Action for Exclusion of a Shareholder

The action for exclusion according to § 140 UGB enables the remaining shareholders of an OG or KG to continue the company if cooperation with a shareholder has become unreasonable due to an important reason. Instead of dissolving the company in accordance with § 133 UGB, the remaining shareholders can judicially exclude the shareholder concerned. This procedure represents a practical alternative to dissolution and serves to secure the continuation of the company.

Purpose of the Regulation

The aim is not the protection of public interests or the preservation of the company as such, but the protection of the continuation interests of the remaining shareholders. The standard takes into account a double unreasonableness:

• the continuation with the shareholder concerned,
• but also the dissolution of the company as a whole

General Scope of Application

The regulation on the exclusion of a shareholder applies to both fixed-term and indefinite partnerships, i.e. both to general partnerships (OG) and limited partnerships (KG). The exclusion can apply equally to general partners and limited partners. Even the exclusion of the sole general partner is possible, even if it leads to the dissolution of the KG. Subsequently, however, a new general partner can be appointed and the company can be converted back into an active, continuing form.

Internal and External Relationship

A shareholder can already be excluded if the company has effectively come into existence in the internal relationship, i.e. the articles of association exist and cooperation has begun – even if registration in the company register has not yet taken place.

However, if only one shareholder remains, the company must exist in the external relationship (through registration in the company register). As long as the company has not yet been registered, it is merely a civil law partnership (GesbR), which is not legally capable. So if only one shareholder remains, he cannot simply continue a sole proprietorship as long as the OG or KG has not yet legally existed.

In the event that it is only a GesbR (i.e. no registered OG or KG), there is a comparable provision in § 1215 ABGB. This also allows the exclusion of a shareholder if serious reasons arise in his person.

If the company has come into existence “incorrectly”, i.e. the articles of association are defective or contestable, this defect can itself be an important reason for exclusion. This concerns cases in which a shareholder has induced the others to found the company, e.g. by fraud, threat or deception.

The conduct of this person is therefore a personal important reason that justifies their exclusion.

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Two-person and Multi-Person Companies

The regulation on the exclusion of a shareholder also applies to two-person companies. Likewise, in a multi-person company, it may happen that only one shareholder remains without a reason for exclusion. This shareholder is entitled to apply for the exclusion of all others. If several shareholders realize reasons for exclusion, action can in principle be taken against all of them, whereby a comprehensive consideration of the circumstances is always required.

Personal Scope of Application

The action is directed against one or more shareholders. In the case of the heir of a shareholder, exclusion is only permissible after probate, as the shareholder status only arises then. However, important reasons that the deceased set before probate can be taken into account in the proceedings. If the legitimate interest of the remaining shareholders ceases due to death, the right of exclusion may become obsolete.

Requirements

An exclusion is only permissible if:

• an important reason exists,
• this reason is rooted in the person of a shareholder,
• and the exclusion is suitable to eliminate the important reason

This means: The procedure is only justified if the disruption can actually be remedied by the exclusion.

Important Reason

The “important reason” requires:

• an objectively significant disruption of the company relationship,
• a personal reference,
• the failure of milder means,
• a clear predominance of the exclusion interests

Exclusion as a Last Resort

The exclusion of a shareholder represents the last resort. Like the dissolution, it requires the existence of an important reason. The decisive difference, however, is that the exclusion does not have the same effect on all shareholders, but unilaterally to the detriment of the person to be excluded.

An exclusion is therefore only permissible if:

• the continuation of the company with this shareholder is unreasonable,
• milder means (e.g. withdrawal of the management and representation authority, injunctive relief or claims for damages) are not sufficient,
• and the measure serves not only economic interests, but the protection of the company

The exclusion must therefore not serve to improve the financial situation of the remaining shareholders, but solely to ward off concrete dangers to the existence and functionality of the company.
In the event of exclusion of the penultimate shareholder, it is no longer the endangerment of the company, but the preservation of the company values that is decisive.

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Relationship to the Important Reason for Dissolution

§ 140 UGB is based on § 133 UGB, which is why a reason for exclusion can only exist if there is at the same time an important, personal reason for dissolution.
Not every disruption of the company relationship justifies the exclusion of a shareholder.
The personal character of the reason is decisive: Only if the unreasonableness is rooted in the person of the shareholder can it support the exclusion.

