Serious disagreements and conflicts may arise from time to time among business partners. Such shareholder disputes may lead to deadlock in management, a decline in operational efficiency, and even jeopardize the future of the company itself. The Turkish Commercial Code provides several legal remedies specifically designed for such circumstances. In particular, the right to seek termination based on just cause and the legal mechanisms concerning the expulsion of a shareholder constitute significant instruments for resolving these disputes. In this article, we examine the legal avenues available in cases of shareholder conflicts and the practical processes that may be pursued.
What Is the Concept of Just Cause
“Just cause” is a legal concept referring to circumstances that render the continuation of the partnership relationship unbearable or objectively impossible. Although the Turkish Commercial Code does not provide an exhaustive statutory definition, Turkish legal doctrine and the case law of Court of Cassation of Türkiye interpret just cause as serious and legitimate reasons under which continuation of the partnership relationship can no longer reasonably be expected in accordance with the principle of good faith.
Such circumstances may arise either from the company’s operations or from the personal relationship among the shareholders. The key element is the existence of a concrete and substantial reason that fundamentally undermines the partnership bond and makes its continuation impracticable. While the Turkish Commercial Code offers several examples (for instance, a shareholder acting disloyally against the company or failing to perform essential obligations may constitute just cause), each matter is ultimately assessed according to its own specific facts and conditions. The competent court examines whether the asserted reason truly renders the continuation of the partnership relationship unsustainable and applies objective standards in each individual case.
The concept of just cause particularly comes into play where the relationship of trust among shareholders has been seriously damaged, where realization of the corporate purpose has become impossible, or where the company’s future is exposed to substantial risk. For example, the company’s continuous losses, irreconcilable disputes among shareholders, or the repeated infringement of one shareholder’s legal rights by another may all fall within the scope of just cause. Below, we address how this concept operates both in limited liability companies and joint stock companies, together with the procedures for withdrawal and expulsion from partnership.
Expulsion of a Shareholder in Limited Liability Companies
Under Turkish law, limited liability companies are subject to a distinctive legal regime in that the Turkish Commercial Code grants not only the shareholder a right to withdraw from the company under certain circumstances, but also grants the company a right to expel a shareholder. Unlike joint stock companies, Turkish law expressly recognizes situations in which the partnership bond may be terminated against the will of one of the shareholders.
In limited liability companies, the expulsion process may be carried out through two principal mechanisms:
1. Expulsion Based on Grounds Set Forth in the Articles of Association:
Pursuant to Article 640/1 of the Turkish Commercial Code, the articles of association may predetermine the circumstances under which a shareholder may be removed from the company by a shareholders’ resolution. Such grounds must be objective in nature and consistent with the principle of equal treatment.
For example, if the articles of association include a clause such as “serious damage caused by the shareholder to the interests of the company,” the occurrence of such conduct may permit the expulsion of the relevant shareholder through a duly adopted shareholders’ resolution. Since this mechanism is contractually embedded within the company’s constitutional documents, expulsion may be achieved without first obtaining a court judgment, provided that the general assembly adopts the resolution with the qualified majority required by law.
Naturally, the expelled shareholder retains the right to challenge such resolution before the courts. Nevertheless, because the basis of expulsion derives directly from the company’s contractual framework, this route often offers a relatively swift internal remedy.
Under Article 621 of the Turkish Commercial Code, the adoption of such a resolution requires representation of a prescribed portion of the share capital and approval by at least a two-thirds majority. In the absence of this qualified majority, an expulsion resolution cannot be validly adopted even if a contractual expulsion ground exists.
2. Expulsion by Court Decision Based on Just Cause:
Regardless of whether the articles of association contain a specific expulsion clause, the company may request the judicial expulsion of a shareholder where just cause exists. This right, recognized under Article 640 of the Turkish Commercial Code, is one of the most important legal safeguards available to limited liability companies.
