Exclusion of Shareholders
The exclusion of shareholders refers in company law to the legal possibility of removing a shareholder from a company against their will. This measure has a significant impact on the shareholder structure and the legal relationship of the company and affects both partnerships and partially incorporated companies in Germany. The exclusion primarily serves to protect the company and the other shareholders from harmful conduct or severe breaches of trust.
1. Legal Basis
1.1 Statutory Provisions
The exclusion of shareholders is not expressly regulated by law for all corporate forms. The German Civil Code (BGB) contains relevant provisions for the civil law partnership (GbR) in §§ 737-738 BGB. The German Commercial Code (HGB) provides rules for general partnerships (OHG) and limited partnerships (KG) in §§ 140, 161 para. 2 HGB. For the GmbH, exclusion is not expressly regulated by law, but it is derived from the general law on shareholder status and may be stipulated by the articles of association.
1.2 Contractual Provisions
Most articles of association contain specific provisions on exclusion to provide clarity on requirements and procedures. In addition to legal requirements, articles of association often specify more detailed reasons for exclusion, procedures, and legal consequences.
2. Requirements for Exclusion
2.1 Important Reasons
The exclusion of a shareholder is a serious intervention that generally requires an important reason. The most significant reasons for exclusion include in particular:
- Significant Breaches of Duty: Breach of duties of loyalty, confidentiality obligations, or duties owed to the company.
- Harm to the Company: Actions that cause substantial damage to the company’s assets or legal position.
- Unreasonable Cooperation: Breakdown of the relationship of trust, usually due to ongoing conflicts or disloyal conduct.
- Insolvency of the Shareholder: In many companies, the opening of insolvency proceedings is considered a possible ground for exclusion.
These reasons may be provided by law or regulated contractually.
2.2 Warning, Remediation, and Proportionality
Before exclusion, the shareholder concerned should usually be given an opportunity to comment or remedy the situation, unless the conduct is so serious that immediate exclusion appears unavoidable. The principle of proportionality must be observed.
3. The Exclusion Procedure
3.1 Initiation of the Exclusion
The exclusion procedure is generally decided upon by the remaining shareholders. The required majority can be stipulated in the articles of association. In the absence of such a provision, unanimity (without the vote of the shareholder to be excluded) is generally required in partnerships.
3.2 Process and Implementation
- Resolution: The shareholders must adopt a resolution to exclude the shareholder. The affected shareholder is generally excluded from voting.
- Recording the Minutes: The resolution must be properly recorded in the minutes.
- Termination/Dissolution of the Shareholder Relationship: The exclusion results in the departure of the shareholder. Legally, this constitutes a termination or rescission of the contract.
3.3 Judicial Exclusion
If an amicable solution or shareholder resolution is not possible, the company can apply to the competent court (usually the regional court) for the exclusion of a shareholder. This is particularly applicable to the GmbH (§ 140 HGB analogously; also known as actio pro socio). Judicial exclusion is generally the last resort.
4. Consequences of Exclusion
4.1 Departure of the Shareholder
With legally effective exclusion, the shareholder relationship of the affected shareholder ends. In partnerships and corporations, there may be statutory continuing liability for obligations already incurred.
4.2 Severance Payment
The excluded shareholder is entitled to a severance payment, the amount of which is determined by statutory regulations or by the provisions of the articles of association. The valuation of the severance amount is based on the fair market value of the shares at the time of departure.
4.3 Effect on the Company
The company generally continues to exist. In certain cases—particularly when there are only two shareholders—the company may be dissolved as a result of the exclusion.
5. Special Features Depending on the Type of Company
5.1 Civil Law Partnership (GbR)
For the GbR, the exclusion provisions are set out in §§ 737-738 BGB. Each shareholder may exclude another shareholder for good cause. The procedure is generally aimed at a unanimous resolution, excluding the vote of the affected party.
5.2 General Partnership (OHG) and Limited Partnership (KG)
For the OHG, § 140 HGB provides for exclusion for good cause by resolution of the shareholders or by judgment. The regulations apply correspondingly to the KG under § 161 para. 2 HGB.
5.3 Limited Liability Company (GmbH)
For the GmbH, exclusion is possible under § 34 GmbHG (redemption of shares) or by exclusion lawsuits. The prerequisite is an exclusion ground provided in the articles of association or by resolution. The respective clause in the articles of association is necessary. The excluded shareholder receives a severance payment.
6. Legal Remedies and Protection of the Excluded Party
The excluded shareholder has legal remedies against the exclusion. They may bring an action for annulment of the resolution or, in contentious proceedings, a declaratory action to establish the invalidity of the exclusion before the competent court.
7. Tax and Economic Aspects
The exclusion of a shareholder may have tax consequences for both the excluded party and the remaining shareholders as well as the company itself, particularly in connection with severance payments, the sale of shares, or any associated business cessation.
