Expulsion of a Partner for Just Cause in a Limited Liability Company: Legal Grounds, Procedure, and Safeguards

This article analyzes the legal grounds, objective criteria, and applicable procedure for the expulsion of a partner for just cause in limited liability companies. Expulsion is an exceptional measure, allowed in cases of serious misconduct that render the continued partnership with the offending partner untenable. Based on Article 1,085 of the Brazilian Civil Code, this paper examines the distinction between judicial and extrajudicial expulsion, formal requirements, the rights of the expelled partner, and the procedural guarantees involved. Current case law and best contractual practices are also discussed as means to ensure legal certainty and prevent corporate disputes.

In limited liability companies, the ties between partners often involve trust, reciprocity, and active collaboration in business management. When this relationship is broken due to harmful conduct by one of the partners, the continuity of the company may be jeopardized, requiring the adoption of drastic measures, such as expulsion for just cause.

The Brazilian Civil Code, attentive to the need to preserve corporate stability and functionality, provides for the possibility of expelling a partner whose actions threaten the continuity of the business. However, such a measure must comply with strict legal requirements and guarantee the expelled partner’s right to a defense.

This article analyzes the legal framework of expulsion for just cause, the circumstances under which it may be applied, the available methods (judicial and extrajudicial), as well as the rights of the expelled partner and the financial implications of the measure.

2. Legal Basis and Legal Nature of Expulsion

Expulsion for just cause is governed by Article 1,085 of the Civil Code, which states:

“Subject to the provisions of the articles of association, a partner may be judicially expelled from the company if he/she endangers the continuity of the business through acts of undeniable gravity.”

This provision establishes the possibility of judicial expulsion, even if not expressly provided for in the articles of association, when the partner:

Commits an act of undeniable gravity;

Endangers the continuity of the company.

Additionally, Article 1,085, sole paragraph, allows for extrajudicial expulsion, provided that:

There is an express provision in the articles of association;

The decision is approved by an absolute majority of the remaining partners;

The accused partner is guaranteed the right of defense;

The decision is made at a formally convened meeting.

3. Typical Cases of Just Cause for Expulsion

The law does not provide an exhaustive list of acts that justify expulsion, leaving it to legal interpretation and case law to identify serious misconduct that warrants such action. Common grounds include:

Misappropriation of company assets or funds;

Breach of the duty of loyalty;

Acts of unfair competition;

Deliberate obstruction of business operations;

Repeated breach of contractual or legal obligations;

Abusive interference in management.

The existence of just cause must be objectively and factually demonstrated; otherwise, the expulsion may be deemed null.

4. Extrajudicial Expulsion Procedure

When provided for in the articles of association, extrajudicial expulsion must strictly follow the procedure below:

1. Formal call for a partners' meeting with an agenda specifically including the expulsion decision;

2. Guarantee of the accused partner’s right to be heard and to defend him/herself at the meeting;

3. Approval of the expulsion by an absolute majority of the remaining partners (Art. 1,085, sole paragraph, Civil Code);

4. Drafting of minutes and registration with the Board of Trade;

5. Formal notice to the expelled partner.

   
   

Case law has upheld extrajudicial expulsions when the procedure is duly followed and there is proof of just cause.

5. Judicial Action for Partner Expulsion

In the absence of a contractual provision authorizing extrajudicial expulsion or where the required quorum is lacking, expulsion must be pursued through specific judicial action, under the main section of Article 1,085.

In such cases:

The partner is served and given the opportunity to present a defense;

The plaintiff must prove the acts of undeniable gravity;

A court ruling, after ensuring the right to a defense, will determine whether the expulsion is warranted.

Case law recognizes that such rulings have constitutive effect, producing consequences ex nunc (from the date of the decision).

6. Effects of Expulsion: Equity Valuation and Partner’s Rights

Expelling a partner entails the compulsory withdrawal of their interest in the company, followed by an equity valuation as set out in the articles of association and Articles 1,031 and 1,034 of the Civil Code.

The expelled partner is entitled to the value of their quotas;

Valuation must follow the criteria in the articles of association or, in the absence thereof, be determined by judicial appraisal;

Installment payment or penalty clauses may be stipulated;

The partner's personal assets are not affected (unless liability for damages is established).

7. Relevant Case Law

"Extrajudicial expulsion of a partner is permitted, provided it is stipulated in the articles of association and minimum guarantees of due process are observed, with approval by an absolute majority of the other partners." (STJ, REsp 1.213.652/SP, Justice Nancy Andrighi, ruled on 10/24/2013)

"Judicial expulsion of a partner requires clear demonstration of conduct that compromises business continuity, being an exceptional remedy with ex nunc effects." (Court of Appeals of São Paulo, Appeal No. 1007826-33.2022.8.26.0100, ruled on 04/11/2023)

8. Best Practices to Prevent Corporate Disputes

Include an explicit expulsion clause in the articles of association;

Provide for objective criteria for equity valuation;

Define clear rules in the shareholders’ agreement regarding management, withdrawal, and succession;

Keep formal records of meetings, communications, and irregular conduct;

Always seek consensual solutions before resorting to litigation.

Final Considerations

Expulsion of a partner for just cause is an exceptional measure and must be applied with caution, legal rigor, and technical justification. The company’s functionality and harmony cannot come at the expense of the partner's fundamental rights, which is why such measures must always be guided by proportionality, due process, and legal certainty.

Preventive action, through well-drafted contractual clauses and solid governance, is the most effective way to avoid traumatic ruptures and to preserve the continuity of business operations.