Free zone is a part of the customs territory of B&H and is managed by whomever

established it, wherefore the free zone has the status of a legal entity.
In order to achieve the basic economic function of a free zone, an establisher is
bound to prove the economic justification of the zones establishment by
submitting an description of its intentions and aims.
The establishment of a free zone is economically justified if one can estimate that
the value of the goods exported from the free zone will exceed at least 75% of
the total value of the manufactured goods over a 12 month period.
Free zones operation permit can be deprived if the free zone establisher or
beneficiary does not respect the operating conditions prescribed by the Law, or
with the cessation of reasons or conditions on whose basis the approval was
originally issued.
Obtaining and protecting copyrights and related rights, as well as patent rights, is
done by a single statute at the state level of B&H, namely the statute for
standards, measures and patent rights
The LoIP has considerably redesigned certain patent rights, so the following
categories are subjects of protection:
1. Invention protected by a regular patent (20 years) and a patent with a shorter
duration (10 years),
2. Brand eligibility for differentiating goods and services is protected by
trademark,
3. A new form of a product is protected by industrial design and
4. A mark that specifies the geographical origin of the product is protected by a
geographical mark.
Regarding the protection of patent rights in B&H, foreign natural and legal
entities have the same rights as domestic natural and legal entities
Product - any industrial or trade product is understood, including the parts for
assembling them into a complex product, groups or compositions of237 products,
packing, modern patterns, graphic symbols and topographic marks, excluding
computer programs and semi-conductive products.
Name of goods can also be registered with a geographical mark that has become
known by its long use in economic trade as an indication that the goods originate
from a specific locality or region.
The most important novelties introduced by Law on Consumer Protection (LoCP)
refer to the protection of consumers over utilizing and rendering of services,
respectively, in the domain of public companies activities, electronic business
operation and legal protection of consumers through certain institutions, both at
the level of B&H and entities, as well as through civil-legal measures of
protection.
"Electronic money (e-money) an instrument that includes a card for memorizing
cash values or a computer buffer in which cash values are stored electronically
and enable its owner or user to transfer cash values.

Inspection monitoring and administrative measures, 2 groups of measures within

the LoCP:
stoppage of product sales and advertising until certain irregularities are
eliminated.
Regarding the system of sanctions, there are only pecuniary fines provided as
sanctions for offences, depending on the kind of offence. The pecuniary fines are
provided for legal entities as well as for
the responsible person in the legal entity.
By territorial competence, courts can be classified as B&H, District of Brko, RS
and Federation of B&H courts.
According to material competence, there are constitutional courts, courts of law
and courts for misdemeanors.
Each level of state organization has its procedural laws.
The state of B&H has two courts: the Constitutional Court and the Court of Bosnia
and Herzegovina. The first is regulated by the Dayton Agreement.
Duty of the Constitutional Court is to support the states constitution. It consists
of nine judges
elected by entity parliaments for a term of five years. The Court resolves disputes
between the
entities and the state of B&H and acts as the court of second instance for
constitutional issues addressed to it by any other court in B&H.
The B&H Court has the duty to provide for the effective implementation of B&H
state competencies and human rights within the territory of the whole country.
The Court has penal, administrative and appellate competencies. Accordingly, it
has three chambers with at least five judges in each.
The penal chamber, a panel of three judges, renders judgments for crimes
foreseen in the B&H Penal Code and other B&H laws.
The administrative chamber, a panel of three judges, passes judgments on the
legality of enforceable general and individual administrative acts, including those
related to foreign trade and FDI.
The appellate chamber has appellate jurisdiction on judgments passed by the
penal and administrative chambers. It consists of a panel of five judges.
The Brko District has a Lower Court and Appellate Court.
According to the Constitution of the Republic of Srpska, in the RS there is a
Constitutional Court. It has seven judges
In accordance with the Federation of B&H Constitution every canton has to have
both a community and cantonal court.
Misdemeanor courts are also established at the cantonal level. They are
competent for violations of cantonal laws and by-laws.

