REMOVAL OF PARTNERS FROM A LIMITED LIABILITY COMPANY 18 April 2024
In the Turkish Commercial Code numbered 6102 ("TCC"), the provision for a partner's separation from the company against their will is defined under the term "removal." According to Article 640 of the TCC, titled 'Removal', in limited liability companies, the removal of a partner is fundamentally possible based on causes foreseen in the articles of association or in the presence of a just cause. Additionally, various articles related to removal from partnership are regulated in other provisions of the TCC.
1. REMOVAL BY GENERAL ASSEMBLY DECISION BASED ON CAUSES STIPULATED IN THE COMPANY'S ARTICLES OF ASSOCIATION
Article 640/1 of the TCC allows for the removal of a partner based on causes specified in the company's articles of association. The causes for removal can also be added to the articles of association at a later date. It is important that the causes for removal stipulated in the articles of association are clearly regulated. Removal without a clearly regulated specific cause, merely at the discretion of other partners through a general assembly decision, is not permissible. In case one of the causes stated in the articles of association occurs, a general assembly must be convened and a removal decision must be taken. Furthermore, in such a case, the partner to be removed is given the right to request the annulment of the general assembly decision within 3 months from its notification by a notary, thereby providing a guarantee to the partner. In the annulment lawsuit, the court will investigate whether the causes in the articles of association have occurred, and if the partner was removed without the occurrence of these causes, the general assembly decision will be annulled.
2. REMOVAL BY COURT DECISION BASED ON A JUST CAUSE UPON THE COMPANY'S REQUEST
Another method for the removal of company partners is based on the presence of a just cause as per Article 640/3 of the TCC. Even if not foreseen in the company's articles of association, in the presence of a just cause, the company can file a lawsuit for the removal of a partner. If the court decides on removal, the partner does not have the right to file an annulment lawsuit. To file such a lawsuit, the partnership that has the authority to file must have taken an appropriate decision. The deciding body is the general assembly. Partners are not authorized to file this lawsuit. This general assembly decision, being among the general assembly's non-transferable powers, is considered one of the significant decisions of the general assembly and is regulated in TCC Article 621/paragraph 1-(h). According to this provision, a decision must be taken with the absolute majority of the total voting rights of the principal capital present at the general assembly and at least two-thirds of the represented votes. The fundamental condition here is a just cause. The just cause will concern the conduct or person of the partner to be removed. A violation of the non-competition clause is an example of this.
3. COURT'S DECISION TO REMOVE A PARTNER IN CASES WHERE THE DISSOLUTION OF THE COMPANY IS SUED FOR JUST CAUSES
As another case of removal, under the provision of Article 636/paragraph 3 of the TCC, in situations where a partner sues for the dissolution of the company, considering the severe consequences of dissolution, the court may decide on paying the actual value of the share to the plaintiff partner and removing the plaintiff partner from the company instead. It is clear here that the judge is not bound by the request.
4. REMOVAL OF PARTNERS IN COMPANY MERGERS
Besides, another pathway for removal from partnership is regulated in the general provisions regarding commercial companies in the law. Article 141/2 of the TCC, which deals with company mergers, also envisages the possibility of removal from partnership. The first paragraph of the relevant article provides that, in the event of a merger, partners can be given the choice to continue or receive an exit fee equivalent to the real value of their shares and leave the partnership, while the second paragraph clearly indicates that offering just the exit fee can also result in removal from partnership. Therefore, it is foreseen that merging companies can remove partners from the partnership by including a provision in the merger agreement. In such a case, partners can only be removed from the partnership if the company pays them an exit fee equivalent to the real value of their shares.
5. REMOVAL ACCORDING TO THE PROVISIONS RELATED TO CORPORATE GROUPS IN THE TCC
Similarly, the TCC's provisions on corporate groups also introduce two more regulations for removal. One of these; according to TCC Article 208, if the parent company in the corporate group directly or indirectly owns at least ninety percent of the shares and voting rights in the subsidiary, it can buy out the minority's shares in cases where the minority acts against honesty, causes trouble, or acts recklessly, thus removing the minority shareholder from the partnership. According to this provision, in such cases, the parent company can buy out the minority at the market price if available, or at a value determined by the court in accordance with Article 202, thereby removing the minority from the partnership. The purpose of this provision is clearly to put an end to the actions of shareholders who oppose decisions taken by the company without just cause, affecting the company's commercial continuity, and to ensure internal harmony within the company.
Another situation related to corporate groups for removal is regulated in Article 202; where the parent company abuses its dominance in a way that is illegal. If the parent company abuses its dominance and does not compensate, any shareholder of the subsidiary can sue the parent company and its board members for compensation of the company's damages. In the lawsuit, the judge may decide on compensation of damages or purchasing the shareholder's shares at their actual value, or other appropriate solutions, either upon the plaintiff's request or sua sponte. Even if not requested by the plaintiff, the decision to purchase the partner's shares by the parent company at their actual value; represents another aspect of the removal institution
In cases of capital reduction in limited liability companies, the legislator has referred to the provisions for joint-stock companies. Thus, in a situation like capital reduction; the principle of equality among shareholders is generally adhered to, and the shares of all shareholders are redeemed in the same proportion. Conversely, if there is a provision in the company's articles of association or with the shareholder's consent, the shares of some shareholders can be fully redeemed. Since the shareholder whose shares are fully redeemed no longer retains the shareholder status, this also constitutes a form of removal from partnership.
CONCLUSION
As can be seen, for the removal of a partner from a limited liability company, either one of the causes foreseen in the articles of association must occur, or a just cause must exist, or the conditions regulated in separate articles in the TCC for the situation of removal must have been met.
