Provisions of the Company Law (“Official Gazette of RS”, no. 36/2011, 99/2011, 83/2014 – other laws and 5/2015, 44/2018, 95/2018, 91/2019, 109/2021) (Hereinafter: ”Law”) govern the transfer of ownership over limited liability company share.
In addition to acquiring shares in a company by establishment, individual and legal entities can acquire ownership shares in various ways prescribed by law. The focus of the following text will be on the contractual manner of acquiring shares in existing companies.
Introduction
The ownership structure in a legal entity that is organized in the form of a limited liability company (“LLC“) consists of members of that company who have acquired the initial capacity of a member by concluding an agreement on the establishment of the company. Each member of the company acquires an ownership share in the company in proportion to the amount of the founding stake. Accordingly, the share is expressed as a percentage, stating its monetary value.
The transfer of shares is free, except in cases when there are limits prescribed by the Law, as well as any restrictions that may be prescribed by the agreement for the establishment of the company.
The share may be transferred by contract by concluding a Share Transfer Agreement, having effect only after mandatory registration in front of the Business Registers Agency, in a constitutive manner. The share can be transferred as a whole or in part, either to an individual or to a legal entity, domestic or foreign.
The right of pre-emption
In the event of sale of a multi-member LLC share, members of the company have the right of pre-emption when a member who intends to transfer his share, intends to do so to a third party, unless that right has been exempted by the agreement for the establishment of the company or by the law. The transferor is then obliged to send a written offer of his share to the remaining members of the Company before sending the offer to a third party. The agreement must be concluded in writing and include all substantial elements of the share transfer agreement. A member of the company exercising the right of pre-emption is obligated, also in writing, to inform the transferor of shares of the acceptance of the offer in its entirety, within 30 days from the date of receipt of offer, unless otherwise prescribed for said deadline by the agreement for the establishment of the company, however that deadline may not be less than 8 days, or more than 180 days. If two or more members of the company accept the offer and if no agreement can be reached between the said members and the transferor of the share on the method of allotment of share that is being transferred, the allotment shall be performed so that each member which has accepted the offer purchases a portion of the share which is proportionate to the to the share of his stake in the total shares of all other members which have accepted the offer. The agreement for the establishment of the company may prescribe other rules and procedures in connection with the right of pre-emption by the members of the company.
If no member of the company who has the right of pre-emption uses this right, the transferor of the share may, within 90 days from the expiration of the deadline for acceptance of the offer, conclude a contract on transfer of shares with a third party under conditions that cannot be more favourable than the conditions from the offer submitted to other company members, unless otherwise provided by the agreement for the establishment of company.
The transferor of shares failing to submit the offer in accordance with the law and the agreement for the establishment of the company, to the member/members who have the right of pre-emption, risks the annulment of the contract on the transfer of shares with a third party.
Specifically, the member of the company with the right of pre-emption, whom the transferor of share has failed to submit the offer to, may file a petition before the competent court for the annulment of the contract or other act on the transfer of share and the obligation of the defendant company member of transfer of the share to the plaintiff, i.e., that the decision shall replace the contract on transfer of shares between the plaintiff and the defendant company member.
However, if the share is sold through public collection of bids, auctions, or a similar procedure (public sale), member of the company seeking to use the right of pre-emption can exercise that right only in that procedure, unless otherwise prescribed by the agreement for the establishment of company.
Form of the contract on transfer of shares
The contract on the transfer of shares is concluded in the legally prescribed form.
In the first place, the Agreement must be concluded in writing, and the signatures of the transferor and the transferee of shares must be certified by a Notary Public.
Without fulfilling these two conditions, it’s not possible to register a change in the Business Registers Agency, and in addition to these requirements, the legal principles and standards of contract law require the minimum of essential elements such as accurate data on the transferor and transferee, data of the company in which the share is transferred, monetary values of the company’s total capital, cash and non-cash, subscribed, paid in and contributed, exact percentage of the share which is being transferred, and the like.
Also, the contract shall also include the amount of monetary compensation for transfer or specify that the share is to be transferred without compensation.
Registration form
In addition to the contract on the transfer of share with certified signatures of the transferor and transferee, for the registration in the Business Registers Agency, it is necessary to submit proof of identity of the member accessing the company, meaning the following:
Personal identity card for the individual or excerpt from the company register for legal entity, the transferor of the share. If the transferee of share is a foreign citizen, it is necessary to submit a photocopy of the passport for the individual or the excerpt from the foreign company register for the legal entity, certified with an apostille stamp and translated to Serbian by a court interpreter.
In addition, to the Business Registers Agency is also submitted a registration form for the change of “Mandatory data”, and “Addition no. 12” for the change of member, as well as proof of paid fee for the change of data which amounts to 2.800,00 RSD per change according to the current tariff.
The Business Registers Agency accepts the share Transferor and Transferee as authorized submitters of the registration form, as well as any person authorized by the authorized person, through a power of attorney, for the submittance of registration form.
Tax control
During the tax control procedure, tax police control, or during the temporary confiscation of the Tax Identification Number, the conclusion of the Share Transfer Agreement itself is possible, but not its registration with the Business Registers Agency.
Other restrictions/ responsibilities of the transferor
contractual transfer of shares in terms of obtaining the written consent of the company for the transfer. The consent is brought by the assembly of the company by a simple majority of vote.
The company is authorized to refuse to issue consent, but at the same time must designate a person (individual or a legal entity) with whom the transferor may conclude the Agreement.
The deadline for issuing consent is 30 days, after which deadline the transferor has the right to conclude the agreement with the entity of his choosing, without the company’s consent.
The transferor of the share is jointly and severally liable with the transferee of the share for the obligations towards the company on the grounds of their unpaid, i.e., unsubscribed to the share capital of the company, and for the obligation of additional payments in view of that share, according to the balance on the day of transfer of share.
Legal actions taken against or by the transferor of the share before registration of the share transfer in accordance with the law on registration in view of that share or relationship inside the company will be considered as actions taken against, i.e., by the transferee of the share, unless it is incompatible with the nature of the undertaken legal action.
Conclusion
The share transfer agreement is one of the most frequent means of change in ownership structure, therefore the legal and factual condition must be taken into consideration, as well as any restrictions prescribed by the agreement for the establishment of company, which are conditional for the validity of the share transfer agreement, as well as the positive result in the Business Registers Agency in the process of registration of the change of member, the company share owner.
