The statutory rules governing the withdrawal of a member from a company are rarely among the matters considered by the founders of a Serbian limited liability company at the outset of their business relationship. At the time of incorporation, relations between the members are generally based on mutual trust, a shared business idea and the expectation that the interests of the company and those of its members will develop in the same direction. However, as is often the case in business relationships, the members’ personal relationships, business interests, individual ambitions, financial expectations and strategic visions may diverge significantly over time. When such changes escalate into a serious conflict among the members, the question of withdrawing from a Serbian limited liability company (DOO) naturally arises - namely, how a member may cease to be part of the company and under what conditions such withdrawal may be effected.
A person may cease to be a member of a limited liability company in several ways: upon the death of the member, if the member is a natural person; upon deletion from the relevant register, if the member is a legal entity; by withdrawal from the company; by expulsion from the company; by transferring the entire share; or by the withdrawal and cancellation of the share. Although each of these grounds is governed by its own rules and requirements and entails its own practical consequences, this article focuses specifically on the withdrawal of a member from the company on justified grounds. This legal mechanism becomes particularly significant in situations involving conflict among the members, where continued membership may become legally, economically or practically untenable for one of them. In addition to withdrawing on justified grounds with the right to compensation for their share, a member may also withdraw from the company without claiming compensation for their share, subject to the conditions and procedure prescribed by law and the company’s memorandum of association. However, this simpler form of termination of membership falls outside the scope of this article.
We are addressing this topic because, in our practice, we have increasingly observed that the legal mechanism of withdrawal of a member from a company on justified grounds is used, among other things, as a means of exerting pressure in situations involving serious disagreements among the company’s members. It is not uncommon for a party to threaten to invoke this mechanism or to initiate proceedings without a sufficiently sound legal basis in order to achieve a particular economic or negotiating objective. As a law firm, we also frequently encounter scenarios in which a domestic member of a Serbian limited liability company (DOO) threatens another member, who is a foreign natural person or legal entity, with the use of this mechanism. Having encountered this issue in a considerable number of cases, the aim of this article is to clarify the most common uncertainties and dispel the misconceptions surrounding the withdrawal of a member from a company on justified grounds, as well as to explain its actual legal function.
In practice, a company will often operate in a particular manner for years with the consent of all its members: the members meet informally, make decisions by mutual agreement and implement them directly, while the convening of meetings, voting, the content of adopted resolutions and the minutes are not properly documented in accordance with the statutory rules governing the work of the company’s general meeting. This manner of operation will usually not give rise to any apparent problems as long as trust exists among the members and they agree on the conduct of the company’s business. However, once their relationship deteriorates, it is not uncommon for a member who previously participated in informal decision-making to begin claiming that they were not duly invited to meetings, informed of key decisions or involved in the decision-making process. In the absence of proper written documentation, the company and the other members may face considerable difficulty in proving how decisions were actually made and the extent to which each member participated in that process. It is precisely for this reason that we always advise our clients to maintain sound corporate housekeeping consistently - by duly convening meetings, distributing materials in a timely manner, preparing minutes, formally adopting and retaining resolutions, and documenting the members’ consent - even when relations among the members are good and there is complete consensus regarding the company’s business operations.
The Serbian Companies Act proceeds from the principle that a member may request withdrawal from a limited liability company (DOO) only where justified grounds exist. The Act expressly provides for three categories of justified grounds for a member’s withdrawal from the company: (I) where the company or one or more of the other members, by an act or omission, cause damage to the member, or where, according to the ordinary course of events, it is evident that such damage will occur; (II) where the member is prevented to a significant extent from exercising their rights within the company; and (III) where the company imposes disproportionate obligations on the member. However, this list does not exhaust all possible justified grounds for withdrawal, since the memorandum of association may provide for additional justified grounds and may regulate in greater detail the withdrawal procedure and the method for determining the compensation payable to the withdrawing member. Our experience to date shows that very few companies in Serbia regulate this issue in detail in their memorandum of association, with the result that the statutory rules are generally applied directly in practice. However, even where the members wish to regulate this issue in greater detail, their autonomy in doing so is not unlimited. The memorandum of association may not exclude in advance a member’s right to request withdrawal from the company on justified grounds, nor may a member waive that right in advance. This is therefore a right protected by a mandatory statutory provision and cannot be excluded or waived in advance by the memorandum of association, a members’ agreement or any other declaration of intent by the member.
