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19 January 2024
newsletter
north macedonia

Navigating the legal landscape of the Macedonian growing start-up sector

Macedonian start-up ecosystem is in a state of constant evolution, driven by legal reforms fostering innovation and entrepreneurship. With the introduction of the simplified limited liability company, convertible loans, digital payment systems and expanded global market entry, these legal changes have played an important role in advancing the Macedonian start-up scene. Nonetheless, it is crucial to systematically address pertinent legislative updates to ensure continual growth and competitiveness in the dynamic global market.

Amendments to the Company Act

Two amendments to the Company Act (2004) have enabled improvements to Macedonian start-up ecosystem. The first one ushered in the era of simplified limited liability companies, while the second one established the convertible loan regime.

The introduction of the simplified limited liability company allowed companies to be established with starting capital of EUR 1. The minimum nominal amount of the basic share capital pegged at EUR 0.10 in MKD counter-value is only allowed in monetary contributions. Such a company may be established by three founders, one of whom is the manager. The purpose of this amendment was to give aspiring entrepreneurs without the necessary funds the opportunity to transform their ideas into reality by establishing a simplified limited liability company.

In terms of the convertible loan regime, an increase in business angel activity has been seen in North Macedonia in recent years. Recognising the need for a proper legal framework, the amendment addressed the constraints on converting loans into shares, which were formerly confined to situations where the loan originated solely from one shareholder. This restriction often deterred potential investments from business angels in Macedonian start-ups. The amended provisions now enable third-party investors to offer loans that can be converted into shares, simultaneously stipulating that the conversion must occur no later than the end of the third year following the signing of the loan agreement. These new provisions give investors the flexibility to convert their loans into company shares, aligning with a realistic valuation of the firm when it becomes feasible. This forward-looking approach aims not only to attract but also to retain investment in the dynamic Macedonian start-up sector.

Improvement of the payment services regime

One of the biggest challenges for start-ups in North Macedonia has been the lack of international payment services that enable the receipt of payments from clients abroad, impeding their ability to fully engage in global business. Relying on platforms like PayPal for outgoing payments without the ability to receive funds has posed a hurdle, prompting businesses to establish a presence in EU Member States to achieve smooth global integration.

Significant steps have been taken to close the gap. During a bilateral meeting between the Ministry of Information Society of the Republic of North Macedonia and the Ministry of Public Administration of Montenegro on 27 July 2023, the Macedonian Minister for Information Society announced the collaborative intention of North Macedonia and Montenegro to join the PayPal online payment system, as proposed by PayPal. This promising initiative is expected to grant Macedonian start-ups full access to PayPal services, opening fresh opportunities for global market expansion.

At the same time, there have been significant updates to domestic legislation on payment services. In April 2022, the Macedonian assembly passed the Payment Services and Payment Systems Act, demonstrating strong alignment with European Union directives, such as the Directive on Payment Services in the Internal Market, also known as "PSD2", among other directives and regulations. This act entered into force on 1 January 2023, establishing a legal framework for the evolution of payment services and the transformation of the payment service industry. A crucial outcome of this legal development has been the liberalisation of the payment services market. The entry of new payment service providers, particularly from the fintech sector, has created fertile ground for the emergence and growth of fintech start-ups in North Macedonia.

Persistent challenges and paths forward

Despite these amendments and novelties, the legal framework for start-ups in North Macedonia is still evolving. In September 2021, the National Startup Council of North Macedonia published "Proposed Measures for Accelerated Growth of the Macedonian Startup Ecosystem". Some of the proposed measures have been implemented, such as the aforementioned amendments to the Company Act, reflecting a dedication to fostering a more suitable business environment for start-ups.

For instance, on 9 November 2021, the Proposal for an Act to Amend and Supplement the Foreigners Act was published. It envisions the introduction of a legal framework by defining digital nomads and establishing conditions and criteria for them to obtain approval for temporary stays of up to one year in North Macedonia. As of the time of this writing, however, the proposal is yet to enter the assembly procedure. It is difficult to say if it will be adopted and when.

While there is ongoing public discourse about the potential enactment of a new Labour Act, specific areas like equity compensation for employees, remote working hours and telecommuting have emerged as crucial aspects requiring regulation or further amendment. Addressing these matters under the new Labour Act is essential for enhancing the Macedonian start-up ecosystem. Finally, the improved convertible loan regime, a positive step for start-up financing, necessitates a complementary regulatory framework for business angels. The absence of a dedicated act leaves a void in defining the parameters within which these investors can operate effectively. Establishing a robust legal environment for business angels is the next logical step, ensuring that the benefits of the improved convertible loan regime are maximised.

Authors: Igor Živkovski, Filip Zafirovski