The state aspired to be recognized as the sole legal successor to Yugoslavia, but those claims were opposed by other former constituent republics. The United Nations also denied its request to take up Yugoslavia's membership. Eventually, after the overthrow of Slobodan Milošević from power as president of the federation in 2000, the country rescinded those aspirations and accepted the opinion of the Badinter Arbitration Committee about shared succession. It re-applied for UN membership on 27 October and was admitted on 1 November 2000.
The FRY was initially dominated by Slobodan Milošević as President of Serbia (1989–1997) and then President of Yugoslavia (1997–2000). Milošević installed and forced the removal of several federal presidents (such as Dobrica Ćosić) and prime ministers (such as Milan Panić). However, the Montenegrin government, initially enthusiastic supporters of Milošević, started gradually distancing themselves from his policies. That culminated in regime change in 1996, when his former ally Milo Đukanović reversed his policies, became leader of Montenegro's ruling party and subsequently dismissed former Montenegrin leader Momir Bulatović, who remained loyal to the Milošević government. As Bulatović was given central positions in Belgrade from that time (as federal Prime Minister), Đukanović continued to govern Montenegro and further isolated it from Serbia, so that from 1996 to 2006, Montenegro and Serbia were only nominally one country—governance at every feasible level was conducted locally (Belgrade for Serbia and Podgorica for Montenegro).
A loose union, Serbia and Montenegro were united only in certain realms, such as defense. The two constituent republics functioned separately throughout the period of the Federal Republic, and continued to operate under separate economic policies, as well as using separate currencies (the euro was the only legal tender in Montenegro). On 21 May 2006, the Montenegrin independence referendum was held, and 55.5% of voters voted in favor of independence. The state union came to an end after Montenegro's formal declaration of independence on 3 June 2006, and Serbia's formal declaration of independence on 5 June. After the dissolution, Serbia became the legal successor of the union, while Montenegro re-applied for membership in international organizations.
With the collapse of Yugoslavia during the 1990s, only the republics of Serbia and Montenegro agreed to maintain the Yugoslav state, and established a new constitution for a new Yugoslavia in 1992. With the collapse of communism across Eastern Europe, the new state followed the wave of democratic change. It abandoned communist symbolism: the red star was removed from the national flag, and the communist coat of arms was replaced by a white double-headed eagle with the arms of both Serbia and Montenegro within it. The new state also established the office of the president, held by a single person, initially appointed with the consent of the republics of Serbia and Montenegro until 1997 after which the president was democratically elected.
With the collapse of Yugoslavia and its institutions from 1991 to 1992, the issue of unity of the two republics remaining in the collapsing federation, Serbia, Montenegro, as well as Serb-majority territories in Croatia and Bosnia that wished to remain united, became an issue. In 1991 diplomatic talks chaired by Lord Carrington with the leaders of the six republics of the collapsing federation, resulted in all the republics except for Serbia agreeing that Yugoslavia had collapsed and that each republic should become an independent state. The Serbian government was surprised and outraged by Montenegro's decision in favour of terminating Yugoslavia, as the Bulatovic government had previously been closely allied with Milosevic's government in Serbia. Yugoslavia's collapse began in 1991 when Slovenia, Croatia, and the Republic of Macedonia declared independence.