Sources of Partnership Disputes and the Limits of Managerial Authority
Partnership disputes are conflicts inside a society concerning managerial powers, access to information, and the withdrawal or expulsion of a partner. The Law on Entrepreneurs regulates the consent of partners and the removal of a managing partner's authority: the statute may require the prior, mandatory consent of the partners for certain transactions. The managing partner may conclude a transaction without the consent of the remaining partners where delay would cause grave consequences for the general partnership, of which the managing partner must immediately notify the other partners. Where an important ground exists — for instance, where a partner has grossly violated his or her duties or is unable to manage the society properly — the court may, upon the claim of the remaining partners, deprive the managing partner of the managerial authority.
The Right to Information and Control
The law gives partners a powerful instrument: every partner, including one who does not participate in the management of the society, is entitled to receive information about the activity of the society and to inspect its business documentation, and this right cannot be restricted. Moreover, every partner may demand from the other partners the performance of their obligations towards the society and may even bring a claim in the name of the society for that purpose. In practice, a refusal to disclose documents in itself creates a ground for a dispute and opens the way for the partner to apply to the court.
Withdrawal from and Expulsion out of a General Partnership
Where a partner wishes to leave a general partnership, the partner must give notice at least six months before the end of the economic year. If bankruptcy proceedings are opened against a partner within insolvency proceedings, that partner is deemed to have left the society from the moment the bankruptcy regime begins. Expulsion, by contrast, is possible only by a court decision, upon the demand of the other partners: for instance, where the partner has deliberately or by gross negligence failed to perform an essential obligation owed to the society, where the partner can no longer perform it, or where another important ground exists.
Expulsion from a Limited Liability Company
In a limited liability company expulsion is regulated by a dedicated provision of the law. An important ground exists where the partner's action causes significant damage to the interests of the society or where the partner's remaining a partner is harmful for the future activity of the society, provided the society has unsuccessfully warned the partner in writing to stop the damaging action and of the possible expulsion. The decision is adopted by a majority of the votes participating in the ballot, but not less than half of the total shares giving the right to participate in the vote on that question; the partner against whom the decision is to be taken has no voting right. The society must file the claim within thirty days of the adoption of the decision. The court may, before the final decision on the case, suspend the partner's voting right or other non-property rights. The shares of the expelled partner are transferred to the society, and the expelled partner must be paid the fair price of the share.
Withdrawal from a Limited Liability Company
A partner is entitled to leave the society in the cases provided by the statute or where the actions of the management or of the other partners significantly harm the partner's interests. Important grounds include a significant change in the object of the society's activity, the absence of any dividend distribution during the last three years despite a financial position allowing it, or a decision of the other partners imposing on the partner an obligation of an additional contribution. The partner notifies the society in writing of the withdrawal and of the reasons for it. The value of the share of the departing partner is determined by agreement of the parties and, failing that, by an independent auditor appointed by the parties; where they cannot agree on the auditor, the auditor is appointed by the court upon the application of either party.
Frequently Asked Questions
Can the right to information be restricted?
No. Every partner's right to receive information about the activity of the society and to inspect its business documentation is unrestricted by law. Limiting this right is impermissible, and in case of violation the partner retains the possibility of applying to the court.
When may a managing partner's authority be removed?
Where an important ground exists, the court may, upon the claim of the remaining partners, deprive the managing partner of the managerial authority — for instance, where that partner has grossly violated duties or cannot properly exercise the management of the society.
How early must a partner announce withdrawal from a general partnership?
The notice must be given at least six months before the end of the economic year. This period gives the society time to settle its relationships and prepare for the change of composition.
What happens to the shares of an expelled partner?
The shares of the expelled partner are transferred to the society, although the statute may provide for their proportional transfer to the remaining partners or for their cancellation. The expelled partner must, however, be paid the fair price of the share.
How We Help on Legal.ge
The team of Legal.ge will assist you in every format of a partnership dispute: we assess the grounds, defend your right to information, prepare claims for removal of managerial authority, expulsion and withdrawal, and help with determining the value of the share and appointing an independent auditor. Contact us — the legal settlement of partnership relationships requires timely intervention.