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Just Cause Dissolution of the Limited Liability Companies in Turkey

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This remedy is provided to shareholders of a limited liability company just like the joint stock companies. However, the main difference is that this remedy is only provided to minority shareholders[1] of joint stock companies. Unlike the joint stock companies, every shareholder is entitled to apply to the court and ask for the dissolution of the company.

As prescribed in Article 636 of TCC, every shareholder may ask the relevant court for the dissolution of the company in the event of an existing just cause. In addition, aforementioned article has given broad authority regarding the interpretation of just cause and other remedies that the court can refer to in case the dissolution of the company would not be considered equitable to remaining shareholders and the company itself. Reason for this broad authority is that the definition of the “just cause” has not been given in the TCC.  Few examples have been given in the preamble of Article 531 of the TCC (just cause dissolution of the joint stock company), such as: (i) continuous violation of shareholder and minority shareholder rights; (ii) continuous financial losses of the company; and (iii) lack of dividend distribution. It should be noted, however, the examples given in the preamble are not in numerous clauses and therefore provides guidance to the court.  There are also several events specified for the dissolution of an unlimited liability companies for just cause in TCC which may be applied to the limited liability companies. In conclusion, the court shall take material facts into consideration of a specific case while deciding on the existence of a just cause for the dissolution. Circumstances that constitute just cause may also arise from the personal relationships of the shareholders and the personality of the shareholders themselves. It is not limited to partnership relations.

As previously state, the court could refer to more equitable solution compared to the dissolution of the company. Such remedies include but not limited to: (i) squeezing-out the shareholder that asked for the dissolution; and (ii) resolve on issues such as dividend payments and call for a general assembly on behalf of on behalf of manager or board of managers. Whether or not the court can decide on squeezing out the shareholder whose actions that led to the existence of just cause is disputed; there is no clear consensus on the court’s authority when referring to such remedy. It should also be noted that the existence of just for the dissolution is also required for the other remedies that court may refer. The case must be dismissed due to lack of just cause for dissolution. Any other remedy to be referred other than the dissolution should be related with the just cause and have the faculty to the put a stop the materials facts causing just cause. For example, if the lack dividend distribution is deemed as just cause for the dissolution of the company, the court may decide to distribute dividends as an alternative remedy.

Existence of fault is not required for such dissolution. Actions of the shareholders who helped the occurrence of just cause may not be quasi-delict. Nevertheless, shareholder suing for just cause dissolution must not have fault regarding the occurrence of just cause and the decision of 11th Civil Chamber of Court of Appeals numbered 2005/8962 dated 29.09.2005 supports the same notion and further adding that any decision on the contrary would be against the good faith principle.

Due to the nature of such lawsuit, a conflict of interest will be inevitable. No shareholder’s interest is above other and because of that the court should seek a balance between the interests of the plaintiff and other shareholders. For that very reason, the court’s authority regarding the alternative remedies has an utmost importance. The court should carefully review the material facts and should decide if the dissolution is the last remedy to solve the case at hand. However, the court may still decide to dissolve the company even if other remedies are viable for satisfying the plaintiff.

To conclude, shareholders is entitled to file a lawsuit to for just cause dissolution of a limited liability company regardless of their shareholding percentage unlike the joint stock companies. The court has a huge discretion with regards to identifying the just cause and referring to other remedies other than dissolution. Nevertheless, the court should carefully use such discretion while reaching a decision and should consider the interests of every shareholder of the limited liability company.

[1] As per the TCC, shareholders who owns 10% of the shares of a joint stock company are considered minority shareholders. As for the publicly traded companies this ratio is 5%.

Author: Batuhan Ecin

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