Acceptance of a new shareholder/expulsion of a shareholder
 

In this section you can find the following information:

  • How are new shareholders admitted?
  • How are the shareholders expulsed?

In the case of the limited liability company (LTD) each of the shareholders contributes to the development and success of the company and the performance of its business. The Commerce Act  (CA) governs both the possibility for acceptance of new shareholders (if , for example, the company expands and there are perspectives for the expansion of its business and capacity), and the possibility that a shareholder is expulsed from the company (e.g. in case of failure to perform his obligations,  the company).

How are new shareholders admitted?

Submission of a written application

Submission of a written application

The written application should be addressed to the company. In it the person, who wants to become a shareholder, states that he accepts the terms and conditions of the articles of association  and wants to joint the company.

Convocation of the general assembly1 of the company and making a decision for the acceptance of a new shareholder

Convocation of the general assembly of the company and making a decision for the acceptance of a new shareholder

The General Assembly is convoked by company's general manager at least once per year, as the general manager is obliged to convoke an extraordinary general assembly and at the written request of the shareholders holding shares of more than 1/10 of the capital. If the general manager fails to convoke a general assembly within two weeks of the date of the request, the shareholders, requesting the convocation, may do that themselves. the general assembly is convoked by a written invitation, which must be received by all shareholders at least 7 days prior to the date of the meeting, unless otherwise provided in the articles of association.

The invitation must indicate where and when the meeting of the general assembly will take place, as well as its agenda – what matters will be discussed and decided on by the shareholders (art. 139 of the Commerce Act).

At the meeting the general assembly must make a decision for the Acceptance of a new shareholder. The decision is made by the majority of the owners of more than ¾ of company's capital. In order for the decision made to be valid minutes of the meeting with notarized signatures and contents, as both notarizations are to take place at the same time, must be prepared unless another form of a written decision is provided for in the articles of association.

Registration of the decision for the acceptance of a shareholder

Registration of the decision for the acceptance of a shareholder

The decision for the acceptance of a shareholder becomes effective, only after it is registered with Commercial Register (art. 140, para. 4 of the CA). The registration is based on an application (as per Template А4), submitted by company's general manager or his proxy, authorized by a notarized power of attorney, to the Registry Agency. The application may be submitted online, and this requires the use of a qualified electronic signature. If the application is submitted online, the payable registration fee is twice as low.

The application, whether submitted online or on site at the Registry Agency, must be accompanied by the following documents:

  • Application by the person, who wants to become a shareholder;
  • The decision of the general assembly for the acceptance of the shareholder;
  • A copy of the articles of association, endorsed by the general manager and reflecting the change, as well as one copy, where the personal data, with the exception of those, required by law, are erased;
  • If the newly-accepted shareholder purchases a company share from an existing shareholder, the Company share transfer contract with notarized signatures, as well as a declaration as per art. 129, para. 2 related to art. 129, para. 1 of the CA (template of the declaration can be found in section declarations in the drop-down menu, must also be attached. More information about the sales of company shares can be found here;
  • If the newly accepted shareholder inherits a company share from a deceased shareholder, the relevant documents, evidencing that he is the one, inheriting the company share (e.g. a copy of the final will and testament, certificate of heirs, etc.), must also be submitted.

 

Important to know
Important to know

It is important to note that if a new shareholder is accepted in a sole-owner limited liability company (SOLTD), the company ceases to be a sole-owner and becomes a regular limited liability company (LTD).

 

How are the shareholders expulsed?

The Commerce Act  provides for a number of cases, when it is possible to terminate the membership of a shareholder in the company.

  • If the shareholder is a natural person, his membership is terminated automatically upon his death or judicial disability1 imposed by the court.
  • If the shareholder is a legal entity, its membership is terminated if the company-shareholder is declared bankrupt or terminated by means of a liquidation.
  • Whether it is a natural person or a legal entity, the shareholder may be expulsed from the company by decision of the general assembly.
  • The shareholder may terminate his participation in the company at his sole discretion, by means of a written advance notice, submitted at least 3 months prior to the date of termination.

