Law on Business Companies

Exit of limited liability company member

Exit of limited liability company member (hereinafter referred to as: exit of company member) is one of the reasons for termination of company member status. Procedure of exit of company member shall be governed by the provisions of Articles from 187 to 193 of the Law on Business Companies.

Reasons for termination of company member status are:

  • Death, in case of a natural person, or deletion from a relevant register, in case of a legal entity
  • Exit from a company
  • Expulsion from a company
  • Transfer of entire equity interest
  • Withdrawal and cancellation of entire equity interest.

Exit of Company Member without Claiming Compensation for Equity Interest

A comapany member, which hasn’t outstanding liabilities towards the company on the basis of outstanding contributions, may at any time, on the basis of the statement on exit which sall be submitted to the company, to exit from the compnay without giving any reasons for the exit, if he/she does not demand compensation for its equity interest.

Equity interest of the company member who has exited from the company, becomes company’s own equity interest and without a decision on the acquisition of own equity interest.

Exit from company of the company member, company’s member obligations which have been incurred towards the ompany until the moment of exit does not cease.

Exit of company member and the acquisition of own equity interest shall be registered in accordance with the law on registration.

Exit of Company Member for Justified Reasons

A company member may exit a company for justified reasons.

Justified reasons for exit of a company member shall exist in particular:

  • If one or more other members or the company caused him/her damage through their actions or if it is likely that such damage would occur in the normal course of events
  • If he/she is materially prevented from exercising his/her rights in the company
  • If the company imposes disproportionate obligations on him.

The instrument of incorporation may also provide for other justified reasons for exit of a company member and lay down the exit procedure and the manner of determining compensation payable to an exiting member.

The instrument of incorporation may not preclude the right of a company member to demand exit from a company for justified reasons and company members may not waive this right in advance.

A company member wishing to exit a company shall serve a written notice on the company, which shall be deliberated by the General Meeting. A request shall include in particular:

  • The reasons for exit
  • The amount claimed from the company as compensation for equity interest
  • The requested term of payment of compensation for equity interest, unless such term is provided by the instrument of incorporation.

The General Meeting shall decide on a request within 60 days of the date of receipt and shall reply to the exiting company member within the same period. The General Meeting may only fully accept or fully reject a request and decision shall be made by a simple majority of votes of all company members, unless the instrument of incorporation provides for a higher majority.

The equity interest of an exiting company member shall become a company’s own equity interest and without a decision on acquisition of own equity interest, in proportion to the paid or the made equity interest, while for the amount of the unpaid or failure to made contribution, shall be performed the reduction of the basic capital of the company, with the application of the provisions of Article 147a of the Law on Business Companies.

The exit of a company member and the acquisition of own equity interest shall be registered in accordance with the law on registration.

Pledge as Collateral for Payment of Compensation

A company member may demand in a request for exit for justified reason that the company provide collateral for payment of consideration for his/her equity interest by pledging the own equity interest it would acquire if it accepts his/her request for exit from the company, in accordance with the law governing lien on movable property entered in a register.

A company member shall enclose with his/her request for exit submitted to the company a draft version of the proposed pledge agreement.

The General Meeting may accept a request for exit only if it simultaneously authorises the conclusion of a proposed pledge agreement in favour of the exiting member or provides other appropriate collateral with the consent of the exiting member.

Payment of Consideration

A company may only pay consideration for equity interest to an exiting company member from:

  • Company reserves available for such purposes
  • Proceeds from sale of own equity interest acquired through exit of that company member.

Pending the full payment of compensation for equity interest to an exiting member, a company shall not distribute profit to its members and shall:

  • Allocate all generated profit to the company reserves available for payment of compensation for equity interest to an exiting member
  • Use all company proceeds referred to in paragraph 1 of the Article 191 of Law on Business Companies solely for the purpose of payment of such compensation.

Court-ordered Exit for Justified Reasons

If the General Meeting rejects a request for exit or fails to decide on such request within 60 days of receipt, a company member may bring legal action before the competent court against the company to obtain a judgement ordering termination of company member status for justified reasons and claim compensation for his/her equity interest within six months of the date of learning of reasons for exit, but not later than three years of occurrence of reasons for exit.

In a judgement on termination of company member status, a court shall also award:

  • That the equity interest of exiting company member is to become the company’s own equity interest and institution of a pledge in favour of the exiting company member on the company’s own equity interest, if the claimant so requested and if the court deems it necessary and justified for the purpose of securing the payment of the compensation which must be paid by the company to the exiting company member.
  • The amount of compensation and the term for payment of the compensation payable by the company to the exiting company member;

A court shall award the compensation which must be paid by the company to the exiting company member according to the market value of equity interest of the exiting company member on the date of filing of legal action, but in any case not lower than the proportionate share of the company’s net assets corresponding to the share of that member’s equity interest in the company’s share capital on the date of filing of legal action, unless a different method of determination of such compensation is provided by the instrument of incorporation.

A court shall set the term for payment of the compensation which must be paid by the company to the exiting company member. taking into account the financial situation of the company concerned and its expected operating income, but shall in any case not be longer than two years of the date when the judgement becomes final and enforceable, unless the instrument of incorporation provides for a longer term, which cannot be longer than five years.

Payment of Court-awarded Compensation and Indemnification

The payment of court-awarded compensation pursuant to a judgement shall be governed by the rules relating to the payment of compensation in extra-judicial procedure.

A member who exits a company for justified reasons shall also be entitled to indemnification for any damage caused by the company’s actions or inaction, which he/she may claim by brining legal action before the competent court in a separate lawsuit.

If a company does not pay the awarded compensation to an exiting member, that exiting member may seek enforced execution only through the sale of own equity interest which the company acquired from him/her and all remaining company members shall be jointly and severally liable for the payment of awarded compensation in proportion to their equity interests in the company’s share capital.

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