2 Likavittou Street, Kolonaki
210 36 41 214 - 210 36 46 874

main image

The partner's right of exit in partnerships


Legal insight

May 2021

George Kefalas, LL.M. (mult.), Μ.Sc.

Summary: A corporation, in its classical form, is an association of several persons joining forces to achieve a common purpose. Sometimes, however, either for personal reasons, or for reasons having to do with the company itself or its partners, a partner wishes to leave the company. In the current law on partnerships (Law 4072/2012), each partner is granted the right to withdraw from the partnership, i.e. the possibility for the partner to leave the partnership with a simple declaration. 

1. Introduction

It is not uncommon for a partner of a company to wish to leave the company, either for purely personal reasons (e.g. due to illness), or because the partnership has not developed smoothly and, consequently, it is difficult for him to continue working with his partners (e.g. continuous disputes between the partners), or, finally, for reasons relating to the company itself (e.g. continuous loss-making years). The questions that arise in these cases are many. Can the partner withdraw from the company? Does he need to invoke a reason? What is the procedure to be followed? Will he still be liable for the partnership debts if he is a general partner? Does he have a claim against the partnership in the event of withdrawal from the partnership? These are some of the key questions that we are trying to answer in this article. The examination of these issues is limited to partnerships (general and limited partnerships), where the question arises most often, precisely because of the intensely personal relationship between the members. 

2. Conditions

According to the provision of Article 261(1)(b) of the Treaty, the conditions for the application of the rules are as follows. 1 of Law No. According to Article 261 261 261 of Article 261 261 of Regulation 4072/2012. Therefore, a partner is in principle free to withdraw from a partnership without any specific condition. This applies to both partnerships of unlimited duration and partnerships of limited duration. In other words, the partner can leave the partnership by simply making a declaration to the partnership and the other partners. 

However, the articles of association of the company may lay down more specific conditions regarding the right of the partner to withdraw. These conditions cannot lead to the complete exclusion of the right of withdrawal in the case of a partnership of unlimited duration, as this would result in the partner being trapped for life in a partnership which he does not want. However, the articles of association may provide, for example, that the partner may not leave the company before a minimum period has elapsed since its formation or his entry, or that he must observe a period of notice before leaving, e.g. by giving six months' notice. 

In contrast, in a fixed-term partnership, the restrictions on the partner's freedom to exit may be more significant. Thus, the articles of association of a fixed-term partnership may provide for a complete exclusion of the partner's right to leave, or may allow exit only for specific reasons or only if certain conditions are met, e.g. where the value of the outgoing partner's holding does not exceed a percentage of the partnership's assets. 

Consequently, any partner is free to leave a partnership at any time, provided that the articles of association of the partnership do not stipulate otherwise. However, in the event that nothing is stated in the articles of association, then the partner is allowed to withdraw from the partnership by his declaration alone. 

3. Exit procedure of the partner

The law stipulates that a partner shall leave the partnership "by giving notice to the partnership and the other partners". In other words, no judicial action is required for the partner to leave the company, but it is sufficient for the partner to declare this to the company's representative and the other partners. This declaration does not have to be made in a specific form (e.g. service by bailiff), and may even be made orally. However, in order to ensure the possibility of proof, it is preferable that the relevant declaration be made in writing and in such a way that it can be proved to have been received by the persons to whom it is addressed, e.g. by e-mail with proof of reading, by registered mail or by service of a declaration in writing by a bailiff. As soon as the declaration is received by the company and the other partners, the partner leaves the company.

4. Rights of the outgoing partner

The outgoing partner is entitled, in principle, to the return of the assets which he has contributed during the period of use. Thus, if the outgoing partner had contributed the use of a machine to the partnership, the machine should be returned to him on his exit. 

Furthermore, the outgoing partner is also entitled to receive the full value of his partnership interest. This applies, in principle, without any condition in the partnership of unlimited duration. A partner leaving a partnership of unlimited duration should therefore receive the value of his participation at the end of the financial year in which he left the partnership. 

