Exiting a Company Partnership

Exiting a Company Partnership | Lawyer in Izmir

In commercial companies, the withdrawal or expulsion of partners from the company generally falls under two distinct processes. These can be divided into two categories: expulsion of a partner based on matters specified in the company's articles of association, and dissolution of the company partnership based on just cause within the scope of the Turkish Commercial Code. This study will focus on the processes of withdrawal from a company partnership based on just cause.

Article 531 of the new Turkish Commercial Code, which regulates the dissolution of a company for just cause, stipulates that the court may decide to remove the plaintiff shareholders from the company by paying them the value of their shares. While the specific circumstances constituting just cause are not listed here, in practice and legal doctrine, issues such as preventing the exercise of legal rights, causing the company to incur continuous losses, and conducting general assembly processes contrary to procedure are frequently cited as just cause.

Turkish Commercial Code

Termination for just cause

ARTICLE 531– (1) Haklı sebeplerin varlığında, sermayenin en az onda birini ve halka açık şirketlerde yirmide birini temsil eden payların sahipleri, şirketin merkezinin bulunduğu yerdeki asliye ticaret mahkemesinden şirketin feshine karar verilmesini isteyebilirler. Instead of dissolution, the court may decide to pay the plaintiff shareholders the actual value of their shares as of the date closest to the date of the decision and to remove them from the company, or to decide on another solution that is appropriate and acceptable to the situation.

Justification for the Article

This article introduces an institution into our legal system that was not foreseen in Law No. 6762. The fact that Law No. 6762 did not regulate termination for just cause was both debated and criticized in judicial decisions and legal doctrine. The debate concerned the nature of the gap. Some argued that the omission of Article 736, paragraph 4 of the Swiss Civil Code from Law No. 6762 created a positive gap in the law, and that this gap should be filled by analogy or by utilizing Article 1 of the Turkish Civil Code. Doctrine and the Court of Cassation, however, argued that the gap was negative and that such an opportunity did not exist in Turkish law. Nevertheless, the majority accepted that the existence of such an institution in Turkish law would be beneficial. Article 531 introduces a minority right into our legal system that was adopted by the prevailing view.
The characteristics of this article of the bill can be listed as follows:
1) To exercise this right, it is necessary and sufficient to own one-tenth of the share capital. It is not a requirement for a single shareholder to own this percentage. Multiple shareholders can come together to exercise this right. A lower percentage may be stipulated in the articles of association.

2) The court to which the dissolution request will be submitted is the commercial court located where the company's headquarters are situated.
3) Justifiable cause is not defined in the draft, nor are examples of justifiable causes given; the characterization and definition of this concept have been left to judicial decisions and legal doctrine. In Swiss legal doctrine... The fact that the general assembly was convened numerous times in violation of the law, the continuous violation of minority and individual rights, particularly the obstruction of the right to access information and conduct inspections, the company's persistent losses, and the regular decrease in distributed dividends were deemed as justifiable reasons for the decision. Conversely, assumptions and negative expectations are not considered justifiable reasons for dissolution. It is the court's responsibility to decide whether the reasons put forward are justified. Even if the court finds the reasons justifiable, it is not obligated to issue a dissolution order. Even if there are reasons justifying the dissolution of the company, if the court concludes that keeping it alive is more economically and rationally sound, it may decide, instead of dissolving the company, to pay the shareholders who requested dissolution the true value of their shares and remove them from the company, or to decide on another appropriate and acceptable solution. Who will pay the money and how, and whether the company can temporarily acquire these shares, will be determined according to court decisions and legal doctrine.
4) The initiative to "decide on another appropriate and acceptable solution" in the last sentence of the article belongs entirely to the court. Swiss doctrine states that the court can decide on the obligation to distribute profits; it can approve the admission of a suitable new shareholder to the company; and it can even order partial liquidation that could restore the company to health.

Relevant Supreme Court Decisions

Supreme Court 11th Civil Chamber, Case No. 2015/9088 E., Decision No. 2016/2352 K.

According to the aforementioned article, shareholders representing at least one-tenth of the company's capital, and one-twentieth in publicly traded companies, may request the dissolution of the company if justifiable reasons exist. The court may, instead of dissolution, order the removal of the plaintiff shareholders from the company by paying them the actual value of their shares as of the date closest to the decision date, or may decide on another solution that is appropriate and acceptable to the situation. In company law, ensuring the continuity of the company is fundamental; therefore, according to the regulation, the judge is obliged to consider other solutions that will keep the company afloat instead of dissolving a company that has economic value. Although it is established that the company in question has disposed of some of its real estate assets used to achieve its stated business objectives, has been inactive since 2006, and that lawsuits have been ongoing due to disputes among the shareholders, thus fulfilling the conditions for dissolution for justifiable reasons,; Considering the expert reports and documents included in the file, it has been determined that the defendant company, a family business, is currently able to easily achieve the objectives stated in its articles of association with the assets it possesses; that the company's objectives can be changed by amending the articles of association if the plaintiff partners leave the partnership; and that the plaintiff partners essentially wish to leave the partnership but cannot agree with the other partners on the amount of their share to be paid, the decision to remove the plaintiff partners from the partnership by paying them their share capital, instead of dissolving the company for just cause, was not taken into account in the written justification, and the rejection of this request is deemed incorrect and necessitates reversal.

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