RESIGNATION OF MEMBER FROM LIMITED LIABILITY COMPANY
In the case of a resignation of member, his membership in Ltd. and all the rights deriving from it shall cease. Resignation of member is generally associated with a legitimate reason for leaving. This is so because a member can leave the company in a way that he/she sells his shares in the company, if there are no other specific conditions set.
The Companies Act provides two possible ways for a member to resign from a limited liability company (Ltd). First is that the possibility of resigning from the Ltd is stipulated in the articles of association, so a member may resign from an Ltd when the conditions set in the articles of association are fulfilled. Another way is to request the resignation with the lawsuit when all the legal requirements are met, regardless of whether or not it is stipulated so in the articles of association.
The action for resignation from a limited liability company
If the possibility of resignation from Ltd is not stipulated in the articles of association, each member may file a claim and seek resignation from Ltd, if all legal requirements are met. The Companies Act associates the possibility to file a lawsuit for resignation of a member from Ltd with “legitimate reasons”. So, regardless of the fact whether or not the articles of association anticipate possibilities and conditions for resignation, if there is a legitimate reason, a member of the society can always request a resignation from Ltd. A member of Ltd may not waive this right in advance, so this sort of a waiver, even if it would be done, would be void.
Important parts of this lawsuit are defining and explaining legitimate reasons for resigning, determining the fee for a business share of a member who is resigning or suggesting how the same should be determined, and finally setting an appropriate deadline for the payment of this fee. Since it is not necessary to regulate in the lawsuit the issue of the transfer of a share to the company, in practice, the question is how to execute the transfer of a share from the member who is resigning on Ltd, since the court would overstep the claim when the court would decide about it. Therefore, it is advisable to regulate this question in the articles of association, even if the same does not foresee the possibility of resigning from Ltd.
The Companies Act foresees, as particularly legitimate reasons for the resignation, the situations in which other members or the competent organs of Ltd cause damage to a member, when a member is prevented from exercising his/her rights in Ltd or when an organ of Ltd imposes disproportionate obligations. It should be noted that there is no numerus clausus of reasons for the resignation. These are only examples. If the member, as a reason for leaving the company, invokes a legitimate reason not explicitly provided by the law, the court is obligated to assess, in each case, whether the reason for the resignation is justified, taking into consideration all the circumstances of the case and the willingness of Ltd to compensate such damages to a member, and then to determine whether it is a legitimate reason for resignation or not.
High Commercial Court said: “A member who resigned the Company shall be entitled to reimbursement of the market value of his business share at the time of resignation from the Company, and not at the time of incorporation.” Member whose share was in items or rights has the right to get back the investment after three months from resigning. When determining the market value of the business share, the actual value of the company should be determined, taking into account its obligations and assets, realized and expected profit, state of the company and its business needs and all other reasons that determine the market value of the company at any given moment. The market value of the company is usually determined by conducting a professional expertise. It should be assessed in advance whether the value of share is sufficient to make it worth the legal action. The Companies Act provides that a member who resigns from the company has a right to reimbursement of the value for his/her business share as it was at the time of resignation.
It should be noted that membership in the company ends with the payment of the fee to the member who resigns. If the court accepts the claim, the court must determine the amount of compensation for the market value of the member’s business share and order that the company pays the fee within the period specified in the judgment.
Resignation from an Ltd according to the articles of association
As mentioned earlier, resignation from an Ltd, according to the articles of association, is possible only if the articles of association provide for this possibility.
High Commercial Court said that this sort of resignation from Ltd is possible only if the articles of association stipulate all the essential elements for resignation. The essential elements for the resignation, which need to be stipulated by the articles of association, are
a) the conditions for resignation – articles of association must provide reasons why a member may resign from society;
b) the resignation procedure – articles of association must anticipate the actions that need to be done in order for a member to resign from the company, and it is recommended to stipulate that certain actions, such as the resigning declaration must be in writing and sent by registered mail
c) the consequences of resignation – except the basic consequence that a person is no longer a member of Ltd, other issues related to resignation should also be regulated, such as the fate of the business share of a member who resigns, and it is also recommended to predict the time limits within which certain consequences of resignation are to enter into force
In addition to these mandatory elements, in order to make resignation on the basis of the articles of association possible, it is recommended that other issues, that could prove to be controversial, are also regulated by the articles of association, such as for example: the value of the business share or a way of determining this value, the time and manner of payment, etc. In the articles of association it is also possible to predict that the resignation from an Ltd is the privilege only of certain members of Ltd.
Resignation based on the articles of association starts with a declaration of resignation sent to the management of the company. Even if it is not stipulated in the articles of association, it is recommended for the declaration of resignation to always be sent to the management board in writing by registered mail. The membership ceases when a company pays this member remuneration for his social share. If the company fails to pay the remuneration within the agreed period, the member has the option to file a claim and to seek payment or to declare that he/she considers that resignation from a company on the basis of articles of association failed and to file a claim.
It should be noted that, if a resigning member of the company caused damages to the company or is required to fulfill an obligation to the company, the company can refuse to pay the value of the basic investment of the member who resigns until he settles the damage or fulfills obligations to the company. In practice, it is debatable whether the company may withhold payment for any damage which it claims is caused by a member or only for the damage or liability which would have been indisputably determined by a final court’s decision, settlement or some third act.