Excluding a shareholder: why the articles of association decide

When cooperation within a GmbH ends, the first question is rarely a legal one: who leaves, and at what price? The second question is all the more so – and the answer is usually already set out in the articles of association. Or it is not.

Without a provision: the action for exclusion

If there is no contractual basis, exclusion for good cause is only available by way of court action. That is a lengthy route with high requirements for reasoning and evidence: what is required is conduct that makes it unreasonable for the other shareholders to continue the shareholder relationship. Mere personal rifts or differing strategic views are not enough.

With a provision: the call option

Robust articles of association deal with three things. First, the trigger events – a shareholder's insolvency, death, serious breach of duty, loss of a required professional licence, a change of control at a corporate shareholder. Second, valuation: which method, which reference date, who appoints the expert, is there a discount for the trigger event? Third, payment: a lump sum or instalments, security, interest.

The practical point

These clauses cost little effort at formation and, if missing, a great deal of money in a conflict. Anyone who only negotiates them once a dispute has arisen negotiates from the weaker position – and usually under time pressure, because the business keeps running.