According to Startup Genome research, around 90% of startups fail globally. Ten percent cease operations in the first year alone. Those figures reflect primarily developed ecosystems like the US. In Serbia the situation is not dramatically better, but the reasons for failure are different: Serbian startups rarely fail because of a bad idea or absent market. They fail because of legal mistakes made at the very beginning that surface only once the damage is done.
This blog is not about strategy or market positioning. It covers seven concrete legal mistakes that appear in Zunic Law's startup practice with a regularity that is worth taking seriously. The focus is on tech and digitally oriented startups, but the majority of these mistakes apply to any startup incorporating in Serbia.
Contents
- Mistake 1: No written agreement before incorporation
- Mistake 2: Missing necessary contracts
- Mistake 3: Personal data processing not properly regulated
- Mistake 4: Intellectual property not protected
- Mistake 5: Name, logo and domain carry legal risk
- Mistake 6: No adequate employment law framework
- Mistake 7: Tax planning ignored
- Frequently asked questions
Mistake 1: No written agreement before incorporation
Letter of Intent before incorporation
Before the company is registered, founders should conclude a written agreement that defines their intentions: who has which role, how equity will be acquired, what happens if a founder leaves and who owns everything created during the "preparatory phase" before registration.
That last question is the one most frequently overlooked. For tech startups it means: code written before incorporation, a domain bought with a founder's personal funds, a prototype built before the company existed. The company does not exist at that point, so it cannot own anything. All rights reside with the founders as natural persons. Without a written agreement, transferring those rights to the company after registration can become disputed. Every investor conducting due diligence will ask for evidence of this transfer.
Shareholders' agreement after incorporation
Once the company is registered, the Letter of Intent typically evolves into a shareholders' agreement. This agreement must be distinguished from the Memorandum of Association required for registration with the Serbian Business Registers Agency (APR). The Memorandum regulates the formal structure of the company. The shareholders' agreement regulates the relationship between founders.
Without it, disputes arise precisely around questions that the Memorandum does not cover: who makes which decisions, what happens if one founder wants to sell their equity to a third party, what happens if a large company offers to acquire the startup (drag-along and tag-along clauses). The blog on company registration in Serbia covers the formal incorporation process; the shareholders' agreement is a separate and equally critical document.
Vesting: protecting founders and attracting investors
Vesting is a mechanism by which equity is acquired gradually over time or upon reaching milestones, rather than in full at incorporation. Serbian law does not have an identical institute to US vesting, but contractual mechanisms exist that achieve a similar effect, which we cover in our blog on ESOP in Serbia.
Example: a founder is subject to a four-year vesting schedule under which they acquire 40% equity (10% per year). If they leave before the end of the first year, they receive nothing. If they leave a month after the first year, they retain 10%. The company may buy back the remaining 30%. This mechanism protects the startup from the scenario where a founder leaves early but retains a large equity stake without continued contribution.
Investors evaluating Serbian startups almost always look for vesting provisions. Their absence is a red flag in due diligence. The wider investment context in Serbia is covered in our blog on investment in Serbia.
Mistake 2: Missing necessary contracts
Customer agreement
The contract type depends on the business model. For SaaS startups, this is a cloud agreement (Terms of Use / Terms of Service) in the form of a click-wrap or browsewrap contract accepted by users before accessing the application. For B2B startups, these are individually negotiated contracts tailored to each client.
Copying Terms of Use from another website is a widespread practice that almost always creates problems. Copied terms are designed for a different company, a different legal system and a different business model. Specifying US jurisdiction or US governing law in a Serbian company's Terms of Use has no useful legal effect and can create confusion in the event of a dispute. We address this in detail in our blog on website terms of use and on why copying other people's terms is a bad idea.
Non-Disclosure Agreement (NDA)
An NDA is not only for investor relationships. A startup should have one with every party to whom it discloses confidential information: between founders, with employees, with contractors and with third parties. The blog on NDA with employees covers the specific requirements for employment contexts.
