LLC in Serbia: Directors and Shareholders – Essential Info

In business entities, especially in limited liability companies in Serbia (LLC in Serbia), clearly defined powers of the company’s director in Serbia and the rights of the shareholders in Serbia are essential for smooth operation. In this article, we explain the role and powers of the director in the company, the director’s duties in the company, the rights of the shareholders (owners) of the company, as well as the most common situations in which legal assistance proves valuable – particularly when a new director is appointed in the company or when an existing director is dismissed.

We also address the practical aspects of changing shareholders in an LLC in Serbia, changing the director in an LLC in Serbia, and changes of the company’s legal representative, all of which must be registered with the Serbian Business Registers Agency (SBRA).  

This blog covers only the one-tier management structure in an LLC in Serbia – the one where the LLC in Serbia has two governing bodies: 1. Director(s), and 2. General Assembly (company owners) is the most common management structure in LLCs in Serbia.

In addition to the above topics, we will explain why the Articles of Incorporation of an LLC in Serbia are highly important and how the shareholders’ agreement can be useful for company founders and shareholders. We will also touch upon the most important practical issues concerning the implementation of changes with the SBRA.

1. Legal Representatives of the Company – Director(s) in Serbia

Since a limited liability company is a separate legal entity, distinct from its shareholders (founders/owners), it must be represented by a designated person.

Every LLC in Serbia must have at least one director.

This is one of the key differences between a sole proprietor and an LLC in Serbia. A sole proprietor is simultaneously both the representative and the shareholder, and in addition, a sole proprietorship is not a separate legal entity with a distinct legal personality. Also, LLC shareholders enjoy limited liability for the company’s obligations (a clear separation of rights and duties, assets, etc.), while sole proprietors are fully liable, both with their personal and business assets, toward all third parties.

Who can be a director in an LLC in Serbia?

A director in Serbia may be a domestic or foreign natural person (individual), as well as a domestic legal entity. If a legal entity is appointed as director, it performs that function through its legal representative or a person authorized by a special power of attorney.

All directors must be registered in the Business Entities Register with the SBRA when a director is appointed and changed in the LLC in Serbia.

Powers and limitations of the director in an LLC in Serbia

The director in Serbia represents the company toward third parties, manages the company’s operations, and implements the decisions of the General Assembly.

If the company has multiple directors, their powers can be structured such that they represent the company jointly or independently.

In this regard, if you wish to limit the powers of a company’s director in Serbia, the following options are available:

• Joint representation requirement: All directors make decisions together, requiring consensus. In case of a conflict in management, if one director disagrees with the intended action of another director, the director may request instructions from the General Assembly.
  Co-signature requirement: A director requires an additional signature for certain legal actions. In this case, the director represents independently but must obtain a co-signature from another person (within or outside the company) to validly carry out a particular legal transaction.
  Other internal limitations: The internal acts of the LLC in Serbia may further define the scope of the director’s authority.

All of these limitations are not binding on third parties (outside the company), except for the joint representation and co-signature requirements, and only if these two limitations are registered with the SBRA.

What are the director’s duties and responsibilities in the company?

In addition to the director’s powers in the company, it is important to emphasize that there are duties of the director as well. Thus, the director of an LLC in Serbia is responsible for the following core obligations:

• Proper bookkeeping within the LLC in Serbia
• Accuracy of the financial statements in the LLC in Serbia
• Maintaining records of General Assembly decisions, which the shareholders of the company may inspect

All directors’ duties in an LLC in Serbia arise from the law and the company’s internal acts.

How is a director appointed and dismissed in a company?

The initial appointment of a company director is most often carried out in the Articles of Incorporation of the LLC in Serbia, which the founders adopt unanimously when establishing the LLC in Serbia. After the company is formed, appointing a director in the LLC in Serbia means they immediately assume the function.

If you later decide to appoint an additional director in the company, the total number of directors must align with the Articles of Incorporation or a special decision of the General Assembly. This is precisely why it is important to properly define all circumstances related to the appointment of directors in Serbia, both at the time of incorporation and later when the total number of directors is to be changed. Otherwise, the SBRA may reject your registration application.

A new director is appointed by a resolution of the General Assembly, which is also the body responsible for dismissing a director in Serbia.

Most common grounds for a change of director in an LLC in Serbia

The director’s term of office usually ends upon expiration of the term for which they were appointed, resignation (a unilateral termination by the director), or dismissal (a unilateral termination by the company). When a change of director in the LLC in Serbia occurs, the process must be carried out precisely, whether it involves expiration of the term, resignation, or a decision of the General Assembly.

The director’s term can always be extended, thus avoiding its expiration. In case of dismissal, however, it is very important to consider what type of contract the director in Serbia has concluded with the company, which we will elaborate on below.

Contracts with the director and procedure for director changes

When engaging a director in an LLC in Serbia, it is important to know that a director may be employed or engaged under a contract that does not create an employment relationship.

