Termination of Joint Stock Companies
Dissolution of a Joint Stock Company: Legal Processes, Reasons and Practices
Entrance
Joint-stock companies are the most preferred type of company for undertaking investments requiring large capital, limiting shareholder liability, and facilitating the transfer of shares. However, like any commercial organization, joint-stock companies cannot operate continuously; they may cease to exist for various reasons. This article will explain in detail the reasons for the termination of joint-stock companies, the processes involved, and the legal avenues to follow afterwards.
1. Provisions for the Termination of a Joint Stock Company
Articles 529 to 548 of the Turkish Commercial Code regulate the termination of joint-stock companies. Termination cases include: automatic termination, termination by general assembly resolution, termination by court order, and bankruptcy. Each type of termination results in the company entering liquidation.
2. Termination Due to Expiration of the Term
If a specific term is stipulated in the company's articles of association and that term has expired, the joint-stock company automatically dissolves. In this case, the board of directors is obligated to register the dissolution with the commercial registry. Otherwise, the directors may incur legal liability.
3. The Achievement or Impossibility of the Goal
If the company's founding purpose has been fully achieved, or if achieving that purpose has become impossible, then the company's continuation becomes pointless. The board of directors informs the general assembly of this situation, and the general assembly may decide to dissolve the company.
4. Dissolution by General Assembly Resolution
If it is deemed that there is no benefit in the company continuing to operate, the joint-stock company may be dissolved by a decision of its shareholders. Unless otherwise stipulated in the articles of association, this decision must be taken with the affirmative vote of shareholders representing at least two-thirds of the capital. The decision must be registered with the commercial registry.
5. Termination by Court Order
According to Article 531 of the Turkish Commercial Code, any shareholder may request the dissolution of a joint-stock company if there is a justifiable reason. The concept of a justifiable reason is interpreted broadly in legal doctrine and case law. Disagreements between shareholders, the inability of company organs to function, or abuse of management fall within this scope.
6. Termination Due to Bankruptcy
If a limited liability company becomes unable to pay its debts, it is declared bankrupt. With bankruptcy, the liquidation of the company is carried out by the bankruptcy court. This, unlike other termination cases, represents a compulsory liquidation.
7. The Number of Partners Reducing to a Single Person
In joint-stock companies, sole shareholder ownership is possible; however, if this is not registered within three months, the company is deemed dissolved. According to Article 338/2 of the Turkish Commercial Code, the board of directors must notify this situation without delay.
8. How Does the Liquidation Process Work?
The company's legal entity does not completely disappear upon its dissolution. Initially, it continues to operate under the title "joint-stock company in liquidation." During the liquidation process, the company's debts are paid, its receivables are collected, and the remaining assets are distributed to the shareholders.
9. Appointment of Liquidators
Unless otherwise stipulated in the articles of association, members of the board of directors serve as liquidators. However, the general assembly may appoint different individuals. The duties and responsibilities of liquidators are regulated in detail in Articles 536 and subsequent articles of the Turkish Commercial Code.
10. Trade Registry and Tax Declarations
The company's status as a liquidator must be immediately registered with the trade registry. The tax office and the Social Security Institution (SGK) must also be notified. Annual tax returns and liquidation returns must continue to be filed during the liquidation process.
11. How long does the liquidation process last?
The liquidation period may vary depending on the intensity of operations, the number of creditors, and the existence of disputes. However, it is essential that it is completed within a reasonable time. Upon completion of the liquidation, the company is removed from the commercial registry, and its legal personality completely ceases to exist.
12. The Termination Process in Light of Supreme Court Decisions
The 11th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2017/1214 E. 2018/4891 K., emphasized that if the decision to dissolve the company is not registered, third parties cannot be protected, and therefore registration is mandatory for reasons of public order.
In another decision (Supreme Court of Appeals, 11th Civil Chamber, Case No. 2016/9847 E. 2017/2354 K.), it was stated that board members cannot undertake transactions that create debt during the liquidation process, and that transactions exceeding the purpose of liquidation may be deemed null and void.
13. Protection of Creditors
During the liquidation process, creditors are notified three times. The company is obligated to set aside a reserve fund for those who do not declare their claims after this period. This rule is regulated in Article 541 of the Turkish Commercial Code. Terminating a company without paying all its debts is unlawful.
14. Share Acquisition Process by Partners
The remaining assets after liquidation are distributed to the partners in proportion to their shares. However, in the case of company liquidation through bankruptcy, the partners' claims only come into play after all debts have been paid. At this point, the provisions of the Turkish Commercial Code as well as the Enforcement and Bankruptcy Law come into effect.
15. Conclusion: Managing Termination is Risk Management
The dissolution of a joint-stock company can create serious legal problems for both shareholders and creditors if it is not managed properly. Therefore, every stage must be carefully conducted; all necessary notifications must be made to the commercial registry, tax authorities, and creditors.
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