Termination for Just Cause in Anonymous and Limited Companies
The lack of determination among company partners to work towards the same goal will cause insecurity in companies. Despite the existence of such a situation, attempting to bind the partners with a company contract is contrary to their personal rights. In such a case, a partner may withdraw from the company by transferring their share to another party. However, in company types where it is difficult or impossible for a partner to withdraw from the company by transferring their share, provisions for termination for just cause have been established to enable the partner to free themselves from a partnership relationship that has become untenable.
While the termination of limited companies for just cause was previously regulated by the Turkish Commercial Code No. 6762, the termination of joint-stock companies for just cause was first introduced into our legal system by Article 531 of the Turkish Commercial Code No. 6102.
This article addresses the issue of termination for just cause in joint stock companies and limited liability companies. The provisions regarding termination for just cause in limited liability companies and joint stock companies are parallel. The provision of the Turkish Commercial Code that allows for termination for just cause in joint stock companies has been received quite positively by Turkish doctrine. However, the law does not specify what constitutes just cause in cases of dissolution of joint stock companies or limited liability companies for just cause. This article addresses the issue of dissolution of joint stock companies and limited liability companies for just cause.
1. Termination of the Joint Stock Company Agreement
As is known, there is no right of withdrawal in joint stock companies. The reason for this is that just cause is an institution specific to personal companies. At this point, the dissolution of a joint stock company for just cause is of great importance for joint stock companies where the partnership relationship has become untenable.
Joint stock companies are commercial companies with legal personality. The legal existence of a joint stock company ceases with the termination of its legal personality. A specific process must be completed for this. At the end of this process, the joint stock company loses its legal personality and its legal existence ceases.
Termination may occur for various reasons. These reasons are divided into general and specific reasons. General reasons include a decision to terminate, reasons arising from the articles of association, and bankruptcy. Specific reasons include lack of organs and termination for just cause.
2. Termination of Limited Liability Companies
The provisions regarding the dissolution of a joint-stock company for just cause, which were first regulated by the Turkish Commercial Code (TCC), are parallel to the provisions regarding the dissolution of a limited liability company for just cause. The right to file a lawsuit for dissolution for just cause is granted to a minority shareholder in a joint-stock company and to any shareholder in a limited liability company. Therefore, dissolution for just cause in a limited liability company must be evaluated in conjunction with withdrawal.
If there is just cause, each of the partners in a limited liability company may request the dissolution of the company from the court. The court may either issue a dissolution decision or, in accordance with the law, establish a different solution appropriate to the situation.
3. Examples of Dissolution for Just Cause
In any case, the validity of the alleged reasons is at the discretion of the judge. In Turkish law, justifiable reasons include: paralysis of the company's operations, votes in the general assembly being evenly divided in such a way as to prevent decision-making, and this turning into a process where no decisions can be made, or the board of directors becoming unable to function in a similar manner.
Other examples that may be considered valid reasons for the dissolution of a joint-stock company include the company experiencing financial difficulties due to mismanagement by the majority shareholder, the systematic depletion of the company's cash reserves, or the systematic and continuous restriction of the rights of minority shareholders.
Pursuant to Article 531 of the TCC, the basic criteria that can be used to determine just cause include: the abuse of majority power, the company's objective being jeopardised or significantly impeded, and the company's continuation becoming objectively untenable.
4. Time Limit for Filing a Lawsuit for Dissolution for Just Cause
The Turkish Commercial Code does not specify a specific time limit for filing a lawsuit for termination for just cause, but this situation is criticised in doctrine.
However, refraining from filing a lawsuit for a long time despite the existence of just cause and then filing the lawsuit later may be characterised as abuse of rights under Article 2 of the Turkish Civil Code in the specific case.
No specific time limit is provided in this regard. However, the court must examine the specific case to determine whether the time elapsed is contrary to the rules of objective good faith. The just cause must have arisen as of the date the event was learned, not the date it occurred.
5. Removal from the Company
Rather than deciding to dissolve the company, the court may decide to remove the partner requesting dissolution from the company in exchange for payment of the actual value of their shares on the date closest to the date of the decision. This alternative solution has the potential to resolve many practical issues, particularly in cases where the majority pressures the minority to sell their shares at a low value, as it provides the minority with the opportunity to withdraw from the company at the actual value of their shares.
In the case of joint-stock companies, if the court decides to remove the partner from the company as a result of the company acquiring the partner's shares, the prohibition on the company acquiring shares provided for in Article 379 does not apply due to the exception provided for in Article 382/f.1(c) of the Turkish Commercial Code No. 6102. Furthermore, the court cannot rule that the plaintiff's shares be partially purchased. The solution provided by the law is that the plaintiff minority be removed from the company, and for this purpose, the plaintiff shareholders' shares be acquired by the defendant joint-stock company, provided that the consideration is paid.
Conclusion
The provision of the Turkish Commercial Code allowing for the dissolution of a joint-stock company for just cause has been received quite positively by Turkish doctrine.
This new right granted to minority shareholders in joint stock companies allows them to apply to the court in cases where the rights of minority shareholders are violated by the majority in bad faith and cannot be countered by any legal or statutory provisions. Considering that joint stock company shareholders are not granted the right to withdraw from the company, it is very important that this right of action has been granted in order to provide minority shareholders with a way out against the malicious practices of the majority.
The fundamental purpose of regulating the request for dissolution of a joint-stock company for just cause is to provide the minority with the opportunity to apply to the court in cases where the majority exercises its control and rights in violation of the principle of good faith. Thus, the judge is tasked with and authorised to find the most appropriate solution for the protection of the minority in the specific case, independently of the plaintiff's request. The protection of the minority is considered a fundamental principle.
The provisions regarding the dissolution of limited companies and joint-stock companies for just cause are parallel. However, unlike joint-stock companies, any partner in a limited company may file a lawsuit for dissolution for just cause, regardless of whether they constitute a minority.
The law does not specify what constitutes just cause in a dissolution lawsuit for either a joint-stock company or a limited liability company. This issue has been clarified in legal doctrine and court decisions.
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Av. Dr. Anıl Coşkun, LL.M