The situation when a society consists of two participants (founders) is initially difficult in itself and encompasses the likelihood of insoluble or intractable disputes and contradictions. And here it is not so important - equal shares of participants or unequal. In both cases, conflicts may arise between participants, which can hamper the activities of society, or even make it impossible. By the way, the above applies to joint-stock companies consisting of two shareholders.
1. If the shares of both participants are 50% ...
This situation is best avoided. One day it may happen that between the participants there will be a misunderstanding, or even a quarrel - of a personal or working nature. Sooner or later, any dispute between these people will be transferred to the field of corporate governance and control over the activities of society. Then the participants will find themselves in a situation where decision-making in society will be blocked - because each of the participants has an equal number of votes with the other participant. Making a decision will be impossible.
In judicial practice, cases on the need for judicial resolution of issues of the company’s activities because of hostility between participants with equal shares are very numerous: most often disputing participants appeal the minutes of general meetings, decisions made illegally at such meetings, transactions of the company actually made without the consent of the second participant, or they ask the court to take a decision for them (Resolution of the 10th AAS dated 01.12.2016 in case No. A41-9229 / 16).
Courts in such cases proceed from factual circumstances and the rule of law. Suppose the charter provides for a unanimous decision at a general meeting, and the second participant was absent. Or the minutes of the general meeting were falsified and the second participant presented evidence of this fact. Everything is more or less clear here.
However, this is only one side of the coin. There is a second side, when a corporate conflict between two parties turns into a dispute over the liquidation of the company, expulsion of the participant from the company or is accompanied by bankruptcy of the company. Let's consider such situations in more detail.
2. The exclusion of one of two participants from the company in a corporate conflict
In the Review of Judicial Practice of the Armed Forces of the Russian Federation for the 1st quarter of 2014, the Judicial Collegium for Economic Disputes indicated that in a situation where the level of mistrust between members of the company, owning equal shares, reaches a critical point from their point of view, while none of it is not knowingly unlawful, it is advisable to consider the possibility of continuing corporate relations, which may result in the participants making a decision to liquidate the company or one of the participants making a decision to withdraw from him with the relevant legal consequences provided for by the Law on LLC and the constituent documents of the company. Claims for expelling another participant from the company in such a situation are not subject to satisfaction.
However, as the judicial practice shows, depending on the specific circumstances of the case, the likelihood of satisfying an application for the exclusion of one of the two participants in the event of a corporate conflict is not completely reduced to zero.
Determination of the Armed Forces of the Russian Federation of 07.20.2015 N 305-ES15-2706:
The courts of three instances denied the participant of the company a lawsuit to expel the second participant, indicating that the mutual claims of the participants indicate a corporate conflict and a desire to resolve it by depriving the other participant of the legal rights to the share, which is unacceptable.
The Supreme Court did not agree with the findings of the courts in the case, because the equal distribution of shares between the parties to a corporate conflict is not in itself an unconditional basis for refusing a lawsuit to expel a participant from the company.
Exclusion of a participant is a special corporate way of protecting rights, the purpose of which is to eliminate obstacles caused by the behavior of one of the participants to the normal functioning of the company.
In a situation of equal distribution of shares between two participants, the court must evaluate the violations committed by each participant, analyze the adverse effects that have arisen on society.
A claim for the exclusion of one participant cannot be satisfied in the case when such a claim is filed by another participant, in respect of which there are also grounds for exclusion.
Decision of the Eleventh Arbitration Court of Appeal dated October 28, 2014 in case No. A55-5927 / 2014, Decision of the Arbitration Court of the Krasnoyarsk Territory in case No. A33-19931 / 2016 of December 6, 2016: with a ratio of shares (50/50), the exclusion of a participant can only be applied to in exceptional cases, when a gross violation by a participant of the company of his obligations or the behavior of the participant, making it impossible or impeding the activity of the company, is proved.
3. Liquidation of the company in connection with the conflict of participants with equal shares
A lawsuit to liquidate a company of two participants with shares of 50%. The statement is motivated by the presence of a prolonged corporate conflict in the Company, the impossibility of the Company to carry out normal business activities.
The court of first instance refused the claim, the appeal and cassation decided to liquidate the company.
The decision of the Arbitration Court of the Volga Region on 10/07/2016 in case No. A57-30921 / 2015:
The liquidation of a legal entity as a way to resolve a corporate conflict is possible only if all other measures to resolve the corporate conflict and remove obstacles to the continued activities of the legal entity (exclusion of a legal entity participant, voluntary withdrawal of a participant from the legal entity participants, election of a new person, the sole executive body, etc.) has been exhausted or their application is impossible.
