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The main issues when a member leaving the company

“US Invest” LLC lawyer – Uladzislau Babitski

A member of a limited (additional) liability company (hereinafter-LLC) may terminate his participation in LLC both by selling his share and by withdrawal.

“A member leaving the company” – what does it mean?

Leaving the company or withdrawal is voluntary termination of participation in LLC  on the basis of the signed application filed (received) in LLC, but not earlier than the date of filing (receipt) of the application. In the application, you can specify a certain date in the future from which you are considered to be withdrew.

The basic rights of withdrawing member:

- withdraw from the company at any time regardless of the consent of other participants;

- to apply in writing for withdrawal of the application for withdrawal (but only until the General meeting of LLC determines the moment of settlement);

- receive payments for the value of the share;

- to receive a part of the profit which is the share received by LLC from the moment of an withdrawal to the moment of settlement;

- to offer discussion on replacement of monetary payment of share value by the property in kind corresponding to such value.

The basic responsibilities of a withdrawing member:

- to declare your withdrawal in writing;

- to fulfill obligations, which have already met the deadline.

The main problems withdrawing member can come across with:

- Refusal to accept the application for withdrawal

For example, the member sent to LLC the application on withdrawal by the registered letter. After that he receives a response from the Director that the company refuses him to withdraw and will not conduct any further procedures.

The withdrawal of the member is member’s right, director’s refusal is not lawful.

- Payment of the actual value of the share by the property of LLC, instead of cash, without the consent of the withdrawing member

For example, LLC calculated the actual cost of the share, the member didn’t have any claims. However, LLC issued property equals the corresponding value (remnants of construction materials, non-working equipment, old furniture, etc.), withdrawing member was against the issuance of property to him instead of payment of share’s actual value.

According to the Law, such replacement is possible but only under agreement of a member and a company.

Thus, in the absence of prior consent, the leaving member may refuse to accept the property issued.

- Difficulties connected with determining the form of payment to the leaving member.

For example, a participant in the process of opening a company contributed to the authorized capital real estate. There is a question: should he take away this real estate while withdrawing?

Whatever a person contributed to the authorized capital, while being a participant of company, is company’s property.

By default, the actual value of share should be given to leaving member by money. According to the agreement of the withdrawing participant with other participants, payment can be replaced by delivery of property. Thus, in order to receive a certain property as a payment for a share, an agreement must be reached.

Member has the right to ask for transferring certain real estate, but has no right to demand transferring.

- Payment of the actual value of the share in the amount less than it should be, understating the value of the assets of LLC

The actual value of the share corresponds to the part of the net asset value of the company proportional to the size of the share.

There are situations of intentional actions to understate the amount of net assets that affect the calculation of payments to the participant.

For example, the participant filed an application for withdrawal from the LLC on February, 1, 2019. The General meeting of participants determined that LLC will settle with the participant until September, 30, 2019 inclusive. On May, 13, 2019 LLC decided to revalue the real estate of company. As a result of the revaluation, the cost of real estate, according to accounting documents, has become less than it was before the application for withdrawal was sent. The calculation was carried out, taking into account the updated value of the property.

Such actions of LLC violate the rights of the leaving participant. The determination of the actual value of the participant's share is not affected by the revaluation of property, corrections made to the accounting data after the moment of the participant's withdrawal.

Why do such problems arise for a withdrawing participant?

First of all, the reason is ignorance of their rights as a participant under the law and the charter.

Secondly, insufficient possession of information about the affairs and property of the company, as a consequence of the lack of control and verification of data.

Thus, the participant planning withdrawal should pay attention to the order of drawing up of the application, and also not to neglect preliminary collection of information which can help him further.

 

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

More about the services of "US Invest".