The expulsion of a shareholder is an extreme measure, which can be applied to a member of the company, who fails to fulfil his obligations. In this respect, a clear distinction is to be made between the leaving of a shareholder (termination of the membership at his discretion, preceded by a written advance notice) and the transfer of that shareholder's company share to another person, on the one hand, and the expulsion of a shareholder, on the other. In case of a leaving shareholder and transfer of all his company share to another person, the termination of the membership of the company is subject to that shareholder’s own will, while the expulsion from the company takes place at the initiative of the rest of the shareholders and subject to the presence of certain preconditions, the shareholder cannot oppose the decision of the other shareholders.

It should be noted that the law aims at limiting such actions, and therefore the procedure for expulsion of a shareholder is complex and the expulsed shareholder may seek protection of his rights and even restoration of his membership in the company by the court.

The CA regulates in detail the situations, where the shareholder may be expulsed from the company. This means that the shareholder cannot be expulsed without any reason, and should this happen, the court can repeal the expulsion (art. 126 of the CA).

Before commencing the expulsion procedure, the shareholder must first be warned in writing. If the shareholder fails to remedy his conduct, which has caused the written warning, the general assembly of the company may make a decision for his expulsion.

 

Important to know
Important to know

The decision for the expulsion is made by the general assembly by a majority of the holders of more than ¾ of company's capital. In such voting, the company share of the shareholder, being expulsed, is deducted from company's capital and thus the majority is formed by the owners of ¾ of the rest of the capital. The shareholder, whose expulsion is voted for, is not entitled to vote.

Art. 126 of the CA regulates several cases, when it is possible to commence the procedure for expulsion of a shareholder:

  • First of all, it is possible that the membership of a shareholder is terminated, when he has failed to deposit or repay his share in company's capital. In practice, this happens relatively seldom, since the capital of the company is usually deposited, immediately after the establishment of the company, and the possible issues in the relations between shareholders occur at a later stage of the company's business. If, however, one of the shareholders fails to deposit/pay his share by the deadline, specified in the articles of association, the general assembly, by the majority of the owners of more than half of the capital, specifies an additional period of time (not less than 1 month), in which the payable contributions can be deposited. Company's general manager must notify the shareholder in writing of such additional term and warn him of the forthcoming expulsion. If the shareholder fails to fulfil his obligation also in the additional period of time provided, his membership will be automatically terminated. In this case the expulsed shareholder may not request the refunding of already made contributions in company's capital;
  • A shareholder be expulsed by the general assembly, if he fails to pay an additional financial contribution, the general assembly of the company. This additional contribution will not be incorporated into company's capital, but it will serve for covering the obligations of the company. When the general assembly establishes such an additional contribution, and the shareholder cannot pay it, he may, at his sole discretion, leave the company. If he fails to leave the company and does not make the specified additional contribution, the general assembly, subject to first giving a written warning, expels such a shareholder from the company;
  • The general assembly of the company may expel a shareholder after giving a written notice, when the shareholder fails to fulfil his obligations for providing support in company's business, fails to comply with the decisions of the general assembly or performs actions, which are against company’s interests. It should be noted that if the expulsed shareholder appeals such decision of the general assembly before the court, the company will have to prove the circumstances, causing such a decision.

In each of these cases the expulsion of a shareholder is registered with the Commercial Register as detailed above, as the application, submitted by the general manager to the Registry Agency, must be accompanied by the written warning for the forthcoming expulsion of the shareholder (in the case, as per the first paragraph) and the decision of the general assembly of the company.

 

For more information
For more information

For more information on the procedure for the acceptance of a new shareholder and the expulsion of a shareholder, as well as the related regulatory framework, please refer to the websites of the:

 

1 The general assembly is composed of all the shareholders

2 Judicial disability is a special regime, which the court can impose to a person, who cannot take care of himself and his business (e.g. due to a mental disorder, insufficient mental and physical maturity, etc.) persons, placed under complete judicial disability, cannot conclude transactions and bind themselves and their business is taken care of by a guardian.

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