Exclusion and Withdrawal Cases: Dissolution and Liquidation of a Company for Just Cause

Commercial partnerships are legal entities based on the principle of "partnership will" (affectio societatis), where partners combine their capital and labor to achieve a specific economic goal. However, over time, a breakdown in trust between partners, financial difficulties, or managerial deadlocks can make the continuation of this structure impossible. The Turkish Commercial Code No. 6102 (TTK) has established a balancing mechanism aimed at both protecting the economic existence of the company and safeguarding the property rights of the partners in such disputes.

1. Action for Withdrawal from Partnership and the Right of Separation

Withdrawal from a partnership is a request by a partner to terminate their partnership status of their own free will. While the Turkish Commercial Code regulates this right more broadly, especially in limited liability companies, it has a narrower framework in joint-stock companies due to the need to protect capital and maintain the stability of the partnership structure. In limited liability companies, partners may stipulate certain conditions for withdrawing from the partnership in the company agreement. If there is no such provision in the agreement, according to Article 638 of the Turkish Commercial Code, each partner may apply to the court to withdraw from the partnership if there is a "justifiable reason".

The concept of just cause refers to a situation where, within the framework of the principle of good faith, the continuation of the partnership has become unbearable for the plaintiff partner. Examples include the company's continuous losses, the long-term non-distribution of dividends, the board of directors' systematic violation of the partner's right to information and inspection, or severe discord between the partners. When the court determines that just cause exists, it orders the partner to withdraw and also mandates the payment of a "separation payment" equivalent to the true value of the share.

2. Partnership Exclusion (Dismissal and Expulsion) Processes

Expulsion from a partnership is the termination of a partner's status without their consent. This process is carried out either through a general assembly resolution based on specific reasons stipulated in the company agreement, or by a court decision pursuant to Article 640 of the Turkish Commercial Code. General assembly resolutions based on expulsion grounds specified in the agreement are, as a rule, notified to the relevant partner through a notary public, and the partner has the right to file a lawsuit for the annulment of this decision.

In a justified expulsion case, the company must prove that the partner's conduct jeopardized the company's continued existence. Breach of loyalty, disclosure of company trade secrets, establishing a competing business, or making serious insults and attacks against other partners are the most common grounds for expulsion in court proceedings. Considering that expulsion is a last resort, the court carefully examines whether the partner's conduct is correctable and to what extent the company has been affected.

3. The Right to Participate in Withdrawal and the Principle of Equal Treatment

In limited liability companies, a partner filing for withdrawal for a justifiable reason constitutes a turning point for the other partners. Article 639 of the Turkish Commercial Code, which regulates the "Right to Participate in Withdrawal," allows other partners to join the withdrawal process initiated by one partner. Company directors are obligated to immediately inform the other partners in writing when they learn that a partner has filed for withdrawal. This notification is vital for upholding the principle of good faith and maintaining equality among partners.

Other partners who receive the notification may join the lawsuit within a one-month forfeiture period, claiming that the justifiable reasons presented by the plaintiff partner also apply to them. This mechanism prevents the company from being depleted by paying only the first partner who filed the lawsuit. If more than one partner exercises their right to participate, the court will calculate each partner's share at its true value. If this situation reaches a point where it shakes the company's financial structure, the court may decide to dissolve the company, considering the interests of all partners.

4. Determining and Valuation Methods of Severance Pay

The most fundamental right of a partner who leaves or is expelled from a partnership is to receive the full economic value of their share in the company. Severance pay is calculated based on the intrinsic value of the share. When determining intrinsic value, not only the company's past balance sheets or registered capital are considered, but also the company's market value, the current appraisal values ​​of its real estate assets, brand recognition, customer portfolio, and potential future cash flows.

As of 2026, the Supreme Court's practice frequently combines "Discounted Cash Flow" (DCF) and "Comparable Sales" methods. A panel of expert appraisers appointed by the court (lawyer, financial advisor, and industry expert) examines all of the company's assets and liabilities as of the valuation date. If the company's cash flow is insufficient to pay the severance payment in a single lump sum, the court, pursuant to Article 641/2 of the Turkish Commercial Code, may order the payment to be made in reasonable installments or secured by a guarantee, in a way that will not lead to the company's bankruptcy.

5. Dissolution of the Company for Just Cause

In the Turkish Commercial Law system, the termination of a company's legal personality is a macro decision affecting not only its shareholders but also its employees, creditors, and the general economy. Therefore, the Turkish Commercial Code No. 6102 (TTK) is based on the principle of the company's continuity and survival, and considers dissolution a last resort only when no other legal remedy has been exhausted. Courts, acting almost like "company doctors" in dissolution requests, seek ways to treat the ailments in the ownership structure without destroying the company. The concept of just cause, within the framework of the principle of good faith, refers to the situation where the continuation of the partnership has become unbearable for the plaintiff shareholder; the court meticulously distinguishes whether the dispute is subjective (personal grievances) or objective (situations hindering the company's operation).