The absence of a corporate community between the participants and the impossibility of making a joint decision on managing the company taking into account the distribution of votes in equal shares do not contribute to the possibility of maintaining the Company’s activities taking into account the goals of economic feasibility and profit. There are no other ways to resolve a corporate conflict between members of the Company.
4. Difficulties of participation of participants in the bankruptcy case of their company (LLC, JSC)
In relation to a company consisting of two participants with shares of 50% of the authorized capital, bankruptcy proceedings are carried out. One of the participants appealed against the decision to include the requirements of one of the creditors in the register. The complaint was returned by the court in connection with the fact that the interested participant did not have the status of the representative of the participants.
The determination of the Armed Forces of the Russian Federation dated 06/14/2016 in case N 304-ES15-20105:
The opening of bankruptcy proceedings gives the representatives of the participants of the debtor the rights of persons participating in the case. The representative of the participants of the debtor is recognized, including the person elected by the participants of the debtor to represent their legitimate interests.
Within the meaning of the provisions of the bankruptcy law, the purpose of restricting the direct participation of all participants of the debtor in the case of its insolvency and the possibility of them taking any actions only through a representative is to prevent the unauthorized participation of a large number of participants of the debtor with relatively small shares.
In this case, the participants in the debtor Spiridonov C.The. and Ulyankin V.I. have equal shares in the authorized capital. At the same time, a corporate conflict between them significantly complicates the initiated choice of a representative to participate in bankruptcy proceedings.
In this situation, the absence of Spiridonov S.V. the status of the representative of the debtor's participants should not impede the exercise of his right to judicial protection, including the consistent upholding of his legal position against the unreasonable, in his opinion, inclusion in the register of the creditor's claim.
5. When the shares of both participants in society are unequal ...
It all depends on the rules of decision-making by the company, prescribed in the Charter. If the Charter of the Company or the law on LLC provides for a unanimous vote on a specific issue, the distribution of shares 50/50 or 60/40 (30/70, etc.) will not play a role. In this case, the situations will be similar to those described above.
If, however, a majority vote is sufficient for a decision, such a decision will be made by the participant with a larger share. However, this will almost always entail the appeal of the decision or its consequences by the second participant for other reasons, including on the grounds of abuse of law (Resolution of the 8th AAS dated December 29, 2016 in case No. A46-9252 / 2015). Often there is the presentation of claims for the exclusion of such a participant (Resolution of the Arbitration Court of the North Caucasus District in case No. A32-1325 / 2016 of 11/10/2016, Resolution of the Arbitration Court of the Moscow District in case No. A41-63802 / 2014 of 28.01.2016, the decision of the arbitration court of the Kostroma region in case No. A31-78 / 2016 of 07.20.2016).
Of course, there is no universal “recipe” for eliminating the difficulties associated with the participation of only two people in societies. Unless to create such societies. This, of course, is a joke.
As options that can help smooth out probable difficulties, you can suggest these methods:
- determine in the charter of the company a clear procedure for making decisions, including describing the required number of votes for each type of decision;
- determine in the charter or agreement of the participants initially unacceptable decision-making situations;
- involve in the settlement of contradictions a predetermined mediator (mediator). The need and procedure for attracting a third party should be spelled out in the charter or agreement of the participants;
- if the participants cannot independently decide on the candidacy of the director of the company (for example, each of them wants to manage the affairs of the company on their own or offers a candidate in which there is a personal interest) - invite a professional manager. Regarding a professional manager, the recommendations are the same as in the case of a mediator - describe the selection procedure in advance and in detail;
- define clear criteria for transactions by the company;
- determine the procedure for the parties in the event of insoluble contradictions: provide for the withdrawal of any participants from the company with appropriate compensation, separation of the company or liquidation.
Also, with certain exceptions, what is written is useful to companies consisting of three participants (shareholders) with equal shares (1/3 / 33.3 percent), four participants (shareholders) with equal shares (1/4 / 25 percent), and five participants (shareholders) with equal shares (1/5 / 20 percent) and so on.
In the event that your litigation or other dispute, contractual work or any other form of activity concerns the issues discussed in this or our other material, we recommend checking and making sure that your legal position complies with the latest changes in practice and legislation.
We will be happy to provide you with legal assistance regarding the minimization of legal risks and available opportunities. We will try to find a solution that is right for you.
Yana Polish
Our law firm provides various legal services in various cities of Russia (including Novosibirsk, Tomsk, Omsk, Barnaul, Krasnoyarsk, Kemerovo, Novokuznetsk, Irkutsk, Chita, Vladivostok, Moscow, St. Petersburg, Yekaterinburg, Nizhny Novgorod, Kazan, Samara, Chelyabinsk, Rostov-on-Don, Ufa, Volgograd, Perm, Voronezh, Saratov, Krasnodar, Tolyatti, Sochi).
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