Protecting Trade Secrets in a Serbian Company: Legal Measures and Common Mistakes

The salesman leaves the company and takes with him an Excel table with clients, contacts, prices and special conditions of cooperation. A few weeks later he starts working for a competitor.

Does the company thereby automatically acquire the right to demand protection of its trade secret?

Not necessarily.

The fact that some information is internal or confidential does not in itself constitute a trade secret in the legal sense. The protection of a trade secret depends on the nature of the information itself and on what the company has previously undertaken to preserve its secrecy.

According to the Act on the Protection of Trade Secrets, the information must meet certain conditions, among which is the requirement that the person who legally controls it take reasonable measures to preserving its secrecy.

That is why protection does not start when the employee goes to a competitor or when the documentation has already reached a third party. It starts much earlier, with proper contracts, internal procedures, access control and the way the company deals with sensitive information on a daily basis.

What is considered a trade secret?

Not every information that a company marks as confidential is automatically and legally protected a trade secret.

According to the Law on the Protection of Trade Secrets, information must cumulatively meet three basic conditions:

that it is not generally known or easily accessible to persons who normally deal with this type of information;

It has commercial value because it is a secret;

that reasonable measures have been taken to preserve its secrecy.

Depending on the type of business, a trade secret can be:

• customer and supplier databases;
• special price lists and commercial conditions;
• business and investment plans;
• information about negotiations;
• production processes;
• technical documentation;
• internal methodologies;
• algorithms and source code;
• sales and marketing strategies;
• know-how;

development plans for new products and services.

The key question is therefore not only whether the information is important to the company, but also whether it meets the legal criteria and whether the company has really treated it as information it wants to keep secret.

The “confidential” label alone is not enough

The “confidential”, “confidential” or “trade secret” label can be useful, but does not in itself create a complete system of protection.

If a document with such a label can be downloaded without restriction by a large number of employees, forwarded to a private email address or saved on a private cloud account, the label alone will not solve the problem.

The law recognizes as possible reasonable protection measures, among other things, the adoption of an internal act on dealing with trade secrets, limiting access, physical and electronic protection, marking documents and contracting confidentiality obligations.

In other words, legal protection must also be visible in the actual way of doing business.

Why is an NDA not enough?

A confidentiality agreement, or NDA, is one of the most important instruments for protecting confidential business information.

But it is not enough by itself.

A company that gives all employees access to the entire customer base, allows data to be downloaded to private devices and keeps no access logs, one generic NDA cannot be expected to solve all risks.

A good confidentiality agreement should clearly define:

• what information is considered confidential;
• for what purpose it may be used;
• to whom it may be disclosed. available;
• what protection measures the recipient must apply;
• what happens to the documentation after the termination of cooperation;
• how long does the obligation of confidentiality last;

what consequences may arise in the event of a violation.

The problem can also be posed by overly broad wording that covers almost every piece of information related to the business declares confidential.

A more efficient system identifies information that really requires protection and determines the appropriate regime for it.

Protection of trade secrets in relation to employees

A special risk exists when employees, due to the nature of their work, have access to customers, prices, financial data, technology, strategic plans or other sensitive information.

That is why protection should be arranged while the employment relationship lasts.

Obligations of employees regarding the storage of confidential information should be precisely linked to employment contracts, appropriate internal acts and procedures of the company.

The documentation should, to the extent necessary for a specific organization, arrange:

• what information is considered confidential;
• who has the right of access;
• how the employee is allowed to use them;
• whether downloading to local or private devices is allowed;
• what happens to the documentation after the termination of employment;

what confidentiality obligations continue to apply after termination engagements.

These questions should be harmonized with the entire labour law documentation of the company.

A special risk arises when an employee leaves

The procedure for an employee leaving the company should not be only administrative.

Depending on his position and level of access to information, you should consider:

• returning laptops, phones and other business equipment;
• deactivating business emails account;
• terminating access to servers and cloud services;
• returning business documents;
• checking the status of access orders;
• recording the materials to which the employee had access;

reminding of existing confidentiality obligations.

The worst time to establish such a procedure is after the company already suspects that the data has been taken.

Trade secret and non-compete are not the same

These two legal mechanisms are often mistakenly identified.

The confidentiality clause refers to the use and disclosure of certain information.

Prohibition of competition, under the conditions prescribed by labour law, can limit the performance of certain competitive jobs.

This means that the transfer of an employee to a competitor does not automatically constitute a violation of trade secrets.

A problem can arise if a former employee of a new employer makes unauthorized use of information from the previous company that meets the requirements for legal protection.

Therefore, confidentiality and non-competition should be treated as separate, though sometimes related, issues.

Can a customer database be a trade secret?

It can, but not automatically.

The mere fact that a company has a list of clients is not enough to make that database a trade secret in any case.

What matters is what the database contains.

A list of publicly available company names and their general contact information is not the same as an internal database that contains contacts of responsible persons, negotiation history, individual prices, rebates, commercial terms, client needs and other data that arose during a long-term business relationship.

How the company protects such a database is equally important.

If it is accessed by a limited number of employees, access is controlled, and rules of use are clearly regulated, the company will have a much stronger basis to claim that it really treated such information as a trade secret.

If the same database is copied, sent and stored on private devices uncontrolled for years, the situation is different.

Technical and organizational measures have legal significance

Protection of trade secrets is not only the job of the legal department.

The way in which the IT system and internal organization control information can be as important as contract documentation.

Depending on the nature of the business and the level of risk, the company can apply:

• individual user accounts;
• different levels of document access;
• the “need to know” principle;
• data access and download records;
• cloud control platforms;
• rules for using USB devices and external drives;
• rules for sending data outside the business system;
• procedures for working from home;
• classification of documentation;
• appropriate authentication methods;

training of employees.

The bottom line is simple: the fact that someone works for the company does not mean that he needs access to all the information that the company has.

Such measures simultaneously reduce the risk of unauthorized use and show that the company actively protects confidential information.

Trade Secrets in Relationships with Partners, Suppliers and Investors

Confidential information does not leave the company only when the employee changes jobs.

They are regularly exchanged during:

• negotiations on business cooperation;
• due diligence procedures;
• talks with investors;
• sale of a company or stake;
• joint development products;
• outsourcing arrangements;
• hiring consultants;
• IT development;

cooperation with distributors and suppliers.

The most important question is what the other party is allowed to do with the information it receives.

Therefore protection should be arranged before the disclosure of sensitive data, and not after the technical documentation, business plan or client base has already been submitted.

Confidentiality provisions should be harmonized with contracts on business cooperation and other commercial contracts.

10 common mistakes when protecting trade secrets

1. Everything is declared a trade secret

If every internal document is marked as a trade secret, the classification system practically stops distinguishing important information from everyday documentation.

A better solution: identify information that has real business value due to its secrecy and determine the appropriate level of protection for it.

2. There is an NDA, but there are no real safeguards

A contract can hardly compensate for the lack of access control and clear internal procedures.

A better solution: connect contractual protection with technical and organizational measures.

3. The confidentiality clause is generic

A provision copied from another contract may not correspond to a specific business relationship.

A better solution: precisely define the categories of information, the method of use and the obligations of the other party.

4. Too many people have access to sensitive information

The larger the circle of users, the more difficult it is for the company to control the use of data.

Better solution: organize access according to the business need and function of the employee.

5. It is not regulated to whom the documentation created during cooperation belongs

The problem is particularly pronounced with consulting, development and IT projects.

A better solution: the contract clearly regulates the rights to work results, documentation, data and confidential information.

This issue can also be intertwined with intellectual property rights, but trade secret, copyright, patent and trademark are not the same protection mechanisms.

6. Access remains active after the employee leaves

A former employee should not retain access to systems because someone forgot to deactivate the user account.

Better solution: include termination of access in the standard termination procedure.

7. Business data is on private devices

Private laptops, email accounts and cloud services can make it significantly more difficult to control information.

A better solution: clearly regulate when the use of private devices is allowed and how the data must be protected.

8. The company reacts only when the information is leaked

Then the focus shifts from prevention to proving and limiting the consequences.

A better solution: establish a protection system before the incident occurs.

9. Trade secret is mixed with other rights

Patent, trademark, copyright, non-competition and trade secret have different functions.

A better solution: for each important business value determine the appropriate legal mechanism or combination of mechanisms.

10. There is no proof who had access

A company can claim that a document was confidential, but in case of a dispute it is important to be able to prove how it protected it.

A better solution: arrange access logs, document distribution, file versions and appropriate internal procedures.

What can a company do if a trade secret is violated?

The Law on the Protection of Trade Secrets provides for civil protection mechanisms in case of illegal acquisition, use or disclosure of a trade secret.

Depending on the circumstances of the specific case, one may request, among other things, the establishment of a violation, the cessation or prohibition of certain actions, measures related to documents or goods related to the violation, as well as compensation for damages under the conditions prescribed by law. The law also provides for the possibility of determining temporary measures when the appropriate conditions are met.

In practice, it is therefore very important to quickly provide relevant evidence, such as:

• contracts and confidentiality agreements;
• internal acts;
• email communication;
• logs access;
• document download records;
• data on user accounts;
• information classification documentation;
• evidence that employees were familiar with the rules;

communication with an employee, partner or other relevant person.

When a dispute already exists, the legal protection of trade secrets can be connected to broader commercial disputes, litigation or arbitration.

How to set up a trade secret protection system in a company?

A good system does not mean that every document must be treated as strictly confidential.

The measures should be adapted to the importance of the information and the real business risk.

1. Identify information that has real business value

The first question is simple: what information would give a competitor an advantage if they obtained it?

2. Classify information

Different types of data may require different levels of protection.

3. Determine who really needs to have access

Access should follow a business function, not just the fact that someone is employed by the company.

4. Harmonize contracts and internal documents

Employment contracts, NDA documents, agreements with partners and internal procedures should function as one system.

5. Introduce technical and organizational measures

Legal documentation must be supported by a real data management method.

6. Educate employees

Employees should know what information is confidential and how to handle it.

7. Arrange exit procedures

Both employees and external collaborators should lose access to information when there is no longer a business need for it.

8. Periodically review the system

Changes in technology, organization, work methods and business relationships require periodic review of existing rules.

Trade secret protection starts before a problem arises

A company that first seriously considers a trade secret when an employee leaves for a competitor is already at a disadvantage.

Effective trade secret protection starts much earlier: identifying important information, restricting access, proper contracts, internal procedures and technical measures that are actually applied.

NDA can be an important part of that system, but it cannot replace it. replace.

The goal is that the company can clearly show at all times what information it considers particularly valuable, who has access to it, under what conditions it is used and what has been done to keep it secret.

Jusufović & Partners provides legal support to companies in the field of corporate law, commercial contracts, labour law, intellectual property and resolving business disputes. Timely analysis of existing contracts, internal acts and procedures can help to adapt the trade secret protection system to the specific business model and risks of the company.

Limitation of Claims in Serbia: When a Company Loses the Right to Enforce a Debt

At first, an unpaid bill often looks like an ordinary delay. The business partner asks for a few extra days, promises payment or suggests that the obligation be settled after the next payment. The problem arises when weeks grow into months, and months into years.

Then debt collection is no longer just a question of liquidity, but also a limitation issue.

For a company that does not have a system for monitoring due obligations, this can represent a serious legal risk. Especially because for certain business claims, the deadlines may be shorter than the creditor expects.

It is important, however, to immediately clarify one common misconception: statute of limitations does not mean that the debt automatically ceases to exist. It gives the debtor the possibility, under the conditions prescribed by law, to invoke the statute of limitations and thereby prevent the successful enforcement of the claim.

What Does Limitation of Claims Mean?

The statute of limitations occurs when the time specified by law has passed during which the creditor could demand the fulfillment of the obligation.

This does not mean that the debt disappears.

If the claim becomes time-barred, the debtor can file a statute-of-limitation objection in the appropriate procedure. As a rule, the court does not take into account the statute of limitations ex officio, but only if the debtor invokes it.

That is why the expression “the company loses the right to collect the debt” is often used in a practical sense, but legally it is not completely precise. The claim does not automatically cease to exist, but the possibility of its enforced collection may be seriously threatened.

This is also confirmed by the fact that a debtor who voluntarily pays a time-barred obligation cannot claim a refund just because at the time of payment he did not know that the statute of limitations had begun.

When Does the Limitation Period Begin?

As a general rule, the statute of limitations begins on the first day after day when the creditor had the right to demand the fulfillment of the obligation.

In business practice, therefore, the due date is particularly important.

If, for example, it is agreed that the obligation to pay is due 30 days after the invoice is issued, the limitation period is not calculated simply from the date the invoice was issued, but in relation to the moment when the creditor acquired the right to demand payment.

That is why the company should track at least:

• the date of origination of the claim,
• the due date,
• the legal basis of the claim,
• any subsequent actions of the debtor or creditor that may affect the statute of limitations.

This is especially important for companies that have a large number of customers and continuous delivery of goods or service.

What is the statute of limitations for claims between companies?

There is no single statute that automatically applies to every debt between two companies.

The general limitation period according to the Act on Obligation Relations is ten years, except when a special period is provided for a certain type of claim.

For business practice, a shorter period related to certain mutual claims of legal entities is particularly significant.

Three-year time limit for certain claims from trade of goods and services

Mutual claims of legal entities from contracts for the trade of goods and services, as well as certain claims in connection with such contracts, expire in three years.

This time limit should not be automatically applied to every claim just because both the creditor and the debtor are companies.

First of all, determine the legal nature of the specific relationship.

It is also important that the statute of limitations is calculated separately for each individual delivery, work performed or service provided.

This means in practice that a company that has ten unpaid invoices to one customer should not only look at the total balance. The oldest claims may be close to expiration even though the newer ones have only recently become due.

Special deadlines for other types of claims

For certain claims, the law provides for special deadlines.

For example, the statute of limitations for rent is regulated separately, while for some other types of contractual and non-contractual relationships different rules may apply.

it is not enough to determine just how old the debt is. It is also necessary to know from which legal relationship it originates.

What if the claim has already been established by a court decision?

For claims that have been established by a legally binding court decision, by a decision of another competent authority or by an appropriate settlement, different rules may apply than for the original claim.

Such claims, as a rule, expire within ten years, even when the original claim was provided for a shorter period, with legal exceptions.

This is another reason why the statute of limitations cannot be assessed only on the basis of the fact that “the debt has existed for several years”.

What interrupts the statute of limitations?

For the creditor, one of the most important questions is whether the statute of limitations has been interrupted in the meantime.

When the statute of limitations will be interrupted, the time that passed before the interruption is no longer included in the new deadline. After the interruption, the statute of limitations begins to run again according to the legal rules.

Two situations are particularly important for business practice.

Acknowledgment of debt

The statute of limitations is interrupted when the debtor acknowledges the debt.

That acknowledgment of debt can be explicit, for example when the debtor confirms in writing that a certain amount is owed.

However, recognition can also result from the behavior of the debtor, such as:

• partial payment,
• payment of interest,
• giving appropriate security.

It is important, however, not to equate every communication with acknowledgment of debt.

A message like “we will check the invoice” or “we will let you know when we can pay” does not necessarily have the same legal effect as a clear acknowledgment of a specific obligation.

That is why the content of communication with the debtor should be viewed carefully.

Initiation of court or other appropriate proceedings

The statute of limitations is also interrupted by the filing of a lawsuit, as well as by other appropriate actions taken by the creditor against the debtor before the court or other competent authority in order to establish, secure or realize the claim.

Depending on the documentation and legal basis, collection may require the initiation of civil or enforcement proceedings.

The key is to take appropriate legal action in a timely manner.

Does a pre-action payment demand break the statute of limitations?

No. A pre-suit warning alone does not break the statute of limitations.

This is one of the most important things that companies should know.

A written or verbal call to the debtor to fulfill an obligation is not in itself sufficient to break the statute of limitations.

A pre-suit warning can therefore be very useful as a means of collection. It can encourage voluntary payment, open room for negotiation or show that the creditor will take further legal steps.

But it should not be treated as a substitute for action that under the law actually affects the statute of limitations.

A company that has been sending reminders, emails and urgent calls for three years may therefore find itself in a less favorable position than it expects if it has not taken legally relevant action.

Example from business practice

Suppose that Company A delivered goods to Company B.

The invoice was due on May 15, 2023, but was not paid.

During 2024, Company A sends several emails and two reminders. The debtor replies that he currently has liquidity problems and that he will “try to settle the obligation as soon as possible”.

During 2025, communication continues, but there is no payment, no clear recognition of the debt or initiation of the appropriate procedure.

At the beginning of 2026, the creditor decides to more seriously consider further steps for collection of claims from a company. In that situation, it is not enough to conclude: “Well, we warned them all the time.”

It is necessary to determine:

• which limitation period applies to the specific claim,
• when it started to run,
• whether the debtor has acknowledged the debt in a legally relevant way in the meantime,
• whether there was another action that broke the statute of limitations.

An example shows why lengthy negotiations and informal communication are not a sufficient substitute for controlling deadlines.

The most common mistakes companies make

Waiting too long for a good business relationship

The company does not want to “spoil the relationship” with an important customer and therefore postpones formal payment for months.

Such a decision may be commercially understandable, but it does not affect the course of legal deadlines.

A good relationship with the customer is not a legal protection against the statute of limitations.

Relying on emails and telephone conversations

A large number of messages from the creditor does not automatically mean that the statute of limitations has broken.

Evidence should be distinguished that the creditor was trying to collect a debt from an action that has a specific effect on the statute of limitations.

Wrong belief that every warning “renew the term”

It does not renew.

A pre-action payment demand or a demand for payment alone does not constitute an interruption of the statute of limitations.

Following the total balance instead of individual claims

With continuous cooperation, one customer can simultaneously have new accounts and receivables that are several years old.

If only the total balance is observed, the oldest accounts can easily go unnoticed.

Waiting for the last weeks

Even when the deadline has not yet expired, reacting at the last minute is not a good strategy.

Before starting the procedure, it is often necessary to review the contract, invoices, evidence of delivery or service performed, communication with the debtor and possible collateral.

How Can a Company Reduce the Risk of Its Claims Becoming Time-Barred?

The most important thing is that collection does not depend on whether someone will “remember” the old invoice.

The company should have system.

First, each invoice should be tracked by due date, not just by customer and total balance.

Second, it is useful to define internal escalation points. For example, certain receivables after a predefined delay period no longer remain with sales or accounting, but are forwarded to the legal team or a lawyer for evaluation.

