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The participant decided to stop participating in your LLC: what to pay attention to?

“US Invest” LLC lawyer – Uladzislau Babitski

Any participant of LLC can terminate his participation. There are 2 main ways: selling his share and withdrawal.

Reasons of terminating participation may be different. For example, relationships with other participants or founder.

What is the best way to terminate participation for LLC? Which one is simpler? When is it better to offer to buy and sell shares, and when to ask to write an application for withdrawal?

It should be understood that there will be no exact answer for all situations. It all depends on your specific situation: whether there are agreements between the participants, the amount of the desired payments, the reasons for termination of participation in the company, etc.

If you are a director of a company, and you were informed that one of participants is going to terminate his participation, but he still doesn’t know how to do it, here are some important points you have to clarify:

  1. the main aim of termination;
  2. are there conflicts between other participants?
  3. at whose expense (other participants or LLC) to make payment to the leaving participant (if payments should be made and there is no agreement that payments are not necessary)?

Reasons of terminating participation may be different. For example, relationships with other participants or founder.

What is the best way to terminate participation for LLC? Which one is simpler? When is it better to offer to buy and sell shares, and when to ask to write an application for withdrawal?

It should be understood that there will be no exact answer for all situations. It all depends on your specific situation: whether there are agreements between the participants, the amount of the desired payments, the reasons for termination of participation in the company, etc.

If you are a director of a company, and you were informed that one of participants is going to terminate his participation, but he still doesn’t know how to do it, here are some important points you have to clarify:

  • the main aim of termination;
  • are there conflicts between other participants?
  • at whose expense (other participants or LLC) to make payment to the leaving participant (if payments should be made and there is no agreement that payments are not necessary)?

It should be understood that the Company may at any time receive an application for withdrawal, with the indication of the exact date of withdrawal of this participant or without specifying a date. No participant is obliged to notify the Company in advance of their plans to exit, so to refuse the application, citing the fact that the LLC is not ready for it will not work. The Company is obliged to consider such an application.

The law does not provide for certain terms of considering the application, but id can be provided by chapter.

However, it should be noted that the term of consideration of the application is limited at least by the term of payment of the actual value of the share determined by the Law on economic companies.

LLC should understand that, before the application has been considered and the necessary decisions have not been made, the participant has the right to contact the Company with the withdrawal of his application for withdrawal. This right can also be applied as a result of negotiations if, after receiving the withdrawal application, an agreement on the sale of the share to the other participants was concluded.

If the option to terminate participation is considered only as a withdrawal from the membership, then the main questions which can the head of the Company has is:

What payments is the Company obliged to make to the withdrawing participant?

Can the amount of payment differ from the size of the participant's contribution to the authorized capital?

What should LLC pay attention to when making payments? Is it necessary to pay taxes?

LLC should pay withdrew participant actual value of his share in authorized capital, as well as part of the profit received by this LLC from the moment of withdrawal of this participant to the moment of calculation. Under the agreement of the leaving participant with the remaining participants of LLC, payment of the actual cost of the share in the authorized fund of this LLC can be replaced by the issuance of property in kind corresponding to such value.

Payment can differ from made contribution. It can be bigger or smaller. It all depends on financial part of a LLC and the existing arrangements.

There are also tax obligations for the share of LLC. It should be noted that in certain cases, depending on the conditions of the process, the method chosen, the amounts paid or not paid, the answer of who and for whom pays taxes, and whether it pays will be different.

If the participant is a natural person or a non – resident company, the LLC (ODO) is a tax agent and is obliged to fulfill the relevant tax obligations by calculation. The company should pay special attention to this process, checking the occurrence of the obligation to pay tax. This will allow LLC to avoid possible sanctions.

Thus, the LLC received information about the termination of the participant’s participation in the company, should clearly determine the method and procedure, as well as pay attention to the implementation of the relevant corporate and tax obligations, compliance with a specific corporate procedure.

 

Lawyers of “US Invest” LLC are ready to provide advice on your case during the participant’s withdrawal, analyze documents and information in advance, give recommendations when preparing corporate documents, and advise on tax issues.

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