LEGAL SECURITY OF COMPANIES: WHAT HAPPENS, IN PRACTICE, WITH THE GMS AFTER THE EXCLUSION OF A SHAREHOLDER

The exclusion of a shareholder from a company is a complex legal procedure, which is for partnerships and LLCs regulated under the Law no. 31/1990, but not for joint-stock companies. This measure represents a serious sanction, applicable in exceptional situations, when a shareholder causes significant harm to the company or violates its statutory obligations. The exclusion of a shareholder in a LLC is not an arbitrary internal act, but the result of a court decision. The Law no. 31/1990 provides that the exclusion is ruled by the court, and the excluded shareholder remains liable towards third parties until the court decision becomes final.

Thus, if the company has concluded contracts involving the unlimited personal liability of the shareholder who is subsequently excluded, the latter cannot rely on the exclusion to be relieved from the liability arising from those contracts. By the same decision ruling on the exclusion, the court establishes the new structure of the share capital.

The practical consequence: the “zero” moment for voting rights and participation share is the date when the court’s decision becomes final, not the date of filing the exclusion request.

After the exclusion, the validity of the decisions of the general meetings is viewed through the lens of art. 132 of the Companies Law (also applicable to LLCs according to art. 196): the decisions of the GMS can be annulled for violation of the law or of the articles of incorporation; the general 15-day timeline starts running, for LLCs, from the date on which the shareholder became aware of the decision; and if absolute nullity is invoked, the action is not time-barred and can be promoted by any interested person.

Three situations giving raise to problems in practic and the solutions

• The GMS is held before the exclusion becomes final, in the absence of the concerned shareholder

As long as the exclusion decision has not become final, the shareholder still has rights in the company. Failure to convene the shareholder may result in the annulment of the GMS decision (relative nullity), under the conditions provided by art. 132 of the Law no. 31/1990, if the shareholder proves an interest and complies with the deadline. In serious cases (for example, obvious violations of the law or of the quorum/majority rules), it may result in absolute nullity, which is not subject to prescription.

In this case, the company must convene the shareholder until the exclusion decision becomes final and ensure that the votes are correctly calculated according to the existing structure.

• The GMS is held after the exclusion of the shareholder has become final, but prior to registration with the Trade Registry

The decision becomes effective internally from the date on which it becomes final, so that the GMS will be held in consideration of the new structure of the share capital and without the participation of the excluded shareholder. For enforceability against third parties and to exclude all procedural risk, the directors must submit the updated articles of incorporation of the company to the Trade Registry. The final decision to exclude a shareholder is submitted to the Trade Registry within 15 days to be registered, and the decision is published, at the company's request, in the Official Gazette of Romania.

In practice, the company must update the registry of shareholders and the articles of incorporation and promptly complete the formalities with the Trade Registry to secure the enforceability thereof against third parties as well.

• The GMS where, although excluded (based on a final decision), the former shareholder still votes

The vote of an excluded shareholder is ineffective. However, if such vote tipped the balance of the majority or affected the quorum, the decision can be appealed in court. The courts consider such participation a violation of the law or of the articles of incorporation, sufficient to invalidate the decision. In the case of absolute nullity (art. 132 paragraph 3 of the Law no. 31/1990), the action can be filed at any time, by any interested person.

Thus, when organizing the meeting, special attention must be paid to check, prior to the meeting, whether the participants are acting in their capacity of shareholders and their voting rights, thus making sure that the excluded shareholder is not on the list of participants.

In practice, the request for exclusion of a shareholder is most often related to two aspects:

1. The decision-making process in limited liability companies, from the shareholders' differences in relation to the decision that each party seeks to see adopted in certain situations;
2. The structure of the share capital, which is generally distributed evenly (50% for each shareholder) where there are two shareholders. Thus, any misunderstanding or differences in perspective regarding the company's economic or financial policy would practically block the company due to the inability to adopt the most important decisions.

Finally, it should be noted that after the exclusion of a shareholder, companies must treat the transition period with the utmost rigor. The undelayed updating of the capital structure, the convening of general meetings in the new formula and the registration of changes to the Trade Registry are not simple formalities, but the guarantee of legal security. Following these steps makes the difference between solid rulings that hold up in court and decisions that are vulnerable to challenge.