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.

Probationary Employment in Serbia: How to Agree and Implement It Properly

The employer hires a new employee and states in the contract that the probationary period lasts six months. However, it has not been determined who monitors his work, what is expected of him, or on the basis of which criteria it will be concluded whether he has satisfied. A few months later, the immediate manager assesses that the employee is “not good enough” and proposes to terminate the employment relationship.

The problem is that a general impression, without concrete facts and a clear connection to the requirements of the workplace, can hardly be a reliable basis for making a decision.

Entering the term “probationary employment” in the employment contract is necessary, but not sufficient for good legal risk management. Probationary employment should be clearly agreed, meaningfully implemented and based on verifiable criteria.

At the same time, a probationary employee is not a person who works outside the labour law system. He has established an employment relationship and has rights that belong to other employees.

What Is Probationary Employment?

A probationary period is neither a separate type of employment nor an informal period preceding employment. It is a contractual arrangement during which the employer assesses whether the employee has the occupational and professional abilities required for the agreed duties.

According to the Labour Law of the Republic of Serbia, a probationary period can be contracted for the performance of one or more related, i.e., related jobs determined by the employment contract. It can last up to six months.

The employee realizes the rights and obligations from the employment relationship on the day of starting work, based on the previously concluded employment contract. During the trial period, he has the right to the contracted salary, application for mandatory social insurance, prescribed working hours, vacations, safe working conditions and protection against discrimination.

Probationary employment should be distinguished from:

• professional practices;
• internship work;
• professional training;
• volunteering;
• short practical checks in the candidate selection procedure;

work without a contract and registration.

The employer should not invite the candidate to perform regular work for a few days or weeks “to see how he works”, without a signed contract and application. When the candidate actually participates in the work process, executes orders and performs tasks for the needs of the employer, it is no longer just a question of candidate selection.

How to Properly Agree a Probationary Period

Probationary employment must be stipulated in the employment contract, which is why it is important for the employer to check beforehand what the employment contract should contain and whether the rights and obligations of both parties are sufficiently regulated.

. The employer cannot subsequently assume it because the employee is new, nor can he introduce it only by verbal agreement.

The contractual provision should clearly contain:

• the fact that the probationary employment is contracted;
• jobs for which contracts are made;

the period of its duration.

The law stipulates that the probationary period is linked to one or more related, i.e., related jobs determined by the contract. That is why it is not good to use vague formulations according to which the employee is checked for all tasks that the employer might entrust to him.

For the sake of greater legal certainty, it is advisable to arrange with a contract or an appropriate internal document:

• date of beginning and end of probationary employment;
• expected results;
• the person who monitors and evaluates the employee;
• basic assessment criteria;
• method of recording results;
• dynamics of providing feedback;

method of compiling the final grade.

These elements are not all expressly prescribed by Article 36 of the Labour Law as mandatory content of the contract. However, they can be very important if a dispute later arises as to whether the employee has demonstrated appropriate work and professional abilities.

When the method of monitoring a probationary period and the person responsible for evaluation are pre-arranged by the contract, rulebook or other act of the employer, the employer should act in accordance with those rules. Deviation from the predetermined procedure can lead to the illegality of the decision to terminate the employment relationship, as shown by the practice of the Supreme Court on the evaluation of an employee during a probationary period.

How Long Can a Probationary Period Last?

Probationary employment can last six months at most. This is the legal maximum, not the recommended duration in each case.

For simpler jobs, a shorter period may be sufficient. In the case of professional, complex or managerial jobs, it is justified to agree on a longer duration, but even then it cannot exceed six months.

The period must be clearly defined. The wording according to which the probationary period lasts “until the employer assesses that the employee is qualified” does not provide the necessary legal certainty.

A probationary period can be contracted for both fixed-term and indefinite-term employment. This is also confirmed by the Supreme Court’s decision on probation for fixed-term contracts.

In the case of fixed-term contracts, the relationship between the total duration of the employment relationship and the trial period should be taken into account. When both periods are of the same length, it should be carefully assessed whether such contracting is justified by the purpose of the probationary employment.

A probationary period may not last longer than six months. The subsequent extension of the contract annex is particularly risky when it compensates for the employer’s failure to evaluate the employee in a timely manner or when a new trial period is actually established for the same jobs.

How to Properly Conduct and Assess a Probationary Period

The purpose of the probationary period is not to allow the employer to arbitrarily terminate the employment relationship. Its purpose is to verify in real conditions whether the employee can successfully perform the contracted tasks.

Determine the expected results

Expectations should be adjusted to the specific workplace.

Knowledge of the offer, accuracy in billing and appropriate communication with customers can be expected from the seller. Accuracy, compliance with deadlines and knowledge of relevant regulations can be expected from the accountant. Organization of work, decision-making and team management can be expected from the manager.

Acquaint the employee with the criteria

An employee can hardly meet a standard that has not been communicated to him. That is why at the beginning he should receive a job description, expected results, relevant procedures and an explanation of how his work will be monitored.

Determine who monitors the work

An employee’s work can be monitored by a direct manager, mentor, director or a specially designated committee, depending on the size of the employer and the complexity of the work.

The most important thing is that it is clear who is responsible for monitoring and that this person has immediate insight into the employee’s work.

Give feedback

A probationary period should not be reduced to several months of silence, after which the employee learns for the first time that he was not satisfied.

Periodic feedback allows the employee to understand where there are gaps and what is expected of him. It is a good organizational practice, but it should not automatically be presented as a procedure that is expressly prescribed by law in every case.

In the case of dismissal during a trial period, the employer is not obliged to give the employee a special deadline for improving work, as in the case of certain other reasons for dismissal.

Record concrete results

Documentation may include:

• reports of the immediate manager;
• achieved and unachieved goals;
• data on quality and deadlines;
• results of expert checks;
• customer complaints;
• interview minutes;
• written instructions;

checklists.

The goal is not to create unnecessary bureaucracy, but to allow the decision to be based on facts and not on an afterthought.

Make a decision before the deadline

The employer should carry out an assessment before the end of the contracted trial period. Failure to make a timely assessment may preclude reliance on the special termination of employment regime for unsatisfactory probation results.

Termination during trial period

During the trial period, the employment contract can be canceled by both the employer and the employee.

The notice period cannot be shorter than five working days. When the employer gives notice, he is obliged to explain his decision.

An employee who cancels the contract during the trial period is not obliged to explain his decision.

When the employer gives notice, it is not enough to simply write that the employee “did not satisfy”. The solution should enable the employee to understand why his employment is terminated.

A good explanation states:

• what jobs the employee performed;
• who followed his work;
• what deficiencies have been identified;
• when and in what way they manifested;
• why they are important for a specific workplace;

on which data the rating is based.

In one case, the Supreme Court found illegal dismissal without specifically stated reasons, when the employer only stated that the contract was being canceled during the probationary period.

A probationary period does not abolish the prohibition of discrimination, nor does it enable dismissal due to the employee’s personal characteristics. The employer may not use it as a disguised reason for dismissal due to gender, pregnancy, medical condition, family status, union activity or other protected characteristic.

What happens after the trial period ends?

If the employee demonstrates appropriate work and professional abilities, he continues to work in accordance with the existing contract. It is not necessary to conclude a new contract just because the trial period has expired.

If, during the trial period, it was established that the employee did not demonstrate appropriate work and professional skills, his employment relationship ends on the day of expiry of the term specified in the employment contract.

This does not mean that the employer can wait for the last day and without any evaluation decide not to retain the employee. Termination is not based only on the passage of time, but on the determination that the employee has not demonstrated appropriate abilities during the contracted period.

This situation should be distinguished from dismissal before the end of the probationary period.

In case of cancellation before the end of the trial period:

• the employer makes a reasoned decision;
• gives the employee a notice period of at least five working days;

the employment relationship ends when the notice period expires.

In case of termination after the end of the trial period:

• it is previously determined that the employee has not demonstrated appropriate work and professional skills;
• the employment relationship ends on the day the period specified by the contract expires;

the notice period of five working days from the termination regime during the trial period does not apply.

Although Article 36 of the Labour Law binds the termination to the end of the contracted period, it is legally safer for the employer to provide the employee with a written document in which he will state that he did not demonstrate appropriate abilities and explain the facts on which that assessment is based.

Such a document enables the employee to understand the decision, and the court, if a dispute arises, to examine its legality. Judicial practice confirms the importance of a documented employee evaluation.

If the employment relationship is based on an indefinite period and the employee continues to work after the end of the trial period, the employment relationship continues according to the existing contract.

In the case of fixed-term contracts, the expiration of the trial period should be distinguished from the expiration of the contract itself. These are two different legal facts.

The most common mistakes of employers

Probationary employment is not specified in the contract

If the contract does not contain a provision on probationary employment, the employer cannot later refer to the special regime from Article 36 of the Labour Law.

The employee is tested without a contract or registration

Unpaid performance of regular work under the pretext of checking candidates exposes the employer to a serious labour law and misdemeanor risk.

No jobs specified

The probationary employment must be related to contracted related or related work. Vague wording makes it difficult to determine what was actually checked.

Probationary employment lasts longer than six months

Duration exceeding the legal maximum is not in accordance with the Labour Law.

There are no comprehensible criteria

The law does not prescribe a universal evaluation pattern. However, the complete absence of criteria makes it difficult to prove that the decision is based on real work results.

The decision is based on a subjective impression

Formulations like “he didn’t fit in” or “he’s not our type of person” do not represent sufficiently reliable criteria if they are not related to the specific requirements of the workplace.

The dismissal was not explained

The employer who cancels the contract before the end of the trial period has an explicit obligation to state the reasons for his decision.

The decision is made after the end of the trial period

An employer who has not monitored and evaluated the employee in a timely manner risks losing the opportunity to refer to an unsatisfactory probationary period.

A probationary period and fixed-term work are mixed

The expiration of the probationary period does not automatically mean the expiration of the fixed-term contract, nor does the expiration of the fixed-term contract represent an assessment that the employee did not satisfy the probationary period.

How an employee can protect his rights

Before signing the contract, the employee should check:

• for which jobs the probationary employment is contracted;
• how long it lasts;
• whether the employment relationship is for a fixed or indefinite period;
• what is the contracted salary;
• what is expected of him;
• who monitors and evaluates his work;

how the eventual termination of the employment relationship is regulated.

The employee should save a copy of the contract, annexes, job description, electronic correspondence, work reports and any act related to termination of employment.

If he believes that his right has been violated, he can seek judicial protection. As the deadlines in employment disputes are short, legal advice should be sought without delay.

Checklist for employers

Before starting the probationary period

Is the probationary employment expressly agreed upon?

Are the jobs it applies to listed?

Is the duration clearly defined and not longer than six months?

Is the employee registered in a timely manner?

Are goals and expectations set?

Is it known who monitors the employee’s work?

During the probationary period

Does the employee get clear tasks?

