Brief characterisation of the right of exclusion of partners

The exclusion of partners consists of the exit of the partner from a company, as a rule on the initiative of the latter and decided by it and/or by the court, based on the law or a clause of the by-laws.

The difference with the resignation of a partner is that the latter consist of the unilateral abandonment by the partner, while the exclusion occurs with or without the agreement of the partner to be excluded.

The right to exclude or to promote the exclusion of the partner is granted to the company, by law or under the by-laws, in general based on a behaviour or personal situation of the excluded partner that prevents or hinders the pursuit of the corporate object, making it impossible for the other partners to accept his or her permanence in the company.

Exclusion of the partner based on the law

The Portuguese law provides for certain specific causes of exclusion of partners, namely:

  • The partner who fails to make the contribution which he or she is obliged to make (defaulting partner), in particular contributions  in cash with deferred maturity, and the partner who fails to make supplementary payments of capital which he or she is obliged to make;
  • The partner who uses corporate information in a manner that unfairly harms the company or the other partners.

In addition to the specific causes referred to above, the Código das Sociedades Comerciais (Companies Code) establishes the following generic cause of exclusion of partners:

The partner who, through his or her behaviour that is disloyal or seriously disrupti ve of the functioning of the company, has caused or may come to cause relevant damages to it may be excluded by court decision.”

Accordingly, there are two essential requirements of the exclusion of a partner on the basis of the said generic clause:

To begin with, a disloyal or seriously disruptive behaviour of the partner to be excluded, such as:

  • Taking advantage for his or her own benefit of business opportunities of the company;
  • Disseminating unfavourable opinions concerning the company;
  • Unlawfully appropriating corporate assets;
  • Revealing secrets of the company’s corporate organisation;
  • Using for his or her own benefit assets of the company;
  • Acts of unfair competition;
  • Sexual harassment of employees.

Then, it must be emphasised that the occurrence of one or several of the conducts above or of other that may be considered disloyal or seriously disruptive, is not sufficient grounds for the exclusion of the partner.

Indeed, such behaviour can only justify the exclusion of the partner if it causes or ha s the potential to cause serious damage to the company.

Clauses of exclusion of a partner in the by-laws

In addition to the legal clauses of exclusion referred above, the partners may provide for causes of exclusion in the by-laws (the so called causas de exclusão estatutárias), provided they relate to the person of the partner to be excluded and to his or her behaviour.

It should be highlighted that the partners do not have full freedom to include causes of exclusion of a partner in the by-laws, nor is it possible to resolve to exclude a partner without any grounds.

Therefore, the causes of exclusion provided for in the by-laws must respect the logic underlying this system, that is, the fact that the company cannot be requested to bear the presence of a partner that hinders the proper pursuit of the corporate purpose through his or her situation or behaviours, harmful to the company.

On the other hand, the causes of exclusion arising from the by-laws must be set out in sufficient detail in order to avoid abuses and promote a stable environment within the company.

Examples of clauses of exclusion in the by-laws based on the personal situation of the partner the incapacity or disability, and insolvency (declared by a court) of the partner to be excluded, as well as alcoholism, drug addiction, or obvious senility.

Additionally, exclusion causes may be specifically provided for in the by-laws based on the behaviour, in particular the examples referred to above for the exclusion of the partner based on the law, in which case the demonstration of the disloyalty or disrupt caused by such behaviour will not be so strict.

Exercise of the right to exclude a partner

The exclusion based on a fact specified in the law or in the by -laws occurs by resolution of the partners.

The exclusion based on the generic legal cause is implemented by court decision, but must be preceded and followed by a resolution of the partners (the first one to bring the action of exclusion before the court and the second one, following the judici al decision, to decide what should be done with the share of the excluded partner).

The partner to be excluded is, in any case, prevented from voting.

After the resolution concerning the exclusion of a partner, the latter loses ownership of the share, whereupon the company shall have a 30-day time frame to choose between writing it off, acquiring it or having a third party acquire it.

Unless otherwise provided for in the by-laws, the excluded partner will be entitled to receive the value of the liquidation of the same on the date of the resolution of exclusion or on the date on which the judicial action was brought.