By Mahmoud Abdalraziq – Legal Consultant at Alitqan Legal Group
Business partnerships usually begin with a shared vision, but interests diverge as the years pass. When a dispute turns into management deadlock or the withholding of profits, a partner will ask how to exit a limited liability company in Kuwait without forfeiting their rights or tearing down an enterprise they helped to build. In fact, the Companies Law promulgated by Law No. 1 of 2016, as amended, does not make liquidation the only answer. It offers a partner four routes: the transfer of membership interests, subject to the other partners’ pre-emption right; withdrawal in the cases specified by law; the removal of the company’s manager where the manager abuses their powers; and the exercise of the oversight rights the law grants to partners.
In this guide, we explain each route and its conditions, show when judicial dissolution of the company becomes the last resort, and explain how a partners’ agreement can prevent matters from reaching that point.
Why Do Partner Disputes Arise in a Limited Liability Company?
The limited liability company (W.L.L.) is one of the most widely used corporate forms in the Kuwaiti market, as each partner is liable only to the extent of their share in the capital. However, the small number of partners and the overlap between management and ownership mean that any disagreement between them has a direct effect on the company’s business. In our experience, most disputes stem from three causes:
- Monopolising management and withholding information: the manager refuses to allow the partners to inspect the accounts and books, even though every partner has this right by law, and any provision or resolution to the contrary is void (Article 110).
- Disagreement over the distribution of profits: the distribution of profits is decided by the annual general meeting on the basis of the manager’s proposals (Article 114), so retaining profits for reinvestment may in itself be a legitimate decision. By contrast, a provision that deprives a partner of profits is void, while the Company Contract itself remains valid (Article 18).
- Competition and conflicts of interest: where the Company Contract does not set out the manager’s powers and scope of work, the manager may not, without the permission of the ordinary general meeting, manage a competing company, contract with the company for their own account or for the account of others, or carry on an activity similar to the company’s for the account of others (Article 106).
Route One: Transfer of Membership Interests and the Pre-emption Right
A consensual exit is usually the fastest and least costly route, and membership interests are transferred by a written instrument (Article 99). Where the transfer is to a non-partner, the consent of the other partners is required. If that consent cannot be obtained, the terms of the transfer are published in the Official Gazette, and each partner may, within fifteen days, apply to the Ministry to exercise the pre-emption right, provided that the application is accompanied by a certified cheque for the full value of the interest, made out in the name of the transferor. If more than one partner exercises the right, the interest is divided among them in proportion to their respective shares in the capital; if the period expires with no application, the transferor is free to dispose of their interest (Article 100).
The transfer has no effect as against the partners or third parties until it is registered in the Commercial Register (Article 100), and the Executive Regulations of the Companies Law set out the procedures before the Ministry for the transfer and for amending the Company Contract.
Route Two: Withdrawal in the Cases Specified by Law
The chapter on limited liability companies does not give a partner a general right to withdraw at will, nor to seek a court order for their exit and the valuation of their interest simply because they wish to leave. Instead, the law permits withdrawal in specific cases, the most notable of which are:
- Automatic extension of the company’s term: where the company’s term expires without a resolution to extend it and the company continues to operate, the term is automatically extended for an equivalent period, and a partner who does not wish to remain may withdraw, with their entitlements valued in accordance with the first paragraph of Article 11 (Article 16).
- Objection to the company’s conversion: a partner who objects to a resolution to convert the company may withdraw and recover the value of their interests, by an application submitted to the company within sixty days of the date of registration, and is paid the actual value stated in the valuation report (Article 251).
- A merger that increases the partner’s burdens: where a merger would increase the partners’ financial burdens or prejudice their rights, it requires the approval of all partners, and an objecting partner may withdraw in accordance with Article 251 (Article 261).
Because these cases are limited, the absence of an agreed exit mechanism is what turns many disagreements into protracted disputes, a point we return to when discussing the partners’ agreement.
Route Three: Removal of the Company’s Manager
Where the heart of the dispute is mismanagement, the law provides two ways to remove the manager, which differ according to how the manager was appointed and the ownership share of those seeking removal.
Removal by Resolution of the General Meeting
If the manager is appointed in the Company Contract, their removal or the restriction of their powers falls within the competence of the extraordinary general meeting (Article 117), which is validly convened only if attended by partners holding three-quarters of the capital, and which may adopt resolutions only with the approval of partners holding three-quarters of the capital (Article 116). If the manager is not appointed in the Company Contract, their appointment, removal and the restriction of their powers fall within the competence of the ordinary general meeting (Article 114).
Judicial Removal at the Request of a Minority
One or more partners holding at least one-quarter of the membership interests in the capital may ask the court to remove the manager on any of three grounds: committing an act of fraud; committing an error that has caused serious harm to the company; or breaching the prohibition on competition and conflicts of interest under Article 106 (Article 104).
Note that seriousness is a condition of the harm, not of the error, and that this route is not available to a partner holding less than one-quarter of the capital unless they join with other partners so that together they reach that threshold.
Route Four: The Partners’ Oversight Rights
A partner may not need to exit or to remove the manager, but rather tools that reveal the true position of the company. The law provides three such rights, graduated according to the size of the holding.
The Right to Inspect the Accounts and Books
Every partner, whatever the size of their holding, has the right to inspect, at the company’s premises, its accounts and all of its documents, records and books, and any provision or resolution to the contrary is void (Article 110).
Requesting a Call of the General Meeting
The manager must call the annual ordinary general meeting within three months of the end of the financial year (Article 114), and must also call it whenever requested to do so by the supervisory board, the auditor, or partners holding no less than 10% of the capital. The Ministry may call and attend the meeting if the manager fails to call it in the cases where the manager is obliged to do so (Article 111).