The case law of the courts of the Republic of Serbia, as well as legal scholarship, indicates that the justified grounds for withdrawal must be of such gravity that continued membership is no longer reasonably tenable for the member concerned. The statutory grounds are not cumulative, meaning that the existence of at least one of them is sufficient for the request to be well-founded. Where damage is caused, justified grounds exist not only when the damage has already occurred, but also where, according to the ordinary course of events, it is evident that such damage will occur, provided that there is a causal link between the act or omission of the company or one or more of the other members and the damage or the risk of its occurrence. The obstruction of the exercise of membership rights need not be complete, but it must be significant and may consist of an infringement of the member’s economic, governance or other rights, for example through unequal treatment of members, an unjustified failure to convene the general meeting, denial of voting rights or obstruction of the exercise of the right to information and access to the company’s records and documents.
However, not every refusal to provide an individual item of information or a particular document is sufficient to establish that the member has been significantly prevented from exercising their rights within the company. For justified grounds to exist, the denial must be sufficiently serious, persistent or systematic, must concern documents and information that are genuinely relevant to the exercise of membership rights and must, in practice, place the member in a position in which those rights cannot be exercised effectively. By contrast, the refusal of a vague, excessively broad or indiscriminate request for the provision of the company’s entire operational, financial, banking or business documentation does not necessarily constitute an infringement of membership rights, particularly where the member has been granted access to specific records relevant to the exercise of their rights, where the request has not been sufficiently particularised or where there are legally justified grounds for protecting trade secrets, commercially sensitive information or the interests of the company.
In this context, when assessing the circumstances of a particular case, the Supreme Court of Serbia also took into account the fact that the member had not previously made use of the legal remedies made available by law to exercise the right of access and protect their membership rights. Failure to pursue other available legal remedies for exercising the right to information does not in itself constitute a bar to withdrawal, but it may be a significant factor when assessing whether, and to what extent, the member was actually prevented from exercising their membership rights.
Disproportionate obligations are imposed where a member, without adequate justification arising from their position, the size of their share or obligations previously assumed, is subjected to a burden that places them in a substantially less favourable position in relation to the company or the other members. Whether grounds for withdrawal are justified cannot, therefore, be assessed in the abstract, but must be determined exclusively on the basis of all the circumstances of the particular case, including the nature and severity of the infringement, its duration, the consequences it produces, the conduct of the member concerned and the possibility of protecting their position through other legal remedies.
With regard to the case law of the courts of the Republic of Serbia, particular significance attaches to the judgment of the Supreme Court of Serbia Prev 1266/2023 of 10 April 2025, which confirmed that withdrawal of a member from a company with compensation for the value of their share is not a legal mechanism that a member may use merely because they no longer wish to remain in the company, because relations among the members have deteriorated or because they have lost their business interest in continuing their membership. The Court emphasised that the concept of justified grounds constitutes a legal standard whose content is determined by reference to the situations prescribed by law - the causing of damage or the evident risk of its occurrence, the member being prevented to a significant extent from exercising their rights within the company, or the imposition of disproportionate obligations - as well as by reference to any additional grounds provided for in the memorandum of association. According to the Supreme Court, the right to withdraw with compensation exists only where the facts of the particular case are directly connected with one of these legally recognised situations, with the burden of proving their existence resting on the member requesting withdrawal. In the dispute in question, the claimant alleged that he had been excluded from the company’s business operations, that he had not participated in the work of the general meeting, that he had been denied access to the company’s business documentation and that no profit distributions had been paid to him. However, it was established in the proceedings that he had been in daily contact with the other member, had attended general meetings, had approved the financial statements and resolutions on borrowing, and had received a distribution of profit in accordance with his share and the restrictions that the company had undertaken to observe vis-à-vis the bank. The Court therefore did not accept that his membership rights had been denied, that he had suffered specific damage or that disproportionate obligations had been imposed on him. The Court further stated that the existence of justified grounds cannot be based solely on the assertion that relations among the members have deteriorated or that continued membership has lost its purpose, particularly where such assertions are not supported by specific facts and evidence demonstrating an infringement of the member’s legally protected position.
