Legal Due Diligence for Share Acquisitions in Serbia

A buyer and seller may agree on the price of a company relatively quickly. Establishing what that price actually buys can take considerably longer. The business may depend on a disputed contract, an unresolved liability or an asset that does not belong to the company at all.

Legal due diligence examines the company, the ownership interest being acquired and the conditions under which the acquisition can proceed. Its findings should help the buyer make decisions: which defects must be corrected, which risks justify a different price and when the transaction should not proceed.

This article focuses on the acquisition of an ownership interest in a Serbian limited liability company, known as a društvo sa ograničenom odgovornošću, or DOO. The term “share” is used below for that ownership interest, rather than a share issued by a joint-stock company.

What a share acquisition actually transfers

A share acquisition gives the buyer membership rights in the company. It does not transfer direct ownership of the company’s property, equipment or cash to the buyer. The company remains the same legal entity, with its existing rights and obligations. A change of ownership does not erase its debts. Equally, the buyer does not automatically become personally liable to all company creditors merely by acquiring the shares. ^[1]

This distinction determines the scope of the review.

Where a company is being acquired because it owns valuable commercial premises, the buyer should investigate title, encumbrances and the lawful use of those premises. The review must also cover the company’s liabilities. Debts unrelated to the property may substantially reduce the value of the investment.

An asset acquisition may provide an alternative structure, but its consequences require a separate assessment. It should not be presented as a transaction in which the buyer necessarily avoids every historical liability.

The seller’s title and authority to sign

The registered ownership information is the starting point. An extract from the Serbian Business Registers Agency, or APR, is not confirmation that every previous ownership change was legally unassailable. The registration procedure is based on formal review. The registrar does not conduct a full investigation into the truth of the facts submitted or the lawfulness of the proceedings in which the supporting documents were adopted. ^[2]

Where there have been several successive transfers, the buyer should examine the documents under which the seller acquired the shares, relevant corporate decisions and any disputes. An unexplained gap in the documentation should not be dismissed merely because a change was registered.

The authority of the signatory is a separate question. For a corporate seller, the review should cover its representatives, any registered joint-signature or countersignature requirements and the necessary corporate approvals. An internal restriction on a director’s authority is not equivalent to a registered restriction enforceable against third parties. A holder of a commercial power of attorney, known as prokura, needs specific authority to dispose of shares held by the company in another legal entity. ^[1]

Where an attorney-in-fact signs the transfer agreement, the power of attorney should clearly cover the transaction and the relevant authority concerning the price, payment arrangements and registration.

Pre-emption rights and company consent

Before fixing a signing date, the buyer should review the company’s constitutional document, the osnivački akt, and request any separate agreement between its members. The public register may not contain every arrangement governing their relationship.

Members of a Serbian DOO have a statutory pre-emption right where shares are transferred to an outsider, unless that right has been excluded by the constitutional document or by law. The constitutional document may also require the company’s prior consent to a transfer to a non-member. These are distinct restrictions and need to be checked separately. ^[1]

A statement that “the other members know about the sale” is insufficient. The review should establish what they were offered, when and how the offer was delivered, and whether the proposed buyer is receiving more favourable terms. The statutory acceptance period is generally 30 days, subject to arrangements permitted by the legislation. ^[1]

Payment terms can be as important as the headline price. An offer requiring immediate payment in full is not equivalent to a sale allowing payment over several years. Evidence of compliance with the relevant procedure should be retained alongside the final agreement.

Major asset transactions and corporate approvals

Where the seller is a company, the proposed disposal should be assessed under the rules on major asset transactions. A corresponding assessment may be needed for a corporate buyer.