In practice, the remaining shareholders must first adopt a general assembly resolution in favor of seeking the removal of the problematic shareholder. It must be emphasized that this corporate resolution constitutes a procedural precondition for filing the lawsuit. In other words, the company cannot directly initiate judicial proceedings without first obtaining such a shareholders’ resolution.
Following this, the company itself—acting as a separate legal entity—files an action before the competent Commercial Court of First Instance located at the company’s registered headquarters and requests the expulsion of the relevant shareholder for just cause. In such proceedings, the claimant is the company, while the shareholder sought to be removed becomes the defendant.
During litigation, the court examines whether the alleged just cause genuinely exists and whether the continuation of the company with that shareholder has become intolerable for the remaining partners. If the judge determines that just cause is indeed present, the court orders the shareholder’s removal from the company.
Upon finalization of the judgment, the shareholder status of the relevant person terminates, together with all accompanying rights such as voting rights and dividend entitlements. However, the expelled shareholder does not lose the economic value of his or her participation. Turkish law protects these financial rights by granting the shareholder a receivable against the company in the form of a separation payment calculated according to the real value of the shareholder’s equity participation. Accordingly, the company is legally obliged to pay this amount.
This mechanism ensures that, even in cases of justified expulsion, the financial interests of the removed shareholder remain protected.
Because actions for expulsion based on just cause are intended to function as an effective corporate remedy, such proceedings are generally subject to the simplified procedure and are heard before the specialized Commercial Court of First Instance. In summary, the Turkish legislator seeks to preserve the healthy continuation of limited liability companies by providing both an exit right to the shareholder and an expulsion right to the company where the mutual trust relationship has broken down.
Withdrawal / Expulsion in Joint Stock Companies (Termination for Just Cause)
Unlike limited liability companies, Turkish corporate law places significantly greater emphasis on the principle that shareholders in a joint stock company are generally expected to remain within the company structure unless they voluntarily transfer their shares. This reflects the broader capital preservation logic applicable to joint stock corporations.
As a rule, a shareholder in a joint stock company may simply dispose of his or her shares by sale in order to leave the company. However, forcing a shareholder out of the company against his or her will is not considered an ordinary legal mechanism. Therefore, in disputes among shareholders, the principal legal avenue is generally not a direct expulsion action but rather an action for judicial dissolution based on just cause.
Action for Dissolution Based on Just Cause (Article 531 TCC):
Article 531 of the Turkish Commercial Code grants minority shareholders in non-public joint stock companies the right to file a lawsuit requesting dissolution of the company for just cause.
Shareholders representing at least 10% of the share capital (or 5% in publicly held companies) may bring such an action before the Commercial Court of First Instance at the company’s registered office.
The purpose of this action is to allow judicial intervention where severe internal conflicts, oppression, or major breaches have made the continuation of the corporate relationship intolerable. Formally, the claimant shareholder requests dissolution and liquidation of the company. In practice, however, dissolution is regarded as the remedy of last resort (ultima ratio).
For this reason, claimant shareholders generally assert an alternative request in their petition: if dissolution is not deemed appropriate, they request that they be allowed to exit the company in exchange for payment of the real value of their shares.
Indeed, when examining such actions, the court primarily seeks to preserve the continuity of the company and, where possible, attempts to find a less destructive solution than dissolution.
Under Article 531, if the court finds the existence of just cause, it may issue one of two principal outcomes:
- order the dissolution and liquidation of the company; or
- order the payment of the real value of the claimant shareholder’s shares and thereby remove that shareholder from the company.
In the second scenario, the company survives and continues its business operations, while only the claimant shareholder exits upon receiving compensation for his or her shares. Although this practically results in the shareholder leaving the company, it should be carefully noted that this is not a direct expulsion initiated by company management; rather, it is a judicially crafted remedy within the framework of a just cause dissolution action.
Other Legal Mechanisms That May Result in Shareholder Removal:
The Turkish Commercial Code also regulates several exceptional situations in joint stock companies that may indirectly result in the removal of a shareholder.