B&H law enables all methods of extra-judicial settlement of business law

disputes, including amicable resolution, mediation, conciliation and arbitration.
In case of dispute, the parties have two possibilities: to settle the dispute by
internal arbitration (ad hoc), or with institutional arbitration.
The practice in Bosnia and Herzegovina indicates that the arbitration clause is
provided for by the founding document (contract on foundation) - each party in a
dispute appoints one arbitrator, at their discretion, and the appointed arbitrators
elect a president.
The arbitration defines the procedure and its decision is final. In case of
obstruction by one party, the court has certain authorities (i.e., the appointment
of arbitrators).
In order to be valid, an arbitral agreement must be in writing. It may be
incorporated into the general conditions of dealing as well. The number of
arbitrators must be uneven.
The LoCiP contains detailed provisions preventing one party from obstructing
arbitral dispute resolution by refusing to nominate its arbitrator. In such cases,
the court that would have been competent for the dispute if the parties have not
concluded the arbitral agreement, nominates the missing arbitrator. Each party
can sue for annulment of the arbitration clause it the parties cannot agree on the
arbitrator they should nominate jointly. The same goes if the third person
empowered
to nominate the arbitrator cannot or does not want to nominate an arbitrator.
The law allows both ad hoc and institutional arbitrations.
By legal definition, the construction contract is a contract for services by an
independent contractor.
Consequently, the contractor, as a characteristic debtor, does not take up the
obligation of work but rather the obligation of achieving the contracted result.
The most important sources of law for construction contracts are acts.
Persons that assume obligations and rights based on the agreement include the
employer and the
contractor. In rules and practice the terms investor and constructor are also used.
They have the properties of parties.
Any legal or natural person registered for performing the activity of construction
may appear as a contractor. Only legal persons registered for the activity may be
involved in the constructions of
structures.
For the construction contract to be a business-law transaction, the investor must
also be a business entity. The investor may be either a natural or a legal person
on whose behalf and on whose account the structure is constructed and other
interventions on the land are made.

The investor must bestow designing, design control, construction and supervision
over the construction to legal or natural persons registered for performing the
respective activities
Tasks of designing, supervision over constructionand the design review are
entrusted only to legal or natural persons registered for their respective
activities.
Obtaining an investment program and investment-technical documentation is the
first group of preliminary activities an investor has to complete in order to form a
contract.
The investor forms a written contract with a designer, who draws up the
investment-technical documentation. The same contract can provide for both the
development of the investment
program and investment-technical documentation.
Upon obtaining the investment study and reviewed technical documentation, and
paying costs related to the structure, the investor must obtain an approval for
construction from the competent administrative authority. In practice, it is often
called a building permit.
First, approval is granted by the municipal administrative office in charge of
construction works on the territory where the works are to be performed.
Second, in the approval procedure, the administrative authority checks if the
technical documentation has been prepared pursuant to urban permit, law and
regulations pertaining
to the construction.
Third, the approval has to be granted or declined within 30 days starting from the
day of the application submission. It ceases to be effective if works do not start
within the time period
stated in the approval. Approval for construction is valid for two years starting
from the day of the validity of the approval. Upon the investors request it can be
prolonged for another year if the conditions of construction have not changed.
The investor independently decides on whether they will select the contractor by
means of public bidding procedure (public invitation for tenders), collection of
tenders or by direct negotiation.
When the performance of investment work in B&H is entrusted to a foreign
contractor, he must be selected either based on public bidding procedure or by
collecting tenders
Public bidding procedure is also called a public invitation for tenders.
This is a unilateral civil-law transaction whereby the investor publicly binds
himself that he will receive and consider all the tenders for the formation of a
construction contract that correspond with the conditions in the public invitation
A tender is a set of documents that accurately and thoroughly determines: the
uniform content of offers, except for price, an investor wants to receive, and the
investors procedure with the offers obtained in this way

Collection of tenders consists of inviting a certain circle of contractors directly,

