Exclusion of a member of an LLC for non-payment of authorized capital

According to the legislation, each member of the LLC is obliged to contribute its share to the authorized capital within the terms specified by the charter or other corporate documents.

This often needs to be done within a certain period of time after the company is registered.

Obligations of participants to contribute capital may include:

• Depositing funds to the company’s bank account.
• Transfer of property, rights or other assets, if it is provided by the statute.

It is important to note that failure to fulfill this obligation may have negative consequences for the company, such as insufficient funds for operational activities, loss of trust of creditors and partners, as well as internal conflicts between participants.

A participant’s failure to contribute the authorized capital may be grounds for his exclusion from the company. The legislation of most countries, including Ukraine, provides for the possibility of excluding a participant in such cases.

The main reasons for this can be the following:

• Violation of the terms of submission. If a participant does not contribute his share to the authorized capital within the prescribed period, other participants may demand his exclusion.
• Refusal to enter. IN the event that a participant openly declares his unwillingness to fulfill his obligations, this may also serve as grounds for exclusion.
• Non-implementation of the decision of the general meeting. If the general meeting of participants decided on the need to contribute additional capital, and the participant refuses to do so, this may be grounds for his exclusion.

Exclusion of a participant from an LLC for failure to contribute authorized capital is a complex procedure that requires strict compliance with the norms established by law and internal corporate documents.

The general order of exclusion may look like this:

1. Checking the fact of non-payment of capital. First of all, it is necessary to document that the participant did not fulfill his obligations. These can be bank statements, deeds of transfer of property or other documents.
2. Participant message. A participant who has not fulfilled his obligations must be officially notified of this. The notification must contain a demand for immediate fulfillment of obligations or a warning about the possibility of exclusion.
3. Decision-making at the general meeting. Exclusion of the participant must be approved by the general meeting of the participants of the company. The decision to exclude is made by vote, and legislation may require a majority or unanimity vote.
4. Making a decision. The decision of the general meeting to exclude a participant is formalized in a protocol, which is signed by the chairman of the meeting and the secretary.
5. Registration of changes in the state register. After the exclusion of the participant, the company is obliged to submit documents for making changes to the state register. This may include a change in the composition of participants and the size of the authorized capital.
6. Participant compensation. In some cases, if the participant contributed part of his capital or made other investments, the question of compensating him for the value of these investments may arise. This issue can also be resolved at the general meeting.

At the same time, the excluded member has the right to protect his rights and can appeal the company’s decision in court.

The main arguments that can be used by an excluded participant:

• Inconsistency of the decision with the requirements of the law. If the company violated the law or statutory provisions when excluding a member, this may be grounds for appeal.
• The injustice of the decision. If the exclusion was unfair or motivated by personal conflicts, the court can overturn the decision.
• Compensation for damages. An excluded member may claim damages if his investments were not returned or if he suffered other financial losses.

In order to avoid situations where the participant does not fulfill his obligations to contribute capital, it is important to foresee the following measures in advance:

1. The charter of the company must contain clear provisions regarding the terms of the capital contribution and the consequences of failure to fulfill this obligation.
2. Participants must be informed of the possible consequences of not contributing capital, including exclusion from the partnership.
3. In cases where the participant faces temporary financial difficulties, the company may provide for the possibility of revising the terms of the capital contribution or granting a deferment.
4. In order to resolve conflicts arising in connection with non-introduction of capital, it is advisable to involve independent mediators or arbitrators.