In a GmbH, it may be necessary or desirable in certain situations to exclude a shareholder from the company - especially against his will. This process, the exclusion of a shareholder, is a complex legal issue that must meet special legal and case-law requirements and also requires provisions in the articles of association. This blog post takes a closer look at the legal framework, the requirements and the consequences of an exclusion.
Conditions for the exclusion of a shareholder
The exclusion of a shareholder from the GmbH is generally only possible under certain conditions. These conditions can be specified in more detail in the GmbH’s partnership agreement and can also arise from statutory provisions and case law. Firstly, an exclusion can only take place if there is an important reason that irreparably damages the relationship of trust between the shareholders and therefore makes it unreasonable for the shareholders to continue the partnership. Secondly, an effective shareholders’ resolution is required – this must be done very carefully. Thirdly, the excluded shareholder must be given a severance pay All three conditions – important reason, effective shareholders’ resolution and the amount of the compensation – regularly spark disputes. To a certain extent, these disputes can be taken into account in the drafting of the GmbH’s articles of association. Specialist lawyer for commercial and corporate law can answer your questions about the exclusion of a GmbH shareholder.
exclusion for important reasons
Anyone who wants to exclude a shareholder must - if the shareholder does not agree to his or her departure, as is often the case - base the exclusion on an important reason. Such a reason exists if the behavior of the shareholder concerned has seriously impaired or even permanently destroyed the relationship of trust between the shareholders and therefore makes the continuation of the company or the cooperation of the shareholders unreasonable for the other shareholders. Examples of this are serious breaches of duty. In practice, the embezzlement of company assets - "stealing into the cash register" - and a violation of an effective non-competition clause are the most serious breaches of duty and are regularly recognized in case law that justify the exclusion of a shareholder. In addition, the death of a shareholder, the insolvency of the shareholder, a non-dissolvable shareholder dispute, which is primarily the responsibility of the affected shareholder, or intentional damage to the company.
The process of the exclusion procedure
The exclusion of a shareholder takes place in several steps and requires careful preparation and implementation. First, the remaining shareholders must pass the exclusion resolution. The relevant provisions in the partnership agreement on the decision-making process must be observed. In addition, not too much time must pass between the shareholders' meeting and the other shareholders becoming aware of the important reason. A qualified majority or even unanimity among the shareholders may be necessary to decide on the exclusion. The affected shareholder has no voting rights in the decision on his exclusion for important reasons, as no one can be a "judge in his own case".
However, the shareholder to be excluded must still be invited to the shareholders' meeting, even if he or she does not have voting rights. Despite any important reason for his or her exclusion, he or she has the right to attend shareholders' meetings and also the right to have the important reasons explained to him or her and to be able to comment on them. Consequently, all invitation formalities must always be observed and an agenda must be sent out so that every shareholder can prepare for the shareholders' meeting and the resolutions to be passed. Minutes of the exclusion and the entire shareholders' meeting must be kept for documentary purposes.
After the resolution, the excluded shareholder must file a lawsuit to contest the resolution. He or she only has one month from the announcement of the resolution - not from the date the minutes are sent - to contest the resolution. However, this one-month period requires that the outcome of the resolution on the exclusion is recorded in the minutes. It is therefore particularly important to pay attention to such formalities. If formal and time-limit requirements are violated, the shareholders' resolution on the exclusion may be invalid for this reason alone, even if there is an important reason. The shareholders' meeting would then have to be repeated.
In the event of a timely challenge, the court will examine whether the conditions for exclusion are actually met and whether the exclusion procedure was carried out properly. In order for a shareholder to be excluded for good cause, a court decision is therefore usually necessary. Of course, it is possible to reach an out-of-court settlement with the shareholder. However, since the exclusion of a shareholder against his will represents a serious infringement of his rights, the shareholder concerned will not accept his exclusion so easily.
severance pay
Every shareholder who is excluded from a GmbH is entitled to compensation, which the GmbH must pay. This also applies if there is an important reason for the exclusion. The amount of the compensation is determined by the market value of the company share. This usually requires determining the value of the GmbH, whereby the value of the GmbH share corresponds to the share in the share capital. Determining the value of the GmbH requires its valuation, which must be carried out using various methods such as the earnings value method or the discounted cash flow method.
