Withdrawal and Expulsion of Shareholders from a Limited Liability Company - Üsküdar Corporate Lawyer

Withdrawal and Expulsion of Shareholders from a Limited Liability Company - Üsküdar Corporate Lawyer The relationship between shareholders in a limited liability company may not always continue in the manner originally contemplated when the company was established. A breakdown of trust between shareholders, serious disputes concerning company management, the occurrence of grounds for withdrawal or expulsion stated in the articles of association, or circumstances making continuation of the shareholder relationship intolerable for one shareholder may bring withdrawal from the company into consideration. Turkish Commercial Code No. 6102 specifically regulates the withdrawal and expulsion of shareholders from limited liability companies. Under Article 638 of the Turkish Commercial Code, the articles of association may grant shareholders a right to withdraw and may subject exercise of that right to certain conditions. At the same time, every shareholder may apply to the court for permission to withdraw from the company where just cause exists. With respect to expulsion, Article 640 of the Turkish Commercial Code permits the articles of association to specify grounds on which a shareholder may be expelled by a general assembly resolution. In addition, where just cause exists, the company may request that the shareholder be expelled by a court decision. Therefore, when a dispute concerning a limited liability company is assessed within the scope of an Üsküdar corporate lawyer, Istanbul corporate lawyer, Ataşehir corporate lawyer, Ümraniye corporate lawyer or Çekmeköy corporate lawyer, the articles of association, conduct of the shareholders, management structure, general assembly resolutions and alleged just causes should be examined together. What Is Withdrawal from a Limited Liability Company? Withdrawal is one of the legal mechanisms through which a shareholder's status in a limited liability company may come to an end. Under Article 638 of the Turkish Commercial Code, the articles of association may grant shareholders a right to withdraw. Even where the articles do not contain such a right, a shareholder may ask the court to permit withdrawal where just cause exists. Accordingly, withdrawal from a limited liability company does not depend solely on reaching an agreement with the other shareholders. Where the statutory conditions are satisfied, termination of shareholder status may also be sought through judicial proceedings. What Is Expulsion from a Limited Liability Company? Expulsion means termination of a shareholder's status in a limited liability company against that shareholder's own wishes. Under Article 640 of the Turkish Commercial Code, the articles of association may provide grounds on which a shareholder can be expelled by a general assembly resolution. In addition, the company may request the court to expel a shareholder where just cause exists. Withdrawal and expulsion are therefore different legal institutions. In withdrawal, the shareholder seeks termination of their own shareholder status, whereas in expulsion the shareholder's departure is sought through mechanisms available to the company. Can a Right of Withdrawal Be Regulated in the Articles of Association? Yes. Under Article 638/1 of the Turkish Commercial Code, the articles of association may grant shareholders the right to withdraw and may subject exercise of that right to specified conditions. Therefore, when a limited liability company is established, it is important to consider not only capital, management and representation arrangements but also provisions governing what will happen if a shareholder wishes to leave the company in the future. Provisions concerning withdrawal may help future shareholder disputes be managed in a more predictable manner. Can a Shareholder Leave the Company If the Articles of Association Do Not Provide a Right of Withdrawal? Yes. Even if the articles of association do not contain an express right of withdrawal, Article 638/2 of the Turkish Commercial Code permits a shareholder to apply to the court for permission to withdraw where just cause exists. The absence of a withdrawal clause in the articles therefore does not mean that a shareholder can never leave the company. What Is an Action for Withdrawal from a Limited Liability Company Based on Just Cause? An action for withdrawal based on just cause is a lawsuit in which a shareholder claims that continuation of the shareholder relationship can no longer reasonably be expected and asks the court to terminate their shareholder status. The Turkish Commercial Code identifies the existence of just cause as a fundamental condition of the action. However, not every disagreement or difference in commercial opinion automatically constitutes just cause. Whether just cause exists must be assessed according to the structure of the company, conduct of the shareholders, seriousness of the dispute and its effect on the continuation of the shareholder relationship. What Is Just Cause? Article 638 of the Turkish Commercial Code regulates withdrawal based on just cause but does not provide a closed list covering every possible form of just cause. Just cause must therefore be assessed according to the circumstances of each individual dispute. For example, a serious and continuing breakdown