Lifting the Corporate Veil in Montenegro
Lifting the Corporate Veil in Montenegro
October 2025
Dijana Raickovic, Legal Counsel
Law Offices of Jovovic, Mugosa & Vukovic
The legal concept of lifting the corporate veil, or the illusion of legal personality, originates from Anglo-Saxon (English) law.
The general principle is that a limited partner, a member of a limited liability company, and a shareholder are not liable for the obligations of the company. However, if members of these companies abuse the rules regarding the separation of company assets and their personal assets, or otherwise misuse the company by treating its assets as their own (for personal gain or the benefit of third parties), they become jointly and unlimitedly liable for the company’s obligations. This concept serves as a creditor protection mechanism by establishing joint and unlimited liability for company owners who, by abusing their position, prevent creditors from collecting claims from company assets.
Legal Framework
This concept was introduced into domestic legislation by the amended Law on Enterprises of the SFRY in 1988, later regulated by the Law on Enterprises of the FRY in 1996, the Company Act of Montenegro in 2002, and subsequently by the Company Act of 2020 and the new Company Act effective from 1 January 2026.
Despite frequent abuses in business practices aimed at evading creditors, the application of this concept in practice remains limited. Reasons include insufficient awareness, difficulty in proving abuse, and lack of judicial practice.
In Montenegro, there is a significant number of single-member limited liability companies (LLCs), family-owned LLCs, and certain joint-stock companies with controlling or majority ownership, or where the parent company owns 100% of a subsidiary – structures prone to abuse.
The current Company Act (Article 12, paragraph 2) defines abuse as when a limited partner, LLC member or shareholder:
- uses the company to achieve a prohibited goal;
- uses the company or its assets to the detriment of creditors;
- manages or disposes of company assets contrary to the law;
- reduces company assets for personal or third-party gain, knowing or having to know that the company will be unable to fulfill its obligations.
Creditors are actively entitled to file a claim against a company member within six months of discovering the abuse, and no later than three years from the date of the abuse. If the creditor’s claim was not due at the time of discovery, the six-month period begins from the due date. Filing a claim does not affect the creditor’s right to collect the claim through other legal means.
On the other hand, passive legitimacy lies with the limited partner, LLC member or shareholder, including former members who committed the abuse.
The new Company Act (effective 1 January 2026) regulates this concept similarly in Article 17, but introduces a novelty: abuse also includes any form of disregard or violation of the company’s legal personality, not only by the company member but also by related persons (natural or legal), as defined in Article 45 of the Act, which outlines related parties (based on family ties, direct or indirect management participation – significant shareholding or control).
Claims are filed with the Commercial Court of Montenegro, pursuant to Article 18, paragraph 1, item 2 of the Law on Courts.
Evidence
Proving abuse by a company member is quite demanding in practice.
Evidence may include written documents, witness testimony, party hearings, and expert financial analysis depending on the nature and complexity of the case.
The court must establish that a legal transaction or action constitutes abuse under Article 12, paragraph 2 of the Act. Examples include mixing company and personal assets, using company funds for personal purchases (real estate, vehicles), transferring assets to relatives or third parties, money laundering, or asset disposal when the member knew or should have known the company couldn’t meet its obligations.
The plaintiff must state facts and provide evidence (per Article 217 of the Civil Procedure Law) showing that the defendant committed the alleged abuse. The burden of proof lies with the party presenting the factual claims. However, negative facts cannot be proven. For instance, if the plaintiff proves that company funds were transferred to relatives without legal basis, the defendant must prove that a valid legal basis existed.
Findings and opinions of financial experts can be crucial. Experts in accounting, auditing and finance should identify inaccuracies in financial reports, false invoices, black-market sales, fictitious transactions with related companies, hidden profit distributions, misuse of company funds, fraudulent bankruptcy and other manipulations.
In neighboring jurisdictions (Serbia, Republic of Srpska), courts often engage financial-forensic experts. Montenegro’s Ministry of Justice does not currently list such experts.
Specialised forensic training for financial experts would enhance a multidisciplinary approach – law, finance, accounting, auditing, banking, stock exchange, business, IT – and facilitate abuse detection.
