The Exclusion and Separation of Partners in a Limited Liability Company: Legal and Practical Analysis

Introduction

In the field of commercial companies, the exclusion and separation of partners in a limited liability company (L.L.C.) are essential mechanisms for ensuring the stability and functionality of the company in situations of conflict or misalignment between partners. These procedures, regulated mainly by the Capital Companies Act (Royal Legislative Decree 1/2010, of 2 July), allow for the orderly and legal departure of partners who, for various reasons, no longer fit into the common business project.

At the Commercial Law Department of Belzuz Abogados, S.L.P., we believe that both exclusion and separation have significant legal and practical implications that must be managed with precision and transparency. This article analyses the legal basis, applicable procedures and practical considerations that must be taken into account when dealing with these situations in a limited liability company.

Exclusion of Partners in a Limited Liability Company

1. Legal Basis and Legal Nature

The exclusion of partners in a limited liability company is regulated by Articles 350 to 352 of the LSC. This mechanism allows the company, with the prior approval of the remaining members, to force the departure of a member when certain circumstances provided for by law or in the Articles of Association arise. Its purpose is to protect the interests of the company and the other members against behaviour or situations that could jeopardise the stability or development of the joint project.

At Belzuz Abogados, S.L.P., we believe that the exclusion of a partner involves the redemption or acquisition of their shares, which requires a formal procedure in accordance with the law to avoid subsequent legal disputes.

2. Causes for exclusion

The LSC establishes a general framework for the exclusion of partners, distinguishing between legal and statutory causes:

Legal Causes (Article 350 LSC):

• Failure to comply with the obligation to perform accessory services established in the Articles of Association.
• Violation of the prohibition on competition imposed on the managing partner, unless expressly authorised by the company.

Statutory Causes (Article 351 LSC):

The Articles of Association may provide for additional causes for exclusion, provided that they are lawful and clear. For example:

• Failure to contribute committed capital.
• Actions that seriously harm the company.
• Loss of the conditions necessary to be a partner.

3. Exclusion Procedure

The exclusion procedure must comply with legal formalities to ensure the validity of the act:

1. Resolution of the General Meeting: The exclusion must be approved by the General Meeting by a resolution adopted by at least an ordinary majority of the votes corresponding to the shares in which the member concerned has no interest. The member concerned may not exercise their right to vote on this resolution.

The Commercial Law Department emphasises that the shares of the excluded partner must be valued in accordance with the criteria established in the Articles of Association or, failing that, by an auditor appointed by the Commercial Registry.

1. Reimbursement of the Value of the Shares: The company must reimburse the excluded partner for the fair value of their shares, either by redeeming them or by acquiring them through the company or other partners.
2. Registration and Publicity: The exclusion agreement must be made public by means of a notarial deed and registered in the Commercial Registry.

Separation of Partners in a Limited Liability Company

1. Concept and Legal Regulation

The separation of members, regulated in Articles 346 to 349 of the LSC, grants members the right to voluntarily withdraw from the company when certain circumstances arise. This mechanism protects the individual freedom of members and prevents them from being forced to remain in a company with which they no longer share interests or perspectives.

Unlike exclusion, separation is a unilateral decision by the partner, although it also requires compliance with certain legal and statutory requirements.

2. Causes for Withdrawal

The LSC establishes the following legal causes for withdrawal (Article 346):

Substantial modification of the Articles of Association: A partner may withdraw if resolutions are adopted that involve:

• Replacement or modification of the corporate purpose.
• Extension of the duration of the company.
• Reactivation of the company after its dissolution.
• Transformation of the company: The right of separation is activated if the company is transformed into another type of company.

The partners may separate if the General Meeting does not agree to distribute at least one third of the profits obtained during the previous three financial years, provided that there are distributable profits.

In addition to these legal causes, the Articles of Association may provide for other specific causes for withdrawal, provided that they are lawful and reasonable.

3. Withdrawal Procedure

The exercise of the right of withdrawal involves the following steps:

1. Notification to the Company: The shareholder must communicate their decision to withdraw by means of a letter addressed to the administrative body, indicating the reason for their withdrawal.
2. Valuation and reimbursement of shares: As in the case of exclusion, the shares of the separating shareholder must be valued in accordance with the criteria set out in the Articles of Association or, failing that, by an independent auditor appointed by the Companies Registry.
3. Capital Reduction or Transfer of Shares: The company may choose to reduce its share capital by redeeming the shares or facilitating their acquisition by other members or third parties.
4. Formalisation: The separation must be formalised by means of a public deed and registered in the Commercial Register.

Practical Aspects and Challenges in the Exclusion and Separation of Partners

Although regulated by the LSC, exclusion and separation procedures present practical challenges that require careful management:

• Determining the fair value of the shares can lead to conflicts, especially if the statutory criteria are unclear or if the parties disagree with the auditor’s valuation.
• The exclusion or separation of a partner can place a significant financial burden on the company, especially if it must reimburse the value of the shares without sufficient resources.
• At the Commercial Law Department, we consider it essential that the Articles of Association include clear and detailed clauses on the causes and procedures for exclusion and separation in order to minimise the risk of disputes.

Conclusion

The exclusion and separation of members are important mechanisms that guarantee the stability and functionality of a limited liability company. However, their correct application requires in-depth knowledge of the regulations set out in the Capital Companies Act and strategic planning that takes into account the legal, financial and operational aspects that the company may experience.

At Belzuz Abogados, S.L.P.‘s Commercial Law Department, we have extensive experience in managing corporate disputes and drafting all necessary documents tailored to the specific circumstances of each company, accompanying them throughout the process and ensuring legal certainty.