Exclusion of a Partner from an LLC: A Complete Guide
The relationships between partners in a Limited Liability Company (LLC) are crucial for its success. However, conflicts can arise, leading to the need for the exclusion of a partner. This guide provides detailed information about the procedure, legal grounds, and steps for excluding a partner from an LLC in Bulgaria.
What Does Partner Exclusion Mean?
Exclusion from an LLC involves the termination of a partner’s membership in the company due to specific legal or contractual reasons. This procedure is governed by the Bulgarian Commercial Act and typically requires a formal process, including resolutions by the General Assembly of the company.
Grounds for Exclusion
The exclusion of a partner may occur under the following circumstances:
- Failure to Pay Capital Contributions: If a partner does not fulfill their obligation to pay their share of the company’s capital, they may be excluded. The process requires:
- A formal notice setting a deadline for payment (minimum one month).
- A resolution by the General Assembly after the deadline expires.
- Violation of Duties: A partner may be excluded for:
- Failing to comply with decisions of the General Assembly.
- Acting against the company’s interests.
- Not providing additional capital contributions if required by the Articles of Association.
- Legal Grounds Under Article 126 of the Commercial Act:
- Hindering the company’s operations.
- Engaging in actions harmful to the company.
Steps for Excluding a Partner
- Notify the Partner
A written warning must be sent to the partner, detailing the grounds for exclusion and giving them a reasonable period to address the issue. The notice should be delivered with evidence of receipt (e.g., via a notary invitation).
- Hold a General Assembly Meeting
The General Assembly must vote on the exclusion. A majority representing at least three-quarters (¾) of the capital is required, unless a different threshold is specified in the Articles of Association.
- Amend the Articles of Association
The Articles of Association must be updated to reflect the exclusion of the partner. This requires drafting and signing a resolution.
- File Changes with the Commercial Register
The exclusion is effective only after being registered in the Commercial Register. Documents required include:
- Resolution of the General Assembly.
- Amended Articles of Association.
- Declaration by the manager.
Consequences of Exclusion
Upon exclusion, the partner:
- Loses Membership Rights: The excluded partner is no longer part of the company and cannot participate in its management or profits.
- Receives Compensation: They are entitled to a monetary equivalent of their share in the company, calculated based on the balance sheet at the time of exclusion.
Can the Excluded Partner Appeal?
Yes, an excluded partner may challenge the decision in court. They must file an appeal within 14 days of being notified of the decision or learning about the exclusion. The court will examine whether the exclusion followed legal and procedural requirements.
Common Challenges in Partner Exclusion
- Insufficient Documentation: Failure to properly document the reasons and process for exclusion can lead to disputes.
- Non-Compliance with Articles of Association: Any deviation from the company’s governing documents can invalidate the exclusion.
- Court Appeals: An excluded partner can contest the decision, delaying the process.
Why Choose Legal Frame?
At Legal Frame, we offer comprehensive legal support to ensure the exclusion process is legally sound and protects the company’s interests. Our services include:
- Legal Advice: Detailed consultations on the grounds for exclusion.
- Document Preparation: Drafting resolutions, notices, and amendments to the Articles of Association.
- Representation: Assistance in court proceedings if the exclusion is contested.
Optimize Your LLC Operations with Legal Frame
Conflict among partners can disrupt business operations. With expert legal guidance, you can navigate partner exclusions effectively and maintain your company’s stability. Contact Legal Frame today for professional support tailored to your business needs.
