Exclusion of a Partner in a General Partnership as an Alternative to the Dissolution of the Company

Legal Insight

November 2024

Areti Kolokotroni, LL.M.

Summary: In personal companies such as general partnerships, where interpersonal relationships among partners are particularly significant, conflicts between partners are a frequent phenomenon. Acts or omissions in the exercise of corporate duties by a partner may lead to their exclusion from the company. This article analyzes the preference given by Greek courts to preserving the business by excluding the responsible partner, rather than opting for the dissolution of the company, which leads to its termination and is considered a last resort.

1. Introduction: Petition for Judicial Dissolution of a General Partnership - Exclusion of a Partner in Personal Companies: Requirements and Consequences

According to the law (Article 259, Law 4072/2012), a general partnership (GP) is dissolved:

a) upon the expiration of its term,

b) by unanimous decision of the partners,

c) by the declaration of bankruptcy, or

d) by judicial decision upon a partner's petition, provided there is a "significant cause."

In the latter case, the petition is filed for adjudication at the Single-Member Court of First Instance of the company’s seat and may be submitted by even one partner seeking dissolution. A prerequisite is the presence of a "significant cause" justifying the dissolution, assessed based on the circumstances and the general organization of the specific company, which serves as the main guide for evaluating the seriousness of the situation.

When a significant cause attributable to one partner justifies dissolution, the court may, upon a petition by the remaining partners, order the exclusion of the partner instead of the company's dissolution (Article 263, Law 4072/2012).

The necessary conditions for the exclusion of a partner from a personal company are:

a) the existence of a legally established company,

b) the existence of a "significant cause" related to the partner under exclusion, and

c) a petition submitted by all remaining partners, excluding the one under exclusion, to the Single-Member Court of First Instance. This contrasts with the petition for judicial dissolution, which can be filed by even a single partner.

The exclusion provision also applies to two-member companies (requiring the entry of a new general partner within four months) and to multi-member companies where one partner seeks the exclusion of all others.

The exclusion of a partner results in their forced withdrawal from the company, retaining, however, the right to claim the value of their partnership share. This value, according to prevailing opinion, is calculated at the time the judicial decision ordering the exclusion becomes final.

2. The "Significant Cause" Requirement

A common element between petitions for dissolution and exclusion is the requirement of a "significant cause," albeit with different content in each case.

For dissolution, the significant cause justifying the dissolution must generally concern the company's affairs rather than the partners' personal relations, unless personal factors play a crucial role. Indicative incidents justifying dissolution include the poor financial performance of the company, lack of profits, mismanagement, lack of cooperation, persistent disagreements, lack of trust, hatred among partners, or the disruption of personal relationships between partners.

Notably, disturbed personal relationships between partners are insufficient to order the company's dissolution, especially when the company's financial course has not been affected by the personal tensions. However, when such relationships are of a permanent and ongoing nature, leading to the company's operational paralysis and rendering its purpose unachievable, they may constitute a significant economic reason justifying dissolution.

On the other hand, the significant cause for the exclusion of a partner is exclusively related to the person of the partner under exclusion. It does not concern the remaining partners, the company's condition, or external events unrelated to the partner under exclusion. The significant cause must make the continuation of the company with the partner unbearable or burdensome for the other partners. Examples of such causes include competing activities by the partner against the company, neglect of company affairs, persistent absences, loss of trust due to mismanagement, failure to contribute required funds, or non-fulfillment of significant company obligations.

3. Dissolution as a Last Resort ("Ultimum Refugium")

By excluding a partner, the company is preserved and can continue without them. If a significant cause justifying exclusion is identified, the court examines whether the exclusion can resolve the cause and whether the remaining partners are willing and able to continue the business without the excluded partner.

Given the principle of preserving the corporate enterprise, which underpins corporate law, dissolution is considered a last resort to address the situation only if no other solution can resolve the impasse.

Exclusion is preferred over dissolution for viable companies, taking into account the legal right of any general partner to voluntarily exit the company (Article 261, Law 4072/2012). This solution preserves the legal entity and allows the continuation of its activities while safeguarding the excluded partner’s rights to claim the full value of their partnership share. The court assesses whether the company’s operations can feasibly and profitably continue with the remaining partners. Criteria considered typically include the company's substantial turnover, reputation, absence of debts, and growth prospects.

4. Judicial Precedents

Greek case law supports these principles, prioritizing corporate interests and resorting to judicial dissolution only when the impasse cannot otherwise be resolved:

Athens Court Decision 715/2022: The court handled both a petition for exclusion and an opposing petition for dissolution, ultimately concluding that while irreparable rupture had occurred, the company remained viable with significant turnover and no substantial debts. It opted for the exclusion of the responsible partners.

Thessaloniki Appeals Decision 2191/2023: The court excluded a disruptive partner in a productive company with 36 employees and international exports, emphasizing that the company could continue operating without the excluded partner.

5. Conclusion

The principle of preserving the enterprise is the primary and decisive factor in corporate disputes. Courts only resort to the dissolution of a company when obstacles cannot be resolved by other means, prioritizing business continuity over individual conflicts between partners. Balancing the opposing interests of disputing partners, the preservation of the business always prevails.