What Is a Shareholders Agreement Under Serbian Law?
Disputes between company shareholders are, in practice, among the most common and most expensive corporate disputes. They typically arise when relationships deteriorate and the rules were not clearly defined in advance. Situations such as the exit of a shareholder, the entry of an investor, disagreements over strategic decisions, or the sale of the business often escalate into lengthy and costly court proceedings that may jeopardize the company’s operations. A well-drafted shareholders agreement in Serbia prevents exactly these scenarios.
Particularly in startup and investment projects, investors almost regularly require the execution of a shareholders’ agreement (SHA) as a condition for investment. The reason is simple: statutory rules and the company’s constitutional documents are usually insufficient to precisely regulate mutual relations, allocation of control, minority protection, or exit mechanisms.
For this reason, Article 15 of the Serbian Law on Companies (hereinafter: the “Law”) provides that company shareholders may conclude a separate written agreement with one or more shareholders of the same company to regulate matters of importance for their mutual relations in connection with the company (a shareholders’ agreement).
It is important to emphasize that a shareholders’ agreement produces legal effect exclusively between the shareholders who have signed it. In other words, if not all shareholders are parties to the SHA, its provisions do not automatically apply to those who have not acceded to it. This is because it constitutes a contractual (obligational) agreement creating rights and obligations only among its signatories, and not for the company as a legal entity nor for third parties.
The specific statutory name of such an agreement depends on the legal form of the company:
- in a general partnership – partnership agreement,
- in a limited partnership and limited liability company – members’ agreement,
- in a joint-stock company – shareholders’ agreement.
In practice, however, the term “shareholders’ agreement” or “SHA” is most commonly used regardless of the company’s legal form.
Why Conclude a Shareholders Agreement in Serbia?
Diverging interests among shareholders, uneven ownership structures, the entry of investors, or planning a future sale of the company raise numerous issues that go beyond standard statutory solutions. In such circumstances, a shareholders agreement becomes an important instrument of legal certainty and strategic planning of relations among shareholders.
1. Protection of Sensitive Business Arrangements and Investment Terms
Every company must have articles of association, as it is the constitutive document without which the company cannot be established. This document regulates the fundamental status and organizational elements of the company, such as shareholder data, business name and registered seat, business activity, amount and structure of share capital, ownership shares, and corporate bodies and their competencies. Its mandatory content is prescribed by the Law. Furthermore, it is registered with the Serbian Business Registers Agency (SBRA) and publicly available.
In contrast, a shareholders’ agreement is a private contract between shareholders that is neither registered with the SBRA nor publicly disclosed. This gives it particular practical significance, as it allows shareholders to regulate their mutual rights and obligations in a more detailed, flexible, and confidential manner.
For example, while the constitutional documents may provide that certain decisions are adopted by majority vote, the SHA may stipulate that specific strategic decisions (e.g., borrowing above a certain threshold, disposal of high-value assets, admission of a new shareholder, or change of business activity) require unanimous consent or the consent of specific shareholders, provided this complies with mandatory statutory provisions.
Shareholders may also regulate dividend policies, financing mechanisms, transfer restrictions, or special investor rights — matters that typically exceed the standard content of constitutional documents.
Because it is not publicly disclosed, the SHA enables the protection of sensitive business arrangements and investment terms, thereby enhancing legal certainty and stability among shareholders.
2. Prevention of Disputes Between Shareholders
A significant number of shareholder disputes arise from unclear expectations. A shareholders agreement allows shareholders to address in advance questions such as:
- What happens if one shareholder wishes to exit the company?
- Do the other shareholders have a right of first refusal?
- Is there a tag-along right?
- Does the majority shareholder have drag-along rights?
In practice, when a shareholder wishes to exit without prior agreement on the procedure, serious disagreements often arise. The SHA can regulate exit conditions in detail — whether consent is required, how the price is determined (e.g., predefined formula, independent valuation), and the timeline for completion. This prevents operational deadlock and uncertainty regarding ownership structure.
A right of first refusal further contributes to the stability of relations, as it allows existing shareholders to purchase, under the same terms and conditions, a share that is intended to be sold to a third party. In this way, the entry of an unwanted or competing party into the company’s ownership structure is prevented, which is particularly important in family businesses or companies built on personal trust among shareholders.
