The Right to Withdrawn the Partnership in Limited Companies

In limited companies, it is possible for the partners of the company to withdraw from the partnership under certain conditions. One of the personal rights of the partner in limited companies is the right to exit the partnership.

The right to withdraw includes the partner’s free will to withdraw from the partnership. All rights and obligations of the partner who withdraws from the partnership by exercising his right to withdraw from the partnership will be terminated, and all relations between him/her and the company will be terminated.[1] The Turkish Commercial Code regulates the right to legally withdraw from the partnership and the exclusion issue. In this bulletin, only issues related to the right to withdraw from the partnership are discussed. The partners’ exercise of their right to withdraw the partnership and its conditions should be examined under two separate headings. According to this;

• Withdrawal from the partnership in the case of the reasons and procedure for withdrawal are regulated in the Articles of Association of the company,
• If such a ground is not indicated in the Articles of Association, the cases of withdrawal from the partnership based on a just cause should be handled separately.

In other words, as a rule, it is not possible for the partners in limited companies to withdraw from the company with their unilateral will. For this, the will of the partner to withdraw must be based on a legal basis, the ground can be contractual or legal.” These issues are examined separately below.

1)      In the Cases Where the Right to Withdraw from the Partnership is regulated in the Company’s Articles of Association

By the articles of association of the company, partners shall be granted the right to withdraw from the company. In the contract, the company may grant the partner the right to withdraw from the partnership at any time, under any circumstance and condition, without subjecting to any condition for this right, or it may also subject the exercise of this right to certain conditions.

If the limited company partner’s right to withdraw from the partnership is regulated in the company’s Articles of Association, then the partner must exercise her/his right to withdraw from the company in accordance with the terms of the agreement. These terms may be procedural terms related to time and notification. For example, it is possible to write a provision in the Articles of Association of the company, such as the partners can withdraw from the partnership by notifying the Board of Directors 2 months in advance through a notary public in the Articles of Association of the company. In this case, the partner should exercise the right to withdraw in the envisaged manner.

2)      In the Cases Where the Right to Withdraw from the Partnership is regulated in the Company’s Articles of Association: Right to Withdraw by Just Cause

If the partners are not given the right to withdraw from the partnership in the Articles of Association of the company, this does not mean that the partner cannot withdraw from the partnership in no sense and does not have a right in this way. Such an acceptance would not comply with the personal rights of the partner and the structure of the limited company.

Even if there is no regulation in the Articles of Association, if there is a just cause to withdraw from the partnership, the partner of the company can exercise her/his right to withdraw from the partnership. There is no explanation in the law about what the just causes are. In accordance with the good faith and equity, if the partners can no longer be expected to stay in the limited company, then the partner can exercise the right to withdraw. The grounds that are decided to constitute a just cause in the Supreme Court are the cases where the continuation of the partnership is deemed impossible due to the personal relations of the partners or the business of the company. For example, the fact that it is impossible for the partners to continue their partnership due to the fight, infighting and mutual accusations between the partners has been accepted as just cause by the Supreme Court.

The partner has to file a case to withdraw from the partnership for just cause. The right to legal withdraw is exercised through litigation. Article 638/2 of the TCC includes the following provision;

“Each partner can file a lawsuit to decide to withdraw from the company in the presence of just causes. The court may, upon request, decide to freeze some or all of the plaintiff’s rights and debts arising from the partnership or to take other measures to secure the plaintiff partner’s situation during the case.

11th Civil Chamber of the Supreme Court, determined the following issues in its decision dated 03.02.2015 and numbered E.2014/15047, K.2015/1168;

“In the provision of article 638/2 of the Turkish Commercial Code, the partner has been given the opportunity to file a case in the presence of just causes. For this reason, the court will evaluate whether the ground or grounds put forward by the partner who wishes to withdraw really exist or whether they are justified.”