Judicial Practice
The Commercial Court of Montenegro has handled several cases involving this concept.
In one case, the sole owner of an LLC submitted a request to the Central Registry of Business Entities (CRPS) for company dissolution via simplified liquidation, including a notarised statement declaring no outstanding obligations to creditors or employees, and accepting joint and unlimited liability for three years post-dissolution. However, the company had outstanding claims known to the owner. The false statement constituted abuse, and the creditor had the right to sue the owner, who was ordered to pay the creditor’s claim.
In another case, the company ceased to exist after bankruptcy due to lack of assets. Insolvency alone wasn’t sufficient to prove abuse. The owner (100% shareholder) offered personal assets to settle debts, returned goods and equipment and cooperated with creditors. The court found no abuse.
Bankruptcy does not exclude the application of lifting the corporate veil. Creditor recovery from the owner does not harm other creditors, as it does not reduce the bankruptcy estate. In fact, it may increase the recovery rate for other creditors.
Another case involved former and current owners of an LLC who abused the company, which was dissolved via voluntary liquidation. The second defendant left the company and founded a new one, while the first defendant initiated liquidation after a court ruling against the company. He appointed himself as liquidator and falsely declared no obligations. The court found that these actions – false statements and asset transfers – constituted lifting the corporate veil, and ordered both defendants to compensate the plaintiff.
Conclusion
Lifting the corporate veil is a vital mechanism for protecting creditors from irresponsible and unethical behavior by company members. Although legally established since the late 1980s and still present in Montenegrin legislation, its practical application remains limited due to evidentiary complexity, lack of case law and specialised knowledge.
Court cases in Montenegro and the region show that courts recognise and sanction abuse, especially in cases of concealed obligations, asset mixing and business transfers to avoid liability. However, such cases are rare, indicating the need for stronger case law and education for legal and financial professionals.
The new Company Act , effective in 2026, expands liability to related persons, creating a broader basis for preventing creditor evasion and abuse of limited liability.
Further development of this concept through a multidisciplinary approach – law, finance, accounting, auditing and forensics – is essential for its effective application and creditor protection in business practices.
October 2025
Dijana Raickovic, Legal Counsel
Law Offices of Jovovic, Mugosa & Vukovic
The legal concept of lifting the corporate veil, or the illusion of legal personality, originates from Anglo-Saxon (English) law.
The general principle is that a limited partner, a member of a limited liability company, and a shareholder are not liable for the obligations of the company. However, if members of these companies abuse the rules regarding the separation of company assets and their personal assets, or otherwise misuse the company by treating its assets as their own (for personal gain or the benefit of third parties), they become jointly and unlimitedly liable for the company’s obligations. This concept serves as a creditor protection mechanism by establishing joint and unlimited liability for company owners who, by abusing their position, prevent creditors from collecting claims from company assets.
Legal Framework
This concept was introduced into domestic legislation by the amended Law on Enterprises of the SFRY in 1988, later regulated by the Law on Enterprises of the FRY in 1996, the Company Act of Montenegro in 2002, and subsequently by the Company Act of 2020 and the new Company Act effective from 1 January 2026.
Despite frequent abuses in business practices aimed at evading creditors, the application of this concept in practice remains limited. Reasons include insufficient awareness, difficulty in proving abuse, and lack of judicial practice.
In Montenegro, there is a significant number of single-member limited liability companies (LLCs), family-owned LLCs, and certain joint-stock companies with controlling or majority ownership, or where the parent company owns 100% of a subsidiary – structures prone to abuse.
The current Company Act (Article 12, paragraph 2) defines abuse as when a limited partner, LLC member or shareholder:
- uses the company to achieve a prohibited goal;
- uses the company or its assets to the detriment of creditors;
- manages or disposes of company assets contrary to the law;
- reduces company assets for personal or third-party gain, knowing or having to know that the company will be unable to fulfill its obligations.
Creditors are actively entitled to file a claim against a company member within six months of discovering the abuse, and no later than three years from the date of the abuse. If the creditor’s claim was not due at the time of discovery, the six-month period begins from the due date. Filing a claim does not affect the creditor’s right to collect the claim through other legal means.
