Ercüment Erdem Prof. Dr. H. Ercüment Erdem

Termination Of A Joint Stock Company By Just Cause

February 2014


The notion of termination of a joint stock company by just cause has entered into Turkish Company Law through Turkish Commercial Code No. 6102 (“TCC”). Although set forth in Art. 736/Sub Clause b.4 of the Swiss Code of Obligations (“Swiss CO”), there was no provision regarding termination by just cause in the Turkish Commercial Code No. 6762 (“Former TCC”).

The termination of joint stock companies by just cause, as stipulated in Art. 531 TCC, requires detailed examination as it will be subject to court decisions and academic examination in the future. In this article, termination by just cause as regulated under Art. 531 TCC shall be analyzed.

Termination by Just Cause pursuant to Art. 531 TCC

A new way of termination emerges for joint stock companies due to TCC Art. 531, which regulates the termination of joint stock companies by just cause. As is known, no exit right exists for joint stock companies. At this point, the termination of joint stock companies by just cause is of vital importance for joint stock companies where shareholding relations are no longer tolerable. It may be concluded that the termination of joint stock companies by just cause is based on the main principle that continuous contractual relations may be terminated for just cause.

Parties to the Lawsuit

Where just cause arises based on Art. 531 TCC, shareholders representing at least ten percent of the capital and five percent in public companies, may request the termination of the company from the relevant court. It is observed that the lawmaker assessed this right of action as a minority right, but has not granted this right to a shareholder holding only one share. The shares representing at least ten percent of the capital (five percent in public companies) may be held by one shareholder or by more than one shareholder as well. Where there is more than one shareholder, these shareholders shall act jointly.

The focal point of this regulation is that in light of corporate governance principles, it provides an efficient and proportionate protection to minority shareholders against the majority.

The lawsuit shall be filed against the legal entity of the company.


The competent jurisdiction in a lawsuit of this type is the commercial court of first instance where the headquarters of the company is located.

Just Cause

A just cause appears as a notion that enables the termination of a continuous contractual relationship, where one exists. While termination by just cause has significant importance for simple shareholdings in which the personal characteristics of the shareholders and their relationships play a major role, this notion is approached prudently in terms of joint stock companies.

Although Art. 531 TCC sets forth that a joint stock company may be terminated where just cause exists, it does not define just cause, and does not introduce restrictions on the causes which may be assessed as just. In fact, the reasoning of the TCC, by stating that “Just cause is not defined in the Draft, nor are any examples of just cause provided; but defining the notion of just cause and determining its nature are left to court decisions and the doctrine”, stipulates that the content of said notion shall be determined by the academics and legal precedent.

The misuse of majority power in a company is the most fundamental event requiring the termination of a joint stock company for just cause under Swiss and Turkish laws. It is stipulated by Swiss academics that the most important purpose of a lawsuit regarding the termination of joint stock companies by just cause is to prevent the violation of minority shareholder’s rights, which are violated through majority shareholder’s placing their benefits over the benefits of the company and using the voting rights therein for this reason. The violation of the financial rights of the shareholders may also be regarded as a reason for the justified termination of a joint stock company.

In terms of balancing the rights and interests of the shareholders in joint stock companies, the right to demand information and examination is of vital importance. Protecting the interests of shareholders and their ability to retrieve information in the course of affairs is not possible without the right to demand information and examination. Moreover, it may be stated that the systematic rejection of the shareholder’s right to demand information constitute just cause. For instance, not being able to effectively exercise the right to examine company documents and records, and having requests rejected for the detailed control of company statements may constitute just cause.

As is known, the individual relationships between the parties are not as important in joint stock companies as in limited companies. However, it should be kept in mind that the individual relationships between the shareholders may play an important role in the operation of the company in small joint-stock companies in which the shares are not distributed to many shareholders. Therefore, it is possible to say that the judge may, exceptionally or together with the other just causes, pay attention to the personal reasons while deciding on termination of a joint stock company by just cause, or at least for the squeezing out the claimant shareholder(s).

