22 Mar Corporate conflicts: possibility of exclusion of shareholders

Today we are going to analyze an issue with which frequently the shareholders of a limited company must deal in their day to day business.

In the first months of a society’s life, relations between shareholders and administrators flow easily. Nevertheless, over time, situations such as poor economic performance, discrepancies between shareholders or personal problems, can lead to a deterioration of relationships that can negatively influence the future of the company.

This is when the matter in question usually appears. Is there a possibility of being able to expel a shareholder from the company?

The answer is affirmative, however, needs to be nuanced, because not every action will give arise to the immediate expulsion of a shareholder of the company.

The Spanish Capital Corporation Law contains in its Title IX different causes of “exclusion”.

A first way to exclude is regulated in article 350: the so-called legal exclusion causes.  Specifically, it contemplates three situations:

• First, those wherein a shareholder voluntarily fails to comply with the obligation to perform ancillary obligation. By ancillary obligations it is necessary to understand those obligations that are assumed by the shareholders in favor of the company. These ancillary obligations will be regulated in the company’s bylaws.
• Second, when the managing shareholder breaches a non-compete obligation
• Third, in those cases wherein the managing shareholder had been convicted by final judgment to pay a compensation for damages to the company, for carrying out acts contrary to the law, bylaws or without due care and attention.

A second way to exclude is regulated in article 351 of the Capital Corporate Law. The so-called “statutory” exclusion causes. The aforementioned article foresees the possibility to include specific causes of exclusion into the company’s bylaws or modified or deleted those that had been included. To carry out this, the law requires unanimity in the decision.

As we have seen, the law provides us with important tools to be able to exclude those shareholders or administrators who are causing problems, as well as the procedure that we shall apply for that purpose.

Nevertheless, many of these situations of conflict and tension between shareholders could be avoided by correct practice before the start of the activity with a properly writing of bylaws (with the pertinent inclusion of causes of exclusion), or even through the signing of shareholder agreements wherein the relations between shareholders are regulated and the margin of their actions is limited.

At Navarro Llima Abogados, we have a team of lawyers specializing in corporate law willing to offer you the corporate advice you need to be able to shield themselves from situations such as those discussed in this article.

Javier Navarro Lacambra

Lawyer