Mergers and Acquisitions of Companies: Corporate Status Changes in Serbia

One of the ways companies reorganize their business operations in Serbia is through corporate status changes, including mergers and acquisitions of companies. Although these terms are often used interchangeably in everyday business language, there are important legal distinctions between them that affect ownership structure, business continuity, shareholders’ rights, as well as liability for debts and obligations.

In this article, we explain what mergers and acquisitions of companies are, how these procedures are regulated under the Serbian Companies Act, and what companies should pay particular attention to before deciding to implement a status change.

What Is a Corporate Status Change?

Under Serbian legislation, there are four types of corporate status changes:

• Merger
• Acquisition (Absorption Merger)
• Division (Demerger)
• Spin-off

The essence of corporate status changes lies in the transfer of assets, rights, and obligations from one company to another, together with specific legal consequences for the entities involved in the process.

One of the most important features of status changes is the principle of universal succession. In practice, this means that the acquiring company assumes not only the assets, but also contracts, rights, liabilities, ongoing litigation, and all other legal relationships of the company that ceases to exist.

A status change becomes legally effective only upon registration with the Serbian Business Registers Agency (APR).

Mergers and Acquisitions of Companies

– What Is the Difference?

Among business owners and even in everyday corporate terminology, the expressions merger and acquisition of companies are frequently used as synonyms. However, from a legal and procedural perspective, these are two distinct mechanisms with different consequences for the companies involved.

What Is an Acquisition of a Company? (Absorption Merger)

An acquisition of a company is a corporate status change involving at least two companies, where one or more companies (the transferor companies) transfer all their assets and liabilities to another existing company (the acquiring company).

The key legal characteristic of an acquisition is that the transferor company ceases to exist without undergoing liquidation or bankruptcy proceedings. The acquired company is deleted from the Serbian Business Registers Agency, while the acquiring company continues operating, although on a larger scale.

The acquiring company automatically becomes the universal legal successor, meaning that it assumes all rights, liabilities, contracts, litigation, permits, and other legal relationships of the company that ceased to exist.

Example

Imagine a large IT company (Company B) wishing to acquire a smaller software development agency (Company A). After the acquisition procedure is completed, Company A is deleted from the register, while all its clients, developers and other employees, equipment, and contracts become part of Company B, which continues operating under its existing name and registration number.

In practice, acquisitions are very common because they enable relatively simple business consolidation without the need to establish a new legal entity.

What Is a Merger of Companies? (Consolidation Merger)

Unlike an acquisition, a merger is a process in which two or more companies (transferor companies) transfer all their assets and liabilities to an entirely new company established specifically for that purpose (the acquiring company).

In this scenario, all companies participating in the merger cease to exist and are deleted from the register. Instead, a completely new legal entity is created and assumes their legal continuity.

The members or shareholders of the companies that ceased to exist become members or shareholders of the newly established company.

Example

Two mid-sized regional construction companies (Company A and Company B) realize that individually they cannot compete for large public tenders. They decide to merge. Following the merger, both Company A and Company B cease to exist, while a completely new construction company (Company C) is incorporated, combining the machinery, licenses, references, and business capacities of both former companies.

Mergers are less common than acquisitions but can be particularly useful in situations like the one described above.

Mergers vs. Acquisitions – Key Differences

To better understand which model may be suitable for a particular business, the main differences can be summarized through several important criteria.

1. Fate of the Legal Entity

In an acquisition, one company always survives (the acquiring company), while the others cease to exist. In a merger, all existing companies cease to exist and a completely new company is formed.

2. Administrative Complexity

A merger is generally somewhat more complex because it includes the incorporation of a new company, preparation of new constitutional documents, establishment of governance bodies, and obtaining a new registration and tax identification number.

In acquisitions, the process usually involves amendments to the constitutional documents of the acquiring company, such as increasing share capital or amending the memorandum of association.

3. Brand and Market Identity

Acquisitions are more common when a successful company wants to integrate a smaller company into its existing brand structure.

Mergers are more suitable when equal business partners wish to create a new and stronger joint market identity.

Why Do Companies Choose Mergers or Acquisitions?