For instance, where a shareholder fails to fulfill the capital contribution obligation, the forfeiture of shares may become possible. A shareholder who does not timely perform the obligation to pay the subscribed share price may, following the legally prescribed procedures, lose such shares through cancellation or forfeiture and thereby be removed from the partnership.
Likewise, within a group of companies, a controlling shareholder holding more than 90% of the shares may, under Article 208 of the Turkish Commercial Code, squeeze out minority shareholders whose conduct violates the principle of good faith, by purchasing their shares and excluding them from the company. Similarly, during merger transactions, a minority shareholder may in certain circumstances be cash-compensated and left outside the merged corporate structure by virtue of resolutions adopted with the required qualified majority.
These, however, are exceptional and relatively technical statutory mechanisms. In practice, the most common solutions in disputes among shareholders of joint stock companies remain either a negotiated share transfer or a judicial remedy sought through an action for dissolution based on just cause.
In summary, the concept of shareholder expulsion in joint stock companies is neither as direct nor as frequently utilized as in limited liability companies. Even where just cause exists, courts generally prioritize preservation of the company and attempt to implement a proportionate alternative remedy rather than immediately ordering dissolution.
Which Circumstances May Constitute Grounds for Expulsion from Partnership
Although each dispute must be evaluated according to its own factual circumstances, the following situations are among the principal examples that may be accepted in practice as constituting just cause:
Damage to Corporate Interests
A shareholder’s intentional or negligent acts causing harm to the interests of the company or exposing the company to financial loss may constitute just cause. For example, use of company assets for personal purposes, diversion of business opportunities, or deliberate obstruction of profitable transactions may justify judicial intervention.
Breach of Loyalty Obligations and Unfair Competition
A shareholder is expected to act with loyalty toward the company. Conduct violating this fiduciary loyalty or placing the shareholder in unfair competition with the company may amount to a serious legal ground. Establishing a competing business in secret or diverting clients away from the company are common examples.
Failure to Fulfill Capital Contribution Obligations
Especially in capital companies, failure of a shareholder to timely pay the subscribed capital and falling into default in this respect may lead to forfeiture of the relevant shares. Since a shareholder who does not fulfill the capital commitment creates a burden for the company, Turkish corporate law does not tolerate such conduct lightly.
Continuous and Serious Internal Deadlock
Persistent and irreconcilable disputes among shareholders that paralyze company management may also amount to just cause. For example, if two principal shareholders systematically veto one another on all corporate decisions and render general assembly meetings or board decisions ineffective, continuation of the partnership may no longer be realistically expected.
Violation of Shareholder Rights and Conduct Destroying Trust
Preventing other shareholders from exercising information and inspection rights, manipulating general assembly procedures, or repeatedly violating minority rights may also constitute just cause. Particularly where minority shareholders are continuously deprived of essential rights such as dividend distribution, access to financial records, or participation in governance, the relationship of trust may become irreparably damaged.
Management of the Company for Purely Personal Benefit
Where a shareholder in management uses company resources for personal enrichment, directs the company solely toward personal interests, or otherwise places the company in financial jeopardy for self-serving reasons, the remaining shareholders may have a strong basis for seeking legal remedies.
Family or Personal Conflicts Affecting the Company
This is particularly common in family-owned companies. Personal hostilities, family disputes, or private conflicts may spill into the business structure to such an extent that the company becomes effectively unmanageable. Turkish courts have on many occasions considered such circumstances within the broader scope of just cause.
Inability of a Shareholder to Contribute Due to Permanent Incapacity
Another doctrinally accepted example is the long-term inability of a shareholder to perform the duties assumed toward the company due to illness, incapacity, or similar reasons. Particularly in small and closely held companies where the active contribution of each shareholder is essential, such incapacity may become a significant factor.
It must be underlined that all of the above examples are illustrative only. Whether any given event rises to the level of just cause depends entirely on the specific facts, the evidentiary basis, and the extent to which the partnership relationship has objectively become unsustainable.
