Serbia: Shareholders Agreement: Why You Need One and When to Sign It

Why a Shareholders’ Agreement Matters in Serbia

Disputes between company shareholders are, in practice, among the most common and most costly corporate disputes. They typically arise when relationships deteriorate and the governing 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 expensive court proceedings that may jeopardize the company’s operations. A well-drafted shareholders’ agreement in Serbia is specifically designed to prevent these scenarios.

Particularly in startup and investment projects, investors almost invariably require the execution of a shareholders’ agreement (SHA) as a condition to investing. The reason is straightforward: statutory rules and a company’s constitutional documents are generally insufficient to regulate in detail the shareholders’ mutual rights and obligations, allocation of control, minority protections, or exit mechanisms.

For this reason, Article 15 of the Serbian Law on Companies (the Law) expressly provides that company shareholders may conclude a separate written agreement with one or more shareholders of the same company to regulate matters of importance to their mutual relations in connection with the company (a shareholders’ agreement).

It is important to emphasize that a shareholders’ agreement produces legal effects exclusively between the shareholders who have executed it. In other words, if not all shareholders are parties to the SHA, its provisions do not automatically apply to those who have not joined it. This is because an SHA is a contractual (obligational) agreement that creates rights and obligations only among its signatories, and not for the company as a legal entity or for third parties.

The statutory designation of such agreements depends on the legal form of the company:

• in a general partnership – partnership agreement

• in a limited partnership or 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 shareholder interests, 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 a key instrument of legal certainty and strategic planning for shareholder relations.

1. Protection of Sensitive Business Arrangements and Investment Terms

Every company must have articles of association, as this constitutive document is required for incorporation. The articles regulate fundamental organizational matters, including shareholder information, company name and registered seat, business activity, share capital structure, ownership interests, and corporate governance bodies. Their mandatory content is prescribed by law, and they are registered with the Serbian Business Registers Agency (SBRA), making them publicly available.

By contrast, a shareholders’ agreement is a private contract between shareholders. It is neither registered with the SBRA nor publicly disclosed. This gives it significant practical value, as it allows shareholders to regulate their rights and obligations in a more detailed, flexible, and confidential manner.

For example, while the articles of association may provide that decisions are adopted by a simple majority, an SHA may require unanimous consent or the approval of specific shareholders for certain strategic decisions, such as borrowing above a defined threshold, disposal of high-value assets, admission of new shareholders, or changes to the company’s business activities—provided such arrangements comply with mandatory statutory provisions.

Shareholders may also regulate dividend policies, financing mechanisms, transfer restrictions, and special investor rights—matters that typically exceed the scope of constitutional documents.

Because it is not publicly disclosed, the SHA enables the protection of sensitive commercial arrangements and investment terms, thereby enhancing legal certainty and long-term stability among shareholders.

2. Prevention of Shareholder Disputes

A significant number of shareholder disputes stem from unclear expectations. A shareholders’ agreement allows shareholders to address, in advance, questions such as:

• What happens if a shareholder wishes to exit the company?

• Do the remaining shareholders have a right of first refusal?

• Is there a tag-along right for minority shareholders?

• Does the majority shareholder have drag-along rights?

In practice, when a shareholder seeks to exit without a pre-agreed procedure, serious disputes frequently arise. An SHA can regulate exit conditions in detail, including whether consent is required, how the price is determined (e.g., a predefined formula or independent valuation), and applicable timelines. This prevents operational deadlock and uncertainty regarding ownership structure.

A right of first refusal further stabilizes shareholder relations by allowing existing shareholders to acquire shares offered to third parties under identical terms. This prevents unwanted or competing parties from entering the ownership structure—an issue of particular importance in family businesses or companies built on personal trust.

Tag-along rights protect minority shareholders when a majority shareholder sells their stake to a third party. In such cases, minority shareholders are entitled to sell their shares on the same terms and conditions. For example, if a majority shareholder sells 85% of the shares to an investor, minority shareholders may require inclusion in the same transaction, at the same price and on identical terms, thereby avoiding being “locked in” with an unknown partner.

Conversely, a drag-along clause protects majority shareholders by allowing them to require minority shareholders to sell their shares to the same purchaser. This is particularly important in M&A transactions, where buyers often insist on acquiring 100% ownership. Without such a clause, minority shareholders could block a transaction that benefits the company and the majority shareholders.

By addressing these issues while relationships remain stable, a shareholders’ agreement significantly reduces the risk of misunderstandings, emotional reactions, and protracted disputes.