On the other hand, passive legitimacy lies with the limited partner, LLC member or shareholder, including former members who committed the abuse.
The new Company Act (effective 1 January 2026) regulates this concept similarly in Article 17, but introduces a novelty: abuse also includes any form of disregard or violation of the company’s legal personality, not only by the company member but also by related persons (natural or legal), as defined in Article 45 of the Act, which outlines related parties (based on family ties, direct or indirect management participation – significant shareholding or control).
Claims are filed with the Commercial Court of Montenegro, pursuant to Article 18, paragraph 1, item 2 of the Law on Courts.
Evidence
Proving abuse by a company member is quite demanding in practice.
Evidence may include written documents, witness testimony, party hearings, and expert financial analysis depending on the nature and complexity of the case.
The court must establish that a legal transaction or action constitutes abuse under Article 12, paragraph 2 of the Act. Examples include mixing company and personal assets, using company funds for personal purchases (real estate, vehicles), transferring assets to relatives or third parties, money laundering, or asset disposal when the member knew or should have known the company couldn’t meet its obligations.
The plaintiff must state facts and provide evidence (per Article 217 of the Civil Procedure Law) showing that the defendant committed the alleged abuse. The burden of proof lies with the party presenting the factual claims. However, negative facts cannot be proven. For instance, if the plaintiff proves that company funds were transferred to relatives without legal basis, the defendant must prove that a valid legal basis existed.
Findings and opinions of financial experts can be crucial. Experts in accounting, auditing and finance should identify inaccuracies in financial reports, false invoices, black-market sales, fictitious transactions with related companies, hidden profit distributions, misuse of company funds, fraudulent bankruptcy and other manipulations.
In neighboring jurisdictions (Serbia, Republic of Srpska), courts often engage financial-forensic experts. Montenegro’s Ministry of Justice does not currently list such experts.
Specialised forensic training for financial experts would enhance a multidisciplinary approach – law, finance, accounting, auditing, banking, stock exchange, business, IT – and facilitate abuse detection.
Judicial Practice
The Commercial Court of Montenegro has handled several cases involving this concept.
In one case, the sole owner of an LLC submitted a request to the Central Registry of Business Entities (CRPS) for company dissolution via simplified liquidation, including a notarised statement declaring no outstanding obligations to creditors or employees, and accepting joint and unlimited liability for three years post-dissolution. However, the company had outstanding claims known to the owner. The false statement constituted abuse, and the creditor had the right to sue the owner, who was ordered to pay the creditor’s claim.
In another case, the company ceased to exist after bankruptcy due to lack of assets. Insolvency alone wasn’t sufficient to prove abuse. The owner (100% shareholder) offered personal assets to settle debts, returned goods and equipment and cooperated with creditors. The court found no abuse.
Bankruptcy does not exclude the application of lifting the corporate veil. Creditor recovery from the owner does not harm other creditors, as it does not reduce the bankruptcy estate. In fact, it may increase the recovery rate for other creditors.
Another case involved former and current owners of an LLC who abused the company, which was dissolved via voluntary liquidation. The second defendant left the company and founded a new one, while the first defendant initiated liquidation after a court ruling against the company. He appointed himself as liquidator and falsely declared no obligations. The court found that these actions – false statements and asset transfers – constituted lifting the corporate veil, and ordered both defendants to compensate the plaintiff.
Conclusion
Lifting the corporate veil is a vital mechanism for protecting creditors from irresponsible and unethical behavior by company members. Although legally established since the late 1980s and still present in Montenegrin legislation, its practical application remains limited due to evidentiary complexity, lack of case law and specialised knowledge.
Court cases in Montenegro and the region show that courts recognise and sanction abuse, especially in cases of concealed obligations, asset mixing and business transfers to avoid liability. However, such cases are rare, indicating the need for stronger case law and education for legal and financial professionals.
The new Company Act , effective in 2026, expands liability to related persons, creating a broader basis for preventing creditor evasion and abuse of limited liability.
Further development of this concept through a multidisciplinary approach – law, finance, accounting, auditing and forensics – is essential for its effective application and creditor protection in business practices.
