![]() Specifically, the German withdrawal regime's coverage of non-fault grounds exposes the limitations of the UK's existing withdrawal regime, but also highlights the difficulties of filling the non-fault gap through reforming the UK's unfair prejudice remedy. Juxtaposing the two models reveals opportunities and obstacles for reform. This Article contributes to the growing body of comparative literature on shareholder protection in close corporation law by developing the two models of withdrawal and showing how each, in emphasising different aspects, demonstrate distinct strengths and weaknesses. As this model figuratively insures shareholders against some of business life's vicissitudes, I call it the ‘quasi-insurance’ model of withdrawal. Second, withdrawal is also a mechanism by which co-ownership of business enterprise may be dissolved, with one co-owner exiting the business, for reasons other than fault attributable to any of the participants – as exemplified by Austritt aus wichtigem Grund. To capture the targeted and focused nature of such regimes in correcting wrongs suffered by the withdrawing member, I call this paradigm the ‘corrective model’. First, withdrawal may be used to achieve full protection of shareholders from targeted, value-decreasing ill-treatment by persons in control of the close corporation – as is the case for the unfair prejudice remedy. Through an in-depth, comparative analysis of the unfair prejudice remedy and Austritt aus wichtigem Grund, this Article demonstrates that withdrawal regimes can be based on two distinct rationales, each of which affects how each regime operates in practice differently. Withdrawal regimes all perform shareholder protection functions by facilitating both exit and recovery of otherwise locked-in investment when amicable solutions cease to work. Their ability to permanently resolve intractable conflict between close corporation shareholders make withdrawal remedies valuable, if not essential, to modern corporate law. Examples of these – which I call ‘withdrawal remedies’ – include the unfair prejudice (or ‘oppression’) remedy familiar to English and Anglo-Commonwealth jurists, as well as Austritt aus wichtigem Grund (‘withdrawal for good cause’) for Gesellschaft mit beschränkter Haftung (GmbH) in Germany. In leading jurisdictions, this legal solution takes the form of a remedy that enables an aggrieved shareholder to exit the close corporation by severing their ties with the close corporation and other shareholders, give up their shares and other rights as a shareholder, and receive a sum of money in exchange. Unless the parties themselves reach and commit to a mutually acceptable settlement, a legal solution is necessary. Footnote 9 When conflict becomes intractable and feuding parties turn to legal dispute resolution, it is at best difficult, if not impossible, for the parties to go back to business as usual the enterprise as a going concern with its pre-conflict membership is dead. ![]() Trust, once broken, is difficult to restore. ![]() This can in turn escalate into an irreconcilable fall-out and a breakdown in trust between the participants. Footnote 8 Conflict can begin as an act of majority opportunism against the minority, a good-faith disagreement over business affairs, or any other variation. Footnote 7 Internal conflict between majority and minority shareholders pose a ‘cardinal problem’ in close corporations. Footnote 5Ĭlose corporations are characterised by a relatively small number of shareholders Footnote 6 who face restrictions on exit, with shares that are not traded on capital markets, subject to transfer restrictions, or both. ![]() Footnote 4 These entities – or, in comparative corporate law parlance, ‘close corporations’ – vastly outnumber widely-held entities, and account for a significant share of economic output and employment in these two economies. Footnote 3 The legal form taken by SME firms is often that of unlisted, closely-held business entities offering separate legal personality and limited liability. They have a substantial presence in virtually every developed economy's Footnote 1 private sector, including leading economies like the United Kingdom (‘UK’) Footnote 2 and Germany. Small and medium enterprises (SMEs) are the vehicle for entrepreneurship and a crucial engine of innovation and economic growth.
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