Partner exclusion

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Partner exclusion

When the partner-administrators or only partners do not contribute to the companies and cause damage by their actions creating a climate of confrontations, even blocking the company, we have precise solutions for this type of conflict. They can learn through our specialized advice how the exclusion of a partner can be achieved and in turn request responsibility for the damages caused. In addition to our exclusive methods of proven effectiveness, the Capital Companies Law, in its article 350 LSC (LAW 14030/2010) contemplates three assumptions that allow the limited liability company to agree to the exclusion:

  1. Breach of the partner of his obligation to perform ancillary services.
  2. Managing partner in violation of the competition prohibition. That is to say, that by concurring with such restriction, the administrator makes his position compatible with the provision of services to competing companies.
  3. Managing partner who has been condemned by final judgment to indemnify the company for damages caused by acts contrary to the Law or the statutes or carried out without due diligence. The administrator would have been sentenced in a judicial proceeding to pay compensation for damages to the company, for committing infractions in compliance with the Capital Companies Law (LAW 14030/2010), acts contrary to the rules agreed in the bylaws, or behaviors without due diligence.

Apart from these causes, there may be others that, being incorporated into the bylaws, function as causes of exclusion just as those established in the LAW. The causes of exclusion can be established with complete freedom. Valid causes of exclusion are those linked to the breach of an obligation, (for example, to work for the company, or not to work) or a specifically detailed prohibition

We understand the difficulty of excluding a partner from a company with a percentage higher than 25%, however, if he is an administrator and it is shown that he has done damage to the company, and is convicted of negligent, unfair or any other acts Damage caused no matter how small, you can exercise the social action of responsibility and later exercise the exclusion of the partners and cessation of their appointment, ultimately leading them to exclude them from the company through legal channels.

Exclusion procedure

The procedure begins with the call for a general meeting to agree on the exclusion. 

Subsequently, at the meeting, the resolution must be adopted, by a majority of at least 2/3 of the share capital. This is one of the cases contemplated in art. 199 LSC (LAW 14030/2010), for which a reinforced majority is required.

In addition, if the partner owns more than 25% of the capital, an agreement of the Board will be necessary, adopted by the favorable vote of 2/3 of the capital stock, except for the vote of the partner who is intended to be excluded. In this case, it will be necessary to file a claim with the competent courts to obtain ratification of the exclusion; for the effective exclusion a firm judicial resolution will be necessary. In this sense, any partner who had voted in favor of the agreement will be entitled to exercise the exclusion action on behalf of the company when it has not done so within a period of one month from the date of its adoption.

If the partner holds less than 25% of the capital, a resolution of the Board will be necessary, adopted by the favorable vote of 2/3 of the capital stock, except for the vote of the partner to be excluded. In this case, it is not necessary to file a claim for ratification and the agreement is sufficient. This does not exempt from the possibility of being challenged the agreement by the excluded partner, but this does not paralyze the exclusion.

In the event that the reinforced majority for exclusion is not reached, there are alternative mechanisms…

More alternative mechanisms.

What happens when there is no legal cause based on the provisions of art 350 LSC? What can be done if the statutes do not establish more causes of exclusion? Are there other mechanisms to permanently remove the partner?

Voting of social action of responsibility

There may be the case in which the necessary majority is not obtained in the Meeting to be able to exclude the partner. If this happens, the rest of the partners could exercise the social action of responsibility, for example, for violating any prohibition.

In this case, the favorable vote of 2/3 of the capital stock is not necessary, a simple majority vote will suffice (more votes in favor than against).

If the vote shows that the partner should be excluded, the partner / administrator must immediately cease his position, and, in addition, the company may claim compensation for the damages that he has caused. Condemnation of any amount for damages entails the exclusion of the offending partner.

Capital increase

One of the most used means is to carry out a capital increase, so that minority partners, with little financing capacity, cannot sign the agreement and their participation will be diluted.