The tag-along mechanism protects minority shareholders in situations where a majority shareholder sells their share to a third party. In such cases, minority shareholders have the right to sell their share to the buyer under the same terms and conditions. For example, if a majority shareholder sells 85% of the share to an investor, a minority shareholder may require that their interest be included in the same transaction, at the same price and under identical terms, thereby preventing them from being “locked in” with a new and potentially unknown business partner.
Conversely, a drag-along clause protects the majority shareholder by allowing them, in the event of a sale of their share, to require minority shareholders to sell their share to the same purchaser.
This is particularly significant in investment and M&A transactions, where the buyer often insists on acquiring 100% ownership. Without such a clause, a minority shareholder could block a transaction that is in the interest of the majority and the company itself.
By regulating these issues in advance, a shareholders agreement in Serbia significantly reduces the scope for misunderstandings, emotional reactions, and prolonged disputes, as shareholders define the rules for potentially conflict situations while their relationship is still stable.
3. Protection of Minority Shareholders
In practice, particularly in investment and startup projects, investors often acquire a minority stake in the company. Although the Serbian Law on Companies provides certain mechanisms for the protection of minority shareholders, these mechanisms represent only a minimum standard of protection. For this reason, a shareholders’ agreement gains particular importance as an instrument through which minority rights can be more precisely defined and expanded beyond the statutory minimum.
A shareholders’ agreement may provide for:
- Veto rights over key decisions
- The right to appoint a member of the management or supervisory body
- Enhanced information rights exceeding those guaranteed by law
For example, a veto right allows a minority shareholder to block decisions that could materially affect their investment or position in the company, such as a change of business activity, a corporate status change, or the sale of high-value assets. Although such a shareholder does not hold a majority of votes, a contractual veto right provides a real mechanism of control over strategic matters.
In this sense, a shareholders’ agreement can serve as a key mechanism for establishing a balance of power within the company, complementing the statutory framework and providing minority shareholders with effective instruments for the protection of their interests.
4. Regulation of Exit Strategies in a Shareholders Agreement
A shareholders’ agreement may regulate in advance and in detail various exit scenarios of a company shareholder. The most common mechanisms include: voluntary transfer of shares, forced buy-out, exit in case of breach of contractual obligations, as well as death or loss of legal capacity of a shareholder.
Particular attention should be given to situations involving the death or loss of legal capacity of a company shareholder. In accordance with inheritance law, the heirs of a deceased shareholder acquire their share and assume their legal position within the company.
Although this solution is logical from an inheritance law perspective, in practice, it may cause significant difficulties, especially in companies based on personal trust and active involvement of shareholders in the business.
Instead of a long-standing partner with whom relationships and working methods have already been established, the company may find itself with an individual who lacks experience in the relevant business activity or interest in actively contributing to operations. For this reason, a shareholders’ agreement may provide for a mandatory buy-out of the inherited share, based on a predefined valuation method, thereby ensuring continuity of management and ownership stability.
Exit mechanisms frequently include call and put options:
- A call option grants a specific shareholder (or the company) the right, under predefined circumstances, to require the purchase of another shareholder’s share under agreed terms. For example, an investor may have a call option in the event of a founder’s breach of a non-compete obligation.
- A put option grants a shareholder the right to require another shareholder or the company to purchase their share. This is particularly significant for minority shareholders or investors who seek a clear exit mechanism in the event of certain trigger events (e.g., failure to meet business targets, change of control, or prolonged decision-making deadlock).
Common Mistakes When Drafting a Shareholders Agreement in Serbia
Understanding the most frequent errors helps shareholders avoid costly pitfalls.
Using foreign templates without adaptation. One of the most common mistakes occurs within corporate groups, when a “template” agreement of a parent company or a foreign affiliate is adopted without proper alignment with Serbian law. As a rule, such agreements contain legal concepts that are not recognized by the Serbian Law on Companies or are drafted in a manner incompatible with domestic corporate rules. The consequence in such cases may be legal uncertainty, unenforceability of certain provisions, or even their invalidity.
Inconsistency with the articles of association. Another frequent mistake is the inconsistency between the shareholders’ agreement and the articles of association, which represents the highest-ranking internal corporate document. Although an SHA binds its signatories, it cannot override mandatory provisions of the Law nor contradict the articles of association.
