Turkey: The Court Of Appeals Sheds Light On "Just Cause" For Termination, Exit Right And Squeeze-Out Of Shareholders

Last Updated: 3 December 2018
Article by Gönenç Gürkaynak Esq, Nazlı Nil Yukaruç and Büşra Üstüntaş

Most Read Contributor in Turkey, March 2019
  1. Introduction

"Just cause" is a term that is used frequently under the Turkish Commercial Code No. 6102 ("TCC"). In broad terms, "just cause" may be defined as a situation in which the relationship between a shareholder and the company and/or between a shareholder and other shareholders becomes unbearable or untenable for valid legal reasons. Although the term "just cause" is frequently employed under the TCC, Turkish lawmakers did not opt to provide an explicit definition of this term under the TCC and instead delegated this duty to the doctrine and the courts.

In this article, we will focus on the use of the term "just cause" in the context of the termination of limited liability companies, exit right and squeeze-out of shareholders in limited liability companies, and we will assess and evaluate the purpose and meaning of the term in light of the recent Court of Appeals decisions.

  1. Termination by Just Cause

Article 636 of the TCC lists the circumstances in which a limited liability company shall be terminated. In addition to the customary reasons for termination, such as termination pursuant to the articles of association, initiation of the bankruptcy process following a bankruptcy decision, termination through a resolution of the general assembly of shareholders, or termination as foreseen by other laws, the provision also allows each shareholder to file a lawsuit against the company to request the termination of the limited liability company, if there is "just cause" to terminate the company. Upon request, the court may terminate the company or rule for the "squeeze-out" of the plaintiff shareholder, or for another resolution that is acceptable and suitable for the case at hand.

The reasoning of Article 636 of the TCC refers to Article 531 of the TCC, in which the termination of joint-stock companies by "just cause" is regulated. The reasoning of Article 531 also confirms that the TCC does not explicitly define what constitutes "just cause," and that its definition is left to be decided by the relevant doctrine and the courts. The reasoning of Article 531 lists certain examples of "just cause" that have been accepted and recognized under Swiss legal doctrine. For example, unlawful invitation of the shareholders to the general assembly meetings, continual violations of the minority shareholders' rights or the personal rights of the shareholders, obstruction or hindrance of the right to demand information and examination, continuous losses incurred by the company, and constant declines in profits are listed among the examples of "just cause" that are recognized under Swiss doctrine.

Since there is no clear-cut definition or elucidation on the scope and content of the term "just cause" in Turkish law, courts have been required to evaluate each matter on a case-by-case basis. Accordingly, the Court of Appeals has shed light on the meaning of "just cause" for the termination of limited liability companies over the years through its rulings.

In one illuminating case, where (i) the limited liability company had incurred continuous losses, (ii) significant disagreements existed between the shareholders, (iii) the limited liability company was in debt, (iv) the limited liability company could not carry out its business activities, and (v) the shareholders had no interest in the continuation of the company, the 11th Civil Chamber of the Court of Appeals ruled for the termination of the limited liability company (decision dated October 18, 2016, and numbered 11101/8204).

In another significant case, the 11th Civil Chamber of the Court of Appeals ruled (with the decision dated June 13, 2016, and numbered 10730/9482) for the termination of a family-run limited liability company due to the following factors: (i) shareholders were divorced, (ii) defendant shareholder had established another company with a different scope of activity, (iii) the manager had failed to provide due care for the management of the company.

Furthermore, in several other cases, the following reasons have also been accepted and recognized as "just causes": (i) mismanagement of the company, (ii) personal interests coming to the forefront (i.e., being prioritized) among the shareholders of the limited liability company, (iii) company being in debt, (iv) the fact that it has become impossible to realize or fulfill the common objectives of the limited liability company. However, the Court of Appeals has also ruled that there are certain circumstances which do not constitute "just cause" for the termination of a limited liability company, such as the existence of due tax debts or the non-distribution of dividends.

  1. Exit Right of Shareholders

Article 638 of the TCC sets forth that each shareholder has the right to exit and depart from a limited liability company by filing a lawsuit if there is "just cause" and if there is a provision in the articles of association of the company providing an "exit right" for shareholders.

The Court of Appeals has illuminated what constitutes a "just cause" that is sufficient to allow a shareholder to exercise its exit right in a limited liability company. In this context, the Court has ruled that (i) disagreements between shareholders, (ii) continuous violation of a shareholder's right to obtain information on the management and activities of the company, (iii) the alienation of a shareholder from the company, and (iv) a situation in which the company falls into debt due to the actions of the directors, would be deemed as "just causes" (11th Civil Chamber of Court of Appeals' decision dated June 22, 2016, and numbered 2015-9114/6883).

  1. Squeeze-out of Shareholders

Article 640 of the TCC regulates that a company may request the "squeeze-out" of a shareholder from a limited liability company due to (i) the presence of circumstances set forth in the articles of association of the company (pursuant to a general assembly decision), and (ii) "just cause."

The 11th Civil Chamber of the Court of Appeals has ruled (in a decision dated November 21, 2016, and numbered 2015-11660/8995) that (i) adverse statements against other shareholders, and (ii) breach of the duty of loyalty toward the company and other shareholders, will be deemed as "just causes" for squeezing out the relevant shareholder from the limited liability company.


The continuity and preservation of companies is a fundamental tenet under Turkish laws. Therefore, the termination of a company should be the last resort for resolving disputes between shareholders and/or between a shareholder and the company. On the other hand, taking into account the necessities and dynamics of business relationships, Turkish laws do value and consider the possibility of the parties' wishing to leave a business partnership. Therefore, the concept of "just cause" is of great significance in cases where one or more parties would like to terminate a business partnership. Since there is no explicit definition of the term "just cause" provided under Turkish laws, the courts exercise broad discretion to define the term according to doctrine and their own judicial philosophies, and practitioners will be well advised to continue to follow the decisions of the Court of Appeals very closely.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions