Shareholder Disputes

In a company founded together, the partners' paths can diverge over time. Failure to distribute dividends, a minority partner being unable to access company information, a general assembly convened improperly, or a manager causing the company losses are among the most common problems that fall under the heading of disputes between company partners. These disputes affect not only the partners but also the company's commercial reputation and its employees.

The Turkish Commercial Code provides a variety of lawsuits and application routes to protect partners' rights. Which route to choose depends on the type of company, the partner's shareholding percentage, the nature of the problem, and applicable time limits. Below, we summarize these routes, taking into account the distinction between joint stock and limited companies.

Common types of disputes in practice

• Dividends not being distributed even though the company is profitable, or profits being continuously allocated to reserves,
• A minority partner being denied access to books and documents,
• The general assembly meeting without a proper call or adopting resolutions that violate the law,
• Board members or managers using company assets for their own benefit,
• One of the partners running a business that competes with the company,
• Decision-making deadlock in companies with equal shareholdings, effectively paralyzing the company,
• Failure to agree on the share price for a partner who wishes to leave the company.

The right to obtain information and to inspect

Many disputes begin with a partner not knowing the company's true financial situation. In a joint stock company, a shareholder may request information from the board of directors about the company's affairs at the general assembly. A shareholder whose request for information or inspection is left unanswered, unjustly rejected, or postponed may apply to the commercial court of first instance at the location of the company's headquarters within ten days of the refusal. In a limited company, partners' rights to obtain information and to inspect are broader, and managers can be asked for information about all of the company's affairs.

This application can also be the first step in gathering evidence for a future annulment or liability lawsuit. In a joint stock company, it is also possible to request a special audit under certain conditions.

Annulment and nullity of general assembly resolutions

An annulment lawsuit may be filed against general assembly resolutions that violate the law, the articles of association, or the principle of good faith within three months of the date of the resolution. A shareholder who attended the meeting, voted against the resolution, and had their objection recorded in the minutes may file this lawsuit; a shareholder who did not attend the meeting may argue that the call was not made properly or that there was another irregularity affecting the resolution. For this reason, having a dissenting opinion recorded in the minutes at the general assembly is very important in practice.

Resolutions that eliminate a shareholder's inalienable rights or undermine the company's fundamental structure are deemed null and void; a declaration of nullity is not subject to a specific time limit. While the lawsuit is pending, the court may also be asked to stay the execution of the resolution. As a rule, the same provisions apply to general assembly resolutions of limited companies.

Liability of board members and managers

Board members who culpably breach their obligations arising from the law or the articles of association are liable for the damage they cause to the company, shareholders, and company creditors. A similar liability regime applies to managers in a limited company. A liability lawsuit becomes time-barred two years from the date the damage and the liable person become known, and in any case five years from the act that caused the damage.

The most important issue in these lawsuits is proof: which transaction harmed the company and by how much is generally established through commercial books, bank records, and expert examination.

Withdrawal from the company, expulsion, and dissolution

In a limited company

Every partner may file a lawsuit to withdraw from the company where there are just grounds. The company may also expel a partner by a general assembly resolution on grounds provided in the articles of association, or by applying to the court for just cause. As a rule, a partner who withdraws or is expelled is entitled to a severance payment corresponding to the real value of their share of the capital.

In a joint stock company

In a joint stock company, the right to withdraw from the company is not generally recognized under the law. However, where there are just grounds, shareholders representing at least one tenth of the capital (one twentieth in publicly held companies) may request dissolution of the company from the court. Instead of dissolution, the court may decide that the plaintiff shareholders be removed from the company upon payment of the real value of their shares, or order another solution appropriate to the circumstances.

Competent court and mediation

Lawsuits arising from company law are commercial lawsuits and, as a rule, are heard at the commercial court of first instance at the location of the company's headquarters. Since the law expressly designates the court at the location of the company's headquarters for annulment lawsuits, care should be taken to file the lawsuit in the right place. In commercial cases, applying to a mediator before filing a lawsuit is a prerequisite for claims for receivables and compensation involving payment of a sum of money. Lawsuits that do not involve a monetary claim, such as the annulment of a general assembly resolution, fall outside this requirement, although the parties may always apply to voluntary mediation. Monetary claims between partners, for example seeking compensation from a manager, go through a preliminary process similar to commercial receivable lawsuits.

Managing the dispute without letting it escalate

Lawsuits between partners often take a long time and make the company's day-to-day operations difficult. For this reason, before filing a lawsuit, negotiation options such as a share transfer, determining the share price, restructuring management, or a controlled exit of a partner should be seriously considered. If negotiations fail, having met the deadlines and gathered evidence in advance strengthens your hand at the litigation stage. Especially in family companies, where personal relationships are also strained, a measured and document-based tone should be maintained in correspondence. Every partnership relationship is unique; which route to follow should be determined by separately assessing the specific situation.

Our office supports partners of joint stock and limited companies in general assembly processes, annulment and liability lawsuits, and negotiations on leaving the company. For the importance of incorporation documents in preventing disputes, you can see our page on company incorporation and articles of association.