The withdrawal of a partner from an OOD is one of the commonly used options for terminating participation in a limited liability company. This is done by the withdrawing partner serving a notice. The procedure is often applied where it is not possible to sell the company share to the remaining partners or to a third party.
Written notice of a partner's withdrawal
A partner who wishes to terminate his participation serves a written notice. Under the law, the minimum notice period is three months, but a longer or shorter period may be agreed in the articles of association.
The notice must be clear and unambiguous, expressing the partner's wish to leave the company. It is important that the notice is received by the company itself, and for this purpose a courier, a postal service, e-mail, or even personal service through a notary may be used, in order to avoid disputes as to the date of receipt.
Once the company receives the notice, the period begins to run, and upon its expiry the partner's participation is terminated automatically, without any further decision of the general meeting being required.
Withdrawal of the notice
The partner has the right to withdraw his notice, but this must occur before the expiry of its period.
Determining the value of the company share
After participation in the company is terminated, the withdrawing partner is entitled to receive monetary compensation for his share. The value of the share is calculated on the basis of an interim accounting balance sheet drawn up as at the last day of the month in which the notice expired. The law does not permit the use of the market value of the assets, as is the case in the liquidation of the company.
The valuation of assets and liabilities is carried out according to the historical values of the assets, which includes the acquisition cost, the cost price or the fair value. The value of the company share is calculated by determining the company's net assets – taking into account the assets and liabilities – and the value of a single share is formed on the basis of this difference.
The specific case of a parent undertaking
Where the company is a parent undertaking with subsidiaries, the calculation of the value of the withdrawing partner's share is based on the parent's individual accounting balance sheet, and not on the consolidated balance sheet of the group. If the balance sheet is negative, the partner will not receive any compensation.
Payment of the company share
The law does not impose a time limit for payment of the share, unless one is provided for in the articles of association. In the absence of an agreement, the receivable becomes due upon the expiry of the notice. If the company does not pay the amount due, or if there is a dispute as to the valuation, the withdrawing partner may bring a claim to obtain his share.
Time limits and disputes
The limitation period for bringing a claim for payment of the share is 5 years. In court disputes concerning the calculation of the share, a court-appointed economic (forensic accounting) expert report is ordered.
Agreement on the settlement of property relations
The partner and the company may conclude an agreement setting out the amount and the terms of payment of the share. This agreement may cover both the time limits and the methods of payment.
Entry in the Commercial Register
The entry of a partner's withdrawal in the Commercial Register has declaratory effect. The termination of membership in an OOD occurs upon the expiry of the notice period, and not upon the entry itself.
The remaining partners may choose whether to reduce the company's capital or to take over the released shares and pay their value into the company's account. The documents required for the entry of the withdrawal vary depending on which option is chosen.
No proof of payment of the withdrawing partner's share is required when filing the application for entry. Nevertheless, the registration authorities often require such proof, even though case law shows that this is not a mandatory condition for entry.
Problems with the entry
A problem frequently encountered in practice concerns the possibility of the withdrawing partner filing, on his own, the application for entry of his withdrawal. In many cases the remaining partners and the manager take no action and do not file the necessary documents with the Commercial Register. When the withdrawing partner files the application for entry of his withdrawal himself, the officials often refuse the entry. The reason for this is that the law does not give the withdrawing partner the right to request his own removal from the register.
On this issue, case law is not uniform. Some courts set aside such refusals and allow the entry to be made by the withdrawing partner. Other judicial bodies, however, maintain the position that the termination of membership in an OOD by notice may be applied for in the Commercial Register only by the acting manager of the company, and not by the withdrawing partner himself.
Should you require further information, assistance or consultation in connection with the withdrawal of a partner from an OOD, contact us on tel.: 0887550706 or by e-mail: [email protected]