This mechanism is not without risk and must be adopted with caution, since when the capital increase is carried out with the sole purpose of reducing the percentage of participation of a minority partner (instrumental capital increase), the agreement may be challenged. and declared null.

The minority partners could argue that the capital increase is unnecessary and unfair, arguing that the purpose pursued with it is none other than to achieve the dilution of their social participation due to majority abuse and lack of information.

Other legal channels that allow these operations to be carried out, one of the most common, is the reduction of capital through the forced redemption of shares. (Art 338 LSC (LAW 14030/2010)). In this way, the effect of the operation is discriminated, liquidating only the shares of minority partners. The Law, in joint-stock companies, does not require unanimity from minority partners, it allows articulating the operation with the majority vote of the general meeting and of the affected shareholders. However, this legal route is not suitable for limited companies since art. 329 LSC (LAW 14030/2010), if it requires the consent of all partners. Both those affected by the capital reduction and those who are not.

Another of the alternatives that the Law makes available to us consists of the dissolution of the company, and the transfer of its assets and liabilities to the majority shareholder with financial compensation for the rest. (art. 81 L 3/2009 (LAW 5826/2009)) by means of the constitution by the majority shareholder of a parallel company to which, then, it sells the entire equity of the company in which the minority shareholders; or by raising the nominal value of the shares and subsequent merger of the company with the majority partner (or with a company controlled by him) in such a way that the minority exchange relationship cannot be executed because it does not reach unity, and they must be compensated in metalic; or by resorting to the transformation of the company into a collective company, which would force minorities to separate for fear of incurring personal liability and subsequent re-transformation into a public limited company.

Operation Accordion

It consists of reducing the capital stock to 0 and then expanding. The subscribing partners of the new capital stock will be obliged to make contributions, which will exclude the partners who cannot make the necessary contributions and will be excluded from the de facto partnership.

Effects of Exclusion

Regardless of the exclusion procedure chosen, the consequences of the exclusion of the partner is the reimbursement of the fair value of their shares / shares, so it is necessary to previously value the participation to avoid surprises when dealing with the value of the excluded partner .

In the event that there is also no agreement at this point, the shares or participations will be valued by an independent expert appointed by the Commercial Registrar of the registered office at the request of the company or of any of the titular partners.

The expert will have a period of 2 months to prepare his report and notify it through notarial channels to the company and the affected partners, also depositing it in the Mercantile Registry.

Within 2 months of receiving the valuation report, the affected partners will have the right to obtain at the registered office the fair value of their shares or shares as the price of those that the company acquires or the reimbursement of those that they are amortized.

After said period, the administrators will consign in the credit institution of the municipal term in which the registered office is located, in the name of the interested parties, the amount corresponding to the referred value.

As an exception to the above, in all those cases in which the creditors of the capital company have the right to object, the reimbursement to the partners may only occur after a period of 3 months from the date of personal notification to the creditors or publication in the Official Gazette of the Mercantile Registry and in one of the most widely circulated newspapers in the town where the registered office is located, and provided that the ordinary creditors have not exercised the right of opposition.

Unless the general meeting that has adopted the corresponding resolutions authorizes the acquisition by the company of the shares or shares of the affected partners, made the reimbursement or consigned the amount thereof, the Administrators, without the need for a specific resolution of the General Meeting, they will immediately grant a public deed of reduction of the capital stock stating in it the shares or shares amortized, the identity of the affected partner or partners, the cause of the amortization, the date of reimbursement or of the consignment and the amount at which there was the capital stock has been reduced.

The excluded partner responds with the amount collected with respect to the corporate debts subscribed before reimbursement for 5 years. He will also be liable for said amount for damages caused to the company in a Social Responsibility Action, being able to compensate amounts in the event that the exclusion is due to the conviction of the partner for damages caused to the company.

ABOGADOS VELAZQUEZ provides you with a comprehensive service with demonstrable experience in this complex matter, with 100% of cases successfully resolved.

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