Third, it is necessary to distinguish between commercial communications and legal actions that affect the statute of limitations.

Fourth, contracts, invoices, purchase orders, delivery notes, minutes, confirmations of services performed and communications with by the debtor.

Fifth, any acknowledgment of debt, partial payment or provision of security should be recorded and preserved.

Sixth, the oldest claims should be reviewed periodically according to their legal nature, not only according to their accounting age.

When Should Legal Assessment Become Part of Debt Collection?

It is not necessary that every an invoice that is a few days late immediately becomes a legal matter.

But the company should know in advance when the claim ceases to be just a commercial problem and becomes a legal risk.

This especially applies to situations when:

• the debt lasts for a long time,
• the debtor disputes the basis or amount of the claim,
• negotiations are repeated without a concrete result,
• there are a large number of old invoices,
• the debtor shows signs of financial problems,
• it is not clear whether the statute of limitations has been interrupted,
• the relevant deadline for taking legal action is approaching.

Then it is necessary to assess not only whether the debt exists, but also what is the most legally effective next action: continuation of negotiations, attempt to clearly document or secure the obligation, initiation of enforcement proceedings or commercial litigation.

Conclusion

The limitation of claims is not only a matter for the legal service. It is part of the company’s financial risk management.

The three-year period is particularly important for certain claims from the turnover of goods and services between legal entities, but this period cannot be automatically applied to every business debt.

It is equally important to know what breaks the statute of limitations and what does not.

Remarks, emails and phone calls can have great commercial importance, but they do not necessarily protect the creditor in themselves. from the expiry of the term.

The safest approach is therefore not to wait for the last moment, but to systematically monitor the maturity and timely assessment of the oldest and riskiest claims.

Frequent questions about the statute of limitations for claims

What is the statute of limitations for claims between legal entities?

For certain mutual legal entities from contracts on the sale of goods and claims the service is valid for three years. Different deadlines may apply to other types of claims, so it is necessary to establish the legal basis of the specific debt.

Does a pre-action payment demand break the statute of limitations?

No. Merely sending a notice or other summons to the debtor to pay the debt is not enough to interrupt the statute of limitations.

Does acknowledgment of debt interrupt the statute of limitations?

Yes. The statute of limitations is terminated by recognition of the debt. Acknowledgment may be express, but under certain circumstances it may result from partial payment, payment of interest or provision of security.

Does a debt cease to exist when it expires?

No. The statute of limitations does not automatically erase a debt. It enables the debtor to refer to the statute of limitations and thereby oppose the forced realization of claims.

Does the court itself take into account the statute of limitations?

No. As a rule, the court does not take into account the statute of limitations if the debtor has not invoked it.

What is the general statute of limitations?

The general statute of limitations is ten years, except when the law prescribes another period for a specific claim.

Does the initiation of court proceedings interrupt the statute of limitations?

Yes. The statute of limitations is interrupted by filing a lawsuit or other appropriate action by the creditor before the competent authority in order to determine, secure or realize the claim.

Share Transfers in Serbian Companies: What to Know Before an Ownership Change

One ​​member wants to leave the company. The other wants to increase his share. Or a new investor enters the company. When the parties agree on the price and percentage of ownership, it may seem that all that remains is to sign the contract and register the change with the Serbian Business Registers Agency (APR).

However, the transfer of an ownership interest in the company may open up a number of issues that should be resolved before signing the contract.

It is necessary to check the articles of incorporation, the rights of other members, existing contractual relationships and possible transfer restrictions. When a new owner enters a company, it is important to determine what kind of company he is actually taking over – with its assets, liabilities, disputes, contracts and other business risks.

That is why a well-prepared change in the ownership structure does not begin with registration in the APR, but with an analysis of the legal and business position of the company.

What Does a Transfer of an Ownership Interest Actually Mean?

A share represents the membership of a specific person in a limited liability company and the rights and obligations arising from that membership.

When a member transfers his share to another person, the member of the company changes. This, however, does not automatically mean that the director, the method of representation or all the elements of the articles of association change.

Therefore, several terms should be distinguished.

The change of a company member refers to the ownership structure.

The change of director refers to the management and representation of the company.

The change of the articles of association represents a separate corporate change which can accompany the transfer of an ownership interest, but does not have to in every case.

Change of control is a broader business concept and can arise, for example, when someone, by acquiring a sufficient share, gets the opportunity to decisively influence decision-making in the company.

In LLCs, it is particularly important that the registration of a change of member has a constitutive effect. In other words, the status of a member is acquired, that is, it ends on the day of registration of the change in accordance with the registration rules.

That is why signing the contract on the transfer of an ownership interest and acquiring the status of a member of the company are not the same legal act.

First check the articles of association and existing contracts

The Law on Business Companies starts from the rule that the transfer of an ownership interest is free, unless the law or the articles of association provides otherwise.

This is precisely why the review of the articles of association should be one of the first steps before serious negotiations on the sale of shares in the company.

It is necessary to check whether there are:

• the right of pre-emption of other members;
• the obligation to obtain the company’s prior consent;
• other restrictions on the transfer of an ownership interest;

special rules between members that may affect the transaction.

The law allows the articles of association to regulate the transfer procedure differently in certain matters, as well as to provide for additional restrictions. Therefore, it cannot automatically be assumed that a member can transfer a share to a third party just because he is registered as its owner.

It should also be checked whether there are special agreements between company members.

In companies with several investors, the relations of the owners are sometimes additionally regulated by the members’ agreement, i.e. the shareholders’ agreement. Such agreements may contain rules on exit from the investment, sale of shares, protection of minority owners or mechanisms such as tag-along and drag-along rights.

That is why it is necessary to look at the complete corporate documentation, not just the extract from the APR.

The right of pre-emption can change the whole transaction

When an LLC member wants to transfer a share to a person who is not a member of the company, the other members have a legal right of pre-emption, unless this right is excluded by the founding deed or the law.

This means that a member who has found an external buyer cannot automatically conclude a transaction with him.

Before transferring the share to a third party, the share must be offered to other members in accordance with the law and the rules of the founding deed. The offer must contain the essential elements of the planned contract, while the articles of association can regulate the procedure for exercising the right of pre-emption in a different way within the limits allowed by law.

Let’s imagine a company with three members. One of them is negotiating with an outside investor to sell his share for 200,000 euros.

If existing members have the right of first refusal, the relationship is no longer just a matter of seller and investor. Before concluding the transaction, it is necessary to check and properly enforce the rights of the other members.

Violation of the right of pre-emption can have serious consequences, including the possibility of a court challenge to the transfer.

That is why this issue is resolved before the conclusion of the deal, and not afterwards when the contract has already been signed.

What Does the Buyer of an Ownership Interest Actually Acquire?

When buying shares in one of the most important things for a company is to understand the difference between the purchase of a share and the purchase of an individual asset of the company.

If an investor buys business premises, a machine or a certain intellectual property right from a company, the object of the transaction is a concrete asset.

When buying a share, the situation is different.

The company remains the same legal entity. His property, contracts, employees, claims, debts and any disputes remain with the company. Its member changes.

The buyer therefore acquires an ownership position in an already existing company and its business history.

This is precisely why legal due diligence can be one of the most important steps before transferring the share.

Ownership of the Interest

It is necessary to check whether the seller has the right to dispose of the share and whether there are restrictions or burdens that may affect its transfer.

Corporate documentation

The articles of association, relevant decisions of the company, previous changes in the ownership structure and contracts between members can show what rights the buyer actually acquires.

It is not enough to know that buys, for example, a 30% stake. It is necessary to understand what that 30% means for voting, management, profit and future business decisions.

Debts and disputes

The company may have debts, lawsuits or potential liabilities that are not visible from the basic extract from the register.

Such risks can directly affect the economic value of the share being purchased.

Key contracts

Special attention should be paid to contracts with the largest customers, suppliers, banks, lessors and other important business partners.

Some of them may contain so-called change of control clauses.

They may provide for the obligation to notify the other contracting party, obtain its consent or other consequences if control over the company changes.

This means that the sale of shares can sometimes affect contracts in which the company member is not a direct contracting party at all.

Loans and collateral

If the company has loans, mortgages, pledges, guarantees or other collateral, the buyer should determine their scope and conditions.

The value of a company cannot be realistically assessed only on the basis of its assets and income without considering existing obligations.

Employment relations

For companies whose value depends on key employees or management, the relevant employment contracts, the method of remuneration, prohibitions of competition and possible labor disputes should be checked.

Intellectual property

With technological, creative and other companies, a significant part of the value often consists of software, trademarks, copyrights or other intellectual property rights.

The buyer should check whether these rights really belong to the company and whether they are adequately legally protected.

Tax and regulatory risks

The tax position and regulatory obligations of the company can also be an important part of the legal analysis.

The transfer of an ownership interest itself may have tax consequences that depend on the status of the participants in the transaction, the method of transfer and other circumstances. Therefore, the tax treatment should be analyzed for each case separately.

Share Transfer Agreement: Price Is Only One Part of the Deal

A share in an LLC is transferred by a contract in written form with certified signatures of the transferor and the acquirer, except when the transfer is carried out in another way in accordance with the law.

However, filling out the legal form does not automatically mean that all transaction risks adequately regulated.

In the case of a simple transfer between existing members or related parties, the contract can be relatively short.

In the case of the purchase of a significant share, the entry of an investor or a transaction of greater value, a wider set of issues must be considered.

Method of payment

Is the price paid immediately or in installments?

Is part of the price depends on the future results of the company?

What happens if the buyer is late with payment?

Conditions for the realization of the transaction

Before the final implementation of the transfer, it is sometimes necessary to obtain certain consents, implement corporate decisions or fulfill other previously agreed conditions.

Declarations and guarantees of the seller

In more complex transactions, the seller may make certain representations and warranties regarding the ownership of shares, contracts, disputes, assets or other facts important to the buyer.

In international M&A terminology, the term representations and warranties is often used.

Its practical purpose is not to complicate the contract, but to more clearly determine who bears the risk if a certain important fact subsequently turns out to be was not correct.

Liability for previous risks

It is especially important to regulate what happens if after the transfer becomes known an obligation or a problem that arose before the transaction.

The company remains the same legal entity even after the change of owner. Therefore, the buyer should protect his economic position with the contract where it is justified.

Confidentiality and competition

During the negotiations, the buyer often gets access to financial, business and other confidential information.

Confidentiality should therefore be arranged during the preparation of the transaction.

For certain deals, a ban on competition may also be considered, but its admissibility and scope must be analyzed in the specific case.

Dispute resolution

The more complex the transaction, the more important it is to pre-arrange the method of resolving possible disputes between the seller and the buyer.

Does a Share Transfer Automatically Mean a Change of Director?

No.

The ownership of the company and the management of the company are not the same legal category.

The new majority owner may wish to appoint a new director after the transaction, but the change of representative is carried out through a separate corporate decision and the appropriate registration procedure.

Therefore, before the transaction is implemented, it should be agreed in advance what will happen with the management of the company.

Who stays director?

Is a new director being elected?

Who will have the power of representation?

Is the way of making the most important decisions changing?

These questions are especially important when buying a majority or controlling stake.

Registration of the change with APR

After the transfer, it is necessary to carry out the corresponding registration with the Agency for Economic Registers.

Registration of the change of member has a constitutive effect, which means that the ownership of the member is acquired or ends on the day of registration and changes.

For registration, it is necessary to submit an appropriate registration application and documentation proving the legal basis for the change. In the case of a contractual transfer of an ownership interest, the relevant document is the transfer agreement with certified signatures, along with other documentation required by the specific change.

The exact composition of the documentation depends on the type and structure of the transaction, so it should be checked according to the current instructions of the APR.

An appropriate fee is paid according to the valid price list of the Agency.

It is important, however, that the APR procedure is not identified with the entire transaction.

APR registers the change of member. It does not check the financial and business risks of the company on behalf of the buyer, does not negotiate contractual guarantees and does not resolve the relations between the seller, the buyer and other members.

That is why most of the legal work is often done before the registration application is submitted.

A Transfer Between Existing Members and the Entry of a New Investor Are Different Transactions

When one existing member buys another’s share, he usually already knows the company and its way of doing business. business.

However, this does not mean that the transaction does not have significant consequences.

Purchasing an additional share can change the ratio of votes and control over the company. A member who previously had 30%, and after the transaction has 60%, is in a significantly different position.

When a new investor enters, the questions are usually even broader.

The investor should know not only what he is buying, but also what position he will have after joining the company.

Who appoints the director?

For what decisions is a special majority required?

Does the minority member have special protection rights?

How is the profit distributed?

What happens if one member wants to leave the company?

How will situations where the members cannot agree be resolved?

That is why the entry of investors is often not required not only the share transfer agreement, but also the detailed regulation of the future relations of the members and the corporate management system.

The most common mistakes when changing the ownership structure

1. Agreement without checking the articles of association

The seller and the buyer agree on the price, and only later discover the restrictions on the transfer or the rights of other members.

The consequence may be a delay or a change in the entire structure of the transaction.

2. Ignoring the rights of other members

The right of first refusal or other transfer restrictions should not be treated as a formality.

Failure to respect them may lead to disputes and jeopardize the planned transfer.

3. Buying shares without due diligence

The buyer relies on the company’s revenue and profits, but does not check its debts, disputes, key contracts or intellectual property rights.

Risks are then only discovered after the purchase.

4. Too simple a contract

A short contract may be sufficient for a simple transaction, but in a more significant purchase and sale it often does not regulate responsibility for previous or hidden risks.

5. Unregulated responsibility for previous obligations

A company does not cease to exist when its owner changes.

Therefore, the contract should, when necessary, define the distribution of economic risk between the seller and the buyer.

6. Identification of ownership and management

A change of member does not automatically mean a change of director.

If the management also changes, it must be arranged and implemented separately.

7. Focus only on registration

Successful registration of the change does not mean that the transaction is legally and commercially well structured.

Registration resolves the status of the member, but not all relationships and risks between business participants.

8. Misalignment of corporate documentation

The transfer of an ownership interest may require additional decisions or changes to certain corporate documents.

Therefore, after the transaction, it is necessary to check whether the complete documentation of the company is harmonized with the new ownership and management structure.

Example from business practice

Let’s imagine the company Alfa DOO with three members.

Marko has a 50% stake, Jelena 30%, and Nikola 20%.

Marko wants to sell his 50% to an investment company. The price has been agreed and the parties want to close the deal quickly.

During the legal analysis, it is determined that the existing members have the right of first refusal. Therefore, before the direct sale to the investor, an appropriate procedure should be carried out towards Jelena and Nikola.

At the same time, during the due diligence, it was determined that the contract with the largest client Alfa DOO contains a change of control clause that can activate certain obligations in the event of a change of control over the company.

The investor also wants a new director to be appointed after the acquisition of the share.

One seemingly simple purchase 50% of the company therefore requires the coordination of several issues: the rights of existing members, the key business agreement, the agreement on the transfer of an ownership interest, future management and registration of changes.

The example is purely illustrative.

He shows why a serious change in the ownership structure of a company often requires much more than signing a contract and filing with the APR.

When legal due diligence is especially important

Not every transaction is equally complex.

The transfer of a minor stake between two long-time members of a family firm does not necessarily require the same level of analysis as the purchase of a majority stake in a company by an outsider. investors.

More detailed legal due diligence makes sense especially when:

• the buyer was not previously a member of the company;
• a majority or controlling stake is acquired;
• the company has significant assets or debts;
• there are legal or other serious disputes;
• business depends on several key contracts;
• the company operates in a regulated area;
• intellectual property constitutes a significant part of the company’s value;

a professional or foreign investor enters the transaction.

The scope of the check should be adapted to the size and risk of the specific business.

The goal of due diligence is not to guarantee the buyer that no risk exists, but to enable him to know what he is buying before making a decision and to adequately include the identified risks in the price and contract.

Checklist before the transfer of an ownership interest

Before signing the contract, it is useful to answer the following questions:

Does the founding deed limit the transfer of an ownership interest?

Do other members have a right of pre-emption?

Does the transfer require a certain consent?

Are there encumbrances or other restrictions on the share?

Has the buyer checked the company’s key obligations and risks?

Do important contracts foresee the consequences of a change of control?

Does the contract regulate responsibility for previously incurred risks?

Does the director or management method change together with the ownership structure?

Are additional corporate decisions or documentation changes required?

Have the tax consequences of the specific transaction been checked?

If the answers to these questions are not known immediately before after signing the contract, the transaction is probably not yet sufficiently prepared.

A change in the ownership structure requires more than registration

The transfer of an ownership interest in a company is not only a change in the percentage of ownership and the registration of a new member with the APR.

A well-prepared transaction should regulate the relationship between the seller and the buyer, the rights of other members, existing legal and business risks and the future way of managing the company.

In the case of more complex transactions, the legal analysis that precedes the signing of the contract may be more important than the registration procedure itself.

Legal support when changing the ownership structure can include a review of the articles of association and other corporate documents, legal due diligence, structuring the transaction, drafting and negotiating the contract on the transfer of an ownership interest, as well as implementing the necessary corporate and registration changes.

This text presents general information on the legal framework of the transfer of an ownership interest in the Republic of Serbia and does not constitute legal advice for a specific transaction. The rights, obligations and necessary steps depend on the articles of association, contractual relations and the circumstances of each individual case.

Business Cooperation Agreements in Serbia: Key Clauses That Protect a Company

Two companies agree on cooperation, agree on the price and roughly divide the obligations. While the business is working, the fact that certain issues are not precisely regulated by the contract may not seem particularly important. The problem arises when the delivery is late, the quality of the service does not correspond to the expected, the invoice remains unpaid or one party decides to end the cooperation.

Then it often turns out that the biggest problem is not that the contract does not exist, but that it does not give a clear enough answer to the question of who was obliged to do what and what happens when that obligation is not fulfilled.

That is why the business cooperation agreement should not be viewed only as a formal confirmation of the agreement. Its more important function is to define obligations, distribute business risks and regulate key issues of corporate business.

What is a business cooperation agreement?

The term “business cooperation agreement” is used in practice for very different business relationships. It may include the provision of services, distribution of goods, software development, marketing, consulting, long-term procurement, production or other forms of cooperation.

That is why the name of the contract is not decisive. It is much more important what the contracting parties actually agreed.

According to the rules of obligation law, the contracting parties have broad freedom to arrange their relations according to their own will, but within the limits set by compulsory regulations, public order and good customs.

In practice this means that a good business cooperation agreement between companies should not be taken as a universal template. Its content should follow the specific business and the risks arising from it.