It should be noted that there is no "one correct valuation method" and that different methods produce different values. Determining the amount of compensation therefore regularly leads to considerable disputes, particularly because the excluded shareholder and the remaining shareholders have different ideas about the company's value. A neutral appraiser is often commissioned to determine the value of the GmbH and thus also the amount of compensation.
What makes matters worse is that the GmbH will regularly commission a valuation as part of the exclusion procedure. This can involve five-figure costs. The excluded shareholder will usually not accept the corresponding valuation report. In the event of legal proceedings, a court expert will therefore regularly carry out a new valuation, which again causes considerable costs that the loser of the legal proceedings has to bear. Very often a settlement is then reached after a lot of time has passed and high costs have been incurred.
In addition, the timing of the payment of the severance payment can be a point of contention. In some cases, the severance payment is paid in installments, especially if the GmbH does not have sufficient liquidity to pay the entire amount at once. However, the contractual provisions in the partnership agreement and the economic situation of the GmbH are crucial for this.
The Role of the Social Contract
The social contract plays a crucial role in the exclusion of a shareholder. In many cases, the contract contains provisions that regulate the procedure in the event of an exclusion. These include, among other things, provisions on the conditions under which a shareholder can be excluded, how the exclusion procedure works and what majorities are required for the resolution. If such provisions are missing in the partnership agreement, the statutory provisions of the GmbH Act apply. However, this can lead to confusion and legal disputes, which is why it is advisable to include corresponding clauses in the partnership agreement when the GmbH is founded.
The partnership agreement should therefore contain provisions that specify the important reason for the exclusion in more detail. It should also regulate how the exclusion takes place. In particular, the possibility of withdrawing the shares should be provided for. It is also important to provide for rules for determining the amount of the compensation. This can in particular provide for the valuation procedure, the minimum amount, a reduced compensation in the event of an important reason and payment in installments.
Another important point is the amount of compensation to which the excluded shareholder is entitled. Payment of compensation is required by law, unless the partnership agreement provides otherwise. The amount of compensation is usually based on the value of the shares held by the excluded shareholder. The exact value is often determined by an expert opinion that determines the value of the company and the excluded shareholder's share in it.
consequences of the exclusion for all parties involved
Exclusion from the company has far-reaching consequences for the excluded shareholder. First of all, he loses his status as a shareholder and, with it, all rights to which he is entitled as a shareholder, such as the right to vote or the right to a share in the GmbH's profits. The partnership agreement plays a crucial role in regulating the conditions and procedure for exclusion. Compliance with all legal requirements and careful preparation are essential to ensure that the exclusion is legally binding and incontestable.
For the remaining shareholders, the exclusion of a problematic shareholder can be a relief, as it can significantly improve the working atmosphere and decision-making processes in the GmbH. At the same time, however, the exclusion also brings challenges, especially when it comes to financing the severance payment and the reorientation of the company after the shareholder leaves.
The remaining shareholders must ensure that the exclusion is carried out in a legally sound manner in order to avoid challenges and lengthy legal disputes. Clear communication and transparency towards all shareholders are of great importance here. For the excluded shareholder, on the other hand, it is crucial to know his rights and, if necessary, to take legal action to receive fair compensation. Ultimately, the exclusion of a shareholder should always be viewed as a last resort when all other options have been exhausted.
As Specialist lawyer for commercial and corporate law I am happy to assist you through this demanding process and ensure that all legal requirements are met. My goal is to make the exclusion fair and legally secure for both the company and the excluded shareholder.