The reasons behind corporate status changes are often broader than purely legal considerations. Companies usually decide on these processes for reasons such as:

• simplification of corporate structure,
• reduction of administrative costs,
• closure of inactive companies,
• centralization of operations,
• integration of employees and resources,
• easier group management,
• preparation for investment or sale of the business,
• tax and operational restructuring,
• resolving disputes among shareholders, or
• facilitating business succession planning.

For example, it is not unusual for one owner or a group of owners to control several companies performing similar activities while sharing the same resources. In such situations, maintaining multiple legal entities may become unnecessarily expensive and administratively burdensome.

Additionally, investors often require a clearer and simpler corporate structure before making an investment or acquiring shares.

In merger and acquisition procedures, issues related to market concentration and competition law compliance can be particularly sensitive.

Procedure for Corporate Status Changes

Implementing corporate status changes is a formal legal procedure with strict statutory deadlines. Any procedural omission may result in rejection of the registration by the Serbian Business Registers Agency or even subsequent court proceedings seeking annulment of the status change.

Given the complexity and significance of these transactions, companies commonly engage legal, tax, and financial advisors.

In practice, the procedure usually includes the following stages:

Step 1: Drafting the Agreement on the Status Change

The management bodies of the participating companies first prepare a draft merger or acquisition agreement.

This document represents the core legal instrument of the transaction and must contain:

• company details,
• information regarding the exchange of shares or equity interests,
• the date from which transactions of the transferor company are deemed to be carried out on behalf of the acquiring company, and
• rights granted to shareholders or members.

Step 2: Publication of the Draft Agreement and Protection of Creditors

Before shareholders vote on the transaction, the draft agreement must be published on the website of the Serbian Business Registers Agency no later than 60 days before the adoption of the decision.

This requirement serves as a statutory mechanism for creditor protection.

Step 3: Management Reports and Audit

The law requires management bodies to prepare a detailed written report explaining the legal and economic reasons for the proposed status change.

In addition, an independent auditor reviews the draft agreement unless all shareholders or members of all participating companies expressly waive this requirement.

Step 4: Adoption of the Resolution by the Shareholders’ Meeting

The Serbian Companies Act and the constitutional documents of the company may prescribe different voting thresholds for approving the transaction.

Therefore, it is important to review:

• the memorandum/articles of association,
• minority shareholder rights, and
• any other restrictions that may apply.

This stage is often where disputes arise, particularly regarding valuation of shares or future management arrangements.

Step 5: Registration with the Serbian Business Registers Agency

Once the relevant corporate resolutions are adopted, a registration application is submitted together with extensive documentation, including:

• the merger/acquisition agreement,
• shareholders’ resolutions,
• financial statements, and
• evidence regarding creditor protection.

The Serbian Business Registers Agency then issues a decision simultaneously deleting the companies that cease to exist and registering the newly established or surviving acquiring company.

What Happens to Employees?

One of the most common practical concerns relates to employees.

In corporate status changes, there is generally a change of employer, but this does not automatically terminate employment relationships.

Under Serbian labour law, the successor employer (the acquiring company) assumes all employees, their existing employment agreements without amendments, as well as all employment-related obligations that arose before the status change, including unpaid salaries, unused annual leave, and similar rights.

Employees retain both their employment status and continuity of service.

Does the Acquiring Company Also Assume Debts?

This is one of the most important aspects of mergers and acquisitions.

The acquiring company assumes not only assets and profitable business operations, but also:

• debts,
• tax liabilities,
• ongoing litigation,
• contractual obligations,
• potential penalties, and
• other legal risks.

For this reason, companies commonly conduct a detailed legal and financial review prior to the transaction, known as due diligence.

Without proper due diligence, a company may unknowingly assume significant liabilities.

In practice, it is not uncommon for the following issues to emerge only after completion of the acquisition:

• hidden tax liabilities,
• unresolved employment disputes,
• contractual issues, or
• outstanding supplier obligations.

Conclusion

Mergers and acquisitions of companies represent highly effective tools for corporate restructuring, but they also involve significant legal risks.

Mistakes in the procedure, failure to comply with creditor protection deadlines, or inadequately drafted agreements may result in blocked registration procedures, tax penalties, or lengthy disputes with minority shareholders and creditors.

If your company is considering expansion, internal restructuring, or the acquisition of another company, engaging lawyers specialized in corporate law is often a justified and necessary step.

Law Firm Petrović Mojsić & Partners