Requests and Solutions Which may be Decided by the Court

Pursuant to Art. 531 TCC, a claimant may request termination of a joint stock company by just cause from the court. However, even if there is just cause, the court is not obliged to decide in favor of terminating the company. Legal scholars agree that termination by just cause shall be perceived as a last option, as it is an exceptional solution and it does terminate the legal personality of the company. Therefore, the court shall first resort to other solutions which may eliminate just cause, and shall decide on the termination of the company in case a solution may not be reached in this way or there is no alternative solution. This approach is more appropriate procedurally and for the continuity of the company.

Pursuant to Art. 531 TCC, the court may decide in favor of the squeeze-out of the claimant shareholders upon the payment of the real price of their shares on the date nearest to the decision. However, the judge may decide for another appropriate and acceptable solution. It is observed that a broad power of discretion is given to the judge. Over time, solutions put forth through rulings handed down by the court will serve to diversify and clarify the notion of what may be considered an appropriate and acceptable solution. However, the solution decided by the judge must be appropriate with regards to the concrete case and must be acceptable. The appropriate solution is a solution which remedies the concrete case and provides a balanced protection between the interests of the claimants and the company. Any alternative solution shall be determined in accordance with the features of the concrete case and the solution must remove the just cause and satisfy the claimants. Moreover, the solution ruled by the court must be acceptable; meaning a balance between the interests of the claimant shareholders and the company is ensured. Proportionate solutions are evaluated as acceptable solutions.

Within this scope, examples of decisions rendered by Swiss courts with respect to appropriate solutions may be emphasized. Some of these solutions take the form of an obligation to distribute dividends or partial liquidation through capital decrease. In addition, the option to establish a new company may be considered; in which the claimant will be a shareholder, following the division of the former company and where the capital of the new company is equal to the real value of the claimant’s shares. Turkish doctrine generally holds that courts may decide for the division as a result of a lawsuit for termination by just cause.

Temporal Application of Termination by Just Cause

As explained above, termination by just cause of joint stock companies entered into Turkish Law with the TCC. The temporal application of the relevant provision is another subject to examine.

Art. 2 of Law No. 6103 on the Entry into Force and Application of the Turkish Commercial Code (“Law on Application”) sets forth time periods for applying provisions of the Former TCC and the TCC. Pursuant to said article, concerning the legal consequences for events that occurred before the entry into force of the TCC, the provisions of the Law that were in effect when the events took place shall be applicable.

In accordance with Art. 3 of the Law on Application, the provisions of the TCC shall apply to legal relationships regulated by law irrespective of the parties’ consent, even if they were established before the entry into force of the TCC.

Certain events which took place prior to the entry into force of the TCC and other events which took place after its entry into force may derive from the same ongoing practice, and may, only if these events are regarded as a whole, be deemed to constitute just cause for termination of a company. In this case, the question arises as to whether or not events that took place prior to the entry into force of the TCC may serve as grounds for a termination lawsuit for just cause under the TCC. Considering the nature of just cause, it is rightfully admitted by academics that legal events or transactions that occurred while the Former TCC was in force, but which are connected to facts which took place after the entry into force of the TCC, can be acknowledged within the scope of Art. 531 TCC. Moreover, the Court of Cassation comes to the same conclusion in one of its decisions rendered based on the Art. 3 of the Law on Application with respect to limited liability companies (11th Civil Chamber, 13.6.2013, File No. 2011/14131, Decision No. 2013/12400, Batider, 2013, C. XXIX, S. 2, p. 331-335). Otherwise, the result would be the non-application of said provision for a long time after the entry into force of the TCC.


The termination of joint stock companies by just cause shall apply for the first time in Turkish Law with the TCC. Through this regulation, the possibility emerges for minority shareholders to request that the court terminate a joint stock company where there is just cause. The courts may decide for the termination or any other appropriate and acceptable solution with regards to the concrete case. It is obvious that Art. 531 TCC will create significant court decisions, as it gives judges the power of discretion when examining just cause and when deciding to impose another appropriate solution.