The statutory framework uses a threshold of 30% of the company’s total book assets shown in its latest annual balance sheet, with specific rules for determining the value of the transaction. Related transactions over a one-year period may need to be considered together. Exceptions apply, and a DOO’s constitutional document must also be reviewed because it may modify the application of these rules. ^[1]

For the seller, the relevant comparison concerns the seller’s assets, not those of the company whose shares are being sold. A minority investment may therefore represent a major asset for its corporate owner. Conversely, an individual’s sale of their entire holding does not, by itself, constitute a disposal of the target company’s assets.

Failure to obtain a required approval should be treated neither as an inconsequential formality nor as automatic absolute nullity. The legislation establishes particular conditions for setting aside the transaction and claiming damages, including the relevance of the counterparty’s good faith. The approval question should therefore be resolved before the purchase price is released. ^[1]

Pledges and registration restrictions

Ownership checks should be supplemented by searches of the Register of Pledges and relevant prohibitions and restrictions. A pledge over the shares is different from a mortgage over company property: the former directly burdens the interest being acquired, while the latter affects an asset contributing to the company’s value. APR provides searches by several criteria, including the pledged asset, pledgor and owner of the pledged asset. ^[3]

Where part of the purchase price will discharge secured debt, the amount, payment arrangements and release documentation should be agreed in advance. A seller’s promise to remove the pledge “immediately after payment” leaves too much unresolved.

Registration can also be prevented by a matter outside the parties’ control. Once APR receives the prescribed notice of a tax audit or temporary withdrawal of the company’s taxpayer identification number, registration of a membership change may be blocked until the measure is removed. A frozen bank account is not the same as this type of registration restriction. ^[4]

The relevant searches should be refreshed immediately before implementation. A report prepared several weeks earlier may no longer reflect the position when funds are released.

Company liabilities and seller loans

Legal due diligence should be coordinated with financial and tax review. Particular attention should be given to loans, guarantees, customer advances, employment liabilities, disputed claims and dealings with related parties.

Loans made by the seller to the company deserve separate treatment. The buyer should not assume that the share purchase price also acquires or extinguishes the seller’s loan receivable. The transaction documents should specify whether that debt will be repaid, assigned, released or left outstanding, with the tax and accounting consequences considered separately.

Suppose a buyer offers EUR 150,000 for the entire ownership interest, believing that this ends the financial relationship with the seller. It later emerges that the seller also holds a due and payable loan claim of EUR 70,000 against the company. Unless the share price and loan claim were distinguished from the outset, the parties were negotiating different economic outcomes.

The review must also establish whether subscribed capital has actually been paid or contributed and whether additional payment obligations exist. Serbian law expressly provides for joint and several liability of the transferor and transferee for certain obligations owed to the company in respect of the transferred interest. ^[1]

A clear bank-account status does not resolve all these questions. The National Bank of Serbia’s enforced collection records should be used for the information they provide, alongside the underlying contracts, accounting records and appropriate creditor confirmations. ^[5]

Key contracts, assets and licences

Key contracts should be checked for the consequences of an ownership change. A loan, lease or distribution agreement may require consent to a change of control or give the other party a termination right. Such clauses are also identified in Serbian professional analysis of company acquisitions. ^[6]

The review should extend to arrangements that have never been properly documented. A company may, for example, use a warehouse owned personally by the seller without a written agreement. An assurance that “everything will continue as before” does not give the buyer a satisfactory basis for planning. The right to use the premises, its duration, cost and termination conditions should be settled.

The same approach applies to domain names, software, trademarks and other assets on which the business depends. The buyer should establish who holds the relevant rights, how the company is entitled to use them and what must be done to preserve that entitlement after the sale.

In regulated sectors, the effect of an ownership or control change on licences requires specific review. Where merger clearance is required, it must be incorporated into the transaction timetable. Registration of the new member does not replace the competition approval procedure. ^[7]

The seller’s matrimonial property position

Where the seller is an individual, it is reasonable to establish whether matrimonial proceedings or interim measures could affect the transaction.

