Dismissal Harmful Partner.
Introduction
The strength of any company is usually its founders, each of them has a value or advantage that is a reason for trading and achieving material profit. Where one of the partners may present the idea of "Patent - Know How...etc." and he lacks sufficient funding for this idea, this partner starting a research trip to gain the confidence of a partner who has the financial ability to achieve it on the ground, Likewise, the financier needs someone to promote and market in the professional manner in order to ensure that his invested money is collected Again. all the previous elements are summed up in that, company is (Idea - Money - Network) translated into people who agree among themselves to establish a partnership, Whatever the legal form of that partnership.
However, after a period of time from the establishment of the partnership, a dispute may arise between the partners, and the reasons for that dispute are many, may be due to:?
- Failure of a partner to perform his duties towards that partnership?
- OR he may take actions that threaten the continuation of the company's work in the market
- OR causing significant material losses, whether intentionally or unintentionally, due to his misconduct
Those actions that may lead to the bankruptcy of the company, damage its reputation, or make it difficult to achieve the goal for which it was established. ?All of these previous cases are the subject of a disputes between the partners that we see before the judiciary.
The motive for writing this article is the disputes presented to us through which we went through the chapters of research in the books of jurisprudence and reading and interpreting the provisions of the Egyptian judiciary in this regard.
- Cases & the legal basis for the eligibility of one of the partners to dismiss the other partner/shareholder who has harmed the company.?
- The importance of the Partnership / Shareholders Agreement & the most important items that it must contain.
The previous points will be addressed in a simplified manner, whether for company owners or those who are about to establish a company.
?Cases That Call for Dismissal of the partner: -
First Case/ Partner creating a competitor entity or working for a competing company,
The partner share at the company maybe It is what he possesses of distinguished Know How in a particular commercial activity, or a patent, or his distinction by performing a certain work...etc. The foundation of the company's success is based on that, but If he provides the same share to another competing company, or he establishes it, whether if he do it ?explicitly or secretly, The resulting is this new entity benefits from industrial and commercial secrets in a way that harms the company’s revenues through the decline of its labor market and its inability to achieve its purpose, then it is subject to liquidation / dissolution, Here, any of the partners has the right to request the dismissal of that partner.
" We clarify that the non-competition obligation is an assumed condition in all corporate contracts, whether the legal form on which the company was founded, then it is an assumed condition by virtue of the law, and therefore there is no effect of not stipulating it in the company’s contract. "
Second Case/ Partner Is a manager & neglects the management of the company,
A partner may be a manager of the company and appointed in its articles of association, and he may neglect his management of the company in a manner that requires his dismissal by carrying the company debts or making deals that doesn't benefit the company or manage in a way that violates its articles of association and its objectives. here one of the partners has the right to request his dismissal.
Note/ The aforementioned cases are for example / not limited.?
Legal Basis For Requesting The Dismissal Of The Partner, Scope & Effects:-
The Egyptian legislator gave the right to any of the partners file a case to dismiss his partner - the partner may be a company that shares in another company - whether the percentage of his contribution to the company, if one of the following actions occurred from him: -
?1- The partner’s objection to extending the term of the company, provided that his objection is arbitrary by him in the use of his right.
2- That he commits acts and behaviors that threaten the stability of the company in violation of the purpose for which it was established.?
?(Check Article 531/ 1 Civil law)
The practical reality testifies that the text of the previous article has been applied to the Firms, but it is not limited to them, so that the scope of the application of the text of the article extends to all companies, whatever the legal form taken.
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Whereas, by reviewing the provisions of the Egyptiation company Law No. 159 of 1981 amending, we found the text Of "article 2" ?stipulated ?that “… The provisions of the accompanying law shall apply to the aforementioned companies where there is no special provision in Laws regulating it.”?
Companies Law is devoid of laying down regulating rules for the partner’s dismissal, which Means that it has referred to the provisions of the Civil Code related to the partner’s Dismissal.
1- The company remains existing among the remaining partners.
2- The separated partner receives the value of his share in cash.
3- It may be imposed with the dismissal of the partner, an obligation to compensate the company “This depends on the extent of the damage inflicted on the company.”
4- He remains responsible for the company's debts that arose prior to his dismissal.
5- Participates in the company's profits & losses resulting from the operations that existed before his dismissal.
6- The separated partner shall be a creditor by the value of his share in the company from the date of his dismissal by a final judgment.
Importance Of The Partnership/Shareholder Agreement:-
A partnership / shareholder agreement is a contract whereby all partners define and organize their roles within the company.
Practically, the contract deals with some points that may be the subject of a future dispute between the partners. an agreement that serve as a constitution between them.
Recent amendments to the Companies Law have approved the legality of that agreement, provided that it should submitted to the extraordinary general assembly and approved by a majority of not less than three quarters of the partners/shareholders capital.
(Check Article 9 bis companies / added by Law No. 4 of 2018)
Some of the points that must be dealt with in the partners / shareholders Agreement: -
- Role of each of them in the management of the company and the limits of their responsibility should be determined.
?- ?Should address the size of the invested capital and its distributions / years of dividend distribution & the restrictions imposed on it.?
- Exposure to the company's position in the event of the death or incapacity of one of the partners.
?- Estimating the material value of the partner / shareholder's share in the company
?(with a patent / Know How / his network of relationships).
Is it permissible to agree that if one of the partners breaches his agreed upon obligations, the rest of the partners have the right to dismiss him from the company without resorting to the judiciary?
?Answer: Yes, they have the right to agree on that.
?But the manner and style of drafting here differs in the professionalism of Attorneys.
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Arabic version of the article, click here
Written By MR, Mahmoud Morsy?