According to Articles 531 (Joint Stock Companies) and 636 (Limited Liability Companies) of the Turkish Commercial Code, the court is not obligated to dissolve the company even if it is convinced of the existence of a just cause. The judge has a wide range of alternative solutions to protect the company's economic value. If the dispute arises solely from the existence of the plaintiff partner or the dominance of a particular group, the judge may decide to remove the plaintiff partner from the company by paying them the true value of their shares, instead of dissolving the company. Furthermore, other measures to rehabilitate the ownership structure, such as the annulment of disputed clauses in the company agreement, the appointment of a trustee to manage the company, or the restructuring of the general assembly's decision-making mechanisms, are also legal tools considered before dissolution.

Situations where the court has exhausted all alternatives and dissolution becomes inevitable are generally scenarios where the company is in a "vegetative state." These primarily include "Deadlock" situations where no decisions can be made due to the shareholders' share percentages. Similarly, if the company's business becomes impossible due to legal or factual reasons, if there is a lack of governing bodies due to the general assembly's inability to convene for a long period, or if animosity between shareholders brings the company's commercial activities to a complete standstill, a decision for dissolution is made in the name of public safety. While in joint-stock companies this right is granted to the minority holding 10% of the capital, in limited liability companies this right is granted to every shareholder, highlighting the fundamental difference between the individual and capital-oriented structures of these company types.

6. Liquidation Process and Termination of Legal Entity

The liquidation process is the final stage in which a company's commercial activities cease and its legal existence ends. Upon the finalization of the dissolution decision or the general assembly's decision to liquidate, the phrase "In Liquidation" is added to the company's trade name and registered in the registry. At this stage, the company's legal capacity is no longer focused on profit-making, but is limited to completing ongoing projects and converting assets into cash. The liquidators responsible for managing the process are professional executors with legal and criminal responsibility for protecting the company's assets, collecting receivables, and converting assets into cash to cover liabilities.

To protect creditors, which is the most critical stage of the process, liquidators are obliged to call upon creditors through three announcements published in the Turkish Trade Registry Gazette at one-week intervals. It is legally prohibited to make any distribution to shareholders before priority payments such as public debts (taxes, social security contributions) and employee claims are made, or before sufficient collateral is set aside for disputed claims. After all debts are settled, the remaining "liquidation surplus" is distributed to shareholders in proportion to their capital shares, and the deletion from the trade registry is completed upon approval of the final balance sheet. Although the legal entity ceases to exist with deletion, it is always possible to temporarily revive the company through court proceedings for any subsequently arising assets or liabilities.

7. Competent Court, Jurisdiction and Provisional Measures

In partnership disputes, the competent court is the Commercial Court of First Instance, and the authorized court is the court located where the company's headquarters are situated. These cases are not subject to a fixed fee, but rather, as a rule, a proportional fee based on the severance pay or share value. Given the length of the litigation process, requests for "Interim Measures" are vital for protecting the rights of the plaintiff partner.

The court may be requested to prevent the transfer of the shares in question to another party, to impose a precautionary measure on the company's assets, or, depending on the severity of the dispute, to appoint a receiver for the company. Especially when the "right to withdraw" is involved, the court should automatically verify whether the other shareholders have been notified of the lawsuit.

Frequently Asked Questions (FAQ)

1. Is there a capital requirement to file a lawsuit for termination for just cause?

In joint-stock companies, shareholders representing at least one-tenth of the capital (one-twentieth in publicly traded companies) can file a lawsuit for dissolution for just cause. In limited liability companies, there is no such percentage requirement; every shareholder has the right to file this lawsuit.

2. Does a partner who leaves the partnership remain liable for the company's debts?

The liability of a person withdrawing from a partnership is limited to debts incurred before the date of withdrawal. However, in limited liability companies, liability for public debts (taxes, social security contributions) may continue for a certain period under specific conditions, even after the withdrawal is registered.

3. How often should severance pay be paid?

As a rule, the debt becomes due upon the court's decision becoming final. However, the court may decide to schedule the payment according to a suitable timetable in order to avoid jeopardizing the company's financial situation.

4. What happens if the company directors do not inform the other partners of their withdrawal lawsuit?

This negligence on the part of the directors may make it difficult for other partners to exercise their "right to withdraw." In this case, the directors who failed to make the notification will be held personally liable, and the partners who suffered a loss of rights may file a compensation lawsuit.

5. Is mediation mandatory in these cases?

In commercial disputes, mediation is a prerequisite for claims for receivables and compensation. However, in cases involving direct changes in status, such as "dissolution" or "expulsion from partnership," the nature of mediation should be assessed according to the dispute; to avoid loss of rights, it is essential to consult an expert before filing a lawsuit.