The need for the development of the capital market, as well as the growing demand for qualified human resources, contributed to the introduction and development of the institute, which, with the amendments to the Company Law of the Republic of Serbia in 2019, introduced a new opportunity to stimulate employees in the form of acquiring shares in a limited liability company in which they are employed or a related company.

Previously, this possibility was possible for joint-stock companies, and the introduction of this option for LLC also opened the door to a significantly wider use of the institute in question.

Although it seems that the capital market is still not sufficiently developed, and that it is still the leading trend to stimulate employees through monetary awards and bonuses, the interest of companies in rewarding employees through the acquisition of shares is growing, and a number of companies have already used this option.

IT companies, start-up and scale-up companies, and international corporations that operate in the Republic of Serbia through affiliated parties registered in our country currently have primacy in this kind of venture on the market.

What is reflected in the right to acquire a share

The right to acquire a share is a financial instrument that allows an employee to acquire a share at a certain price or free of charge on a certain day (maturity day), which is determined by the employer. By freely determining the date of acquisition, the employer is practically given the opportunity to determine this term in accordance with his own projection of the work and advancement of the employees, thus additionally “tying” the employee to the company. When it comes to the price at which the employee will acquire shares at the end of the maturity period, it is also left to the discretion of the employer, and formally it can amount to one dinar or the acquisition can be free of charge.

Upon payment of the price by the employee, the financial instrument is printed from the Central Securities Depository and Clearing House, and the employee is registered as a member of the company in the Business Registers Agency in accordance with the acquired share.

Who can be offered an option to acquire a share

Although the said institute is used in practice primarily to stimulate the company’s employees, the law does not limit the circle of persons to whom this financial instrument applies, so in practice we have certain cases, which also refer to the stimulation of external associates, directors who are not employed, and partners of the company. Also, such a broad possibility of granting a financial instrument allows it to be granted to employees in affiliated companies, for example, an employee may have the option of acquiring a share in the parent company even though he is formally employed in a subsidiary company. When it comes to determining the exact scope and structure of persons to whom the company will grant the right to acquire a share, the laws do not expressly regulate this issue, but certain principles of labour law must be respected, which, among other things, refer to the prohibition of discrimination against employees, as well as the rules on compliance principle of equal pay for the same work or work of the same value.

Reserved own share

For the purposes of realizing a financial instrument, a company acquires a share, legally defined as a reserved own share, from a member of the company free of charge. The disposal of the reserved own share is limited and the same cannot be pledged. Additionally, although the Company Law provides that a company may have more reserved shares, the percentage of participation of all reserved shares cannot exceed 40% of the total share capital of the company, nor can a reserved share be formed from shares of the company, which are not fully paid up, i.e. entered into.

After the formation of the reserved own share of the company by passing the decision of the assembly of the company by a two-thirds majority of the votes of the members of the company out of the total number of votes of the members of the company, the reserved own share is registered with the Business Registers Agency.

On the basis of the reserved own share, the company can grant, i.e. issue a financial instrument – the right to acquire a share to its employees, which share the employee can acquire under pre-agreed conditions and price, according to a procedure that is regulated in detail by the provisions of the Company Law on Business Companies and the Law on the Capital Market.

The thus acquired right to acquire a share, previously registered in the Central Securities Depository and Clearing House, cannot be pledged by employees, nor can it be inherited, which additionally speaks of the “personal” nature of this institute, which aims to stimulate a certain person – most often employee of the company, and not to allow the uncontrolled dispersion of the ownership structure of the company.

Tax aspects

The acquisition of shares by employees is exempt from taxation, i.e. there is no obligation to pay salary tax or to pay salary contributions. This obligation, however, is activated in the event that the employee disposes of the acquired shares within 2 years, if the employer or a person related to the employer buys the shares from the employee at any time, as well as if the contractual relationship between the employee and the employer is terminated before the expiration of 2 years from the date of acquisition of shares.

If the shares are acquired by a person who is not an employee, there is no tax exemption, but rather the acquisition of shares is treated as other income. Additionally, any burdensome disposition of the acquired share would be taxed as a capital gain. The basis for taxation is the difference between the sale price of shares and the price at which they were acquired, and the tax rate is 15%.

Tendencies

This business model is part of the modern tendency of employers to change the traditional business model in which the employer and the employee are two strictly separate parties. The benefits in question are mainly reserved for top management, i.e. for persons who are high on the employee hierarchy or have a decisive influence on the business success of the company. Companies that apply this model claim that it contributes to a better relationship between employers and employees, and that employees feel like part of the company they work for and observe its work and potential for progress from a different perspective.

On the other hand, start-up companies see here a good way of a certain type of compensation for employees who need to decisively contribute to the development of the company itself in a certain period, without initial highly gratifying financial satisfaction.
The financial instrument in question is currently mostly represented in IT companies, as well as companies with US capital. There is an increase in the interest of European and domestic companies, first of all, to take advantage of this model, but it seems that this decision is still related to systems originating from countries with a highly developed capital market or to enthusiastic beginners. Regulation of the capital market in Serbia would certainly significantly contribute to the representation of this financial instrument, so it remains for time to define how useful the instrument in question will prove to be in the efficient management of human resources and the realization of the company’s goals.