Exclusion of a business partner: Know your rights and how to resolve conflicts

The exclusion of a business partner can be a sensitive moment in a company’s journey. When one partner compromises the continuity of the business, harms operations, or fails to meet obligations, the other partners have the right to seek a solution. But did you know that, in some cases, this exclusion can be done extrajudicially?

This process is faster and avoids the lengthy wait for a court decision. However, there are specific rules that must be followed. Keep reading to understand how it works and whether your company is prepared.

What is Extrajudicial Partner Exclusion?

Extrajudicial exclusion is the ability to remove a partner from the company without resorting to the judiciary. This can happen when the company’s articles of incorporation allow for such action and when the excluded partner has committed a serious breach, such as:

Misappropriation of company funds;
Unfair competition;
Breach of trust with other partners;
Significant damage to the company’s reputation or operations.

Articles of Incorporation: The First Step

For extrajudicial exclusion to be valid, it is essential that the company’s articles of incorporation explicitly allow it. This document should include:

Clear reasons for exclusion: Define what constitutes a serious breach.
Procedure for exclusion: Outline how the decision will be made, including the required quorum for approval.
Rights of the excluded partner: Ensure they are informed and allowed to present their defense.

If the articles of incorporation do not provide for extrajudicial exclusion, it will be necessary to seek a judicial solution, which can be more time-consuming and costly.

How Does It Work in Practice?

With contractual provisions in place, the exclusion process can occur during a partners' meeting or assembly. The decision must be documented and follow legal formalities, including:

Advance notice of the meeting, stating the reason for exclusion;
Recording the decision and the reasons for exclusion in the minutes;
Payment of the excluded partner’s rights, such as the valuation of their share in the company.

Benefits of Extrajudicial Exclusion

Speed: Resolves the issue internally without waiting years for a court ruling.
Cost-effective: Avoids expenses associated with judicial proceedings.
Business continuity: Ensures the company can continue operating without disruptions.

Can the Excluded Partner Challenge the Decision?

Yes, the excluded partner has the right to seek legal redress in court. Therefore, it is crucial that the entire process is transparent, well-documented, and complies with the law and the articles of incorporation.

How Can You Prepare?

If you are a business partner looking to avoid future issues, the first step is to review the articles of incorporation. Check if they are up-to-date and include clauses allowing for extrajudicial exclusion when necessary.

Should your company face conflicts between partners, it is essential to seek guidance from an attorney specializing in Corporate Law. They can help review the articles of incorporation, oversee the exclusion process, and prevent legal complications.

Excluding a partner is a right for those aiming to protect their company’s future, but it requires adherence to legal rules and procedures. If you need help resolving partnership conflicts or reviewing your company’s articles of incorporation, contact a specialized attorney. Professional guidance ensures your business is protected and prepared for secure growth.