By contrast, in a fixed-term partnership, the outgoing partner is entitled to receive the value of his participation only if he invokes the existence of a good reason justifying his departure. If there is no good reason, the outgoing partner will receive only the assets he contributed for use, but will not receive the value of his participation. 

The good cause may be objective and may relate either to the situation of the company (e.g. the company's situation (e.g. non-profitability of the company, decline in the company's sector of activity) or the relationship between the outgoing partner and his partners (inability to take decisions, indifference of the partners to the fulfilment of the company's purpose, mismanagement of company affairs, disputes between partners, abusive behaviour of the majority against the minority, e.g. non-distribution of profits for consecutive years, etc.). 

However, the good cause may be subjective, i.e. it may relate to the person of the outgoing partner, as would be the case in the event of serious illness of the outgoing partner, personal commitments, long-term absence or a serious disturbance in relations between the outgoing partner and the other partners. 

Whether or not there is good cause in each particular case will ultimately be decided by the Court of Justice, to which the outgoing partner will have to appeal if the company refuses to reimburse him for the value of his participation, contesting the existence of good cause. The burden of proving that there was indeed a good reason in this case lies with the withdrawing partner.

In any event, the existence or otherwise of good cause for leaving a fixed-term partnership is relevant only as regards the payment or non-payment of the value of the participation to the outgoing partner. That is to say, even in a fixed-term partnership, the partner, whether or not there is good cause, will simply not receive the value of his participation if it is finally decided that there was no good cause. 

Finally, as regards the calculation of the value of the withdrawing partner's participation, it is accepted that the outgoing partner should be paid the full market value of his participation, which would include not only the value of his contribution but also the outgoing partner's share of the retained profits, while the intangible value of the business (brand, clientele, reputation, etc.) should also be taken into account. 

However, if, at the time of the partner's departure, the partnership's assets are not sufficient to cover the debts of the company, the outgoing partner is not only not entitled to receive the value of his participation, but is instead obliged to cover the debts in proportion to his share of the losses. 

5. Consequences of exit

As mentioned above, upon receipt of the outgoing partner's declaration by the company and the other partners, and provided that no special conditions are imposed by the company's articles of association, the outgoing partner leaves the company and the company continues among the other partners. The share of the outgoing partner shall be increased proportionally to the shares of the other partners. 

The partner's declaration of withdrawal from the company shall be published in the G.E.M., in accordance with Article 96 of Law No. 4635/2019, as well as the mandatory subsequent (due to the change in the persons of the partners and their shares) amendment of the articles of association of the company. 

The outgoing general partner remains liable (with his/her individual property) for the debts of the company that existed at the time of his/her exit, for a period of five years from the publication of his/her withdrawal in the G.E.M. For this reason, moreover, it is of great importance that the exit is published in time in the Official Gazette, so that the limitation period for his liability to the corporate creditors can start to run.

In any case, however, whether the value of the partner's participation is positive, in which case the debts of the company have been included in the amount that will ultimately be paid to him, or negative, in which case he has covered his share of the debts at the time of his exit, he has a claim against his partners to release him from his liability for these debts, which is maintained, as mentioned above, for a period of five years from the publication in the G.E.M. of his exit. Thus, if another partner satisfies, in this case, the creditor's claim, he will not be able to proceed against the withdrawing partner, whereas if the withdrawing partner is obliged to repay a creditor of the company (during the five years after the withdrawal when his liability is maintained), he will be able to proceed against his former partners and claim the entire amount he paid. 

6. Instead of an epilogue

Under the current law, a partner in a partnership may, subject to more specific provisions in the articles of association, withdraw from the partnership at any time, whether the partnership is of unlimited or fixed duration. Therefore, in the not infrequent case where a partner, either for personal reasons or for reasons related to the partnership or the other partners, wishes to terminate his relationship with the partnership, the law allows him to do so by a simple declaration to the partnership and its partners. Problems may arise in particular with regard to the return to the outgoing partner of the value of his share and, particularly in the case of a limited partnership, with regard to the existence or otherwise of good cause. 

(for the exclusion of a partner from a general partnership see here)
Read more
back to top