A Precisely Defined Scope of Cooperation Is the First Line of Protection

One ​​of the most common weaknesses of business contracts is an imprecisely defined object of cooperation.

The wording that the company will provide “marketing services” or that the parties will “cooperate on business development” can work as long as the relations are good. If a dispute arises, such wording raises a number of questions.

Which services are covered exactly? What is their scope? When is the job considered done? Who approves the result? How many changes are included in the price?

This is particularly evident in software development.

Let’s imagine that a company hires a developer to create an application. The application is technically completed and the developer issues an invoice. The customer, however, claims that the product is not yet ready for commercial use. If the contract does not define functionalities, development stages, testing methods and acceptance criteria, the question of whether the work is completed at all can become the central issue of the dispute.

That is why it is useful to specify precisely:

• what is delivered;
• in what scope;
• according to which specifications;
• who has what obligation;
• which deadlines apply;
• how to confirm execution;

what constitutes an acceptable result.

The more complex the project, the more important it is that the subject of cooperation does not remain at the level of general wording.

Price Is Not Enough: Define Invoicing and Payment Terms

Companies generally negotiate the price carefully. Sometimes they pay less attention to the question of when exactly the right to collect arises.

And this is exactly where a problem can arise.

One ​​party considers that it has completed the work and issues an invoice. Another claims that the work was not completed or that it was not delivered in the agreed manner.

That is why the contract should regulate not only the price, but also the method of its calculation, invoicing dynamics, payment terms and conditions that must be met in order for the invoice to be issued.

For more complex projects, payment can be linked to clearly defined stages, acceptance of results or another verifiable fact.

In the event of a delay with a monetary obligation, the law foresees the consequences of the delay, including the creditor’s right to default interest under prescribed conditions.

A well-ordered invoicing procedure is therefore not an administrative detail. It can significantly facilitate the later collection of receivables.

A deadline without consequences is often not enough

It is not enough to agree that a certain job must be completed in 30 days. It is important to arrange what happens if this is not done.

In a specific business relationship, it is necessary to assess how important the deadline is and whether its omission justifies termination, an additional deadline for execution, a contractual penalty when it is allowed or some other mechanism.

The law of obligations distinguishes situations in which fulfillment within a certain period is an essential component of the contract from those in which this is not the case. In the case of termination due to non-fulfilment, it is therefore not enough to automatically conclude that any missed deadline immediately leads to the termination of the contract.

It is also important to regulate what happens when one party cannot fulfill its obligation because the other has not provided the necessary data, material, documentation or approval.

If the company must receive a technical specification from the customer to start production, the customer’s delay in delivering the specification should have clearly defined consequences for the deadline manufacturer.

Otherwise, the company may be formally in arrears due to circumstances it did not cause.

Liability for Damage Should Reflect the Actual Business Risk

Liability provisions are often taken over from previous contracts without a serious assessment of what can go wrong with the specific job.

That is not a good solution.

The risk in a minor advisory engagement is not the same as in the development of a key software system, the production of components or a long-term distribution contract.

Therefore, it should be considered for which injuries one party is responsible, what consequences can realistically arise and whether it is appropriate to agree on certain limitations of liability.

At the same time, the contract cannot limit all liability. The Law on Contracts and Torts sets limits, among other things, regarding the pre-contracted exclusion of liability for intent or gross negligence.

Therefore, a clause according to which one party “is not liable for any damage” does not automatically constitute good legal protection just because it is broadly written.

The goal of a good clause is not the maximum transfer of risk to the other party, but its legally viable and commercially rational distribution.

A contractual penalty can be useful, but not for every obligation

A contractual penalty can be an effective instrument for securing certain non-monetary contractual obligations.

For example, it can be relevant in case of late payment performance of a specific job or violation of another clearly defined non-monetary obligation, if the legal requirements are met.

However, there is an important limit: according to the Law on Contracts and Torts, a contractual penalty cannot be contracted for monetary obligations.

That is why late payment of an invoice should not be resolved by simply prescribing a “contractual penalty” for each day of delay. There are other legal mechanisms for monetary obligations, including default interest.

A disproportionately high fine does not necessarily provide better protection either. The law recognizes the possibility of its reduction under certain conditions.

That is why the amount and method of calculating the contractual penalty should be harmonized with the importance of the obligation it provides.

Confidentiality should be defined more concretely than “all information is confidential”

During business cooperation, the partner can get access to price lists, client bases, commercial conditions, technological solutions, business plans, know-how or other documentation that the company wants to protect.

A generic provision that “all information is confidential” is often not enough.

The contract should answer the questions:

• what is considered confidential information;
• who is allowed to access it;
• for what purpose can be used;
• under what conditions it can be available to employees or subcontractors;
• how long the obligation of confidentiality lasts;

what happens to the information and documentation after the termination of cooperation.

When the legal conditions are met, certain information can enjoy protection as a trade secret, but the “confidential” label itself is not the only criterion for such protection.

If personal data is processed within the framework of cooperation, it is necessary to consider separately the obligations arising from data protection regulations.

Intellectual property: specify which rights belong to which party

The issue of intellectual property is particularly important in the development of software, design, photos, video content, databases, marketing materials and other creative or technical work results.

The problem often arises due to a wrong assumption:

• “We paid for the production, so we can automatically do what we want with the result.”

Such a conclusion should not be made without analyzing the specific contract and the type of rights in question.

Instead of the imprecise question “who owns the work”, the contract should clearly determine which property rights, i.e. rights of use, belong to which party and to what extent.

Depending on the specific case, one should consider:

• which rights are transferred or assigned;
• for which ways of use;
• whether there are territorial restrictions;
• how long the right lasts;
• whether the other party reserves certain rights;
• whether the result can further benefit other clients;

what happens to pre-existing materials, code or other elements that were not created within the scope of the specific project.

This is especially important in the IT and creative industries, where intellectual property in the IT sector can represent one of the most valuable things that a company gets from business cooperation.

Exclusivity and Non-Compete Clauses Are Not Automatically Appropriate

A company sometimes has a legitimate business interest that a partner does not represents a direct competitor or not to use the acquired information for a competitive project.

However, such provisions should not be routinely included in every contract.

A prohibition that is too broad may unnecessarily restrict business, make negotiations difficult or open additional legal issues.

Therefore, the duration of the restriction, the territory, the specific products or services and activities to which it applies should be carefully considered. relations.

In certain situations, it is necessary to take into account the rules of competition protection. The valid Law on Protection of Competition governs competition restrictions on the Serbian market, so broad clauses on exclusivity or competitive restrictions cannot be evaluated only from the perspective of the interests of one contracting party.

In other words, the goal is not to write the broadest possible ban, but one that is justified by the specific business relationship and legally sustainable.

How cooperation ends should be arranged before a problem arises

Companies usually pay a lot of attention to how the collaboration begins. They think much less about how they can get out of it.

The contract should clearly regulate whether it is concluded for a fixed or indefinite period, whether there is a possibility of regular termination, which notice period applies and which injuries can constitute grounds for termination.

In particular, a regular termination of a long-term relationship should be distinguished from termination due to non-fulfillment of an obligation.

non-fulfillment, the Law on Contracts and Torts provides different consequences depending on the circumstances, including the importance of the deadline and the possibility of leaving a subsequent deadline for fulfillment in cases where it is necessary.

But the job does not disappear overnight with a termination.

The contract should therefore also answer the questions of what happens to:

• already performed but unpaid services;
• open invoices;
• projects in progress;
• documentation and data;
• confidential information;
• intellectual property rights;

obligations which by their nature should remain in force even after termination cooperation.

Sometimes that part of the contract is the most important when the relationship between companies stops working.

Court or arbitration: decide before a dispute arises

The provision on dispute resolution is often found at the end of the contract and receives the least attention. If a dispute arises, it can become one of its most important clauses.

With domestic business cooperation, it is necessary to consider the jurisdiction of the court. With international contracts, the issues of applicable law, jurisdiction or arbitration and the possibility of enforcing a future decision are additionally raised.

Arbitration may be an appropriate solution for certain more complex or international business relationships, but it is not automatically better than a state court. The choice between arbitration and litigation should be made according to the specific contract, the value of the work and the nature of the business relationship.

The value of the work, the international element, costs, the desired way of resolving the dispute and the realistic possibility of executing the decision should be part of the assessment.

For certain relationships, the contract it can foresee a previous attempt at negotiation or other peaceful resolution of the dispute.

The worst time for the first serious discussion about where the dispute will be resolved is the moment when the dispute has already arisen.

The most common mistakes in business cooperation contracts

1. Using a generic form

A form from the Internet does not know the specific business model, transaction value or risks of the company.

A contract for consulting services should not be the same as a software distribution or development contract.

2. A vaguely defined result

If it is not possible to determine whether the obligation has been fulfilled, it may become disputed whether there is a right to collection or termination.

3. The deadline exists, but it is not clear what missing it means

The date in the contract does not in itself resolve the question of what the other party can do if the deadline is not respected.

4. Invoicing is not related to performance

One ​​party issues an invoice and the other claims that the service is not yet complete. The problem could often be prevented by clear acceptance criteria.

5. The beginning, but not the end of cooperation, is regulated in detail

Without clear rules on cancellation, termination and consequences of termination, getting out of a bad business relationship can become much more complicated.

6. Intellectual property rights and confidentiality are neglected

The issue becomes visible only when one party starts using the information, content, design or software in a way that the other did not expect.

7. It is not verified who signs the contract

Before concluding a significant business contract, it is necessary to check the identity of the contracting party and the authorization of the person acting on its behalf.

There is no universal contract on business cooperation

A good contract is not necessarily a long contract.

The contract between the manufacturer and the distributor must resolve other issues than the contract between the company and IT developers. A marketing agency has different risks than a company that supplies industrial equipment. Long-term cooperation with a supplier requires different mechanisms than a one-time consulting project.

That is why the goal is not for the contract to contain as many clauses as possible.

The goal is to be most precise exactly where the specific business cooperation is the most risky.

A good contract does not eliminate risk, but determines who bears it

No contract cannot guarantee that the business partner will fulfill every obligation, pay every invoice or that a dispute will never arise.

A good contract can, however, determine in advance what each party is obliged to do, when there is a breach of contract, who bears a certain risk and what opportunities exist when the cooperation stops working.

This is precisely the difference between a document that only confirms that business cooperation exists and a contract that really protects the company’s position.

When cooperation carries a significant financial, operational or reputational risk, legal analysis of the contract before signing it can be much simpler than solving the consequences of imprecisely defined obligations.

Jusufović & Partners provides legal support to companies in the drafting, analysis and negotiation of business contracts, as well as in matters of corporate law, collection of claims and resolution of business disputes.

The text is informative and does not represent legal advice for a specific case. Appropriate contractual solutions depend on the nature of the work, the contracting parties and the circumstances of the specific business relationship.

A Bill of Exchange as Security in Serbia: Benefits, Risks and Common Mistakes

The company delivers the goods to the customer with a payment term of 60 days. As additional security, the buyer signs a blank promissory note and authorisation to complete the blank promissory note. When the bill is due, the obligation has not been paid, and the debtor’s accounts are already blocked.

The creditor has a promissory note, but there is no automatic payment.

This situation shows the basic characteristic of the promissory note as a security instrument. It can improve the legal and procedural position of the creditor, but it cannot create money in the debtor’s account, prevent his bankruptcy or compensate for an unclear contract and a missed check of a business partner.

The practical value of a promissory note depends on who signed it, in what capacity, how the promissory authorization was drawn up, whether the necessary registration was carried out, what claim is secured and whether the debtor has funds or assets from which the creditor can be satisfied.

What is a promissory note?

A promissory note is a formal security that contains an obligation to pay a certain amount of money. Its legal effects arise not only from the intention of the signatories, but also from whether the conditions prescribed by promissory law have been met.

The law distinguishes between drawn and proprietary promissory notes.

With a drawn promissory note, the issuer orders another person to pay a certain amount. With his own promissory note, the issuer himself undertakes to pay the specified amount. In domestic business relations, one’s own blank promissory note is often used as a security instrument.

The bill can be used for:

• sale of goods with deferred payment
• contract on the provision of services
• lease of business premises
• loan agreements and credit relations
• distribution and other long-term business contracts
• guaranteeing the return of advances
• other relationships in which there is a risk of non-fulfillment of a financial obligation

When given as security, the promissory note provides the creditor with an additional collection mechanism if the debtor defaults on the underlying contractual obligation.

However, it does not replace the contract. The basis, amount, maturity and terms of payment must still be clearly regulated by the underlying legal work.

A Blank Promissory Note and the Authorisation to Complete It Are Not the Same

A blank promissory note is a signed promissory note which, at the time of issuance, does not contain all the data required for its final realization. Most often, the amount of the bill, the due date or information about the creditor are not entered in advance.

The missing elements are subsequently entered in accordance with the agreement of the parties.

Bill of exchange authorization is a document by which the issuer determines under what conditions, up to what amount and for which claim the creditor can complete a blank bill of exchange of exchange.

The written authorisation to complete the blank promissory note is not a mandatory component of the completed promissory note itself. Nevertheless, it has great practical and evidentiary significance because it shows the limits of the creditor’s right to subsequent filling.

A well-drafted power of attorney should address:

• which contract and which obligations the promissory note provides
• when the creditor acquires the right to complete the bill
• what is the maximum amount that can be entered
• whether the bill amount includes principal, interest and costs
• how the maturity date is determined
• whether and under what conditions the promissory note can be transferred
• what happens to the promissory note after the termination of the secured claim

Formulations according to which the creditor can complete the promissory note “up to the amount of all debts” often leave open the question of which debts are covered, how the secondary claims are calculated and whether the promissory note refers only to one contract or to the entire business cooperation.

The contract, promissory note and promissory authorization must therefore be harmonized in terms of content.

What Are the Advantages of a Promissory Note as Security?

Formalising the Obligation

Issuing a promissory note shows that the debtor does not just make an informal promise to pay, but accepts an additional monetary obligation governed by the rules of promissory law.

It may increase discipline in the business relationship, but it does not change the financial ability of the debtor.

A More Favourable Position During Collection

When the promissory note and its registration meet the prescribed conditions, the creditor can submit it to the bank for collection from the promissory note debtor’s account. In the case of a blank bill of exchange of exchange, it is also necessary that it be filled out in accordance with the given bill of exchange authorization.

A promissory note can have the status of an authentic document in enforcement proceedings. This may enable the creditor to demand the adoption of a decision on execution without first conducting a full litigation to determine the claim.

The debtor can use legal remedies permitted by law and raise objections. The further course of the procedure depends on the type of promissory note, its content, maturity, promissory note clauses and the nature of the specific objection.

A more favorable procedural position is therefore not the same as immediate or secure payment.

Additional Security Through an Aval

Aval is a promissory guarantee by which a certain person undertakes the obligation to pay the promissory note if the person for whom the aval was given fails to do so.

The legal obligation of the guarantor may be significant, but its practical value is related to its solvency. An aval of a person without sufficient assets may remain legally valid but provide little real benefit in collection.

Registration of the bill of exchange

For promissory notes of legal entities and entrepreneurs, the rules of the Register of Promissory Notes and Authorizations maintained by the National Bank of Serbia apply.

The valid Decision on the detailed conditions, content and manner of keeping the Register of bills of exchange and authorizations was published in the “Official Gazette of the RS”, number 95/2025. At the same time, the rules of compulsory collection from the client’s account were changed in order to include electronic bills of exchange. (nbs.rs)

Registration contributes to the record of the promissory note, but does not constitute confirmation that the underlying claim is undisputed or that the debtor has sufficient funds to pay.

What a promissory note cannot provide

A promissory note does not guarantee that the debt will be collected.

She cannot:

• create funds that the debtor does not have
• prevent account blocking
• prevent the opening of bankruptcy proceedings
• remove the existence of other creditors
• replace the credit check of the business partner
• correct a vaguely drafted contract
• automatically prove every part of the disputed claim
• to provide the same level of protection as a bank guarantee, pledge or mortgage in any business

A creditor may have a formal promissory note and an active collection order, but still remain unsatisfied if there are no funds in the debtor’s accounts.

Therefore, it is necessary to distinguish the legal possibility of collection from the actual collectability of claims.

The most important risks for the creditor

• Incorrect filling

An incorrect amount, date, creditor information or other element can make collection difficult and cause a dispute.

A special risk arises when interest, contractual penalties, legal fees or other claims that are not clearly covered by the bill of exchange are included in the bill of exchange.

• Unauthorized signatory

With a legal entity, you should check who is authorized to represent it and whether there are any restrictions or rules for joint representation.

The fact that a certain person participated in the negotiations or signed a commercial contract does not necessarily mean that he can independently assume the promissory note obligation on behalf of the company.

• Unclear nature of the signatory

A director or owner of a company is not automatically liable for personal property just because his signature is on the promissory note.

It is necessary to determine whether the signature was given only in the capacity of the representative of the legal entity or whether the person also assumed a special personal promissory obligation, for example as a guarantor.

• Mismatched documentation

If the contract specifies one claim, the bill of exchange authorization another, and the bill is filled out in a third way, the risk of objections and a longer procedure increases.

• Poor assessment of solvency

A promissory note of a financially unstable debtor may have limited economic value. Before accepting a promissory note, the status of the debtor’s account, its blocking history, publicly available financial data and the existence of other security instrument should be checked.

Risks for the debtor issuing a blank promissory note

A blank promissory note carries serious obligations for its issuer.

Particularly risky are:

• unlimited maximum amount
• formulations that include all current and future debts
• unclear activation conditions
• the creditor’s right to unilaterally determine maturity without clear limitations
• the possibility of transferring the bill to a third party
• delivery of several blank bill of exchanges without internal records
• absence of obligation to return or cancel the bill when the debt ceases
• inconsistency of contract and bill of exchange authorization

The issuer should record the serial number of the promissory note, the person to whom it was handed over, the contract it provides, the maximum amount and the conditions under which the creditor can use it.

Transfer of the bill of exchange and position of the debtor

A promissory note, depending on its content and promissory clauses, can be transferred by endorsement.

Endorsement is a promissory statement by which the holder transfers the rights from the promissory note to another person. Thus, the new owner can become a promissory note creditor.

For the issuer of the blank promissory note, the transfer is particularly significant because the promissory note is no longer with the original contractual partner. The position of the debtor and the type of complaint he can raise against the new holder may depend on the circumstances of the transfer, the conscientiousness of the holder and the legal nature of the specific complaint.