This judgment clearly distinguishes between two legally separate issues: a member’s right freely to dispose of their share and their right to request that the company terminate their membership and pay compensation for that share. A member who no longer wishes to participate in the company, disagrees with the manner in which its business is conducted or considers that relations with the other members have permanently deteriorated is not, for that reason alone, entitled to shift the burden of their exit onto the company and require the company to pay them the market value of their share. To make such a claim, the member must prove the existence of justified grounds within the meaning of Article 188 of the Serbian Companies Act, having first completed the procedure before the general meeting and complied with the preclusive time limits for bringing an action prescribed by Article 192(5) of the Serbian Companies Act. In this regard, the Supreme Court expressly stated that, even where the requirements for withdrawal with compensation have not been met, a member who no longer has an interest in retaining their membership may dispose of their share in accordance with the law and the memorandum of association, including by transferring it to another member or a third party, subject to the right of first refusal, any required consent of the company and other permitted restrictions on transfer. However, a member may not require the company to acquire their share and pay them compensation merely because they have lost interest in continuing their membership. This reflects the essential function of withdrawal on justified grounds: it is an exceptional remedy for the protection of a member whose legal or economic position within the company is seriously jeopardised, rather than an ordinary means of leaving the company’s ownership structure at the member’s own discretion.
The procedure for withdrawal from the company on justified grounds commences with the submission of a written request to the company, on which the general meeting decides. The request should be sufficiently specific and reasoned and must, in particular, state the specific grounds for withdrawal, the amount claimed by the member as compensation for their share and the time limit within which payment of that compensation is requested, unless that time limit has already been determined by the memorandum of association. It is therefore not sufficient for a member merely to declare that they wish to leave the company. They must identify the facts and circumstances which, in their view, constitute justified grounds for withdrawal and specify their monetary claim against the company. In this context, a clear distinction must be drawn between the formal completeness of the request and its substantive merits. The fact that the request states the grounds for withdrawal, the amount of compensation claimed and the time limit for payment means only that it contains the elements prescribed by law. It does not establish that the stated facts genuinely constitute justified grounds, that the factual allegations are accurate or that the compensation claimed has been properly determined. To reach a properly considered and reasoned decision, the general meeting should therefore assess the legal relevance of the stated grounds, the evidence supporting them and the legal and economic consequences of granting the request.
The general meeting is required to decide on the request and notify the member of its decision within 60 days of receiving the request. It may only grant or reject the request in its entirety, without the possibility of granting it in part or unilaterally altering the amount claimed or the time limit for payment. In its decision, the general meeting may not unilaterally modify any individual element of the submitted request, since it may only grant or reject the request in its entirety. This does not, however, prevent the company and the member from negotiating, after the request has been submitted but before the general meeting adopts its decision, the amount of compensation, the time limit and method of payment, security arrangements and other matters relating to the termination of membership. If an agreement is reached, the member may amend or withdraw the original request, submit a new request reflecting the agreed terms or enter into an appropriate agreement with the company, subject to the limits imposed by mandatory law.
The possibility of reaching an amicable resolution remains available even if the general meeting rejects the request or fails to decide on it within the statutory time limit and the member initiates civil proceedings. The company and the member may continue negotiating after the action has been brought and may resolve the dispute by concluding a judicial or out-of-court settlement or by withdrawing the action. The claimant may withdraw the action without the defendant’s consent before the defendant has engaged in argument on the merits of the case. After that point, the defendant’s consent is required; if the defendant fails to respond within eight days of being notified of the withdrawal, they are deemed to have consented to it.
In view of the complexity of these disputes, the need to take extensive evidence and the frequent need for financial and economic expert evidence to determine the value of the share, proceedings concerning a member’s withdrawal from a company may, in practice, last for several years. For this reason, reaching an agreement at a later stage, including an agreement reached after the action has been brought, represents a common and practically significant means of resolving the dispute. The initiation of court proceedings does not, therefore, preclude further negotiations. However, the withdrawal of the action at a later stage of the proceedings does not depend solely on the claimant’s will, as the defendant must also consent to such withdrawal. Timely compliance requires not only that the general meeting adopt a decision within 60 days, but also that the member be notified of its content within the same time limit. It is therefore important in practice to secure reliable evidence of the date and method of service of the decision. The decision is adopted by a simple majority of the votes of all company members, unless the memorandum of association provides for a larger majority. The member whose withdrawal is being decided upon is not entitled to vote, and their votes are not taken into account when determining the quorum for deciding on that matter.
If the general meeting grants the request, the withdrawing member’s share becomes an own share of the company by operation of law, in proportion to the capital contribution that has been paid or contributed, while the company’s share capital is reduced by the amount of the unpaid or uncontributed capital contribution, subject to the application of the rules on creditor protection (Article 189(6) in conjunction with Article 147a of the Serbian Companies Act). The member’s withdrawal and the company’s acquisition of its own share are registered with the Serbian Business Registers Agency in accordance with the law governing registration. The written request submitted to the company constitutes a mandatory preliminary stage of the procedure. Consequently, the member may not bring an action directly before the court without first giving the company an opportunity to respond to the request. Only the rejection of the request or the general meeting’s failure to decide on it within the statutory time limit enables the member to seek withdrawal through court proceedings. The content of the request is also of particular procedural significance, since the grounds stated in it largely determine the factual framework of any subsequent dispute. The request should therefore be drafted precisely and comprehensively and should identify the available evidence supporting the existence of justified grounds for withdrawal.
