When does a partner’s right of withdrawal exist?

right of withdrawal of membership

The right of separation of the partner in a commercial company is a key aspect of company law and it is essential to be familiar with it in order to adequately protect the rights and interests of the partners.

In general terms, the partners can separate from the company for two types of causes covered by our jurisdiction: Legal and statutory.

In this regard, it is important to note that the cause of separation is of a cause-effect nature, which means that it arises as a consequence of a series of decisions taken by the majority of the company’s share capital and which affect one of the partners.

Legal grounds for the separation of shareholders

Article 346 of Royal Legislative Decree 1/2010, of 2 July, approving the revised text of the Capital Companies Act (hereinafter, LSC) establishes the legal grounds for the separation of shareholders in a capital company. Among the causes for separation established in the aforementioned articles are the following:

  • Shareholders who did not vote in favour of a specific resolution are entitled to withdraw in cases such as the substitution or substantial modification of the corporate purpose, the extension or reactivation of the company, and the creation, modification or early termination of the obligation to perform ancillary services.
  • In limited liability companies, the shareholders also have the right to withdraw in the event of a change in the system for transferring the company’s shares.
  • In cases of transformation of the company and transfer of the registered office abroad, the terms of separation are laid down in Act 3/2009 of 3 April on structural changes in commercial companies.

Additional grounds for separation of shareholders

On the other hand, Article 347 of the LSC refers to the statutory grounds for separation. This article establishes that the articles of association of a company may define additional grounds for separation in addition to those already established by law.

These statutory grounds allow a company’s articles of association to be adapted and adjusted to the needs and characteristics of the company, which allows for greater flexibility in the operation of the company.

In addition, the articles of association must specify how the existence of these grounds for separation is to be accredited, how the right of separation is to be exercised and what is the time limit for exercising it.

Right of separation when there is no distribution of dividends

Finally, Article 348 bis of the LSC regulates the right of separation of shareholders in the event of non-distribution of dividends. In essence, this rule establishes that, as from the fifth financial year following the company’s registration in the Commercial Register, the shareholder who has protested the insufficiency of the dividends will have the right to withdraw from the company if the general meeting does not agree to distribute at least twenty-five percent (25.00%) of the profits obtained during the previous financial year that are legally distributable.

If dividends are equivalent to 25%, the right of separation shall not occur

However, if dividends equivalent to twenty-five percent (25.00%) of the legally distributable results recorded during the last five (5) years have been distributed, then the right of separation shall not arise. In addition, in order to remove or modify the cause for separation, the consent of all shareholders shall be required, unless the right to separate is recognized for a shareholder who has not voted in favour of the resolution.

In the case of companies obliged to prepare consolidated accounts, the same right of withdrawal shall be recognised for a shareholder of the parent company if the general meeting of the company does not resolve to distribute at least twenty-five per cent (25.00%) of the consolidated profits attributed to the parent company during the previous financial year. Although the right of separation of shareholders due to lack of dividend will not be applicable in all commercial companies.

In this sense, the doctrine establishes that the separation of a shareholder from a company is the voluntary withdrawal of the shareholder from the company, since the bond existing between the shareholder and the company is a consummated contractual relationship, and when this contractual relationship is altered, such as in its object or duration, the shareholder himself can separate from the company.

Fabián PenaArtículo escrito por:

Fabián Pena

Lawyer – Corporate and M&A

fabian.pena@metricson.com

 

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