Dissolution of a Limited Liability Company for Just Cause: Expulsion of a Shareholder Instead of Dissolution and Other Alternative Solutions

What Does Dissolution of a Limited Liability Company for Just Cause Mean?

TCC Art. 636/3 gives every shareholder, where just causes exist, the possibility of requesting the dissolution of the company from the commercial court of first instance at the place of the company’s headquarters. This action differs from the withdrawal action under TCC Art. 638, in which a shareholder seeks to end only his or her own membership of the company. If a dissolution decision is given, the company enters liquidation and its legal personality continues in a limited way for the purpose of liquidation.

Because of the serious consequence of a dissolution action, the court must first answer two questions:

1. Do just causes genuinely exist that make continuation of the company intolerable for the claimant shareholder or make it impossible to pursue the company’s purpose?
2. Can these causes be remedied by a more proportionate and workable solution without ending the company?

Dissolution for a Missing Organ and Dissolution for Just Cause Must Be Distinguished

TCC Art. 636/2 provides that where one of the organs required by law has been absent for a long time or the general assembly cannot be convened, the court, on the application of those concerned or of the Ministry of Trade, grants the company a period, and if the deficiency is not remedied, orders dissolution. The main issue here is a missing organ, and the statute expressly provides for a period to be granted for the deficiency to be remedied.

In dissolution for just cause under TCC Art. 636/3, by contrast, the dispute rests on broader facts such as mismanagement, systematic violation of shareholder rights, a serious collapse of the relationship of trust, or misuse of the company’s interests. The formal existence of the organs does not show that the company is actually being managed soundly.

An Action for Dissolution and a Shareholder’s Withdrawal Action Are Not the Same

In a withdrawal action, the aim is for the claimant shareholder to leave the company. In a dissolution action, the primary claim is the ending of the company. TCC Art. 636/3 gives the court the power, instead of dissolution, to have the claimant shareholder removed from the company in return for the real value, or to devise another suitable solution. A dissolution action therefore cannot be converted into a direct and unconditional “withdrawal from the company” action; the just cause and the conditions for dissolution are examined first.

How Is the Concept of Just Cause Assessed?

The statute does not list the just causes exhaustively. In Court of Cassation (Yargıtay) decisions, examples of just cause include mismanagement of the company, serious and continuing disputes among the shareholders, the company’s purpose having become impossible to achieve, misuse or waste of the company’s assets, de facto or moral pressure on a minority shareholder, continuing refusal of legitimate requests, and the shareholder’s freedom of action in the company having been effectively removed.

These examples are not a checklist that produces automatic results. The court assesses the effect of the event on the functioning of the company and on the legal and economic position of the claimant shareholder. The same event may constitute just cause in a small two-shareholder limited liability company in which the personal element predominates, while in another company with many shareholders and professional management it may be remedied by a narrower solution.

Continuing Management Deadlock

In companies in which the shareholders hold equal voting shares or the decision quorums cannot be met continuously, the general assembly and the management may become dysfunctional. The failure to take decisions on the budget, investment, financing, signing authority, staff and contracts can effectively halt the company.

A Single Dispute over a Decision Is Not Enough

For a management deadlock to serve as a basis for dissolution, it must be continuing rather than temporary and must seriously affect the company’s basic activity, statutory obligations or economic existence. Whether the mechanisms of conciliation, mediation, share purchase or rotating management in the shareholders’ agreement have been operated is also considered.

Whose Conduct Caused the Deadlock Is Examined

Where the claimant shareholder continually blocks decisions, does not attend meetings, or uses a veto in order to put pressure on the company, the other side may argue that the just cause arises from the claimant’s own conduct. However, fault alone does not in every case remove the right to sue; it may affect the type of solution and the litigation costs.

Systematic Violation of the Right to Information and Inspection

The continuing exclusion of a shareholder from the company’s accounts, contracts, bank records and management decisions, the leaving of written information requests unanswered, or the giving of misleading answers, is important in the assessment of dissolution. However, the claimant must first show that he or she exercised the right in a specific and proper manner.

Narrower Routes May Be Expected to Be Used

For the right to information, general assembly and court routes exist under TCC Art. 614. If the concrete violation can be effectively remedied by this route, dissolution may be disproportionate. By contrast, failure to provide information despite court decisions, or the violation being part of a wider abuse in the management of the company, strengthens the dissolution claim.