Are the criteria linked to the job description?

Is the work really tracked?

Are important results and omissions recorded?

Does the employee receive understandable feedback?

Are the criteria applied consistently and without discrimination?

Before making a decision

Was the assessment done before the end of the probationary period?

Is the decision based on concrete facts?

Is it clear who evaluated the employee’s performance?

Does the rationale explain the deficiencies identified?

Is there a period of at least five working days for cancellation before expiry?

Have the legal prohibitions against dismissal been checked?

Have all related incomes been calculated?

Frequently asked questions

How Long Can a Probationary Period Last?

Six months at most. The contract can provide for a shorter period.

Does the employee during the probationary period have to be registered?

Yes. The probationary employment is performed within the framework of the established employment relationship.

Is the probationary employment paid?

Yes. The employee has the right to wages and other rights from the employment relationship.

Can probationary employment be contracted for work for an indefinite period of time?

It can. A probationary period can be contracted for both fixed-term and indefinite-term employment.

Can an employer terminate a job without giving an explanation?

No. When the employer cancels the contract before the end of the trial period, he is obliged to state the reasons for the cancellation.

What is the notice period during the trial period?

It cannot be shorter than five working days.

Can the probationary period be extended?

It cannot last longer than six months. A subsequent extension is legally risky, especially when it tries to compensate for a missed assessment or re-introduce probation for the same jobs.

What if the employee continues to work after the probationary period ends?

If the employment relationship is based on an indefinite period, it continues according to the existing contract. In the case of fixed-term contracts, the expiry date of the contract itself should be checked separately.

Conclusion

A probationary period can be beneficial to both the employer and the employee. It allows the employer to check the professional and working abilities of the employee in real conditions, while the employee can get to know the workplace, the organization and the employer’s expectations.

In order to achieve its purpose, the probationary period must be clearly agreed, time-limited and implemented on the basis of criteria related to the specific workplace. When the employer decides to terminate the employment relationship, he must be able to explain who accompanied the employee, what was expected of him and on what facts the assessment that he did not demonstrate appropriate abilities was based.

It is especially important to distinguish the termination of the contract during the trial period from the termination of the employment relationship at the end of the contracted period. The exact same conditions and deadlines do not apply to these situations.

Due to the possible consequences of an improperly drafted contract or illegal termination of employment, it is advisable to check the contract documentation and the planned procedure before signing the contract or making a decision.

Essential Contracts Every Company in Serbia Should Have

Many business owners only start thinking seriously about contracts when a client fails to pay an invoice, a supplier is late with a delivery, an employee leaves for a competitor, or a conflict arises between business partners.

Then it often turns out that the contract was not concluded, that it was downloaded from the Internet, that the key obligations are not specified enough, or that the document does not correspond to the way the work is actually done.

The most important contracts that every company should have are not the same for every company. Their choice depends on the activity, business model, number of founders, employees, clients and suppliers, sales method, use of office space and type of assets or data that the company has.

A good contract does not guarantee that a dispute will never arise. Its value lies in the fact that it pre-arranges obligations, distributes risks and reduces the scope for different interpretations. The basic rules on the conclusion, effect, execution and termination of the contract are governed by the Law on Contracts and Torts.

Does every company have to have the same contracts?

There is no universal contract package that is equally suitable for a restaurant, a construction company, an IT company, a marketing agency and a retailer.

A company with no employees does not have the same needs as a company with fifty employees. The company that develops the software must more carefully arrange copyrights, licenses and access to the source code. A trader who does business with consumers must take into account consumer protection rules, while a manufacturing company will pay more attention to the quality of goods, delivery times and supplier responsibility.

That is why it is more useful to divide contracts into two groups:

• contracts that almost every company should consider
• contracts that depend on the activity, technology and specific business model

Contracts that almost every business should consider

Agreement between founders and business partners

The articles of association is the basic document of a business company, but it is often not sufficient to regulate in detail the real relations between the founders. Read more about the articles of association, director’s powers and legal risks in a multi-member company in the guide on founding an LLC in Serbia.

A special agreement between members of the company can specify:

• who makes key decisions
• what are the powers of the director
• how the profit is distributed
• what happens when additional investment is required
• under what conditions a member can leave the company
• how to solve the blockage in decision-making
• what happens in case of death, incapacity or breach of obligations of one partner

Such an agreement should be harmonized with the articles of incorporation and mandatory rules of corporate law. He primarily regulates the relations between his contractual parties and cannot independently change the legal position of the company towards third parties.

A typical mistake is relying on a verbal agreement between friends or relatives who start a business together. While the company is growing and operating successfully, such an agreement may seem sufficient. The problem arises when the partners no longer have the same interest or when one of them wants to sell his share.

That is why the relations between the members should be arranged while the cooperation is stable, and not only when the conflict has already arisen.

You can read more about this topic in the articles on establishing an LLC and regulating relations between partners in business.

Contracts with clients and customers

The contract with the client should clearly answer four basic questions:

• what the firm should do
• within what time frame
• at what price
• what happens if one party defaults

Formulations such as “marketing services”, “application development” or “business consulting” are often not sufficient without a description of the scope of work, terms and methods of acceptance of the performed service.

The document should specify the subject of the work, price, deadlines, method of payment, complaints, liability, termination and dispute resolution.

An example could be a company that contracts the creation of a website, but does not specify how many corrections are included in the price, who delivers the content and when the work is considered complete. Without these provisions, a simple business disagreement easily escalates into a dispute over additional work and payment.

Mutual compliance of contracts, offers, invoices and electronic communications deserves special attention. If the offer stipulates one term, the contract another, and the invoice a third payment terms, the company itself creates an ambiguity that will be difficult to explain later.

Related topics are the collection of claims from the company and the legal consequences of contract termination.

Contracts with suppliers

The business of the company often depends on the orderly and timely delivery of goods, materials, equipment or services.

That is why the contract with the supplier should not only contain the price and name of the product. It is necessary to specify quality, quantity, delivery time, receipt, complaints, responsibility for defects and consequences of delay.

The key questions are:

• which specifications the good or service must meet
• how quality control is performed
• how quickly the supplier must replace the defective goods
• what happens if the delay causes business disruption
• whether the company has the right to terminate due to repeated violations

A contractual penalty can be useful for non-monetary obligations, such as delays in delivery, completion of works or delivery of a certain result. It is not contracted for the obligation to pay the monetary debt itself, where the consequences of delay are regulated by other mechanisms, including default interest.

The biggest weakness of verbal agreements with suppliers is not always their legal validity, but proving the exact content of the agreement when a problem arises.

Employment contracts and labour law documentation

An employment contract is not a mere formality. It regulates the basic rights, obligations and responsibilities of the employee and the employer.

It is necessary to clearly define the type and description of jobs, place of work, duration of employment, working hours, salary, probationary employment and other issues relevant to the specific workplace.

Depending on the nature of the work, additional arrangements should be made:

• confidentiality
• use of equipment
• rights to work results
• prohibition of competition
• work from home and hybrid work
• responsibility for violation of work obligations

A company cannot replace every employment relationship with a work contract or a contract with an entrepreneur just because that model is simpler or cheaper. The legal name of the document is not decisive if the actual way of working has characteristics of an employment relationship.

In addition to the employment contract, the employer may be obliged to issue regulations, decisions, procedures and other internal acts. That is why labour law documentation should be viewed as a connected whole.

Additional explanations can be linked to texts on probationary employment, work from home and hybrid work and termination of employment contracts. The employment contract is only part of the wider documentation that the employer needs to harmonize, which is covered in more detail in the guide on labour law for employers in Serbia.

Contracts with external collaborators and consultants

An external collaborator can be hired for a specific project, professional service or specific result.

The document should clearly determine the scope of engagement, deadlines, remuneration, independence of collaborators, responsibility, confidentiality and rights to work results.

Special attention should be paid to situations in which a person formally works as an independent employee, but in practice has fixed working hours, works under direct supervision, uses mainly the client’s equipment and is integrated into his work organization.

Such circumstances do not automatically mean that there is an employment relationship, but they may increase the risk that the competent authorities or the court will qualify the relationship in a different legal or tax sense.

The practical rule is: the content of the contract must correspond to the actual way of cooperation.

Agreement on the lease of business premises

Renting office space often represents one of the company’s biggest long-term obligations.

The contract should specify the duration of the lease, rent, deposit, overhead costs, maintenance, adaptations, possibility of subletting, cancellation and return of space.

It is especially important to arrange the tenant’s investments. A firm that invests significant funds in a renovation should not leave it unclear whether it is entitled to compensation, equipment removal, or a lease period long enough to justify the investment.

You should also check whether the space can be used for a specific activity and whether it is possible to register the company headquarters at that address.

Contracts that depend on the activity and business model

Confidentiality Agreement

A non-disclosure agreement, or NDA, is useful when a company discloses non-public information of business value to another party.

These can be price lists, client lists, technical documentation, source code, business plans or content of negotiations.

An effective NDA should clearly state:

• what information is confidential
• for what purpose they can be used
• to whom they may be disclosed
• how long the commitment lasts
• what happens in case of injury

The overly broad wording according to which “everything is confidential forever” is not automatically the best solution. The provisions must be precise enough so that the parties know what is protected and what conduct constitutes an infringement.

Agreements on intellectual property

Paying a designer, developer, photographer or content author does not automatically mean that the business has acquired all the rights it needs.

The contract should clarify who has the right to use, modify, publish, reproduce or further assign the result of the work.

This is especially important with:

• software
• design
• photograph
• video and audio content
• website
• database
• brand and trademark

A company can, for example, pay for the creation of a visual identity, without the documentation regulating the right to change or use it in all media. Such an omission usually becomes apparent only when the firm wants to redesign materials or hire another contractor.

Related topics are Internet copyright and IP protection in the IT sector.

Software and IT services contracts

Almost every business depends on certain information systems, even when it does not deal with technology.

Contracts with developers, hosting providers and cloud service providers should regulate system availability, maintenance, data security, backups, support and incident reporting.

The exit scenario is especially important:

• whether the company can export its data
• who owns the technical documentation
• is there access to the source code
• how to migrate to another solution
• how long the supplier provides support after the end of the contract

A firm can become seriously dependent on a single supplier if it is not predetermined how the cooperation ends.

Personal data processing contracts

A firm may hire an accounting agency, hosting provider, cloud platform or email service to process data on its behalf.

In such relationships, the purpose of processing, types of data, protection measures, engagement of sub-processors, reporting of incidents and deletion or return of data after termination of cooperation should be defined.

A generic data protection clause is not sufficient if the role of each party is not clearly defined.

Before concluding the contract, the following questions should be answered:

• who determines the purpose of the processing
• who acts according to instructions
• whether the data is transferred to other persons
• whether the data is transferred to other countries

This part can naturally be linked to a separate text on the protection of personal data in business.

Agreements on loans and securing receivables

Loans between companies, founders or related persons should not be left at the level of informal money transfers.

