In limited liability companies, shareholders may exit from the company by transferring their shares in the company to any person if they do not wish to continue as shareholders or may exit from the company within the scope of Article 638 and Article 639 of the Turkish Commercial Code numbered 6102 ("TCC"). At the same time, shareholders of a limited liability company may squeeze out other shareholders from the company in the event of certain conditions determined under Article 640 of TCC have occurred.   

EXIT RIGHT OF SHAREHOLDERS

According to Article 638/1 of TCC, the articles of association of the company may entitle shareholders with an exit right, and the exercise of this right may be subject to certain conditions by articles of association. In practice, the conditions for the exit right determined under articles of association of a limited liability company are the reasons such as the company's loss for a certain period of time or the failure to reach a certain level of profitability. These conditions may be for a specific situation or time period. If the articles of association do not include any conditions regarding the exit right, the exit right is carried out with the unilateral declaration of the shareholder.

Even if it is not stated in the articles of association, shareholders may exit from the company in the presence of just causes. If the shareholder believes that a just cause exists, the shareholder must apply to the court according to Article 638/2 of TCC. The court may, upon request, freeze some or all of the plaintiff's rights and obligations arising from the shareholding for the duration of the litigation, or order other measures to secure the status of the plaintiff shareholder.

The law does not clearly regulate what the just causes are, but some situations are listed as just reasons. For example, Article 245 of TCC defines just cause as "disloyalty of a shareholder at management or accounting" or "failure of a shareholder to perform the essential duties and obligations" and similar cases. These cases listed in the law are exemplary; just cause may also arise other than these cases.  

ACCESSION TO EXIT

According to Article 639/1 of TCC, if a shareholder of a limited liability company makes a declaration regarding the exit right for the reasons determined under articles of association or files a lawsuit due to the existence of just cause, the manager or managers are obliged to notify the other shareholders without delay.

Each of the other shareholders has right to notify the managers that he/she will also accede to exit, if the just cause determined under articles of association of the company is also valid for the requesting shareholder, within one month from the date of news reaching to shareholder, or to accede to the exit  due to just cause through a lawsuit to be filed.

SQUEEZE-OUT

In accordance with TCC, squeeze-out is defined as a shareholder being forced to exit the company against the will of the shareholder.

According to Article 640 of TCC, shareholders of a limited liability company may squeeze-out the shareholder from the company with a general assembly resolution if the reasons determined under articles of association are fulfilled. Article 621 of TCC regulates the resolutions to be taken in the event that at least two thirds of the votes represented in the general assembly and the absolute majority of the entire share capital with voting rights are present together. The squeeze-out of limited liability company shareholders from the company is one of the situations regulated under Article 621 of TCC. Therefore, even if a reason is stated under articles of association, a general assembly resolution is required to squeeze-out a shareholder from the company, and at least two thirds of the votes represented and the absolute majority of the entire share capital with voting rights must be present.

After the resolution of squeeze-out is held, it shall be notified to the shareholder through a notary public and the squeezed-out shareholder may file a cancellation lawsuit within three months following the notification of the resolution to the shareholder. Unless the notification is made through a notary public, the three-month period shall not be started. Since the three-month period is a forfeiture period in terms of its legal nature, the shareholder will lose the right to file a lawsuit after this period has expired.

If there is no cause regulated for squeeze-out under articles of association of the company or if one of the causes is not specified under articles of association, the shareholders of a limited liability company may also be squeezed out of the company. According to Article 630/3 of TCC, in order to squeeze out the shareholder with a just cause, a general assembly resolution must be held, and the necessary quorums mentioned under Article 621 of TCC must be fulfilled, and after this resolution is held, it is required to apply to court to request the squeeze-out of the shareholder. The reasons listed under Article 245 of TCC may consider as examples of just cause.

FINANCIAL SETTLEMENT

According to Article 641/1 of TCC, if shareholder exit from company, shareholder has right to demand the financial settlement corresponding to the actual value of the shareholder's capital share. Due to the exit right regulated under articles of association of the company according to Article 641/2 of TCC, every company may regulate the financial settlement in a different manner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.