Summary: The Private Company (PC), having established itself in the realm of small and medium-sized enterprises, plays a pivotal role in the Greek economy. This article explores how and when a partner can voluntarily and legally exit this corporate structure and the claims they may retain against the company in such cases.
1. Introduction
More than a decade has passed since the enactment of Law 4072/2012, introducing the Private Company (PC) into the Greek legal framework. This corporate form has proliferated among small and medium-sized enterprises, which are predominant in the Greek market and economy. Often, due to their size and the close relationships developed, disputes and disagreements arise, making continued participation in the company burdensome for some partners.
The right of exit ensures a partner's ability to disengage from their corporate obligations and cease being a member of the company, under conditions set by law and/or the company's articles of association.
Within the provisions of Law 4072/2012 concerning PCs, the right of exit is stipulated in Article 92(1), stating: "Each partner may exit the company for a significant reason by decision of the court, issued upon their application.
However, partners are afforded the opportunity to deviate from this legal provision by regulating the right of exit in the articles of association. As specified in Article 92(2): "The articles of association may include provisions for the right of partners to exit the company under certain conditions." Nonetheless, partners are not entirely free when introducing such statutory provisions, as detailed below.
2. Exit by Court Decision for Significant Reason – The Legal Right of Exit
The legislator has established judicial exercise of the right of exit as the standard. According to the legal provision, three conditions must be met:
- An application by the exiting partner to the competent Court of First Instance.
- Existence of a significant reason.
- Issuance of a court decision pronouncing the exit.
The most practically significant question is what constitutes a significant reason. This term is a vague legal concept with a broad scope, making it challenging to define. The competent court is responsible for determining its existence and specifics in each case.
It is accepted that a significant reason for exit exists when the continuation of the partner's presence in the company becomes, for objective or subjective reasons and in light of good faith and commercial ethics, intolerable.
Objective reasons typically relate to incidents concerning the company itself or the relationships among partners. Examples include poor company management, inability to achieve corporate objectives, operational paralysis due to conflicting partner factions, ongoing disputes over company organization and operation, and intense personal disagreements. Subjective reasons pertain to the exiting partner, such as inability to fulfill corporate obligations due to prolonged illness or absence, or financial difficulties.
The company's structure also influences the assessment of a significant reason, especially whether the company leans more towards a personal or capital-based entity. The concept of a significant reason similarly applies in cases of partner exclusion from an IKE (see here).
Another issue is the timing of the significant reason's existence. It must be present both at the time of the application and during its hearing.
In any case, the proposed significant reason must exhibit permanence and particular gravity to justify the exit. The corporate duty of loyalty, which applies to all partners, mandates enduring "ordinary" difficulties, malfunctions, or disputes for a reasonable period, preventing the right of exit from becoming an "easy solution" that perpetually endangers the corporate purpose.
Finally, the exit occurs upon the issuance of the court's constitutive decision. Unlike partner exclusion, where the exclusion takes effect upon a final court decision, the prevailing view for exits is that a definitive decision suffices. Beyond the publication of the decision, its registration with the General Commercial Registry (GEMI) is required to make the change in corporate composition opposable to third parties.
3. The Right of Exit Based on Articles of Association
Beyond the legal right of exit, the legislator allows partners to regulate the right of exit through provisions in the articles of association.
Primarily, it is permissible to stipulate that the right of exit is justified under certain conditions, which may relate to the partners (e.g., financial reasons, prolonged illness or absence) or the company itself (e.g., inability to achieve corporate objectives, ongoing disputes, lack of profitability).
The main difference between the legal and statutory rights of exit lies in the exercise method. The statutory right is typically exercised extrajudicially, often through a unilateral declaration to the company. The articles may require specific procedures for its valid exercise, such as delivery by a court bailiff or registered mail, or drafting a private or public document. Upon the company's receipt of the declaration, the exit is considered effected; however, legal consequences ensue only after completing procedures outlined in the law or articles (see section 5).
4. Relationship Between Statutory and Legal Rights of Exit
Partners are not entirely free when choosing to regulate the right of exit in the articles of association. Despite any provision for a statutory right of exit, the legal right remains intact, and the articles should not hinder its exercise. The restriction is twofold. First, a partner wishing to exit may freely choose between the legal and any statutory right. Any provision requiring prior exercise of the statutory right before the legal one is deemed invalid and has no effect.
Second, the conditions set for exercising the statutory right must not render it "free," allowing a partner to exit solely by declaration without prerequisites or limitations, or with purely formal conditions. This aligns with the law's explicit requirement that the right be exercised under certain conditions.
5. Legal Consequences of Exit
Upon a partner's exit, a settlement relationship arises between them and the company. Specifically, the exit occurs upon the issuance of the definitive court decision (for the legal right) or upon the company's receipt of the declaration (for the statutory right). Completion, as per Article 92(4) of Law 4072/2012, involves canceling the partner's shares and reducing the corporate capital if necessary, particularly when a partner with a capital contribution exits. However, the articles may stipulate that instead of canceling shares, they are acquired by a person designated by the company.academia.edu+2vdilawfirm.com+2psarakislegal.com+2
The exiting partner is entitled to request the full value of their shares, determined by the court if the parties disagree or if the articles do not specify the valuation method. The critical time for determining the value is the hearing date of the application. The articles may state that the actual or accounting value of the shares will be returned, a percentage of the corporate participation, or that an expert appraisal will determine the value.
Issues may arise if the exiting partner has not fully provided their corporate contribution. This is particularly relevant for partners with non-capital or guarantee contributions. In the case of an unpaid non-capital contribution, the company has a claim for compensation equal to the unfulfilled obligation. For an incomplete guarantee contribution at the time of exit, no compensation claim is established; however, the exiting partner remains liable for three years from the registration of the exit in GEMI for debts incurred before their departure.mondaq.com
Finally, under certain conditions, exercising the right of exit may be deemed abusive.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