Requesting an Inspection of the Company
Partners holding at least five per cent of the capital may ask the Ministry to appoint an accounts examiner to inspect the company in respect of violations they attribute to the manager or the auditor, where there are reasons justifying the request, with the applicants bearing the examiner’s fees (Article 298). If the Ministry rejects the request, they may petition the President of the Court of First Instance to order the inspection and appoint an expert for that purpose (Article 300).
The Last Resort: Judicial Dissolution of the Company
Where the dispute becomes entrenched and none of the previous routes succeeds, any partner may ask the court to dissolve the company because another partner has failed to perform their obligations, or for any other reason the court considers serious enough to justify dissolution, and any agreement to the contrary is void (Article 269).
Dissolution does not remove the partner from the company; it brings the company to an end. The company then enters liquidation, and the liquidator sells its assets by auction, by private sale or by any other method that secures the highest price, unless the order appointing the liquidator prescribes a particular method of sale; the liquidator may not sell the company’s assets or business as a whole without the court’s permission (Article 284). Dissolution should therefore remain the last option, as it often destroys the value on which the company was built.
Comparison of the Routes for Resolving Partner Disputes
| Route | Who may pursue it | Outcome for the company | Time and cost (general estimate) |
|---|---|---|---|
| Transfer of membership interests and pre-emption | The transferring partner, subject to the other partners’ pre-emption right | Continues with the remaining partners or a new partner | Usually the shortest and least costly |
| Withdrawal in the specified cases | The objecting partner, or the partner who does not wish to remain | Continues, and the partner recovers the value of their interest | Moderate, depending on the valuation |
| Judicial removal of the manager | Partners holding at least one-quarter of the capital | Continues under new management | A lawsuit whose length depends on the evidence |
| Oversight rights | Every partner for inspection; holders of the specified shares for a meeting call or an inspection | Continues with no change in ownership | Relatively short |
| Judicial dissolution | Any partner | Ends, and its assets are liquidated | The longest and most costly |
A Practical Example: How the Options Vary with the Ownership Share
Take a limited liability company in which Partner A holds 60% of the capital and manages the company, Partner B holds 25% and Partner C holds 15%. This is a hypothetical example for illustration only. If A refuses to let the other two partners inspect the books, each of them may, acting alone, insist on the right of inspection, because any resolution withholding it is void.
If it is established that A has concluded contracts with the company for the account of another company A owns, without the permission of the general meeting, and the Company Contract did not set out A’s powers, B alone may ask the court to remove A, because B holds one-quarter of the capital. C cannot do so alone, although C can request an inspection because C’s share exceeds five per cent. Removing A by a resolution of the extraordinary general meeting, if A is appointed in the Company Contract, is not possible in practice, because B and C together do not reach three-quarters of the capital.
The Partners’ Agreement: Prevention Before the Dispute
Article 30 of the Companies Law, as replaced by Law No. 79 of 2019, allows partners to conclude, before or after incorporation, an agreement governing the relationship between them, provided that it does not release the founders from liability arising from the company’s incorporation. More importantly, the agreement is binding on its parties: if one of them breaches it, the others may apply to the summary matters judge for an order neutralising the voting rights of the membership interests subject to the agreement, for the period set by the judge or until the dispute is decided, unless otherwise agreed.
We therefore recommend that the agreement include an express exit mechanism setting out the exit events, the method of valuing the membership interests and who carries out the valuation, together with a solution for voting deadlock and clear restrictions on competition and conflicts of interest. The full text of the Companies Law is available on our website.
At Alitqan Legal Group, we draft partners’ agreements and company incorporation contracts, and we represent partners in exit negotiations and in removal, inspection and dissolution proceedings, protecting the client’s rights and the continuity of their business. If you are a partner in a limited liability company facing a dispute with your partners, contact us for an assessment of your legal position. For those considering entering the Kuwaiti market in the first place, we recommend our guide on foreign companies entering the Kuwaiti market.
Frequently Asked Questions About Partner Disputes in a Limited Liability Company
Can a partner withdraw from a limited liability company at will?
The law does not grant a general right of withdrawal; it permits withdrawal only in specific cases, such as the automatic extension of the company’s term (Article 16), objection to a conversion (Article 251), and objection to a merger that increases the partner’s burdens (Article 261). In all other cases, the route is a transfer of membership interests, or whatever the partners’ agreement provides.
What can I do if the manager refuses to provide me with the annual financial statements?
Every partner has the right to inspect, at the company’s premises, its accounts, books and documents, and any provision or resolution to the contrary is void (Article 110). If the refusal continues, a partner may request a call of the general meeting or an inspection, provided they hold the share required by law.
Is the company dissolved on the death of a partner?
A limited liability company is not dissolved by the death, interdiction or bankruptcy of a partner, unless the Company Contract provides otherwise (Article 272). The deceased partner’s membership interests pass to their heirs, and the Company Contract may give the other partners the right to purchase them (Article 101).
What happens if the company’s losses reach three-quarters of its capital?
The managers must refer to the extraordinary general meeting the question of restoring the capital, dissolving the company or taking any other appropriate measure. If the managers fail to call the partners, or the partners fail to reach a decision, the managers or the partners, as the case may be, are jointly liable for the company’s obligations arising from their failure (Article 273).
Disclaimer: This article is for general legal awareness and does not constitute legal advice; the position varies with the facts of each case and the terms of the Company Contract. The articles cited are from the Companies Law promulgated by Law No. 1 of 2016, as amended, and reference may be made to the full text of the Companies Law on our website. Quotations from Kuwaiti legislation are unofficial translations; the Arabic text prevails.