential, i.e. a security level 4 certificate. This level of security is provided by the electronic identity card (eOI) and FINA’s certificate (which is used for the services E-tax, E-pension, E-health and similar.).
In conclusion, both the d.o.o. and j.d.o.o. formats offer entrepreneurs in Croatia a degree of flexibility and protection when starting a business. The choice between the two will depend on your individual circumstances, the amount of capital you have at your disposal, and your long-term business goals. While the steps to incorporation might seem complex, they follow a logical progression. Having a reliable legal advisor and accountant can be invaluable in navigating the intricacies of Croatian corporate law, ensuring that your business starts on a solid legal and financial foundation.