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.