Overview (February 2008) - International Law Office

Types of Business Entity
Sole Proprietorship
Unlimited Partnership
Limited Partnership
Limited Liability
Joint Stock
Branches and Representative Offices
Joint Ventures
Trade Licences
Registration Documentation

Types of Business Entity

Foreign investors have numerous options available to them when establishing business operations in Albania, whether by forming a locally incorporated company or by establishing a branch or representative office. Law 9723, approved by Parliament on May 3 2007, established a National Registration Centre for business entities. From September 1 2007 new entities have been registered at the centre.

According to Law 9723 and the Commercial Companies Law (7638/1992), the business entities that must be registered fall into the following categories:

• sole proprietorship;
• unlimited partnership;
• limited partnership;
• limited liability company;
• joint stock company; and
• joint venture.

Sole Proprietorship

A sole proprietor trades under his or her own name and such trade must be registered as a business name. Individuals interested in establishing this type of business must file an application and an identification document with the registration centre of the district where the business will be conducted. The application form includes identification data, address, type of business and the sole proprietor’s signature.

Unlimited Partnership

All partners are unlimitedly and jointly liable for the entity’s debts. Creditors can claim against a partner for the debts only if they fail to claim against the partnership as a whole. The partners are all considered administrators of the partnership unless otherwise stipulated in the entity’s bylaws. Each partner represents the partnership with third parties. Financial reports must be issued. The rights, duties and obligations of partners are governed by written bylaws, which must be filed with the Registration Centre.

Limited Partnership

A limited partnership - seldom used in practice - consists of one or more general partners with unlimited liability and one or more limited partners whose liability is limited to the amount of their agreed contributions to the initial capital. A limited partner must not take part in the management of the partnership even if it receives a proxy; otherwise, unlimited liability is incurred.

The articles of incorporation must contain:

• the total amount or value of all partners’ contributions;
• the amount or value of the contribution made by each general or unlimited partner; and
• the percentage of the participation of all general partners and of each limited partner in the partnership's profits and in the remaining value after its dissolution.

All decisions must be in line with the articles.

Limited Liability

Foreign investors are faced with many important decisions, including what type of business structure to use when forming a company. While many countries allow the typical structures of sole proprietorship, partnership or corporation for business ownership, Albanian legislation further allows the formation of limited liability companies.

This is the most common and appropriate legal form for conducting business in Albania. Company members enjoy limited liability and members have the right to transfer their shares to other persons with the approval of three-quarters of the voting rights.

Companies can be established by one or more partners - legal or natural persons which are responsible for losses only to the extent of their capital contribution. The minimum capital required is Lek100,000. The capital is divided into shares with a value of not less than Lek1,000. Contributions to the capital can be in cash or in any tangible or intangible asset. However, contributions in services are not permitted.

Administrators nominated by the shareholders' general assembly manage the company. Extraordinary decisions, increases or decreases in the share capital, and mergers and acquisitions must be approved by at least three-quarters of the capital shareholders. Annual financial statements must be prepared.

The transformation of this form of business into an unlimited or limited partnership can be effected only with the unanimous approval of shareholders, subject to the approval of financial statements for the previous two years.

Joint Stock Company

The capital is divided into shares, with shareholders held responsible for losses only to the extent of their capital contributions. The minimum initial capital required is Lek2 million for companies with no public offering and Lek10 million for public offering companies. Joint stock companies are managed by a board of directors composed of one or more members nominated by a supervisory council.

The supervisory council exercises control over the board’s performance. The council must have no fewer than three and no more than 21 members. One-third of the members must be company employees.

The capital is fully subscribed when the partners have promised to bring assets to the company in cash or in kind up to an amount equalling the capital. At the moment of subscription, at least one-quarter of the nominal value of shares representing contributions in cash must be paid up. Payment of the remaining value is made in instalments determined by the board of directors. Contributions in kind must be fully paid up at the moment of subscription. Contributions in services are not permitted.

Branches and Representative Offices

Under the Commercial Code, a foreign investor can also operate in Albania through a branch or representative office. The branch or representative office must be registered in the Registration Centre and have a legal representative empowered by the head office to administer the local office. For tax purposes, the branch is treated in the same manner as an Albanian entity.

Joint Ventures

Legislation recognizes joint ventures under the term of ‘simple company’ since they are based on an agreement only and no legal personality is granted to this partnership. Joint ventures may be concluded by two or more persons - whether individuals or legal entities, foreign or national - agreeing to engage in an economic activity in order to share profits. There is no minimum capital requirement.

Partners must make contributions as contractually provided. Unless otherwise agreed, each partner may participate in the management of the partnership and has full powers to carry out any acts which are within the partnership’s scope. Each partner is entitled to receive its share of the profits after the accounts have been approved, unless otherwise agreed.

Partners are jointly responsible for fulfilling the obligations imposed upon them by law and by the partnership agreement, unless they can prove that they were not at fault.

Trade Licences

Activities requiring a business licence are primarily in the following sectors:

• tourism;
• construction;
• fuel trading;
• fishing;
• telecommunications;
• radio and broadcasting; and
• pharmaceutical and medical products.

Registration Documentation

Registration of a company with the National Registration Centre requires the following documentation:

• a standard application form, completed and filed by the company’s legal representatives or by the person authorized by power of attorney;
• the articles of incorporation and bylaws signed in the presence of a public notary;
• a resolution on the appointment of the company’s managing bodies; and
• documents reflecting the applicable capital disbursement (when the contributions are in cash, a bank statement or a notary public deposit deed is necessary; when the contributions are in kind, an expert report is requested).

The articles of incorporation must generally include the following information:

• company name;
• shareholders;
• initial capital;
• company’s registered seat;
• company’s administrators or directors;
• company’s scope of activity; and
• duration of business activity.

Depending on the entity’s legal form, additional and specific information must be indicated in the articles of incorporation or be filed with the centre.

Registration of a branch or representative office requires the following documents:

• a standard application form, completed and filed by the branch or office representative, a representative of the parent company or the person authorized by the power of attorney issued by either of the former two;
• the articles of incorporation and bylaws of the parent company and all amendments;
• a recent document from the chamber of commerce where the parent company is located, issued no more than 90 days from the date of application, which includes:
  • the registration of the parent company in the Commercial Registry of the country of origin;
  • a statement that the company is not subject to dissolution or bankruptcy; and
  • the composition of the company’s managing bodies.
• a resolution of the parent company's board of directors or of any other company body authorized under its bylaws for the establishment of the branch or representative office in Albania and the appointment of the branch or office’s legal representative; and
• the parent company’s balance sheet for the previous financial year.

For further information please contact Renata Leka at Boga & Associates by telephone (+355 42 51 050) or by fax (+355 42 51 055) or by email (leka@bogalaw.com).