• In the case of an employment contract, a change of director in the LLC in Serbia does not automatically mean termination of employment. The Labor Law prescribes specific conditions for terminating an employment contract by the employer, which in this case is the LLC in Serbia. Therefore, even when the legal representative is changed and the change of director is recorded in the SBRA, the employment contract must also be properly terminated through a separate procedure governed by the Labor Law.
• On the other hand, a contract regulating the rights and obligations of the director without establishing an employment relationship may provide for specific rules on termination, thus ensuring predictability for both parties. In any case, well-drafted contracts are key to smooth and legally sound operations.

For all the above reasons, the type of contract concluded with the director is very important, including for tax reasons, as a director in Serbia must receive appropriate remuneration for their work.

2. General Assembly of the Company – Shareholders of the LLC in Serbia

The General Assembly of an LLC in Serbia is composed of all shareholders of the company, owners of percentage shares in the LLC. The rights of shareholders in an LLC in Serbia are exercised precisely through participation in the work and decision-making within the company’s General Assembly, as well as through participation in the company’s profit.

Powers of the General Assembly

The General Assembly of an LLC in Serbia adopts the most important decisions for the company’s operations: appointment and dismissal of directors, adoption of financial statements, amendments to the LLC’s Articles of Incorporation, decisions on the liquidation of the company, increase and decrease of share capital, as well as additional contributions that do not increase share capital (recapitalization), and much more.

Decisions are adopted at meetings or outside of them, under the rules prescribed by law and the Articles of Incorporation of the LLC in Serbia.

Articles of Incorporation of the LLC in Serbia – Importance and Content

The Articles of Incorporation of the LLC in Serbia are the basic legal document of the company and its legal foundation. It defines the internal organization, powers, rights of the shareholders, and other key matters. Although the Articles of Incorporation of the LLC is created upon incorporation, it may later be amended, either partially or entirely, if the required majority (consent of the LLC shareholders) is obtained in accordance with the law and the current Articles of Incorporation.

The particular value of the Articles of Incorporation lies in the fact that it allows for modification of certain statutory rules. Examples include:

• Reimbursement of incorporation costs;
• Extension of the obligation to maintain business secrecy for certain persons in the company (employees, representatives, etc.);
• Extension of non-compete obligations after termination of a role within the company for a defined period;
• Disproportionate allocation of voting rights or profit participation;
• Different rules on the transfer of shares and pre-emption rights;
• Restrictions on the inheritance of shares in the case of the death of a shareholder;
• Rights related to pledging shares (as collateral).

What does this mean? It means that all of the above relationships, as well as many others within the company, are already governed by law. If you fail to regulate them differently in the Articles of Incorporation, the statutory rules will apply. Since you have the opportunity to directly influence the future of your company through the Articles of Incorporation in Serbia, the only question is – why not use this possibility?

The Articles of Incorporation of the LLC is also a public document for all companies and are always published on the website of the SBRA at the time of incorporation and upon any subsequent amendments.

Shareholders’ Agreement in an LLC in Serbia

In addition to the Articles of Incorporation in Serbia, the shareholders of the LLC in Serbia may also conclude a shareholders’ agreement – an internal legal document that governs their mutual relations in connection with the company.

The shareholders’ agreement in Serbia may be signed by all or only some of the LLC shareholders. Unlike the Articles of Incorporation, the shareholders’ agreement in Serbia is not a public document (it is not published) and is binding only on the signatories.

One of the most important functions of the shareholders’ agreement is resolving decision-making deadlocks – e.g., when three shareholders with equal shares are unable to reach an agreement on an important decision, causing the company’s operations to become paralyzed. The shareholders’ agreement may include mechanisms to overcome such situations or arrangements between certain shareholders on how they will vote on specific matters at the General Assembly.

The shareholders’ agreement in Serbia is also applicable in other areas of mutual importance to the shareholders in connection with the company, since the law does not impose a clear boundary or an exhaustive list of topics that the agreement may or may not cover. That is why it can be very interesting and useful!

Pre-emption Right and Restrictions on the Transfer of Shares in an LLC in Serbia

Every shareholder of an LLC in Serbia has a pre-emption right if another shareholder intends to transfer their share to a third party for compensation (to a non-shareholder). However, the Articles of Incorporation of the LLC in Serbia may exclude the pre-emption right.

In addition to the pre-emption right, the Articles of Incorporation of the LLC in Serbia may further or differently restrict the transfer of shares, for example, by requiring prior approval from the General Assembly or another corporate body.

Due to such specificities, the Articles of Incorporation of the LLC in Serbia should be drafted by a legal expert – an attorney – as the Articles of Incorporation in Serbia directly regulate the fundamental legal framework of present and future relations within your company.

Share Transfer – How to Change the Owner of the LLC in Serbia?

The owners of the company in Serbia are only those persons or legal entities who are registered with the Serbian Business Registers Agency (SBRA). A change in the company’s ownership is legally carried out through the transfer of a shareholder’s share in the LLC in Serbia. Therefore, the answer to the question of how to change the owner of a company lies in the rules governing share transfer. In practice, this is most often done by concluding a share transfer agreement in the LLC in Serbia.

