Exclusion of a minority shareholder of a limited liability company as a means of resolving a corporate dispute

In accordance with Article 266 of the Commercial Companies Code:

“§ 1. For valid reasons relating to a particular partner, the court may order that partner’s exclusion from the company at the request of all the other partners, provided that the shares held by the partners requesting the exclusion represent more than half of the share capital. § 2. The articles of association may grant the right to bring the action referred to in § 1 to a smaller number of partners, provided that their shares represent more than half of the share capital. In such a case, all remaining partners must be named as defendants. § 3. The shares of the excluded partner must be acquired by the partners or third parties. The purchase price shall be determined by the court on the basis of the actual value on the date of service of the statement of claim.”

It follows from the wording of the above provision that the substantive legal ground for the compulsory exclusion of a minority partner from the partnership is the existence of valid reasons justifying such exclusion. The legislator has used the general term ‘valid reasons’ here, leaving the clarification of its precise meaning to judicial practice. In accordance with the extensive body of case law and the established views of legal scholars, valid reasons justifying the exclusion of a minority partner from the partnership may include, in particular:

1. the partner acting to the detriment of the company,
2. failure to implement resolutions of the shareholders’ meeting,
3. abuse of the right of individual control,
4. breach of the duty of loyalty to the company,
5. conducting business in competition with the company,
6. refraining from exercising shareholder rights in a manner detrimental to the company (e.g. refusing to attend shareholders’ meetings),
7. a long-standing conflict between a minority shareholder and the other shareholders, the effects of which are detrimental to the company.

Importantly, the request to exclude a minority shareholder from the company must be made by all the other shareholders holding shares representing in total more than half of the share capital. The requirement that the claimants hold shares representing more than half of the share capital means that a majority shareholder holding more than half of the shares in the share capital cannot be excluded from a limited liability company.

A case concerning the exclusion of a minority shareholder from a limited liability company is a case concerning property rights. The court with local jurisdiction to hear the claim is the court where the company has its registered office. As regards subject-matter jurisdiction, in accordance with the general rules, this is the district court if the value of the subject-matter of the dispute does not exceed PLN 75,000. In other cases, the regional court has jurisdiction. The value of the subject matter of the dispute is determined according to the actual (market) value of the shares of the partner being excluded. Pursuant to Article 29(2) of the Act on Court Costs in Civil Cases, the court fee for an action to exclude a partner is a fixed amount of PLN 5,000.

The wording of Article 266(1) of the Commercial Companies Code establishes joint standing on the claimant’s side in the form of necessary joinder. This is a form of joinder arising directly from the provision of the Act. The structure of Article 266 § 1 of the Commercial Companies Code determines that the judgment to be delivered in a case initiated by a claim for the exclusion of a partner from the company must apply equally to all co-plaintiffs. The nature of the partnership and the relationships between the partners means that the joinder in question is also a joint joinder.

In accordance with Article 267 of the Commercial Companies Code:

“§ 1. When ruling on exclusion, the court shall set a time limit within which the purchase price, together with interest calculated from the date of service of the claim, is to be paid to the excluded partner. If, within that time, the amount has not been paid or deposited with the court, the ruling on exclusion shall become ineffective. § 2. Where the ruling on exclusion has become ineffective for the reasons specified in § 1, the partner who has been excluded without effect shall be entitled to claim damages from the plaintiffs.”

Article 269 of the Commercial Companies Code, in turn, provides that

“A partner who has been validly excluded, and for whose shares payment has been made within the prescribed time limit, shall be deemed to have been excluded from the company from the date of service of the writ upon him; this shall not, however, affect the validity of acts in which he participated in the company after the date of service of the writ upon him.”

It follows from the above provisions that, in addition to a court ruling on expulsion and a possible resolution of the shareholders on the expulsion of a shareholder from the company, the condition for the validity of a shareholder’s expulsion from a limited liability company is the requirement that the shares be acquired by the shareholders or third parties. The effect of a shareholder’s exclusion is the deprivation of the shareholder’s membership in the company, as provided for in the exclusion ruling, whilst their shares continue to exist and are not extinguished as in the case of a redemption. This also means that the enforcement of a court judgment excluding a minority shareholder from a limited liability company replaces the contract for the sale of the acquired shares. A partner excluded from the company by a final court judgment, who has been paid on time for the acquired shares, is deemed to have been excluded from the company from the date of service of the summons. However, in accordance with general principles, the transfer of shares to the acquiring entity is effective vis-à-vis the company from the moment the company receives notification of the transfer of shares from one of the interested parties, together with proof of the transaction. Furthermore, a court ruling on the exclusion of a minority shareholder is constitutive in nature; the exclusion of the shareholder takes effect on the date of service of the claim upon him.

Author

Adrian Łukasik

Radca prawny, Senior Associate

He gained his professional experience in one of Lublin's renowned law firms, dealing with civil and business law in its broadest sense. At the law firm Hewelt Wojnowski i Wspólnicy spółka komandytowa, he deals on a daily basis with current counseling in the field of business and the development of corporate documentation of companies, such as. Company agreements, bylaws of company bodies, agreements regulating relations between shareholders, resolutions of company bodies, M&A transactions. In addition to…

View profile →