The possibility of transfer should therefore be arranged both in the promissory note itself and in the accompanying documentation. When the parties wish to exclude transfer by endorsement, it is not sufficient to rely solely on the contractual prohibition of the promissory note. It is necessary to check whether the promissory note itself contains an appropriate promissory note clause, such as a “not to order” clause.

The contractual consequences of a breach of the prohibition on transfer and the promissory effects of the transfer are not necessarily the same issue. Therefore, the content of the clause should be adapted to the specific business before the promissory note is issued.

Aval as additional protection

Aval can be given by a third party, the owner of the company, a related company or another person who wants to ensure the payment of the bill.

Not every additional signature on a promissory note is an automatic aval. From the documentation and the place of signature, it must be clear in what capacity the signature was given and for whom the aval is given.

When the director signs the promissory note in the name of the company, such signature does not in itself mean that he has assumed a personal obligation. If personal promissory responsibility is to be achieved, it must be expressed clearly and in accordance with promissory law rules.

Avalista should know that he is not giving ordinary business consent. He assumes a promissory note obligation that can be collected from his own property.

Bill of exchange registration and the role of the National Bank of Serbia

The register of promissory notes and authorizations is a centralized record maintained by the National Bank of Serbia.

In the case of paper promissory notes of legal entities and entrepreneurs, commercial banks play a significant role, through which the registration and submission of promissory notes are carried out.

Before accepting the bill, the creditor should check:

• whether the bill is registered when required
• whether the data in the register matches the bill of exchange documentation
• who is designated as the issuer
• whether the promissory note is properly recorded
• whether there are inconsistencies between the register, contract and authority

Registration does not mean that the debtor has recognized every amount that the creditor subsequently enters. It also does not confirm that there will be sufficient funds in the accounts.

Paper and electronic bill of exchange

The Central Registry of Electronic Bills of Exchange, CReM, started operating on December 1, 2025. The legal basis for its work was created by the decisions of the National Bank of Serbia, which regulate the Register of Bills of Exchange and Authorizations, enforced collection from client accounts and tariffs for NBS services.

An electronic bill is not a scanned paper bill, a photo of the form, or a PDF document. It exists in a dematerialized form within CReM.

With electronic promissory notes, the actions of creation, issuance, transfer, validation, deletion and submission for collection are carried out through CReM and related applications of electronic and mobile banking. Banks control the access of their clients to the system and confirm the transactions requested by the users.

In the first phase, CReM is used by legal entities, entrepreneurs and other business users who meet the prescribed conditions and contract the use of the system with the bank. The inclusion of all citizens is planned for the end of 2026.

E-bills are equal to paper bills in civil and executive proceedings, while extracts from CReM issued by the National Bank of Serbia have the status of a public document.

Paper and electronic bills exist in parallel. The introduction of CReM did not abolish the possibility of using paper bills, and banks are obliged to respect the client’s choice between the two types of bills.

Companies using e-bills should arrange:

• who has access to banking applications and CReM
• who can create and sign promissory notes
• who approves the transfer or aval
• how to check the amount and basis of the obligation
• who monitors the status of the bill and its collection
• how are traces of internal approvals kept

The digital system reduces the risk of physical loss of the document, but does not eliminate the risk of unauthorized actions by employees or incorrectly entered data.

How Is a Promissory Note Collected?

Before submitting a bill for collection, you should check:

• whether the underlying obligation is due

whether the conditions of the bill of exchange authorization have been met in the case of a blank promissory note

whether the promissory note has been filled out correctly

whether the required registration has been completed

whether promissory clauses and relevant deadlines have been complied with

In the case of a paper bill of exchange, the creditor submits it to the bank with appropriate documentation, in accordance with the rules applicable to registration and enforced collection.

With an e-promissory note, the request is submitted electronically through CReM and the connected banking application.

If collection cannot be carried out from the debtor’s account, the creditor may consider enforcement proceedings based on a promissory note or other appropriate document.

Whether a promissory note in a specific case has the status of a reliable document and which objections can be raised depends on its content, due date, type of promissory note, protest clause and other circumstances.

If the debtor disputes the admissibility of filling in the blank promissory note, the amount entered or the existence of the basic obligation, the dispute may also extend to the relationship from the basic contract.

Therefore, billing should not be started in a template manner, without first checking the complete documentation.

The most common mistakes in practice

Accepting a blank bill of exchange of exchange without a written bill of exchange authorization.

Stating that the promissory note secures “all debts”, without indicating the contract and the maximum amount.

Failure to verify the authority of the signatory.

Presumption that the director is automatically liable with personal property.

Mismatch of data in the contract, promissory note and authorization.

Inclusion of interest, contractual penalties or costs not covered by the authorization.

Failure to register or other required procedural actions.

Failure to check the debtor’s financial condition before accepting the bill of exchange.

Failure to agree to return, delete or cancel the bill of exchange after the termination of the obligation.

Inadequate storage of paper bills or uncontrolled access to electronic bills.

Failure to keep records of bills of exchange issued and received.

Relying only on the contractual prohibition of assignment without a corresponding promissory note clause.

Accepting a promissory note as the only security with a high-risk debtor.

Checklist for the creditor

Before accepting the bill of exchange, you should check:

Who is the issuer of the bill?

Who is authorized to sign it?

In what capacity does the person sign?

What contract does the promissory note secure?

What is the maximum amount that can be entered?

Are interest and certain costs included?

When can the creditor complete and activate the promissory note?

Is registration required?

Is the promissory note properly recorded?

Is there a guarantor and is he solvent?

Can a bill of exchange be transferred by endorsement?

Does the bill contain a “not to order” clause if the transfer is to be excluded?

Who keeps the paper bill or controls access to the e-bill?

When is a bill returned, deleted or cancelled?

Is another security instrument required?

When a promissory note is not enough

Additional security should be considered when:

• the value of the work is great
• business partner new or financially unstable
• debt payment term
• the contract is long-term
• debtor’s property already encumbered
• the debtor is often blocked
• a word about cross-border business
• execution of the contract divided into several stages

Depending on the circumstances, a bank guarantee, guarantee, aval, pledge, mortgage, deposit, staged payment or retention of ownership can be arranged.

A bank guarantee can provide a higher level of security, but usually incurs higher costs. Pledge and mortgage bind the payment to a specific property, but require additional formalities. Guarantee and aval depend on the financial capacity of the person giving them.

The choice should be adapted to the value of the work, the creditworthiness of the debtor, the available assets and the costs of establishing security.

Illustrative business example

The supplier delivers goods worth 4,000,000 dinars to the customer. The buyer issues a blank promissory note and signs an authorization according to which the creditor can collect “all claims from the business relationship”.

The customer does not pay the bill. The supplier enters the principal, default interest, contractual penalty, legal fees and storage costs in the bill of exchange.

The buyer disputes the amount, claiming that the authorization did not include the contractual penalty and additional costs.

The problem did not arise until the bill was activated. It arose when the contract and authorization did not specify:

• which accounts are secured
• what is the maximum bill amount
• whether interest and other costs are included
• when the creditor can complete the bill
• whether the bill is transferable
• whether the promissory note itself should contain a “not to order” clause
• which additional security accompanies the job

A blank promissory note provides flexibility, but an indefinite authorization creates risk for both the creditor and the debtor.

Frequently asked questions

Does a promissory note guarantee payment?

No. It can facilitate the legal path to collection, but it does not guarantee that the debtor has money or other assets.

What is a bill of exchange?

It is a signed promissory note that does not contain all information at the time of issue. The missing elements are entered later, in accordance with the agreement and bill of exchange authorization.

Is a power of attorney mandatory?

A written authorization is not a mandatory formal element of a completed promissory note, but it is extremely important in the case of a blank promissory note as proof of the limits of the creditor’s right to complete it.

Can the creditor enter any amount?

You shouldn’t. The amount should correspond to the due claim and the limits of the given authorization.

Is the director personally liable for the promissory note of the company?

Not automatically. Liability depends on whether he signed only as a representative of the company or whether he clearly assumed a separate personal promissory obligation.

What is aval?

Aval is a promissory note guarantee by which a specific person guarantees the payment of a promissory note for another promissory note debtor.

Can the bill be transferred?

It can, depending on its content and exchange clauses. When the parties wish to exclude transfer by endorsement, it should be checked whether the appropriate clause, such as “not to order”, is entered on the bill itself.

Does the promissory note have to be registered?

For promissory notes of legal entities and entrepreneurs, you should check the valid rules of the Register of Promissory Notes and Authorizations, as well as the procedure applied by the commercial bank.

What is the difference between a paper and an electronic bill?

A paper bill exists as a physical document. The e-bill exists in CReM and is not the same as a scanned form or PDF document.

What happens when the debt is paid?

The return, cancellation or cancellation of the promissory note should be regulated by contract and authorization, so that it does not remain an active security after the end of the debt.

Is the promissory note sufficient if the debtor is blocked?

Most often it is not. A bill may be presented for collection, but the actual settlement depends on future inflows and other assets of the debtor.

A Promissory Note Is Part of the Protection, Not a Substitute for It

A promissory note as a security instrument can significantly improve the creditor’s position, but its value depends on the entire business and legal relationship.

A clear basic contract, accurate promissory authorization, proper signature, required registration, credit check and timely processing determine whether the promissory note will be useful security or just another document that does not lead to collection.

For larger value transactions, universal forms should not be used without analyzing the specific relationship, risk and assets of the debtor.

JP Law provides legal support to companies in choosing the appropriate collateral, drawing up contracts and promissory authorizations, checking promissory documents and collection of due claims. The goal of legal analysis is not the promise of secure collection, but the timely recognition of risks and the creation of a more favorable legal position before a problem arises.

The text is informative and does not represent legal advice for a specific business relationship.

NDAs in Business: When They Are Needed and What They Actually Protect

Does signing an NDA mean that your business idea, customer base, financial data and any documents you send to the other party are automatically legally protected?

Not necessarily.

A confidentiality agreement can be an important mechanism for protecting business interests, but its name alone does not provide security. When a dispute arises, it can be shown that the contract does not define clearly enough what is confidential, for what purpose the information may be used, who can access it and how to prove that the obligation has been breached.

Universal patterns that are used without adapting to the specific relationship represent a particular problem. Such a document may seem strict, but in practice it does not correspond to the information that is actually exchanged, nor to the risks for which it was concluded.

Legal protection therefore does not depend only on signatures. It depends on the content of the contract, the nature of the information, the manner in which it was communicated and the measures taken by its holder to preserve its secrecy.

What is an NDA Agreement

The abbreviation NDA comes from the English term Non-Disclosure Agreement. In domestic business practice, the terms confidentiality agreement, non-disclosure agreement or trade secret agreement are most often used.

An NDA can be concluded as a stand-alone contract, but a confidentiality obligation can also be arranged as a clause in:

• contract on business cooperation
• employment contract
• consulting contract
• distribution agreement
• software development contract
• investment contract
• license agreement
• agreement on the purchase and sale of shares
• pre-contract or other document regulating business negotiations

The contract can be unilateral, when only one party discloses confidential information, or mutual, when both parties exchange information that they want to protect.

In the law of the Republic of Serbia, there is no mandatory universal form of NDA contract. The contracting parties, within the limits of compulsory regulations, public order and good customs, regulate the content of their rights and obligations according to the specific business relationship.

That is why the content of the document is more important than its title. A document may be marked “NDA” and still not provide adequate protection. Conversely, a precise confidentiality clause in a broader business agreement may be sufficient if it properly governs the relevant risks.

When an NDA is really needed

An NDA agreement is not necessary in every business communication. Its routine signing with every client, employee or supplier can create additional administration for no real benefit.

A confidentiality agreement makes sense when one party must disclose to the other information whose unauthorized use or disclosure could cause it harm or deprive it of a business advantage.

Negotiations with potential investors

A company or startup seeking investment may disclose to the investor information about revenues, costs, development strategy, users, technology or future products.

The risk is not limited to public disclosure. The information can be used to evaluate another project, contact business partners or develop a competitive solution.

However, investors are often reluctant to sign an NDA at the earliest stage of discussions. This in itself does not necessarily indicate bad intent. Professional investors analyze a large number of similar projects and can avoid vague or overly broad obligations to each founder who presents them with an idea.

Risk can then be reduced by gradually disclosing information. In the initial phase, the market, the problem that the product solves and the basic business model can be presented, while technical details, sensitive financial data and key contracts are submitted only when the negotiations become more serious.

Sale of a company or business share

During the legal, financial and tax analysis, a potential buyer can gain access to contracts, balance sheets, disputes, employee, customer and supplier data.

If the transaction is not realized, the interested buyer may remain in possession of information that has great business value. Therefore, the obligation of confidentiality should be arranged before opening the data room system and before submitting the most sensitive documentation. Before delivering the documentation to the buyer, it is necessary to arrange confidentiality, but also to understand what due diligence in Serbia includes and what information the potential buyer will check.

Employees and external collaborators

Employees, developers, designers, consultants, accountants, marketing agencies and other collaborators often have immediate access to internal data.

A confidentiality obligation may be part of the underlying contract. A separate NDA agreement makes sense when the scope or importance of the information is such that it is necessary to regulate access, method of use, storage of documentation and obligations after the termination of cooperation in more detail.

Development of software and technological products

When hiring an external IT company, the customer can reveal the product’s business logic, technical documentation, system architecture, user data and development plan.

In this relationship, an NDA is not sufficient on its own. It is necessary to regulate separately who has the rights to the source code, documentation, design and other work results. The NDA regulates confidentiality, but the ownership and rights of the development results must be regulated separately, especially when it comes to the protection of software, code and digital products.

The duty of confidentiality and the transfer of intellectual property rights are different legal issues.

Cooperation with suppliers, distributors and agencies

A supplier, distributor or agency may gain access to prices, margins, sales plans, sales territories, customer contacts, campaign results and other commercial data.

A verbal expectation that a business partner will act discreetly is difficult to prove. A written contract makes it possible to determine in advance the permitted purpose of using information, the circle of authorized persons and the consequences of a violation.

What an NDA Agreement Can Protect

The subject of contractual protection can be various business, financial, technical and organizational information, such as:

• business plans
• financial data and projections
• purchase and sale prices
• rebates and margins
• client lists
• supplier data
• technical documentation
• source code
• algorithms
• production processes
• formulas and recipes
• marketing strategies
• new product plans
• internal research
• work procedures
• negotiating positions
• commercial conditions
• business models
• specific know-how

However, it is not enough for the contract to simply declare “everything that one party learns” confidential.

Such a definition can be too broad and difficult to apply. In the event of a dispute, it will not always be clear whether certain information was actually disclosed, when it was disclosed, whether the recipient already possessed the information, and whether he could reasonably have known that it was considered confidential.

A good NDA therefore defines the categories of protected information, the manner in which it is communicated and the circumstances under which it is considered confidential.

An example of a too broad and more precise definition

The wording according to which “all information about the business of any contracting party” is confidential leaves too much room for different interpretations.

It would be more precise to specify that, for example, unpublished financial data, individually negotiated price terms, technical documentation, source code, customer data and product development plans that are provided to the other party for the purpose of evaluating or implementing a specific project are considered confidential.

There is no one formulation that fits every job. The definition must follow the information that will actually be exchanged in the concrete relationship.

NDA agreement and trade secret protection

An NDA agreement and a trade secret are not the same.

Under the Trade Secret Protection Act, legal protection applies to information that is secret, has commercial value because it is secret, and in respect of which reasonable measures have been taken to preserve its secrecy.

Signing an NDA can be one such measure. However, it cannot, by itself, turn commonly known, publicly available or commercially insignificant information into a trade secret.

For example, a firm may mark a publicly published price list as confidential in the contract. The mark alone will not change the fact that the document is available to the public.

On the other hand, the internal price formation model, the structure of discounts for individual customers and the plan for future price changes may represent confidential business information.

Trade secret protection is not limited to situations where there is an NDA. Illegal acquisition, use or disclosure of a trade secret can also exist outside the contractual relationship. NDA is one of the legal and organizational protection mechanisms, but it is not its only basis.

What an NDA does not automatically protect

A well-drafted contract usually excludes information that:

• are already publicly available
• were known to the recipient before their disclosure
• are legally obtained from a third party
• the recipient develops independently, without using confidential data
• become public without breach of contract
• must be disclosed based on the law or the decision of the competent authority

An NDA agreement does not automatically protect a business idea as such either.

An idea for an application, service, product or marketing campaign is therefore not the subject of an exclusive right. A contract may prohibit the other party from using specific, sufficiently specified and disclosed elements for purposes other than the agreed upon purpose, but does not automatically create a patent, copyright, trademark or ownership of an abstract idea.

Several mechanisms need to be distinguished.

The obligation of confidentiality means that the information must not be disclosed without authorization.

Prohibition of use means that the recipient may not use the information for their own or others’ purposes outside of the agreed purpose.

The transfer of intellectual property rights governs who has the rights to code, designs, photos, texts, technical solutions or other work results.

The prohibition of competition restricts the performance of certain competitive activities under legal and contractual conditions.

The prohibition of recruitment represents a special contractual obligation that can regulate the active recruitment of employees, associates or clients.

A single broad clause labeled an NDA cannot reliably replace all of these provisions.

The most important provisions of a good NDA agreement

The protective value of an NDA depends mostly on the precision of its key provisions.

• Definition of confidential information

The contract should specify what is considered confidential information.

The definition may include information communicated:

• in written form
• electronically
• orally
• visually
• by inspecting the documentation
• access to the information system or business premises

In the case of orally communicated information, it can be foreseen that the disclosing party confirms it in writing within a certain period.

This does not mean that every piece of information must be listed individually. However, the categories must be clear enough for the recipient to understand what they are required to protect.

• Permitted purpose of use

It is not enough to write that the recipient must not publish the data. It is necessary to clearly determine why he received them and for what purpose he may use them.

If a company has received technical documentation to assess the feasibility of a joint project, it should not use it to develop its own competitive product, even if the documentation has not been passed on to third parties.

Unauthorized use can be just as harmful as unauthorized disclosure.

• Circle of persons who can gain access

In business, information is rarely kept only with the person who signed the contract. They can be accessed by employees, board members, lawyers, accountants, tax advisors, consultants and subcontractors.

The NDA agreement should therefore specify:

• to which persons the information may be made available
• under what conditions
• whether these persons must have a corresponding obligation of confidentiality
• who is responsible for their actions

It is common for access to be granted only to persons who really need the information for the realization of a specific job, i.e. according to the need to know principle.

