Enhancing Competitiveness of Local Small and Medium
Enterprises in Montenegro through Cluster Development
LEGAL FRAMEWORK FOR
CLUSTERS DEVELOPMENT
IN MONTENEGRO
Booklet prepared by:
CENTRE FOR EUROPEAN EDUCATION AND STUDIES - CE²S
Crnogorskih serdara L C I-II, 81000 Podgorica, Montenegro
T/F: +382 20 634 329; E: [email protected]
Executive director/Project coordinator: Ivan Jovetic, MSci
Project “Enhancing Competitiveness of Local Small and Medium Enterprises in Montenegro through Cluster Development” is the European Union (EU) funded project co-funded & implemented by United
Nations Industrial Development Organization (UNIDO) in partnership
with United Nations Development Program (UNDP) for the Ministry of
Economy of Montenegro.
This study has been produced with the assistance of the European
Union. The contents of this study are the sole responsibility of the
author and can in no way be taken to reflect the views of the European Union.
General review
about this booklet
This booklet provides information, and presents a brief
overview of the opportunities which are described in
the Legal framework for cluster development in Montenegro. Definition of a cluster defined within the Strategy
for sustainable economic growth in Montenegro through
the introduction of business clusters 2012-2016 and the
current legal framework has been used as the initial basis for conducting the Analysis of the legal framework for
clusters development in Montenegro.
The current legal framework allows for the registration of
clusters in Montenegro in forms that are also featured in
the EU member states, entailing primarily associations,
business organizations, cooperatives, partnerships and
hybrid forms.
Definition
of clusters
In compliance with the Strategy a cluster is defined as
geographic concentration of related companies and associated institutions in a radius of 50 kilometers. However,
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in extreme cases the radius is increased to 100 kilometers
if the distance is not considered to be a key obstacle to
cooperation and companies networking. In other words,
a cluster of micro, small & medium sized enterprises (MSMEs) is a sectorial and geographical concentration of enterprises and/or individual producers, producing a typical range of goods or services, facing similar threats (e.g.
product obsolescence or high input costs) and opportunities (e.g. higher turnover through quality up gradation
or increased exports through targeted marketing efforts).
Clusters itself determines which is the most suitable legal form for it. Decision is based on the compliance with
the cluster’s strategy as well as the most efficient way for
achieving own goal and definition of activities as profit or
non-profit.
Which are possible legal forms of the
cluster's establishment?
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Association,
Limited liability company,
Public limited company,
Economic interest group (EIG),
Cooperative,
Partnership,
Hybrid form.
Aforementioned legal forms have been used primarily
within the EU. There individual characteristics are defined
below:
// Association:
is used when the focus of cluster
organization is to provide “soft” services to its
members, such are support to networking and
specialization, training or up-grading cluster
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members’ skills and capabilities, presentation of a
cluster at international conferences, organization
of international conferences to make cluster known
to the international community, lobbying, market
intelligence or other not for profit activities. As a nonprofit organization, cluster and cluster members are
eligible to receive national and/or EU grants.
Limited liability company: Cluster organization takes
this legal form if cluster members are or would like to
be engaged in commercial activities. It is subject to
value added tax and taxation. It can access national
grants (differs according to the countries’ rules) but
not EU grants.
Public limited company: With this legal entity, shares
may be freely sold and traded to the public. It is not
eligible for national or EU grants.
Economic interest group: Cluster organization takes
this legal form when its activities concentrate on
providing “soft” services to cluster members. Cluster
companies remain independent business entities.
Economic interest group is registered at a court,
activities and operations of cluster organization
and cluster members are regulated by the founding
contract/statute. It is a legal form which provides easy
entry of new members into a cluster and excellent
environment for open innovation. Cluster activities
can be funded by national and/or EU grants. This form
is quite similar with association form.
Cooperative: The focus of this legal form is on the
promotion of individual and joint economic interest
of all members. Membership is voluntary and open
to everyone. It can undertake commercial activities
for itself but also for the members. It cannot receive
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the EU grants when cooperative makes profit. It is VAT
liable and subject to corporate taxation.
Partnership: Formally it is not a legal entity but
companies enter into partnership agreement.
Members can exit partnership at any time.
Hybrid form is form in which some or exceptionally
all cluster (association) members have been involved
and own (owners as members not as association as
legal entity) a limited liability company. In majority
of the cases hybrid form refers to both: (i) clusters
registered as association for conducting non-profit
activities and (ii) business organizations primarily LLC
for conduction profit oriented activities.
In 2012, the Government of Montenegro adopted the
Strategy for Sustainable Economic Growth in Montenegro
through the Introduction of Business Clusters 2012-2016,
the general objective of which is to contribute to a more
balanced regional socio - economic growth. The Strategy
is aimed at contributing to the achievement of four objectives, which are aligned with the aforementioned primary objective, as well as with the objectives of other key
strategic documents of the Government of Montenegro.
