Exclusion of a shareholder from a simple public limited company – procedure and grounds

Exclusion of a shareholder from a simple joint-stock company – procedure and grounds

The exclusion of a shareholder from a simple joint-stock company (P.S.A.) is a procedure whereby, pursuant to a court ruling, a specific person loses their status as a shareholder and their shares are acquired by the remaining shareholders or designated third parties at a purchase price determined by the court. This is not a tool for resolving ongoing conflicts or differences of opinion between shareholders, but a mechanism used in situations where the continued participation of a particular shareholder significantly hinders or prevents the normal functioning of the company.

Grounds for excluding a shareholder from a public limited company

The prerequisite for excluding a shareholder is the existence of valid grounds relating to that shareholder – circumstances which mean that their continued participation in the company significantly hinders or even prevents its normal functioning.

The Act does not provide a list of such grounds. Each case is subject to the court’s individual assessment. In practice, these may include circumstances for which the shareholder is at fault, such as acting to the detriment of the company or sabotaging its decisions, as well as circumstances through no fault of their own – e.g. long-term illness or a trip preventing participation in the company’s affairs. The court examines in each case whether the situation in question justifies such a serious intervention as depriving someone of their status as a shareholder.

According to case law**, valid grounds for exclusion include, amongst other things, conducting business in competition with the company**, as well as the inability of shareholders to cooperate without conflict arising from interpersonal relations within the company.

Who may request the exclusion of a shareholder from P.S.A.?

A request for exclusion may be made by shareholders representing more than half of the total number of votes in the company. These do not need to be all the remaining shareholders – it is sufficient that, acting jointly, they hold the required number of votes in total.

The articles of association may only raise this threshold – for example, by requiring a two-thirds majority. However, the threshold of half the total number of votes cannot be lowered, as it constitutes the statutory minimum.

Procedure for excluding a shareholder from a public limited company

1. Bringing an action

Shareholders holding the required number of votes file a claim with the court. They sue both the shareholder to be excluded and all other shareholders who are not plaintiffs.

2. Securing the claim

The mere filing of the claim does not deprive the shareholder of their rights. To effectively suspend the shareholder’s ability to exercise their shareholder rights (e.g. the right to vote at a general meeting), a separate application must be made to the court for interim relief, setting out valid reasons justifying such action – e.g. the shareholder obstructing the general meeting from carrying out its business.

3. Court judgment and determination of the purchase price

If the court upholds the claim, the judgment will simultaneously set the share purchase price and the payment deadline. The price corresponds to the actual value of the shares as at the date of service of the claim – the court determines this ex officio, without the need to file a separate application.

4. Acquisition of shares

The shares must be acquired by the remaining shareholders or third parties – acquisition by the company itself under this procedure is not permitted. The declaration of acquisition must be in writing on pain of nullity, and the purchase price may be paid directly to the excluded shareholder or deposited with the court.

5. Updating the register

Once the judgment has become final and the shares have been acquired, the management board submits an application to update the register of shareholders. This is because, for the purposes of the company, only a person entered in the register of shareholders is considered a shareholder. The management board then submits a new list of shareholders to the registry court, on the basis of which the registry court makes the relevant changes in the National Court Register.

Consequences of a shareholder’s exclusion from a simple joint-stock company

If the judgment becomes final and the purchase price is paid on time, the shareholder is deemed to have been excluded from the date of service of the summons – and thus with retroactive effect. Any actions taken by them after that date as a shareholder may be challenged.

The excluded shareholder receives the purchase price, determined by the court on the basis of the actual value of the shares on the date of service of the claim, plus interest accrued from that date.

However, the procedure may fail even after a favourable judgment has been obtained. If the purchase price is not paid within the time limit set by the court, the judgment becomes ineffective. The shareholder then returns to the company and acquires a claim against the plaintiffs for compensation for the damage suffered in connection with the pending proceedings.

Procedure for the exclusion of a shareholder from a public limited company – summary

The exclusion of a shareholder from a public limited company is a mechanism which, provided the statutory conditions are met, allows the company to be protected against the destructive influence of one of its shareholders. The successful implementation of this procedure requires careful preparation at every stage – a failure to meet even the requirements regarding the timely payment of the purchase price may render the judgment ineffective and, consequently, expose the plaintiffs to liability for damages. Cases of this nature involve multiple aspects of company law and require precise argumentation right from the drafting of the claim.