A hierarchy between dissolution and exclusion does not exist:

• Depending on the situation, the exclusion may be the milder means compared to the dissolution,
• or conversely, dissolution may be preferable if exclusion appears disproportionate

Comprehensive Balancing of Interests

Central is the two-stage balancing of interests:

• Dissolution interests

It must be examined whether the asserted circumstances constitute an important reason for dissolution, i.e. make the continuation of the company unreasonable for the plaintiffs.

• Personal exclusion interests

It must be examined whether this unreasonableness is directed only against the shareholder concerned, while a continuation with the others appears possible.

Only if the exclusion interests clearly outweigh is the action justified.

Typical Reasons for Exclusion

• material breaches of duty (intentional or grossly negligent),
• impossibility of fulfilling the duty, even without fault,
• behaviors that sustainably destroy the trust of the remaining shareholders

The catalog is not exhaustive. The assessment is always made after a comprehensive balancing of interests taking into account all circumstances of the individual case.

A fault is not absolutely necessary, slight negligence is only sufficient if the further performance of the contract has become impossible.

Assertion of the Right of Exclusion

Action for Legal Formation

The right of exclusion under § 140 UGB is vested in the remaining shareholders as a collective right of formation. It cannot be exercised by a mere declaration of intent, but exclusively by way of an action for legal formation. The legally formative judgment effects the exclusion only with its legal force.

The action regularly leads to an amendment of the articles of association, as every change of shareholder at the same time means an amendment of the contract. If the penultimate shareholder is excluded, the company ends; however, the company is continued without liquidation by way of universal succession by the remaining shareholder.

Judicial proceedings are dispensable if the shareholder to be excluded voluntarily withdraws and his withdrawal is agreed amicably – in this case the agreement replaces the judgment.

Timely Assertion and Waiver

The action for exclusion must be brought immediately, otherwise the right of exclusion lapses. An existing reason for exclusion must not be kept “in stock”, as this would be incompatible with the requirement of unreasonableness of further cooperation.

A waiver of the right of exclusion can be made expressly or tacitly, for example if, despite knowledge of the reason for exclusion, only notice is given or the shareholder concerned assumes an amended position with the consent of the others.

However, the mere passage of time is not sufficient to assume a waiver. The decisive factor is whether the conduct of the entitled party in good faith allows the conclusion that he no longer wants to exercise the right.

Because of the collective character of the right of exclusion, an effective waiver can only be declared jointly by all shareholders entitled to sue.

Joint Action by the Remaining Shareholders

The action for exclusion must be brought jointly by all other shareholders.
If the cooperation of even one entitled party is missing, the action is to be dismissed.

The plaintiffs form a necessary community of litigants. The regulation corresponds to that in the case of the withdrawal of the management or representation authority.

Read more about the withdrawal of the management or representation authority here.

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Duty to Cooperate

From the duty of loyalty of the shareholders it follows that an individual shareholder may be obliged to cooperate in the action for exclusion under certain circumstances. If he refuses to do so, he can be sued for consent to the action, this action for consent can be combined with the action for exclusion. Only a final conviction of the refusing shareholder replaces his cooperation.

However, there is not automatically a duty to cooperate in every reason for exclusion. Such a duty to cooperate arises only then if the non-cooperation of a shareholder would be an abuse of rights, i.e. his refusal is obviously unfounded and serves only to block the exclusion, although the requirements are clearly met.

Multiple Defendants and Alternative Requests

The action for exclusion can be directed against one or more shareholders, regardless of whether the reasons for exclusion are identical or merely factually related. If the action against even only one defendant proves to be unfounded, it is to be dismissed as a whole, since in this case the necessary cooperation on the plaintiff’s side is missing.

The claim always reads on exclusion of the defendant. It can be combined with an alternative application for dissolution of the company or for withdrawal of the management authority.
Also a combination with an action for dissolution as a main or alternative request is permissible.

Legal Effects of Exclusion

With legal force of the exclusion judgment:

• the shareholder concerned withdraws from the company,
• until then he retains his membership rights and obligations, unless there are interim measures

If only one shareholder remains, the universal succession automatically occurs: The entire company assets pass to the last shareholder.

Your Benefits with Legal Assistance

The exclusion of a shareholder is legally complex and associated with considerable risks, in particular in the assessment of the important reason, the correct conduct of the action and the observance of deadlines. Even small formal errors or insufficient justifications can lead to the dismissal of the action.

A legal support is therefore essential in order to precisely examine the legal requirements, strategically prepare the procedure and avoid economic disadvantages.

Frequently Asked Questions – FAQ