The document should specify the amount, repayment term, interest if agreed, consequences of delay and security instrument.

Depending on the specific relationship, a guarantee, pledge, promissory note or other instruments can be used. If the debtor does not fulfill the obligation even after the due date, the importance of the contract and collateral becomes particularly visible in the enforcement proceedings for commercial claims.

Tax consequences should also be checked with related parties. The contract itself does not remove the tax risk if it does not correspond to the actual transaction.

Agreements with distributors, representatives and intermediaries

A company that sells products or services through other persons should clearly delineate their roles.

The most important questions are:

• territory
• exclusivity
• commission
• sales goals
• brand usage
• complaints
• prohibition of competition
• duration and termination of cooperation

In the case of international relations, the applicable law, the jurisdiction of the court or arbitration, the language of the contract, the currency of payment and the enforceability of the agreed mechanisms should be defined in particular.

This section can be linked to the text on choosing between arbitration and litigation.

General business conditions

A company that concludes a large number of similar deals can standardize part of the contractual relationship through general business conditions.

They may govern payment, delivery, complaints, liability and termination.

However, it is not enough just to publish them on the website. It is necessary to ensure that the other party is aware of them and that they are properly included in the specific contract.

In dealing with consumers, additional rules apply, and unclear or unfair terms can be problematic regardless of whether the company has included them in its terms and conditions.

Which contract should be arranged first?

The easiest way to determine priorities is for the company to look at where its greatest risk arises.

If the company has several founders, the priority is to arrange their relations.

If most of the revenue comes from providing services, the client contracts should be checked first.

If the company depends on one supplier, deadlines, quality, responsibility and continuity of delivery are the most important.

If there are employees, it is necessary to review the employment contracts and accompanying documents.

If you hire programmers, designers or authors, you should arrange the intellectual property.

If it uses cloud services or other external providers that process data, it is necessary to check data protection and the possibility of exiting the IT system.

This prioritization is more useful than downloading a large number of forms that may have nothing to do with the actual business of the company.

When an Existing Contract Should Be Reviewed

An existing document deserves legal review if:

• the work in practice is performed differently than described
• it is not clear when the service is considered complete
• it is not specified what happens in case of delay
• the same form is used for completely different clients
• the contract refers to attachments that do not exist
• termination and notice provisions are not applicable
• the contract uses concepts or legal institutes of another country
• certain clauses contradict each other
• rights to the results of the work are not clearly transferred or licensed
• the document has not been changed even though the company’s business model has changed significantly

A particularly serious warning sign exists when employees and managers in practice avoid applying the contract because its procedures are unclear or unsustainable.

Why a contract downloaded from the Internet is often not enough

A form from the Internet can serve as an initial checklist, but it can rarely fix a specific relationship without adaptation.

Such a document may:

• be based on the law of another country
• contain outdated provisions
• ignore the company’s activity
• miss key business risks
• contain contradictory clauses
• provide for an inappropriate way of resolving disputes

The problem is not that every pattern is useless. The problem arises when the document looks legally serious, but does not correspond to the actual business.

What should every business contract regulate?

Regardless of the type of contract, the company should check whether the document clearly regulates:

• contracting parties and authority of signatories
• subject and scope of obligations
• deadlines
• price and method of payment
• way of proving execution
• liability for delay and damage
• modifications and termination
• obligations remaining after termination
• delivery of notice
• governing law and dispute resolution

A good contract does not only describe how the cooperation should begin. It also regulates what happens when cooperation no longer works.

How often should a firm review contracts?

Contracts should be reviewed periodically, but also after every significant change in business.

An audit is especially important when a company:

• introduces a new service
• begins cooperation with a large client
• employs a large number of people
• introduces remote work
• enters the foreign market
• changes the ownership structure
• processes new types of data
• introduces new technology
• changes the price or sales policy

A contract may become invalid even when the law has not changed. It is enough to change the way the company operates.

Frequently asked questions

Can an oral agreement be legally binding?

It can, except when the law requires a special form for a specific contract. The biggest problem with an oral agreement is often not its validity, but proving its content.

Does the firm have to have a written contract with each client?

Not in any case. A contract can also be created by accepting an offer, exchanging e-mail or other behavior that shows the consent of the parties. In the case of more valuable and long-term jobs, a written contract significantly increases legal certainty.

Can the contract be concluded by e-mail?

As a rule, it can be done when the agreement on the essential elements of the contract clearly emerges from the communication, unless the law requires a special form for a specific legal transaction.

Does an electronically signed contract have legal effect?

Yes. An electronic signature can produce legal effect, but its probative force and suitability to meet the requirement of written form depend on the type of electronic signature and the specific legal transaction.

What is the difference between a contract and general business conditions?

An individual contract governs a specific relationship with a specific party. General terms and conditions contain standard rules for a number of similar relationships and must be properly incorporated into the specific business.

How long should a company keep contracts?

The deadline depends on the type of contract, tax and accounting obligations, limitation periods and special regulations. Contracts should not be automatically destroyed immediately after the termination of cooperation.

Can a contract limit a firm’s liability?

To a certain extent it can, but not unlimited. Permissibility depends on the type of liability, the nature of the injury, the position of the contracting parties and enforcement regulations.

When should you hire a lawyer to draft a contract?

When the business is of significant value, long-term, complex, international or associated with serious financial, labour law, technological or reputational risks.

Legal assistance is also useful when the company uses the same contract for a large number of clients, because then every mistake is repeated multiple times.

The most important contracts that any business should have depend on the actual business

The first step is not to draw up ten new contracts, but to review the relationships that the company already has.

The biggest risk is often not the complete absence of a document, but a discrepancy between what it says and how the work is actually done.

The company should therefore have a smaller number of high-quality, mutually harmonized and practically applicable contracts. The right contract is not one that just looks professional, but one that clearly regulates the business, allocates risks and provides an enforceable solution when a problem arises.

JP Law can help companies identify the contracts they really need, review existing documentation and adapt the contractual framework to their activity and business model.

This text is informative and does not represent legal advice for a specific case. The choice and content of the contract depend on the activity, business model and specific relations of the company.

Termination of an Employment Contract in Serbia: Lawful Procedure and Key Risks for Employers

Termination of an employment contract is one of the most legally sensitive decisions an employer can make. Even when there is a justified business reason or a serious breach by the employee, a dismissal decision may be annulled if the facts are not precisely established, the evidence is insufficient or the prescribed procedure has not been followed.

The lawfulness of termination therefore does not depend only on whether the employee breached an obligation or whether the need for the employee’s work has ceased. The employer must choose a legal ground that corresponds to the actual facts, collect evidence, observe deadlines and allow the employee to respond when the law requires it. Lawful regulation of termination of employment is only one part of the broader area of employment law for employers in Serbia, which also includes employment contracts, internal acts, records, salaries, leaves of absence and employment disputes.

In a potential dispute, the court examines the existence of the dismissal ground, the manner in which the decision was adopted, the content of the warning and the dismissal decision, and whether delivery was properly carried out.

Termination should therefore not be treated as an administrative confirmation of a decision already made, but as a legal procedure that must be verifiable on the basis of documentation.

When may an employer terminate an employment contract?

The Labor Law provides several grounds on which an employer may terminate an employee’s employment contract. The reason may relate to the employee’s abilities and work results, responsibility for breach of work duties, or the employer’s business needs.

These grounds are not interchangeable. Each of them has specific conditions, evidentiary requirements and prior steps.

The employer should therefore not choose the ground that seems simplest, but the one that corresponds to the established facts.

Failure to achieve work results and lack of required knowledge

An employer may consider termination if the employee does not achieve the required work results or lacks the knowledge and abilities needed to perform the job.

However, general dissatisfaction with the employee’s work is not enough. Phrases such as “does not meet expectations”, “is not sufficiently engaged” or “does not contribute to the team” do not show what exactly the employee was expected to do and where the employee failed.

The expected results should be known in advance, sufficiently specific and objectively achievable. The employer should take into account the job description, available resources, market circumstances and the employee’s authority.

For example, it is not enough to state that a sales employee failed to meet the sales plan. The employer should show what the plan was, when the employee was informed of it, whether it was achievable and which activities the employee failed to undertake.

Before termination based on deficiencies in work, the employee should receive a written notice describing the deficiencies, giving appropriate instructions and allowing a reasonable period for improvement. After that period expires, the employer must be able to compare the expected and achieved results.

It is important to distinguish poor work performance from breach of a work duty. An employee may make reasonable efforts and still fail to achieve a result due to circumstances beyond their control. Conversely, deliberate refusal of an instruction or neglect of duties may be a matter of the employee’s responsibility.

Breach of work duties and non-compliance with work discipline

A breach of work duties means a violation of an obligation prescribed by law, a general act or the employment contract. Non-compliance with work discipline includes conduct that is not in line with workplace rules or is of such nature that continuation of employment is no longer possible.

The employer must establish:

• what the employee did;
• when and where the event occurred;
• which obligation or rule was breached;
• what consequences arose;
• which evidence supports the allegations.

It is not enough to state that the employee showed an “irresponsible attitude toward work” or that there was a “loss of trust”. Such assessments must be linked to a specific event.

For example, instead of claiming that the employee handled business documentation irresponsibly, the employer should state which documentation was involved, when it was given to an unauthorized person, which rule was breached and which evidence confirms the event.

Not every mistake is sufficient reason for termination. The employer should consider the seriousness of the breach, the consequences, the employee’s previous conduct, the degree of responsibility and any mitigating circumstances.

Where the circumstances justify it, milder measures provided by law may be applied instead of termination.

Technological, economic and organizational changes

Termination is also possible when, due to technological, economic or organizational changes, the need to perform a certain job ceases or the required number of employees is reduced.

The change must be real and documented. It is not enough for the decision merely to state that a “business rationalization” has been carried out.

When a position is abolished completely, the employer should show what changed in the organization and why the work is no longer needed as a separate position.

When several employees perform the same work and only the number of employees is reduced, objective and verifiable criteria must be applied.

For example, if three employees perform the same duties and after reorganization only two are needed, the employer must explain which criteria were used for comparison and why a particular employee was declared redundant.

The criteria must not be adjusted afterwards to fit the selected employee. Their application must be documented so that the decision can be reviewed. The reality of organizational changes and the lawfulness of determining redundant employees were also considered in the decision of the Supreme Court Rev2 105/2021.

Redundancy must not serve as a substitute for a procedure that should be conducted because of the employee’s conduct or results. If the real reason is dissatisfaction with a particular employee, a formal reorganization will not necessarily protect the employer from a conclusion that rights were abused.

Before termination, the employer must pay the statutory severance payment. Where the statutory conditions regarding the number of redundant employees are met, a redundancy program must also be adopted.

Which procedure must precede termination?

There is no single procedure applicable to every termination. Breach of work duties, failure to achieve results and cessation of the need for certain work require different preliminary steps.

