Exclusion of a member from a Limited Liability Company (LLC)
The Companies Act prescribes the ways in which membership in a limited liability company (d.o.o., LLC) can be terminated. According to the law, membership may cease in the following ways:
1. Death of a natural person member
2. Dissolution of a legal entity member
3. Transfer or sale of a business share
4. Withdrawal (redemption of the business share – e.g., exclusion due to non-payment of share contribution – forfeiture)
5. Exclusion of a member for other reasons
6. Voluntary withdrawal of a member from the company
7. Dissolution of the company.
A member of a limited liability company may be excluded if there is an important reason, particularly if their behavior prevents or significantly hinders the achievement of the company’s objectives. Exclusion may be carried out either by filing a lawsuit before the competent commercial court or based on the provisions of the articles of association, if such a possibility is stipulated therein.ili temeljem društvenog ugovora, ako je samim društvenim ugovorom ta mogućnost propisana.
Exclusion based on the Articles of Association
The articles of association may foresee the possibility of excluding a member from the company, allowing the process to be pre-regulated and tailored to the company’s needs. In such cases, the articles must clearly specify: the valid and fair reasons for exclusion, the procedure to be followed, the legal consequences of the exclusion – including who proposes and decides on the exclusion, when the exclusion takes effect, what happens to the excluded member’s business share, and how the corresponding compensation is determined and paid.
Exclusion can be arranged at the time of the company’s formation or by a later amendment to the articles of association. In the latter case, a unanimous decision is required to adopt such an amendment.
Reasons for exclusion must be objective, justified, and fair, in accordance with the principle of equal treatment of members and good business practices. These reasons may relate to the member’s personal characteristics, behavior, or relationships within the company.
If the articles provide for the possibility of exclusion but do not regulate the procedure in detail, the exclusion can only be carried out by filing a lawsuit before the competent court.
Exclusion based on law (Lawsuit)
The company may file a lawsuit against a member requesting the court to exclude them from the company if there is an important reason. An important reason for exclusion exists when a member’s behavior prevents or significantly obstructs the achievement of the company’s objectives, making their continued membership intolerable for the company.
A member who has been excluded from the company has the right to be compensated for the market value of their business share as of the time of their withdrawal or exclusion. If the member’s share was contributed through non-monetary assets (e.g., property or rights), they have the right to the return of those assets – but not before three months have passed since the exclusion.
The member cannot claim compensation for accidental loss, damage, or reduction in value of the contributed assets due to normal use. If the company has a claim for damages against the member or the member has other outstanding obligations towards the company, no compensation shall be paid until those obligations are fulfilled.
A lawsuit for exclusion may also be filed by all other members of the company. The claim must state the proposed amount of compensation and a reasonable time frame for payment. The court will order the exclusion of the member under the suspensive condition that the company pays the compensation in the amount and within the deadline specified in the judgment. In setting the deadline, the court will take into account the financial condition and business needs of the company.