of trust within the company, allegations that a shareholder's rights have been systematically obstructed, severe management disputes or other events seriously affecting continuation of the shareholder relationship may give rise to a just-cause assessment. However, whether a particular event actually reaches the level of just cause is determined by the court on the basis of concrete evidence. Does Every Disagreement Between Shareholders Constitute Just Cause? No. Differences of opinion between company shareholders concerning commercial strategy, investment decisions, profit distribution or management may arise in the ordinary course of company life. For withdrawal based on just cause, the dispute must reach a level that seriously affects continuation of the shareholder relationship. The mere fact that shareholders do not agree with one another does not therefore automatically result in court-ordered withdrawal in every case. Which Documents Are Important in an Action for Withdrawal? Depending on the dispute, relevant documents may include: Articles of association, Trade registry records, General assembly resolutions, Decisions of managers or the board of managers, Correspondence between shareholders, Company financial records, Notices and formal communications, Requests for information and responses, Other lawful documents demonstrating the dispute. Because just cause must be established through the facts of the individual case, the evidentiary structure is important in withdrawal proceedings. What Happens to a Shareholder’s Rights While a Withdrawal Action Is Pending? Article 638/2 of the Turkish Commercial Code gives the court authority to order certain interim measures while a withdrawal action is pending. Upon request, the court may temporarily suspend some or all rights and obligations arising from the claimant's shareholder status or take other measures to secure the claimant shareholder's position. Accordingly, filing a withdrawal action does not automatically terminate all rights and obligations of the shareholder. The legal position during the proceedings must be separately assessed. Can Interim Measures Be Requested in a Withdrawal Action? Yes. Under Article 638/2, interim measures may be requested to protect the legal position of the claimant shareholder during the proceedings. The court may, for example, temporarily suspend some or all rights and obligations arising from shareholder status. The appropriate measure depends on the circumstances of the dispute. Can Other Shareholders Also Withdraw When One Shareholder Files a Withdrawal Action? Article 639 of the Turkish Commercial Code regulates participation in withdrawal. Where one shareholder submits a withdrawal request under the articles of association or files a withdrawal action based on just cause, the manager or managers must inform the other shareholders without delay. The other shareholders may also participate in the withdrawal where the statutory conditions are satisfied. What Is the Time Limit for Participating in a Withdrawal? Under Article 639, each other shareholder may exercise the right to participate in the withdrawal within one month from the date on which notice of the withdrawal request reaches them. Within that period, a shareholder may: Notify the managers that they also wish to participate in the withdrawal where the ground provided in the articles of association applies to them, or Participate in the withdrawal proceedings by filing an action based on just cause. The one-month period is therefore important for the other shareholders who are informed of a withdrawal request. Must Shareholders Participating in Withdrawal Be Treated Equally? Yes. Under Article 639/3, all withdrawing shareholders must be treated equally in proportion to their capital shares. This rule is important in ensuring equal treatment among shareholders leaving the company as part of the same withdrawal process. Can a Limited Liability Company Shareholder Be Expelled by a General Assembly Resolution? Under certain conditions, yes. Article 640/1 of the Turkish Commercial Code permits the articles of association to specify grounds on which a shareholder may be expelled from the company by a general assembly resolution. The general assembly's authority to expel a shareholder is therefore not unlimited. Whether the articles provide a legal basis for the expulsion is important. Why Is It Important for the Articles of Association to Contain Grounds for Expulsion? The Turkish Commercial Code permits the articles of association to establish grounds for expulsion of a shareholder by general assembly resolution. Accordingly, clearly and predictably regulating the circumstances that may result in expulsion when the articles are drafted may help manage future shareholder disputes. Can an Action Be Filed Against a General Assembly Resolution Expelling a Shareholder? Yes. Under Article 640/2, a shareholder who has been expelled may file an action for annulment within three months from the date on which the expulsion resolution is notified through a notary. Both notarised notification and the three-month litigation period are therefore critically important in shareholder expulsion cases. What Is the Time Limit for Challenging an Expulsion Resolution? The statutory period is three months. This period begins when the expulsion resolution is notified to the shareholder through a