These objectives include:
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increase in exports,
local origin of the product and import substitution,
opening of new businesses and new jobs, and
employment levels retention.
Clusters are promising environments for the development
of linkages for competitiveness. It is geographically concentrated a set of interrelated companies, specialized
suppliers, service providers and associated institutions
within a given area, which are present inside the nation-
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al markets and regions. Cluster firms can achieve results
that are out of reach for individual enterprises.
// Cluster’s structuring involves:
1.Legal status of the cluster,
2.Cluster structure (in terms of competencies, roles
and responsibilities of members in the cluster),
3.Systems (organization process within the cluster).
Examples of cluster legal
forms in certain EU countries
In Austria, clusters are established as:
1. consortium or
2. common interest entity.
Consortium is not legal entity and therefore it is not able
to receive the EU or public funds.
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Common interest entity is not feasible for profit companies and activities even though it can perform commercial
activities if profit is retained.
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In Croatia clusters could be established as:
>>association,
>>LLC,
>>Economic interest group – EIG,
>>Cooperative and
>> Hybrid model.
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In Denmark clusters could be established as:
>>association,
>> partnership of companies,
>> universities and RDA’s
>> hybrid form.
In Czech Republic clusters could be established as:
>>civil association,
>>association,
>>interest group of legal entities,
>>limited liability company,
>>public limited company,
>>cooperative.
Current legal framework governing
clusters establishment in Montenegro
Cluster legal forms applied within the EU are generally
applicable in Montenegro under its current legislation,
although legal framework in Montenegro governing the
clusters establishment is not unified.
Nevertheless, the legal form for clusters establishment
primarily depends on:
objectives of clusters;
activities of entities in the cluster and
// funding sources i.e. cluster financing (to a large extent).
Specifically, if cluster development exclusively relies on
the internal financing sources, then the legal form of its
establishment is not the most important one. However,
when it comes to external financing sources, the legal
form of its establishment, or the fact that a cluster is established with the objective of generating profit or if it is a
non – profit organization, is pivotal in the process.
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Effective laws of Montenegro are enabling possibility of
establishing the clusters in the following forms:
Associations (Law on Non – governmental organizations);
Foundation (Law on Non – governmental organizations);
// Business organizations (Law on Business Organization);
// Cooperatives (Law on Cooperatives).
The key legal provisions enabling the establishment of
clusters in Montenegro are as follows:
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Law of Obligations("Official Gazette of Montenegro",
No. 47/08);
Law on Business Organizations (“Official Gazette of the
of Montenegro”, No.06/02 and 40/11);
Law on Non – governmental Organizations ("Official
Gazette of Montenegro", No. 39/11);
Law on Cooperatives ("Official Gazette of FRY",
No.41/96 and No. 12/98).
Furthermore, the Government of Montenegro in June
2014, determined the Proposal of the Law on Cooperatives, which basically represents the manner of establishing cluster as societies in the area of agriculture, representing the amended version of the Law on Cooperatives
("Official Gazette of FRY", No. 41/96 and 12/98), as well as
the federal regulation governing all forms of cooperatives
(agricultural, residential, consumer, youth, student and
school) and which is still in force.
Law on Non-governmental organizations as
a legal basis for clusters development
As previously mentioned, grouping of physical persons
and legal entities into clusters may be achieved through a
form of associations which are registered pursuant to the
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Law on Non-governmental organizations ("Official Gazette
of Montenegro", No. 39/11).
Major role in the development of clusters have:
Association of winemakers and winegrowers,
representing a very important organization for
supporting the development of clusters of winemakers
and wine - growers,
// Association of Olive Growers,
// Beekeepers Association,
// Association of Hoteliers.
Law on Non-governmental organizations:
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Article 1 regulates the manner of establishment,
registration and deregistration, status, authorities,
funding, and other issues of importance for the work and
activities of non - governmental organizations, i.e. that the
non – governmental organizations are: non-governmental
associations and non-governmental foundations.
Article 2 of the Law on Non-governmental organizations,
a non–governmental association is a voluntary nonprofit membership organization, established by
domicile and/or foreign physical persons and/or legal
entities for the purpose of achieving certain common
or general objectives and interests.
Article 3 of the Law on Non-governmental
organizations envisages also the establishment of nongovernmental foundations, as non - profit voluntary
organizations without a membership, established by
domicile and/or foreign physical and/or legal entities
with or without initial capital/assets, for the purpose
of achieving common objectives and interests.
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Law on Business Organizations as a legal basis for clusters development
According to the Law on Business Organizations, business
organizations and entrepreneurs carry out business activity.
Main forms through which economic-commercial activities may be conducted in Montenegro are as follows:
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Individual Entrepreneur;
General Partnership (“GP”);
Limited Partnership (“LP”);
Joint Stock Company (“JSC”),
Limited Liability Company (“LLC”);
Foreign company branches.
Limited Liability Company is one of forms to establish
a profit oriented entity according to the Law on
Business Organizations.
