One of the most important documents governing the structure and operation of a company is its Articles of Association. However, in Kosovo, many shareholders and business owners often pay little attention to reading and reviewing this document. In most cases, shareholders focus on specific matters, such as ownership, and rarely examine the other provisions of the company’s Articles of Association in detail until internal disputes arise or conflicts emerge between shareholders and directors.
Furthermore, shareholders often do not keep a copy of the Articles of Association in their personal records and request it only when problems arise. This negligent approach may create serious challenges when complicated legal situations emerge, including issues concerning shareholders’ financial liability for the company’s actions.
The Kosovo Business Registration Agency (KBRA), pursuant to Article 9 of Law No. 06/L-016 on Business Organizations, has published standard templates of Articles of Association for Limited Liability Companies (LLCs) and Joint Stock Companies. These templates are frequently used without detailed legal analysis, with business owners, accountants or company officials merely completing the basic information.
However, one of the provisions contained in the template published on 15 November 2021 has raised significant concerns for business owners due to the risks that may arise from its interpretation.
Article 9.3 of the Articles of Association for LLCs contains the following wording:
“The founders of the company are liable for all debts and other obligations of the company with all their assets.”
This general wording could imply that company owners are personally liable for the company’s debts and obligations with all their personal assets. Such an interpretation would directly contradict the legal nature of a Limited Liability Company, under which shareholders are generally protected from personal liability for the company’s obligations.
Pursuant to the Law on Business Organizations, particularly Article 76, paragraph 2:
“A shareholder of a Limited Liability Company is not liable for the debts or obligations of the company solely by reason of being a shareholder.”
Accordingly, shareholders should not be held liable for obligations incurred by the company merely because of their shareholder status, except in circumstances provided by law, including where they undertake actions on behalf of the company before its registration with KBRA, as stipulated in Article 77 of the same law.
Interpretation and Legal Risks for Business Owners
A possible judicial interpretation of Article 9.3 of a company’s Articles of Association could lead to the conclusion that business owners are required to satisfy the company’s debts using their personal assets.
This risk arises because the provision leaves room for an incorrect interpretation of shareholders’ liability, creating the impression that they have agreed to assume financial responsibility for the company’s obligations if the company fails to fulfil them.
This issue becomes even more significant when considering relationships with third parties, including creditors, financial institutions and business partners. If companies fail to meet their obligations, third parties may attempt to rely on this provision to seek repayment of debts from shareholders’ personal assets.
For this reason, business owners must be aware of the contents of their company’s Articles of Association and take appropriate steps to amend or correct them to avoid potential risks.
Recommendations for Amending the Articles of Association
To protect business owners against these risks, we recommend reformulating Article 9.3 to clarify that the founders’ liability relates to actions and obligations undertaken by them on behalf of the company before its registration, as provided by law.
Such wording would be more precise and would eliminate ambiguities that could arise from incorrect interpretations by courts or third parties.
The provision could be amended as follows:
“The founders of the company shall be liable for actions undertaken and obligations incurred by them on behalf of the Limited Liability Company prior to its registration with the Kosovo Business Registration Agency (KBRA).”
Alternatively, the provision could be removed entirely to avoid any potential misinterpretation.
Furthermore, shareholders and business owners should understand that a company’s Articles of Association should not be treated merely as a formal document required for registration purposes.
Instead, they should serve as a strategic instrument for regulating the company’s internal and external relationships, taking into account its specific needs and long-term objectives.
Conclusion
In conclusion, a company’s Articles of Association constitute one of the most important documents governing its management and should be treated with due care by business owners.
Shareholders should ensure that the Articles of Association comply with Kosovo’s Law on Business Organizations and adequately protect their legal interests.
Where amendments are necessary, they should be prepared with the assistance of legal professionals to prevent future disputes and unintended liabilities.
If you are the owner of a Limited Liability Company and have not yet thoroughly reviewed your company’s Articles of Association, now is the time to take action before it is too late.
Author: Florin Lata