• Protection measures and standard of care

It is not enough to simply prohibit disclosure. The way in which the recipient must store the data should also be arranged.

Possible measures include:

• limiting access to documentation
• protection of user accounts and passwords
• ban on sending data to private e-mail addresses
• data storage in a controlled system
• access records
• prohibition of unauthorized copying
• obligation to report a security incident
• timely termination of access to former employees and associates

The contract may require that the recipient of the confidential information preserves the confidential information with at least as much care as it protects its own data of the same importance, but not below the standard reasonably expected in the appropriate type of business relationship.

• Exceptions to the obligation of confidentiality

Standard exceptions do not weaken the contract. They make its boundaries clearer and more applicable.

The contract should regulate the situation in which the court, public prosecution, regulator or other competent authority requires the provision of data.

It can be envisaged that the recipient, when permitted by law, will notify the party that provided the information in advance and disclose only the amount of data that is necessary to fulfill the legal obligation.

• Duration of confidentiality obligation

There is no one term that fits all information.

The commercial plan for the following year may lose its significance after the expiry of that period. A production formula, source code or specific know-how can have value for much longer.

Therefore, it is necessary to distinguish between:

• duration of business cooperation
• the period in which information is exchanged
• the duration of the obligation of confidentiality after the termination of the relationship

In the case of information that represents a trade secret, it is possible to tie the duration of the obligation to the period during which the information retains the legal and factual features of secrecy. For other categories of confidential data, a reasonable time limit that corresponds to their nature and expected business importance can be agreed upon.

A permanent obligation should not be contracted mechanically for all data, without distinguishing between transient commercial information and long-term know-how.

• Data recovery and destruction

Upon completion of negotiations or cooperation, it should be clearly stated whether the recipient must:

• return the physical documentation
• delete electronic copies
• destroy working notes
• remove data from device
• terminate access to systems
• confirm that deletion or destruction has taken place

It is necessary to take into account backup copies, legal obligations to keep documentation and data that cannot be immediately removed from automatic backups due to the technical characteristics of the system.

• Liability for breach of contract

The contract may provide for the right to request:

• termination of injury
• return or destruction of documentation
• compensation for damages
• payment of the contractual penalty
• application of other contractual and legal means of protection

According to the rules of the Law on Contracts and Torts, a contractual penalty can be provided for the violation of a non-monetary obligation, while the court under legal conditions can reduce its disproportionately high amount. Its clause must clearly determine for which violation the penalty is payable and how it is calculated.

The excessively high contracted amount does not mean that it will necessarily be collected in full, because the court can reduce the disproportionately high contractual penalty under legal conditions.

The relationship between the contractual penalty and compensation for damages should also be regulated, especially when the actual damages are higher than the contracted amount.

In practice, proving damage is a special problem. If a business strategy has been passed on to a competitor, it is not always easy to determine how much loss was caused by that procedure.

Therefore, the contract and business procedures should enable proving:

• what information was submitted
• when it was submitted
• to whom access was allowed
• for what purpose it was given
• what obligations were assumed
• Governing law and jurisdiction

In international business relations, it is important to determine which law applies and which court or arbitration will resolve any dispute.

A foreign form should not be automatically accepted just because it was submitted by an investor, supplier or business partner. Such a contract may contain institutes, remedies and wording that are not adapted to the domestic legal system or the interests of the domestic contracting party.

When an NDA is required by employees and associates

The employee’s obligation to keep real trade secrets should be distinguished from attempts to prohibit him from using general knowledge, experience and professional skills after the termination of the employment relationship.

An employer can protect:

• internal price lists
• client base
• business and development plans
• source code
• technical documentation
• internal procedures
• supplier data
• other specific confidential information

An NDA should not be used to make it virtually impossible for an employee to continue working in their profession.

In particular, confidentiality should be distinguished from the prohibition of competition. The prohibition of competition after the termination of the employment relationship can be agreed only under legal conditions, for a maximum of two years, with the obligation of the employer to pay the employee the agreed compensation.

The duty of confidentiality has a different function. It does not prohibit the employee from working for another employer, but from unauthorized disclosure or use of specific protected information.

Such an obligation may exist even after the termination of the employment relationship, as long as the specific information justifiably retains its confidential nature. It cannot, however, be extended to general professional knowledge, work experience and skills acquired by the employee during professional development.

A universal NDA for all employees is therefore not the best solution. A person who does not have access to sensitive data does not have to assume the same responsibilities as a director, developer or sales manager.

NDA Agreement and Personal Data

Certain information can be confidential business information and personal information at the same time.

A customer database, for example, may contain names, telephone numbers, e-mail addresses, purchase history and other data relating to specific or identifiable natural persons.

An NDA is not enough then.

The processing and exchange of data must have an appropriate legal basis and comply with the rules of personal data protection. Two companies cannot base the legality of exchanging personal data solely on the fact that they have concluded a confidentiality agreement.

The most common mistakes when drafting an NDA agreement

• All information is declared confidential

Too broad a definition makes it difficult to apply and prove. Confidentiality should be tied to certain categories of data, the circumstances of their disclosure, or a reasonable expectation of secrecy.

• Only disclosure, but not use, is prohibited

A contract may prohibit publication without saying that the data may not be used for one’s own project. This leaves a serious legal gap.

• The purpose of delivery is not specified

Without a clearly defined purpose, it is difficult to determine when a permitted use has turned into abuse.

• The contract is signed too late

Information has already been sent, a presentation has been held or access to the system has already been enabled.

A subsequently concluded NDA may also include previously provided information only if it is clearly agreed upon and if it can be proven what information was previously disclosed.

• The foreign form is used without customization

Governing law, jurisdiction, contractual penalty and legal remedies may be inconsistent with domestic law and the specific business.

• The contractual penalty is unrealistic or unclear

An extremely high amount may act as a deterrent, but it does not mean that you will be charged automatically.

The problem also exists when it is not clear whether the penalty is paid for each individual violation, for each disclosed information, for each day of the violation or only once.

• The NDA is confused with the transfer of copyright

The fact that the developer is obliged to keep the code confidential does not automatically mean that the client has acquired all property rights to that code.

The transfer or assignment of rights must be regulated separately and with sufficient precision.

• The obligation is not transferred to employees and subcontractors

The contracting party gets the right to hire subcontractors, but the contract does not regulate whether they must also keep information or who is responsible for their violation.

• The company does not implement real security measures

Documents are sent without control, all employees have access, data is not classified, and accounts of former associates remain active.

In such a situation, the NDA remains a stand-alone document that is not supported by actual business practice.

What to do when an NDA is violated

First, it is necessary to determine what happened and protect the available evidence.

Important steps may include:

• identifying information disclosed or used
• determining who had access to it
• storage of electronic communications
• keeping records of access and downloads
• providing copies of disputed documents or publications
• sending a formal request to stop the violation
• request for return or destruction of documentation
• termination of access to systems
• reference to the contractual penalty, if properly contracted
• claim for damages
• use of trade secret protection mechanisms
• initiation of appropriate judicial or other proceedings

In these disputes, it is often not the most difficult thing to prove that a contract exists. It is more difficult to prove that specific information was protected, that the other party obtained it precisely within that relationship and that it used or disclosed it without authorization.

The speed of response can be important, especially when there is a risk that the information will be further distributed, published or used in the market.

Is an NDA agreement sufficient to protect a trade secret?

It’s not.

The NDA should be part of a broader classified information management system.

Such a system may include:

• limiting access according to workplace and responsibilities
• marking confidential documents
• internal policies and procedures
• technical access control
• record of downloading and sending documents
• employee training
• control of external collaborators
• regulated contracts on work and business cooperation
• protection of intellectual property rights
• procedures for termination of employment or cooperation
• returning equipment and terminating user accounts
• security incident response plan

An NDA is not a substitute for actual management of confidential information. A company that does not recognize, classify and store its confidential data will have a hard time protecting it with just one contract.

Checklist before signing an NDA agreement

Before signing, check:

Is confidential information sufficiently clearly defined?

Is the permitted purpose of use specified?

Does the contract prohibit both disclosure and unauthorized use?

Are reasonable exceptions arranged?

Is it clear who can access the data?

Is the recipient liable for employees and subcontractors?

Is the duration of the obligation appropriate to the nature of the information?

Are data recovery, deletion and destruction regulated?

Are the consequences of the injury legal and realistically applicable?

Is the contract aligned with the basic business contract?

Is it necessary to regulate intellectual property rights separately?

Is personal data shared?

Does the company really implement safeguards?

Are applicable law and jurisdiction clearly defined?

Was the contract signed before the disclosure of sensitive information?

Frequently asked questions

Does the NDA contract have to be notarized?

A notary certification is not prescribed for the conclusion of a normal NDA contract.

The written form is nevertheless very important in order to prove the identity of the contracting parties, the content of the assumed obligations, the date of conclusion and the scope of protection.

Can an NDA be concluded with an employee?

It can.

The obligation of confidentiality may be regulated by an employment contract, an annex, a separate NDA agreement or a corresponding internal document with which the employee is properly familiar.

The provisions must be sufficiently precise and should not be used as a veiled, unlimited prohibition of competition.

How long can the confidentiality obligation last?

The duration depends on the nature of the information.

For certain commercial data, a few years may be enough, while specific know-how may require protection as long as it retains the character of a secret and the business value based on that secrecy.

Does an NDA protect a business idea?

It can protect specific, sufficiently specified and confidentially communicated elements of an idea from unauthorized disclosure or use.

It does not automatically create an exclusive right to an abstract idea and does not supersede patent, copyright, trademark or other appropriate protection.

Can a fine be negotiated for breaching an NDA?

A contractual penalty may be agreed upon for breach of the non-monetary duty of confidentiality.

The clause should clearly define what conduct constitutes a breach and when the obligation to pay arises. A disproportionately high amount may be subject to a judicial reduction, and the ratio of contractual penalty and damages should be regulated separately.

Does the NDA apply if the document is not marked as confidential?

It may apply if it is clear from the contractual definition and circumstances that the information is confidential.

However, document marking, controlled delivery and a record of who received them make it much easier to prove.

Is the foreign NDA form applicable in Serbia?

It can serve as a starting point, but should not be used without legal verification.

It is necessary to check the applicable law, jurisdiction, definitions, duration of the obligation, contractual penalty, available remedies and relationship with other contracts.

What if confidential information became public?

If the information legally became publicly available, and this did not happen through a breach of contract, there is usually no longer a reason to treat that party as confidential.

If the information became public precisely because of the violation of the NDA agreement, the responsibility of the person who committed the violation does not end with the mere publication of the information.

Conclusion

An NDA agreement can be an important instrument to protect business interests, but only when it fits the specific relationship and the information that is actually exchanged.

A good contract should clearly specify:

• what information is being protected
• why the information is provided
• who can access them
• how they may be used
• how long the commitment lasts
• what happens after the cooperation ends
• what are the consequences of the injury

The biggest mistake is believing that a signed form automatically solves the problem. Legal protection also depends on how the company manages data, restricts access and documents its delivery.

Before you open a data room to a potential investor, provide technical documentation to an external developer, or provide a business partner with access to a client base, you need to check whether the existing NDA really fits the relationship.

The JP Law law office provides legal support in drafting NDA contracts adapted to specific business, checking existing forms and their alignment with employment contracts, business cooperation, investment, software development and transfer of intellectual property rights.

Legal support can be significant even when a breach of confidentiality has already occurred, especially for the purpose of timely provision of evidence, assessment of legal options and selection of an appropriate protection mechanism.

Remote and Hybrid Work in Serbia: How to Regulate It Properly

The employee works from home two days a week, and comes to the office the other three. He agrees on specific days with the immediate manager. The employer provided him with a laptop, but this way of working is not regulated by the contract, annex or internal act.

Such a model can function for a long time without problems. Questions are usually raised only when the employee refuses to return to the office, requests reimbursement of expenses, reports an injury while working at home, or disputes the way the employer monitors his work.

Is it enough, then, for the employer and the employee to verbally agree on working from home?

The answer depends on the content of the existing contract, the frequency of work outside the employer’s premises and whether it is an occasional benefit or an established model of work organization.

When working from home becomes a regular part of the employment relationship, it should not be based only on electronic correspondence, verbal approval of the manager or unwritten practice. The rights and obligations of the employer and the employee should be arranged in advance and harmonized with the actual way of working.

How the Labour Law regulates work outside the employer’s premises

The Labour Law uses the term work outside the employer’s premises and states that it includes remote work and work from home.

For such work, the law provides a special content of the employment contract. In addition to general elements, the contract should regulate the duration of working hours according to work norms, the method of monitoring the employee’s work, the means for work provided by the employer, the use of the employee’s own funds, compensation for the costs of their use and compensation for other work costs.

Hybrid work is not specifically defined as an independent legal institute. In business practice, this term usually refers to a model in which the employee works part of the time at the employer’s premises, and part of the time from his home or from another approved location.

The fact that the law does not use the term “hybrid work” does not mean that such a model is impermissible. Its legal viability depends on whether the place and method of work, layout, equipment, costs, control and other relevant issues are properly regulated.

The problem, therefore, is not in the name of the model, but in the attempt to base a permanent way of organizing work on an informal agreement.

Part-time working from home and a full-time hybrid model are not the same

Not every occasional work from home is automatically a permanent change to the contracted working conditions.

For example, an employee may exceptionally be allowed to work from home on a certain day due to family circumstances, weather conditions or other justifiable reason. Such a situation is not the same as a predetermined regime according to which the employee works outside the employer’s premises for two or three days every week.

When assessing whether a particular model should be more formally arranged, the following are particularly important:

• frequency and duration of working from home
• content of the existing contract
• the way the workplace is defined
• the existence of a permanent or predetermined schedule
• the use of special equipment and the occurrence of additional costs
• method of recording and control of work

whether working from home is presented as an employee’s right or as a possibility for the employer to decide.

The more regular, long-term and organizationally significant the work from home is, the less justified it is to rely on individual approvals from the manager.

The contracted place of work is not the same as the authorized location of work

One of the most important questions is whether the employee’s home becomes the contracted place of work or whether he is only allowed to work from a certain location occasionally.

In the first case, working from home is part of the contractual terms of employment. In the second, the employer’s business premises can remain the contracted place of work, while the employee, under certain conditions, is allowed to perform part of the work outside them.

That difference affects:

• the need to conclude the annex
• the possibility of changing the schedule
• the employer’s right to demand attendance at the office
• conditions for termination of working from home
• determination of permitted locations
• reimbursement of expenses

implementation of safety and health rules at work.

Therefore, it is not enough to simply state that the employee “can work from home”. It is necessary to explain who decides on this, to what extent such work is applied and under what conditions it can be changed.

Is an annex to the contract required for hybrid work?

When an employee already engages in work from home or remote work during the establishment of the employment relationship, such regime should be regulated by the employment contract.

If hybrid work is introduced subsequently, the need for an annex depends on whether the contracted working conditions are changed.

As a rule, the annex will be required when the contracted place of work or another element of the contract is changed. This may be the case when the employee’s home is determined as one of the regular places of work or when a permanent work regime is introduced outside the employer’s premises.

When the existing contract already enables such an organization, it should be assessed separately whether a general act and a corresponding decision of the employer are sufficient for its implementation.

Therefore, it cannot be claimed in advance either that the annex is needed in every case or that it is never needed because the employee agrees to work from home. The answer depends on the content of the specific contract and the actual nature of the change.

What should be regulated by contract, and what by an internal act

The contract or annex should primarily regulate issues that directly determine the position of a specific employee, such as:

• contracted place or places of work
• the relationship between work from the office and work outside the employer’s premises
• basic work schedule
• means of work
• use of private equipment
• reimbursement of costs
• way of supervising the work
• obligation to come to the employer’s premises

conditions of change or termination of hybrid mode.

The general act of the employer can regulate common organizational, technical and safety rules in more detail, for example:

• approval procedure for working from home
• way of determining specific days
• mandatory availability periods
• records of the start and end of work
• using official devices and applications
• information security
• reporting technical problems
• keeping business documents
• work control
• reporting injuries and safety incidents

returning equipment.

Companies often use the name “hybrid work policy”. The name of the document itself, however, does not determine its legal force.

The internal policy is not automatically the same as the work regulations or other general act adopted in accordance with the law. It also cannot unilaterally change the rights already granted to the employee by contract.

Therefore, it is necessary to check what the document regulates, who adopts it and whether it is in accordance with the law, general acts and employee contracts.

Who bears the costs of working from home

One of the most frequently overlooked questions is who pays for the equipment, internet, electricity and other costs associated with working from home.

The contract for work outside the employer’s premises should determine the means of work that the employer procures, installs and maintains. If the employee uses his own equipment or other means, it is necessary to arrange their use and compensation of the corresponding costs.

Not all household expenses are labor expenses at the same time.

It is necessary to distinguish:

• means without which the employee cannot perform the job
• costs of using own equipment
• additional internet, electricity and communication costs incurred due to work

general household expenses that would exist even without working from home.

Compensation can be arranged through a monthly flat rate, calculation according to the number of days of work from home, reimbursement of documented expenses or a combination of several models.

The chosen method of calculation should be sufficiently specific, objective and harmonized with the actual costs and tax rules.

A general provision according to which the employee bears all the costs of working from home, without considering what means and costs the employer should provide or compensate, would be problematic.

A more precise provision, for example, may stipulate that the employer provides an official computer, software and technical support, while the employee is paid a predetermined amount for additional internet and electricity costs according to the number of days of working from home.

Working hours and availability of the employee

Working from home does not mean that the employee must be available at all times.

The rules on working hours, overtime, daily and weekly rest and absences apply to employees who work outside the employer’s premises.

The employer should therefore clearly determine:

• start and end of working hours
• mandatory availability periods
• way of recording work
• procedure for determining overtime
• rules for attending meetings

handling in case of internet interruption or equipment failure.

A particular risk is the informal culture of constant availability.

Sending messages outside of working hours does not necessarily mean that the employee has worked overtime. However, when he is expected to respond immediately, solve tasks or regularly monitor business applications, the question of the actual duration of his work can be raised.

In Serbia, there is no special and comprehensive right to exclusion based on the model of certain European countries. However, the protection of the employee comes from the rules on limited working hours and mandatory vacations.

That is why the documentation should determine when the employee must be available, and when he is not obligated to check messages and business systems.

Safety and health when working from home

The fact that an employee works at home does not cancel the employer’s obligations in the field of occupational health and safety.