A member seeking withdrawal from the company on justified grounds may simultaneously request that the company secure payment of the compensation for their share by establishing a pledge over the company’s own share that it will acquire upon granting the withdrawal request. Such a request cannot be limited to a general demand for security. The member must submit, together with the withdrawal request, a draft of the pledge agreement whose conclusion they propose. Where a pledge has been requested in this manner, the general meeting may not grant the withdrawal request while simultaneously rejecting the proposed security. It may grant the request only if it also approves the conclusion of the proposed pledge agreement in favour of the withdrawing member or, with that member’s consent, provides another appropriate form of security. The purpose of this provision is to prevent the withdrawing member from losing their membership status while being left in return with only an unsecured monetary claim against the company, particularly where the amount of compensation is substantial, the payment period is lengthy or circumstances exist that cast doubt on the company’s future ability to duly discharge its obligation. The pledge is established and registered in accordance with the legislation governing the establishment and registration of pledges over movable assets and rights in the Pledge Register.
The payment of compensation to a member who has withdrawn from the company is subject to specific restrictions intended to protect the company’s share capital and the interests of its creditors. The company may pay the compensation exclusively from reserves that may be used for that purpose or from the proceeds of the sale of the own share acquired by the company as a result of that member’s withdrawal. This means that granting the withdrawal request and determining the amount of compensation do not entitle the former member to demand payment from any of the company’s assets. Instead, the claim must be satisfied from the sources prescribed by law. Until the compensation has been paid in full, the company is prohibited from distributing profits to the remaining members. It is required to allocate all profits generated to reserves designated for the payment of the compensation and to use all funds from which payment is permitted by law exclusively to satisfy the claim of the former member. This arrangement establishes a balance between the member’s right to receive compensation for their share and the need to ensure that the withdrawal of one member does not jeopardise the company’s liquidity, solvency or creditors. As a practical consequence, a person may cease to be a member before the compensation has been paid in full, after which they have the status of a creditor of the company, while the prospects and timing of recovery depend on the availability of reserves, the generation of future profits or the sale of the company’s own share. At the same time, the prohibition on profit distributions prevents the remaining members from reducing, through the extraction of profits, the asset base from which the former member’s claim is to be satisfied.
If the company’s general meeting rejects the member’s withdrawal request or fails to decide on it within 60 days of its receipt, the member may initiate civil proceedings against the company and request that the court order the termination of their membership status and order the company to pay compensation for their share. Court proceedings are therefore not the first step, but a legal remedy available to the member only after the company has first been given an opportunity to respond to the request. In such proceedings, it is not sufficient merely to prove that the member no longer wishes to remain in the company. The member must prove the existence of specific justified grounds for withdrawal - namely, that the conduct of the company or the other members has caused them damage or that it is evident that such damage will occur, that they have been significantly prevented from exercising their membership rights, that disproportionate obligations have been imposed on them or that other justified grounds provided for in the memorandum of association exist. If the court finds that justified grounds exist, it determines all the principal consequences of the withdrawal in a single judgment: it orders the termination of the claimant’s membership status, establishes that their share becomes an own share of the company, determines the amount of compensation payable by the company and the time limit for payment and, at the claimant’s request, may also establish a pledge over the company’s own share if it considers such security necessary and justified to secure payment of the compensation awarded. As a rule, the amount of compensation is determined according to the market value of the share on the date the action was brought, but it may not be lower than the portion of the company’s net assets proportionally corresponding to that member’s participation in the share capital, unless the memorandum of association provides for a different method of calculation. In practical terms, this means that the value of the share is not equated with the nominal value of the registered share capital. Instead, the actual economic value of the company and the particular share must be taken into account, which will ordinarily require financial and economic expert evidence. When determining the time limit for payment, the court must take into account both the interests of the withdrawing member and the company’s ability to continue its ordinary business operations. It therefore assesses the company’s financial position and its expected revenues from ordinary business activities. As a rule, the time limit for payment may not exceed two years from the date on which the judgment becomes final and binding, while the memorandum of association may provide for a longer period, but not exceeding five years. It is particularly important that the right to seek withdrawal through court proceedings is not unlimited in time: the action must be brought within six months from the date on which the member became aware of the justified grounds and, in any event, no later than three years from the date on which those grounds arose. Failure to comply with either of these preclusive time limits results in the loss of the right to seek judicial withdrawal on the relevant grounds.
