{"id":770,"date":"2025-01-13T16:17:18","date_gmt":"2025-01-13T15:17:18","guid":{"rendered":"https:\/\/vraneseviclaw.com\/?p=770"},"modified":"2025-01-13T16:17:19","modified_gmt":"2025-01-13T15:17:19","slug":"agreement-on-the-transfer-of-shares-in-an-llc","status":"publish","type":"post","link":"https:\/\/vraneseviclaw.com\/en\/agreement-on-the-transfer-of-shares-in-an-llc\/","title":{"rendered":"Agreement on the transfer of shares in an LLC"},"content":{"rendered":"<p><span class=\"TextRun SCXW231197409 BCX8\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW231197409 BCX8\">The Companies Act comprehensively regulates the transfer of shares. As a fundamental principle, the law <\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">establishes<\/span><span class=\"NormalTextRun SCXW231197409 BCX8\"> the freedom to transfer shares. Article 160 stipulates that the transfer of shares is free unless otherwise specified by law or the <\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">memorandum of association<\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">. Thus, freedom of contract is the primary rule; legal restrictions may arise in the form of preemptive rights, while the <\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">memorandum of association<\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">\u00a0can introdu<\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">ce <\/span><span class=\"NormalTextRun SCXW231197409 BCX8\">additional<\/span><span class=\"NormalTextRun SCXW231197409 BCX8\"> limitations.<\/span><\/span><span class=\"EOP SCXW231197409 BCX8\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h3><span class=\"TextRun SCXW53250803 BCX8\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW53250803 BCX8\" data-ccp-parastyle=\"heading 3\">How are shares transferred?<\/span><\/span><span class=\"EOP SCXW53250803 BCX8\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:281,&quot;335559739&quot;:281}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Article 175 states that shares are transferred through a written agreement with certified signatures of the transferor and transferee. Other methods of transfer are also allowed, provided they comply with the law.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The transfer of rights to shares can take place through various agreements, such as a sale agreement, an exchange agreement, or a gift agreement, i.e., any contract that enables the transfer of an absolute right.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Regardless of the type of agreement chosen, it is essential to note the differences and consult a law firm specializing in <\/span><a href=\"https:\/\/vraneseviclaw.com\/en\/expertise\/corporate-commercial-law\/\"><span data-contrast=\"none\">corporate and commercial law<\/span><\/a><span data-contrast=\"auto\"> when making this decision.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">A contract is one of the most common legal bases for the transfer of shares in a limited liability company (LLC). The law mandates a written form with notarized signatures of the parties. If this condition is not met, the contract cannot produce legal effects.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">This requirement has been confirmed in the Answers to Questions of Commercial Courts, adopted at the joint session of the Division for Commercial Disputes and the Division for Commercial Offenses of the Commercial Appellate Court, held on November 8\u20139, 2023. Specifically, considering the provisions of Article 175 of the Companies Act, a contract not concluded in written form and without notarized signatures of the transferor and transferee cannot produce legal effects.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The transfer of shares is based on the agreement, but the transfer itself occurs only when the change of member is registered in the Register of Business Entities with the Business Registers Agency.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Similarly, the law stipulates that in the case of a new member joining the LLC, the membership accession agreement must be concluded in written form with the notarized signatures of the person joining the company and the person authorized by a decision of the LLC\u2019s assembly.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h3><span class=\"TextRun SCXW74985864 BCX8\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW74985864 BCX8\">The pre-emptive right <\/span><span class=\"NormalTextRun SCXW74985864 BCX8\">as a <\/span><span class=\"NormalTextRun SCXW74985864 BCX8\">l<\/span><span class=\"NormalTextRun SCXW74985864 BCX8\">egal <\/span><span class=\"NormalTextRun SCXW74985864 BCX8\">r<\/span><span class=\"NormalTextRun SCXW74985864 BCX8\">estriction<\/span><\/span><span class=\"EOP SCXW74985864 BCX8\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">The Companies Act stipulates that members of a company have the pre-emptive right for shares being transferred to a third party, unless this right is excluded by the memorandum of association or law.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">It is important to note that the pre-emptive right, as the name suggests, applies in cases of share sales, i.e., when the legal basis for the transfer is a sale agreement. The pre-emptive right does not apply to legal actions such as share exchanges or gifts.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">If the members of a company wish to regulate their mutual rights and obligations regarding share transfers that do not fall under the pre-emptive right, they can do so through an agreement concerning the company as outlined in Article 15 of the Companies Act. <\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">In the Answers to Questions of Commercial Courts, adopted at the session of the Division for Commercial Disputes and the Division for Commercial Offenses of the Commercial Appellate Court held on November 8\u20139, 2023, it was explained that the\u00a0pre-emptive righr authorizes other members to acquire the company\u2019s share under the same conditions as those offered to third parties. Furthermore, it was confirmed that if a company member wishes to gift their share to a third party, the pre-emptive right does not apply.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The same conclusion is stated in the Commercial Appellate Court Decision P\u017e 3817\/20, noting that Articles 160\u2013163 of the Law on Business Companies do not apply to gratuitous transfers of shares in an LLC, as these provisions regulate the pre-emptive right.