Still, several checks are important in almost every case.

Checking the legal ground and internal documentation

Before starting the procedure, the employer should verify whether the specific facts correspond to a statutory ground for termination. Employment law support may include checking contracts and internal acts, preparing the warning and dismissal decision, and assessing the risk of an employment dispute.

The employer should review:

1. the employment contract and annexes;
2. the work rules;
3. the rulebook on organization and systematization of jobs;
4. the collective agreement, if applicable;
5. the employee’s job description;
6. internal policies and procedures;
7. previous warnings, reports and evaluations;
8. decisions on reorganization or reduction of headcount.

It is particularly important to check whether the obligation allegedly breached by the employee was actually prescribed and whether the employee was aware of it.

An internal act cannot be amended retroactively in order to declare conduct that has already occurred a breach of work duty.

Establishing facts and collecting evidence

The employer must be ready to prove the facts on which the decision is based. A manager’s subjective impression, an assumption or an unverified report is usually not enough.

Relevant evidence may include:

• business electronic communication;
• working-time records;
• minutes and reports;
• business documentation;
• documented targets and work results;
• data from business systems;
• statements of persons with direct knowledge;
• documentation on organizational changes.

Evidence must be obtained lawfully. The use of electronic communication, video surveillance or data from business devices requires a check of privacy and personal data protection rules.

The fact that certain data technically exists does not automatically mean that it may be used without legal risk.

Warning the employee before termination

Before terminating employment due to breach of work duties or non-compliance with work discipline, the employer must warn the employee in writing of the existence of grounds for termination.

The warning should contain:

• the legal basis;
• a precise description of the event;
• the time, place and manner of the breach;
• relevant facts and evidence;
• the deadline for the employee’s response.

The employee must be given at least eight days from receipt of the warning to respond. The content of the warning and the sequence of procedural stages were also discussed in the decision of the Supreme Court Rev2 2834/2022.

The warning is not a notice that termination has already been finally decided. Its purpose is for the employee to understand what is alleged and to have a real opportunity to present a defence.

A statement that the employee “repeatedly breached work discipline in the previous period” is not sufficiently specific if concrete events are not listed. The employee cannot respond to an allegation whose scope and content cannot be identified.

Considering the employee’s response

The employer should wait until the given deadline expires and consider the employee’s response before adopting the dismissal decision.

This does not mean that the employer must accept the defence. However, if the employee presents facts that may change the assessment of the event, they should be checked.

Where the defence contains relevant assertions, it is useful to explain in the reasoning of the decision why they were not accepted.

Adopting the decision on termination

The employment contract is terminated by a written decision that must contain reasoning and instructions on legal remedy.

The decision should contain:

• the statutory and internal legal basis;
• precisely established facts;
• assessment of relevant evidence;
• comments on the employee’s material assertions;
• reasons why termination was applied;
• the date of termination of employment;
• instructions on legal protection.

The decision must not be based on new events or breaches about which the employee was not previously warned.

The factual basis of the warning and the decision must correspond. The employer may explain already stated facts in more detail, but should not add a new breach about which the employee had no opportunity to respond. The importance of the factual basis of the warning and the decision is also reflected in the decision of the Supreme Court of Cassation Rev2 1569/2018.

The decision must be adopted by the director or another duly authorized person.

Observing deadlines for termination

Special deadlines under the Labor Law apply to termination due to failure to achieve work results or lack of required knowledge and abilities, as well as to termination due to breach of work duties or non-compliance with work discipline.

On these grounds, the employer may terminate employment within six months from the day it became aware of the facts constituting the ground for termination, and no later than one year from the occurrence of those facts.

These deadlines should not automatically be applied to every other ground for termination, such as redundancy, for which different substantive and procedural conditions apply.

It is important to document when the competent person at the employer became aware of the relevant event. Prolonged informal investigation or tolerance of a known breach may lead to expiry of the deadline.

Delivery of the dismissal decision to the employee

The decision is delivered to the employee personally, at the employer’s premises or at the employee’s registered residence or place of stay.

If such delivery is not possible, the employer prepares a written note on the attempted delivery. The decision is then posted on the employer’s notice board and is deemed delivered after eight days from posting.

The warning before termination is delivered in the same manner.

Evidence of delivery attempts should be kept, including return receipts, official notes and information on posting.

Improper delivery may call into question the date of termination of employment and the lawfulness of the procedure.

Most common mistakes employers make when terminating employment

1. The dismissal ground is formulated vaguely

Allegations of unprofessionalism, negligence or loss of trust are not enough without a description of specific events. The consequence may be a conclusion that the employee was not given an opportunity to defend themselves or that the stated reason cannot be judicially reviewed.

2. There is no proper legal basis

A problem arises when the employer relies on an obligation that is not prescribed by law, contract or a valid general act. Before starting the procedure, the content and validity period of the acts on which the decision will rely should be checked.

3. The decision is based on assumptions

Suspicion or a manager’s subjective assessment is not the same as evidence. Evidence should be collected before sending the warning so that the employee can respond to the facts on which the procedure is actually based.

4. The warning is merely formal

A warning that repeats statutory wording but does not describe a specific event does not allow an effective defence and may lead to annulment of the decision.

5. The statutory response deadline was not given

Adopting the decision before expiry of at least eight days from delivery of the warning is a serious procedural risk.

6. New facts appear in the decision

The employee must have an opportunity to respond to the events on which termination is based. A new breach cannot appear for the first time in the final decision.

7. Termination deadlines were missed

If the employer waits too long after becoming aware of the facts constituting the ground for termination, it may lose the possibility to rely on them.

8. Poor performance and employee fault are confused

Failure to achieve a result does not automatically mean that the employee culpably breached a work duty. Incorrect legal qualification may make the decision unlawful.

9. Redundancy is not genuinely explained

A general statement on rationalization is not enough. A documented organizational change is required, and where employees are compared, verifiable criteria must be applied.

10. Special protection of the employee was not checked

Before adopting the decision, the employer must check whether the employee is on protected leave, has the status of a trade union representative or whether other circumstances restrict termination.

11. Severance was not paid before termination

Where employment ends due to cessation of the need for work, statutory severance must be paid before termination. Later payment may not remove the initial unlawfulness.

12. The decision was not properly delivered

An employee’s refusal to receive the document does not mean that the employer may skip the statutory delivery procedure.

When may an employer not terminate employment?

It is necessary to distinguish:

• a circumstance that must not be the reason for termination;
• a period in which the employee enjoys special protection;
• the existence of another ground for termination that is not related to the protected status or exercise of a right.

Temporary inability to work due to illness is not in itself a justified reason for termination. This, however, does not mean that sick leave automatically removes every other statutory ground for termination.

If the employee committed a serious breach of work duty before going on sick leave, the sick leave does not erase that event. The employer must nevertheless prove especially carefully that the decision is not connected with the employee’s health condition.

A procedure started immediately after sick leave begins may carry increased evidentiary and reputational risk. The employer should document when it learned of the breach, when the internal check began and why the procedure was initiated.

During pregnancy, maternity leave, childcare leave and special childcare leave, the employee enjoys special statutory protection. If employment was concluded for a fixed term, its duration is extended until the expiry of the relevant leave.

Special attention is also required for trade union representatives and employees participating in trade union activities. Union membership or lawful union activity must not be a reason for termination.

The same applies where the employee contacted an inspection authority, court or other competent body, reported irregularities or sought protection from discrimination or workplace harassment. Termination must not be retaliation for exercising a statutory right.

Formally stating a neutral reason will not protect the employer if the sequence of events, communication or other documentation shows that the real motive was discrimination or retaliation.

What consequences may unlawful termination have?

The consequences of unlawful termination may be divided into several groups.

Employment-law consequences

The court may annul the dismissal decision and, where statutory conditions are met, order the employer to reinstate the employee.

Financial consequences

The employer may be required to pay lost salary compensation and the corresponding taxes and contributions.

In certain situations, damages may be awarded instead of reinstatement. The law also specifically regulates the case where there was a ground for termination, but the employer breached the prescribed procedure.

Costs of proceedings

An employment dispute may involve attorney fees, expert-witness costs and court costs. Financial exposure increases with the duration of the dispute and the period for which the employee claims lost salary.

Organizational and reputational consequences

An annulled dismissal may disrupt work organization, especially if the position has meanwhile been filled or a reorganization has been carried out.

The dispute may also negatively affect trust among other employees, team relations and the employer’s reputation on the labor market.

Practical checklist before adopting a decision

Before signing the decision, the employer should check:

1. Is there a clear statutory ground for termination?
2. Does that ground correspond to the actual facts?
3. Is it supported by the contract and valid internal acts?
4. Have the facts been precisely established?
5. Is there lawfully obtained evidence?
6. Is the appropriate procedure applied for the specific ground?
7. Is the warning sufficiently specific?
8. Was the employee given the full response deadline?
9. Were the employee’s statements considered?
10. Do the facts from the warning and the decision correspond?
11. Were the termination deadlines observed?
12. Does the employee enjoy special protection?
13. Is the decision adopted by an authorized person?
14. Does the decision contain complete reasoning and instructions on legal remedy?
15. Has proper delivery been prepared?
16. Have all obligations toward the employee been calculated?

An unclear or negative answer to any of these questions is a reason to check the procedure further before making the final decision.

When is legal support needed?

Legal review is especially important when:

• the employee disputes the facts;
• the employee claims discrimination or harassment;
• the employee is on sick leave or protected leave;
• termination is based on failure to achieve results;
• several employees perform the same work;
• a reorganization is being implemented;
• there is an obligation to adopt a redundancy program;
• internal acts are not updated;
• the procedure involves a manager or a person with access to confidential data;
• a court or inspection procedure has already been announced.

Legal support is not important only when a dispute has already arisen. Its greatest value is often in preventive review of the legal ground, evidence, deadlines, warning and draft decision.

JP Law supports employers in assessing dismissal grounds, preparing the necessary documentation and conducting the procedure, as well as in representation in employment disputes.

Conclusion

Lawful termination of an employment contract requires a justified and provable reason, an appropriate procedure and precise documentation.

The greatest risk arises when the employer first decides that employment should end and only then tries to find an appropriate legal ground. This approach often leads to a vague warning, incorrect qualification of the dismissal ground or incomplete reasoning.

Before starting the procedure, the employer should check the employment contract, internal acts, evidence, deadlines and any special protection of the employee.

JP Law can help employers assess legal risk, prepare the warning and dismissal decision, and conduct the procedure in accordance with the Labor Law. For an assessment of a specific case, you may contact the JP Law legal team.

Frequently asked questions about termination of employment

Can an employer give immediate termination to an employee?

It depends on the reason. In cases of breach of work duties and non-compliance with work discipline, termination is preceded by a written warning and a response deadline. Other grounds have different prior conditions.

Is a warning before termination always mandatory?