rather than through a public invitation, to submit their offers for construction or
work.
A contract can be formed without conducting the procedure of public invitation
for tenders or a pre-qualification bidding only in cases determined by the law.
These can be classified into two groups.
The first includes the situations where a bidding procedure is not necessary at all
The second group of cases where it is possible to form a contract by direct
negotiation pertains to situations that require some sort of bidding procedure.
The object of the construction contract is defined in Art. 630 of the LoO in a
twofold way: as a building structure and as construction work.
A building structure is considered to be a building structure that is permanently
connected to the ground and that consists of a constructed system and installed
equipment that make up a technological whole within a technological process, as
well as autonomous facilities that are permanently connected to the ground.
Technical documentation always forms part of the contract.
The price is the compensation owed by the investor to the contractor for the
achieved result: the structure or completed construction work. The price is
always ascertained by an agreement between the parties.
The basis for contracting the price is the bill of quantities, although the price does
not have to correspond with the amount that the investor determined in the
priced bill of quantities.
There are three basic ways in which the price is ascertained.
The first is a flat-rate ascertainment, i.e. giving the total price for the entire
construction
The second and most frequent method used in practice is ascertainment of price
as a sum of unit prices for individual works. As a rule, the price of material is not
separated from the price of work;
Finally, the price can be ascertained by citing the expression turnkey, or another
phrase of a similar meaning.
The contracted price can be changed. If the contract does not contain separate
provisions on price modification, the contractor that is not tardy bears the price
increase up to 2%. If the contractor is tardy through a fault of his own, he bears
the burden of price increase up to 5%.
If the contractor is behind schedule, all decreases in price go in the investors
favour
The due date is the moment by which, or the period within which, the structure or
construction work has to be completed
The contract provides for the payment of a contractual fine if the contractor falls
behind schedule. As usual in the case of a contractual fine, the contract may
provide for the payment of a specified amount by contracted periods (e.g. 5,000
BAM for each day behind schedule), or as a percentage of the value of
uncompleted works for a specified time (e.g. 2% of contracted and uncompleted

works for each day behind schedule), or in the same way but by a progressive
rate (e.g. 2% for each day for the first ten days behind schedule, 4% for the next
ten days behind schedule, etc.). It is deemed that the fine has been contracted
for untimely fulfilment of contractual obligations if it has not been contracted
otherwise. The amount cannot exceed 5% of the total price of work.
Warranty periods for the quality of work are another essential element of the
contract. They last two years for the quality of work unless the contract or rules
provide otherwise
A separate period for the stability and safety of the structure, which is ten-years
long starting from the day the structure is handed over.
The investors obligations can be classified as either administrative or contractual
If the criteria include the time of occurrence, the obligations are classified into
preceding, in the course of construction, and upon the completion of
construction.
If the criteria include the time of occurrence, the obligations are classified into
preceding, in the course of construction, and upon the completion of
construction.
The investor must first of all deliver the construction site
The investor must deliver the following to the contractor: technical documen
tation with the necessary number of copies, the building permit and the receipt
that the funds have been approved.
Payment of the price is the investors basic obligation. Upon the completion of
the structure or work, the final settlement and payment between the parties is
made
Preceding obligations for contractors are few.
The first group includes compliance with the written form of the contract
The second examination of technical documentation, reporting the
commencement of work and taking safety measures
The contractor has the administrative obligation to report on the commencement
of work. It must
do this no later than eight days before the commencement of work.
The contractormust take all the necessary measures in due time to protect
thefollowing: the structure and work, equipment and material, staff, passers-by
and traffic, and neighbouring structures, pursuant to valid regulations and the
circumstances of the work.
The contractors duty is to maintain appropriate records.Their number and
content are not regulated equally, but cover approximately the same content. As
a rule, these records consist of the construction journal and the construction
book.
The journal is signed daily.

The construction book contains citations on the completion of individual phases

of work and for regulating relations between parties pertaining to this phase. It is
also signed by both parties.
Sound performance of works is a characteristic obligation of the entire contract
and the contractors fundamental activity.
This primarily means that he must fully comply with the main design and
feasibility studies, investmenttechnical documentation and other plans, as well as
with documents that form an integral part of the contract. In addition to these
contractual elements, the contractor must also comply with the public-law
regulations pertaining to them
If, during the performance, the contractor notices deficiencies or ambiguities in
the design, he must notify the supervisory organ or the investor without delay.
If the authorized person does not respond to the warning, and it concerns
deficiencies that pose a public threat, the contractor is bound to notify the
inspection organ about it. In case of acute danger, the contractor must halt work
temporarily on his own initiative.
Reporting on a surplus of work can also be included as an obligation concerning
the proper and conscientious performance of work.
For each deviation from the construction design, or contracted work, the
contractor must obtain written approval by the employer and designer pertaining
to his authorship. If he fails to do so, he cannot require an increase in the
contracted price for the work performed without such an approval. This refers to
a so-called surplus of work.
Allowing the supervision to which the investor is entitled is a contractors
coercive, dispositive and customary duty
Guarding the construction site: includes all the actions necessary to preserve the
work, materials and equipment from destruction, theft or deterioration. The costs
of guarding the site are born by the
contractor. He also bears the risk of damage caused by failure in performing this
duty.
The contractors last obligation preceding those within the phase of handing over
the structure or work is tidying-up the construction site.