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Therefore, the pre-emptive right can only be invoked if another member of the company is selling their share. If you want to protect yourself from gratuitous share transfers (e.g., gifts), it would be wise to consider concluding an agreement regulating the mutual rights and obligations of LLC members or incorporating restrictions into the\u00a0memorandum of association from the outset.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h3><span class=\"TextRun SCXW182369279 BCX8\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW182369279 BCX8\">Restrictions <\/span><span class=\"NormalTextRun SCXW182369279 BCX8\">p<\/span><span class=\"NormalTextRun SCXW182369279 BCX8\">rovided in the<\/span><span class=\"NormalTextRun SCXW182369279 BCX8\"> memorandum of association<\/span><\/span><span class=\"EOP SCXW182369279 BCX8\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">When establishing an LLC, a founding act is created (or an agreement on incorporation if there are multiple founders). If you and your partners wish to resolve the issue of possible share transfers at the outset, the Act allows for freedom of contract and provides several examples.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">It is possible to condition the transfer of shares on the company\u2019s consent. Article 167 stipulates that the memorandum of association\u00a0may require that shares can be transferred to a non-member only with the prior consent of the company. The transferor must submit a request for consent to the company, containing the identity of the transferee and key elements of the share transfer agreement.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">This restriction may apply to any form of transfer, not just sales. The decision on consent is made by the LLC assembly by a simple majority vote of all members unless the founding act specifies a different majority.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Next, the Act provides the right of the company to designate a share purchaser. Article 168 of the Act states that instead of granting consent under Article 167, the company may designate a third party to whom the share can be transferred. The designated third party must enter into and notarize the share transfer agreement within 15 days of the date the transferor is notified of the company\u2019s decision. If the third party fails to do so and the transferor is not at fault, the transferor has the right to sell their share to someone else of their choosing.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Article 170 of the Companies Act confirms the broad scope of freedom of contract, stating that the founding act may also provide for other types of restrictions on share transfers. These restrictions must not conflict with mandatory legal norms or general rules. Considering these limitations, contracting parties have a wide range of provisions to regulate share transfers, such as restricting transfers to market competitors, related parties, and the like.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h3><span class=\"TextRun SCXW14911388 BCX8\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW14911388 BCX8\">From the acquirer&#8217;s perspective: Why is due diligence important?<\/span><\/span><span class=\"EOP SCXW14911388 BCX8\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">The Act regulates how ownership interests are transferred, as well as potential restrictions prescribed by law or established in the memorandum of association. However, it is up to the acquirer to verify what they are purchasing. For this reason, it is advisable to conduct due diligence, which can be translated as an in-depth analysis.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The concept of due diligence dates back to the 15th century but became associated with business and finance in the 20th century. In the United States, a significant shift occurred after the adoption of the Securities Act of 1933, which introduced requirements for aligning relationships between investors and brokers in the securities market. In Anglo-Saxon law, the concept of due diligence is essential due to the principle of <\/span><span data-contrast=\"auto\">caveat emptor, or \u2018let the buyer beware\u2019. <\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">So, why is due diligence important for us in this part of Europe? Let\u2019s say you are purchasing a share in a company as part of your business strategy. Naturally, you want to know what you are buying and whether there are any risks involved. This is precisely why it is advisable to conduct an in-depth analysis.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Due diligence is a thorough investigation into the condition of the target company, carried out before concluding the share transfer agreement. By conducting this analysis, the target company is assessed from legal and financial perspectives, and existing or potential risks are identified.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Simply put, due diligence protects you from unpleasant surprises.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><i><span data-contrast=\"auto\">Note: This text does not constitute legal advice but reflects the author&#8217;s personal opinion.<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Companies Act comprehensively regulates the transfer of shares. As a fundamental principle, the law establishes the freedom to transfer shares. Article 160 stipulates that the transfer of shares is free unless otherwise specified by law or the memorandum of association. Thus, freedom of contract is the primary rule; legal<\/p>\n","protected":false},"author":2,"featured_media":768,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[376,377,606,117,156,130,22,604,607,605,602,603],"class_list":["post-770","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-attorney-belgrade","tag-attorney-serbia","tag-company-acquisition","tag-company-law","tag-competition-law","tag-contract-law","tag-corporate-law","tag-due-diligence-2","tag-ma-2","tag-mergers-and-acquisition","tag-share-purchase-agreement","tag-share-transfer-agreement"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Agreement on the transfer of shares in an LLC - Law firm Vranesevic Grbic Belgrade<\/title>\n<meta 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