Expulsion from a Limited Company

Expulsion is the removal of a shareholder from a limited liability company at the will of the other shareholders. It is used where a shareholder harms the company’s activities, fails to perform its obligations or trust between shareholders has broken down.

Ways to Expel

• Grounds in the articles: The articles may set out when a shareholder may be expelled by general assembly resolution. If one of these grounds occurs, the general assembly may resolve on expulsion with the qualified majority required by the Code (TCC Art. 640/1).
• Expulsion action for just cause: Even without provision in the articles, the company may ask the court to expel a shareholder where there is just cause (TCC Art. 640/3). Competing with the company, seriously obstructing its operation or serious breaches of loyalty may be regarded as just cause.

The Shareholder’s Rights

A shareholder expelled by general assembly resolution may bring an annulment action against the resolution within three months. The expelled shareholder is entitled to a severance payment reflecting the real value of its share (TCC Art. 641). The articles may provide that the severance payment on expulsion is calculated on different principles.

Position in Joint Stock Companies

In a joint stock company, a shareholder generally cannot be expelled. Apart from forfeiture of a shareholder who fails to pay its capital contribution (TCC Art. 482) and special situations in public companies, a shareholder can only be removed through transfer of its shares. Shareholders in joint stock companies therefore rely on contractual mechanisms such as leaver provisions and the drag-along right.

For a shareholder leaving voluntarily, see Withdrawal from a Limited Company.