Right to Apply to Court and Functioning of the Litigation Process
Judicial proceedings in shareholder disputes generally come into play only when the conflict can no longer be solved through internal or negotiated means. Whether the company is a limited liability company or a joint stock company, litigation should ordinarily be considered the remedy of last resort. Nevertheless, where judicial recourse becomes unavoidable, the applicable procedures are of critical importance.
In Limited Liability Companies
If a shareholder wishes to leave the company but cannot reach an agreement with the remaining shareholders, that shareholder may file an action seeking judicial withdrawal based on just cause. In such a case, the claimant requests removal from the company in return for payment of the real value of the shares.
Conversely, if the company wishes to expel a problematic shareholder, the company must first obtain the required shareholders’ resolution and then initiate an action for expulsion before the competent Commercial Court of First Instance at the company’s registered office.
The commercial court evaluates all allegations of just cause together with supporting evidence. The parties may submit witness testimony, written records, accounting documents, expert reports, correspondence, and any other material capable of demonstrating the collapse of the trust relationship.
These proceedings are generally subject to simplified trial procedure, meaning that they are intended to progress relatively quickly and in a more concentrated manner than ordinary civil proceedings. Where necessary, the court may also hold hearings and order expert examinations.
Once judgment is rendered, the partnership relationship terminates by virtue of the court decision. Although appellate review remains available, the court may during the proceedings also impose interim measures—such as freezing voting rights—in order to prevent further deterioration of the company.
Turkish law does not prescribe a strict limitation or forfeiture period for filing such actions. However, from the standpoint of good faith, it is always advisable to initiate proceedings within a reasonable period after the emergence of the just cause.
In Joint Stock Companies
Minority shareholders meeting the statutory capital threshold may file an action for dissolution based on just cause and request either:
- dissolution of the company, or
- alternatively, payment of the real value of their shares and their separation from the company.
These actions are likewise heard before the Commercial Court of First Instance at the company’s headquarters.
In such cases, the court first determines whether genuine just cause exists. Even if it does, the court generally investigates whether less severe alternatives than dissolution can adequately solve the dispute. Judicial separation of the claimant shareholder through payment of the share value is among the most common such alternatives.
The financial condition of the company is also relevant. If payment of the departing shareholder’s share value would itself seriously endanger the company, the court may prefer another proportionate remedy.
Again, although the law does not impose a strict statutory filing deadline, waiting excessively long after learning of the conflict may be considered inconsistent with the principle of good faith.
After Judgment
Where shareholder removal occurs by court order, the departing shareholder becomes entitled to receive a separation payment corresponding to the real value of the equity participation.
In limited liability companies, this amount is generally calculated within the framework of the same proceedings. In joint stock companies, the court usually determines that the shareholder’s shares must be valued and paid.
Because these proceedings involve both complex procedural requirements and delicate valuation issues, professional legal representation is not merely advisable but strategically indispensable.
Alternative Resolution Methods
Parties are not always required to take their disputes into courtrooms. On the contrary, litigation should generally remain the final option. There are several alternative mechanisms capable of producing faster, less costly, and more commercially practical outcomes.
Share Transfer and Voluntary Exit
The most practical solution is often for one of the disputing shareholders to leave the company by agreement. The parties may negotiate the real market value of the departing shareholder’s shares, after which those shares may either be acquired by the remaining shareholders or sold to an outside investor.
This method allows the partnership relationship to end without judicial confrontation while preserving business continuity.
Mediation and Negotiation
Although actions concerning shareholder expulsion are not subject to mandatory mediation, the parties may voluntarily engage a professional mediator. Through structured negotiations, solutions such as compensated withdrawal, revised profit distribution arrangements, or internal redistribution of managerial powers may be reached.
A properly drafted settlement agreement may subsequently be rendered enforceable, thereby granting the arrangement practical legal security.
Contractual Exit Mechanisms in Corporate Documents
Shareholders’ agreements and articles of association may already contain bespoke exit clauses such as cross-purchase rights, buy-sell triggers, deadlock clauses, drag-along or forced sale provisions, and other contractual expulsion protocols.
