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Corporate law Forced exclusion from the composition of the founders of the LLC

Taras Miroshnychenko

Head of practice

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miroshnychenko@prikhodko.com.ua

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Head of Corporate Law and Fintech Practice. Expert in the creation and reorganization of companies, support of M&A transactions, as well as legal support for opening and running a business in the EU, Asia, and North America.

Forced exclusion from the composition of the founders of the LLC

Forced exclusion from the membership of the founders of a limited liability company (LLC) is an important legal institution aimed at protecting the interests of other members of the company and the company itself.

“Prikhodko and Partners” law firm will consider key aspects of this process, including grounds, procedures and legal consequences of exclusion.

Grounds for exclusion

According to the current legislation of Ukraine, the exclusion of a member of an LLC is possible only if there are justified reasons, which can be both general and specific.

The main grounds include:

Systematic non-fulfillment of obligations. This is the most common reason for exclusion. If a member does not fulfill his obligations, stipulated by the statute of the LLC or the law, other members may initiate his exclusion. For example, regular non-payment of contributions to the authorized capital, which hinders the development of the company.
Actions that harm the LLC. Exclusion is possible if the participant commits actions that harm the company or its reputation. This may include unauthorized activity contrary to the interests of the partnership or competition by an excluded member.
Violation of obligations to other participants. If a participant grossly violates agreements with other founders, for example, interferes with the work of the association, this may serve as grounds for exclusion.
Absence of a participant at the general meeting. The permanent absence of a participant at the general meeting can also be a reason for exclusion, if it interferes with the adoption of decisions that are critically important for the activities of the LLC.
Insufficient solvency of the participant. If a member has significant financial problems that may affect the financial condition of the company, this may serve as an additional reason for his exclusion.

It will also be useful: Change of LLC founders

Exclusion procedure

The process of excluding a member of an LLC must be clearly spelled out in the company’s articles of association.

The main stages of the exclusion procedure:

Convening of general meetings. The first thing to do is to initiate the convening of the general meeting of the members of the LLC. Participants who propose an exception must submit an appropriate statement, justifying their intentions.
Participants’ message. It is important that notice be sent to all members of the society before the meeting, including the person who is to be expelled. The notice must contain information about the date, time and place of the meeting, as well as the agenda.
Discussion and voting. During the meeting, the question of exclusion should be discussed. The participant who is planned to be excluded has the right to express his position. The decision to exclude is usually made by a majority vote. It is important that this vote be recorded in the minutes of the meeting.
Making a decision. After the decision is made, the minutes of the meeting must be drawn up in accordance with the legislation and the company’s charter. The exclusion decision is submitted to the state registrar for amendments to the register.
Excluded member notification. After making changes to the register of the excluded participant, the decision and its consequences should be notified in writing.

Legal consequences of exclusion

Forced exclusion of a participant from an LLC has significant legal consequences:

Loss of participant status. An excluded person loses all the rights of a participant, including the right to participate in the management of the company and receive dividends.
Payment of compensation. The excluded participant has the right to compensation for the value of his share in the authorized capital of the LLC, unless otherwise provided by the statute. The company “Prikhodko and partners” advises to determine this value according to market conditions in order to avoid disputed situations.
Possibility of appeal. The excluded participant has the right to appeal the decision on his exclusion in court, if he believes that the procedure was violated or the decision was made with legal errors.

Conclusions

Compulsory exclusion of a member of an LLC is a complex legal process that requires careful compliance with legislation and statutory requirements.

The company “Prikhodko and partners” recommends the members of the company to be aware of the possible reasons and procedures for exclusion in order to protect their interests and avoid conflicts.

Forced exclusion from the composition of the founders of the LLC

Grounds for exclusion

Exclusion procedure

Legal consequences of exclusion

Conclusions

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Andrey Prikhodko