Exclusion of a participant and withdrawal from an LLC

What is happening

A participant holding a third of the company has not attended meetings for years, and when he does, he votes against everything. Deals fall through, the bank will not lend without a meeting resolution, and the other participants ask whether they can simply exclude him.

The co-owner who ran sales has gone to a competitor, taking the team and the customer base with him, but has kept his stake. He still receives information about the company's affairs and can still block decisions.

A participant has decided to leave the LLC and filed notice, but the company is dragging out the payment or valuing the stake on accounts that understate the assets. The reverse happens too: a company receives a withdrawal notice at the worst possible moment and cannot see how to pay out without stalling the business.

What the law says

• The Civil Code allows a participant to ask the court to exclude another participant, with payment of the actual value of his stake, where that participant's acts or omissions have caused the company substantial harm or substantially obstruct its activities, including through gross breach of his duties.
• Federal Law No. 14-FZ of 8 February 1998 "On Limited Liability Companies" (the LLC Law) gives the right to seek exclusion to participants holding, together, at least ten per cent of the charter capital.
• Courts treat exclusion as a last resort, looking at how systematic the breaches are, the degree of fault and the real consequences for the company. Where two equal participants are in dispute, the conduct of both is examined.
• Withdrawal from an LLC is possible only if the charter provides for it, and the withdrawal notice must be notarised. Where the charter does not allow withdrawal, the options are to sell the stake or, in the cases set out in the LLC Law, to require the company to acquire it.
• The actual value of the stake is determined from the company's accounts for the last reporting period before the notice was filed. Disputes about the amount often require a court-appointed valuation, and the quality of the accounts is central.
• The time limit and method of payment are set by the LLC Law and the charter; if payment is late, the participant can recover the value of the stake and interest in the commercial court.

What we do

• We analyse the charter and the company's history: whether withdrawal is allowed, what restrictions apply and how stakes and votes are distributed.
• We gather evidence supporting exclusion: minutes of failed meetings, correspondence, the effect on contracts and finances, and conduct favouring competitors.
• We prepare a claim for exclusion, or the defence to one where it is our client who is being excluded.
• We handle withdrawal: drafting the notice, arranging notarisation and checking that the state register is updated.
• We test the valuation of the stake, bring in a valuer where needed and frame the questions for a court-appointed expert.
• We recover the value of the stake from the company or, acting for the company, agree a payment schedule that does not stall its cash flow.

What we will need from you

• The company charter with all amendments, and a current register extract.
• Minutes and resolutions of general meetings for recent years, notices of meetings and attendance records.
• The accounts for the last reporting period and, if available, data on the market value of the main assets.
• Documents showing conduct harmful to the company: letters, contracts, information about a competing business.
• The withdrawal notice and correspondence about payment, if withdrawal is already under way.