Compulsory sale of shares or membership interests: grounds, process and price

Two directions: acquiring another stake or selling your own

Article 2.115 of the Lithuanian Civil Code allows an eligible participant to seek an order requiring another participant to sell their shares, rights or units to the claimant. The other participant’s conduct must be contrary to the legal entity’s purposes, with no reasonable basis for expecting it to change. The claimant seeks to remain in the business and acquire the other stake. [1]

Article 2.123 addresses the reverse direction. Where another participant’s conduct prevents an eligible participant from properly exercising their rights, and there is no reasonable basis for expecting that conduct to cease, the affected participant may require that person to purchase their stake. The claimant seeks to leave. The additional provisions cross-referenced by Article 2.123 also apply. [1]

The claims should not be confused: the stake being transferred, the person required to pay and the facts to be established differ. This article concerns the Lithuanian statutory court remedy, not an ordinary negotiated share sale. “Membership interests” is used here as a general English description of the different rights and units covered by the Code.

A disagreement or a 50/50 split is not enough

A compulsory sale significantly interferes with ownership. The assessment concerns identified conduct, its impact on the entity’s purposes and whether less intrusive remedies would effectively protect legitimate interests. The courts treat this as a last-resort remedy. The prospective element also matters: why is there no reasonable basis for expecting the adverse conduct to change? [1] [4]

Repeated disruption of company operations, diversion of assets or opportunities, or persistent obstruction of necessary decisions may be relevant. But voting against a proposal, asking for transaction details or opposing a risky investment is not automatically misconduct. The reasons and full context matter.

An equal division of shares does not itself determine which participant must leave. Responsibility for the situation and the claimant’s own conduct should be assessed. The case needs a documented chronology, not merely an account of deteriorating personal relations. [4]

Who is entitled to bring the claim?

Article 2.116 includes one or more shareholders in a Lithuanian private limited company (UAB) whose shares have a nominal value of at least one third of its share capital. Corresponding one-third contribution or unit thresholds apply to the other listed forms, including partnerships, small partnerships, and agricultural or cooperative companies. The remedy is not automatically available to every member of every type of legal entity. [1]

The constitutive documents and participants’ agreements must also be reviewed. Under Article 2.116(2), different compulsory-sale rules contained in those documents can exclude recourse to this statutory route where they can be applied. Additional statutory exclusions concern the entity itself and certain participants it controls. Calculating the claimant’s percentage is therefore only one part of the assessment. [1]

How should the case be prepared?

First define the desired outcome: acquiring the other stake, selling your own or restoring proper governance. Then build a chronology supported by lawfully obtained minutes, voting records, correspondence, contracts, payments and financial information.

Negotiation, a contractual exit mechanism, a challenge to a corporate decision or an investigation of the legal entity may be alternatives. The last-resort nature of the remedy does not automatically require every conceivable action to be litigated first. The issue is why a less intrusive response would not adequately address the particular situation. [4]

The special request under Article 2.126(2) belongs to the legal-entity investigation procedure. It should not be mechanically treated as an identical precondition to a compulsory-sale action, which has its own procedural requirements. Nor is an earlier legal-entity investigation a universal prerequisite to a compulsory-sale claim. [1]

Court, counsel and the other participants

The claim is brought before the regional court for the legal entity’s registered office. Article 2.115(3) requires an advocate’s participation in the litigation, and the court must inform the entity about the claim and decisions. [1]

A participant who brings a compulsory-sale claim must invite the other participants to join as co-claimants. For an Article 2.123 claim seeking purchase of the claimant’s own stake, the obligation runs differently: the participant required to purchase must invite other participants to become co-defendants. Compliance and the relevant communications should be documented. [1]

Two principal stages: entitlement and valuation

The first stage determines whether the legal and factual grounds for a compulsory sale exist. Conduct, company interests, the prospect of change and alternative remedies are central. Success does not mean immediate transfer at whatever price the claimant proposed. [1]

The second stage concerns expert valuation after the decision has become final. Article 2.118 provides for court-appointed experts and their written report. Under Article 2.119, the court then rules on the price and expert costs, and the price ruling may be challenged by a separate appeal. The Supreme Court has expressly identified the distinction between these stages. [1] [2]

Price requires financial preparation

The shares’ nominal value, the book value of equity and the price to be determined are not automatically the same. Relevant matters can include the recoverability of receivables, condition of assets, liabilities, related-party dealings and business prospects. The appropriate methods, assumptions and valuation date must be justified for the particular case; there is no single formula suitable for every company.

Preparation should include the relevant financial data, focused expert questions and a review of the report’s assumptions. A precise objection identifying an omitted asset, unsupported liability or calculation error is more useful than saying that the price is simply too high or too low. A privately commissioned valuation can inform a party’s position but does not replace the statutory court process. [1]

Article 2.119 allows the court to decide who bears expert fees and expenses, including the possibility of allocating them to the entity. It would therefore be misleading to assume in advance that the opposing participant will always pay for the entire exercise. [1] [2]

Protecting the stake and the business during proceedings

Consider the actual risk of transfer, loss of value or disruption of the business and any appropriate procedural protection. Filing a claim does not automatically remove all the defendant’s shareholder rights.

Article 2.117 sets out restrictions linked to the decision ordering a compulsory sale and its becoming final. On request, the court that made the decision may also restrict the exercise of voting rights without the court’s or claimant’s consent. The Supreme Court has explained that voting restrictions can affect meeting quorum and decisions. Any proposed restriction should therefore be considered alongside the company’s ability to continue operating. [1] [3]

Payment and transfer after the price is fixed

Under the general rule in Article 2.120(1), shares or units must be transferred within two weeks after the price ruling becomes final, with payment on transfer. Article 2.120(2) provides a specific mechanism for participation rights. The Code also addresses failure by the defendant to transfer the shares or units. [1]

Where another person has a preferential purchase right, the special procedure in Article 2.121 must be considered. Planning should therefore extend beyond winning the order: who will pay, when, under which procedure and using what funds? An entitlement to purchase does not by itself provide the financing needed to complete it. [1]

Investigation or compulsory sale?

A legal-entity investigation primarily addresses whether management has been improper and what corrective governance measures are appropriate. A compulsory-sale or purchase action seeks a change of ownership or an exit meeting the statutory conditions. The aims can overlap, but commencement of one procedure does not establish the grounds for the other. [1]

Where the key uncertainty concerns financial flows and the basis of management decisions, access to information and investigation may be the first priority. Where the relevant conduct is established, ongoing and cannot effectively be addressed through continued cooperation, the grounds under Article 2.115 or 2.123 may deserve consideration. The choice should reflect evidence and an achievable result, not the emotional intensity of the dispute.

Documents for an initial consultation

Prepare constitutive documents, proof of the ownership and size of each stake, shareholders’ agreements, meeting minutes, material correspondence and evidence of the particular conduct alleged. An overview of the company’s current finances, encumbrances and preferential purchase rights is also useful.

A compulsory sale is not a punishment or a route to acquiring a partner’s stake cheaply. It is a judicial remedy requiring statutory grounds, evidence, a properly determined price and actual payment. A workable strategy must cover every stage.