It’s formed for the purpose of conducting a business
for profit by natural or legal persons who shall make a
monetary or non-monetary contribution.
It’s founders shall not be liable for the debts or
obligations of the limited liability company beyond
that amount.
On payment of an initial contribution a person shall
acquire part in a limited liability company proportionate
to the amount of his contribution.
LLC must limit the maximum number of its members
to 30.
According to the Law, the foundation agreement of a
limited liability company and all other documentation
required by this Law shall be transmitted to the Central
Registry of the Commercial Court for registration.
A joint-stock company is an economic entity which
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is an association of physical persons or legal entities
formed for the purpose of conducting business, and
the ownership of which is represented by shares.
It’s liable for its obligations only to the extent of its assets.
It’s is a legal person and its existence, and its assets
and liabilities are totally separate from that of its
shareholders.
Shareholders of joint stock-companies bear no personal
liability for the obligations of the joint-stock company.
A joint stock company may be established for a period
of limited or unlimited duration.
The amount of invested capital of a joint-stock
company may not be less than 25,000 Euros.
A joint stock company may be established by one or
several founders.
A joint stock company may be registered successively
and simultaneously.
General Partnership as the possible legal for clusters
establishment is the most rigid, legal form for
performing profit oriented activities of clusters.
It may arise by operation of law based upon the facts
and conduct of the individuals.
General partner may be physical person or legal entity
and it shall have unlimited joint and several liability.
It’s required to register for statistical purposes with the
Central Registry of the Commercial Court (CRCC) by
submitting a registration statement, yet the existence
of a partnership is not conditioned on the registration.
The partnership agreement, if any, may be filed but is
not required.
All property brought into the partnership prior to its
establishment, or acquired, whether by purchase or
otherwise, on account of the firm, or for the purposes
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and in the course of the partnership business, shall
be called the “partnership property” and it must be
held and applied by the partners exclusively for the
purposes of the partnership and in accordance with
any partnership agreement.
Cooperatives as a legal basis for the
clusters development
The most important premises regarding observation
and analysis of cooperatives as legal forms for cluster
development is that the European Law did not defined
cooperatives.
// Co-operatives have been defined as profit-oriented
entities while number of persons establishing one
vary based on type of co-operative.
// Proposal of the Law on Cooperatives
>>It has been created by the Government in June
2014
>>It provides framework for establishment of clusters in the agriculture sector.
>>Proposal has not still been ratified by the Parliament
>>It defines manner of cooperatives establishment,
obtaining and termination of membership, cooperatives management as well as other questions
relevant for cooperatives.
>>Proposal defines cooperative as entity with legal
statutes that is being voluntarily established and
represents form of organization of individual and
legal entities in order to fulfill economic and other
interests.
According to the Proposal cooperatives can be established as following:
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1. agro-cooperatives (includes different forms of
agriculture);
2. cooperatives for finalization and processing of
agro-food products (including wine and olives);
3. bee keepers cooperatives;
4. cooperatives for organization and development of
agro-tourism and craftwork;
5. cooperatives for collection, finalization and
processing of medical herbs and forest products;
6. wood processing cooperatives;
7. other cooperatives in agriculture.
Certain principles of cooperatives:
// voluntary and open membership;
// democratic control;
// economic participation of cooperative members;
// autonomy and independence;
// education,
trainings and information access for
members;
// collaboration with other cooperatives and
// protection of agriculture resources.
It also important to emphasize that cooperative becomes
legal entity by registering at the Central Registry of the
Commercial Court. However, it cannot be organized as
business organization (Law on Business Organizations) as
well as it cannot be merged with business organization or
other legal entity differing from the cooperative.
Main
conclusions
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Current legal framework in Montenegro is appropriate
for clusters establishment and further development;
There is no need to draft and propose any other form
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of laws and by-laws in a short term period (with the
presumption that the current Proposal of the Law in
Cooperatives in Agriculture will be adopted); However,
in midterm period should be considered to draft
Proposal regarding cooperatives in other sectors
except agriculture;
The most appropriate forms within existing framework
are: (i) association; (ii) limited liability company and (iii)
potentially cooperatives (solely in agriculture);
Association is the most appropriate form during
the initial phases of cluster development and in
compliance with the potential start up strategies;
Limited liability company is the most appropriate
form for the growth phases of cluster development
where growth and profit making represents the key
objectives of the clusters;
Cooperatives, as profit oriented legal forms, are
also appropriate for the growth phases of clusters
according to the Proposal of the Law on Cooperatives
(in agriculture);
Due to that hybrid model is identified as feasible and
appropriate combination of forms for Montenegro in
at least the mid-term period;
Respective study recommends previously mentioned
forms without any attempt to restrict free will of
interested parties if decide to use any other legal
allowed form – this is not the scope but also intention
and ability of the study;
Respective study is on the path that application of
non-limited liability solutions for cluster establishment
can be remarkable obstacle for cluster formation in
Montenegro due to form and profile of the potential
clusters as well as division of personal and corporate/
cluster property.