notary. Because missing this period may lead to significant loss of rights, the date of notification should be monitored carefully. Can the Company Ask a Court to Expel a Shareholder? Yes. Article 640/3 expressly preserves the possibility for the company to request that a shareholder be expelled by court decision on the basis of just cause. Expulsion is therefore not limited to a general assembly resolution based on a ground stated in the articles of association. Judicial expulsion may also arise where just cause exists. What Is Expulsion Based on Just Cause? Expulsion based on just cause is a process in which the company asks the court to terminate a shareholder's status because continuation of the shareholder relationship has allegedly become unacceptable for the company as a result of that shareholder's conduct or position. The concept of just cause must be assessed according to the circumstances of the specific case. A mere disagreement with another shareholder or the majority shareholder's desire to remove another shareholder is not by itself sufficient for judicial expulsion. The alleged circumstances must be examined to determine whether they reach the legal threshold of just cause. Can Obstruction of Company Management Constitute a Ground for Expulsion? An allegation that a shareholder continuously and seriously obstructs company operations may become relevant in assessing just cause. However, merely voting against a resolution, requesting information or exercising statutory shareholder rights should not by itself be treated as a ground for expulsion. The real effect of the shareholder's conduct on the company, whether that conduct is lawful and the extent to which it affects continuation of the shareholder relationship must be assessed together. Can a Minority Shareholder Easily Be Expelled from the Company? No. Holding a majority of the shares in a limited liability company does not grant an unrestricted right to expel another shareholder without a legal basis. Expulsion requires either a ground specified in the articles of association or, where court-ordered expulsion is sought, the existence of just cause. Article 640 also gives the expelled shareholder a three-month right to challenge the general assembly resolution. These rules are important in preventing unlimited use of majority power. Is a Payment Made to a Shareholder Who Leaves the Company? Under Article 641 of the Turkish Commercial Code, a shareholder leaving the company is entitled to claim a withdrawal payment corresponding to the real value of their capital share. Accordingly, withdrawal or expulsion does not concern only termination of shareholder status; determining the economic value of the shareholder's interest also becomes relevant. What Is a Withdrawal Payment? A withdrawal payment is the amount payable to a shareholder leaving a limited liability company corresponding to the real value of that shareholder's capital share. The Turkish Commercial Code recognises the right of a departing shareholder to claim a withdrawal payment equal to the real value of their capital share. Determining the real value of the share may therefore become one of the central issues in withdrawal or expulsion litigation. How Is the Withdrawal Payment Determined? The statutory fundamental criterion is the real value of the shareholder's capital share. In determining real value, the company's financial position, assets, liabilities, business activities and other financial matters relating to the specific company may become relevant. The withdrawal payment therefore cannot automatically be assumed to equal only the amount of capital originally contributed by the shareholder. Are the Nominal Value and Real Value of a Company Share the Same? Not necessarily. Nominal value represents the registered value of the share within the company's capital. Article 641, however, adopts the real value criterion for withdrawal payments. Because the company may increase in value through its business activities or its financial position may change, the real value and nominal value may differ. Are Share Transfer and Withdrawal from a Limited Liability Company the Same Thing? No. In a share transfer, the shareholder transfers their capital share to another person and the transferee assumes shareholder status. In withdrawal, the shareholder relationship with the company comes to an end through a legal mechanism provided by law or the articles of association. Transfers of limited liability company shares are also subject to specific rules under the Turkish Commercial Code. The Ministry of Trade points to the importance of general assembly approval in transfers of limited liability company shares. Therefore, where a shareholder wishes to leave the company, the suitability of a share transfer or a withdrawal action should be assessed according to the circumstances. Can a Share Transfer Resolve a Dispute Between Shareholders? Where the parties can reach agreement, a share transfer may provide a means of restructuring the company's ownership. However, transfer of limited liability company shares must be carried out in accordance with the articles of association and the Turkish Commercial Code. Before filing a withdrawal action, it may therefore be appropriate in a particular case to consider whether the dispute can be resolved through an agreed share transfer. Do Limited Liability Company Shareholders