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Action For Termination of The Partnership as a Minority Right in Joint-Stock Companies

Action For Termination of The Partnership as a Minority Right in Joint-Stock Companies

Termination of Partnership as a Minority Right in Joint-Stock Companies

Although the concept of termination of partnership for joint-stock companies for just cause has been stipulated at the reference Swiss Code of Obligations, it was not regulated in the old Turkish Commercial Code (TCC) numbered 6762. Due to the confusion in practice, the legislators have defined the termination of just cause in joint-stock companies in the newly adopted Turkish Commercial Code numbered 6102.

What Is The Purpose of a Lawsuit For Termination With Good Cause?

The request for “termination of the partnership with just cause,” as the minority shareholder right is regulated in Article 531 of the TCC; the said Article allows minority shareholders to apply to the court and request the termination of the partnership with just cause, in case the majority shareholders act systematically in line with their interests and prevent minority shareholders from exercising their most fundamental rights arising from the partnership.

In summary, the case for termination of the partnership for a justified reason is a guarantee granted to the minority shareholders. It may lead to the termination of the legal entity by the Court Decree if the condition precedents are met. The existence of a right in this direction will coerce the majority shareholders to act within the framework of the law in their activities and make decisions by considering the rights of the minority shareholders.

What Are The Event Occurrence of Which Deemed as Good Cause Within The Meaning of Law?

Majority shareholder behaviours, which the minority shareholders cannot tolerate, undermine the partnership relationship and prevent the minority shareholders from enjoying the fundamental rights arising from the partnership, were cited as a reason for the dissolution of joint-stock companies for good reasons.

In terms of joint-stock company partnerships, it is imperative to evaluate the existence of the just cause according to the instant and, while making such evaluation, it will be necessary to consider whether the reasons put forward in the termination lawsuit are substantial enough to justify termination, in other words, the principle of proportionality must be observed, that is to say, a balance must be struck between the event occurred and the judgment to be rendered.

Suppose the minority shareholder cannot be expected to continue with the partnership from an objective point of view based on the occurrence of events that are put forward as a good cause. In that case, it should be accepted that the termination conditions have been established for a just cause in the instant case.

The existence of a just cause will be evaluated within the framework of the discretionary power of the judge hearing the case, and the judgment to be made as a result of the determination should take into account the interests of not only the minority shareholder who filed the lawsuit but also the interests of other shareholders and majority shareholders.

In this respect, the following might be deemed good cause for termination of the company within the meaning of the law;

  • The general assembly did not decide on the distribution of dividends by the will of the majority shareholders. However, excessive payments under the pretext of attendance fees are paid to the members of the board of directors appointed by the majority shareholders,
  • The continuous mismanagement of the company by the board of directors appointed by the majority shareholders,
  • The systematic decision to exclude the minority shareholders from the decision-making process,
  • The fact that the majority shareholders do not take the necessary measures despite the continuous loss of the company.

Since there is no detailed regulation in Article 531 of the TCC regarding the justified reasons that may cause the termination of the partnership, the judge will determine whether the cases constitute a just cause or not within his discretion. As a general approach in practice, it is seen that the court ordered the termination of the partnership as a last resort in accordance with the principle of proportionality.

Who Are The Parties to The Termination of The Partnership Lawsuit?

The lawsuit for termination of a joint-stock company is regulated as a minority right in the legislation. For this reason, in the lawsuit to be substituted, the plaintiff party is “Minority Shareholders,” representing at least one-tenth of the capital and one-twentieth in public companies.

The share ownership amount here is the condition precedent of the lawsuit, and the judge will examine this situation ex officio at every stage of the case. However, there is no requirement for a single partner to have this minimum ratio to initiate the lawsuit, which means if two or more minority shareholders meet the minimum capital requirement in aggregate, the lawsuit for termination of the partnership will not be dismissed with the lack of litigation requirement.

In the lawsuit for Termination of the Partnership, the defendant party is directly and solely the “Legal Entity of the Company.” Members of the Company’s Board of Directors, who act under the direction of the majority shareholders or majority shareholders, whose actions lead to a good cause, are not parties to the Defendant to the case. Finally, the lawsuit for termination of the partnership will be filed by the minority shareholders at the commercial court of the first instance, where the headquarter of the corporate legal entity stipulated in the articles of association is located.

What Are The Statute of Limitations to File The Lawsuit?

There is no time limit for filing a lawsuit within a certain period from the event that caused the termination of the partnership for justified reason. However, in practice, while evaluating the instant case, the judge will not listen to the claim that the partnership is no longer tolerable level for the minority shareholders in the cases filed after a reasonable time has passed.

What Are The Requests and Legal Remedies That The Court Might Grant?

In the existence of good cause, the court will make a judgment based on the peculiarities of the instant case. Accordingly, the court might;

  • Declare the termination of the partnership and dissolution of the company or,
  • Render dismissal of the plaintiff shareholders in return for payment of the real value of their shares or,
  • Impose other alternative solutions.

Considering the purpose of the continuation of commercial life and the fact that the relations between the partners are more flexible than the limited companies, it is seen that the termination of the partnership in joint-stock companies is considered a last resort in the court decisions.

Based on surrounding circumstances, if the court, which evaluates the termination conditions for a good cause within the framework of Article 531 of the TCC, concludes that the rights of the minority shareholder will not be harmed from an economic and objective perspective, it may decide to dismiss the minority shareholder who substitutes the case from the partnership by paying the share price instead of the termination and dissolution of the company.

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