Where such clauses exist, they often provide the cleanest path to resolution without requiring contentious litigation.
External Professional Advisors
In some cases, the root of the dispute is managerial, operational, or financial rather than purely legal. In such circumstances, financial consultants, corporate governance advisors, or family business consultants may help the parties restore balance and communication before the conflict escalates into formal legal proceedings.
It should be kept in mind that agreements reached through alternative dispute resolution methods must also be established on a solid legal foundation. For example, if a share transfer is to be carried out, the share transfer agreement must be drafted in full compliance with the applicable legal requirements. Otherwise, the validity of the agreement may be challenged at a later stage, causing the entire process to revert back to the beginning. At this point as well, the assistance of professionals specialized in commercial law becomes indispensable.
Preventive Measures to Avoid Shareholder Disputes
The most effective solution to shareholder disputes is not the remedy applied after the conflict arises, but the preventive legal and structural measures implemented before such disputes emerge. Company founders and shareholders may significantly reduce the risk of destructive internal conflicts by establishing a sound corporate framework at the outset.
A Robust Articles of Association and Shareholders’ Agreement
The articles of association constitute the constitutional foundation of the company. In limited liability companies, specific expulsion grounds may be expressly incorporated into the articles, thereby facilitating removal of a problematic shareholder through internal corporate decision-making when necessary.
In joint stock companies, although direct contractual expulsion is more limited, a comprehensive shareholders’ agreement may regulate in detail the rights and obligations of each shareholder, share transfer procedures, dividend policies, management powers, deadlock solutions, and exit strategies. Such contractual clarity dramatically reduces ambiguity when tensions arise.
Deadlock Resolution Mechanisms
Where voting balances among shareholders create a risk of managerial paralysis, pre-agreed deadlock mechanisms should be established. These may include referral to an independent arbitrator or mediator, buy-sell provisions, Texas shoot-out clauses, Russian roulette clauses, or mandatory share purchase options triggered by failure to reach agreement on critical corporate matters.
These mechanisms are designed to prevent the company from becoming immobilized when the shareholders can no longer cooperate.
Corporate Governance and Transparency
A strong corporate governance culture is one of the most effective shields against future litigation. Transparent accounting, regular reporting, documented decision-making, and ensuring that all shareholders remain informed regarding key company developments foster trust and reduce suspicion.
Particularly in closely held companies, many legal disputes arise not from a single dramatic event but from the gradual accumulation of mistrust caused by poor communication and opaque management practices.
Non-Compete Obligations and Ethical Rules
The company’s constitutional documents should contain clear non-compete clauses, confidentiality obligations, and loyalty provisions designed to prevent shareholders from engaging in conduct detrimental to the company.
When these duties are clearly articulated in advance, enforcement becomes significantly easier and other shareholders feel legally protected if trust-breaking behavior occurs.
Regular Shareholder Meetings and Continuous Communication
Many severe corporate disputes begin as relatively small unresolved tensions. Regularly scheduled shareholder meetings, transparent agendas, and formal communication channels provide a controlled environment in which grievances can be discussed before they escalate into irreversible hostility.
This is especially important in family businesses and closely held enterprises, where emotional reactions often intensify commercial disagreements.
Professional Management Support
Where the source of conflict primarily concerns management rather than ownership, appointment of an independent professional manager or non-family executive may provide an effective balancing mechanism. External management professionals can operate from a position of neutrality and focus on the commercial interests of the company rather than the personal interests of individual shareholders.
Taken together, these measures form a protective legal and operational shield around the partnership structure. While no precaution can guarantee absolute immunity from conflict, a properly designed internal framework ensures that, when problems do arise, the parties are not left without a roadmap.
As Bektaş Law Office, we provide our clients with preventive corporate legal consultancy from the very establishment of the company, ensuring that constitutional documents, internal regulations, and shareholders’ agreements are built on a legally secure and commercially practical foundation.
The Importance of Obtaining Professional Legal Support
When a shareholder dispute arises—or even when the risk of such a dispute begins to emerge—the importance of timely legal support cannot be overstated. An incorrect strategic move during this stage may cause long-term and sometimes irreversible damage to both the company and the shareholder’s individual rights.
