Although the limited companies are stock corporations, the company’s partners are allowed to be excluded from the partnership in order to maintain the partnership relationship in a healthy way, since the environment of trust between the partners is also important. In limited companies, it is possible to expel a partner from the company by a General Board resolution, depending on the situation, or by a court decision. Either way, the exclusion from the partnership is subject to certain conditions. In this bulletin, the exclusion of the limited company partner from the partnership, which is regulated in articles 640-641 of the Turkish Commercial Code, the case that the partner can file against this action and the request for disengagement reserve are explained.
1) Grounds for Exclusion of Partners from the Partnership
In limited companies, the company partner can be excluded from the partnership in two ways. The first one is that the reasons for exclusion from the partnership are determined in the Articles of Association of the limited company and if these reasons occur, the partner of the company is excluded from the partnership by the General Board resolution. Secondly, although there is no reason for exclusion from the partnership in the Articles of Association of the company, the exclusion of the company partner from the company due to just causes shall be requested from the court. This topic will be discussed below under separate topics.
1.2) Exclusion of the Partner from the Company Due to the Reasons Specified in the Articles of Association
Pursuant to the freedom of contract, the reasons for the exclusion of the company’s partners from the company can be written in this agreement while the company’s Articles of Association are being prepared. The reasons for the exclusion of the partners from the company can be added to the Articles of Association by amending it subsequently. In order to include the reasons for exclusion from the partnership in the Articles of Association, all shareholders representing the capital of the company must take a unanimous decision at the General Meeting If the reasons for exclusion from the company are indicated in the Articles of Association and these reasons occur concretely, it is possible to expel the relevant company partner from the company by a resolution to be taken by the company’s General Board.
In order to take the resolution to expel the partner from the company, a special quorum shall be taken at the General Board. The resolution to expel the partner can be taken by the combination of at least two-thirds of the represented votes to expel and the presence of the absolute majority of the entire capital that has the right to vote.
The partner, about whom the resolution to be excluded from the company has been taken, has the right to file an action for annulment within three months against the General Board resolution ruling the exclusion, upon notification of this situation. This notification to the company partner must be made through a notary public. In the action for annulment, which will be filed before the 3-month period of prescription, the partner will be able to ensure that the court examines whether there are grounds for the exclusion decision and whether the exclusion is just or unjust.
“According to the extent of the claim, defence, trade registry records and the entire file, the Trial Court dismissed the case on procedural grounds, on the grounds that pursuant to Article 640/2 of the TCC, the resolution to expel the partner can be taken by the General Board of the limited company, there is no General Board resolution for the exclusion of the defendant from the company, the relevant General Board resolution is among the important decisions for limited companies since it is among the inalienable powers of the General Board, the Shareholder’s Board resolution on the exclusion of the defendant from the company constitutes the prerequisite for the lawsuit, and that the company partner does not have the right to file an exclusion lawsuit on his own behalf, pursuant to Article 638/2 of the TCC. Since there is no violation of procedure and law in the decision, it is decided to uphold it.”[1]
1.2) Exclusion of the Partner from the Company Due to the Presence of Just Causes
The Turkish Commercial Code still allows the exclusion of the partner from the company, if the grounds for exclusion are not specified in the Articles of Association of the company, or if there is another just cause other than these reasons, even if it is determined. Moreover, the right of the company to expel the company partner from the partnership for a just cause is a right that cannot be annihilated by the Articles of Association.
“If grounds for exclusion of a partner from the partnership are stipulated in the Articles of Association, the partner may be excluded from the partnership by the General Board resolution of the company. Pursuant to Article 640/1 of the TCC, if the Articles of Association do not envisage grounds for exclusion of a partner from the partnership and the legal base of exclusion of the partner from the company does not fall within the scope of one of the circumstances stipulated in the Articles of Association, it is possible to expel the relevant partner from the partnership by a court decision. Pursuant to Article 640/3 of the TCC, in order for a partner to be excluded from the partnership for just cause upon the request of the company, the General Board of the company must first take a resolution in this direction. Because it is clearly understood from the articles 616/1-h and 621/1-h of the Law that such a resolution shall be taken. In addition, according to Article 616/1-h of the TCC, requesting the court to expel a partner from the company is one of the inalienable powers of the General Board of the company and in cases filed without a General Board resolution to expel a partner from a limited company partnership for just cause, if the defect is not remedied despite the definite time given to the company by the court to remedy the defect, the case must be dismissed on procedural grounds.”[2]
In the presence of just causes, the exclusion from the partnership is possible by the decision of exclusion of the court in the case to be filed by the company. However, in order for the company to file an exclusion case, a General Board resolution shall be taken by at least two-thirds of the votes represented in favour of the exclusion and the presence of the absolute majority of the entire capital that has the right to vote. In other words, the General Board must first decide to file an exclusion case.
Considering that the defendant company has two partners, if both partners do not vote in the same way, it is not possible for the quorum to be formed in terms of the General Board resolution for the exclusion of the partner from the partnership for just cause, which is considered as one of the important decisions. For this reason, since the quorum in Article 621/h of the TCC is not formed in terms of the decision numbered “7” taken at the General Board dated …, while this article should have been ruled invalid, the court decided to partially dismiss the case in terms of this decision by the regional courts of justice, and therefore the judgment must be reversed in favour of the plaintiff.”[3]
It is regulated in the Law that the partner can be excluded from the company for just causes but its grounds are not included in the text of the Article. Just causes are determined based on the decisions of the Supreme Court and the opinions in the doctrine. Accordingly, examples of cases that were previously considered just cause for exclusion are given below;
- The partner’s actions in violation of the noncompetition,
- Damaging the interests of the company of the partner’s business and transactions,
- Transferring the company’s assets to the company where he/she actually works by abusing the trust of the partner,
- Lack of interest of the partner to the company, not attending company meetings, preventing the solutions of company problems by not attending,
- Wrongful act against other partners of the company,
- The partner’s incapacity to perform company business due to a permanent illness or disability.
