Who is Obliged to Prepare a Corporate Governance Report?

In practice, a common question and point of confusion is who is required to prepare a corporate governance report - whether it applies to all large legal entities or only to those with the status of a public interest entity.

Under the legal framework of the Republic of Serbia, the status of a public interest entity is clearly defined by the Law on Accounting and the Law on Audit. According to the Law on Accounting, a public interest entity is one classified as such under the law governing the audit of financial statements.

The Law on Audit further specifies that the following entities fall under this group:

• Large legal entities, classified in accordance with the Law on Accounting;
• Public companies, in accordance with capital market regulations;
• Entities of special importance that the Government may declare as public interest entities, regardless of their size.

This establishes that every large legal entity automatically acquires the status of a public interest entity.

However, the question arises - does this also mean an automatic reporting obligation?

The answer is no. Although a legal entity may be classified as a public interest entity, this does not mean it is required to prepare a corporate governance report. 

Specifically, the Law on Accounting clearly stipulates that this report is an integral part of the annual business report only for:

• Public companies, i
• Companies preparing to become public, in accordance with the Law on Capital Market.

Who are Considered Public Companies Under the Law on Capital Market?

According to the Law on Capital Market, a public company is an issuer of securities that meets at least one of the following criteria:

• it has successfully conducted a public offering of securities in accordance with a prospectus approved by the Securities Commission;
• its securities are admitted to trading on a regulated market or a multilateral trading facility in the Republic of Serbia.

Therefore, a large legal entity that does not fall into one of these two categories, although considered a public interest entity, is not required to prepare a corporate governance report.

This interpretation has also been confirmed in the opinion of the Ministry of Finance, explicitly stating that the corporate governance report is mandatory only for public companies and those preparing to become public. 

Conclusion

Although a large legal entity is automatically classified as a public interest entity, this does not automatically trigger the obligation to prepare a corporate governance report. Such an obligation applies exclusively to public companies and those preparing to become public. 

Therefore, prior to preparing the annual business report, it is essential for a legal entity to accurately determine its status on the capital market.

Ana Radojević

Senior Associate

ana.radojevic@prlegal.rs; legal@prlegal.rs;