Instruments. How to legalize a partnership break
Our regular partners, Vetrov & Partners Law Firm continues to acquaint you with the most pressing issues of the legal aspect of iT-entrepreneurship and registration of intellectual property rights. New material from lawyers from Vetrov & Partners is dedicated to the legal options for partnerships, which, if necessary, will help legally remove a partner from business.
Sometimes the desire to attract a partner in a business disappears very quickly when you begin to model various positive and negative options for relationships. In such a situation, you probably start to pay attention to media publications about how someone “threw” someone, the unsuccessful experience of your acquaintances or friends, and the case law on this issue. But it is unlikely that emotions will help in making a reasonable, balanced decision. It should be based on a comprehensive analysis of the information available.
For our part, we want to offer 4 tools and explain the conditions for their use. We hope that their presentation will not contribute to dishonest, unethical behavior, but will only allow us to correctly build relationships between partners from the very beginning. At the same time, partners are participants (shareholders) of the company through which they conduct their business. Also, this article is a continuation of previously published and related to the legislation on legal entities (Federal Law of 05.052014 No. 99-ФЗ).
The corporate agreement (Article 67.2 of the Civil Code of the Russian Federation), the shareholders agreement (Article 32.1 of the Law on Joint-Stock Companies), the agreement on the exercise of the rights of a participant (Clause 3 of Article 8 of the Law on Limited Liability Companies) for the purposes of our material, we propose to call one single term "Corporate agreement."
According to Article 67.2 of the Civil Code of the Russian Federation, participants in a business company have the right to conclude a corporate agreement between themselves, in accordance with which they undertake to exercise these rights in a certain way or to refrain (refuse) from their implementation.
It is logical to take the opportunity to regulate relations between participants and determine in advance the voting procedure on various issues on the agenda of the general meeting of participants.
For example, both participants must vote “for” on the issue of electing a sole executive body, regardless of who the candidate is proposed on, or on the approval of an interested party transaction with an affiliate, if it is worth more than 500 thousand rubles.
Thus, in the agreement it is possible to agree in advance on those issues on which difficulties may arise when discussing them between partners, the inability to make any decisions on them.
Naturally, this approach implies the need to assess the situation of the partner’s relationship from the point of view of the medium and long term, and the results of such agreements should be written in writing.
Persistence in achieving the goals, scrupulousness in a clear and consistent presentation of important issues and how to solve them, multiplied by attentiveness clearly, in our opinion, will allow even the most nervous partner to sleep peacefully.
If your disbelief in the Russian judicial system is not completely and unconditionally, then we recall the possibility of judicial protection of your rights. The dispute between partners will be considered corporate and relates to the jurisdiction of arbitration courts. Lastly, the practice of considering such a category of cases has already been established, which allows us to assert a relatively greater chance of achieving compulsory support for the conditions set forth in the corporate agreement.
By the way, I almost forgot to say that obligations under a corporate agreement can be provided in different ways. Including by setting a fine or compensation (a new way of providing evidence introduced by the legislator, given the current version of the bill amending the law on joint-stock companies).
In accordance with article 67 of the Civil Code of the Russian Federation, a participant has the right to demand the exclusion of another participant from the partnership or company (except for public joint-stock companies) in a judicial proceeding.
Until September 1, 2014, the rule on exclusion of a participant existed only in the Law on Limited Liability Companies. After the specified calendar date and subject to the proposed changes to the Law on Joint Stock Companies, it may be possible to exclude the shareholder of the company. Such an innovation will be extremely pleasant and, in our opinion, restore the balance between the participant of the LLC and the shareholder of the JSC.
However, until the amended rules are in force, it is advisable to pay attention to the current practice of considering cases on the exclusion of a participant from society.
If we approach the issue from the point of view of statistics only, then depending on the region and instance, for 1 participant exclusion there are from 9 to 15 refusals of the same.
Despite such data, we believe that an exception is a fairly effective option if the initiator of the exception is sufficiently active in this matter.
To determine an acceptable degree of activity and favorable conditions for exclusion, you need to pay attention to a couple of circumstances:
a) the content of Article 67 of the Civil Code of the Russian Federation.
In this norm, the expelled participant must behave a la inappropriately. Somehow it caused harm to the company, does not allow decisions to be taken by the general meeting (for example, upon approval of transactions, election of the head of the company), prevents it from achieving the goals set for the company (which can be expressed in the form of specific financial indicators and enshrined in the charter of the company).
b) Information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 05.24.2012 N 151 approved. A review of the practice of arbitration courts in disputes related to the exclusion of a participant from a limited liability company.
According to, for example, the participant’s actions on the alienation of the company's immovable property made it impossible to carry out activities, since production buildings were sold, which virtually eliminates the continuation of the company's main production activities. This was the basis for the exclusion of the participant (paragraph 2 of the above Practice Review).
