Can a Partner Leave a Company Due to Lack of Profit Distribution?

The absence of dividend distribution in a company can become a source of conflict, particularly for minority shareholders who see profits year after year without any return. Can a shareholder leave the company for this reason? What legal requirements must be met? And how can companies prevent this situation? In this article, we analyze the right of withdrawal for lack of dividends and how it can be limited legally.

Does the right of withdrawal exist for lack of dividends?

Yes, it does. The legal framework grants shareholders—especially minority ones—the right of withdrawal for failure to distribute dividends, protecting them from overly conservative company policies that prioritize reinvestment or reserve accumulation.

This right is not unconditional and depends on several legal requirements that vary depending on the type of company. It is designed to ensure minimum profitability and a certain consistency in distribution practices.

Requirements for exercising the right of withdrawal

In companies not required to consolidate accounts, shareholders may exercise this right if the following conditions are met:

1. There is no statutory provision excluding this right.

2. The company has been registered with the Commercial Registry for at least five years.

3. The shareholder has recorded a formal protest in the minutes of the shareholders' meeting.

4. The general meeting does not approve the distribution of at least 25% of the legally distributable profits from the previous fiscal year.

5. Profits were generated in the previous three fiscal years.

6. The total dividends distributed in the last five years do not reach 25% of the legally distributable profits over that period.

For companies required to consolidate accounts, the right of withdrawal applies if the shareholders' meeting does not approve the distribution of at least 25% of the consolidated net income attributed to the parent company from the previous year, provided such income is legally distributable and profits were obtained in the three previous years.

The deadline to exercise the right is one month from the date of the general meeting where the insufficient distribution was confirmed.

Can the company prevent the exercise of this right?

Yes, it is possible to eliminate or modify this right in the company’s bylaws, but it requires unanimous shareholder consent. If any shareholder opposes, they must be granted the right to withdraw if they did not vote in favor.

This approach is common in:

• Family-owned businesses, which often follow conservative profit policies.

• Startups or newly formed companies, aiming to reinvest until they are sold or scaled.

When is the right of withdrawal not applicable?

The law excludes the right of withdrawal for lack of dividend distribution in the following cases:

• Publicly traded companies or those listed in multilateral trading systems.

• Companies in bankruptcy or engaged in pre-bankruptcy negotiations.

• Companies with refinancing agreements in insolvency contexts.

• Professional sports corporations.

Additionally, this right has been temporarily suspended during extraordinary situations—e.g., the COVID-19 state of emergency (March 14 to December 31, 2020).