In accordance with the provisions of Companies Act company member can be expelled by resolution of the general meeting or by a court decision.
Expulsion of a Member by Resolution of the General Meeting
Persons who have, under the memorandum of association or otherwise, taken on the responsibility of paying, or entering a certain contribution to the company, are liable to the company for fulfillment of that obligation and are obliged to compensate damage caused to the company by failing or being late to carry out that duty. The memorandum of association, i.e. the articles of association in case of a joint stock company, may stipulate an obligation to pay liquidated damages for untimely performance, or failure to perform the obligation of entering a certain contribution to the company.
If the company member omits to perform his obligation, even in the additional term, the company may pass a decision to expel such member from the company,i.e. in case of a joint stock company, a decision to withdraw and annul without compensation the shares of that shareholder which have not been paid, i.e. for which no in kind contribution has been entered into the company.
In this case, the general meeting passes a decision on expulsion of the company member by a two thirds majority of votes of the remaining member of the company, unless the company’s memorandum of association requires a different majority.
The decision on expulsion of the company member may be passed only with respect to all members of the company who have not fulfilled their obligation of paying, or entering a certain contribution to the company even within the subsequently provided deadline which may not be shorter than 30 days from the day of dispatch of such written invitation to carry out that obligation.
By expulsion of the company member, the share of that company member becomes the company’s own share, and the expelled member is not entitled to compensation for his share.
The resolution on expulsion of the company member constitutes grounds for striking off of the expelled member from the business entities’ register.
The expelled member remains under an obligation to pay, i.e. enter the subscribed contribution, and to make additional payments to which he was obligated, if this is necessary for settlement of company’s creditors. For fulfillment of the obligation to pay, i.e. enter the subscribed contribution, and to make additional payments a former owner of the share of the expelled member and expelled member are severally liable according to the actual status at the moment of share transfer.
The company reserves the right to claim damages from the expelled member by filing an action to the competent court.
Expulsion of the Member by a Court Decision
A company may request expulsion of a company member by filing an action to the competent court, for the reasons prescribed by the memorandum of association or other justified reasons, and in particular if the member of the company:
- Deliberately or by gross negligence inflicts damage to the company
- Fails to execute special duties towards the company prescribed by the Company Act or the memorandum of association
- By his actions or failures to act, contrary to the memorandum of association, law or good business practices, obstructs or significantly hinders the company’s business operations.
A resolution to file the action for expulsion of the company member is passed by the general meeting in accordance with the provisions of the Company Act.
At the request of the company, the court may issue an interim measure to temporary suspend voting right of the company member whose expulsion is requested, as well as other rights of that company member, or an interim measure of compulsory receivership in the company, if it finds it necessary and justifiable to prevent damages that the company may sustain.
The memorandum of association may neither in advance exclude the company’s right to file the action for expulsion of the company member, nor the entitlement of the expelled member to the compensation of the value of the share.
The action for expulsion of the company member may be filed within a term of six months from the day of finding out about the reason for expulsion, and at the latest within a term of five years from the occurrence of the reason for expulsion.
If, at the request of the member who holds a share representing at least 5% of the company’s share capital, the general meeting fails to decide on the request for the filing of the action for expulsion of the company member within two months from the day the request was filed or rejects the request or the action is not filed within 30 days from the day when the decision to file the action has been made, the member who filed the request has the right, within a subsequent time limit of 30 days, to file an action to the court in his name, but on behalf of the company.
By expulsion of a member, such member’s share becomes the company’s own share.
The expelled member remains under obligation to pay, i.e. enter the subscribed contribution and make additional payments to which he was obliged, if this is necessary to settle the company’s creditors.
Compensation for Share in Case of Expulsion by Court Decision
An expelled member may file an action against the company before the competent court requesting to be compensated for the value of his share.
The action may be filed within a term of 180 days from the day of finality of the judgment on expulsion of the company member.
The court shall determine the compensation for share of the expelled member in the amount of the value of the liquidation surplus that would belong to the expelled member in proportion to his share in the company’s share capital, on the day of finality of the judgment on expulsion of that member from the company, with calculated interest in the amount of the discount rate of the National Bank of Serbia increased by 2%, starting from the day the judgment on expulsion became final.
When determining the compensation for share of the expelled member, the court shall also determine the deadline for payment of that compensation, taking into account the company’s financial situation and expected earnings of the company in the ordinary course of business, provided that such deadline may not be longer than two years from the day of finality of the judgment, unless the memorandum of association provides for a longer deadline, but not exceeding five years.
In accordance with the judgment of the competent court the company may pay compensation for the share of the company member who expelled from the company only from:
- Reserve funds of the company that may be used for those purposes
- Funds realized from sale of the company’s own share acquired by expulsion of that company member.
Until full payment of compensation for the share of the member that expelled from the company, the company may not distribute profit to its member and shall:
- Distribute all gained profit to the reserves of the company that may be used for those purposes
- Use all company’s funds exclusively for payment of that compensation.
If the company fails to pay the awarded compensation to the expelled member within the deadline set out in the judgment, the expelled member may seek enforcement only by sale of the own share that the company acquired from him.
If the proceeds acquired from sale of own share in enforcement procedure are not sufficient for settlement of claim of the expelled company member regarding the awarded compensation, the outstanding part of that claim is extinguished.
The company is entitled to seek compensation of damages from the expelled member.