Under the Companies Act, companies may be linked through an interest in share capital or partnership shares (companies linked by capital), a contract (companies linked by contract), or both (mixed linked companies). It is prohibited to link companies contrary to the regulations that govern the protection of competition.
A holding company represents one form of company affiliation. Under Article 552 of the Companies Act, a holding company is a company that controls one or more companies and whose sole activity consists of managing and financing those companies.
What a Holding Company Brings to a Business Group
A holding structure implies that one company – the parent company – exercises direct or indirect control over one or more subsidiary companies. As a rule, the subsidiaries continue to operate as separate legal entities: they enter into contracts, employ personnel, own assets, incur liabilities, and are responsible for their own business operations.
The key value of a holding company lies in its ability to consolidate ownership, strategic management, and financing, while separating operational risks among individual business units, i.e. subsidiary companies.
A holding structure is particularly useful where an owner or a group of owners wishes to:
- Separate business activities involving different levels of risk;
- Segregate real estate, trademarks, intellectual property, or other valuable assets from operational business activities;
- Ensure clearer and more transparent management of a larger number of companies;
- Introduce a centralised strategy for financing, investment, and control;
- Prepare the group for the entry of investors, the sale of an individual business unit, or succession planning;
- Establish clearer rules among family members, co-owners, and professional management;
- Reinvest funds in newly established companies or existing group members.
However, a holding structure does not eliminate the legal independence of subsidiary companies. Each company within the group remains a separate legal entity, with its own tax, contractual, employment-law, and accounting obligations. A company acquires legal personality upon registration with the Register of Business Entities, and its assets are separate from its members’ assets.
Legal Form
The Companies Act does not prescribe a “holding company” as a separate legal form. A holding company may be incorporated in one of the legally permitted forms of a company: a general partnership, a limited partnership, a limited liability company, or a joint-stock company.
In practice, a limited liability company is the most common choice for domestic private business groups. A joint-stock company is considered for larger systems, more complex ownership structures, planned capital raising, or a larger number of investors.
Holding-Structure Models
There is no universal holding structure. The appropriate solution depends on whether the objective is asset protection, management of several operating companies, the entry of investors, succession planning, regional expansion, or preparation for the sale of a business.
In the case of a holding company, it is essential that the actual business model corresponds to the statutory concept of a holding company if the company presents itself as such in the market and in corporate documentation.
Pure Holding Company
A pure holding company has the exclusive role of holding equity interests, managing and financing subsidiary companies. As a rule, it does not carry out its own operating activities—it does not sell goods, provide services to the market, or assume the operational risks borne by subsidiary companies.
This model is the most transparent where the group comprises several clearly separate businesses, for example:
- A manufacturing company;
- A trading company;
- A services company;
- A company holding real estate;
- A company owning trademarks, software, or other forms of intellectual property.
Mixed Holding Company
In addition to its ownership function, a mixed holding company also performs certain services for group members, such as accounting support, IT services, legal affairs, marketing, human-resources management, or centralised procurement.
This model may be commercially justified, but it requires particular tax discipline. Every service provided by the holding company to a subsidiary must have a genuine business purpose, adequate documentation, an arm’s-length remuneration, and proper treatment for VAT, corporate income tax, and transfer-pricing purposes.
Asset Holding Company
Under this model, the holding company holds key assets – most commonly commercial real estate, equity interests in other companies, trademarks, patents, or copyrights – while the operating company uses those assets under a lease, licence, or another contractual arrangement.
Its advantage is the separation of valuable assets from day-to-day business risks. The risk is that agreements between related parties must be substantively genuine, economically justified, and concluded on terms consistent with the arm’s-length principle.
Family Holding Company
A family holding company is often used to preserve long-term control over a family business. Its purpose is not limited to ownership of subsidiary companies; it also serves to regulate rules concerning succession, the transfer of equity interests, the protection of minority family members, dividend rights, and the professionalisation of management.