Preceding actions:
Investment program and technical documentation
Approval for construction
Selection of contractor and formation of contract
Essential elements of the contract:
Object
Price
Due date

Contractual fine
Premium to the contractor
Warranty period for the quality of work
Written form of the contract
Investors obligations:
Preceding obligations
Introducing the contractor to the work
Supervision of construction
Payment of the price
Contractors obligations:
Preceding obligations
Maintaining construction records
Sound performance of work
Reporting on surplus of work
Allowing supervision
Guarding the construction site
Tidying-up the construction site
Taking-over of the structure:
Technical examination and certificate for occupancy
Taking-over of structure or work
Final acceptance of structure or work
Technical examination is a system of administrative and professional procedures
whereby a specially appointed commission establishes whether the structure
has been built in accordance with the technical documentation which formed the
basis for granting the approval for construction, and whether the structure has
been constructed pursuant to technical regulations, standards and general
rules the application of which is mandatory or necessary in order to prevent the
structures harmful effect on the environment.
Taking-over the structure or work involves a system of professional procedures
conducted by the parties or their representatives aimed at establishing the
conformity of the structure/work with the contract.
Final acceptance of structure or work is an examination conducted by the parties
upon the expiration of warranty periods. It is conducted by a commission
appointed by the investor and contractor. The object of control is the appearance
of possible hidden defects in the structure or work that could not be detected at
the time of provisional acceptance. Detected defects are stated in the minutes
and the time limit for their removal is determined. If the contractor does not
remove them, the investor can do so by himself or through third parties, though
at the contractors expense. As a rule the removal is funded from withheld
amounts of up to 2% of the price.
Liability of participants in the business:
Liability of designer, provider of opinion on land,
and investor
Contractors liability
Pursuant to general rules, the designer is liable for damages due to his omissions
in design.

The defects must be such that they threaten structural stability and safety. The
defects can be due to errors in design or land properties, if these were
determined by the designer himself. The designer can neither exclude nor restrict
this liability by a contract.
The professional geo-physical organization that gave its opinion on land
suitability for construction is liable for structural stability within a period of ten
years, the same as the designer.
The investor is liable for his monetary obligations pursuant to general rules on
this type of obligation. He bears damages on the structures only if they are due
to his orders.
The contractors liability is primarily one of a criminal nature.
An offence exists when work is performed in the protective infrastructure zone
contrary to the purpose it was set up, as well as in the case of performance of
work without an approval for construction
Special kinds of deals:
Turnkey
Other special kinds of construction contracts
In a construction contract, turnkey implies a construction deal where the entire
structure and all the works necessary for its completion are covered by a single
price. Surplus of work, urgent unforeseen work or foreseen work that do not
need to be done (deficit of work) have no effect on the price.
The features of an insurance contract are: synallagmaticity, chargeability,
formality, and in some cases properties of the third-party beneficiary contract.
In our practice, insurance is formed by a contract, and an insurance contract is
formed based on a written offer.
Written offer binds the offeror in an eight-day period starting from its arrival to
the insurer. The offeror can also specify a shorter period. In life insurance, if the
insurance requires a medical check-up, the offer binds the offeror for a thirty-day
period.
It takes as a rule that an insurance contract has been formed when contractors
sign the insurance policy or the insurance certificate.
The second way is applied when someone submits a written offer for forming an
insurance contract to the insurer, and the insurer accepts or does not reply that
they decline the offer.
Finally, the insurance terms and conditions can provide that for some cases the
contractual relationship from insurance may be created by the mere payment of
a premium
The insurer issues an insurance policy on the insurance contract formed.
A policy must include the following data: parties to the contract, insured item or
person, risk covered by the insurance, duration of insurance, and the time period

