Expulsion of a shareholder

What it means

Expelling a shareholder means ending a shareholder’s participation in a limited company against their will. The Commercial Code allows it in two main cases: when a shareholder fails to pay their contribution even after being asked, and when they seriously breach their duties and do not change this even after a written warning.

For an unpaid contribution, the general meeting decides on expulsion, provided it first asked the shareholder to pay within an additional period and warned of the consequences. For a serious breach of duties, such as competing with the company or harming it, a court decides on the company’s application.

An expelled shareholder is entitled to a settlement share corresponding to the value of their stake, determined from the financial statements. The stake passes to the company, which must transfer it to someone else or reduce its share capital within a set period.

How it works in practice

In disputes between shareholders we first review the articles of association and the shareholders’ agreement with the client. They often contain mechanisms that allow the situation to be resolved by agreement, such as an obligation to sell the stake at a predetermined price, which is faster and cheaper than court.

If expulsion goes ahead, we prepare the basis for calculating the settlement share from the financial statements as at the date participation ends. The amount is recorded as a liability to the former shareholder, and paying it affects both the company’s cash and its equity.

After expulsion we also deal with registering changes in the commercial register, transferring or cancelling the stake and any amendment to the articles. For minority shareholders we check that the procedure respects their statutory rights, or the decision may be challenged.

What to watch out for

Expulsion is a last resort. Court proceedings are long and costly, and the company is often paralysed while they last. Where possible we recommend agreeing a buyout of the stake, which ends the relationship faster and with less risk.

Formal errors, such as a missing written warning, too short a deadline or an improperly convened general meeting, can invalidate the expulsion. We therefore document every step and follow the law and the articles precisely.