Disputes Among Shareholders in Turkey: Removal for Just Cause

Disputes among shareholders cover disagreements arising over matters such as company management, profit-sharing, or a shareholder's breach of their duty of loyalty, and must be resolved within the framework of the articles of association and the concept of just cause.

The Concept of Just Cause

Under Article 245 of Turkish Commercial Code No. 6102 (TTK), just cause refers to a situation that, according to the principle of good faith, makes continuing the shareholder relationship unbearable or unreasonably difficult; this situation may arise from the company's activities as well as from personal and commercial disputes among the shareholders.

Circumstances Considered Just Cause

Article 245 of the TTK gives examples such as a shareholder abusing trust in company management matters or in the preparation of accounts, or failing to fulfil essential duties and obligations; a shareholder harming the company's financial affairs, disclosing company secrets, or breaching a non-compete obligation may also fall within this scope.

The Action for Removal for Just Cause

In limited liability companies, the general assembly may apply to the court for the removal of a shareholder where just cause exists; if the court accepts the case, the shareholder's exit payment, based on the true value of their share, is paid to them. This action is particularly common in limited liability companies, where the trust relationship among shareholders is important for the company's continuation.

Voluntary Withdrawal by a Shareholder

Under Article 638 of the TTK, in the circumstances set out in the articles of association, or where just cause exists, a shareholder may also apply to the court seeking to withdraw from the company; this request likewise depends on the court establishing that just cause exists.

Determining the Exit Payment

The exit payment owed to a withdrawing or removed shareholder is calculated based on the true (fair) value of their share; this value is generally determined by a panel of experts examining the company's financial position, and where the parties cannot agree, the court decides based on this valuation.

Other Remedies

Besides litigation, disputes among shareholders can also be resolved through a share transfer, an amendment to the articles of association, or mediation; where the articles of association already contain a pre-agreed exit mechanism (such as put/call options), these provisions apply first.

Practical Recommendations

Including clear provisions in the articles of association at the time of incorporation regarding the resolution of disputes among shareholders (exit mechanisms, valuation method) helps prevent lengthy and costly litigation later on.

This article is for informational purposes only and does not constitute legal advice. Please contact our team regarding your specific situation.