of coverage, sum insured or information on it if the insurance is unlimited,

premium, date of issuing the policy, and the signatures of contractual parties.
The insurance terms and conditions (policy conditions) must also be printed on
the policy.
A life insurance policy must also include the full name of the person whose life
the policy pertains to, his date of birth and the event or time period the
emergence of which gives the right to receive the payment of the sum insured
insured case
A policy may temporarily be replaced by an insurance certificate.
An insurance policy is a security. According to the contractors agreement, it can
be made out to a specified person, to order and to bearer.
A life insurance policy can be made out to a specified person or to order. It cannot
be made out to bearer.
Insurance certificate is a written document whereby the insurer notifies the
insured that they accept the latters offer and will take over the insurance
immediately. It lasts until a policy is issued.
Policies are typically classified into: maritime and land; individual and collective;
individual and general; valued and unvalued, and cargo and casco policies.
Elements of contract:
Parties
Object of insurance
Risk
Premium
Ensured ammount
Duration of ensurance
An insurer is a legal person or organization whose activity includes providing
insurance tasks.
Insurance contractor - Any person that has an interest for the insured case not to
occur, since they
would incur a material loss otherwise
The object of insurance should be viewed as the property the normal existence of
which the parties are interested in, the one that protection from risk is being
provided, and the one the contract has been formed around.
For an object to be insured, it must be exposed to risk.
Risk primarily implies an element of uncertainty. It is not certain whether the
event against which one is insured will happen to the insured object.
Uncertainty is an essential, decisive element of risk.
The law sets forth two more conditions for risk to be covered by insurance. First,
that the link between the insured and insured property is protected by law, legal
(that the items are not stolen) or, in the insurance of persons, that the activities

when the person is exposed to risk are not illegal (injury while breaking and
entering).
Secondly, for an event to be taken as risk against which one is insured, it should
be repetitive.
Insurance can apply to one or more risks
Premium is the amount paid by the insurance contractor into the insurance fund
as the price for risk taken up by the insurer.
The insured amount (insured sum) in the contract is the specified value of
property interest which is concentrated in the object of insurance for the
contractor
Indemnity implies the amount paid by the insurer to the insurancebeneficiary
from the insurance fund when the event provided for by the contract happens,
when the risk covered by insurance
occurs.
In property insurance, the indemnity is not contracted, it depends on the damage
suffered.
In the insurance of persons, the insured amount, which represents the amount of
indemnity, is contracted.
The duration of insurance is the period within which the insured is covered by
insurance.
Duration of insurance is first determined by the contract
An insurance contract produces its effect starting from the twenty-fourth hour of
the day specified as the starting day of the insurance period in the policy.
Exceptions are provided for in some
special cases.
An insurance contract produces its effect starting from the twenty-fourth hour of
the day specified as the starting day of the insurance period in the policy.
Exceptions are provided for in some
special cases.
Insured persons obligations:
Providing information about the risk
Payment of premium
Notification of the insured case and change of risk
Care of the insured item
When forming the contract, the contractor is bound to report to the insurer all the
circumstances significant for the assessment of risk that are known to them, or
that could not remain unknown
If the insurance contractor intentionally provided untrue data, or failed to disclose
a circumstance that could be significant for the risk assessment, so that the
insurer would not have formed such a contract if they had known the actual state

of affairs, the insurer can ask for the annulment of the actual contract within a
three-month period provided for by law.
If the insurance contractor did not do it intentionally, the insurer can either
decide to terminate the contract, or propose an increase in the premium
proportional to the increased risk. If the insurance contractor does not accept the
proposal for the increase in premium, the contract ceases by force of law.
The insurer that knew or could know that the received data are untrue at the
moment of contract formation, or that the contractor failed to disclose some
information, cannot exercise their right for this reason.
The insurance contractor is bound to pay the premium. However, the insurer is
bound to receive the premium from anybody that has a legal interest for it to be
paid.
As a rule, it is paid in advance
In life insurance, if the premium is not paid when due, the insurer warns the
contractor and gives them a deadline for the payment of the overdue premium.
The deadline cannot be shorter than 30 days.
If the premium is not paid, the insurer can terminate the contract. The insurer
cannot terminate the contract if the premiums for at least three years have been
paid up to that time. In this case, they will decrease the insured amount to the
amount of the surrender value of the insurance policy.
As soon as the insured case occurs, and no later than three days after it, the
insured is bound to report it to the insurer, so that the insurer can check the
conditions and determine the damage, i.e. the harmful7consequences of the case
If the insurance contractor did not participate in the increase of risk, the deadline
for notification is 14 days
The insured is bound to take due care of the insured property and maintain it in
order.
Insurers obligations:
Payment of indemnity
Other obligations of the insurer
Upon establishing that the insured case has occurred, the insurer is bound to pay
indemnity, i.e. the contracted insured amount to the insured, i.e. policyholder, if
the policy was issued to the bearer.
The deadline for indemnity payment is no longer than 14 days from the day of
receiving the notification that the insured case has occurred.
The insurer is first bound to ensure the coverage of their insurance obligations
through reinsurance or coinsurance if they could not cover them with premiums
and reserves.
Second, the insurer has to organize their economic activity in conformity to the
economic principles of insurance.