The employer should, in cooperation with the employee, determine the conditions for safe and healthy work, the means of work it provides, the way of organizing the work process and preventive measures.

The employee should cooperate with the employer, act according to the instructions received and report changes that may affect work safety.

Preventive measures may include:

• correct body position and organization of the work surface
• safe use of electrical and computer equipment
• appropriate lighting
• regular breaks
• preventing tripping and other physical risks
• injury reporting procedure

handling in the event of a failure or security incident.

The employer can issue a written act on risk assessment for working from home and remote work with the employee’s participation. This does not mean that the evaluation of working conditions is optional, but that the law leaves room for the form of a separate written act. The obligation to determine conditions and preventive measures remains.

At the same time, working from home does not give the employer an unlimited right to enter and control the employee’s home. The method of checking the conditions should be harmonized with the privacy of the employee and the nature of the specific job.

Is every injury at home an injury at work?

Not every injury that occurs in an employee’s home is automatically a work injury.

When evaluating a specific event, it is necessary to consider:

• whether the injury occurred during working hours
• where and under what circumstances it was created
• what action the employee performed
• whether that action was related to work tasks
• when and how the event was reported

what documentation and other evidence exists.

An injury during the use of official equipment while performing a task is not the same situation as an injury caused during a private activity that is not related to work.

Therefore, internal documentation should contain a clear procedure for reporting events, but it should not be determined in advance that every injury at home is considered an injury at work or that no such injury can have that character.

Work control and employee privacy

The employer has the right and legitimate interest to check the performance of work duties. This right is not unlimited.

Logging in to the business system, monitoring the implementation of tasks or controlling the use of the official computer may be justified depending on the nature of the work.

Significantly more serious invasion of privacy is represented by:

• continuous screen recording
• automatic photographing of the employee
• constant activation of the camera or microphone
• tracking every mouse movement
• control of private communication

supervision of household members or areas outside the work environment.

Before introducing the monitoring system, the employer should determine:

• clear and permissible purpose
• appropriate legal basis
• what data it collects
• whether all data is necessary
• how long does he keep them
• who can access them
• whether the goal can be achieved by a less invasive means

how the employee will be notified.

The employee’s consent is not automatically the most reliable legal basis for any data processing, because in the employment relationship there is an imbalance between the employer and the employee.

The employer should control the performance of work duties, not the employee’s private life. The fact that the work is done in the home further increases the need for proportionality and clear limits of supervision.

Business data protection and cyber security

Working outside the office increases the risk of unauthorized access to documents, devices and business systems.

The rules of remote work should therefore include:

• use of official devices
• strong passwords and multi-factor authentication
• secure connection to business systems
• prohibition of using unprotected public networks
• storage of paper documentation
• prohibition of access to third parties
• reporting lost or stolen devices
• action in the case of a cyber incident
• returning equipment and deleting business data

trade secret protection.

In particular, it should be arranged whether the employee is allowed to work from a coffee shop, shared office space, holiday home or another country.

A permit to work from home should not automatically constitute a permit to work from any location.

Working from another country may open up issues of application of foreign labour law, tax status, social security, residence and work permits, information security and international data transfer. That is why such work should be specially approved and legally analyzed beforehand.

Can the Employer Discontinue Working from Home?

The answer depends on how working from home is introduced and legally formulated.

If the employee’s home is contracted as a permanent or regular place of work, a unilateral order to return to the office may represent a change in the contracted working conditions.

If working from home is arranged as a time-limited or revoked possibility, with clearly defined criteria and the employer’s right to change the schedule, the scope for organizational change may be wider.

The documentation should therefore answer the following questions:

• whether the employee has the right to an exact number of days of work from home
• who determines specific days
• how far in advance the schedule is communicated
• in which situations the employer may require attendance
• whether the employee can independently change the location of work
• for which reasons the hybrid regime may be limited or abolished

whether a permanent change requires an annex.

The formulation that the employee “can occasionally work from home” is not sufficient if it cannot be concluded from it who makes the decision, how long such work lasts and under what conditions it ends.

Equal treatment of employees

The employer is not obliged to allow every employee the same number of days of work from home, regardless of the nature of the job.

Certain positions require physical presence, direct contact with clients, access to equipment, or work with documentation that cannot be safely used off-premises.

However, differences between employees should be based on objective and pre-understandable criteria, such as:

• nature of jobs
• the need to be present at a specific location
• security requirements
• team organization
• privacy protection

technical possibilities.

Arbitrarily approving work from home to individual employees, without clear criteria, can increase the risk of disputes due to unequal treatment.

The most common mistakes of employers

Reliance on an oral agreement

Later, it is difficult to prove what was agreed, how long the regime was supposed to last and who had the right to change it.

Misjudgment of the need for an annex

It is risky to assume that the annex is always needed and that it is never needed. The answer depends on the content of the existing contract and the actual change in working conditions.

Unregulated costs

Employees and employers may have different understandings of who pays for equipment, internet, electricity and maintenance.

Absence of records of working hours

It is difficult for the employer to prove the duration of work, the use of holidays and the existence of overtime.

Permanent availability of the employee

The hybrid model turns into an extension of the working day without clear records and corresponding compensation.

Excessive electronic surveillance

Productivity control can turn into disproportionate data processing and breach of employee privacy.

Neglecting safety at work

The employer does not have established conditions, preventive measures or procedures for reporting injuries.

A vague return to the office

A dispute arises as to whether working from home is a contractual right, a permanent place of work or revokes an organizational possibility.

Copying foreign policies

The document may contain institutes that do not exist in Serbian law or ignore the obligations of domestic law.

Work from abroad without approval

The employer may be exposed to labour law, tax, immigration and regulatory risks.

Checklist for the legal introduction of hybrid work

Contracts and internal acts

review existing employment contracts

precisely determine the place of work

assess whether annexes are needed

adopt or harmonize the corresponding general act

determine the relationship between contracts, regulations and internal policies.

Organization of work

determine which jobs can be performed outside the employer’s premises

determine who approves working from home

define the schedule and obligation to come to the office

determine the permitted work locations

separately arrange work from another country.

Equipment and costs

determine which funds are provided by the employer

arrange the use of private equipment

determine responsibility for maintenance and return of equipment

to determine the method of reimbursement of costs.

Working hours and control

organize records of working hours

define mandatory availability periods

arrange overtime

check the legality and proportionality of the supervision

determine the method of reporting and communication.

Security and data protection

determine preventive measures of safety and health at work

prescribe the procedure for reporting injuries

regulate the protection of business and personal data

prescribe the procedure in case of a technical or security incident

train employees and managers.

Conclusion

The essential legal problem of hybrid work is not that the Labour Law does not use this very term. The problem arises when the employer tries to base a permanent and organizationally significant work model on an occasional and informal agreement.

Working from home and hybrid work can only be legal and functional when it is clear:

• where the employee works
• who determines the schedule
• who provides the equipment
• how expenses are reimbursed
• how work hours are recorded
• in what way is the performance of work controlled
• what security measures are in place

when and under what conditions the employee can be returned to the office.

A universal pattern is not enough. The documentation must be adapted to the content of the existing contracts, the nature of the work, the technology, the way of management and the actual organization of the specific employer.

Read more about employment contracts, internal acts, records, occupational safety and other obligations of companies in the guide Labor law for employers in Serbia: what every company must arrange.

JP Law can review existing contracts and employer practices, determine if an annex is needed, and prepare contracts, regulations, and other documentation aligned with the actual work-from-home and hybrid work model.

Frequently asked questions

Does working from home have to be specified in the employment contract?

When working from home is a contracted and regular way of performing work outside the employer’s premises, it must be regulated by contract. In the case of occasional flexibility, the answer depends on the existing contract and the specific way of working.

Is an annex to the contract required for hybrid work?

An annex is required when the agreed working conditions, especially the place of work or other elements of the contract, are changed. If the existing contract already enables such an organization, it should be assessed whether the general act and the employer’s decision are sufficient.

Who pays for internet and electricity?

The method of compensation should be arranged in advance. It is necessary to distinguish additional expenses incurred due to work from general household expenses. The compensation can be flat-rate, calculated according to the number of days of work from home, or regulated by another objective model.

Can the employer monitor the activities of the employee on the computer?

Can carry out justified and proportionate control of the execution of work duties. The employee should be informed about the type, purpose and scope of the surveillance, and the collection of data must not be more extensive than necessary.

Is an injury at home an injury at work?

Not automatically. It is necessary to determine whether the injury occurred during work and in connection with the performance of work tasks, while considering the time, place, circumstances and available evidence.

Can the employer demand the return of the employee to the office?

It can to the extent that the treaty, the annex, the general act and the way in which the hybrid regime is introduced allow it. If the employee’s home is contracted as a regular place of work, a permanent change may require an annex.

Can the employee work from any location or from another country?

Not without limitations. The employer can determine the permitted locations for data protection, security and business organization. Working from another country requires a special legal assessment and prior approval.

Can the internal policy replace the annex to the contract?

Not when it changes rights or conditions that have already been contracted. An internal act can regulate the common rules in more detail, but it cannot independently change the content of the employment contract.

How to Regulate Relations Between Business Partners

Most business partners first agree on ownership percentages. A significantly smaller number agree on what those percentages mean when one partner works more, the other invests extra money, and neither wants to compromise when making an important decision.

At the beginning of a joint venture, there is usually trust. Partners are friends, relatives, colleagues or long-term associates. They have a business idea, an initial plan and an expectation that they will solve problems by agreement.

Serious disagreements usually do not arise when the business is small. They arise when the business starts to grow, when additional investment is needed, when the contributions are no longer equal, when one partner wants the payment of profits, and the other the further development of the company, or when someone decides to leave the business.

The dispute then does not necessarily arise because someone had bad intentions from the beginning. It often arises because the relations between partners in business were not regulated precisely enough while the relations were still good.

A good contract cannot prevent every disagreement. It can, however, prevent it from turning into a business blockade, a decline in the value of the company or a long-term dispute.

Why a verbal agreement between partners is not enough

Partners often agree on who owns 50, 60 or 70 percent of the company, but do not clarify what the ownership percentage really means.

The share percentage alone does not answer the questions of who runs the day-to-day business, what decisions a partner can make independently, how much each partner is required to work, how fees are determined, what happens when additional investment is needed and how a partner can leave the company.

An informal arrangement can work as long as the partners have the same interests. When their interests diverge, each often remembers the deal in a way that suits their current position.

A contract between business partners is therefore not a substitute for trust. Its purpose is to turn common expectations into clear and demonstrable rules.

The articles of association and the members’ agreement are not the same document

When founding a limited liability company it is especially important to distinguish the articles of association from the contract of the company members.

What is regulated by the articles of association

The articles of association is the basic corporate document of a company. It regulates the members of the company, their roles and shares, basic capital, management and other issues important for the organization and operation of the company.

It can regulate the voting method, the required majority, the transfer of shares, the right of pre-emption, the consent to the transfer of shares and the competences of the company’s bodies.

The rules that should produce an effect within the company must be harmonized with the articles of association, decisions of the company’s bodies and compulsory regulations.

What is the purpose of the contract of members of the company

According to the Law on Business Companies, a member of the company can enter into a contract with one or more members of the same company in writing and regulate matters important for their mutual relations in connection with the company.

In a limited liability company, this document is called the members’ agreement.

The contract of the members produces an effect between the members who concluded it. Therefore, a rule introduced only in that contract does not automatically change the articles of association nor does it necessarily produce the desired corporate effect towards the company, its bodies or other persons.

The members’ contract can be regulated in more detail:

• division of work between partners
• obligations of their personal engagement
• additional financing
• profit distribution
• way of voting on important issues
• confidentiality
• dating partner
• determination of share value
• resolving the business blockade

The articles of association and the contract of members should therefore not be viewed as alternative documents. They must be coordinated with each other.

Depending on the business model, an employment or other partner engagement agreement, a director’s agreement, a loan agreement, an intellectual property agreement, a confidentiality agreement, or an investor agreement may also be required.

Why Ownership Percentages Should Not Automatically Determine Powers

The question of who gets what percentage of the company should not be decided only by who first proposed the idea or who has better relations with whom.

It is necessary to consider:

• who invests money
• who brings in equipment or other property
• who provides clients and contacts
• who contributes knowledge, software, trademark or other intellectual property
• who will be engaged on a daily basis
• who takes the biggest business risk
• what happens if someone leaves the project soon

Equal shares can be justified when contributions, risks and future obligations are truly equal. However, a 50 to 50 ratio is not in itself the fairest solution.

Such a structure can lead to serious deadlock if each partner has equal voting power and there is no pre-defined way of resolving disagreements.

Ownership, management and operation are not the same

A partner can be a member of the company, a director and an employee at the same time, but his legal position on each of these bases is not the same.

Therefore, it is necessary to precisely determine:

• who runs the day-to-day affairs
• who is the director
• who represents society
• who approves payments
• who hires and fires
• who leads sales, finance, development or customer relations
• which decisions everyone can make independently
• which decisions require the consent of other partners

It is not enough to write that the partners will “jointly manage the business”. It is necessary to determine who is responsible for specific areas and what happens when the assumed obligations are not fulfilled.

Partners with equal ownership shares do not have to receive equal monthly fees if their actual work and responsibilities are not equal.

How to regulate decision-making

Regular operational decisions should not be made in the same way as decisions on large borrowing, entry of investors or sale of the company.

Partners can provide that certain decisions are taken independently, by simple majority, qualified majority or unanimously.

A special regime most often makes sense for decisions about:

• significant borrowing
• sale of important assets
• change activities
• admission of a new member
• entry of investors
• changes in the basic capital
• profit distribution
• sale of the company
• cessation of business

Too many decisions that require unanimity can completely block business. On the other hand, if the majority partner can independently decide on almost everything, the minority member may be left without real influence on the most important issues.

The goal is to find a balance between effective management and protection of all partners.

How to prevent business blockade

Business blockage occurs when the partners cannot make a decision without which the company cannot continue business normally.

It most often appears in companies with two partners who have equal shares or when a large number of decisions require unanimity.

The contract may provide for a procedure that is activated when the disagreement lasts longer than a certain period. It can include:

• a new round of negotiations
• meeting with the presence of a neutral advisor
• mediation
• referring a professional question to an independent person
• an offer by one partner to buy out the other’s share
• sale of shares or the entire company
• controlled cessation of business as a last resort

Models known as Russian roulette or Texas shoot-out clauses are also used in international corporate practice. These are not special institutes named by domestic law, but contractual mechanisms that must be adapted to Serbian law and the specific relationship.

They are not suitable for every business. If one partner is significantly stronger financially, the ability to quickly secure buyout money can put them in an advantageous position.

How to arrange additional investments

Initial capital is often not enough for business development.

Partners should therefore determine in advance:

• whether they have an obligation to additionally finance the company
• how much each partner should invest
• what happens if one partner does not have or does not want to invest money
• whether the additional investment changes the ownership percentages
• whether the funds are given as a loan
• when and under what conditions the loan is repaid

It is not the same whether a member increases his contribution, makes an additional payment or gives a loan to the company.

A member’s loan to the company creates a debt relationship and does not in itself increase the lender’s ownership percentage. A change in the ownership structure due to additional financing also does not occur automatically, but requires a pre-agreed and legally properly implemented mechanism.

That’s why it should be clearly determined whether the additional money represents a proprietary investment or the company’s obligation to return that amount.

Salary, compensation and profit sharing are not the same

It is necessary to distinguish:

• compensation for daily work
• remuneration to the director
• profit sharing
• loan repayment
• fee for use of equipment or intellectual property

Partners with equal ownership shares do not have to have equal monthly fees if they do not work the same or are not equally engaged.

At the same time, higher compensation for work does not automatically mean a higher ownership share.

Profits are not distributed as soon as the company generates income. Before deciding on distribution, it is necessary to consider the results of operations, existing obligations, legal restrictions and the need to retain funds for further development.

Therefore, partners should determine in advance who decides on the distribution of profits, under what conditions it is paid and how many funds remain in the business.

Who owns the brand, software, customer bases and other business assets

For many companies, the greatest value is not in fixed capital, but in:

• brand and trademark
• domain and website
• software and source code
• client bases
• design and author’s content
• business procedures
• accounts on digital platforms
• business knowledge and experience

A particular risk exists when a key asset is formally registered to one partner, even though it was developed or used by the company.

If the domain is registered in the partner’s private name, and the rights to the software and source code have never been transferred to the company, its exit may threaten the continuation of the business.

That is why it is necessary to determine what belongs to the partner, what is only given to the company for use, and what should be formally transferred to the company.

Non-competition and confidential information

It is necessary to distinguish between the legal obligations of persons who have special duties towards the company, the contractual prohibition of competition between partners and the prohibition of competition within the framework of the employment relationship.

Those regimes are not identical and should not be united by one general provision.

The contract between the partners may regulate in more detail:

• keeping trade secrets
• using the client base
• taking over employees
• contacting existing clients after exit
• starting a competing business
• duration of obligations after termination of partnership

The non-compete should be reasonable and precise. It is necessary to determine which jobs it covers, where it is valid, how long it lasts and which legitimate business interest it protects.

The goal should not be to completely prevent the ex-partner from working, but to protect the specific interests of society.

What if the partner stops contributing to the business

A member of the company does not automatically lose his share just because he has stopped working.

The contract should foresee what happens when the partner ceases to work actively, does not fulfill obligations, blocks decisions, uses the assets of the company in personal interest, takes over clients, starts a competing business, loses the necessary license, becomes permanently incapacitated or dies.

In international investment practice, the terms good leaver and bad leaver are often used.

The first indicates a partner who leaves for justified or pre-accepted reasons. The second refers to a partner whose departure is connected with a serious breach of obligations, fraud or competitive action.

These are not special legal institutes of Serbian law, but contractual categories, the application of which depends on precisely defined reasons, exit procedure and method of price calculation.

A possible decrease in the share price cannot be based only on the arbitrary assessment of other partners. Such a provision must be carefully formulated and harmonized with the relevant rules of company and obligation law.

How to arrange the departure of a partner from the company

An employment agreement is not complete if there is no exit agreement.

Need to edit:

• can the partner freely sell the share
• who has the right of first refusal
• whether the company’s consent is required
• to whom the share cannot be sold
• how the price is determined
• within which time the price is paid
• whether payment in installments is possible
• what happens in case of death of a member
• how to act when there is an offer to buy the entire company

The transfer of shares should be analyzed according to the applicable legal rules and the articles of association of the specific company, especially with regard to the right of pre-emption, the necessary consent and the procedure for offering shares. When a share is bought by a new partner or investor, an important step is the due diligence of the company or share.

