A joint business is always associated with certain risks: at the start, partners may share the same vision and common goals, but over time their interests may diverge. Sometimes one of the participants ceases to fulfill their duties, blocks the company’s operations, or uses their position to the detriment of others. In such cases, the issue of excluding such a participant from the company arises.
This procedure is not just a formal change in the list of founders. It directly affects business management, the distribution of shares and financial flows, as well as the overall stability of the company. Exclusion of a participant requires serious preparation: there must be valid grounds, evidence of bad faith actions, and readiness to defend the position in court.
For Belarusian companies, such situations are not uncommon: corporate conflicts may occur both in small businesses with several owners and in large organizations. Understanding the procedure for exclusion and its possible consequences helps owners protect their interests and maintain business stability.
Grounds for Exclusion of a Participant
Exclusion of a participant is an extreme measure that can be applied when the participant’s actions or inaction hinder the company’s operations, or when the participant grossly violates their obligations (except for obligations under a shareholders’ agreement, if such agreement exists). Exclusion is only possible through a court decision.
It is important to understand that mere disagreement with company policy or personal conflicts is not sufficient grounds for exclusion. Concrete violations must be proven.
Examples of actions that may constitute violations of the company’s interests include:
- Systematic failure to perform duties assigned to the participant, hindering the company’s economic activity.
- Abuse of rights in order to obtain personal gain at the company’s expense.
- Actions (or inaction) that paralyze the work of management bodies.
- Obstruction of the conclusion or execution of key transactions.
Examples from practice:
- A participant fails to attend general meetings, making decision-making impossible due to lack of quorum.
- Blocking transactions essential for the business without objective reasons.
- Disclosure of confidential information to competitors.
- Using company funds for personal purposes, disrupting business activities.
- Creating debts or liabilities that threaten the company’s stability.
Thus, exclusion is only possible if there is substantial evidence that the participant’s behavior directly or indirectly harms the company’s interests. Otherwise, the court may dismiss the claim as unfounded.
Who Can Initiate Exclusion
The process may be initiated by other participants whose combined shares make up at least ten percent of the company’s charter capital, if they believe that the participant’s actions (or inaction) obstruct company operations or grossly violate their obligations.
Role of participants and their shares in the charter capital.
Most often, the initiator is one or several participants holding significant shares in the charter capital. The larger the share, the greater their procedural rights, including the ability to file a lawsuit in court. Participants with smaller shares may unite with others to reach the required threshold. This approach is common and demonstrates to the court that the issues caused by the bad-faith partner affect not just one person but a significant part of the company.
Importance of documentary evidence.
It is essential to substantiate the need for exclusion with evidence: minutes of general meetings, correspondence, documents confirming absence at meetings, blocking of decisions, or proof of damages. Without this, even with the majority’s agreement, the court may refuse to exclude the participant.
Thus, the process may be initiated either by individual co-owners or a group of participants, but the outcome depends on the strength and quality of the evidence base. For well-founded decisions on participant exclusion, it is advisable to consult experienced corporate lawyers.
Procedure for Exclusion of a Participant
Excluding a co-owner is a complex, multi-stage process that requires both legal and organizational preparation.
Preparation of evidence and filing a lawsuit.
Initiators must collect documents proving gross violations or obstruction of the company’s activities. These may include minutes of general meetings, correspondence, audit reports, financial records, or other evidence that the participant’s actions (or inaction) truly hinder company operations. Based on these materials, a claim is filed in the economic court.
Court review and decision.
The court reviews the evidence, hears the parties, and evaluates whether the participant’s behavior genuinely obstructs normal company operations or endangers its interests. It is important to note that exclusion is a special measure applied only in cases of serious and systemic violations. If the plaintiffs’ arguments are confirmed, the court issues a decision to exclude the participant.
Amendments to corporate documents.
After the court’s decision enters into force, the company must amend its founding documents and charter: removing information about the excluded participant and redistributing their share. These changes require state registration. The excluded share is redistributed among the remaining participants or sold to third parties, if permitted by the charter.
Consequences of Excluding a Participant
The exclusion of a participant from a company has both legal and financial consequences for the participant as well as for the company.
1. Termination of corporate rights
The moment of exclusion is the date when the court decision on exclusion enters into legal force. From that moment, the excluded participant loses all rights in the company: voting rights at meetings, participation in management, access to information, and entitlement to profit distribution. They are no longer considered an owner of a share in the charter capital.
2. Fate of the excluded participant’s share.
The excluded participant’s share passes to the company itself as of the exclusion date. In most cases, the company pays the excluded participant the actual value of their share, determined based on accounting (financial) statements. The participant is also entitled to a portion of the profits attributable to their share (if such profit exists). By agreement between the excluded participant and the remaining participants, the company may transfer assets in kind instead of monetary payment, provided that their value corresponds to the actual value of the share.
3. Financial obligations of the company.
The company is obliged to settle with the excluded participant within the prescribed period. The actual value of the share or assets in kind must be provided after the end of the financial year and after approval of the annual report for the year in which the exclusion took place, within twelve months from the date of the exclusion decision or submission of an exit application, unless otherwise provided by the company’s charter.
Importantly, payment of the actual value of the share does not release the participant from pre-existing obligations to the company (e.g., repayment of loans or fulfillment of prior contractual commitments).
4. Impact on the company and remaining participants.
Exclusion may alter the balance of power within the company. On the one hand, it helps remove conflict and improves governance. On the other, the remaining participants must be prepared for additional financial burdens (share payouts, assumption of new obligations).
The actual value of the excluded participant’s share is paid from the difference between the company’s net assets and its charter capital. If this difference is insufficient, the company is obliged to reduce its charter capital.
Practical Recommendations for Owners
The exclusion process always involves heightened risks: litigation, conflicts among partners, and financial consequences for the company. To minimize potential issues, owners should consider several key aspects:
1. Proper documentation of violations.
For successful exclusion, it is not enough to point out violations — they must be properly documented. Suitable evidence includes meeting minutes, written notices of improper performance of duties, audit reports, and accounting documents confirming losses. The more objective the evidence, the higher the chances that the court will support the company’s position.
2. Pre-drafting exit procedures.
Many conflicts can be avoided at the stage of drafting founding documents and corporate agreements. Clear regulation of participant exit or share buyout procedures in case of violations simplifies the process, reduces litigation costs, and prevents uncertainty. Such provisions act as a “safety cushion” for the business.
3. Role of lawyers in the process.
Exclusion is a complex and sensitive procedure. Errors in evidence, procedural deadlines, or document wording may lead to delays or rejection by the court. Professional lawyers help assess prospects, prepare evidence, develop a defense strategy, and ensure compliance with the law at every stage.
Conclusion
Excluding a participant from a company is always a challenging step that requires a balanced approach and thorough preparation. This procedure directly affects both the internal relations between owners and the future development of the business. Mistakes at any stage can lead to lengthy litigation, loss of time and financial resources, as well as a weakening of the company’s market reputation.
To avoid such consequences, it is essential to establish a sound corporate structure in advance, clearly define exit procedures, and properly document all significant violations. At the same time, qualified legal support remains the key factor for success.
The AMBylegal team is ready to support you through every stage of the exclusion process — from assessing the situation and preparing evidence to representing clients in court and amending corporate documents. We can build a strategy to protect owners’ interests while ensuring transparency and legal compliance at every step. Thanks to our experience and practical solutions, you will be able to minimize risks and focus on developing your business.
Contact us
If you have any questions related to the exclusion of a participant from a company in Belarus, we will be happy to help! Our long-term experience will help you choose a lawyer to represent your interests.
- +37529142-27-19 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