The obligation of the insurer is to make their general documents which determine
the economic basics of their business, such as insurance rules, tariffs, insurance
terms and conditions, etc. available to the public.
Fourth, the insurer is bound to notify the insured on the insurance terms and
conditions.
The insurer is bound to organize protection from risk and, to this goal, organize
and take measures of prevention and repression, to create various funds and
strengthen them.
Insurance covers both the risks of the effects of force majeure and of harmful
human activities.
In case of multiple insurance, each insurer is liable for the fulfillment of his
obligations in full.
The most frequently adopted classification of insurance, accepted in our law as
well, is property insurance, insurance of persons, and maritime insurance.
According to the way in which it is created, insurance is classified as either
voluntary or mandatory.
Reinsurance is the insurance of the insurer and is therefore called risk
distribution. It serves to secure the means for paying indemnity and insured
amounts when the insurers means do not suffice.
It is deemed that an insurance contract has not even been formed, that it is null
and void, if at the moment of its formation the insured case has already occurred,
or was in the process of occurrence, or if it has become certain that it will occur.
Bankruptcy over the insurer also leads to the cessation of the contract by force of
law.
If the period of insurance has been contracted, the contract ceases to exist on
the last day of the period
The contract can be terminated by one partys statement of will when there are
conditions provided by law.
E-business is a general concept that encompasses all the forms of business
transactions or information exchange performed using information and
communication technology
Contract law is the foundation of every economic system. Each sale of goods or
services, as well as property transfer, is based on contracts.
The most important problems of e-business relate to the techniques of making
contracts via electronic messages using ICT, and the identification of the
signatory and verification of the signed electronic records authenticity in case of
dispute.
The European Union has issued a number of directives/guides pertaining to ebusiness. They can roughly be classified into three areas: ICT regulation, ebusiness and intellectual property

Two forms of electronic signature: electronic signature and advanced electronic

signature.
Electronic signature means the messages in an electronic form that are attached
to or are logically associated with other electronic messages, and serves as a
method of authentication.
Advanced electronic signature is defined functionally, by determining the
requirements an e signature must meet in order to be qualified as advanced.
Advanced electronic signature shall be admitted, relative to the data in the
electronic form, the effect equal to the handwritten signature on a paper-based
document.
The B&H legal framework was devised in four basic ways: by taking over the
regulations of ex-SFRY, by entities legislative activities, by cantonal legislation
and by passing regulations of the state of
B&H.
A payment order issued in an electronic form must be signed with a qualified
electronic signature.
An e-signature has the equal validity of a hand-written signature certified by a
stamp. Its legal force or admissibility as evidence cannot be denied solely for the
reason of its being in an electronic
form, for not being based on a qualified certificate or certificate issued by a
qualified certification body, or for not being created using the means for
generating a qualified electronic signature.
A secure e-signature meets legal requirements for a personal signature, the
written form in particular, if not otherwise determined by a separate law or
agreement between the parties to the contract.
Electronic contracting is primarily based on concluding contracts using standardform contracts where negotiation is not possible.
Elements of contract making:
offer
acceptance
Concluding a contract via electronic messages and using ICT involves browsing
processes (e.g. browsing the offerors web site), making offers, their acceptance,
authorization of payments and
payment itself as a way to accept by facta concludentia
Securities are a source of obligations based on unilateral expression of will
There are two types of rights related to securities: the right to the security and
the right under the security.
Right to the security is the real right on the instrument itself in the physical
sense, while the right
under the security is the property right incorporated in the instrument
Depending on the type of security, they can serve as instruments of: payment,
long-term lending, short-term lending, capital accumulation, transfer of goods
and guaranties