Long-Term and Discriminatory Non-Distribution of Dividends

Where the company is profitable but no economic return at all is provided to one of the shareholders, while high salaries, advances, rent, consultancy fees or related-party payments are made to the managing shareholders, this can be an indicator of economic exclusion.

Objective Reasons for Retaining Profit in the Company Are Investigated

Failure to distribute profit because of investment, debt repayment, working capital, statutory reserves or an economic crisis is not in itself a ground for dissolution. A dissolution claim must be built on the reality of the profit, the cash position, past resolutions, other payments made to the shareholders and whether the majority has acted in accordance with the rule of good faith.

Misuse of the Company’s Assets

Transfer of company assets to a shareholder or relatives at a low price, off-the-books sales, payment of personal expenses from the company account, diversion of the company’s customers to affiliated businesses and use of company opportunities by the managers may constitute just cause.

The Court of Cassation has given decisions treating buying and selling goods without invoices on behalf of the company, and mismanagement, as just cause. However, such allegations should be substantiated by review by a financial adviser, a sector expert and, where necessary, a technical expert.

The Company’s Inability to Achieve Its Purpose of Incorporation or Its Continuing Losses

The company having been inactive for a long time, having been unable to carry out its business purpose, having exhausted its capital, or no longer having a sustainable business model is considered in favour of dissolution. But temporary losses, sector contraction or periods of restructuring are not automatically just cause.

Protection of an Economically Viable Company Is the Basic Principle

If the company is profitable, provides employment and can continue its contracts, resolving the dispute among the shareholders by liquidating the company should often be the last resort. The Court of Cassation requires that the alternatives under TCC Art. 636/3 be seriously considered in companies that continue their activity and profitability.

The Concrete Effect of Family or Personal Conflicts on the Company

In family companies, divorce, inheritance, generational conflict or personal hostility may be reflected in the management of the company. However, the deterioration of family relations alone is not sufficient for dissolution. It must be shown that the conflict has had a concrete effect on the general assembly, the managers, the right to information, dividend distribution, representation or the company’s assets.

Which Situations May Not Be Sufficient for Dissolution on Their Own?

The following facts may not by themselves justify dissolution unless they are combined with other serious and continuing violations:

• A one-off dispute over a meeting or a vote.
• A temporary loss by the company.
• An ordinary personal disagreement among the shareholders.
• Non-distribution of profit for a period because of an objective investment need.
• Limiting an information request because it is vague or disproportionate.
• A conflict arising from the claimant shareholder’s own failure to perform his or her obligations.
• The mere existence of another lawsuit or enforcement proceeding.

The court may also examine whether the claimant has used the narrower tools of company law. Annulment of a general assembly resolution, an information action, removal of a manager, a liability action, a special audit, a share transfer or withdrawal for just cause may produce a more targeted result than dissolution.

Dissolution Is the Last Resort: Which Alternative Solutions May the Court Order?

The basic approach of TCC Art. 636/3 is to keep the company alive, to remove the just cause and to ensure the protection of the claimant shareholder. The Court of Cassation treats a court’s ordering liquidation directly, without discussing solutions other than dissolution, even though just cause exists, as a ground for reversal.

Removing the Claimant Shareholder from the Company by Paying the Real Value

The first alternative that the statute expressly indicates is the payment of the real value of the share of the shareholder who requests dissolution and his or her removal from the company. The person removed here is, as a rule, the claimant shareholder. The express text of TCC Art. 636/3 does not give the court the power to remove directly, on the basis of this provision, the other shareholder who is the opposing party in the dispute.

Real Value Is Determined with the Data Closest to the Decision Date

The company’s real estate, machinery, stock, trademark and customer base, contracts, debts and continuing disputes should be taken into account. Where the book value does not reflect the real market value, reliance is not placed solely on balance-sheet figures.

The Payment Mechanism Must Be Consistent with the Protection of Capital

Payment of the real value cannot endanger the company’s creditors and capital. Available equity, the transfer of shares, capital reduction and the company’s cash position should be assessed. The court should not devise a payment scheme that cannot be implemented or that would immediately drive the company into insolvency.

