Transfer of Shares in Limited Liability Companies
A Short Guide to Transferring Shares in Limited Liability Companies
The ownership structure in a company that is organized in the legal form of a limited liability company (the “Company“) consists of registered members of that Company who have acquired the initial capacity of a member of the Company by concluding a contract 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.
In addition to acquiring shares in the Company by establishment, shares can be acquired in various ways prescribed by the Law on Companies (“Official Gazette of RS”, No. 36/2011, 99/2011, 83/2014 – other law, 5/2015 , 44/2018, 95/2018 and 91/2019 the “Law”). The focus of this text will be on the contractual manner of acquiring shares in existing companies.
The Law prescribes that the transfer of shares is free, within the limits prescribed by the Law, as well as any restrictions that may be prescribed by the Agreement on the Establishment of the Company, so the restrictions can be established by the free will of the Company’s founders. The share may be transferred by contract by concluding a Share Transfer Agreement (the “Agreement“). Like any status change in the Company, it is subject to mandatory registration in front of the Business Registers Agency, in a constitutive manner. Without a change made in the register, the change has no effect. The share can be transferred as a whole or in part, either to an individual or to a legal entity.
In order for the mentioned registration to be successfully carried out, it is necessary for the Contract to be concluded in the form prescribed by the Law. In the first place, the Agreement must be concluded in writing, which is a basic condition for the validity of the Agreement. In addition, another condition for the validity of the Agreement is that the signatures of the transferor and the transferee of shares must be certified by a Notary Public. Without fulfilling these two conditions, the Agreement does not produce legal effect and on the basis of it, it’s not possible to register a change in the Business Registers Agency.
In addition to the requirements of the Law itself, there are standard requirements of contract law in terms of clearly stating the essential elements of the Agreement, 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, exact percentage of the share which is being transferred, its monetary value, the amount of monetary compensation for transfer or stating the share to be transferred without compensation.
- The right of pre-emption
The law stipulates that 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, who is not a member of the Company. The transferor is then obliged to send a written offer to the remaining members of the Company, which contains the essential elements of the share transfer agreement, the address where the offer can be accepted and the deadline for concluding and certifying the share transfer agreement. If the bid does not contain the stated elements, it will not be considered valid and in a potential court procedure will lead to the annulment of the contract on the transfer of shares.
A member of the Company to which the offer was sent, is obliged to declare it in writing within 30 days from the date of receipt of the offer or within the period prescribed by the Agreement on the establishment of the Company. After the deadline (or if the offered member declares earlier that he does not accept the offer because he has no interest in acquiring the share in question), it will be considered that the offered member did not accept the offer, so it will be possible to transfer the share to a third party without fear of cassation in a potential court proceeding, in which case the Judgment itself may replace the Share Transfer Agreement, if in addition to the annulment of the Agreement which violates the right of pre-emption, the transfer of shares is also required.
If no member of the company who has the right of pre-emption does not use this right in accordance with the provisions of the Law and the founding act, the transferor 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 the conditions that cannot be more favorable than the conditions from the offer submitted to other members of the Association, unless otherwise provided by the founding act.
- Tax control
During the tax control procedure, as well as during other Tax Police procedures 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.
The Law on Tax Procedure and Tax Administration stipulates that the Business Registers Agency cannot register status changes of the Company in the period from receiving the notification of the Tax Administration that the business entity will be subject to tax control, including actions of the Tax Police to detect tax criminal offenses, until the notification that the tax control or the actions of the Tax Police has been completed.
The Agreement on the Establishment of the Company may prescribe additional restrictions for the contractual transfer of shares to third parties in terms of obtaining the written consent of the Company for transfer. The consent is brought by the Assembly of the Company by a simple majority of votes. The transferor is obliged to submit, together with a written request for the issuance of consent, data on the third party to which he intends to transfer his share, as well as all essential elements of the future Agreement.
In addition to giving consent, the Company is authorized to refuse to issue consent, but at the same time to designate a person (individual or a legal entity) with whom the transferor may conclude the Agreement.
If the consent is not issued within 30 days from the date of receipt of the request, the transferor has the right to conclude the Agreement without any concerns regarding its validity. Otherwise, when the issuance of consent is refused, and the Company has not designated a person with whom the transferor can conclude the Agreement, the Company is obliged to redeem the transferor’s share within 30 days from the date of expiration of the deadline for responding to the request for consent under the conditions sent with the request.
In case of non-compliance with the established procedure, judicial protection is guaranteed. In addition to the stated restrictions, the Agreement on the Establishment of the Company may prescribe others that are not prescribed by the Law.
Consequently, before concluding the Share Transfer Agreement, it is necessary to be well acquainted with all legal, statutory and factual conditions on which the validity of the legal transaction and the final outcome regarding the possibility of registration may depend.