In accordance with Article 26 of the Law on LLC, a member of the company is entitled to leave the company at any time. He can declare his desire to leave society substantially in advance of the date of his immediate exit from society, or such withdrawal may be associated with the onset of some events.
For example, such events include non-performance by the company of revenue indicators for the reporting period, termination of more than 30 percent of transactions with key customers, failure to make decisions on issues related to the approval of major transactions or an increase in the authorized capital of a company at two or more general meetings of participants.
At the same time, the participant’s application cannot be withdrawn or changed by him later. This conclusion can be reached as a result of an analysis of legislation in which the participant does not directly have the indicated right. So, and judicial practice.
According to paragraphs “B” p.16 of the Decree of the Plenum of the Supreme Court of the Russian Federation N 90, the Plenum of the Supreme Arbitration Court of the Russian Federation N 14 dated 12/09/1999 filing an application by a member of the company gives rise to the legal consequences provided for by this norm, which cannot be changed unilaterally.
True, we note that a participant has the right to challenge his application on grounds of invalidity, if there are grounds for this indicated in the law (for example, a statement was made under the influence of a material misconception, Article 178 of the Civil Code of the Russian Federation).
An application for withdrawal from the company must be transmitted to the company itself.
Thus, if the partners as a possible option to resolve the current and (or) future corporate conflict choose one of them to leave the company upon the occurrence of relevant events, then the goal will be achieved.
Naturally, for the practical implementation of the voiced, a written application for exit with indication of the necessary information and its direct transfer to the public will be required.
The owner of a share or shares of a company has the right to sell his share or his shares to another participant (shareholder) or to a third party, if there are no restrictions in relation to such a transaction by the charter and (or) corporate agreement.
Alienation of a share (shares) is a transaction. In accordance with Article 157 of the Civil Code of the Russian Federation, a transaction is permissible depending on the occurrence of an event in respect of which it is not known whether it will occur.
If so, then the business partners can again conclude an agreement in which they provide for the sale by one of them of their share in the event of any event or the sale of both of them by their shares. True, in the latter case, it is logical to propose differentiating events so that there is no banal exchange of shares between the partners of society.
We hope that the foregoing was not overloaded with legal subtleties and allowed the formation of additional tools for resolving corporate conflicts. At the same time, the list of tools we have presented is not exhaustive and their placement in the material is not given from the point of view of their priority, but only for the convenience of perceiving information.
Vitaly Vetrov,
Managing Partner , Vetrov & Partners
Law Firm . Ask your questions in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog
. We remind you that our project, created to attract venture capital investments in startups, is fully launched in 26 days. Currently, the platform is working to register investors and startup authors in pre-launch mode.
Sometimes the desire to attract a partner in a business disappears very quickly when you begin to model various positive and negative options for relationships. In such a situation, you probably start to pay attention to media publications about how someone “threw” someone, the unsuccessful experience of your acquaintances or friends, and the case law on this issue. But it is unlikely that emotions will help in making a reasonable, balanced decision. It should be based on a comprehensive analysis of the information available.
For our part, we want to offer 4 tools and explain the conditions for their use. We hope that their presentation will not contribute to dishonest, unethical behavior, but will only allow us to correctly build relationships between partners from the very beginning. At the same time, partners are participants (shareholders) of the company through which they conduct their business. Also, this article is a continuation of previously published and related to the legislation on legal entities (Federal Law of 05.052014 No. 99-ФЗ).
The first tool is a corporate contract
The corporate agreement (Article 67.2 of the Civil Code of the Russian Federation), the shareholders agreement (Article 32.1 of the Law on Joint-Stock Companies), the agreement on the exercise of the rights of a participant (Clause 3 of Article 8 of the Law on Limited Liability Companies) for the purposes of our material, we propose to call one single term "Corporate agreement."
According to Article 67.2 of the Civil Code of the Russian Federation, participants in a business company have the right to conclude a corporate agreement between themselves, in accordance with which they undertake to exercise these rights in a certain way or to refrain (refuse) from their implementation.
It is logical to take the opportunity to regulate relations between participants and determine in advance the voting procedure on various issues on the agenda of the general meeting of participants.
For example, both participants must vote “for” on the issue of electing a sole executive body, regardless of who the candidate is proposed on, or on the approval of an interested party transaction with an affiliate, if it is worth more than 500 thousand rubles.
Thus, in the agreement it is possible to agree in advance on those issues on which difficulties may arise when discussing them between partners, the inability to make any decisions on them.
Naturally, this approach implies the need to assess the situation of the partner’s relationship from the point of view of the medium and long term, and the results of such agreements should be written in writing.
Persistence in achieving the goals, scrupulousness in a clear and consistent presentation of important issues and how to solve them, multiplied by attentiveness clearly, in our opinion, will allow even the most nervous partner to sleep peacefully.
If your disbelief in the Russian judicial system is not completely and unconditionally, then we recall the possibility of judicial protection of your rights. The dispute between partners will be considered corporate and relates to the jurisdiction of arbitration courts. Lastly, the practice of considering such a category of cases has already been established, which allows us to assert a relatively greater chance of achieving compulsory support for the conditions set forth in the corporate agreement.
