When establishing a limited liability company, the focus is often placed on the founders holding a majority share, while the rights and position of minority shareholders tend to be overlooked. Nevertheless, the legal protection of minority shareholders exists and is governed by the Serbian Company Law.
Who are minority shareholders?
Minority shareholders are considered to be those holding a smaller share in the company’s capital, specifically below 20% of share. Although minority shareholders do not have decisive influence over company decisions, the Company Law grants them a range of rights that enable them to protect their interests and participate in the functioning of the company.
Statutory protection mechanisms for minority shareholders
The Company Law provides for certain rights of minority shareholders, some of the most significant being:
Every shareholder, regardless of their share in the company’s capital, has a statutory right to access the company’s documentation and business records. If this right is denied, they may submit a motion to the competent court requesting an order for the company to provide the requested information. The court decides in an expedited procedure.
Shareholders holding at least 10% of the company’s capital may request the director to convene a general meeting and propose the agenda. If the director fails to act within the prescribed period, these shareholders may convene the meeting themselves.
Shareholders holding at least 5% of the company’s shares may, in cases of company inaction, initiate proceedings against directors or other persons who have caused damage to the company, acting in the name and on behalf of the company. Before filing such a lawsuit, the shareholders must submit a written request to the company to take appropriate action. If the company rejects the request or fails to act within 30 days, the shareholders acquire the right to file the lawsuit independently.
Shareholders holding at least 20% of the company’s capital may petition the competent court to initiate liquidation proceedings or take other corrective measures. This is an extraordinary legal remedy that may be granted only under strictly prescribed and clearly defined circumstances set out in the law.
Contractual protection through the Memorandum of Association and the Shareholders’ Agreement
In addition to statutory rights, further protection mechanisms can be provided through the Memorandum of Association and a Shareholders’ Agreement, a document that regulates the internal relations between shareholders in more detail. While the Memorandum is subject to notarization, registration, and publication with the Business Registers Agency, the Shareholders’ Agreement is an internal document and often includes the most important provisions governing the functioning of the LLC.
Common elements of a Shareholders’ Agreement include:
However, a Shareholders’ Agreement may not restrict the statutory rights of any shareholder.
Conclusion
Minority shareholders play an important role in the company’s operations and are entitled to adequate legal protection. By combining statutory instruments and contractual mechanisms, it is possible to achieve a balance of interests among all shareholders and build a stable and transparent corporate environment.
Author:
Ana Radojević, Senior Associate
Email(s): ana.radojevic@prlegal.rs; legal@prlegal.rs