The mistake that costs most: founders with an MVP or proof of concept begin conversations with potential partners or investors without a signed NDA. Technical solutions become known before they are protected. Without an NDA, the only legal remedy is to prove unfair competition or trade secret misappropriation, which is expensive and uncertain.
Mistake 3: Personal data processing not properly regulated
The mistake is not only absence of documentation but inadequacy. Copying a Privacy Policy from a US or UK website does not fulfil obligations under the Serbian Law on Personal Data Protection or the GDPR.
The GDPR applies to Serbian companies whenever they process data of individuals located in the EU, regardless of where the company is domiciled. A startup offering services to users in Germany or France must be GDPR-compliant. We cover this in our blog on GDPR in Serbia.
Startups that transfer collected personal data outside their country of domicile must also meet the requirements for international data transfer. This is relevant to virtually every startup using AWS, Google Cloud or Azure, where servers are located outside Serbia.
Mistake 4: Intellectual property not protected
Four IP failures appear most consistently in startup practice.
First: code written by a contractor or freelancer belongs by default to that individual, not the company, unless an agreement expressly transfers the copyright. Startups that developed parts of their software with external contributors without a written IP assignment agreement hold software with unclear or contested ownership.
Second: a logo created by a graphic designer is the author's copyrighted work. Payment for the design does not automatically transfer copyright. Without a written assignment, the designer formally owns the logo.
Third: a trademark is not the same as a company name in the APR register. The APR registers business names on a uniqueness basis. The Intellectual Property Office registers trademarks on a similarity basis. A company can successfully register its name with the APR, and then receive a lawsuit because that name is confusingly similar to a pre-existing registered trademark. Our blog on choosing a business name in Serbia covers the checks that need to happen before naming a startup.
Fourth: IP created before the company was incorporated (code, designs, documentation) remains owned by the founders as natural persons until it is formally assigned to the company. That assignment must be documented. Without it, the company has no clear title to its own product.
Mistake 5: Name, logo and domain carry legal risk
The most expensive scenario: a founder spends a year building a brand, acquires the first 500 users, and then receives a cease-and-desist letter from a company that registered an identical trademark years earlier for the same or similar market segment. Rebranding at that stage means losing every marketing investment, changing the domain, changing the visual identity and potentially covering litigation costs.
The pre-launch check takes a day or two and costs a fraction of potential litigation. Search the trademark database of the Serbian Intellectual Property Office and the EUIPO (for the European market) before committing to a name.
A logo that visually evokes a competitor's trademark carries the same risks as a conflicting name. For logos (graphic signs), assessing similarity is more complex than for word marks and requires specialist analysis. Full detail on brand protection and trademark registration is in our blog on brand name registration in Serbia.
Mistake 6: No adequate employment law framework
An adequate employment law framework for a startup must cover at least four areas.
First, the employment agreement must comply with the Labour Law and must contain an IP assignment clause establishing that all copyrighted work and intellectual property created during the employment relationship belongs to the company. Without this clause, a departing employee may retain rights over the code they wrote. Our blog on employment law in Serbia covers the key requirements in detail.
Second, an NDA with employees is particularly important for startups developing technological solutions. Non-compete and trade secret provisions must be in writing and must be reasonable in scope, duration and geography to be enforceable. We address this in our blog on NDA with employees in Serbia.
Third, startups with employees must have a personal data protection policy and a video surveillance policy if they use cameras. These obligations arise directly from the Law on Personal Data Protection.
Fourth, an ESOP (Employee Stock Ownership Plan) is a mechanism for motivating key employees with equity. Serbian law does not have a direct equivalent, but contractual mechanisms achieve a similar effect. We cover these in our blog on ESOP in Serbia.
Mistake 7: Tax planning ignored
The mistake is not always paying too much tax. It is not knowing you can pay less, or building a structure that excludes you from incentives you would otherwise be entitled to.