Other Suitable and Acceptable Solutions

The statute does not list other solutions. The court may determine a workable and enforceable solution according to the source of the specific dispute. However, this power is not unlimited; it must take into account the non-delegable duties of the company’s organs, the will of third parties, the protection of capital and the principle that the court is bound by the claim.

Re-establishing the Management and Representation Arrangement

If the dispute arises from the concentration of management in one hand or from a representation gap, solutions such as removal of a manager, appointment of a new manager, joint representation, a fixed-term trustee for representation or calling the general assembly may be considered where they have separate legal bases.

Transfer of Shares to the Other Shareholder or a Third Party

To the extent that the parties consent and the company agreement permits, transfer of the share at its real value to the other shareholder or to a third party may ensure the company’s continuation. The court cannot force a third party who has not consented to take a share; the solution must be workable by the parties and its financing must be definite.

Remedying Specific Corporate Violations

Targeted solutions such as holding the general assembly, preparing financial statements, ensuring information and inspection, stopping an unlawful transaction, or reconsidering the distribution of profit in the statutory organs may be preferred to dissolution if they can remedy the real source of the dispute. The court does not freely make business decisions in place of the general assembly; the decision must remain within the powers of the statutory organs and the limits of judicial protection.

“The Company’s Value Could Not Be Determined” Is Not a Sufficient Ground for Direct Dissolution

In its decision dated 17.06.2019, the 11th Civil Chamber of the Court of Cassation found it wrong to order dissolution directly on the ground that the real value of the company could not be determined. Where records are incomplete, assets cannot be found or valuation is difficult, the court must deepen its investigation by additional expert reports, on-site examination, institutional records and alternative calculation methods.

How Is a Dissolution Action Brought?

Standing of Claimant and Respondent

Under TCC Art. 636/3, any shareholder may be a claimant. The action is brought against the company as a legal entity. Unless the personal liability of the other shareholder or manager is also asserted separately, the direct addressee of the dissolution claim is the company itself.

A conflict of interest between the manager who represents the company and the claimant separately brings the company’s representation arrangement into question. The need for a trustee for representation should be assessed separately in terms of the company’s right of defence and the effective conduct of the case.

Court with Subject-Matter and Territorial Jurisdiction

The court with subject-matter jurisdiction is the commercial court of first instance. An action arising from the company’s shareholder relationship is brought before the court at the place of the company’s headquarters. Changing the company’s headquarters before or during the case may be examined from the standpoint of exclusive jurisdiction and abuse.

Mediation as a Condition Precedent to Litigation

An action aimed solely at the dissolution and liquidation of the company is not a claim for receivables or damages whose subject is the payment of a sum of money. For this reason, mediation as a condition precedent to litigation in commercial cases does not, as a rule, apply to a pure dissolution claim. However, if the claimant in the same action also claims a specific exit compensation, dividend or damages, pre-action mediation should be considered part of a safe procedural plan because of the connected claims and the differences in current Court of Cassation decisions.

Burden of Proof and Evidence

The claimant proves the events that constitute the just cause. The company’s financial records and management documents are often under the control of the respondent company. The claimant may therefore ask the court to call for the commercial books, bank records, tax records, land and vehicle registry records, affiliated-company records and general assembly documents.

Groups of Documents Should Be Assessed Together

• Trade registry and company agreement.
• General assembly and board of managers resolutions.
• Notarial notices and information requests.
• Financial statements, bank movements and tax records.
• Related-party contracts and market values.
• Dividend distribution and other payments made to the shareholders.
• Sale, pledge and security records of the company’s assets.
• Pending lawsuits, enforcement proceedings and administrative sanctions.
• Meetings and correspondence showing management deadlock.

Expert Review Does Not Replace Legal Assessment

Financial adviser, valuation, real estate and sector experts can determine the company’s real financial position. But the final legal assessment, such as “there is just cause” or “dissolution is required”, belongs to the court. An expert report must explain, in a verifiable way, which documents, which dated values and which methods it has used.

How Should Interim Injunction and Trustee Requests Be Framed?

TCC Art. 636/4 gives the court, once the action is brought, the power to take the necessary measures. In addition, the interim injunction provisions beginning with Code of Civil Procedure (HMK) Art. 389 apply. The purpose of an injunction is not to punish the company, but to prevent the decision to be given at the end of the case from being rendered ineffective and to protect the value of the company.

