EXIT/EXPULSION FROM PARTNERSHIP AS A RESULT OF MERGER/ACQUISITION IN LIMITED LIABILITY COMPANIES 21 May 2024
In the Turkish Commercial Code No. 6102 (''TCC''), the provisions regulating mergers are set forth in Article 136 and following articles. It is essential to protect the rights of the shareholders of the company in mergers, and it is of great importance how the shareholder may exercise his/her right to exit and what legal remedies he/she may apply when a decision of expulsion is made against him/her. This article analyses the issues of exit and expulsion of limited liability companies in the event of a merger within the framework of the provisions of the TCC.
Exit from Partnership as a Result of Merger and Acquisition in Limited Liability Companies
Pursuant to the relevant provisions of the TCC, a limited liability company shareholder may request to exercise his/her right to exit from the limited liability company for various reasons. One of these reasons is the participation of the limited liability company in a merger, and in this process, it is of great importance for the shareholders to know their rights and obligations regarding the exit and expulsion from the limited liability company in order to protect their interests.
Limited liability companies may enter into a merger process in order to expand their business structure, join forces or become more competitive. Article 136 of the TCC regulates this merger process in two main ways: acquisition and merger as a new establishment. In the case of a takeover, one company takes over the other, while in the case of a merger in the form of a new establishment, the assets of two companies are brought together to form a new company. However, in both cases, certain conditions must be met for the merger process to be valid (Art. 137 of the TCC). During the merger process, the rights of the shareholders of the transferred company must be protected and it must be ensured that they have the same rights in the transferee company (Art. 140 of the TCC).
Furthermore, the merger agreement may grant the shareholders an optional right to exit from the partnership relationship. Accordingly, pursuant to Article 141(1) of the TCC, the shareholders of the companies participating in the merger may be granted the right to choose either the acquisition of shares and partnership rights in the transferee company or a financial settlement to be calculated over the real value of their shares in the transferee company. The shareholder who prefers the financial settlement shall exit the partnership by receiving the financial settlement to be calculated over the real value of his/her shares.
Expulsion from Partnership as a Result of Merger and Acquisition in Limited Liability Companies
Pursuant to Article 141(2) of the TCC, it is also possible to grant the shareholders of the companies participating in the merger agreement the right to receive only the financial settlement. In the event that the general assembly decides to expel the shareholder based on this provision of the merger agreement, the limited liability company shareholder will be expelled from the partnership by receiving the financial settlement and the shareholding will cease. Considering the consequences of this situation, the legislator has determined the quorum required for this decision as ninety per cent pursuant to Art. 151/(5) of the TCC. On the other hand, the shareholder who is expelled from the limited liability company may file an action for annulment against this decision, and the court's decision may annul the General Assembly decision regarding the expulsion from the partnership with retroactive effect.
Conclusion
In cases of mergers and acquisitions in limited liability companies, the shareholders may terminate their partnership in the limited liability company by obtaining a financial settlement. On the other hand, the general assembly of the limited liability company may terminate the partnership of the shareholder by granting a financial settlement to the shareholder, provided that the shareholder meets the ninety per cent quorum set forth in Article 151/(5) of the TCC.
