Corporate Spin-Offs: A Corporate Status Change in Serbia

As a business grows and its operations expand, a company may become less efficient, less attractive to investors, while valuable assets become directly exposed to everyday operational risks. At that point, a corporate restructuring may become necessary.

Unlike a classic division of a company (where the original company ceases to exist), a corporate spin-off involves separating only a portion of assets, liabilities, or business activities from the existing company and transferring them to a new or another existing company.

In practice, corporate spin-offs are commonly used when a company wants to reorganize its operations while allowing the parent company to continue existing under the same name and registration number.

Corporate Spin-Off as a Corporate Status Change

A corporate spin-off is a corporate status change in which one company (the transferor company) transfers part of its assets and liabilities to one or more other companies (the acquiring companies), while the transferor company continues to exist.

There are several models of corporate spin-offs:

• Corporate spin-off through incorporation of a new company – the existing company transfers part of its assets and liabilities to one or more newly established companies, while the parent company continues operating.
• Corporate spin-off through absorption – part of the transferor company’s assets and liabilities is transferred to one or more already existing companies.
• Mixed corporate spin-off – a combination of the previous two models (part of the assets is transferred to a newly established company, while another part is transferred to an existing company).

This model is considered one of the most flexible tools in corporate law because it allows an existing company to reorganize or redefine its business activities without dissolving the original legal entity and brand built over many years.

Why Do Management and Owners Choose a Corporate Spin-Off?

1. Protection of Valuable Assets

One of the most common reasons in practice is asset protection after the parent company acquires significant property.

For example, if a successful company purchases office buildings, warehouses, or land from its profits, those assets remain exposed to operational risks within the same legal entity (account freezes, customer lawsuits, tax audits, etc.).

Through a corporate spin-off, the real estate assets are transferred to a separate company (either directly owned by the founders or wholly owned by the parent company). That new company then leases the property back to the operating company.

If the operating company later encounters financial difficulties, the real estate assets remain protected within a separate legal entity.

2. Preparing One Business Segment for Sale

When a company develops several business lines (for example import, retail, and logistics operations), but wishes to sell only the logistics segment because it is no longer strategically important, a corporate spin-off becomes a logical preliminary step.

Most buyers are not interested in purchasing an entire company together with all its historical liabilities and unrelated business activities.

Through a corporate spin-off, the logistics division, including trucks, drivers, and contracts, is transferred into a separate company with clean and transparent financial statements. The shares in that new company can then be sold much more easily.

3. Attracting Investors into a Specific Project

Investors, particularly venture capital funds, rarely want to invest in the traditional part of a business that generates stable but slower growth.

Instead, they are usually interested in investing exclusively in a highly scalable and profitable segment, such as proprietary software internally developed by the company.

In such cases, the company may separate the software department, intellectual property, and development team into a new company. The investor then acquires shares only in that new entity, while the founders retain full ownership of the original business.

4. Separation of Profit Centers and Management Structures

As businesses grow, it becomes increasingly difficult to measure the profitability of individual sectors when they share the same bank accounts, administration, and costs.

Additionally, managers of different divisions may have conflicting business objectives.

In such situations, companies often decide to transform each business unit into a separate legal entity. The parent company commonly becomes a holding company, while each subsidiary has its own director, financial statements, and responsibility for its own performance.

Procedure for a Corporate Spin-Off

A corporate spin-off procedure requires careful preparation and coordination between legal and accounting teams.

1. Drafting the Spin-Off Plan

During the preparation phase, the company’s management prepares a detailed spin-off plan specifying precisely which assets (real estate, equipment, etc.) and liabilities (loans, supplier debts, etc.) will be transferred to the new company and which will remain with the parent company.

2. Publication of the Draft Plan and Creditor Protection

At least 60 days before the shareholders’ decision, the draft plan must be registered and published on the website of the Serbian Business Registers Agency (APR).

This is a statutory obligation intended to notify creditors (banks, suppliers, etc.) and provide them sufficient time to request security for their claims if they believe the corporate spin-off may jeopardize collection.

3. Preparation of Financial Reports

As a rule, except in simplified procedures, financial reports together with an auditor’s opinion and a special audit report regarding the status change must be prepared.

4. Adoption of the Plan by the Shareholders’ Meeting

After the 60-day period expires, the shareholders formally adopt the spin-off plan.

Depending on the company’s constitutional documents and ownership structure, a two-thirds majority, three-quarters majority, or even unanimous approval may be required if proportional shareholder rights are affected.

At the same time, the company must also:

• amend its memorandum/articles of association,
• adopt the constitutional documents of newly established companies, and
• adopt a resolution on the reduction of the parent company’s share capital.

5. Registration with the Serbian Business Registers Agency

In the final phase, a registration application is submitted to the Serbian Business Registers Agency.

The parent company registers a note regarding the completed corporate spin-off (and capital reduction), while the newly established acquiring company is simultaneously incorporated.

Allocation of Ownership Interests in a Corporate Spin-Off

The spin-off plan determines who becomes the owner of the newly established company.

Proportional Ownership Model

If Marko (60%) and Jovana (40%) own the parent company, they become owners of the new spin-off company in the same proportions.

Parent Company Ownership Model

The business activity and assets are separated into a new company, but instead of the founders becoming direct owners, the parent company itself becomes the 100% owner of the subsidiary.

Legal and Operational Consequences of a Corporate Spin-Off

Upon registration, the assets and liabilities specified in the spin-off plan are transferred to the acquiring company.

However, several operational issues must also be addressed:

1. Contracts with Customers and Suppliers

Do contracts transfer automatically, or are amendments and third-party consents required?

2. Employees

Which teams transfer to the new company, and how are their rights regulated?

Under Serbian labour law, employees affected by a transfer of employer retain all employment rights they had with the previous employer.

3. Bank Loans

Loan agreements almost always contain clauses prohibiting status changes without the bank’s explicit consent.

4. Creditor Protection

Creditors whose claims are jeopardized may request security.

The law provides for joint and several liability: the parent company and the spin-off company remain jointly liable for the transferor company’s obligations existing at the moment of the status change, up to the value of the assets they received or retained.

FAQ – Frequently Asked Questions About Corporate Spin-Offs

Does the parent company cease to exist after the corporate spin-off?

No. The parent company continues operating under the same registration number, but with a reduced or modified scope of assets and liabilities.

How long does the process take?

Due to the mandatory 60-day publication period, the process generally cannot be completed in less than approximately 2.5 to 3 months.

Common Mistakes During a Corporate Spin-Off

1. Inaccurate Specification of Assets

If the spin-off plan does not clearly specify which exact vehicle, machine, or parcel of land is being transferred, the Serbian Business Registers Agency may reject the registration, or disputes over ownership may arise later.

2. Ignoring Licenses and Permits

If the parent company holds a specific license (for example pharmaceutical manufacturing or private security licenses), that license does not automatically transfer to the new company.

The new company must independently obtain the required licenses.

3. Overlooking Clauses in Bank Agreements

Initiating a corporate spin-off without the consent of the financing bank may trigger acceleration clauses requiring immediate repayment of the entire loan.

Conclusion

A corporate spin-off is an extremely useful business restructuring strategy.

It allows companies to reduce operational burdens, isolate risks, and create a healthier foundation for future development, investment, or sale, while preserving the stability and continuity of the parent company.

The more complex the company and its ownership and operational structure become, the more important it is to engage experienced corporate law professionals.

Law Firm Petrović Mojsić & Partners