In international business practice, both tag-along and drag-along rights are often contracted.

Tag-along protects the minority member by allowing him to join the sale of the majority member and sell his share to the same buyer under suitable terms.

Drag-along enables the majority member to, under predetermined conditions, demand that the minority member also participate in the sale of the company.

It is not enough just to list these mechanisms by name. It is necessary to regulate the price, deadlines, notification, obligations towards the customer and partner’s responsibility for statements and guarantees given in the sales process.

How the share value is determined

The wording that the partner is entitled to the “market value of the share” is often not precise enough.

It is necessary to determine:

• who assesses the value
• according to which methodology
• on what date
• based on which financial data
• how debts are taken into account
• whether the brand, clients and intellectual property are valued
• who pays the assessment
• what happens if there is a dispute about the appraiser’s findings

The value can be determined according to the agreed formula, the assessment of an independent expert, book value, income, profit or a combination of several methods.

Book value may be inadequate in a firm whose main value lies in brand, technology or customer contracts. On the other hand, an estimate based on future profits may depend on uncertain assumptions.

Therefore, the assessment method should be adapted to the specific business model.

The responsibility of a member and a director is not the same

A member of a limited liability company is generally not liable for the company’s obligations just because he owns a share.

This does not mean that he is protected from liability for his own illegal conduct or violation of his obligations as a director, representative or person with special duties towards the company.

Member responsibility, director responsibility, conflict of interest, dealings with related parties, use of company property, misappropriation of business opportunities and abuse of the company’s legal personality should be distinguished.

Limited liability is not a license to use company property as personal property.

The contract between the partners cannot exclude the application of mandatory legal rules, but it can more precisely regulate internal obligations, the method of approving certain jobs and the consequences of violating the agreed rules.

Court, mediation or arbitration

Not every dispute needs to be brought before the court immediately.

The contract may foresee several successive steps:

• direct negotiation of partners
• a mandatory meeting within a certain period
• involving a neutral advisor
• mediation
• expert determination of value or other disputed issue
• arbitration or court proceedings

Arbitration can be suitable when confidentiality, the choice of an arbitrator with special expertise or the existence of an international element are important to the partners. The basic rules on contracting and conducting arbitration are governed by the Law on Arbitration.

However, arbitration is not automatically the best solution. It can be expensive for disputes of lesser value, while the possibilities of contesting the arbitration decision are more limited than in regular court proceedings.

The choice should be adapted to the value of the dispute, the number of partners, the type of business, the need for confidentiality and the possibility of executing the decision.

The most common mistakes of business partners

In practice, the following mistakes are most often repeated:

• important agreements remain verbal
• only ownership percentages are regulated
• a ratio of 50 to 50 without an anti-blocking mechanism is selected
• ownership is equated with employment
• it is not determined who makes which decisions
• additional investments remain unregulated
• it is not clear who owns the intellectual property
• there is no profit sharing policy
• no departure of partners is foreseen
• the share valuation method is not defined
• the contract of members is not harmonized with the articles of association
• the death, illness or long-term disability of the partner is not covered
• a generic contract is used without adaptation to the specific business

The biggest mistake is the belief that a possible conflict should not be discussed while relations are good.

That’s when it’s easiest to reach a fair deal.

Control questions for business partners

Before starting or continuing a joint business, partners should answer the following questions:

Who has what ownership stake and why?

What does each partner invest and how much is he required to be involved?

Who runs the day-to-day operations?

What decisions can everyone make independently?

Which decisions require the consent of all partners?

How is additional funding provided?

How are fees determined and profits distributed?

Who owns the brand, software and customer base?

How is a business blockade resolved?

How can a partner leave the firm?

How is the value of his share determined?

What happens in case of death or permanent incapacity of the partner?

If the partners do not have clear answers to these questions, their relationship is probably not regulated enough.

When is the right time for a contract between partners

The best time is before the foundation of the company or before the first serious investment.

However, relationships can be adjusted later, in particular:

• before the investor’s entry
• before accepting a new member
• before significant borrowing
• before more business growth
• before the change of ownership or management structure
• when the partner’s obligations have changed
• when the first serious disagreements appeared

The members’ agreement is not a document that should be signed once and put away forever.

As the value of the company, the number of employees, the sources of financing and the roles of the partners change, it is necessary to check whether the existing rules still correspond to the actual business relationship.

Conclusion

Partners can successfully run a business for years and make most decisions by agreement. However, legal documents are not prepared only for a period in which everyone thinks the same.

They are prepared for the moment when one partner wants additional investment, another wants a distribution of profit, a third wants to leave the company, and none believes that they should give way.

Quality arranged relations between partners in business can reduce the risk of disputes, speed up decision-making, protect the value of the company and enable a controlled exit of partners.

A contract is not a sign that there is no trust. It is a way for trust to not rely solely on memory, goodwill and the assumption that circumstances will forever remain the same.

The specific solution depends on the legal form of the company, the content of the articles of association, the ownership structure, the method of financing, the tax consequences and the business goals of the partners.

Frequently asked questions

Is an agreement between the partners required if there is a memorandum of association?

It is not always mandatory, but it is often very useful. The articles of incorporation govern basic corporate matters, while the members’ agreement may regulate in more detail work duties, financing, exit, share valuation and blocking resolution.

Can partners have equal ownership shares?

They can, but the 50 to 50 ratio requires a carefully arranged way of making decisions and resolving situations where the partners cannot reach an agreement.

Can one partner sell his share without the consent of the other?

The answer depends on the applicable legal rules, articles of incorporation and existing contracts. In particular, the right of first refusal, the need for consent and the agreed transfer procedure should be checked.

What happens if one partner no longer works in the company?

Cessation of work does not automatically mean cessation of ownership. The consequences depend on the contractual obligations, the position of the partner and the existence of grounds for transfer, withdrawal or other legally permitted solution.

How is the price of the exiting partner’s share determined?

The price can be determined by an agreed formula or by an independent expert’s assessment. It is necessary to determine the method, date of assessment, relevant financial data and procedure in case of disagreement.

Is arbitration better than court?

Not in any case. It may offer confidentiality and the choice of an expert arbitrator, but may be more expensive and provide more limited opportunities to challenge the decision.

Legal support in regulating relations between partners

If the articles of association determines ownership percentages, but does not give a clear answer to who decides, who makes additional investments, how the profit is distributed and how the partner leaves the company, the business relationship is probably not regulated enough.

JP Law provides legal support to founders, members of companies and investors through:

• analysis of existing relationships and documentation
• preparation and amendment of the articles of association
• preparation of members’ contracts
• arrangement of ownership and management rights
• defining additional financing
• development of share transfer and redemption mechanisms
• legal arrangement of exit of partners
• support in negotiations and resolution of existing disagreements

The best time to fix relationships between partners is before different expectations turn into a business and legal problem.

How to Legally Protect a Brand Before Launching It

The name has been selected. The logo is complete. The domain has been registered, the packaging has been sent for printing, and the marketing campaign is ready to be published.

Then the company discovers that another market participant is already using a similar name or owns a previously registered trademark for the same or similar type of product.

What appeared to be the final stages of a launch can turn into a name change, packaging withdrawal, additional costs, domain loss or legal dispute.

How to legally protect a brand before serious money, time and reputation are invested in its launch?

The first important answer is: a brand is not protected by a single procedure.

A brand is not a separate legal institute, but a set of different elements. The name can be protected by trademark, the original logo by copyright and trademark, the appearance of the product by industrial design, and confidential business data by contracts and rules on the protection of trade secrets.

Therefore, legal protection of the brand begins before public presentation, and not until copying or disputes occur.

What does legal brand protection really cover?

In business terms, a brand can include:

• the name of the company, product or service
• logo and other graphic marks
• slogan
• characteristic visual elements
• appearance of the product or packaging
• internet domain
• photos, texts, video content and illustrations
• applications and other digital content
• recipes, technical documentation and internal procedures
• customer bases and other confidential information
• reputation built in the market

These elements do not enjoy the same type of protection.

A name or logo may be protected by a trademark if it meets the prescribed conditions. An original graphic solution can enjoy copyright protection. The appearance of a product or packaging may, in appropriate circumstances, be protected as an industrial design. Confidential commercial and technical information may constitute a trade secret.

Therefore, serious protection usually involves combining several legal mechanisms in the field of intellectual property rights.

Why company registration is not the same as brand protection

One of the most common misconceptions is that the registration of a company or entrepreneur automatically gives the exclusive right to the name registered in the Agency for Business Registers.

By registering in the APR, the business name of the business entity is entered. Register of Business Entities is a central electronic database where companies, entrepreneurs and other forms of organization are registered.

However, registering a business name is not the same as registering a trademark.

A business name identifies a specific business entity. A trademark protects a sign that distinguishes the goods or services of one market participant from the goods or services of others.

Therefore, the name can be acceptable for company registration, and at the same time:

• be similar to the earlier trademark
• creates a risk of confusion with a competing product
• does not meet the requirements for registration as a trademark
• infringes another earlier right

Therefore, the protection of the company name does not end with a check in the APR.

The same goes for the domain. A free and registered domain does not mean that its name is free to use as a brand or that the registrant has the right to a trademark. A domain primarily represents an Internet address, and is used in accordance with registration rules and applicable law. Business name, trademark and domain must be checked separately but planned together.

Checking names before final decision

Legal protection of the brand begins before the creation of the final logo, packaging and advertising campaign.

First you should make a short selection of possible names, and then check for each of them:

• registers of business entities
• domestic registered and registered trademarks
• international trademarks that produce effects in Serbia
• similar names on the market
• internet domains
• accounts on social networks
• internet search results
• marks used in related activities

It is not enough to just check if there is an exactly identical name.

The following may be important in risk assessment:

• visual similarity of marks
• similarity in pronunciation
• the meaning of the word
• dominant parts of the logo
• similarity of goods and services
• the way the average consumer perceives the labels

A difference in one letter, continuation or graphic representation does not necessarily mean that there is no legally relevant similarity between the two marks.

A Google search may reveal obvious obstacles, but it is no substitute for an expert search of trademark registries and an assessment of the risk of confusion.

Trademark registration as a central form of protection

A trademark protects a sign that serves to distinguish the goods or services of one market participant from the goods or services of other persons.

Depending on the fulfillment of legal requirements, the subject of protection can be:

• words and names
• personal names
• slogans
• letters and numbers
• drawings and logos
• combinations of words and graphic elements
• product or packaging forms
• other marks suitable for distinguishing on the market

The right to a trademark in Serbia is acquired in the appropriate procedure, and you can read more about checking the mark, choosing classes and the procedure itself in the guide on registering a trademark in Serbia. The mere filing of an application does not mean that the trademark has already been registered. However, the date of application may be decisive for determining priority.

This does not mean that filing earlier automatically resolves any future dispute. The legal position can also be affected by previous trademarks, other previously acquired rights, the nature of the mark, the conscientiousness of the participants and the circumstances of the specific case.

That’s why the application should be considered after a serious legal check, and before a public launch and a bigger investment in marketing.

Choice of goods and services

A trademark is not registered abstractly for every possible activity. The protection is related to the goods and services specified in the application.

Therefore, the selection of appropriate classes is one of the most important steps in the procedure.

Before applying, you should consider:

• which products the company currently sells
• what services it provides
• what products or services is realistically planned
• whether the brand will be used for an app or an online platform
• whether to license or franchise
• in which markets they will operate

The wrong choice can result in the trademark being registered but not covering a key part of the business model.

The goal is not to register as many classes as possible without justification, but to accurately cover existing and realistically planned operations.

Protection territory

A trademark registered in Serbia does not provide automatic protection in other countries.

If the company plans to enter foreign markets, national, regional or international protection opportunities should be considered in a timely manner.

Territories should not be chosen randomly. The protection strategy should follow:

• sales plan
• distribution channels
• future markets
• production
• licensing
• the possibility of business expansion

Too narrow a hedge can leave important markets open to other participants, while too broad a strategy can create unnecessary costs.

Should the name, logo or both be protected?

There is no universal answer.

Name protection

A word mark protects a word or combination of words regardless of the specific font, color or graphic representation.

Such protection often has great strategic value because a company can change its visual identity while keeping its name the same.

Logo protection

A figurative trademark protects a concrete graphic solution.

It can be especially important when customers recognize a brand primarily by a symbol, shape or distinctive visual element.

If the logo is later significantly modified, the earlier registration may not provide the same practical scope of protection for the new version.

Combined protection

The combined trademark includes the name and the graphic solution in the registered form.

Depending on the budget and importance of individual elements, the company may consider separate registration:

• referred to as a verbal trademark
• logo as a figurative trademark
• the most important combined variants

The decision should follow the way the brand is actually used and developed.

Copyright on logo, photos and content

An original logo, photo, illustration, text, video, packaging design or part of the site’s layout may constitute works of authorship.

Copyright in principle arises from the creation of an original work, but in business practice the key question is often not whether the right exists, but who has the right to use the work commercially. You can read more about the rights to photos, texts, designs, websites and content that the company orders in the article about copyright on the Internet.

The company hires a designer or agency, receives the final files and pays the bill. This in itself does not necessarily mean that she has acquired all the property copyrights she needs.

The contract with the designer, photographer, developer or marketing agency should clearly regulate:

• which rights are transferred or assigned
• whether the use is exclusive
• in which territory the work can be used
• for what purposes
• is the company allowed to change it
• can he register it as a trademark
• whether he may transfer or license it
• whether the author can use the same or similar work for another client

It is especially important that the company has the rights necessary to use the logo on the website, products, packaging, advertisements, social networks and foreign markets.

Otherwise, it can build a valuable brand on content over which it does not have fully regulated rights.

Domains and business accounts

Domain and key social media usernames should be reserved early enough, but only after a basic name check.

It is also important who is formally listed as the registrant of the domain. RNIDS states that the data about the registrant, i.e. the natural person or company to which the domain is registered, can be changed and updated through authorized registry.

The problem arises when the domain registers:

• employed
• founder in his own name
• marketing agency
• programmer
• other external collaborator

As long as the cooperation lasts, that risk can remain invisible. When the relationship ends, access to the site, email and accounts may become a matter of dispute.

The company should therefore control:

• data about the registrant
• account with the domain registrar
• domain renewal
• hosting
• business email addresses
• administrator accounts
• codes and recovery methods
• data backups

Domain registration is not a substitute for trademark registration, but losing control of a domain can seriously jeopardize your business.

Contracts with founders, employees and collaborators

A brand is rarely created by just one person.

One founder can come up with the name, another can finance the project, the designer can create the logo, the developer can develop the site, and the agency can prepare the content.

Therefore, before entering the market, you should clearly arrange:

• who is the holder of the rights to the name and logo
• to whom the trademark application will apply
• to whom the copyright belongs
• who controls the domain and digital accounts
• who may use the materials after the collaboration ends
• who must return files, documentation and access data
• what happens to the brand if one founder leaves the company
• under what conditions the brand may be transferred or licensed

A particular risk exists when a trademark is registered in the name of a single founder, even though the brand is financed and used by the company.

Such a condition can later make it difficult:

• entry of investors
• sale of the company
• licensing
• exit of one partner
• division of property after a business conflict

Ownership of key brand elements should be settled while the relationship between the partners is good, not until a dispute arises.

What an NDA agreement can and cannot protect

An NDA agreement can help protect unpublished plans, designs, data, strategies, and other confidential information.

It can be used to edit:

• what is considered confidential
• who may use the information
• to whom they may be disclosed
• how long the confidentiality obligation lasts
• what are the consequences of breach of contract

However, an NDA does not automatically create a monopoly over a business idea.

The general concept of a product, service or business model is usually not protected just because someone came up with it first. An NDA contractually binds the person who received the confidential information, but does not prevent the rest of the market from independently developing a similar solution.

Therefore, it should be combined with other mechanisms, such as:

• trademark
• copyright
• industrial design
• patent or small patent, when conditions exist
• trade secret
• contractual rights to work results

Protection of trade secrets

During the preparation of the launch, the nature of trade secrets can have:

• unpublished product design
• go-to-market plan
• pricing strategy
• client base
• technical documentation
• recipes and formulas
• internal business processes

According to the Trade Secret Protection Act, it is not enough to simply claim that some information is confidential. The protection also depends on whether the bearer has taken reasonable measures to preserve its secrecy.

Such measures may include:

• restricting access
• contracts and confidentiality clauses
• internal policies
• labeling of documentation
• technical protection
• access records
• termination of access after termination of cooperation

The more freely confidential information is shared, the harder it is to later prove that it was actually kept as a trade secret.

The most common mistakes before launching a brand

Name selection without legal verification

The name is chosen based on creative and marketing criteria, but prior trademarks and other rights are not checked.

The consequence can be a complete rebranding after investing in packaging, website and promotion.

Reliance on APR data only

The fact that a business name has been accepted for registration does not mean that the name is free to use as a trademark.

Investment in marketing before trademark application

A public launch reveals the name to the market. If protection is not planned in a timely manner, the company may enter into a less favorable legal position.

Checking only exactly identical names

Infringement may also exist when the marks are not the same, but are sufficiently similar that there is a likelihood of confusion.

Unarranged rights with designer or agency

A company can pay for the creation of a logo without having a clear right to change it, register it or transfer it to a third party.

Domain registered to an associate

Termination of cooperation may result in loss of control over the site, email and other key channels.

Protection only in Serbia with planned expansion

A company can use the name freely in Serbia, but encounter an earlier trademark when it tries to enter a foreign market.

Lack of monitoring system

Trademark registration does not mean that every infringement will be automatically noticed and stopped. The rights holder must monitor the market and react in a timely manner.

Pre-Market Legal Checklist

Before launching a brand you should:

Define the name, logo, slogan, design and other key elements.

Create a few alternative names before investing in a visual identity.

Conduct preliminary internet and market research.

Check business names in APR registers.

Search domestic and relevant international trademark registries.

Analyze identical and similar tags.

Check domains and key accounts on social networks.

Determine the goods, services and territories that require protection.

Consider filing a trademark application before public launch.

Contracts to arrange rights with designers, developers, agencies and other collaborators.

Arrange ownership of the brand between the founder and the company.

Provide control over domains, accounts, files and passwords.

Establish measures to protect confidential information.

Prepare a plan for monitoring and responding to possible rights violations.