Have a Right to Information? Rights to information and inspection are important in shareholder disputes. In joint-stock companies, shareholders' rights to obtain information and inspect company affairs are expressly regulated under the Turkish Commercial Code. The Ministry of Trade also states that shareholders may request information from the board of directors concerning the company's affairs at the general assembly. In limited liability companies, shareholders' information and inspection rights must likewise be assessed under the relevant provisions of the Turkish Commercial Code. Can General Assembly Resolutions Cause Shareholder Disputes? Yes. General assembly resolutions concerning management, profit distribution, appointment of managers, amendments to the articles of association or expulsion of a shareholder may give rise to disputes. In such cases, it should be examined whether the resolution complies with the Turkish Commercial Code, the articles of association and applicable procedural rules. The special provisions of Article 640 are particularly important where the resolution concerns expulsion of a shareholder. Can a Shareholder Request Dissolution of the Company? Where just cause exists, a shareholder of a limited liability company may also ask the court to dissolve the company. Under Article 636/3, each shareholder may request dissolution where just cause exists. However, instead of dissolving the company, the court may order payment of the real value of the claimant's share and expulsion of that shareholder or another acceptable solution appropriate to the circumstances. Accordingly, dissolution of the company is not necessarily the only legal solution to a shareholder dispute. What Is the Difference Between a Dissolution Action Based on Just Cause and a Withdrawal Action? In a withdrawal action, the purpose is to terminate the claimant shareholder's relationship with the company. In a dissolution action based on just cause, the relief sought is termination of the company itself. However, Article 636/3 gives the court the option, instead of dissolving the company, to order payment of the real value of the claimant's share and termination of their shareholder status or to adopt another appropriate solution. The choice of action is therefore important according to the scope of the corporate dispute. Can the Court Adopt Another Solution Instead of Dissolving the Company? Yes. Article 636/3 does not limit the court to only two options of either dissolving the company or dismissing the action. Where appropriate, the court may order payment of the real value of the claimant shareholder's interest and their removal from the company or may adopt another solution compatible with the circumstances. This rule is important for protecting continuity of the limited liability company. Why Are the Articles of Association Important in Shareholder Disputes? The articles of association are one of the fundamental legal documents of a limited liability company. According to the Ministry of Trade, the general assembly is the highest decision-making body in a limited liability company, while the manager or managers are responsible for management and representation. A limited liability company may have no more than fifty shareholders and may also be established with a single shareholder. The articles of association may also have direct significance for withdrawal and expulsion. Article 638 permits regulation of withdrawal rights, while Article 640 permits grounds for expulsion by general assembly resolution to be included in the articles. Should Potential Shareholder Disputes Be Considered When Drafting the Articles of Association? Yes. When establishing a limited liability company, it is important to consider not only the company's business purpose and capital but also possible future disagreements between shareholders. Clear provisions concerning: Withdrawal rights, Grounds for expulsion, Share transfers, Management and representation, Shareholders' obligations, Decision-making procedures may help future disputes be managed more predictably. Can Mediation Become Relevant in Shareholder Disputes? Not every dispute between company shareholders has the same legal nature. Where the dispute concerns a commercial receivable, compensation or another commercial monetary claim, whether mediation provisions apply must be assessed separately. By contrast, claims directly changing corporate status, such as withdrawal, expulsion or dissolution of the company, require a separate legal assessment. Therefore, whether mandatory mediation applies before litigation should be determined according to the specific relief sought. How Is the Competent Court Determined in Withdrawal and Expulsion Proceedings? Because disputes arising from limited liability company shareholding are commercial in nature, jurisdiction and venue must be assessed under the Turkish Commercial Code and procedural legislation. Before filing an action, the subject matter of the dispute, the place where the company has its registered office and any special jurisdiction rules should be considered together. Initiating proceedings before an incorrect court may prolong the process, so procedural assessment before filing is important. What Should Be Considered Before Filing a Withdrawal Action? Before bringing a withdrawal action, particular attention should be given to: Whether the articles