TRANSFER OF SHARE IN A LIMITED LIABILITY COMPANY

How is the transfer of shares carried out?

The Law prescribes that the transfer of shares is carried out by a written agreement between the transferor and the transferee. The signatures on the agreement must be notarized in accordance with the rules on signature certification. Notarization prevents potential disputes regarding the validity of the agreement.

After the conclusion of the agreement and notarization, the transferee becomes a member of the company only on the day of registration of the transfer with the Serbian Business Registers Agency (SBRA). Registration with the SBRA has a constitutive effect: without registration, the transfer has no legal effect towards the company and third parties, which means that this step is necessary to complete the transaction.

Liability of the transferor and the transferee

The Law provides that the transferor and the transferee are jointly and severally liable towards the company for the transferor’s obligations related to the share as of the day of registration of the transfer. For such obligations, a lawsuit may be filed before the court by the limited liability company or by a member holding at least 5% of the company’s share capital.

Right of first refusal

The right of first refusal represents a protective mechanism that allows company members to retain control over the ownership structure. Although the transfer of shares is generally free, the Company Law provides that members have the right to first purchase a share that is being transferred to a third party, unless this right is excluded by the memorandum of association. This provision allows the company to prevent the entry of undesirable partners.

The transferor must offer the share to the other members in writing. The offer must contain all essential elements of the transfer agreement, as well as the deadline for concluding and notarizing the agreement, which cannot be shorter than 30 nor longer than 90 days. If a member wishes to exercise the right, they must notify the transferor in writing.

If there are multiple members, each of them must receive the offer in the same manner. If several members accept the offer and fail to agree on the allocation, each member acquires a proportional part of the share in relation to their participation in the capital.

If the members do not exercise the right of first refusal, the transferor may transfer the share to a third party, but not under more favorable conditions than those offered to the members.

Violation of the right of first refusal

The Company Law provides judicial protection in case of violation of the right of first refusal. A member who was not given the offer may file a lawsuit requesting annulment of the transfer agreement or that the court judgment substitutes the transfer agreement.

This lawsuit may be filed within 30 days from the day the member learned about the conclusion of the transfer agreement, but no later than six months from the date of registration of the transfer in the register of business entities.

In the proceedings, the court may order the claimant to provide adequate security for the payment of the purchase price in the event of success in the dispute, in the form of a court deposit, a bank guarantee, or another form of security in accordance with the law. If the claimant fails to comply with the court’s order, the claim will be dismissed.

Transfer of shares to third parties 

Transfer of shares by operation of law – inheritance and enforcement

In the event of the death of a member, the heirs acquire the share of the deceased member in accordance with the Law on Inheritance. If the memorandum of association provides for the right of the company or other members to compulsorily purchase the share from the heirs, then within six months from the member’s death the share is transferred to another person by operation of law.

In the case of sale of shares in enforcement proceedings or out-of-court settlement, members retain the right of first refusal. Even if required by the memorandum of association, the company’s consent for the transfer of shares does not apply in this case, but the company has the right to designate the buyer.

A pledge over a share is possible, unless otherwise provided by the memorandum of association.

What additional restrictions on the transfer of shares exist?

In addition to the right of first refusal and company consent, the Company Law allows the memorandum of association to prescribe other types of restrictions. For example, conditions may be set for transfer to family members, minimum duration of membership before transfer, or prohibition of transfer during certain periods.

However, when creating such restrictions, care must be taken that they are in accordance with mandatory provisions of the Company Law. In the case of “excessive” and unjustified restrictions, such provisions may be declared null and void.

What does the practical process of transferring shares look like?

Review of documentation and conditions

The transferor and the potential transferee review the memorandum of association and the company’s statute in order to determine whether there are any restrictions (right of first refusal, consent, prohibitions). It is necessary to determine whether the transferor has any outstanding obligations towards the company and whether all obligations related to the share have been fulfilled, as the transferor and transferee are jointly liable for such obligations.

Offer to members

If there is a right of first refusal, the transferor sends a written offer to the other members, with a deadline for acceptance and the elements of the agreement. If the members accept, the agreement is concluded with them; if not, the transferor may transfer the share to a third party.

Company consent

When the memorandum of association requires consent, the transferor submits a request to the company’s assembly; a decision is made within 30 days.

Drafting the agreement

The share transfer agreement must be in written form and signed by the transferor and the transferee; in addition to information about the parties, it contains data on the capital amount, share percentage, price (for transfers with consideration), possible exclusion of the right of first refusal, a statement that the transferor has no debts, etc.

Notarization of the agreement

Signatures are notarized before a public notary in accordance with the law. Notarization is necessary for the validity of the agreement.

Registration with the SBRA

The final step is submitting the agreement and accompanying documentation to the SBRA for registration. The transferee becomes a member of the company only upon registration.

Frequently Asked Questions about Share Transfer (FAQ)

Who can transfer a share and to whom?

Any member of an LLC may transfer their share to a natural or legal person, domestic or foreign, unless the Company Law or the memorandum of association provides restrictions. For transfer to an existing member, consent is usually not required, but if several members wish to acquire the share, it is transferred proportionally to their existing shares.

How long does the share transfer procedure take?

The usual procedure (preparation of the agreement, notarization, sending the offer, registration with the SBRA) depends on whether members exercise the right of first refusal or whether company consent is required.

Can members prohibit the transfer of shares?

Members and the company cannot prevent a member from transferring their share. The memorandum of association may require company consent, but if the company refuses consent, it must purchase the share; if it fails to do so, the member may freely transfer the share to a third party under the same conditions. A complete prohibition of transfer would be contrary to the principle of free disposal of property and could be declared null and void.

Is tax payable on the transfer of shares?

The transfer of shares entails the payment of capital gains tax.

What is compulsory purchase of shares from heirs?

The memorandum of association may provide that the company or members have the right to purchase the share of a deceased member from their heirs within six months, with payment of fair compensation. This enables preservation of the desired ownership structure.

Can shares be pledged?

A share may generally be pledged to a third party, unless the memorandum of association provides otherwise. However, if company consent is required for transfer to a third party, such consent is also required for pledging.

What is the role of the SBRA in share transfer?

The SBRA maintains the register of business entities and registers changes in company membership. After submission of the transfer agreement and required documents, the SBRA issues a decision on registration, upon which the transferee becomes a member.

Conclusion

The transfer of shares in an LLC requires a combination of mandatory form, respect for the rights of other members, and registration. Although freedom of transfer is the rule, the law provides for the right of first refusal, the requirement of company consent, and a number of other restrictions. Proper drafting of the agreement, compliance with procedures, and timely registration are key to a lawful transfer.

Case law indicates that members’ rights are consistently protected and that any violation of the right of first refusal or other legal mechanisms may be sanctioned by annulment of the agreement or by obliging the transferor to transfer the share to the members.

Despite formalities, the transfer of shares may represent an opportunity for restructuring, entry of new investors, or consolidation of ownership. Quality legal support and a clear procedure ensure that the transaction proceeds without disputes and that all participants are protected.

Law Firm Petrović Mojsić & Partners 

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