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50% stake in LLC: exception

Conflict of business owners is a common phenomenon in companies where there are more than one participants. Sometimes the reason is in interpersonal relationships, sometimes – in different views on doing business. There are other reasons.

Such conflicts create obstacles to business development, demotivate staff and adversely affect the company’s reputation. In some cases, the parties to the conflict may take actions to exclude the partner from the company.

Story plot
In a company with two owners having equal shares of 50% of the authorized capital, disagreements arose as a result of which one of them tried through the court to exclude the second from the list of participants.

The claims were based on the fact that the business partner:

– It displays the assets of the company, including new and used equipment, materials and other property in companies controlled by it;

– Terminated the lease of the railway line;

– Disseminates information about the company, including among contractors and regulatory authorities, which may lead to the inability to conduct business.
According to the plaintiff, by his actions the partner causes losses to the company and puts it in a position in which it is impossible to carry out entrepreneurial activity.

The argument of the second partner was based on the fact that the assets were not withdrawn from the company: they were temporarily stored in premises rented on behalf of another company due to insufficient storage space in the production process.

On the issue with the branch of the railway, the partner provided evidence that the controversial situation was due to the issued instructions of the regulatory authorities, which led to the renegotiation of the lease to another legal entity.

The court refused to expel the participant.

Court position
1. The court took into account evidence of access by company employees to the new warehouse on which the company’s property was located. And in view of the fact that the property was listed on the balance sheet, the court considered the property to belong to the company, and not to drop out of its possession, as the plaintiff believed.

2. The court considered that the plaintiff did not prove his position regarding the railway line and the dissemination of information about the business: the company did not get in the way, during the indicated period the work was carried out to fulfill the order, and the contract was renegotiated due to differences in the cost of rent. The falsity of the disseminated information was not proved by inspections, and there is no evidence of their negative impact on the state of affairs in the company.

3. The court considered the facts set forth in the lawsuit unproven, which is why it refused to apply an extreme measure of protection, namely: to exclude the participant.

Comments
1. The right to demand the expulsion of a participant belongs to a partner who owns a share in the capital of 10% or more, provided that such a participant grossly violates his obligations or by his actions leads to the impossibility of the company functioning.

2. Exclusion of the participant is an effective, but applied in exceptional cases measure to protect the interests of the company: both harmful actions and the consequences of actions must be proved.

3. In the case under review, the court saw an insoluble conflict of owners, which generally affects the company’s activities, which is also confirmed by the fact that the company was represented by two lawyers with different legal positions. Moreover, the cause of the situation is not at all the behavior of one of the parties: it is the result of the actions of both owners.

4. The court recommended that the owners in a conflict and a complete absence of illegal actions either liquidate the company or decide who will leave the business on their own.

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