In such a structure, the memorandum of association is generally not sufficient. It is also advisable to conclude a shareholders’ agreement, regulating the mutual relations among the owners in greater detail. The Companies Act permits a company member to enter into a written agreement with one or more other members of the same company to regulate matters relevant to their mutual relations; such an agreement is effective between its signatories.
Incorporation and Registration of a Holding Company
The process of establishing a holding company is, in essence, the process of incorporating a company, with additional work required to properly structure its ownership and governance architecture.
Since 17 May 2023, applications for the incorporation of companies—including limited liability companies (d.o.o.) and joint-stock companies (a.d.)—must be submitted to the Serbian Business Registers Agency (SBRA) exclusively electronically, through a dedicated e-registration application, except for statutory exceptions.
Control, Governance and Owner Protection
A holding company is successful only if ownership control is reflected into clear governance rules. In practice, the problem rarely arises because owners “do not have enough companies”; much more often, it arises because they lack rules on who makes decisions, who has signing authority, how group members are financed, and under what conditions assets may be transferred.
Control over Subsidiaries
Control is most commonly exercised through majority ownership, voting rights, the right to appoint directors, or contractual mechanisms. Under the traditional model, the holding company owns a majority of the quotas or shares in a subsidiary and, through the subsidiary’s general meeting, influences the appointment of management bodies, the adoption of financial statements, the distribution of profits, changes in capital, and key corporate status decisions.
However, majority ownership does not mean that the holding company may informally take over every operational decision. The directors of a subsidiary owe duties to that company, and not solely to the holding company as its member or shareholder. Decisions must therefore be made through the competent corporate bodies, properly recorded, and based on the interests of the specific company.
Representation and Co-signature
For companies with several directors and higher-value transactions, it is advisable to establish a representation system that prevents unilateral disposal of significant assets.
The law provides that restrictions on the authority of a company representative, as a rule, have no effect vis-à-vis third parties. An exception exists in the case of joint representation or a mandatory co-signature, provided that such restrictions have been registered in accordance with the law.
This is particularly important for holding structures. An internal decision that a director may not independently enter into a contract above a certain amount may be important within the group, but it will not necessarily protect the company against a bona fide third party. Where external legal protection is the objective, registered joint representation or a mandatory co-signature should be considered.
Procuration Is Not a Substitute for a Control System
A procuration may be useful for delegating commercial authority; however, its scope is subject to statutory limitations. Without a special authorisation, a procurator may not dispose of real estate, quotas or shares owned by the company, assume obligations under bills of exchange or provide guarantees, enter into loan or credit agreements, or represent the company in court proceedings or arbitration.
Accordingly, procuration should form part of a system for delegating operational authority, rather than serve as a substitute for decisions of the general meeting, supervisory board, or directors when deciding on key investments, acquisitions, borrowing, or asset disposals.
Internal Instruments to Be Adopted
For the holding group, it is advisable to adopt at least the following internal documents:
- An investment and acquisition decision-making policy;
- An intra-group loans, guarantees, and financing policy;
- A profit distribution and dividend policy;
- A transfer-pricing policy and policy governing the charging of intra-group services;
- A real estate and intellectual-property management policy;
- A list of matters reserved for decision by the members or the supervisory board;
- Conflict-of-interest rules;
- Rules for the approval of transactions with related parties;
- Rules on confidentiality, data protection, and access to documentation;
- A succession and ownership-transfer plan, particularly for family holding companies.
Most Significant Mistakes When Establishing a Holding Company
The most costly mistakes are generally not apparent on the date of registration. They emerge later—during tax reviews, a business sale, disputes among co-owners, tax audits, debt collection, or succession proceedings.
The most significant mistakes when establishing a holding company include:
- Establishing a holding company without a genuine business purpose;
- Commingling the assets of group companies;
- Charging fictitious management fees;
- Transferring quotas or shares without prior tax analysis;
- Neglecting obligations relating to the company’s beneficial owner.
Read more:
Procuration »
Co-signature according to the Law on Business Companies »
Registration of business entities »
