Exclusion of a Participant from a Company
Explore the steps and legal guidelines for removing an untrustworthy member from a business partnership.
The relationship between the owners (participants) of the company is very important for a successful business. Changes in the composition of participants can be very sensitive for the work and development of the company. A bona fide participant of the company can voluntarily withdraw from the number of owners at any time. It is possible to exclude an unscrupulous participant through the court.
Participant Withdrawal from a Legal Entity
Voluntary withdrawal means a participant may leave the company by submitting a written request at any time, without needing consent from other members. Withdrawal cannot leave the company without any participants, including the sole participant. The withdrawal date is the date the request is submitted or a later date specified in the request (but not earlier). The participant must settle any obligations by that time. The request can be withdrawn before the general meeting sets the settlement date, and participation is restored once the retraction is approved.
Exclusion of a Participant from a Company
Forced withdrawal occurs through the exclusion of a participant at the request of other members whose combined shares make up at least ten percent of the company’s charter capital. Exclusion is only possible through court proceedings. The moment of exclusion is the date when the court’s decision to exclude the participant becomes final. The defendant in such cases is the participant against whom the exclusion claim is made. The claim can be filed against multiple defendants, with a separate state duty paid for each claim.
Consequences of exclusion of an unscrupulous participant
The participant is excluded from the company from the date the court decision on their exclusion takes legal effect. Their share passes to the company. The company must pay the excluded participant the value of their share and a portion of the company’s profit attributable to that share, calculated from the date of exclusion until settlement. Alternatively, the company may transfer property instead of paying profit. The settlement date is when the share value is paid or property is transferred, as decided by the general meeting by majority vote.
Payment or property transfer can be made after the approval of the annual report for the year of exclusion. The settlement period is up to 12 months from the date of exclusion. The company’s charter must also be amended to reflect changes in ownership and share redistribution.
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Grounds for Excluding a Participant from a Company
Single Gross Violation
A participant can be excluded for a single gross violation of their obligations, which negatively affects the company or is incompatible with continued participation.
Repeated Disruptive Actions
Repeated actions that, when combined, obstruct the company’s operations may lead to exclusion, such as voting against necessary decisions requiring unanimous consent.
Inaction Hindering Company Operations
A participant’s failure to act, especially through neglecting duties or rights, can prevent the company from functioning properly, justifying exclusion.
Algorithm for Withdrawal from Company Participation
Submission of Withdrawal Request
The withdrawing participant must submit a written request to the executive body of the LLC. The request should include the withdrawal date; otherwise, the date of receipt by the company is considered the exit date.
Conduct a General Meeting
The company’s executive body organizes an extraordinary meeting where the participants acknowledge the withdrawal, redistribute the exiting participant’s share, and make necessary changes to the charter.
Amend the Charter
Changes to the charter must be registered with the Unified State Register within two months. Failure to do so may result in the withdrawn participant remaining liable as a company member.
Settlement of Payments
The withdrawing participant is entitled to their share of the undistributed profit and assets. The final settlement is decided at the general meeting, typically after the financial year ends.
What to Include in a Withdrawal Request from an LLC
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FAQ
Common issues include improper application submission, discrepancies in the withdrawal date, challenges in calculating the participant’s share, and insufficient registration of changes in the charter.
The withdrawal request must be submitted in writing to the executive body, with all necessary details, including the share size and withdrawal date.
The participant themselves must sign the withdrawal request. If the participant is also the company’s manager, their withdrawal does not end their managerial duties, which may require additional procedures.
The withdrawal date is specified in the request and can be set as a specific date, different from the date the company receives the request, if not stated otherwise.
After withdrawal, the participant is entitled to receive the value of their share and their portion of the profits. The calculation is based on the share’s value at the time of withdrawal.
Settlements are usually made after the financial year ends, although the charter may specify different terms.
Changes to the charter regarding the withdrawal of a participant must be registered within two months; otherwise, the participant remains in the register and retains associated obligations.
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LawyerLegal assistance is provided by advocate Anton Grinewich, Specialized Legal Bar No. 2 in Minsk.
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