It would nevertheless be wrong to assume that the registered member’s spouse automatically owns half the shares or must sign every transfer. In judgment Rev 16332/2022 of 4 September 2024, the Serbian Supreme Court rejected, on the facts before it, a wife’s claim to membership rights and company assets, distinguishing those rights from a possible monetary claim against her spouse. ^[8]

The practical review should therefore address how the shares were acquired, relevant agreements and the substance of any dispute. A standard marital-status declaration cannot replace that assessment.

Scope, documentation and personal data

The scope of due diligence should follow the business being acquired. A company holding a single property calls for different priorities from a manufacturer or software developer.

At the outset, the parties should agree on the documents required, the people responsible for providing them and the response timetable. Each material finding should distinguish documentary evidence, statements made by the seller and matters that could not be verified. Failure to produce an agreement is not evidence that the corresponding obligation does not exist.

A confidentiality agreement is not unrestricted permission to disclose employee and customer information. An appropriate legal basis, purpose limitation, data minimisation and access controls remain necessary. Documents from which unnecessary personal information has been removed may be sufficient for the initial review. ^[9]

A minority investor should add questions concerning future governance: their ability to influence decisions, access information and exit the investment. Those rights must be assessed against the legislation and the actual corporate documents, rather than inferred solely from an ownership percentage.

Turning findings into contractual protection

A report that merely lists defects leaves the buyer with the most difficult decisions. Each material risk should lead to a proposed course of action.

A defect in title to a critical asset may need to be corrected before payment. A known tax dispute may require a specific contractual obligation allocating its financial consequences to the seller. An uncertain receivable may justify a purchase-price adjustment.

Statements about the company should be linked to the consequences of their inaccuracy. A long schedule of warranties is not enough on its own. The agreement should address the scope of liability, notification of claims, negotiated limitations and treatment of disclosed matters, subject to mandatory law.

Recoverability also matters. The parties should consider whether a retention, deferred payment or suitable security is justified. Any deposit or escrow arrangement must identify who holds the funds, the conditions for release and what happens if a dispute arises.

An English label such as warranty or indemnity does not replace a clearly defined contractual obligation under Serbian law.

Signing, payment and registration

A Serbian share transfer agreement must be in writing with the transferor’s and transferee’s signatures certified. Membership is acquired through registration. APR specifically warns that, before registration, the incoming member cannot act as a member to adopt decisions concerning other changes within the company. ^[1]

The sequence of satisfying conditions, signing, payment and filing should therefore be agreed in advance. The contract should regulate cooperation if the registration application is rejected, the time allowed for correcting defects and the consequences if registration ultimately proves impossible.

Pending implementation, the buyer should consider contractual restrictions on exceptional borrowing, payments to related parties and other disposals capable of changing the agreed value of the company.

For foreign participants, registry extracts, authority documents, translations and any legalisation requirements should be checked early. An apostille is not a universal requirement because applicable treaties may dispense with legalisation. ^[2]

After registration, the parties should complete the agreed handover of records and management, arrange banking and electronic authorisations and review beneficial ownership obligations. APR’s guidance requires relevant changes to be recorded within 30 days, accompanied by the documents supporting the identification of the beneficial owner. ^[10]

Where the framework could be improved

Better coordination of information on membership, pledges, prohibitions and registration restrictions would make immediate obstacles easier to identify. Clear indications of when records were last updated would also assist transaction planning. Neither measure would replace substantive legal review.

More consistent operational guidance would be useful for acquisitions involving several connected registration steps, particularly where foreign corporate parties are involved.

There is also room for clearer domestic treatment of contractual risk-allocation mechanisms used in international transactions. Their commercial purpose may be sensible, but greater predictability concerning the effect of particular clauses would help both parties draft and price their agreement.

These are proposals for improvement, not reasons to dispense with existing checks. Before paying, the buyer needs a reasoned answer to a practical question: on what terms is it sensible to accept the identified risks, and how will the contract make that allocation enforceable?

Legal Due Diligence for a Share Acquisition in Serbia: Risks and Buyer Protection