The pivotal moment for the business environment in Serbia is February 2012: the moment when the new Companies’ Act (the Act) comes into force. The new law, reflected in around 600 articles in the Act, will be the cornerstone for all companies in Serbia, whether LLC, JSC, partnership, or entrepreneur. The Act introduces two new, intricate, distinctive systems of corporate governance.

Once the Act was enacted in May 2011, the first review revealed uncovered many novelties to adapt to in a short period of time. For instance, from February 2012, all LLCs and JSCs in Serbia will have either a one-tier or a two-tier management system. How different is this from what existed under the previous regulation?

How the management systems work in LLCs

While Serbian LLCs could previously opt between a managing director (Director) and a management board (MB), now, at first sight, LLCs can no longer have MBs. Instead, they will have one or more Directors. Where is the sensation? It might seem that there is little difference between the former and the new one-tier management system, other than calling the corporate bodies slightly differently. In fact, there are some significant differences. Contrary to the old system where MB members were authorised to act individually, the Act introduces the presumption of a joint representation if the company has more than one Director. It appears that a unanimous decision is required, although the Act allows for the individual representation powers to be set out in the constitutive act of the company. Notably, this option is still exercised under significant restrictions: disagreement by even one Director means that an approval of the shareholder’s meeting (or supervisory board in the two-tier system) is required for an action. But no clear provisions determine exactly how a mixture of joint representation and individual representation powers in LLCs will work.

Another novelty in the new Act regarding LLC corporate governance is the application of the two-tier management system. This system assumes that apart from the shareholders’ assembly and (one or more) Directors, the company also has a supervisory board (SB). The general position and role of the SB in LLCs is virtually the same as that in JSCs, which is a generous step away from the Serbian legislation and practice up to now, since it allows for LLCs to operate in a form typically associated with JSCs.

The changes in JSCs

JSCs also went through rearrangements in corporate governance. For a start, the one-tier/two-tier management systems are now clearly delineated. Both systems look more simplified than earlier JSC structures. The one-tier management system presupposes a structure consisting of (i) the shareholders’ assembly, and (ii) one or two Directors or BoD (ie, three or more Directors). The two-tier system provides for (i) the shareholders’ assembly, (ii) the SB, and (iii) one or two executive directors or executive board (ie, three or more executive directors). Both systems bear, again, a presumption of joint representation with the possibility of arranging otherwise.

However, such an initially clear division reveals a more complex structure. Within the one-tier management system, a distinction is made within the BoD between executive directors (the representatives of the company), non-executive directors (supervising the executive director(s) and deciding on business strategies of the company), and independent directors (a type of nonexecutive director mandatory for public JSCs).

The two-tier system, on the other hand, provides for executive directors and an executive board (ie, there are no non-executive or independent directors), while the SB practically took the role of the non-executive directors from the one-tier management system. Compared to the former system, the SB’s competences are widened from internal audit to general supervision and consent to the company’s business activities.


The innovations in corporate governance introduced by the new Act might seem insignificant at first sight, but they are not. Every company in Serbia will have to organise its management system in line with the new legislation. That means formalistic, tiresome adaptations of their constitutive acts and time- and money-consuming procedures with the Serbian Agency for Commercial Registers.

No clear provisions determine exactly how a mixture of joint representation and individual representation powers in LLCs will work.