With the recent amendments to the Companies Law, legislators introduced the institute of convertible loans—an eagerly anticipated option for investors and startup companies in North Macedonia.
In 2022, through amendments to the Companies Law, lawmakers provided investors (third parties) with the ability to convert provided loans into shares. This conversion process involves increasing the company’s share capital by issuing new shares or, in other words, transforming the given loan into shares.
In this article, we will outline the procedure for augmenting the share capital by issuing new shares using convertible loans in a limited liability company.
Convertible loans
The process
The procedure for increasing the company’s share capital is governed by the Companies Law and is executed through the Trade Registry maintained by the Central Registry of North Macedonia.
A loan provided by a third party (investor) intending to convert it into shares must be paid in cash. The conversion of the loan into shares must be completed no later than the end of the third year from the signing of the loan agreement.
To implement this process, the Investor and the Company are required to undertake the following steps:
- Convene a General Meeting, extending invitations to all shareholders of the Company.
- Pass a resolution to increase the Company’s share capital by obtaining new loans. This resolution requires a ¾ majority of the total votes held by present shareholders in the Company.
- Grant priority rights to present shareholders for acquiring the newly issued shares. The Company’s director must invite present shareholders to acquire these shares in proportion to their existing ownership. Shareholders will have at least 15 days to accept or decline the offer from the Company’s Director.
- Extend an invitation to the investor to convert the loan into Company shares.
- Obtain an acceptance statement from the investor, confirming their agreement to convert the loan into Company shares.
- Pass a resolution officially approving the conversion of the loan into Company shares.
- Provide bank statements as evidence of loan payments that are being converted into shares.
- Execute an agreement for the transformation of the loan into Company shares, certified by a Notary Public in North Macedonia. This agreement, signed by the Investor, the Company’s director, and the shareholders as consenting parties, formalizes the process.
- Compile a comprehensive list of parties acquiring new shares in the Company through this conversion process.
How can we help you in this process?
Tosic & Jevtic, attorneys and counselors-at-law, boast extensive experience and expertise in handling various procedures before the Trade Registry. Throughout our professional journey, we have successfully navigated numerous intricate procedures for trade company modifications, including the intricate process of augmenting company share capitals through the conversion of loans into shares.
Our esteemed Law Firm comprises seasoned lawyers ready to guide and support you throughout this process. With our wealth of experience, we assure efficient and effective assistance for our clients.
Conclusion
Prior to the recent amendments to the Companies Law, the conversion of loans into shares was limited to existing shareholders of the Company exclusively.
However, with the latest amendments to the law, this option has been extended to third parties investing in a company, providing them with the opportunity to convert their loans into shares of the Company.
This development presents a favorable option, particularly for startup companies in North Macedonia, as it allows them to attract investors by offering the conversion of loans as a form of security for the investment.
Ivana Jevtic Nikolova