No. A warning is mandatory for termination due to breach of work duties and non-compliance with work discipline. For failure to achieve work results, a separate procedure applies, including notice of deficiencies and a period for improvement.

How much time does the employee have to respond to the warning?

The employer must give the employee at least eight days from delivery of the warning.

Can an employee be dismissed while on sick leave?

Sick leave is not in itself a reason for termination, but it does not automatically exclude every other reason that arose independently of the health condition. Such a case requires particularly careful verification of facts and the real motive of the decision.

What if the employee refuses to receive the decision?

Refusal to receive the document does not stop the delivery procedure. The employer must document the attempted delivery and proceed in the manner prescribed by the Labor Law.

What are the consequences of unlawful termination?

Possible consequences include annulment of the decision, reinstatement, payment of lost salary, payment of taxes and contributions, damages and costs of proceedings.

Do poor work results automatically justify termination?

No. The employer must show that expectations were known and achievable, that the employee was warned of deficiencies and that a reasonable period for improvement was given.

May an employer hire another person after declaring an employee redundant?

The employer may not hire another person for the same job within three months from termination of employment. If the need for that work arises earlier, priority belongs to the employee whose employment ended.

LLC or sole entrepreneur in Serbia: which legal form is better for your business?

The choice between an LLC and a sole entrepreneur is often made based on the monthly amount of taxes and social contributions. The problem appears when the first serious debt, a new business partner or an interested investor shows that the legal form does not match the way the business is actually developing.

A sole entrepreneur usually means simpler operations and fewer administrative obligations. An LLC allows clearer separation between business and personal assets, regulation of relations between several owners and easier entry of investors. However, none of these advantages makes one form universally better.

The answer depends on the type of activity, business risk, use of profit, number of founders and planned development of the business.

Why the choice between an LLC and a sole entrepreneur is not only a tax issue

Tax burden is an important criterion, but it is not the only consequence of choosing a legal form.

Before registration, it is necessary to consider:

• who is liable for business debts
• who owns the assets used in the business
• how the owner may use the earned money
• whether the business is started by one person or several partners
• whether employment is planned
• whether an investor may later enter the business
• whether profit will be withdrawn or retained in the business
• whether the activity carries a risk of larger contractual obligations or damages
• whether a sale or transfer of the business is planned

A form that is suitable for an independent consultant does not necessarily suit a company that employs workers, purchases goods on deferred payment terms or concludes high-value contracts.

The lowest initial cost is therefore not necessarily the best long-term solution.

What it means to operate as a sole entrepreneur

A sole entrepreneur is a legally capable natural person who performs an activity for income and is registered in accordance with the law. Information on the documentation and procedure for registering a sole entrepreneur is available on the website of the Serbian Business Registers Agency.

A sole entrepreneurial business is not a separate legal entity distinct from the individual who performs the activity. The entrepreneur acts in business under a registered business name, but the same natural person still stands behind the business.

This model is often practical when the business is run by one person, there are no other owners, the business risk is limited and no imminent investor entry is planned.

A sole entrepreneur may employ workers, engage associates, register separate business units and appoint a business manager. Once a sole entrepreneur or an LLC becomes an employer, contracts, internal acts and procedures must be aligned with the rules governing labour law for employers in Serbia.

Depending on the legal conditions and the selected tax regime, a sole entrepreneur may operate as:

• a lump-sum taxed sole entrepreneur
• a sole entrepreneur keeping business books
• a sole entrepreneur keeping books who has opted for payment of personal salary

A lump-sum taxpayer is not a separate legal form. It is a sole entrepreneur whose tax liability is determined according to the rules of lump-sum taxation.

A sole entrepreneur with personal salary is also not a different type of business entity. Opting for personal salary changes the way tax and contributions are calculated, but it does not change legal status or liability toward creditors.

Lump-sum taxation is not available to all activities and all entrepreneurs. Before registration, it should be checked whether the specific activity and planned scope of business meet the legal conditions.

How a sole entrepreneur is liable for business obligations

The most important legal consequence of operating as a sole entrepreneur is personal liability.

A sole entrepreneur is liable for obligations arising in connection with the activity with all of their assets. Liability is not limited only to money in the business account, equipment or other assets directly used for work. This rule is set out in the Serbian Company Law.

As a rule, liability does not cease even after the entrepreneur is deleted from the register.

The practical significance of this rule depends on the activity. The risk is not the same for a professional providing consulting services without employees and for an entrepreneur who takes loans, purchases goods on deferred payment or performs an activity where a mistake may cause substantial material damage.

Administrative simplicity should therefore be considered together with the scope of personal risk assumed by the owner.

What it means to operate through an LLC

A limited liability company is a company with legal personality separate from its members.

An LLC has its own rights, obligations and assets. It concludes contracts in its own name and is primarily liable for its obligations with its own assets.

The company may have one or more members. A member holds a share in the company, while the director represents the company and manages its affairs within the limits of authority. An employee works on the basis of an appropriate legal ground.

The same person may be the sole member, director and employee of the company, but these roles should not be confused. Each creates different rights, obligations and tax consequences.

Setting up an LLC requires more formalities than registering a sole entrepreneur. It is necessary to adopt a founding act, regulate company management and comply with accounting, registration and corporate obligations.

This complexity allows clearer regulation of ownership, management, liability and relations between several members.

Is an LLC owner liable for company debts?

As a rule, a member of an LLC is not personally liable for the company’s obligations merely because they own a share. The company is liable for debts with its own assets.

However, limited liability is not absolute.

Personal liability may arise when a member abuses the company’s legal personality, uses company assets as private assets, acts with the intention of harming creditors or undertakes other actions recognised by law as abuse of limited liability.

Separately, a director may be liable for breach of statutory duties. Personal liability may also arise when the owner or director provides a guarantee for a loan or another obligation of the company.

An LLC therefore provides a higher level of legal separation between business and personal risk, but it does not protect against the consequences of personal guarantees, unlawful conduct or abuse of the company.

LLC money is not the owner’s private money

One of the most important practical differences between an LLC and a sole entrepreneur concerns the use of money.

Funds in an LLC account belong to the company. A company member cannot use them as private money simply because they are the sole owner.

Payment to the owner or director must have an appropriate legal and tax basis. This may include:

• salary
• director’s remuneration
• reimbursement of documented business expenses
• distribution of profit, i.e. dividends
• a loan under legally permitted and properly documented terms
• another appropriate basis

Each of these forms of payment has separate legal, tax and accounting consequences.

With a sole entrepreneur, there is no identical legal separation between the individual and the business entity. Nevertheless, a sole entrepreneur must also comply with tax, accounting and payment transaction rules.

Key differences between an LLC and a sole entrepreneur

Number of owners and ownership structure

Sole entrepreneurial activity is tied to one natural person. Another person may be an employee, manager or associate, but cannot acquire an ownership percentage in the sole entrepreneurial business.

An LLC may have one or more members. Their shares, voting rights and decision-making rules are governed by law, the founding act and, where necessary, a separate members’ agreement.

For that reason, an LLC is usually more suitable when the business is started by several partners.

Business management

A sole entrepreneur makes business decisions independently. In an LLC there are company bodies, more formal decision-making procedures and clearer separation of ownership and management functions.

This difference becomes especially important when not all owners are involved in day-to-day business management.

Investor entry

An investor cannot simply purchase a specific percentage of a sole entrepreneurial business.

In an LLC, investment can be structured through acquisition or transfer of shares, increase of share capital, member loans or other appropriate mechanisms.

For this reason, an LLC is a more suitable framework for start-ups, joint ventures and businesses planning external investments. Before investing, an investor will often conduct due diligence in Serbia to check ownership, contracts, obligations, permits and legal risks of the company.

Transfer or sale of the business

A sole entrepreneur’s business is directly linked to the natural person. The transfer of individual assets, contracts, employees and other business elements may require several separate legal steps.

In an LLC, ownership can be changed by transferring shares, subject to statutory and contractual restrictions. This enables a change of owner without the company losing its legal personality.

Special permits and conditions for performing an activity

The choice of legal form may also depend on special regulations governing the specific activity.

Certain businesses may require licences, consents, professional qualifications, minimum technical conditions or a specific organisational form. Registration with the Serbian Business Registers Agency does not by itself mean that all conditions for starting work are met.

Before choosing between an LLC and a sole entrepreneur, sector-specific regulations applicable to the activity should therefore also be checked.

Termination of business

Deleting a sole entrepreneur from the register is usually simpler than terminating an LLC. The termination of a company may require liquidation, compulsory liquidation, bankruptcy or an appropriate status change.

Simpler closure of a sole entrepreneur does not mean that previously incurred debts cease upon deletion from the register.

Tax differences between a sole entrepreneur and an LLC

Tax efficiency cannot be assessed by comparing only one tax rate.

For a sole entrepreneur, the overall result depends on whether they operate under lump-sum taxation, keep business books or have opted for payment of personal salary. Revenue level, recognised expenses, contributions, activity and VAT status are also important.

For an LLC, the company pays corporate income tax on taxable profit. However, company profit is not automatically private income of its member. If profit is paid to a natural person as a dividend, that payment has additional tax consequences. Salary, director’s remuneration and other payment bases have different treatment.

Imagine two businesses with approximately the same revenue.

The owner of the first needs almost all available money for personal spending. The owner of the second leaves most profit in the business for employment, equipment and further expansion.

Although they have similar revenue, the same legal and tax model may not suit them. It is important how much money remains in the business, how much is paid to the owner, on what basis it is paid and what expenses the business can recognise.

The comparison should therefore include:

• expected income and expenses
• taxes and contributions
• amount needed by the owner for personal spending
• planned reinvestment of profit
• method of engagement of the owner or director
• accounting and administrative costs
• VAT status
• possibility of using tax incentives

An individual calculation should be prepared before registration and reviewed again when the business model changes significantly.

The independence test and the choice of legal form

The independence test may be important for sole entrepreneurs who earn most of their income from one client.

Based on several statutory criteria, it assesses whether the relationship represents independent business or, by its characteristics, more closely resembles employment. The number of clients is not the only factor; the actual organisation and performance of work are decisive.

This issue should be checked particularly in long-term engagements in IT, consulting, marketing and similar service activities.

However, setting up an LLC should not be viewed as an automatic answer to every concern about independence. The specific contractual relationship, work model and overall consequences of changing the business form must be analysed.

When a sole entrepreneur is usually more practical

A sole entrepreneur may be a rational choice when:

• the business is run by one person
• there is no need for other owners
• the activity carries relatively low contractual and financial risk
• no imminent investor entry is planned
• large loans and other significant obligations are not being assumed
• administrative simplicity is particularly important
• the conditions for an appropriate tax regime exist
• the relationship with clients has the characteristics of genuinely independent business

A sole entrepreneur may have employees and a developed business. Still, as obligations and contract values grow, the importance of personal liability also grows.