Rights and obligations under securities cease pursuant to general rules on the
cessation of obligation (upon fulfilling the obligation indicated in the security,
limitation, waiver of debt, novation, compensation or confusion), and special
rules pertaining to securities.
Mortification is a private-law procedure of declaring a security null and void,
based on an agreement between the debtor and creditor, and has to be
permitted by law for the given security.
The security holder that suffers damages to the extent that it is not suitable for
trade and its truthfulness and contents can be established with certainty can, at
his own expense, request the
issuance of a new security, the damaged one being returned to the issuer
Shares can be issued by joint-stock companies and limited stock partnerships.
They are negotiable (transferred through a legal transaction on ownership
transfer), and fungible (it
makes no difference for the buyer which shares he will obtain as long as they
provide the appropriate kind and scope of rights).
The essential elements, i.e. the mandatory parts of securities, defined
by law are:
1. designation of the type of security;
2. company name and registered office / name and residence of the issuer;
3. company name or name of the person the security is made out to
/ on whose order it is made out / designation to the bearer;
4. accurately defined issuers obligation;
5. place and date of the issue, and the serial number*;
6. signature / facsimile of the issuers signature*;
(*when a security is issued in a series)
Depending on the type of investment, shares are classified into:
1. cash they are bought with payments in money, in domestic or foreign
currency
2. in kind which are acquired by payments in kind (objects and/or rights).
The shareholders standard obligations include:
1. payments for the share in money or in kind (objects and rights) pursuant to the
memorandum of association or the decision on shares issue,
2. reporting the acquiring ownership of shares to the Securities Registry,
3. acceptance of conversion, denomination, share merger or split, if the company
makes a decision on them, which is approved by the Securities Commission,
4. keeping the trade secret, confidential information and documents.
Shareholders standard rights include:
1. management rights, which include: the right to vote by the principle one
share, one vote, participation in work and decision- making at the shareholders
general meeting, nominating
candidates for the supervisory board and the right to be elected to the board,
right to information on company activities and business, and on essential facts
related to each member of management, access to business-related documents,
right to refute general meeting decisions, acquiring a certificate on the owned
shares, and access to his own securities account in the Registry, etc, and

2. property rights, which include: participation in the distribution of companys

profit proportionate to the share in equity, participation in the distribution of
company assets remaining after bankruptcy
or liquidation, purchasing, selling and pawning of shares
Rights below the level of standard rights are possessed by holders of non-voting
(dividend) shares. In this case, the shareholders do not have voting rights, but do
have standard property rights
Shares are issued through a public offer if the public invitation is sent to an
unknown number of parties, using public media outlets
Private offering (private placement) is an issue of securities where invitations for
subscription and payment of securities are sent to a known buyer: institutional
investors, shareholders or issuers
employees, or up to 20 persons defined as external investors.
Conversion, denomination, merger and split of shares are performed based on
the issuers decision and approval by the Commission. Conversion of shares
includes the withdrawal of all the shares of one class and simultaneous issue of
new shares of another class (e.g. the conversion of preferred into ordinary
shares). Denomination implies the withdrawal of all shares of one nominal value
and simultaneous issue of new shares of the same class with proportionately
decreased nominal value (e.g. ordinary shares with the nominal value of 100 BAM
are replaced with the same number of ordinary shares with the nominal value of
80 BAM). Merger of shares is the withdrawal of all shares of one nominal value
and simultaneous issue of new shares of the same class, in order to replace
existing shares with fewer new shares of greater nominal value (e.g. 2 ordinary
shares valued at 10 BAM for one share valued at 20 BAM)
Shares and other securities are freely transferable. Trading in securities implies
sale and purchase as well as any other legal transaction that may serve as the
basis for a transfer of ownership over a security

1. Ordinary (common) shares typically grant standard rights.

2. Preferred (preference) shares include special rights, primarily property rights,
which are greater than the rights included in ordinary shares.
3. Dividend shares, or non-voting shares, grant only the right to collect dividends,
and do not grant the right to vote. Holders of such shares do not take part in
management and in some laws are not even considered company members.
4. Employee shares differ from other classes in terms of the conditions and ways
of their acquisition, the subjects that can acquire them (employees) and the
restrictions on their disposal.
A joint-stock company cannot, directly or indirectly through another person acting
on its behalf and on the companys account, subscribe its own shares
A bond is a debt security that gives the holder the right to collect the nominal
amount (principal) and the interest or any other income that may be generated
pursuant to the Law and the decision on bond issue