Insufficient precision in key mechanisms. A third significant mistake is the insufficient precision in defining key mechanisms, particularly exit clauses (tag-along, drag-along, call/put options). An unclear valuation method, vague timelines for implementation, undefined trigger events, or imprecise payment terms may lead to disputes rather than certainty among shareholders, which would have been avoided had the agreement been properly drafted.
For all these reasons, a shareholders’ agreement should not be viewed as a mere formality or a “standard document,” but rather as a strategic legal instrument that must be carefully tailored to the specific ownership and governance structure of the company, as well as to the applicable legal framework in Serbia.
When Is It Especially Important to Have a Shareholders Agreement in Serbia?
The conclusion of a shareholders’ agreement is particularly advisable in the following situations:
- when a company has two or more shareholders holding equal ownership interests (risk of decision-making deadlock),
- when an investor enters the company,
- in family businesses,
- in startup projects with multiple founders,
- where there is a separation between ownership and management roles,
- when planning a future sale of the company or the entry of a strategic partner.
The 50/50 Deadlock Risk
A particularly risky situation arises when a company has two shareholders holding 50% each. While relations are good, such a structure may appear to represent an ideal balance. However, in the event of serious disagreement over issues such as growth strategy, reinvestment of profits, new financing, or sale of the company, a complete decision-making deadlock may occur.
If such a deadlock persists – for example, if no decision is adopted at least at two consecutive shareholders’ meetings due to the partners’ inability to reach an agreement – one of the shareholders may initiate court proceedings for dissolution of the company through a so-called liquidation lawsuit.
On the other hand, if financial statements are not adopted for two consecutive years and therefore cannot be published due to disagreement among shareholders, compulsory liquidation proceedings may ultimately be initiated.
Consider this example: Two founders of an IT company, each holding a 50% stake. One advocates for aggressive expansion and the entry of an external investor, while the other insists on organic growth without outside capital. Since no decision regarding capital increase, borrowing, or ownership restructuring can be adopted without unanimous consent, the company becomes paralyzed. After months of deadlock and deteriorating relations, one founder initiates dissolution proceedings. Instead of growth and development, the company faces litigation and potential liquidation.
In precisely such situations, a shareholders’ agreement may provide mechanisms for resolving deadlock. In this way, a potentially destructive scenario is transformed into a contractually regulated exit solution, without jeopardizing the company’s survival.
Frequently Asked Questions About Shareholders Agreements in Serbia
Is a shareholders’ agreement mandatory under Serbian law?
No, a shareholders agreement is not a statutory requirement. However, in practice, it is often essential for the stable and predictable functioning of a company, particularly when complex ownership and management structures are involved.
Can a shareholders’ agreement override the articles of association?
No. While the SHA binds its signatories, it cannot override mandatory provisions of the Serbian Law on Companies nor contradict the company’s articles of association. Both documents should be aligned for maximum legal certainty.
Who should be a party to the shareholders agreement?
Ideally, all shareholders should sign the agreement. If not all shareholders are parties, the SHA produces legal effects only between its signatories. Third parties and the company itself are not bound by it.
When is the best time to sign a shareholders agreement in Serbia?
The best time is before or at the moment of company formation, or before a new investor enters the company. Drafting the agreement while relationships are stable makes it far easier to agree on fair terms for all parties.
Conclusion
A shareholders’ agreement represents an important instrument of corporate governance and protection of the interests of company shareholders. Although it is not a statutory requirement, in practice it is often essential for the stable and predictable functioning of a company, particularly in situations involving more complex ownership and management structures.
A timely and professionally drafted shareholders’ agreement can prevent serious disputes, protect investments, and enable long-term business development.
However, given the complexity of corporate relationships and the need to align the agreement with the Serbian Law on Companies, the articles of association, and the specific ownership structure, drafting a shareholders’ agreement requires the involvement of lawyers specialized in corporate and commercial law. Relying on generic templates or inadequately adapting foreign models may result in legal uncertainty and serious consequences at the very moment when the agreement is expected to provide protection.
For this reason, a well-structured and carefully tailored shareholders agreement in Serbia should be viewed as an investment in legal certainty and the long-term stability of the business.