Freezing All Assets May Be Disproportionate

The Court of Cassation has stated that placing an injunction on all of the company’s assets may make its activity impossible and may harm all those concerned, including the claimant shareholder. The injunction request should be limited to specific assets, transactions and risks.

Transfer of Specific Assets Can Be Prevented

A prohibition on transfer can be requested for real estate, a vehicle or a machine at risk of being sold during the case. The request must be based on concrete evidence showing the importance of the asset within the company and the risk of its being removed.

Protection of Company Records Can Be Ensured

Evidence preservation or an injunction can be requested for the safekeeping of commercial books, electronic records, e-mails and bank data. Securing the records through the court and an expert, rather than unauthorised access to systems, should be preferred.

The Appointment of a Trustee Must Be Exceptional and Function-Oriented

The appointment of a trustee directly affects the management of the company and the shareholders’ property rights. The mere existence of a dispute between the parties is not sufficient. It must be shown on a prima facie basis that the existing management is seriously endangering the company’s assets, that there is a representation gap, or that certain transactions cannot be carried out impartially.

A Trustee for Representation and a Trustee for Management Must Be Distinguished

A trustee who will represent the company in the case or in a particular transaction and a trustee for management who will take over the company’s day-to-day management are not the same. If the need is only to remedy a conflict of representation in the case, leaving the entire management to a trustee may be disproportionate.

How Is the Company Managed While the Case Is Pending?

The bringing of the action does not automatically halt the company’s activities. The managers’ duties, the general assembly’s powers, and the shareholders’ information and voting rights continue. However, the parties must refrain from transactions that would reduce the company’s value, remove assets or destroy evidence while the case is pending.

The court must strike a balance between the company’s ability to continue its commercial activity and the protection of the claimant’s rights. Interim financing, mandatory tax and wage payments, continuing contracts and the position of employees should be clearly taken into account in the injunction decision.

What Are the Consequences of a Dissolution Decision?

If the court orders the dissolution of the company, the company enters liquidation. Liquidators are appointed, creditors are called, the company’s receivables are collected, debts are paid, assets are converted into money and the remaining value is distributed to the shareholders as a liquidation share. Once liquidation is completed and the company is deleted from the registry, the legal personality ends.

A Dissolution Decision Is Not a Decision on Exit Compensation

In dissolution, the shareholder is entitled to the liquidation share remaining after all the company’s debts and liquidation expenses. If it is decided to remove the claimant shareholder instead of dissolution, a different calculation is made on the real value of the share. These two economic outcomes are not the same.

A Decision on an Alternative Solution Must Be Workable

If the court decides on the removal of the claimant shareholder or another solution, the payment, the fate of the share, registry and ledger entries, management authority and enforcement of the decision must be clear. A vague solution, or one dependent on the will of third parties, may give rise to new disputes.

Strategic Checklist Before Bringing the Action

1. The events constituting just cause should be put in chronological and documented form.
2. Narrower routes such as information, calling the general assembly, annulment of resolutions, removal of a manager or a liability action should be examined.
3. The company’s continuing economic value, employees, contracts and creditors should be identified.
4. The economic outcome of dissolution should be compared with that of the claimant shareholder’s withdrawal.
5. Current financial and asset records should be collected for the calculation of real value.
6. The injunction request should be limited to specific risks and assets.
7. If there are monetary claims, the mediation and court-fee strategy should be planned separately.
8. The representation conflict and the need for a trustee should be made concrete.
9. A feasibility plan should be prepared for liquidation or share transfer after the decision.

Conclusion

Dissolution of a limited liability company for just cause is not an ordinary route to be used in every dispute among shareholders. Dissolution is the last resort, because it ends the company’s economic and legal existence. The claimant must show with evidence the continuity and gravity of the events constituting just cause and their effect on the functioning of the company.

The court’s basic task is to answer not only “is there just cause?” but also “is there a workable solution that would remedy the violation of rights without ending the company?”. Ordering dissolution directly, without considering the removal of the claimant shareholder against the real value, targeted measures and other solutions that remedy the corporate governance problem, can be a ground for reversal on review by the Court of Cassation. A strong litigation strategy separates the dissolution claim from abstract conflict, and builds evidence, valuation, injunction and alternative-solution planning within the same file.