The IP Box regime (Art. 25g of the Corporate Income Tax Act) enables startups earning income from copyright on software, patents and similar to tax that income at an effective rate of 3% rather than the standard 15%. The prerequisite is that the copyright is deposited with the Serbian Intellectual Property Office. This is a direct link between IP protection (Mistake 4) and tax strategy: a startup that developed software without depositing the copyright cannot use this regime.
Innovative startups can also use a full exemption from payroll tax on founders' salaries for 36 months, subject to conditions set out in the Personal Income Tax Act. Buying a shelf company or incorporating late can reduce the period during which these incentives remain available. All relevant startup tax incentives are covered in our blog on tax incentives for startups in Serbia.
The tax question is also directly tied to the choice of legal form. If a startup plans to use the IP Box regime or innovative company incentives, an LLC is the only practical option. Incorporating as a sole trader excludes most of these incentives. Incorporation options and the registration process are covered in our blog on company formation in Serbia.
Finally, for startups developing software for foreign markets, VAT obligations toward foreign tax systems (especially EU VAT on digital services, or US state tax) must be clarified before the first revenue arrives. Missing these obligations typically surfaces as retroactive demands with interest.
Frequently asked questions about the legal framework for startups in Serbia
What legal form should a startup use in Serbia?
For the vast majority of startups, particularly those intending to use innovative company tax incentives, an LLC (d.o.o.) is the only practical option. A sole trader (preduzetnik) is possible for solo founders with low business risk, but it excludes the IP Box regime and the payroll tax exemption for founders of innovative companies. Incorporation details and the step-by-step process are in our blog on company formation in Serbia.
Can a foreign national be a founder of a startup in Serbia?
Yes. There are no restrictions on foreign ownership. A foreign founder can hold 100% of an LLC. The entire registration process can be handled via a representative under a power of attorney, without the founder being physically present in Serbia. Details are in our blogs on company registration in Serbia and residence permits through company formation.
Does vesting exist in Serbian law?
Serbian law does not have an institute identical to US-style vesting, but contractual mechanisms exist that achieve a similar effect. These are used by sophisticated startup investors active in the Serbian market. We cover the available mechanisms in detail in our blog on ESOP in Serbia.
Does an NDA actually prevent disclosure of trade secrets?
An NDA does not physically prevent disclosure, but it legally binds the signatory and creates a clear path for damages if a breach occurs. Without an NDA, the only remedy is a general claim of unfair competition or trade secret misappropriation, which is harder to prove and more expensive to pursue. An NDA should be signed before any confidential information is shared, not after. Our blog on non-disclosure agreements in Serbia covers the key provisions.
What is the IP Box regime and how can a startup in Serbia reduce its tax rate to 3%?
The IP Box (Art. 25g of the Corporate Income Tax Act) allows income derived from copyright on software, patents and similar rights to be taxed at an effective rate of 3% instead of the standard 15%. The condition is that the copyrighted work is deposited with the Serbian Intellectual Property Office before the income is earned. A startup developing software that has not deposited its code cannot use this regime. All incentives are covered in our blog on tax incentives for startups in Serbia.
Can a startup buy a shelf company instead of incorporating from scratch?
Yes. A shelf company is a company registered with the APR that has never been active. Ownership transfer takes 3 to 5 business days, which is faster than incorporating a new LLC. However, buying a shelf company means inheriting the company's original date of incorporation, which shortens the period available for tax incentives tied to that date. Details on the process and risks are in our blog on shelf companies in Serbia.
Does a startup need to be in the Innovation Activity Register to access tax incentives?
Registration in the Innovation Activity Register is not a formal prerequisite for all incentives, but it provides legal certainty in a tax audit and opens access to Innovation Fund grants and programmes. The registration process is covered in our blog on startup registration in the Innovation Register.
Building a startup in Serbia and not sure where to start?
Zunic Law provides legal support to startups from day one: structuring founder relationships, drafting agreements, IP protection, GDPR compliance and tax planning. Contact us via our corporate and commercial law page.
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