Throughout the existence of a company, some shareholders may forget why they established a legal entity together with other shareholders and what underpinned their collaboration.
The Latin expression “affectatio societatis” describes, as a common core, the shared will of individuals (or legal entities) to be partners, to unite in a single entity, to collaborate on an equal legal footing to obtain and share the benefits resulting from commercial activities. The essence of this specific element of commercial companies enjoys legal regulation within the provisions of Article 1.881 of the New Civil Code. According to the mentioned text, through the partnership agreement, two or more persons undertake to cooperate for the conduct of an activity and to contribute to it with monetary contributions, in kind, with specific knowledge, or services, to share the benefits or make use of the resulting economy.
When personal interests override corporate interests, or when animosities – sometimes stemming from personal circumstances – take control of the actions, situations of crisis or deadlock arise that must be resolved in one way or another.
One of the remedies provided by law is the exclusion of the problematic shareholder. Over time, there have been distinct views both in legal doctrine and in court decisions, with opinions alternating between rigid interpretations and more flexible interpretations, for equally valid reasons.
The Companies Act provides, through Article 222, the cases in which a shareholder may be excluded from a general partnership, limited partnership, or limited liability company:
a) the shareholder who, in delay, does not bring the contribution to which he has committed;
b) the unlimited liability shareholder who is bankrupt or has become legally incapable;
c) the unlimited liability shareholder who intervenes without right in administration or contravenes the provisions of Articles 80 and 82;
d) the managing shareholder who commits fraud to the detriment of the company or uses the company’s signature or social capital for his or others’ benefit.
Considering that the unlimited liability shareholders refer to shareholders in general partnerships and limited partners in limited partnerships or partnerships limited by shares, letters b) and c) will not be the subject of analysis in this text. We will develop below the hypotheses provided by letters a) and d) of Article 222.
The basis for the exclusion provided in Article 222 letter a:
Non-payment of the contribution. The shareholder may be excluded if he delays in making the contribution established by the provisions of the partnership agreement. The obligation to contribute is enforceable, with all the consequences thereof, “from the day on which the payment was to be made”, so it is not even necessary to put the debtor shareholder in delay.
The basis for the exclusion provided in Article 222 letter d:
The most frequent and complex basis for exclusion concerns the managing shareholder who commits fraud to the detriment of the company or uses the company’s signature or social capital for his or others’ benefit. The notion of fraud to the detriment of the company has three components: the objective side: actions or omissions carried out to obtain an advantage, the subjective side which presupposes the existence of intent, and the elemental condition of the prejudice – which fraud must cause to the company. Only the concomitant meeting of all three components can lead to the exclusion of the managing shareholder for the reason provided in Article 222, letter d. The occurrence of damage to the company due to the lack of managerial skills or experience does not constitute fraud and may result at most in the removal from office of the underperforming manager.
The grounds provided in Article 222 are exhaustively listed, and not exemplified. Although attempts have been made to make the grounds for exclusion of shareholders more flexible and extensive, noticed with the pronouncement of a Precedent Decision in resolving a legal issue, the High Court of Cassation and Justice has definitively settled this issue, establishing that the situations of exclusion of shareholders, provided by Article 222 of Law no. 31/1990, are not supplemented by the provisions of Article 1.928 of Law no. 287/2009 regarding the Civil Code. The Supreme Court ruled that the enumeration of cases of exclusion of shareholders from limited liability companies, made by the legislator in Article 222 paragraph (1) of Law no. 31/1990 is not exemplificative, but exhaustive. In this regard, the High Court stated that the assimilation of other conditions that would lead to the exclusion of shareholders from the company, outside those provided by law, is not possible because in the event of disagreements between shareholders, of a serious nature and hindering the operation of the company, we are facing a case of dissolution thereof, regulated, distinctively by the legislator in Law no. 31/1990.
On another note, the solution of excluding a shareholder from an LLC can only take place under strict and limited conditions provided by law.
The exclusion of a shareholder who has committed the acts mentioned above is pronounced by a court decision, at the request of the company or any shareholder. The company’s request for the exclusion of a shareholder must be based on a decision of all shareholders, except the shareholder in question.
Author: Atty. Lavinia Rusu