When an LLC is usually the better choice

An LLC is often more suitable when:

• the business is started by several founders
• ownership and management relations need to be regulated
• investor entry is planned
• higher-value contracts are concluded
• the activity carries a higher risk of debts or damages
• a larger number of people is employed
• a significant part of profit remains in the business
• the business works with large domestic or foreign partners
• transfer of shares or sale of the company is planned
• the business needs to exist independently of one natural person

Business size is not the only criterion. Even a small business may have a reason to operate as an LLC if the type of activity carries significant legal or financial risk.

Is an LLC always safer and a sole entrepreneur always cheaper?

An LLC usually provides a higher level of separation between business and personal assets. However, protection does not cover personal guarantees, abuse of the company or unlawful conduct by the owner or director.

A sole entrepreneur often has simpler administration, but is not necessarily cheaper in every situation. Total cost depends on the tax regime, income and expenses, contributions, use of money and business development.

A wrong choice may become visible only when a partner needs to be included, contracts transferred, an investor attracted or personal risk separated from the growing obligations of the business.

Therefore, it is not enough to ask which form currently costs less. It is necessary to assess which form can support the next phase of business development.

Can a sole entrepreneur later continue business as an LLC?

A sole entrepreneur may decide to continue performing the activity in the form of a company, through the procedure prescribed by law and registration rules.

This is not merely a change of name.

Before the procedure is carried out, the following should be analysed:

• existing contracts with clients and suppliers
• receivables and debts
• employees
• loans, guarantees and other security instruments
• ownership of equipment and other assets
• licences and permits
• VAT and other tax obligations
• business accounts
• trademark, domain, software and other intellectual property rights

A company registered for the purpose of continuing the activity of a sole entrepreneur assumes the entrepreneur’s rights and obligations in accordance with the Company Law, while the natural person remains personally liable for obligations incurred until the entrepreneur is deleted from the register.

The transition should therefore be legally and tax prepared, not reduced to filing a registration application.

Five questions before choosing a legal form

1. How much risk does the activity carry?

The greater the possible obligations toward clients, banks, employees and suppliers, the more important it is to consider separating business and personal assets.

2. Will the business have one or more owners?

Sole entrepreneurial activity has one holder. For joint ownership and regulation of relations between partners, the form of a company is usually needed.

3. Is an investment or sale of the business planned?

Investor entry and transfer of ownership share are structured much more simply through an LLC.

4. How will the earned profit be used?

It is necessary to assess how much money the owner withdraws for personal needs and how much remains in the business for investment and growth.

5. Does simpler administration fit the long-term plan?

A simpler model may be sufficient at the beginning, but the costs and legal consequences of later reorganisation should be taken into account.

LLC or sole entrepreneur: how to make the decision

A sole entrepreneur often suits an independent service activity with one owner, limited business risk and no planned investor entry.

An LLC is usually more appropriate for a business with several founders, significant contracts, employees, investors or greater risk of debts and damages.

However, turnover or number of employees alone do not provide the final answer. Two businesses of similar size may require different structures because of different contracts, risks, financing methods and owners’ plans.

The decision should therefore be based on a legal and tax analysis of the specific model, not on a general rule that one form is always more favourable.

How JP Law can help

JP Law supports domestic and foreign founders with:

• choosing a legal form that matches the business model
• registering a sole entrepreneur and incorporating an LLC
• drafting the founding act and regulating relations between members
• defining the powers and responsibilities of directors
• continuing the activity of a sole entrepreneur in the form of a company
• legal coordination with tax and accounting advisers

Before registration, it is necessary to check whether the selected form matches the risks, ownership structure, use of profit and planned development of the business.

Frequently asked questions

Is it better to open an LLC or register as a sole entrepreneur?

A sole entrepreneur is often more practical for a simpler business with one owner and limited risk. An LLC is usually more suitable when there are several owners, larger obligations, employees, investors or a need to separate business and personal assets.

Is a sole entrepreneur personally liable?

Yes. A sole entrepreneur is liable for obligations arising in connection with the activity with all of their assets. Liability does not automatically cease upon deletion from the register.

Is an LLC owner liable for company debts?

As a rule, an LLC member is not personally liable for company debts. Exceptions may exist in cases of abuse of legal personality, personal guarantees or another statutory basis.

Can a sole entrepreneur have employees?

Yes. A sole entrepreneur has the status of an employer and may conclude employment contracts with employees.

Is a lump-sum taxpayer the same as a sole entrepreneur?

A lump-sum taxpayer is a sole entrepreneur whose tax is determined according to the rules of lump-sum taxation. Lump-sum taxation is a tax regime, not a separate legal form.

How can an LLC owner legally withdraw money?

Payment must have an appropriate legal basis, such as salary, director’s remuneration, dividend, reimbursement of documented expenses or another lawful and properly documented basis.

When does it make sense to switch from a sole entrepreneur to an LLC?

The change should be considered when contract values and business risk grow, when partners or investors are included, when employment becomes more significant or when clearer separation between business and personal assets is needed.

Can a foreign citizen set up an LLC or register as a sole entrepreneur in Serbia?

A foreign citizen may be a member of an LLC or register as a sole entrepreneur under the statutory conditions. In addition to registration, residence, right to work, tax status, beneficial ownership and opening of a business bank account should be checked.

Arbitration or Court Litigation: What Is Better for Business Contracts

A single unclear sentence at the end of a business contract may force a company to spend months, and significant costs, first proving who is even competent to resolve the dispute.

A dispute resolution clause is therefore not an administrative add-on to be copied from a previous contract. It may determine the place and language of the proceedings, costs, the possibility of appeal, protection of confidential information and, ultimately, the possibility of collecting a claim.

When the question is arbitration or court litigation, there is no answer that fits every business relationship. Arbitration may be a rational choice for a large international contract, but an unnecessarily expensive mechanism for a lower-value domestic dispute.

The decision should therefore be made during contract negotiation and drafting, while the parties are still willing to regulate risks together. Once a dispute has already arisen, reaching a subsequent agreement is usually much harder.

Why the dispute resolution method should be determined before signing the contract

Contracting parties usually devote most of their attention to price, deadlines, liability and termination rights. The dispute resolution clause is left until the end, although it determines what happens when the other contractual provisions no longer work.

The choice between arbitration and court affects:

• the authority that will decide the dispute;
• the place and language of the proceedings;
• procedural rules;
• costs of representation and decision-making;
• the possibility of appeal;
• availability of interim measures;
• recognition and enforcement of the decision.

In international contracts, it is necessary to distinguish the law governing the contract from the place and method of dispute resolution. For example, a contract may be governed by Serbian law, while the dispute is resolved by arbitration seated in another country.

For that reason, the dispute resolution clause must be aligned with the rest of the contract, the countries in which the parties operate and the places where their assets are located.

What is arbitration in business disputes

Arbitration is a method of dispute resolution in which the decision is not made by a state court, but by a sole arbitrator or an arbitral tribunal whose jurisdiction is based on the parties’ agreement.

Under the Serbian Arbitration Act, arbitration may be used for property disputes concerning rights that the parties may freely dispose of, except for disputes for which the exclusive jurisdiction of a state court is prescribed.

Consent to arbitration is most often expressed through an arbitration clause in a business contract. The parties may also conclude an arbitration agreement after the dispute has arisen, but at that stage agreement is usually more difficult to reach.

Arbitration may be institutional or ad hoc.

In institutional arbitration, the proceedings are administered by the chosen arbitral institution under its rules. In Serbia, the parties may, among other options, agree to proceedings before the Permanent Arbitration at the Chamber of Commerce and Industry of Serbia, conducted under its Rules of the Permanent Arbitration. In ad hoc arbitration, there is no institution administering the case; instead, the parties and arbitrators organize the proceedings themselves, often relying on pre-selected arbitration rules.

The parties may regulate the number and method of appointing arbitrators, the seat of arbitration, the language of the proceedings and procedural rules. This flexibility is one of the main advantages of arbitration, but also the reason why the arbitration clause must be precise.

How a business dispute is resolved before a state court

If the parties have not validly agreed on arbitration, the dispute is resolved before the competent state court, in accordance with statutory rules on subject-matter, territorial and international jurisdiction.

Unlike arbitration, the parties do not choose the judges and cannot significantly shape the procedure. The procedure is regulated by law, which provides a predictable procedural framework, but leaves less room for adapting the process to the specific business relationship.

A court decision is generally subject to review through legal remedies. This may prolong the dispute, but also enables a higher court to review the first-instance decision.

A state court has direct statutory mechanisms for ordering interim measures and other forms of protection, while compulsory collection is carried out in enforcement proceedings.

Arbitration or court litigation: the most important criteria

Duration of the proceedings

Arbitration is often described as faster than court litigation, but that is not a rule that applies in every case.

Its duration depends on the value and complexity of the dispute, the number of arbitrators, the volume of documents, expert evidence, the selected rules and the procedural conduct of the parties. A complex international arbitration with a three-member tribunal may last much longer than a simple court dispute.

The advantage of arbitration is that the proceedings generally end with one final decision. There is no regular appeal by which another arbitral tribunal would re-examine the facts and the application of law.

Court proceedings may last longer because of appeals, reversal of a first-instance decision and retrial. However, this does not mean that every court dispute is slower than arbitration.

Costs

In addition to attorney fees, expert fees, translation costs and costs of taking evidence, arbitration includes arbitrators’ fees and, in institutional arbitration, administrative costs of the institution.

For that reason, arbitration may be disproportionately expensive for lower-value disputes. If the claim is not substantial, tribunal costs may reduce the economic justification of the proceedings even when a party has a strong legal basis.

In large international disputes, the calculation may be different. A neutral forum, arbitrators’ expertise and a more favorable framework for cross-border enforcement may justify higher immediate costs.

Court proceedings involve court fees and other litigation costs, but the parties do not pay judges’ fees. Therefore, court proceedings are often more economical for standard domestic disputes of lower or medium value.

Expertise of the decision-makers

In arbitration, the parties may choose arbitrators with experience in a particular industry, area of law or type of transaction.

This may be important in disputes involving construction, energy, information technology, corporate transactions or international trade. A well-chosen tribunal may understand the technical and business background of the dispute more quickly.

Still, the possibility of choice is not a guarantee of a good decision. The expertise, independence, availability and experience of each candidate must be assessed.

State judges are not chosen by the contracting parties. Their advantage may be greater experience in applying domestic law, especially in standard commercial and enforcement matters.

Confidentiality

Arbitration may provide better protection of trade secrets, pricing policy, technical documentation and other sensitive information.

This may be important where public disclosure of the dispute could harm the company’s reputation, negotiations with other partners or its market position.

However, confidentiality should not be assumed. Its scope depends on the selected rules, the law of the seat of arbitration and the parties’ agreement. If data protection is particularly important, it should be expressly regulated in the contract.

Court proceedings are generally more public, although the law allows exclusion of the public and protection of confidential information in certain cases.

