A modern-age manager encounters legal issues that are important for his status as a manager in a company but also for running a business and making operational decisions.
Attorney at Law, Petrić & Kajić Law Firm LLC, www.petric-kajic.hr; info@petric-kajic.hr
Managerial Contract
A managerial contract is a contract concluded by employer and manager with the objective that the manager achieves the set goals with his knowledge and experience. Important components of a managerial contract are the provisions that regulate the rights and obligations of the manager and the material income of the manager for the work performed, and the provisions on special awards, paid insurance premiums, participation in the company’s profit, etc. can also be agreed.
In practice, mixed managerial contracts most often occur, and they, in addition to the obligatory legal elements, also contain labour law elements, as well as elements of the work contract and the mandate contract. The Labour Law stipulates that a natural person who, according to the regulations on companies, as a member of the management or Executive Director or a natural person in another capacity under a special law, individually and independently or jointly and collectively, is authorized to manage the employer’s operations, may perform operations for the employer as an employee. Provisions of the Labour Law on a fixed-term employment contract, on termination of employment contract, on the notice period and severance pay do not apply to such persons, and the employer and the manager may regulate these issues separately in the managerial contract, or the employment contract if the same was concluded.
In practice, contracts called managerial contracts are often concluded with other persons, and although it is not forbidden to call such contracts managerial contracts, all provisions of the Labour Law apply to these persons without the stated exceptions.
From case law of the Court of the European Union: To assess whether a board member is an employee or a manager, it is necessary to take into account whether he works according to the company’s instructions and under the supervision of another body that can dismiss him against his will (subordination relationship), and whether he is paid for personally performed work. If the answer is yes – he is an employee and ž should enjoy the right to judicial protection. It does not matter what the contracts are called in national law.” (Court of the European Union, Verdict reached in the C-232/09, Danossa case dated November 11, 2010)
Stock Options
are a type of compensation given to employees and/or members of the management in form of options for acquiring an ownership share in a joint stock company.
The option of acquiring company shares means to have the right to purchase company’s shares at a certain price within a limited time period. An option contract or contract with stock options has to be concluded for this right.
Once the conditions from the contract are met, the worker can use the options and buy shares of the company with discount and thus become a participant in the ownership structure of the company.
Option contracts are often associated with startup companies that initially do not have the ability to provide sufficient compensation for their workers, but expect value growth and then they will reward those who have been part of the company since its inception.
With option contracts, companies also encourage workers to stay in the company and to work with motivation to develop the company and increase the value of shares.
As of 01 January 2019, a more favorable method of taxation was introduced and the tax burden on the allocation of option shares to employees and members of the management was reduced.
Shares acquired by members of the management and employees through stock purchase options, i.e. shares acquired by the company itself, have favorable tax treatment.
From the perspective of employees and board members, as expected, option shares have a more motivating effect, making them more productive given that it is in their immediate interest for the value of the company’s shares to increase.
Collection and securing the collection of receivables
According to the collectability criterion, receivables can be divided into collectible, partially collectible and uncollectible.
When collecting receivables, it is important to distinguish two grounds for determining enforcement: a credible document (invoice, interest calculation, bill of exchange and check protest, excerpt from business books, public document, legally certified private document, document considered a public document by special regulations, and enforcement document (enforcement court decision – judgment, decision, payment order, enforcement court settlement, enforcement settlement from the mediation procedure, enforcement decision of the arbitral tribunal, enforcement decision rendered in administrative proceedings and settlement, settlement before the courts of honor at chambers in the Republic of Croatia and notary decision and document). How to ensure collection of receivables? With a promissory note, bill of exchange, registration of a lien, guarantee, bank guarantee, insurance policy for collection of receivables, escrow account, including prior checking of the buyer’s creditworthiness.
Legal control – compliance of operations with legislation and control of operations from a legal aspect
It is extremely important for managers to make sure that business operations of the business entity are in compliance with legal regulations.
Why is this important?
Because it ensures:
- Manager’s full focus on business operations
- professionalism in the performance of operations
- lack of fear of control by the competent authorities and the consequences of imposing penalties
How it is implemented – through continuous control of compliance of business operations with legal regulations:
- checking the regularity of the company’s basic acts, status, management and property rights
- verification of compliance of contractual rights and obligations of the company with legal regulations and acts of the company
- checking the level of collection security and collection security instruments, the status of enforcement and other proceedings before courts, notaries and other bodies
- verification of the status and validity of trademark registration and industrial design, the degree of achieved protection of intellectual property, compliance of copyright and related agreements with legal provisions and verification of the legal status of Internet domains
- checking the compliance of personal data protection in the company (GDPR and personal data protection)
- checking the compliance of transactions with regulations on market competition protection and checking the existence of concentration
- checking the status of registration of real estate owned by the company, checking compliance with regulations on environmental protection, the existence of location, use and other permits for real estate of the company
- checking the compliance of labor law documentation with labor law regulations
- checking the status of safety at work
- preparation for inspection controls and controls of other competent bodies, checking the existence and preparation of procedures for acting in control procedures
Who conducts this – legal departments and lawyers.