In another decision, the Supreme Court (11th Civil Chamber of the Supreme Court, 05.05.2014, E. 2014/1377, K. 2014/8486) decides that;

“While the court should have first made an evaluation regarding the plaintiff’s request to withdraw from the company and decided according to the result, it is not correct to decide the dismissal of the withdrawal request on the grounds that the company has actually ended and that the partners have actually and beneficially used the company’s assets and to dismiss the defendant company.“

Decision of the 11th Civil Chamber of the Supreme Court, dated 04.03.2021 and numbered E. 2019/3157, K. 2021/20

“According to the extent of the claim, defence and the entire file, the Court of Appeals ruled the dismissal of the action on procedural grounds, on the grounds that it was just referred to the case file no ….. of the Antalya 3rd Commercial Court, an example of which is in the file on this matter, when this decision is examined, it is seen that the plaintiff pertains to the other shareholder … and the defendants, D…. Building and Const. and Co. Ltd. and …, pertain to the demand for the General Meeting call, the case brought against the defendant natural entity was rejected due to the passive hostility absence, and there is no legal benefit for the director to requesting the General Meeting call since the plaintiff is the director authorized to represent the company solely although the grounds indicating that in the concrete case, the plaintiff party stated that he wanted to withdraw from the partnership, but it did not justify, and it is claimed that the non-litigation partner agreed to withdraw from the partnership of the company, in the reply petition, it was stated that the distrust between the parties was due to the managerial disagreements of the partners, but the reasons for these disagreements and the nature of the disagreements were not shown, A justified explanation was given and no evidence was given, the defendant stated that the source of the distrust was the plaintiff but it was stated that the just cause had to be disclosed, the plaintiff and the other partner could not come together for a long time for the management and continuation of the company’s management and activities by the trial court, their trust and loyalty to each other did not remain, however, in the concrete case, the request for an appeal of the defendant’s attorney is accepted on procedural grounds, on the grounds that the plaintiff and the non-litigation partner are two separate managers authorized to represent the partner company individually, and the plaintiff also holds the title of chairman of the board of directors, the plaintiff cannot obtain information about the company, and has not been invited to the company meetings, his/her duty is disrupted, the General Meeting calls have failed, the company has been harmed, there is no claim that the company has been mismanaged, any concrete event or dispute requiring the plaintiff to withdraw from the defendant company partnership has been demonstrated and justified and the just cause criterion has not been fulfilled.”

3)      The Right to Participate in Withdrawal

It is possible for other partners, who are in the same position as the plaintiff partner, to participate in the withdrawal case filed by one of the partners. The reason for this opportunity is based on the principle of equal treatment between partners. If one of the partners wants to withdraw based on the provision in the Articles of Association or files a case for just causes, the director or directors inform the other partners immediately. Each of the other partners, within one month following the date of receiving the news has right to;

• notify the directors that he/she will also participate in the withdrawal if the just cause stipulated in the Articles of Association is also valid for him/her,
• participate in the case of a lawsuit for a withdrawal to be filed due to just causes.

All exiting partners will be treated equally, in proportion to their basic capital shares.

In the event that a partner is excluded from the company due to the provision in the Articles of Association or due to the existence of a just cause, this provision does not apply.

The latest term is the1-month period stipulated in the article, and the right to withdraw of the partner who does not exercise it at the end of 1 month will be forfeited.

4)      The Right to Request a Disengagement Reserve

If the partner leaves the company, she/he has the right to demand the disengagement reserve that corresponds to the actual value of the capital share. Due to the right to withdraw stipulated in the Articles of Association, the Articles of Association may regulate the disengagement reserve in a different way.

Disengagement reserve;

1. a) If the company is saving on an available equity,
2. b) If the capital shares of the disengaged person can be transferred,
3. 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. This issue becomes due with the determination of the available equity amount in the annual report.

Conclusion

One of the rights of the partner in limited companies is the right to withdraw from the partnership. However, this right is not an absolute right granted to the partners, but it is envisaged to be used under certain conditions and according to a certain procedure. The shareholders may exercise their right to withdraw from the company through litigation, depending on the situation. To win this case, it is tried to prove that the right to withdraw from the partnership with just cause has been used. You can contact with our team for more detailed information.

Best Regards.

References 

 ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık.

11th Civil Chamber of the Supreme Court, 04.03.2021, E. 2019/3157, K. 2021/2041.

11th Civil Chamber of the Supreme Court, 03.02.2015,  E.2014/15047, K.2015/1168.

General Assembly of Civil Chambers, 2019/658 E., 2020/101 K.

11th Civil Chamber of the Supreme Court, 05.05.2014, E. 2014/1377, K. 2014/8486

[1] General Assembly of Civil Chambers, 2019/658 E., 2020/101 K.