of association provide a right of withdrawal, The conditions attached to that right, Events alleged to constitute just cause, Evidence relating to those events, The company's current financial position, The shareholder's capital interest, The likely value of the withdrawal payment, Whether interim measures are necessary during the proceedings, Whether alternative solutions such as a share transfer are available. What Should Be Considered Before Expelling a Shareholder? In an expulsion process, it is particularly important to consider: Whether the articles of association contain a ground for expulsion, Whether the general assembly resolution was lawfully adopted, Notification of the expulsion resolution through a notary, The three-month period for filing an annulment action, Whether court-ordered expulsion based on just cause is available, The withdrawal payment, The economic and management consequences of the expulsion for the company. The special procedure under Article 640 is particularly important in this regard. Limited Liability Company Shareholder Disputes in Üsküdar Limited liability companies operating in Üsküdar may experience disputes among shareholders concerning management, share transfers, access to information, company resolutions or termination of the shareholder relationship. In such disputes, particular consideration should be given to: The articles of association, Shareholding percentages, General assembly resolutions, Acts of managers, Allegations of just cause, The real value of the share, Notices concerning withdrawal or expulsion, Litigation time limits. Therefore, when a limited liability company dispute is assessed within the scope of an Üsküdar corporate lawyer, Istanbul corporate lawyer, Ataşehir corporate lawyer, Ümraniye corporate lawyer or Çekmeköy corporate lawyer, not only personal disagreements between shareholders but also the legal structure of the company and the specific rules of the Turkish Commercial Code should be taken into account. Üsküdar Corporate Lawyer Assistance Legal assistance in withdrawal and expulsion proceedings concerning limited liability companies may include: Reviewing the articles of association, Assessing just cause, Preparing a withdrawal action, Examining the legality of an expulsion resolution, Filing an annulment action against an expulsion resolution, Assessing the withdrawal payment, Examining alternatives involving share transfers, Resolving shareholder disputes, Reviewing general assembly resolutions, Assessing dissolution of the company or alternative legal remedies. What Should Be Considered When Choosing a Corporate Lawyer? When seeking legal assistance for disputes between limited liability company shareholders, relevant considerations may include: Experience in corporate law, Knowledge of the Turkish Commercial Code, Experience in limited liability company shareholder disputes, Knowledge of withdrawal and expulsion proceedings, Ability to assess general assembly resolutions, Experience in drafting and reviewing articles of association, Ability to manage legal issues concerning company valuation and withdrawal payments, Experience in commercial litigation. Conclusion Withdrawal and expulsion from a limited liability company are legal processes specifically regulated by the Turkish Commercial Code and directly affecting the ownership structure of the company. Under Article 638, the articles of association may grant shareholders a right to withdraw. In addition, every shareholder may request permission from the court to withdraw where just cause exists. The court may also order interim measures concerning the shareholder's rights and obligations while the action is pending. Where one shareholder requests withdrawal, Article 639 permits other shareholders, subject to the relevant conditions, to participate in the withdrawal within one month. Withdrawing shareholders must be treated equally in proportion to their capital interests. With respect to expulsion, Article 640 permits the articles of association to specify grounds for expulsion by general assembly resolution. An expelled shareholder may file an annulment action within three months from notification of the resolution through a notary. The company may also request judicial expulsion of a shareholder where just cause exists. When a shareholder leaves the company, Article 641 provides a right to claim a withdrawal payment corresponding to the real value of the shareholder's capital interest. Where the shareholder relationship has become completely unsustainable, dissolution of the company based on just cause may also arise. Article 636/3 allows the court, instead of dissolving the company, to order payment of the real value of the claimant's share and termination of their shareholder status or to adopt another solution appropriate to the circumstances. Accordingly, matters concerning withdrawal from a limited liability company, expulsion of a shareholder, withdrawal based on just cause, expulsion of a limited liability company shareholder, withdrawal payment, Article 638 of the Turkish Commercial Code, Article 640 of the Turkish Commercial Code, shareholder disputes, Üsküdar corporate lawyer, Istanbul corporate lawyer, Ataşehir corporate lawyer, Ümraniye corporate lawyer and Çekmeköy corporate lawyer should be assessed according to the articles of association and the specific shareholder relationship.