8. Summary
The exclusion of shareholders is a central instrument for safeguarding the ability to act and the integrity of a company. It is subject to strict legal requirements, requires a straightforward process, and always takes into account the rights and interests of all parties involved. Articles of association should contain clear rules regarding the exclusion procedure and its consequences to prevent conflicts and ensure legal certainty.
Frequently Asked Questions
Under what legal conditions is the exclusion of a shareholder possible?
The exclusion of a shareholder is generally only possible under certain statutory and contractual conditions. In company law—particularly for civil law partnerships (GbR), general partnerships (OHG), and limited partnerships (KG)—the law regulates exclusion by lawsuit, e.g., § 737 BGB or § 140 HGB. In addition, the articles of association may provide for their own grounds for exclusion; however, these must not violate mandatory law or good morals. An important reason within the meaning of the statutory provisions may include, for example, a serious breach of duty, gross violation of the duty of loyalty, lasting disruption of the relationship of trust, or insolvency of the shareholder. The exclusion of a GmbH shareholder is regulated in § 34 GmbHG and requires an important reason as well as an exclusion procedure by court decision, provided the articles of association permit or necessarily justify this.
How does the legal procedure for exclusion work?
The procedure for exclusion varies depending on the type of company and the provisions of the articles of association. In most cases, a court decision is required if the affected shareholder objects to the exclusion. In partnerships, exclusion usually occurs by exclusion lawsuit (so-called exclusion action), in which all other shareholders must proceed against the shareholder to be excluded by way of a lawsuit. In the case of a GmbH, if the articles of association allow it, exclusion can also be initiated by shareholder resolution; however, a court decision is usually required for finalization. During the procedure, the affected shareholder generally remains a member of the company until the exclusion becomes final, unless the articles of association provide for immediate suspension.
What rights does the shareholder to be excluded have during the procedure?
The shareholder facing exclusion has extensive rights during the exclusion procedure. They remain a member of the company and are thus generally still involved in company processes, unless, by way of exception, suspension of membership or suspension is stipulated. They are entitled to all shareholder participation and information rights. At the same time, they have the right to defend themselves against exclusion, that is, to be heard and to present evidence in the proceedings. Often, they are excluded from voting on their own exclusion for reasons of voting restrictions (§ 47 para. 4 GmbHG analogously), such as in the GmbH.
Is there a claim to a severance payment upon exclusion?
Upon legally effective exclusion, the shareholder is generally entitled to a severance payment. The amount is determined by the provisions of the articles of association or, if there are no such provisions, by the fair market value of the share at the time of departure. In commercial law, there may be a possibility to limit the severance payment in the contract to the book value or a lower amount, but this is limited, especially in partnerships and the GmbH, by the boundaries of immorality (§ 138 BGB). Disputes regarding the amount of the severance payment may lead to separate court proceedings.
What legal remedies are available to the excluded shareholder?
The affected shareholder can challenge the exclusion by various legal means, depending on the type and stage of the procedure. If the exclusion was decided by a shareholder resolution (for example, in the GmbH), the shareholder can file an action for annulment or nullity (§§ 246, 249 AktG analogously). In the course of a judicial exclusion action, the judgment can be appealed and reviewed on points of law. It should be noted that during ongoing proceedings, the shareholder remains a member and generally is not temporarily excluded from their rights, unless there is an urgent corporate necessity (e.g. imminent danger).
Must the reason for exclusion be regulated in the articles of association?
Not necessarily; statutory serious breaches of duty can also justify exclusion when the articles of association are silent on the matter. However, for legal certainty, it is advisable to specify grounds for exclusion and the exact procedure in the articles of association. The more precisely this is regulated, the lower the risk that an exclusion will subsequently fail due to formal or substantive legal errors. If provisions are absent, only the law applies, which may make practical enforcement of the exclusion more difficult.
What special features apply in the case of exclusion of a shareholder from a GmbH compared to partnerships?
For a GmbH, the exclusion of a shareholder by court decision is possible if an important reason exists and either the articles of association provide for this or the law explicitly applies (§ 34 GmbHG). The key difference from partnerships is that the possibility of exclusion is more narrowly regulated, the procedure is legally more complex, and the courts are more frequently involved. In partnerships, there are often greater opportunities for contractual arrangements and a higher degree of judicial scrutiny of internal majority decisions. There is also often a voting ban in cases of one’s own involvement, which must be procedurally observed.
Can the exclusion also be problematic for tax purposes?
The exclusion of a shareholder can have tax consequences, particularly with regard to the taxation of the severance payment and possible hidden reserves. The amount of the severance payment can result in business income or capital gains, which must be taxed. In partnerships, there is a risk of so-called ‘proportional real division,’ which in turn can have tax implications regarding the realization of hidden reserves. Tax advice before an exclusion is therefore strongly recommended.