Frequently Asked Questions

Can every shareholder request dissolution of a limited liability company for just cause?

Yes. TCC Art. 636/3 gives every shareholder, regardless of the percentage of shares, the right to bring a dissolution action if there is just cause. However, the just cause must be proved in the specific case.

Is incompatibility among the shareholders alone a ground for dissolution?

It is generally not sufficient on its own. The incompatibility must lock up the management of the company, continually violate shareholder rights or seriously render the company’s purpose ineffective.

If the court finds just cause, will it necessarily dissolve the company?

No. Dissolution is the last resort. The court may order the claimant shareholder to be removed from the company by payment of the real value, or another acceptable solution suited to the case.

Can the removal of the other shareholder be ordered instead of dissolution?

TCC Art. 636/3 expressly provides for the payment of the claimant shareholder’s share and his or her removal from the company. The removal of the other shareholder cannot automatically be derived from this provision; TCC Art. 640 and the arrangement of parties and claims in the specific case must be examined separately.

If the company is profitable, can a dissolution action not be brought?

It can be brought; but the fact that the company is an economically viable structure strengthens the search for an alternative solution instead of dissolution. Profitability does not remove violations of rights, but it is important in the proportionality assessment.

Is the non-distribution of profit just cause?

Non-distribution of profit for a long time, without a justified economic reason and within a structure in which the majority procures benefits for itself by other means, can be just cause. Non-distribution of profit for a single period is not automatically sufficient.

Is a trustee automatically appointed to the company when the action is brought?

No. A trustee is an exceptional measure. A representation gap, serious danger to the assets, or the inability of the existing management to conduct the process impartially must be shown on a prima facie basis.

Can an injunction be placed on all of the company’s assets?

It requires a concrete risk. Freezing all the assets may render the company inoperable and may be found disproportionate. A targeted injunction directed at specific assets or transactions should be preferred.

Is mediation mandatory before a dissolution action?

A dissolution claim alone is not a monetary claim and, as a rule, is not subject to mandatory mediation. However, if exit compensation, dividends or damages are also claimed, mediation should be assessed separately because of the divergence in current case law.

If a dissolution decision is given, is the company immediately deleted from the registry?

No. The company first enters liquidation. It is deleted from the registry after creditors are called, debts are paid, assets are converted into money and the remaining value is distributed.

Sources

Legislation and Official Sources

1 — Turkish Commercial Code No. 6102, in particular Art. 636 and the related Art. 638-642: Official legislation text

2 — Code of Civil Procedure No. 6100, in particular Art. 14 and Art. 389 et seq.: Official legislation text

Court of Cassation Decisions

3 — Court of Cassation 11th Civil Chamber, E.2018/2912, K.2019/4493, dated 17.06.2019: Text of the decision

4 — Court of Cassation 11th Civil Chamber, E.2014/5860, K.2014/12950, dated 07.07.2014: Text of the decision

5 — Court of Cassation 11th Civil Chamber, E.2022/6013, K.2024/2408, dated 25.03.2024: Text of the decision

6 — Court of Cassation 11th Civil Chamber, E.2016/7735, K.2018/2606, dated 11.04.2018: Text of the decision

7 — Court of Cassation 11th Civil Chamber, E.2013/10389, K.2013/14124, dated 03.07.2013: Text of the decision

8 — Court of Cassation 11th Civil Chamber, E.2014/14049, K.2015/10415, dated 13.10.2015: Text of the decision

9 — Court of Cassation 11th Civil Chamber, E.2015/4297, K.2016/1539, dated 16.02.2016: Text of the decision

10 — Court of Cassation 11th Civil Chamber, E.2020/8247, K.2022/1130, dated 15.02.2022: Text of the decision

Academic Sources

11 — Mineliler, Zeynep, “Yeni Türk Ticaret Kanunu’na Göre Limited Şirketlerin Haklı Sebeple Feshi”, Gazi Üniversitesi Hukuk Fakültesi Dergisi, C. XVI, S. 3, 2012: Academic work

12 — Cenkci, Esra, “Çıkan ya da Çıkarılan Limited Ortağına Ayrılma Akçesinin Ödenmesi (TTK m.642)”, Ankara Barosu Dergisi 76/4: Academic work