Withdrawal and Removal from Partnership in Limited Companies in Turkey
WITHDRAWAL AND REMOVAL FROM PARTNERSHIP IN LIMITED COMPANIES
In this comprehensive review, we provide explanations regarding the right of partners to voluntarily withdraw from the partnership, thus freeing themselves from all rights and responsibilities related to the company, which is crucial for partners in limited companies. Withdrawal from the partnership will typically address situations where the partnership title is not transferred to another individual during the share transfer procedure. Turkish Commercial Code (TCC) Article 638 provides limited company partners with two methods to exit the company. The first method is facilitated through a provision in the company’s articles of association, while the second is established through a court decision based on the existence of justifiable reasons. Additionally, it can be said that there is a discretionary power that provides an additional exit strategy during the merger process. Within the scope of these options, the nuances of withdrawal from the partnership are evaluated below in accordance with the provisions of the TCC.
RIGHT TO WITHDRAW FROM THE PARTNERSHIP ACCORDING TO THE ARTICLES OF ASSOCIATION AND ITS USE
Voluntarily withdrawing from a limited company, known as the concept of withdrawal, is a key element in the dynamics of corporate activities since it allows partners to voluntarily terminate their relationship with the company. This withdrawal procedure is regulated in Article 638 of the Turkish Commercial Code (TCC). However, for a partner’s withdrawal decision to have a valid legal basis, it is not sufficient for their personal will alone; there must be a necessity to rely on legitimate legal grounds. TCC Article 638 defines two main ways for a partner to withdraw. The first method allows for withdrawal in accordance with the procedures specified within the articles of association, which regulate the company’s operating rules. In other words, if the articles of association of the company include a provision for the right to withdraw, then the partner is allowed to withdraw in accordance with the procedures stipulated in the articles of association. In this case, the company’s founding document can grant a withdrawal right to a partner. This provision can be a part of the articles of association from the outset or can be subsequently regulated through an amendment to the contract. If the conditions for withdrawal are specified in the articles of association, all partners are obliged to comply with them. The company’s articles of association may offer unconditional or conditional withdrawal rights to partners. In unconditional rights, a partner can withdraw from the company with a unilateral declaration of intent, without the need for any specific reason or condition to be met. Alternatively, the company’s articles of association may establish certain conditions that a partner must fulfill in order to exercise their withdrawal rights. In such a case, once these conditions are met, the partner can declare their intention to withdraw without requiring the approval of any decision by a legal entity. These conditions may include events such as the company failing to meet specific performance criteria or breaching certain contractual terms. However, partners are expected to exercise this withdrawal right in accordance with the principles of good faith, as set forth in Article 2 of the Turkish Civil Code No. 4721. The right to withdraw can also be subject to specific timeframes based on the articles of association. To officially exercise the right to withdraw, the partner considering withdrawal must provide a unilateral declaration to the company in accordance with the procedures specified in the company’s articles of association. TCC does not prescribe a specific method for delivering this withdrawal notice, but it is advisable to make a written declaration for evidential purposes. The withdrawal notice is then conveyed to the company’s board of directors or company manager. Once received by the company, it becomes effective. If a specific withdrawal date is indicated in the articles of association, the legal consequences of the withdrawal notice take effect from the specified date. In disputes related to the fulfillment of withdrawal conditions, the burden of proof that the withdrawal reasons are valid rests with the withdrawing partner. In contrast, if the company claims that the partner does not have the right to withdraw, the burden of proof falls on the company. To provide clarity and prevent potential misunderstandings or disputes, it is beneficial to clearly state key points in the articles of association. This includes specifying the recipient of the withdrawal notice, outlining the consequences of the notice, and any other terms related to the partner’s withdrawal. This ensures that the process is as transparent and smooth as possible, minimizing the risk of disputes and litigation.
RIGHT TO WITHDRAW FROM THE PARTNERSHIP IN CASE OF JUSTIFIABLE REASONS AND ITS USE
In company law, especially when dealing with the structure of limited companies, the concept of “justifiable reason” holds great importance. The right of partners in limited companies to withdraw due to justifiable reasons constitutes a fundamental element of Turkish Commercial Code (TCC), aiming to protect the rights of individual partners in cases where they could be negatively affected by the actions or decisions of the company. The concept of “justifiable reason” is based on the principles of good faith as well as the preservation of personal freedom, as per Article 2 of the Turkish Civil Code. It signifies a significant reason that enables the legal termination of a long-term legal relationship in all permanent legal relationships. However, it should be understood that a justifiable reason is a more distinct reason that demonstrates a more explicit intention to terminate the legal relationship than any significant reason. This means that not every significant reason can be considered a justifiable reason in the legal context. Turkish Commercial Code Article 638 provides some examples of situations that may constitute justifiable reasons. However, these examples are not exhaustive, and the determination of whether a reason qualifies as justifiable depends on the specific circumstances of each case. It should be noted that what may be considered a justifiable reason for one partner may not be seen as such for another. Therefore, when determining a justifiable reason, the characteristics of the requesting partner should be evaluated. A justifiable reason can arise from various sources, including the desire of a partner to leave, the company itself, the relationships between partners, or objective material facts unrelated to personality. Various conditions, such as the personal circumstances of the partners or economic difficulties, can contribute to a reason being deemed justifiable. However, it is essential that such an event objectively renders the continuation of the company relationship unbearable.
When establishing the right to withdraw based on justifiable reasons, it is essential to note that it should not be seen as a means for partners to escape their responsibilities or commitments. It was intended as a protective measure for partners facing genuinely unfavorable circumstances. Partners who wish to exercise their right to withdraw based on justifiable reasons must submit a written request to the company. Upon receiving this request, the company’s board of directors or company manager should call a general assembly meeting to discuss the matter. During this meeting, the partners will collectively decide whether the reason presented by the requesting partner qualifies as justifiable. If a majority of partners, representing at least two-thirds of the capital, agree that the reason is justifiable, the partner is granted the right to withdraw. This process ensures that the decision to withdraw is not made unilaterally but involves a collective evaluation by the partners. Partners who have exercised their right to withdraw based on justifiable reasons are entitled to receive the value of their shares upon withdrawal, which should be calculated based on the company’s balance sheet as of the withdrawal date. The partner withdrawing is also eligible for the profits of the company up to the withdrawal date, provided that such profits are not distributed as dividends before the withdrawal. Moreover, it is essential to mention that withdrawal based on justifiable reasons does not absolve the withdrawing partner from fulfilling their existing obligations to the company, such as outstanding capital contributions. In other words, the withdrawal is not a complete termination of all ties but rather a way to exit the partnership while respecting the partner’s rights and the company’s obligations. The termination of a partner’s responsibility and withdrawal is only complete when the partner’s share of the partnership is fully paid, and their duties and obligations toward the company are entirely fulfilled.
CONCLUSION
In conclusion, the Turkish Commercial Code (TCC) provides partners in limited companies with two methods for withdrawal from the partnership: withdrawal in accordance with the provisions of the company’s articles of association and withdrawal based on justifiable reasons. These withdrawal options offer partners flexibility in leaving the partnership when they no longer wish to be part of the company or when they face challenging circumstances. It’s essential to follow the legal procedures and requirements outlined in the TCC and the company’s articles of association to ensure that withdrawal is carried out correctly and fairly. Additionally, partners should exercise their right to withdraw in good faith and with an understanding of their ongoing responsibilities to the company. Understanding these withdrawal mechanisms is crucial for individuals and entities involved in limited companies in Turkey, as they provide a framework for managing changes in partnership structures and resolving disputes when partners decide to leave.