Bonds are classified according to various criteria. Depending on the issuers

position, there are:
1. state, government and municipal bonds
2. corporate bonds bonds issued by a corporation.
A bill of exchange is a security whereby one person (drawer of a bill) gives an
unconditional promise that they will pay a given amount of money, or whereby
they give an unconditional order to a second
person (drawee) to pay a certain sum of money either to, or to the order of, the
person specified on the bill (payee)
Depending on who will pay the bills sum there are two basic types of bills of
exchange:
1. promissory note, whereby the issuer (promissor) unconditionally promises to
pay the bills sum to the person specified on the bill (promisee or payee), and
2. drawn bill of exchange or draft (henceforward: bill of exchange), whereby the
issuer gives an unconditional order to another person to pay the bills sum to the
person specified on the bill, or to its order, to a third person
The essential elements of a bill of exchange are:
1. designation that it is a bill of exchange,
2. unconditional order to pay a specified sum of money,
3. drawers signature,
4. drawees name,
5. payees name,
6. place of issue,
7. place of payment,
8. date of issue, and
9. designation of maturity
The essential elements of a promissory note are the same, except that there is no
drawee
The drawer as the issuer must have business capacity and must sign the bill,
since he is the only debtor under the bill at the moment of its issuance. If the
drawer is a legal person, the authorized persons signatures must be
accompanied by the companys name, and as a rule the bill is stamped. A few
drawers can be listed (co-drawers), and they can be only joint (cumulative)
debtors. The drawee is the person that should make the payment, and it can be
any person with business capacity. The payee is a creditor, a natural or legal
person to whom the bills sum should be paid. The bill may include a few drawees
and/or payees, alternatively or jointly
Each person from the bill of exchange can authorize a proxy for taking a billrelated action, and their relationship is resolved pursuant to the rules of the Law
on Obligations. Taking bill-related obligations requires a special power of attorney.
If the proxy exceeds his authorizations, he becomes a joint and several debtor
under the bill.
A bill of exchange is issued by a drawer, and the action of issuance consists in
filling in the form and adding the issuers signature.
The capacity to take obligations under the bill is called a passive capacity under
the bill. On the other hand, active capacity under the bill is a persons capacity to
be a creditor under the bill of exchange.

A bill can be transferred by cession and by endorsement.

Endorsement is a specific way of transferring securities to order, whereby the
prior bill holder (endorser or guarantor) transfers the rights under the bill to a
new holder (endorsee). As a rule, it is
written on the back of the bill
Cession is the assignment of the claim through a contract between the prior
creditor (assignor) and a third party (assignee), who becomes a new creditor
Restrictive endorsement revokes the capacity of bill transferability to the order,
by adding, to the statement on transfer: not to the order or not to his order
Debt under a bill of exchange is claimable and the creditor is bound to present
the bill for payment on the day it falls due, or two working days upon its maturity
to the main bill debtor
If the drawee declines to accept or pay a bill, fully or partially, the bill holder
acquires the right to address recourse debtors, and the procedure conducted
therein is a recourse procedure.
Right of recourse is the right pursuant to which a bill holder may request a bill
payment from recourse debtors
Acceptance for honour supra protest is a bill-of-exchange legal action whereby a
person (acceptor for honour) accepts or pays a bill instead of a bill debtor
(honouree) in cases when a bill holder has acquired a right of recourse under the
bill
A drawer can issue a bill in a few identical copies, whereby each copy is deemed
to be original and has its own number
Each bill holder has the right to make a transcript, i.e. a copy of a bill that must
include everything the original does, with a note that it is a transcript &
information who holds the original
Amortization of a bill of exchange is an out-of-court proceeding whereby a lost bill
(stolen, burnt down) is pronounced null and void
There are two types of claims under a bill:
1. regular lodged against the main bill debtor, and
2. recourse lodged against recourse debtors.

Depending on the form and content of the bill document at the moment of
issuance, a bill of exchange can be:
1. complete at the moment of issuance it contains all the essential elements,
and
2. blank temporarily incomplete, does not include all the essential elements at
the moment of issuance.

A check (cheque) is a security whereby the issuer (drawer) gives an unconditional

order to the drawee to pay at sight (on demand) the specified amount of money
to the check beneficiary (payee) out of his account
A check is payable at sight, and as such it represents a means of cashless
payment, a payment instrument.
As opposed to a bill of exchange, writing some clauses on a check is not allowed.
The essential elements of a check include a specification that it is a check (which
appears in its text), an unconditional order to pay a specified amount of money
from the drawers account with the
drawee, the drawees name, the place of payment, the place and date of issue,
and the drawers signature
A check must be filled at the moment of issue
Check is payable at sight, and the check beneficiary is bound to present it to the
drawee for payment within the period determined by law.
Issuing a bad check (a check that is not honored because the account contains
insufficient funds) results in the drawers administrative-law liability