3. Protection of Minority Shareholders

In investment and startup projects, investors often acquire minority stakes. Although the Law on Companies provides certain minority protections, these represent only a statutory minimum. A shareholders’ agreement allows minority rights to be defined more precisely and expanded beyond that baseline.

An SHA may provide for:

• veto rights over key decisions,

• the right to appoint management or supervisory board members,

• enhanced information rights beyond those guaranteed by law.

For example, veto rights allow minority shareholders to block decisions that could materially affect their investment, such as changes in business activities, corporate restructurings, or the sale of high-value assets. Even without majority voting power, contractual veto rights provide meaningful influence over strategic decisions.

In this way, a shareholders’ agreement serves as an effective tool for balancing power within the company, supplementing statutory protections with tailored contractual safeguards.

4. Regulation of Exit Strategies

A shareholders’ agreement may regulate, in advance, various exit scenarios, including voluntary transfers, forced buy-outs, exits triggered by contractual breaches, and situations involving the death or loss of legal capacity of a shareholder.

Particular attention should be paid to inheritance scenarios. Under Serbian inheritance law, heirs acquire the deceased shareholder’s ownership interest and legal position within the company. While legally logical, this can be problematic in businesses based on personal trust or active shareholder involvement.

Instead of a long-standing partner, the company may find itself with an heir who lacks industry experience or interest in participation. To address this risk, an SHA may require a mandatory buy-out of inherited shares based on a predefined valuation method, preserving continuity and ownership stability.

Exit mechanisms often include call and put options:

• Call options grant a shareholder or the company the right, under predefined circumstances, to require another shareholder to sell their interest (e.g., following a breach of a non-compete obligation).

• Put options allow a shareholder to require the company or another shareholder to purchase their interest, providing a clear exit path in the event of trigger events such as failure to meet performance targets, changes of control, or prolonged deadlock.

Common Mistakes When Drafting a Shareholders’ Agreement in Serbia

Understanding frequent drafting errors helps shareholders avoid costly consequences:

• Using foreign templates without proper adaptation. Agreements imported from foreign parent companies often include concepts incompatible with Serbian law, leading to unenforceable or invalid provisions.

• Inconsistency with the articles of association. An SHA cannot override mandatory legal provisions or contradict the articles of association.

• Lack of precision in key mechanisms. Vague exit clauses, unclear valuation methods, undefined trigger events, or ambiguous timelines frequently lead to disputes rather than certainty.

A shareholders’ agreement should therefore be treated as a strategic legal instrument—not a standard form document—and tailored to the company’s ownership structure and applicable Serbian law.

When Is a Shareholders’ Agreement Especially Important in Serbia?

A shareholders’ agreement is particularly advisable:

• when ownership is split equally between shareholders,

• when an investor enters the company,

• in family-owned businesses,

• in startups with multiple founders,

• where ownership and management are separated,

• when planning a future sale or strategic partnership.

The 50/50 Deadlock Risk

One of the most problematic ownership structures is a 50/50 split. While effective when relations are good, serious disagreements over growth strategy, reinvestment, financing, or sale can lead to complete deadlock.

If decisions cannot be adopted at two consecutive shareholders’ meetings, a shareholder may initiate court proceedings seeking dissolution of the company. Additionally, failure to adopt financial statements for two consecutive years may ultimately result in compulsory liquidation.

A shareholders’ agreement can provide deadlock-resolution mechanisms, transforming a potentially destructive situation into a contractually regulated solution that preserves business continuity.

Frequently Asked Questions

Is a shareholders’ agreement mandatory under Serbian law?
No. However, it is often essential for predictable and stable corporate governance.

Can an SHA override the articles of association?
No. Both documents must be aligned, and mandatory statutory provisions prevail.

Who should be a party to the SHA?
Ideally, all shareholders. Otherwise, the agreement binds only its signatories.

When is the best time to sign an SHA?
Before or at incorporation, or before admitting a new investor—while relationships are still cooperative.

Conclusion

A shareholders’ agreement is a critical instrument of corporate governance and shareholder protection. While not legally mandatory, it is often indispensable in companies with complex ownership or investment structures.

A timely and carefully drafted shareholders’ agreement can prevent disputes, protect investments, and support sustainable growth. Given the legal and structural complexity involved, drafting such an agreement should be entrusted to experienced corporate counsel. Generic templates or poorly adapted foreign models may create significant legal risks at precisely the moment when protection is needed most.

For these reasons, a well-structured shareholders’ agreement in Serbia should be viewed as a long-term investment in legal certainty and business stability.

By Zunic Law, Serbia, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact serbia@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.