Pros and Cons of Issuing Shares

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One considerably beneficial advantage of company formation in Montenegro is the exceptionally low share capital requirements required to form an LLC in Montenegro.  This is not to say that obtaining a low sum of money in the form of shares is, necessarily, in the best interest of the company, however, low share capital gives the foreign entrepreneur the freedom to choose the amount of share capital he/she needs for the company without external pressure.  The low share capital requirement in Montenegro also benefits quick and low-cost overall company formation.

Montenegro does not have a minimum share capital requirement for an LLC and the company can be formed with a share capital of €1.  The share capital of a company has its advantages and disadvantages, therefore, the Montenegrin government allowing for business owners to choose the best amount of share capital is a major advantage of company formation in Montenegro.

Advantages of Share Capital:

  • Shares are investments in the company: when a shareholder purchases the shares of a company, he/she is investing in the company. The company can then use this money to expand and grow to give the investor a return on the investment.  It is a win-win for both the company and the shareholder;
  • Shares are not a debt to the company: unlike a bank loan or a bond, the company does not have any repayment requirements when it comes to shares. Profits can be distributed as dividends, but if the company is liquidated, there is no requirement to pay the shareholders out;
  • The company can use the money in any way it wants: a creditor can limit the way that a company uses the money he/she invests, however, there are no stipulations attached to shares and how the shares must be spent;
  • Lowers the risk of the company becoming bankrupt: shareholders cannot force the company to pay out money, whereas creditors can;
  • Shareholders own part of the business: while a wide distribution of share capital dilutes the ownership of the company, all of the shareholders own part of the company and should make decisions based on the best interest of the company or else they could risk losing all of the money they have invested;
  • Shares offer flexibility: the company has full control over the number of shares it distributes, the cost of the shares, and when the shares will be distributed. The company can issue shares at any stage if it requires more money.  The company also has the power to repurchase shares that have been issued already.

Disadvantages of Share Capital:

  • Dilutes company ownership: when a company issues shares, it is reducing its control over the company and how it functions;
  • Shareholders have a say: shareholders vote on matters such as the management of the company, company policies, and business deals. Shareholders have the authority to overthrow current management and bring in new management;
  • Risk being bought out: a competing company could purchase the shares of the company, resulting in a hostile takeover aimed at running the company out of business;
  • The price of risk: shareholders often demand a higher rate of return than creditors due to the risk they are taking by investing in a company that will not pay out if it becomes bankrupt;
  • Cannot deduct dividends from taxes: interest paid to creditors can be deducted from the tax of the company, however, dividends paid out to shareholders cannot be deducted from the tax of the company;
  • Shareholders need to be kept up-to-date: the company will be responsible for keeping the shareholders up-to-date on the current affairs of the business such as how the company is performing and other relevant matters which can be time-consuming;
  • Issuing more shares negatively affects existing shares: once new shares are released, the old shares will decrease in value along with the dividends paid out to the shareholders;
  • Financial disclosure: the company will be required to disclose certain financial information and information about how the company operates when issuing shares.

As evident from the above advantages and disadvantages, it is clear to see that deciding whether or not to issue shares is no small matter.  The government of Montenegro understands this which is why they are willing to give the power to the business owner.  The business owner can decide to take whichever path best suits the company and his/her needs.

Stevan. M

Stevan. M

Stevan is a Montenegro based writer and consultant

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