When professional legal support is needed

An independent preliminary check can help to reveal obvious obstacles. However, professional judgment is especially important when:

• a larger amount is invested in development and launch
• there are similar names on the market
• the company plans to do business in several countries
• several founders participate in the creation of the brand
• design and content are created by external collaborators
• franchising, licensing or selling the brand is planned
• the brand should be an important part of the investment transaction
• there is a risk of objection or dispute
• the company is already using a name that it has not protected

The role of a lawyer is not only to react when a problem has already arisen.

The greatest value of legal support is to change the risky name, amend the contract or arrange ownership while such interventions are still simple and financially bearable.

Brand protection should be planned before launch

The most expensive moment for due diligence is after the name, packaging, website, advertising and reputation have already been built.

Then the change is no longer just a legal issue. It affects costs, customer relationships, online visibility and market confidence.

Complete legal protection of the brand usually includes:

• name check
• trademark registration
• regulated copyright
• control of domains and digital accounts
• trade secret protection
• clear contracts with founders, employees and collaborators
• monitoring possible injuries

The goal is not to eliminate all business risk, because that is not possible. The goal is to detect legally foreseeable problems before they become costly and difficult to resolve.

JP Law provides legal support in checking the legal suitability of marks, registering and protecting trademarks, drafting contracts with designers, employees and external collaborators, protecting trade secrets and resolving disputes in the field of intellectual property and unfair competition.

Pre-market due diligence can be simpler and more cost-effective than rebranding after launch.

Frequently asked questions

Does registering a business automatically protect a brand name?

No. Registering a business name in the APR and registering a trademark are different procedures. Registering a company does not automatically mean that the name is free for market use.

Can I use the name if the domain is free?

A free domain is not proof that the name is legally available. Prior trademarks, business names and market use of similar marks should be checked.

Is the logo automatically protected by copyright?

The original logo can enjoy copyright protection from creation. When it is created by an external collaborator, the contract should clearly regulate the company’s rights to its use, modification and registration.

Should the name, logo or both be registered?

It depends on how the brand is used. A verbal trademark protects a name, while a figurative trademark protects a concrete graphic solution. For more important brands, separate protection of both elements is often considered.

Can a business idea be protected?

A general business idea cannot usually be monopolized. Its specific elements can be protected by trademark, copyright, design, patent, trade secret or contract.

Is a trademark registered in Serbia valid abroad?

Not automatically. Trademark protection is territorial, so appropriate national, regional or international procedures must be considered for other markets.

What if someone already uses a similar name?

It is necessary to check whether earlier rights exist, for which goods or services the mark is used and whether there is a likelihood of confusion. The answer depends on all the circumstances of the specific case.

When should a trademark application be filed?

It is usually reasonable to consider the application after legal verification of the name, and before a public launch and major investment in packaging, marketing and distribution.

How to Reduce Payment and Debt-Collection Risks When Signing a Contract

The goods were delivered, the service was provided, and the invoice was duly issued. The deadline for payment has expired, but the money has not been paid. The business partner first asks for additional time, then stops responding, and finally begins to challenge the quality, quantity or scope of the work performed.

At that point, the creditor usually begins to consider a warning, a lawsuit, or collecting the claim through civil or enforcement proceedings. However, the payment problem did not arise only when the debt fell due. It arose earlier, when the job was accepted without a serious check of the partner, when the contract did not define the obligations precisely enough, or when appropriate security mechanisms were not agreed.

A good contract cannot guarantee that every debtor will pay. It can, however, significantly reduce the risk of non-payment, limit the possibility of subsequent debt disputes, facilitate the proof of claims and improve the creditor’s position if collection becomes compulsory.

Therefore, preventing a collection problem does not mean just predicting what will happen when the debtor is late. This means arranging the entire business relationship so that risks are recognized and limited before delivery of goods, performance of work or provision of services.

Business partner verification precedes the contract

Contractual protection begins before the contract is signed.

Before entering into a significant business relationship, it is necessary to check basic information about a potential partner. This includes checking registration, representative, status changes, publicly available financial reports and data on whether the business partner is in the record of debtors in enforced collection of the National Bank of Serbia.

Such a check does not provide a final assessment of solvency. However, it can indicate whether there are serious reasons for caution.

Special attention should be paid when a business partner:

• asks for an unusually long payment term
• refuses to provide basic business information
• does not want to offer a security instrument
• frequently changes business information, agents or affiliates
• insists on starting work without written documentation
• requests a new delivery even though previous obligations have not been settled

The fact that a company is formally registered does not prove that it has sufficient funds or assets to meet future obligations.

Checking partners is therefore not an expression of distrust, but part of responsible business risk management.

The subject of the contract must be precisely determined

One of the most common reasons why the debtor disputes the invoice is the claim that the goods, services or performed works did not correspond to the agreement.

Such an objection is much easier to raise when the contract contains only general wording, such as “providing consulting services”, “performing the agreed works” or “delivery of the required goods”.

The contract should specify:

• what exactly is delivered or executed
• in what quantity and scope
• according to which offer, specification or project
• within what time frame
• what quality standards should be met
• who is authorized to receive the goods or confirm execution
• how changes to the initial agreement are recorded

For more complex tenders, the technical specification, purchase order, project task or activity plan should be linked to the contract and clearly marked as its constituent parts.

For example, if “maintenance of the information system” is contracted, and it is not specified which services are included in the monthly fee, the client can later claim that additional interventions were already included in the price. If the scope of the service, the number of hours and the method of approving additional work are precisely regulated, the scope for such a dispute is significantly smaller.

The more specific the obligation, the less room there is to raise the question of what was actually contracted when the invoice is due.

The price and payment term must not remain undetermined

Formulations such as “payment upon completion of work”, “payment according to agreement” or “the price will be determined later” can create serious problems.

The contract should clearly determine the amount of the price or the method of its calculation. It should also be stated whether the price includes taxes, transportation costs, material, travel expenses and other related expenses.

Equally important is the exact payment term.

The contract may provide for:

• advance payment
• payment by completed stages
• payment in installments
• payment of a certain number of days from the issuance or receipt of the invoice
• payment after signing the minutes
• retention of part of the fee until the final handover

In the case of commercial transactions, the legal rules on payment deadlines should also be taken into account, because the contracting parties do not have complete freedom to set an indefinitely long payment deadline in any case. Particularly risky is the provision according to which the term begins to run “from the date of receipt of the invoice” if the contract does not specify how receipt is proven.

If the invoice is delivered electronically, the contract may specify the relevant electronic address, the person in charge of receipt and the moment when the invoice is considered to have been delivered. When regulations on electronic invoicing are applied to a specific relationship, the method of issuing and delivering invoices must be in accordance with those regulations.

Without clear proof of delivery of the bill, the debtor can claim that the payment term has not even started to run.

The contract must regulate the proof of performance

It is not enough for the creditor to fulfill his obligation. In the event of a dispute, he must be able to prove what he did, when and to what extent.

Depending on the type of work, evidence can be:

• signed delivery note
• handover record
• confirmation of the service performed
• work order
• construction situation
• report on the activities carried out
• signed specification
• electronic correspondence
• confirmation of receipt of goods
• proof of submission of documentation

The contract should determine who on the client’s side is authorized to confirm execution. Otherwise, it may happen that the document is signed by an employee whose authority is later contested by the other party.

For example, the goods may be properly delivered to the warehouse, but if the delivery note is not signed or it is not clear from it who received the goods, the customer can later dispute the delivery. The creditor then has to prove the execution through correspondence, witnesses, transport documents or other circumstantial evidence.

With services that do not leave a tangible result, it is especially important to agree on the method of reporting, approving individual stages and recording additional client requests.

Oral agreements may exist, but are much more difficult to prove. Therefore, any significant change in scope, price or deadline should be confirmed in writing.

Complaints should be settled before a dispute arises

If the contract does not regulate the complaint procedure, the client can claim that he is not satisfied with the quality of the work for the first time only after the invoice is due.

Therefore, the contract should specify:

• deadline for submission of objections
• the manner in which the objection is submitted
• information that the complaint must contain
• evidence supporting the deficiency
• the deadline for eliminating the justified deficiency
• the impact of the complaint on the undisputed part of the bill

The aim of such a clause is not to prevent a justified complaint, but to prevent unspecified and unjustified complaints from being used only as a way of delaying payment.

For example, if the client uses the supplied software solution for six weeks without complaint, and only after the invoice is due claims that it “does not work as expected”, a clearly agreed procedure for testing, handover and reporting defects can be of great evidentiary value.

However, the provisions on complaints must be adapted to the type of contract and harmonized with the law. It is not legally safe to simply state that the silence of the other party in every situation is considered a final acceptance of the work.

The legal effect depends on the nature of the work, the behavior of the contracting parties, relevant regulations and specific documentation.

Default interest and contractual penalty are not the same

These two institutes are often mistakenly equated in business contracts.

When the debtor is late with the fulfillment of the financial obligation, in addition to the principal, he also owes the statutory default interest, calculated from the day of the delay until the day of payment.

A contractual penalty has a different function. It can be contracted for failure to fulfill or irregular fulfillment of a non-monetary obligation, for example for delay in completion of works, delay in delivery or breach of confidentiality obligation.

According to the rules of the law of obligations, a contractual penalty cannot be contracted for a monetary obligation. This means that a provision that imposes an additional “penalty” on the debtor simply because he did not pay the bill on time may be legally unsustainable.

In the case of monetary obligations, protection is primarily achieved by default interest, appropriate security instrument, clearly agreed consequences of delay and timely response of the creditor.

Security Instruments Should Be Agreed in Time

The best time to ask for collateral is before the business starts, not after the debtor has already stopped paying.

The appropriate instrument depends on the value of the deal, the duration of the cooperation, the financial strength of the partners, the available assets and the negotiating position of the contracting parties.

Advance payment

The advance immediately reduces the amount that the creditor will have to collect later. It is especially justified with new clients, goods made to order, higher initial costs or jobs where the result cannot be sold to another customer.

However, an advance is not the same as a down payment. Their legal consequences are not equal, so the contract must clearly state the nature of the amount received.

Bill of exchange

A promissory note can provide the creditor with a more favorable procedural position and enable a more efficient initiation of enforcement proceedings for commercial claims if it is properly issued and if the supporting documentation is in order. Its value, however, is not unlimited.

A promissory note does not create property where none exists. If the debtor has no money in the accounts or other assets from which enforcement can be carried out, even a properly issued promissory note does not guarantee actual collection.

That’s why it’s important to check:

• who is the issuer of the bill
• who is authorized to sign it
• whether there is an appropriate bill of exchange authority
• to which obligation the promissory note refers
• under what conditions it can be filled
• whether there is a promissory note guarantor and what is his solvency

A promissory note should be part of a broader security strategy, not a substitute for due diligence.

Suretyship

With a surety, a third party undertakes to fulfill the obligation of the debtor under the conditions specified by the contract and the law.

A guarantee has real value only if the guarantor is financially capable. The guarantee of a business owner without assets or regular income may formally exist, but in practice it provides very limited protection.

That is why it is not enough to check only the main debtor. The person giving the surety should also be assessed.

It is especially important to precisely determine the scope of the guarantor’s obligation and to clarify whether it is an ordinary guarantee or a payer’s guarantee. In the case of ordinary suretyship, the creditor, as a rule, addresses the principal debtor first, while the paying guarantor answers to the creditor as the principal debtor. The difference directly affects the position of the creditor and the method of collection.

Bank guarantee

A bank guarantee can provide a high level of protection, especially for high-value transactions. Its advantage is that the bank assumes the obligation to pay, under the terms of the guarantee.

However, the guarantee increases the costs of the work and its practical value depends on precisely formulated billing conditions.

You should check carefully:

• the amount of the guarantee
• validity period
• requirements for submitting a request
• documentation to be submitted to the bank
• reasons for which the bank may reject the request

Pledge and mortgage

For larger claims, it is possible to consider security with a pledge on movable property, rights or claims, or a mortgage on real estate.

Before accepting such security, it is necessary to check ownership, existing encumbrances, the priority order of creditors and the real market value of the security object.

Assets that already serve as security for a number of creditors may have significantly less practical value than it appears at first glance.

Acknowledgment of debt

A written acknowledgment of debt can have significant probative value, especially if it clearly contains the basis, amount and maturity of the obligation.

It can also be important from the point of view of statute of limitations, because recognition of debt under legal conditions can lead to the termination of the statute of limitations and the beginning of its new course.

However, not every acknowledgment of debt is an automatically enforceable document.

Usually, the debtor’s signed statement can be strong evidence, but for the direct implementation of the execution, there must be a document that meets the requirements prescribed by law. The Law on Execution and Security governs which documents can be the basis for immediate execution.

Therefore, it is necessary to distinguish between:

• proof that the debt exists
• legal effect of acknowledgment of limitation
• the possibility of immediate initiation of enforcement proceedings

The mere wording in the contract that the document is an enforceable document is not sufficient if the legal requirements are not met.

Provide for Suspension of Performance and Early Maturity

Creditors often continue to deliver goods or provide services even when the partner is already in arrears. In this way, they try to save the client, but at the same time increase their own exposure.

The contract may provide for the creditor’s right to suspend further enforcement if the debtor:

• be late with payment for a certain number of days
• do not settle one or more installments
• fails to deliver the contracted security instrument
• exceeds the approved credit limit
• enters the blockade
• significantly worsen your financial position

When paying in installments, it is also possible to consider early maturity of the remaining debt if the debtor does not pay one or more due obligations.

Such clauses must be clearly written, proportionate and adapted to the nature of the specific business.

Limit the Amount of Outstanding Debt

Long-term cooperation often leads to loosening of internal control.

New deliveries are approved for the customer even though previous invoices have not been paid. The debt gradually grows, and the creditor practically becomes an informal creditor without proper risk analysis and adequate security.

The contract or internal business rules may determine:

• maximum amount of open debt
• maximum number of unpaid bills
• automatic suspension of new deliveries
• mandatory advance payment after the first serious delay
• periodic reconciliation of open items
• obligation to provide additional security instrument

A business relationship should not be terminated because of every short delay. However, continuing unlimited deliveries to a non-paying partner is not preserving cooperation, but rather taking on increasing risks.

Regulate Service of Notices and Jurisdiction Before a Dispute Arises

The contract should specify jurisdiction when such an agreement is permitted, as well as the addresses to which bills, notices and other notices are to be delivered.

It is important to edit:

• the address of the delivery seat
• relevant email addresses
• obligation to report data changes
• the person in charge of receiving documentation
• the moment when the notification is considered delivered

In the case of international business relations, it is necessary to additionally consider the applicable law, the competent court, the possibility of arbitration and the execution of the decision in another country.

Arbitration is not automatically better, faster or cheaper. Its justification depends on the value of the work, the international element and the complexity of the specific relationship.

The Most Common Mistakes That Make Collection More Difficult

The problem with billing usually does not arise because of one big mistake, but because of a series of smaller mistakes:

• the contract is signed by a person whose authorization has not been verified
• the subject of the contract is not described precisely enough
• the payment term is not clearly defined
• there is no proof of invoice delivery
• the delivery is not confirmed by the delivery note or record
• additional works are contracted orally
• there is no deadline for filing a complaint
• creditor continues deliveries despite accumulated debt
• bill of exchange is accepted without proper supporting documentation
• the guarantor’s financial capacity has not been verified
• collateral is required only after the debt has been incurred
• waiting too long to send the first warning

None of these errors necessarily precludes billing by itself. However, each one increases the scope for disputes, prolongs the procedure and weakens the creditor’s negotiating position. If the debt is already due, the next steps depend on the available documentation, the debtor’s financial situation and the choice of the appropriate procedure for collection of claims from the company.

Checklist before signing the contract

Before starting work, check:

Is the other contracting party properly identified and is the contract signed by an authorized person?

Are the goods, services or works described precisely enough?

Are the price, method of calculation and payment term clear?

Is there reliable proof of receipt?

How is it confirmed that the obligation has been duly fulfilled?

Who is authorized to sign the dispatch note, record or confirmation of execution?

In what period and in what way can the other party file a complaint?

What happens if the debtor is late with the payment?

Has a suitable security instrument been contracted?

When can the creditor suspend further deliveries and is there a maximum allowed amount of open debt?

Are the jurisdiction and method of delivery clearly regulated?

Payment Problems Should Be Prevented Before the Debt Falls Due

A quality contract is not an administrative formality or a document that should be opened only when a dispute arises. It is an instrument of business risk management.

A well-organized business relationship can significantly reduce the possibility that the debtor disputes the obligation, refers to unclear documentation or continues to increase the debt without consequences.

In order to prevent problems with billing, it is necessary to check the partner before the start of the work, precisely define the subject and the price, arrange the method of proof of execution, set clear deadlines and choose a security instrument that corresponds to the specific risk.

A generic contract form can rarely protect a seller of goods, a contractor, a consultant and a digital service provider equally well. The clauses should be adapted to the type of business, the value of the transaction, the method of payment, the debtor’s available assets and the real negotiating position of the contracting parties.

Therefore, legal verification of the contract before signing is usually simpler and cheaper than a subsequent attempt to collect a claim arising from an incomplete, unclear or inadequately secured contract.

A lawyer can help to recognize the risks of a specific business in advance, to adapt the contractual clauses to the actual business relationship and to choose a security instrument that has practical, not just formal, value.

Frequently asked questions

Does a well-drafted contract guarantee payment?

No. The contract cannot guarantee that the debtor will have funds or assets from which the creditor can be collected. It can, however, reduce risk, facilitate proof of debt and improve the creditor’s position in the collection process.

What is the best means of payment security?

There is no one best tool for every job. The choice depends on the value of the contract, the financial capacity of the partners, the duration of the cooperation, the available assets and the negotiating position of the parties.

Is the promissory note sufficient protection for the creditor?

Not necessarily. A promissory note may facilitate the initiation of enforcement proceedings, but it does not create an asset from which the debt can be collected. Its practical value depends on the correctness of the documentation and the actual ability of the debtor or promissory note guarantor to settle the obligation.

Can a contractual penalty be negotiated for late payment?

A contractual penalty cannot be agreed upon for non-fulfillment of a monetary obligation. In case of delay in payment, the rules on default interest and other permitted means of protection of the creditor are applied.

When should further deliveries to a late payment customer be suspended?

It depends on the contract, the duration of the delay, the amount of the debt and the risk assessment. When the partner exceeds the agreed limit, does not respect the agreed payment plan or there are signs of serious insolvency, continued deliveries without additional security may unjustifiably increase the creditor’s loss.

This text is informative and does not constitute legal advice for a specific business relationship.