Expulsion of a participant from a corporate legal entity as a sanction in corporate law

The article defines the exclusion of a participant from a corporate-type legal entity as the compulsory termination of their participation in such an entity, based on grounds provided by law. This is recognized as a universal reason for the termination of corporate relations in business entities (except joint stock companies) and production cooperatives. The author identifies the qualifying features of this measure as follows: 1) it is applied by corporate-type legal entities as a sanction against unscrupulous participants who, through their actions (or inactions), violate legal requirements or the provisions of the entity’s constituent documents and fail to fulfill their duties; 2) the application of this sanction does not depend on the will of the participant (member) being excluded. The article systematizes the grounds for making decisions on the expulsion of participants from corporate-type legal entities in the following cases for: 1) members of Limited Liability Companies and Additional Liability Companies; 2) members of general and limited partnerships; 3) members of production cooperatives. It is argued that the expulsion of a participant, depending on the legal form of the entity, has distinct features related to both the grounds for and the procedure of expulsion. The article also examines the approaches of national courts in resolving cases of expulsion of members of Limited Liability Companies. It emphasizes that expulsion based on grounds not explicitly provided for in special legislation is not permitted. Moreover, the article highlights that a court decision to exclude a participant constitutes interference in the economic activities of a company. Therefore, courts do not have the authority to assume the functions of a company’s management bodies. Instead, their role is limited to verifying the validity and legality of the decision to exclude a participant if a claim is filed to invalidate such a decision. The author warns that an absolute inability of a company to remove an unfair shareholder can lead to a corporate deadlock, a trend increasingly observed in business practices today.