Right to appeal and finality of the decision

An arbitral award is, as a rule, final and binding. It may be challenged only on limited statutory grounds, such as the absence of a valid arbitration agreement, serious violation of procedural rights or conflict with public policy.

The court deciding on annulment of an arbitral award is not an appellate court that resolves the entire dispute again. Limited review may be an advantage because it accelerates finality, but it may also be a risk if the tribunal incorrectly establishes facts or applies the law.

In court proceedings, broader multi-level review is available. It increases legal certainty, but may prolong the proceedings.

Recognition and enforcement of the decision

Before agreeing on jurisdiction, it is necessary to determine where the other party has money, real estate, shares, goods or other assets from which the claim could be collected. Assessing the debtor’s assets and solvency is also important when choosing the appropriate procedure for collecting a claim from a company.

A domestic arbitral award produces effects under the rules of the Serbian Arbitration Act and may serve as a basis for enforcement in Serbia. Therefore, it is not precise to say that a domestic court judgment is always easier to enforce than a domestic arbitral award.

However, where both parties and all relevant assets are in Serbia, a state court may be a more economical and procedurally direct choice, especially when there are no other reasons for arbitration.

In international relationships, arbitration may have a significant advantage. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards establishes a widely accepted framework for recognition and enforcement of foreign arbitral awards.

This does not mean that enforcement is automatic. The procedure is conducted in the country where the assets are located, under its procedural rules, and the opposing party may invoke limited grounds for refusing recognition or enforcement.

Interim measures

In some disputes, waiting for a final decision is not enough. It may be necessary to prevent disposal of assets, collection under a guarantee, disposal of goods or continued breach of contractual rights.

An arbitral tribunal may have authority to order interim measures, depending on the applicable law and the selected rules. However, a tribunal does not have the same direct mechanisms of state coercion as a court.

Therefore, an arbitration clause should not unintentionally prevent recourse to the competent court where urgent protection is required.

Two practical examples

Imagine a contract between two Serbian companies for regular supply of goods. The value of individual orders is not high, payment and delivery take place in Serbia, and all relevant assets are located in the country. In such a relationship, agreeing on expensive international arbitration would most likely not be justified. Jurisdiction of the commercial court may be a more economical and practical solution.

The situation is different where a Serbian technology company enters into a multi-year high-value contract with a partner from another country, and the project includes confidential documentation, complex intellectual property rights and assets in several countries. In that case, arbitration may offer a neutral forum, selection of expert arbitrators, agreement on the language of the proceedings and a more favorable framework for international enforcement of the decision.

The difference between these two examples shows why the type of contract, not the prestige of the selected mechanism, should determine the method of dispute resolution.

When arbitration is most often the better choice

Arbitration should be seriously considered when the contract has an international element, the potential dispute may be of high value or the subject matter of the business relationship is technically complex.

It may also be suitable when confidentiality is important, when the parties want a neutral place and language of proceedings, or when the decision may need to be enforced in several countries.

None of these circumstances is sufficient by itself. An international element does not make every arbitration clause good, just as the high value of a contract does not mean that arbitration must be chosen.

When court litigation is more rational

A state court is often more practical where both parties, the business relationship and the assets are connected to Serbia, the potential dispute is not high-value, and there are no special reasons for confidentiality or selection of an expert tribunal.

Court litigation may be the better choice where the possibility of appeal is important, where arbitration costs would be disproportionate or where direct application of state coercive mechanisms is needed.

It should also be checked whether the specific dispute is arbitrable at all. The parties cannot exclude the jurisdiction of a court by an arbitration agreement in matters for which exclusive court jurisdiction is prescribed by law.

Most common mistakes in arbitration clauses

A poorly drafted arbitration clause may create an additional dispute over who has jurisdiction, which rules apply and how the tribunal should be formed.

The most common mistakes are:

• incorrect or incomplete name of the arbitral institution;
• reference to non-existent or mutually inconsistent rules;
• unclear method of appointing arbitrators;
• simultaneously agreeing on arbitration and court jurisdiction without clear distinction;
• defining too narrowly the disputes covered by the clause;
• mismatch between the seat of arbitration, language and governing law;
• choosing an expensive institution for a potential low-value dispute;
• copying a clause from a contract unrelated to the specific transaction.

A particularly risky formulation is one under which a “court or arbitration” is competent for the dispute, without explaining who chooses between the two mechanisms and under what conditions.

What a dispute resolution clause should regulate

The clause should clearly determine which disputes are covered and whether they will be resolved before a court or by arbitration.

If arbitration is chosen, the institution and procedural rules, number of arbitrators, seat of arbitration and language should be regulated. The governing substantive law should be aligned with the rest of the contract, and special attention should be given to interim measures, service of documents and protection of confidential information.

The parties may also provide for prior negotiations or mediation. Such a multi-tiered clause may contribute to amicable dispute resolution, but only if it clearly defines the duration of each phase, the method of initiating it and the moment when arbitration or court proceedings may be commenced.

There is no universal model clause. The clause must be aligned with other provisions of the business contract, especially governing law, liability, termination and performance of contractual obligations. Even a recommended clause of the selected court or arbitral institution should not be inserted without checking its consistency with the specific contract.

How to choose between arbitration and court

Before signing a contract, a company should assess:

1. the value of the contract and the possible dispute;
2. the countries where the parties’ assets are located;
3. the complexity of the contract subject matter;
4. the importance of confidentiality;
5. the acceptable level of costs;
6. the need for a right to appeal;
7. the possibility of seeking urgent measures;
8. the place and language of the proceedings;
9. the expected conduct of the other contracting party;
10. the possibility of recognition and enforcement of the decision.

This assessment enables the choice to be based on real risks, not on the assumption that arbitration is always faster or that court is always cheaper.

Arbitration or court litigation: what is better for your contract

There is no universally better mechanism for resolving business disputes.

Arbitration often has advantages in international, high-value, technically complex and confidential relationships. It enables selection of arbitrators, place, language and procedural rules, while the international framework for recognition of arbitral awards may facilitate cross-border enforcement.

Court litigation may be more rational for domestic contracts, lower-value disputes and situations where lower immediate costs, the right to appeal and direct access to state coercive mechanisms are important.

Therefore, the question of arbitration or court litigation is not resolved by copying a standard final clause. The dispute resolution clause must be analyzed together with the contract value, governing law, location of assets and risks of the specific transaction.

Frequently Asked Questions

Is arbitration always faster than court litigation?

No. It may be faster because of more flexible procedure and limited possibilities to challenge the award, but complex arbitrations with several arbitrators, extensive evidence and expert reports may last a long time.

Is arbitration more expensive than court?

Often yes in lower-value disputes, because the parties pay arbitrators and administrative costs of the institution. In large international disputes, higher costs may be justified by the neutrality of the proceedings, selection of an expert tribunal and easier cross-border enforcement.

Can an arbitral award be challenged?

Yes, but only on limited grounds prescribed by law. The court deciding on annulment generally does not reconsider the entire dispute as in an appeal.

Can an arbitral award be enforced abroad?

Yes, under international conventions and the law of the country where enforcement is sought. The New York Convention provides a broad framework for recognition and enforcement of foreign arbitral awards, but enforcement is not automatic.

Can a contract provide for both arbitration and court?

Yes, if their roles are clearly separated. For example, the main dispute may be submitted to arbitration, while the parties retain the right to seek interim measures from a court. An unclear combination may create a jurisdictional dispute.

What happens if the arbitration clause is unclear?

An additional procedure may arise to determine whether an arbitration agreement exists, which institution has jurisdiction and which rules apply. This increases costs and delays resolution of the main dispute.

Can every business dispute be subject to arbitration?

No. Arbitration may be used for disputes concerning rights that the parties may freely dispose of, except where the law provides for exclusive jurisdiction of a state court.

How JP Law can help

The choice between arbitration and a state court depends on the content of the contract, transaction value, countries in which the parties operate and realistic possibilities of collection.

JP Law provides legal support in choosing the appropriate dispute resolution method, reviewing arbitration and jurisdiction clauses, drafting business contracts and assessing possibilities for debt collection and enforcement of decisions.

The firm represents clients in both commercial and arbitration disputes. Timely analysis cannot remove every business risk, but it can prevent an unclear or inappropriate clause from becoming an additional problem once a dispute has already arisen.

This text is for informational purposes only and does not constitute legal advice for any specific case.

Copyright on the Internet: What Companies Need to Know

A marketing team finds a suitable photograph through a Google search and publishes it on a business profile. An agency creates a new website, but after the cooperation ends refuses to hand over the source code. A company pays for packaging design and assumes that it may modify it without limitation, register it as a sign of distinction and use it in all markets.

In each of these situations, the problem arises from the same assumption: if content has been found, paid for or created for the company, the company may freely dispose of it.

This is often not true.

Copyright on the internet also applies to content that is publicly available, easy to download or published on social networks. Paying an author, photographer, designer or agency also does not automatically mean that the company has acquired all rights necessary for the intended manner of use.

Therefore, the origin of the content, the scope of the licence and the rights acquired from employees and external associates should be checked as part of the legal regulation of the company’s intellectual property before publishing a campaign, launching a website or placing a product on the market.

What Is Copyright and When Does Protection Arise

Under the Law on Copyright and Related Rights, a copyright work is an original intellectual creation of an author expressed in a particular form. Protection does not depend on whether the work has been registered, published, commercially successful or considered artistically valuable.

According to the explanation of the Intellectual Property Office, copyright arises automatically, by the very creation of the work. As a rule, the author therefore does not need to carry out a registration procedure in advance in order to obtain protection.

In business, copyright protection may cover:

• website and blog texts
• photographs of products and employees
• illustrations and infographics
• graphic design
• promotional videos
• music and sound recordings
• presentations and educational materials
• computer programs
• parts of program code
• databases
• certain elements of website design
• original materials of a marketing campaign

It is important to distinguish an idea from its specific expression. A general concept for a campaign, a business concept or the topic of a text is not the same as an original photograph, written text, graphic solution or developed program.

A company therefore cannot always prevent others from using a similar idea, but it may have grounds to react when its specific creative result has been taken without permission.

May a Company Use Photographs and Texts from the Internet

The fact that content has been publicly published does not mean that it is free for business use.

A photograph found through a Google search is still located on the website of its author, media outlet, agency or another rights holder. A search engine enables content to be found, but it does not give the company a licence to use it.

The same applies to texts, videos, illustrations, music and social media posts. The possibility of sharing a post within a platform does not necessarily include the right to download and use its content:

• on the company website
• in a paid advertisement
• on product packaging
• in a printed catalogue
• in a promotional video
• in a business presentation
• at the point of sale

Before using content, the company should determine who the author or other rights holder is and whether there is permission that covers precisely the intended manner of use.

Why Crediting the Author Is Not Enough

Crediting the author and obtaining permission are not the same thing.