Share transfer agreement in Serbia, as well as the entire share transfer process, must comply with the Articles of Incorporation of the LLC in Serbia.

A share transfer agreement in Serbia may be for consideration (similar to a sale contract) or without consideration (similar to a gift contract).

The share transfer process is generally conducted in the following three phases:

1. Conclusion of a preliminary and/or share transfer agreement in the company – this document is key and must clearly define the terms of transfer;
2. Registration of the new shareholder in the Business Entities Register;
3. Updating the Central Register of Ultimate Beneficial Owners, notifying banks, submitting tax applications, and other ongoing actions.

In more complex transactions, such as mergers and acquisitions (M&A), the share transfer is often preceded by a due diligence process and the fulfillment of so-called CPs (conditions precedent to the transaction) before the signing of the main share transfer agreement in the LLC in Serbia.

Depending on the circumstances of the specific case, the consequences may vary, since there are statutory rules that will apply unless otherwise agreed. It is also important to be aware of those legal rules that cannot be altered by mutual agreement and will apply to your relationship (mandatory rules).

3. Procedures before the SBRA – How to update company data?

The procedure for making changes with the Serbian Business Registers Agency (SBRA) begins with submitting a registration application, either in paper or electronic form, accompanied by supporting documentation based on which the change is to be implemented in the SBRA.

In case of share transfer, one of the main documents is the share transfer agreement, while for changes concerning the dismissal and appointment of directors, a resolution of the company’s General Assembly is required. In addition to these, for these and other changes, further documents are often necessary to carry out the respective change.

For this reason, it is important to obtain timely information about the full scope of documentation required for each individual change of company data before the SBRA.

What changes are registered before the SBRA?

In the Register of Business Entities maintained by the SBRA, it is possible (and mandatory) to register various types of company-related changes, including the following:

• change of business name, translation of business name,
• change of company seat,
• opening or closing of branches,
• change of the company email address,
• appointment or dismissal of directors, authorized representatives, and procurators,
• changes related to company shareholders (personal and corporate data),
• changes concerning capital and shareholders’ shares,
• initiation or termination of liquidation,
• status changes (mergers, acquisitions, spin-offs), and many other types of changes.

Are there deadlines for registering changes before the SBRA?

For most changes in the SBRA, the deadline for submitting a registration application is 15 days from the date the change occurs in the real world, in order to qualify for the regular fee. Otherwise, if this deadline is not respected, a higher fee will apply for the registration of the change with the SBRA.

For certain changes, there is no concept of late submission, such as with the Articles of Incorporation. Therefore, it is important to verify before registration whether your specific change is subject to the timely submission requirement.

Keeping the company data up to date with the SBRA is crucial, not only for the sake of timeliness. For example, if your passport number has changed, but you are still registered as a director under the old passport number, this may lead to misunderstandings regarding your status, including potential bank account blocks and loss of trust when representing the company before third parties (since you are publicly registered with a different identification document).

The same applies to a change in the SBRA concerning the company’s address, especially if you are operating from a new branch that has not been properly registered.

Can multiple company data changes be made before the SBRA at once?

Yes, this is generally possible. Multiple simultaneous changes in the Register of Business Entities may be submitted through a single registration application, resulting in considerable cost savings. If you submit multiple applications at the same time, the administrative fee for the second and each subsequent application is reduced by 50%. This benefit makes multiple changes before the SBRA more cost-effective for business entities seeking to update a larger volume of company data at once.

However, certain applications cannot be submitted together with others. To make sure you can take advantage of this benefit, it is important to first determine which changes are mutually compatible.

When does a change related to the company become effective?

For some changes concerning the company, legal effect arises at the moment the change takes place in the real world. For instance, in the case of adopting a resolution on the appointment of a director, the director’s function becomes effective from the moment the appointment decision is made, regardless of the time of registration with the SBRA.

However, with some other company data changes, legal effect arises only upon registration with the SBRA, such as in the case of a change in the company shareholder list (share transfer). In other words, you become the owner of the company only after the SBRA registers you as such.

Common mistakes and complications

When registering changes before the SBRA, even experienced parties can make mistakes. If you are already doing business in Serbia, you have likely already encountered failed registrations with the SBRA – something that is very common in practice.

The most common mistakes include:

• incorrectly completed registration applications,
• incomplete or improperly prepared documentation,
• failure to meet legal deadlines,
• non-payment of appropriate administrative fees,
• insufficient awareness of the legal consequences associated with certain SBRA changes,
• excessive time wasted on independently conducting procedures, with repeated errors that ultimately cost significantly more.

Although the Companies Law sets the basic framework for these processes, the proper implementation of changes before the SBRA requires familiarity with other regulations governing the registration procedure within the Register of Business Entities maintained by the SBRA. In addition to knowing these regulations, experience in the matter and precision are also highly valuable.

Whether the change concerns the appointment of a director, share transfer, or internal relations among shareholders, the added value a lawyer can provide lies in ensuring that all SBRA changes are carried out efficiently and without unwanted consequences in the external world.