By the way, I almost forgot to say that obligations under a corporate agreement can be provided in different ways. Including by setting a fine or compensation (a new way of providing evidence introduced by the legislator, given the current version of the bill amending the law on joint-stock companies).
The second tool is an exception to a corporation
In accordance with article 67 of the Civil Code of the Russian Federation, a participant has the right to demand the exclusion of another participant from the partnership or company (except for public joint-stock companies) in a judicial proceeding.
Until September 1, 2014, the rule on exclusion of a participant existed only in the Law on Limited Liability Companies. After the specified calendar date and subject to the proposed changes to the Law on Joint Stock Companies, it may be possible to exclude the shareholder of the company. Such an innovation will be extremely pleasant and, in our opinion, restore the balance between the participant of the LLC and the shareholder of the JSC.
However, until the amended rules are in force, it is advisable to pay attention to the current practice of considering cases on the exclusion of a participant from society.
If we approach the issue from the point of view of statistics only, then depending on the region and instance, for 1 participant exclusion there are from 9 to 15 refusals of the same.
Despite such data, we believe that an exception is a fairly effective option if the initiator of the exception is sufficiently active in this matter.
To determine an acceptable degree of activity and favorable conditions for exclusion, you need to pay attention to a couple of circumstances:
a) the content of Article 67 of the Civil Code of the Russian Federation.
In this norm, the expelled participant must behave a la inappropriately. Somehow it caused harm to the company, does not allow decisions to be taken by the general meeting (for example, upon approval of transactions, election of the head of the company), prevents it from achieving the goals set for the company (which can be expressed in the form of specific financial indicators and enshrined in the charter of the company).
b) Information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 05.24.2012 N 151 approved. A review of the practice of arbitration courts in disputes related to the exclusion of a participant from a limited liability company.
According to, for example, the participant’s actions on the alienation of the company's immovable property made it impossible to carry out activities, since production buildings were sold, which virtually eliminates the continuation of the company's main production activities. This was the basis for the exclusion of the participant (paragraph 2 of the above Practice Review).
The third tool is the participant’s exit from society
In accordance with Article 26 of the Law on LLC, a member of the company is entitled to leave the company at any time. He can declare his desire to leave society substantially in advance of the date of his immediate exit from society, or such withdrawal may be associated with the onset of some events.
For example, such events include non-performance by the company of revenue indicators for the reporting period, termination of more than 30 percent of transactions with key customers, failure to make decisions on issues related to the approval of major transactions or an increase in the authorized capital of a company at two or more general meetings of participants.
At the same time, the participant’s application cannot be withdrawn or changed by him later. This conclusion can be reached as a result of an analysis of legislation in which the participant does not directly have the indicated right. So, and judicial practice.
According to paragraphs “B” p.16 of the Decree of the Plenum of the Supreme Court of the Russian Federation N 90, the Plenum of the Supreme Arbitration Court of the Russian Federation N 14 dated 12/09/1999 filing an application by a member of the company gives rise to the legal consequences provided for by this norm, which cannot be changed unilaterally.
True, we note that a participant has the right to challenge his application on grounds of invalidity, if there are grounds for this indicated in the law (for example, a statement was made under the influence of a material misconception, Article 178 of the Civil Code of the Russian Federation).
An application for withdrawal from the company must be transmitted to the company itself.
Thus, if the partners as a possible option to resolve the current and (or) future corporate conflict choose one of them to leave the company upon the occurrence of relevant events, then the goal will be achieved.
Naturally, for the practical implementation of the voiced, a written application for exit with indication of the necessary information and its direct transfer to the public will be required.
The fourth instrument is the repurchase of a share or shares from a member of a corporation
The owner of a share or shares of a company has the right to sell his share or his shares to another participant (shareholder) or to a third party, if there are no restrictions in relation to such a transaction by the charter and (or) corporate agreement.
Alienation of a share (shares) is a transaction. In accordance with Article 157 of the Civil Code of the Russian Federation, a transaction is permissible depending on the occurrence of an event in respect of which it is not known whether it will occur.
If so, then the business partners can again conclude an agreement in which they provide for the sale by one of them of their share in the event of any event or the sale of both of them by their shares. True, in the latter case, it is logical to propose differentiating events so that there is no banal exchange of shares between the partners of society.
We hope that the foregoing was not overloaded with legal subtleties and allowed the formation of additional tools for resolving corporate conflicts. At the same time, the list of tools we have presented is not exhaustive and their placement in the material is not given from the point of view of their priority, but only for the convenience of perceiving information.
Vitaly Vetrov,
Managing Partner , Vetrov & Partners
Law Firm . Ask your questions in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog
. We remind you that our project, created to attract venture capital investments in startups, is fully launched in 26 days. Currently, the platform is working to register investors and startup authors in pre-launch mode.