A company may properly credit the photographer and place a link to the photographer’s website, while still not having the right to use the photograph in an advertisement. Labels such as “source: internet” or “taken from social networks” also do not constitute permission.

It is necessary to distinguish between:

• the author’s right to be recognised and credited
• the company’s right to reproduce, publish, adapt or use the work for commercial purposes

Even when a licence requires crediting the author, this is only one of its conditions. The company must still check whether commercial use, modifications, distribution and advertising are permitted.

Stock Photographs, Royalty-Free Content and Creative Commons Licences

Content from stock platforms is not automatically available without restrictions either.

By purchasing a photograph, a company most often does not become the owner of copyright, but acquires a licence defined by the rules of the platform and the selected package. It may limit the number of copies, use on products intended for sale, distribution of the source file or use in a logo.

The term “royalty-free” usually does not mean that the work has no owner or that it may be used without permission. Most often it means that, after obtaining the appropriate licence, no new fee has to be paid for each individual use covered by that licence.

Creative Commons licences also differ. Some allow commercial use and adaptation, while others prohibit one or both. Therefore, it is not enough to see the Creative Commons label. The exact type of licence must be checked and its conditions fulfilled.

Who Holds Copyright in Content Paid for by a Company

Paying a photographer, designer, copywriter or another creative service provider does not automatically mean that the company has acquired all economic copyright rights.

For commissioned works, the client’s rights depend on the law and the contract. If the company wants to modify the work, use it in multiple campaigns, publish it in different markets or assign it to affiliated companies, those authorisations should be clearly agreed.

A written contract should determine:

• which work is the subject of the contract
• which rights the company acquires
• whether the rights are assigned exclusively or non-exclusively
• for which modes of use they apply
• in which territory the work may be used
• how long the right of use lasts
• whether modification and adaptation are permitted
• whether the work may be used in advertising
• whether the rights may be transferred to a client or affiliated company
• whether the author may offer the same or a similar solution to another person

An indefinite sentence stating that “all rights are included in the price” may be insufficient when it is not clear what those rights include.

One Website, Several Different Legal Problems

Imagine that a company hires an agency to create a new corporate website. The price has been paid, the website has been published and the project appears to be completed.

When the company later wants to change agencies, it discovers that it does not have access to the source code. Some of the photographs were obtained from a stock platform through the agency’s account, and the licence cannot be simply transferred. The font has special restrictions, one plug-in requires an annual subscription, while the texts were written by a freelancer with whom the transfer of rights was not regulated.

The company paid for a finished product, but did not necessarily obtain all rights and technical resources necessary for its independent use and further development.

Therefore, a website development contract should not regulate only the price and deadline. It is also necessary to determine:

• rights in the code and design
• handover of access credentials
• licences for photographs, fonts and plug-ins
• rights in texts and other materials
• use of third-party components
• maintenance and further modifications
• procedure after the cooperation ends

This example shows why ownership of a domain or a paid invoice does not resolve all copyright issues.

Copyright Rights of Employees

An employee remains the author of the work he or she has created, but under certain conditions the law gives the employer rights in a work created in the performance of employment duties.

For most such works, unless an employment contract or general act provides otherwise, the employer has the right to publish the work and exclusively exploit it within its business activity for a period prescribed by law. A special regime applies to computer programs and databases created in employment.

For that reason, it is not enough to rely on the general assumption that “everything an employee creates belongs to the company”. It is necessary to check:

• whether the work was created in the performance of employment duties
• what the employment contract provides
• what the employer’s general act regulates
• what type of copyright work is involved
• how the employer intends to use it
• whether use will be needed after the employment relationship ends

Employment contracts, job descriptions and other internal acts of the employer are particularly important when employees create texts, photographs, video materials, design, software or other content with lasting market value.

Copyright in Software, Websites and Databases

A digital product is usually not a single work, but a set of different elements and licences. Therefore, the protection of software, code and digital products does not end with copyright, but also includes contracts, trade secrets, licences and the regulation of relationships with employees and external associates.

A website or software solution may include:

• source and executable code
• graphic and UX design
• texts
• photographs and illustrations
• a database
• fonts
• plug-ins and themes
• open-source components
• third-party software

A company may have a domain, hosting and an administrator account, while still not having the right to modify, transfer or commercialise certain parts of the solution.

A contract with a developer or IT agency should regulate rights in the code, the right of further development, handover of technical documentation and access, as well as the use of third-party components.

With open-source software, it is especially important to check the specific licence. “Open code” does not mean “without rules”. Certain licences impose conditions regarding distribution, crediting authors or making modified code available.

Can a Company Use AI-Generated Content

The legal status of content created with the help of artificial intelligence cannot be assessed by one general formula.

Before using AI-generated text, photographs, video or program code, a company should check four things.

1. Terms of use of the tool

It is necessary to determine what the service provider allows, especially regarding commercial use and rights in the outputs.

2. Confidentiality of entered data

Business secrets, personal data, client code or other confidential information should not be entered into public AI tools without first checking how those data are processed.

3. Possible third-party rights

The output may contain elements resembling existing texts, photographs, characters, trademarks or program code. Before commercial use, a reasonable level of review is necessary.

4. Human creative contribution

It should be documented who conceived the concept, selected the outputs, edited them and shaped the final version. The legal assessment may depend on the type and scope of human contribution.

An AI tool should therefore not be viewed as automatic confirmation that the output is original, protected or safe for commercial use.

Common Mistakes Companies Make

Downloading photographs from Google search

Google finds photographs, but does not give permission for their use.

Copying texts from other websites

Changing a few words or the order of paragraphs does not necessarily remove the problem if the original expression of another author has been taken.

Using music in a promotional video

A subscription intended for private listening to music usually does not include its use in advertisements and business videos.

Assuming that payment brings all rights

A paid invoice proves that a service was performed, but it does not have to prove the transfer of rights needed for every future manner of use.

Imprecise contracts with agencies

It is also necessary to regulate rights in content created by the agency’s employees and subcontractors.

Using stock content outside the licence

A photograph permitted for use on a website does not have to be permitted for use on products that are sold.

Taking user and influencer posts

The fact that the company is tagged in a post does not mean that it may use the content in a paid advertisement.

Failure to keep documentation

Permissions, invoices, contracts, licences and relevant electronic correspondence should be kept so that the right of use can be proven.

What May Happen if a Company Infringes Copyright

An infringement may exist when a company uses a work without appropriate permission in a manner reserved for the author or another rights holder.

Depending on the circumstances, the rights holder may request:

• cessation and prohibition of further use
• removal of the disputed content
• establishment of the infringement
• damages
• removal or destruction of certain items
• publication of the judgment when statutory conditions are met
• information on persons involved in the infringement
• granting of an interim measure

The business consequences may be broader than the dispute itself. A campaign may be stopped, advertisements removed, an account restricted, and already printed material or packaging withdrawn from use.

How a Company Can Protect Its Own Content

A company should be able to prove not only that it paid for the content, but also that it has the rights necessary for its use and protection.

Useful measures include:

• precise contracts with employees, authors and agencies
• keeping original and working files
• records of authors and dates of creation
• keeping invoices, licences and consents
• regulated website terms of use
• internal procedures for acquiring and publishing content
• monitoring unauthorised use
• timely preservation of evidence of infringement
• contacting the user of the content or the relevant platform
• assessing the need for court protection

The © mark may warn that the company claims rights in the content, but by itself it does not create copyright or replace a contract and evidence of the origin of the work.

Depositing a copy of the work with the Intellectual Property Office is not a condition for the creation of copyright. It may have evidentiary value, but it does not represent final confirmation of authorship or a substitute for high-quality contractual documentation.

Checklist Before Publishing Content

Before publishing, the company should check:

• Who is the author of the content?
• Where does the content come from?
• Is there written permission or a licence?
• Is commercial use permitted?
• Are modifications permitted?
• Does the licence cover advertising?
• Are there time or territorial restrictions?
• Is it necessary to credit the author?
• Can the company prove how it acquired the rights?
• Does the content include rights of other persons?
• Are the rights regulated by a contract with an employee, freelancer or agency?
• Have the terms of the platform, stock service or AI tool been checked?

This check is particularly important before publishing larger campaigns, printing packaging, launching software on the market or using content in several countries.

When a Company Needs Legal Assistance

Legal review is particularly significant when the company:

• launches a new website or digital platform
• orders software development
• engages a marketing or creative agency
• invests a larger budget in an advertising campaign
• buys or sells a digital product
• concludes a contract with an author, developer or influencer
• plans to use content in foreign markets
• receives a claim for alleged rights infringement
• discovers that another company is using its content

Preventive regulation of rights is usually simpler than resolving a problem after a campaign has been published, a website launched or a product distributed.

JP Law provides legal support in reviewing and drafting contracts, regulating the transfer and assignment of economic copyright rights, assessing licences and protecting companies in cases of unauthorised use of content.

Copyright on the Internet Requires Checks, Not Assumptions

The greatest risk does not arise because companies intentionally want to infringe someone else’s rights, but because they assume that content is free as soon as it is available, paid for or created on their order.

Copyright on the internet does not depend on how easy it is to download a photograph, copy a text or transfer program code. What matters is who the author or other rights holder is, what permission has been obtained and whether its scope matches the company’s actual business needs.

Clear contracts, verified licences, preserved documentation and a simple internal procedure can prevent one photograph, song or imprecise contractual provision from turning into an expensive business dispute.

Frequently Asked Questions About Copyright on the Internet

May I use a photograph I found on Google?

The fact that a photograph appears in search results is not a sufficient basis for its use. It is necessary to find its source and check who the rights holder is and under which conditions the photograph may be used.

Is it enough to state the author and source?

No. Crediting the author does not replace permission to use the work. The company must have a legal basis for the specific manner of use.

Does a company acquire copyright when it pays a designer or photographer?

Not necessarily. Payment settles the agreed fee, but the scope of acquired rights depends on the law and the content of the contract.

Who has rights in content created by an employee?

The employee remains the author, while the employer’s rights depend on whether the work was created in the performance of employment duties, the type of work and the provisions of the employment contract or general act. A special regime applies to computer programs and databases.

Is content from social networks free to use?

No. Posting on a social network does not mean that the author has waived rights or given consent for use in advertisements and other commercial materials.

Can a company use AI-generated photographs and texts?

It may use them after checking the terms of the specific tool, possible third-party rights, confidentiality of entered data and the role of humans in creating the final content.

What should a company do when someone uses its content without permission?

It should first preserve evidence of the content and the manner of use, check the company’s rights, and then assess sending a cease-and-desist request, contacting the platform or initiating the appropriate procedure.

How long does copyright protection last?

As a general rule, economic copyright rights last for the life of the author and 70 years after the author’s death. For certain types of works and special situations, the law prescribes different rules.

Note: This text is for informational purposes and does not constitute legal advice for a specific case. Legal assessment depends on the type of content, contractual relationship, manner of use and other relevant circumstances.