The reasons listed are given as examples, and there may be other just causes as well. The important thing here is that the justified reason for the exclusion is a reason arising from the person of the partner to be excluded, and therefore it has become impossible for the other partners to continue with this partner.
2) Exclusion Case
The action for exclusion from the partnership must be filed at the Commercial Court where the company headquarters is located. The legal entity of the company files the case. A simple trial procedure is applied in the case. By the decision of the court to expel, the partnership title of the partner will end and he/she will not be possible to benefit from the rights attached to the partnership as of this date.
“In the case of exclusion of the partner of the limited company filed in accordance with paragraph 640/3 of the Turkish Commercial Code, the right to file a lawsuit belongs to the company, and there is no violation of procedure and law in the decision to dismiss the case on the grounds that the plaintiff company partner does not have the active capacity to sue.”[4]
3) The Partner’s Request for an Disengagement Reserve
A disengagement fund is an amount paid by calculating the actual value of the capital share of the disengaged company partner, which she/he is entitled to as a result of disengagement with the company due to leaving, excluding or death. It should be understood that the phrase “conforming to its real value” here means the balance sheet value. Pursuant to Article 641/2 of the TCC, due to the right to disengagement stipulated in the Articles of Association, the Articles of Association may regulate the disengagement reserve in a different way.
Disengagement reserve;
- a) If the company is saving on an available equity,
- b) If the capital shares of the disengaged person can be transferred,
- c) If the basic capital has been reduced in accordance with the relevant provisions, it becomes due upon disengagement.
The unpaid portion of the disengaged partner’s disengagement reserve constitutes a receivable against the company, following all the creditors.
In cases of disengagement, the court will decide on the disengagement of the partner and at the same time calculate the disengagement reserve to be paid to the partner of the company, even if there is no such request. The disengagement reserve of the partner, which is decided to be excluded from the company by the court, will become due upon the finalization of the court decision.
4) Other Regulations that the Law Allows to Exclude the Partner from the Company
Apart from the TCC articles 640 and 641 regulations, the Law also includes regulations regarding the exclusion of the company partner from the partnership in some cases. According to this, the company partner who does not fulfil his capital investment obligation in due time and defaulting partner in this regard can be excluded from the company by dismissal. (TCC art. 482-483).
In cases where a company partner files a case for the dissolution of the company, the regulation indicating that the court may decide to pay the actual value of the share of the plaintiff partner ex officio instead of the dissolution of the company and to expel the plaintiff partner from the company is included in article 636/3 of the Turkish Commercial Code. This is based on the principle that dissolution should be considered by the court as a last resort.
“...although it has been stated that the plaintiff has no will to leave the partnership, the fact that whether the partner of the company expresses a will to leave the partnership in terms of exercising the discretion granted to the judge by Article 636/3 of the TCC shall have no importance. According to the characteristics of the concrete case, although there is no will in this direction, instead of the dissolution and liquidation of the company, it may be decided to expel the plaintiff partner from the partnership. In this respect, as indicated in the annulment notice, while the court should have determined whether there is a justifiable reason for the dissolution of the company, in the case of the existence of just causes, depending on the characteristics of the concrete case, the court should have discussed whether it is possible to expel the plaintiff partner from the partnership instead of the dissolution of the company or to decide on another alternative solution by means of presenting the grounds, and a decision should have been made according to the final result, It was not considered correct to make a decision on the basis of incomplete examination, based on the fact that the company’s term expired, based on a material fact that took place after the date of the case and was not the subject of correction, without fulfilling the requirements of the obligatory annulment decision.[5]
Conclusion
In limited companies, exclusion of the partner from the partnership is made possible in the presence of certain conditions. In the Articles of Association of the company, it can be determined on what grounds a company partner can be excluded from the company, it is possible to decide to expel the partner from the company and to file a lawsuit in this direction in the presence of just causes, without the need for a determination in this direction. In this case, in which the court evaluates which reasons can be considered a just cause, the court also calculates ex officio the amount of disengagement reserve, as well as the exclusion decision.
You can contact our team for more information about exclusion from partnership in a limited company.
Best Regards.
References
ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık.
Turkish Code of Commerce
11th Civil Chamber of the Supreme Court, E. 2019/462 E., K. 2019/7665.
11th Civil Chamber of the Supreme Court, , 02.07.2014, E. 2013/18625, K.2014/12736.
11th Civil Chamber of the Supreme Court, 2020/1157, K.2020/5689.
11th Civil Chamber of the Supreme Court, 2019/2320 , K.2020/295.
11th Civil Chamber of the Supreme Court, 2019/2945, K. 2020/879.
[1] 11th Civil Chamber of the Supreme Court, 2020/1157, K.2020/5689.
[2] 11th Civil Chamber of the Supreme Court, 2019/2320 , K.2020/295.
[3] 11th Civil Chamber of the Supreme Court, 2019/2945, K. 2020/879.
[4] 11th Civil Chamber of the Supreme Court, , 02.07.2014, E. 2013/18625, K.2014/12736.
[5] 11th Civil Chamber of the Supreme Court, E. 2019/462 E., K. 2019/7665.
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