The payment of compensation awarded by the court to the withdrawing member is subject to the same restrictions as compensation accepted by the company in the out-of-court procedure: the company may make payment only from available reserves designated for that purpose or from the proceeds of the sale of the company’s own share acquired as a result of the member’s withdrawal, while it may not distribute profits to the remaining members until the compensation has been paid in full. In addition to compensation for the share itself, the former member retains the right to seek, in separate proceedings, compensation for damage suffered as a result of an act or omission by the company. Accordingly, payment of the value of the share does not exclude the possibility of obtaining compensation for other harmful consequences caused to the member. A particularly significant consequence arises if the company fails to pay the compensation awarded within the time limit specified in the final and binding judgment: the former member may enforce the judgment against the company only through the sale of the company’s own share that it acquired as a result of their withdrawal, while the other members are also jointly and severally liable for payment of the same obligation from their personal assets, in proportion to their respective participation in the company’s share capital. This constitutes a particularly strong mechanism for protecting the former member, since a failure to pay the compensation in a timely manner may result in the direct personal liability of the remaining members, notwithstanding the general rule that members of a limited liability company are not liable for the company’s obligations.
Conclusion
Withdrawal of a member from a company on justified grounds is not a right that may be exercised arbitrarily whenever membership no longer suits the member or when they consider that leaving the company with payment of the value of their share would be economically more advantageous than selling the share on the market. Mere dissatisfaction with the company’s business operations, deteriorated personal relations with the other members, loss of mutual trust, disagreement regarding business strategy or loss of personal interest in continuing the membership do not, in themselves, constitute justified grounds for withdrawal. For the request to be well-founded, there must be a specific, legally relevant and provable impairment of the member’s position - damage caused or an evident risk of its occurrence, the member being prevented to a significant extent from exercising their membership rights, the imposition of disproportionate obligations or other justified grounds provided for in the memorandum of association. In other words, it is not sufficient for a member to claim that relations within the company are poor or that continued cooperation no longer serves any purpose. The member must demonstrate which specific acts or omissions of the company or the other members resulted in an infringement of their rights or jeopardised their financial position, the consequences of such conduct and why continued membership is no longer reasonably tenable for them.
Precisely because of the serious consequences it entails, this legal mechanism should be applied only within the limits of the protective function assigned to it by law - namely, only where specific and provable justified grounds exist that seriously jeopardise the member’s position within the company. By granting a withdrawal request, the company acquires its own share, assumes the obligation to pay compensation and becomes subject to restrictions on the distribution of profits, while a failure to comply with a court judgment may also result in the joint and several liability of the other members with their personal assets. Withdrawal on justified grounds must therefore not become a means of exerting pressure in negotiations, a method of imposing an obligation on the company to acquire the member’s share or a mechanism through which the member attempts to secure a more favourable price for their exit. A member who simply no longer wishes to remain in the company has the right to dispose of their share and, subject to the restrictions prescribed by law and the memorandum of association, to transfer it to another member or a third party. However, they are not entitled to require the company to pay compensation in the absence of genuine justified grounds. This distinction has also been clearly confirmed in the case law of the courts of the Republic of Serbia, which have held that the loss of interest in continuing membership and deteriorated relations among the members, without a specific and proven infringement of the member’s legally protected position, are insufficient to justify judicial withdrawal with compensation.
From a practical perspective, every withdrawal request must be prepared with particular care. Before submitting the request, it is necessary to analyse the memorandum of association, the resolutions of the company’s governing bodies, its business and financial documentation, communications among the members, the manner in which voting rights, information rights and the right to a share in the company’s profits have been exercised, and other facts that may confirm or refute the existence of justified grounds. It is equally important to correctly determine the amount of compensation, the time limit for payment and any appropriate form of security, and to take account of the short preclusive time limits for initiating court proceedings. In practice, the outcome of such disputes generally depends not on broad allegations of poor relations, but on the quality of the documentation, the precision of the legal arguments and the ability to prove a specific infringement of the member’s rights. Withdrawal on justified grounds should therefore be regarded as a remedy of last resort for a member whose position within the company has been seriously jeopardised, rather than as an ordinary or simple means of leaving the company.
Author: Kristijan Karan, Attorney-at-Law in Novi Sad, Serbia
Published: 17 July 2026
