The capital increase to expel a partner is a strategy that many entrepreneurs consider when the coexistence in a partnership becomes unsustainable.
Although this is a common practice, it is not the only way to proceed, as the Capital Companies Act (LSC) offers several alternatives.
In this article, we will explain how to handle the expulsion of a partner in a legal manner, including capital increase, and what factors should be considered to ensure that the process is effective and in compliance with the law.
Considerations prior to expulsion of a member
Before proceeding with the expulsion of a partner, it is essential to understand the conditions under which this is possible according to the Capital Companies Law, since it is a legal process that requires time and compliance with certain legal requirements.
Situations that allow the expulsion of a member
Article 350 of the LSC allows the expulsion of a partner in specific cases such as the voluntary breach of the ancillary services that the partner had agreed with the company, when there are undue actions in his role as administrator, or when the managing partner is condemned by a final judgment to compensate the company for damages caused by acts contrary to the Law or the bylaws.
These reasons must be clearly defined and supported in order to proceed legally.
Capital increase process to expel a partner
A capital increase is a strategy used to increase the share capital by issuing new shares, with the objective of diluting the shareholder.
This practice can lead to the expulsion of a shareholder who does not participate in the capital increase, although there is a risk that a minority shareholder may claim that the capital increase is arbitrary, which is why it must be approved by the General Meeting, with a two-thirds favorable vote, in accordance with Article 199 of the Capital Companies Act. Voting and decisions must be free of arbitrariness and transparent.
Squeeze Out
This mechanism, common in large groups of companies, and sometimes in listed companies, allows a majority shareholder to exclude minority shareholders, centralizing the capital and control of the company. This method is materialized through agreements between the partners, as it is not yet formally provided for in Spanish law. It is usually put into practice through the reduction of capital by means of the compulsory redemption of shares (art. 338 of the Capital Companies Act).
Criminal implications and consequences of a capital increase to expel a partner
Although a capital increase may appear to be a practical solution, it can have serious legal implications if not properly executed. According to Article 291 of the Penal Code, an arbitrarily implemented capital increase can have criminal consequences.
Final recommendations
Before making any decision, it is very important to consider all legal options for expulsion of a member.
What we offer
At our firm, we understand the complexity of these processes and offer a detailed study for the optimization and execution of the expulsion of a partner.
Our team of specialists is ready to guide you every step of the way, ensuring that your company stays within the legal framework and makes informed decisions. For more information or to schedule a consultation, please do not hesitate to contact us.