This is precisely where the value of an attorney experienced in corporate and commercial law becomes evident.
Determining the Correct Legal Path
A seasoned commercial law attorney evaluates the concrete facts of the dispute and determines which legal avenue is most advantageous from both a procedural and commercial perspective. Not every conflict should immediately lead to litigation; in some cases, a negotiated share transfer or a contractual restructuring may yield a far more efficient result than a prolonged court battle.
Proper Implementation of Procedures
Success in shareholder disputes often depends not merely on substantive rights but on strict procedural compliance. General assembly resolutions, notarial notices, meeting call formalities, valuation procedures, and litigation prerequisites must all be executed correctly.
Even a relatively small procedural defect may later invalidate the entire process and force the parties back to the starting point. Professional legal supervision prevents such setbacks.
Full Understanding of Rights and Obligations
The rights and obligations of the shareholders, the company, and the opposing parties are frequently more complex than they initially appear. An experienced attorney ensures that the client clearly understands which legal tools are available and what defensive strategies may be anticipated from the opposing side.
For example, knowing how to respond when minority information rights are violated, when dividend rights are suppressed, or when a majority shareholder abuses managerial power may fundamentally alter the balance of the dispute.
Negotiation and Representation
A commercial law attorney does not serve only inside the courtroom. In many shareholder disputes, the parties are no longer capable of conducting direct discussions in a rational and productive manner.
At that point, communication through legal representatives becomes the safest and most effective route. Counsel can negotiate on behalf of the client, preserve legal security during settlement discussions, and draft binding agreements that prevent future ambiguity.
Litigation Representation
Where the matter inevitably proceeds to court, professional legal representation becomes indispensable. Collection and presentation of evidence, drafting of petitions, management of expert valuation reports, interim injunction requests, and courtroom advocacy all require a high degree of technical legal competence.
Shareholder litigation is rarely a simple contractual disagreement; it is usually a sophisticated combination of corporate law, commercial procedure, valuation law, and strategic litigation management.
As Bektaş Law Office, we represent our clients throughout this entire process with a strategy focused not only on legal success but also on preserving commercial viability wherever possible.
Assessment and Conclusion
Disputes among company shareholders are an unavoidable reality of professional and commercial life. The crucial issue is not whether disagreements will arise, but whether such disagreements can be resolved within a lawful, controlled, and commercially rational framework before they threaten the future of the enterprise.
The Turkish Commercial Code provides shareholders and companies with several legal exit mechanisms built around the concept of just cause. In limited liability companies, the law expressly recognizes both withdrawal and expulsion rights; in joint stock companies, the action for dissolution based on just cause and judicial separation remedies perform a similar balancing function. The ultimate legislative objective is clear: no shareholder should be forced to remain indefinitely within a dysfunctional and unsustainable corporate relationship, and no company should be pushed toward collapse merely because internal disputes have been left unmanaged.
As examined throughout this article, the process of shareholder expulsion or judicial separation is highly technical and must be handled with considerable care. From identification of just cause to general assembly resolutions, from litigation strategy to valuation of separation payments, every procedural stage requires precision. At the same time, out-of-court alternatives should never be ignored; in many cases, the most commercially intelligent solution is a properly structured agreement reached at the negotiation table rather than a prolonged judicial confrontation.
Ankara-based Bektaş Law Office stands by its clients with a team specialized in the resolution of shareholder disputes and corporate governance conflicts. Our office provides comprehensive legal support in shareholder deadlock matters, actions for termination based on just cause, share transfers, corporate restructuring, and preparation of robust company constitutional documents. With our extensive experience in commercial law, we work together with our clients to identify and implement the most effective legal solutions for the protection of both corporate continuity and shareholder rights.
For your questions and legal support requests, you may contact Bektaş Law Office and schedule a professional consultation. For the stability, security, and future of your company, our experienced legal team is always at your service.
