Termination of Joint-Stock Companies (Dissolution and Grounds for Winding-Up)
Joint-stock companies, under the Turkish Commercial Code (TCC), are capital companies with legal personality that are intended to operate on a continuous basis. However, like every legal entity, joint-stock companies may eventually come to an end. The process in which the company ceases its operations, liquidates its assets, and loses its legal personality is called “termination.” Termination is divided into two main categories: “dissolution by operation of law (infisah)” and “winding-up by decision or court order (fesih).”
1. Dissolution by Operation of Law (İnfisah)
Dissolution by operation of law occurs without any external intervention or general assembly decision, when a situation stipulated by law or the articles of association arises, leading the company into the process of termination of its legal personality. The main causes of dissolution are as follows:
Expiration of the Period Stipulated in the Articles of Association
If the articles of association specify a fixed duration (e.g., 20 years), the company automatically dissolves upon the expiry of this period. However, the general assembly may extend the duration before it expires.
Realization or Impossibility of the Company’s Business Purpose
If the company was established for a specific project (e.g., construction of a large bridge) and that project is completed, or if its execution becomes legally or practically impossible, the company dissolves.
Opening of Bankruptcy
A court decision declaring the company bankrupt is the most definitive form of dissolution. With the bankruptcy ruling, the company immediately enters liquidation.
Decision of the General Assembly
Shareholders, who have the power to establish the company, also have the power to terminate it. The general assembly may decide on dissolution with the affirmative vote of shareholders representing at least 75% of the capital (unless a higher quorum is stipulated in the articles of association).
2. Grounds for Winding-Up (Fesih via Court Action)
Winding-up occurs not automatically but through a judicial decision. In particular, in cases where shareholders’ rights must be protected, recourse to court is required upon the existence of “just cause”:
Action for Winding-Up on Just Cause
Shareholders may request the court to dissolve the company if there are just causes that make continuation impossible or render the partnership relationship unbearable. Examples include deadlock in management, unlawful actions of the board of directors, or deviation from the company’s founding purpose.
Loss of Half of Capital and Legal Reserves
Under Article 376 of the TCC, if the company’s capital and legal reserves are lost due to losses, the board of directors must call the general assembly. If the situation cannot be remedied and losses exceed two-thirds of the capital, the board may decide to dissolve the company or reduce capital. If brought before the court, this becomes judicial winding-up.
Lack of Corporate Organs
If the mandatory corporate organs (such as the board of directors or general assembly) cannot be formed permanently, shareholders or creditors may request the court to dissolve the company.
3. Legal Consequences of Termination
Termination means the cessation of the company’s active commercial operations. However, the company continues to exist in the form of “in liquidation.” During this phase, it retains legal capacity limited to liquidation activities (collecting receivables, paying debts). The phrase “in liquidation” must be added to the company’s trade name.
The company’s organs continue to exist but their powers are limited to assisting liquidation. Shareholders, at this stage, no longer expect dividends but rather liquidation proceeds.
4. Importance of the Distinction Between Dissolution and Winding-Up
In dissolution cases, the process occurs automatically, whereas in winding-up cases, a judicial authority orders the company’s termination. In dissolution, the trade registry may proceed ex officio, whereas in winding-up, the company cannot cease operations until the court decision becomes final.
In both cases, the company stops making new investments and focuses on settling obligations and distributing remaining assets.
Termination is not an immediate “legal death” but a transitional phase. The company must comply with registration and announcement obligations until liquidation is completed.
Liquidation of a Joint-Stock Company
Liquidation is the legal process in which all assets of the company are converted into cash, debts are paid, and remaining value is distributed to shareholders. It is a strictly regulated legal “clean-up operation.”
1. Commencement and Legal Status
Once the termination reason is registered, the company enters liquidation. The phrase “In Liquidation” is added to its trade name. The company’s organs continue but only to the extent necessary for liquidation.
The company may only complete existing transactions, collect receivables, convert assets into cash, and pay debts.
2. Fundamental Principles of Liquidation
The main principle is the protection of creditors. Creditors have priority over shareholders. Liquidators must notify all creditors. If the company cannot pay its debts, liquidators must apply to court for bankruptcy, otherwise they may become personally liable.
3. Conversion of Assets into Cash (Liquidation Balance Sheet)
Liquidators prepare a liquidation opening balance sheet reflecting all assets and liabilities. Company assets such as real estate, machinery, and receivables are converted into cash through sale or auction.
4. Notification to Creditors
Liquidators must publish announcements in the Turkish Trade Registry Gazette and notify creditors. Creditors are invited to declare their claims within a specified period (usually one year). Unclaimed amounts are deposited with a notary or court.
5. Duration of Liquidation
Liquidation may take years if there are ongoing lawsuits or complex financial issues. Liquidators must submit annual reports to the general assembly.
6. Effects on Shareholders
After all debts are paid, the remaining balance is distributed to shareholders proportionally. Preference rights are taken into account. After distribution, shareholder status ends.
7. Liability During Liquidation
Liquidators must act with due diligence. If they distribute assets without paying creditors, they may become personally liable.
8. Nature of Liquidation
Liquidation is a process where the company stops being an active business entity and becomes a structure focused solely on settling accounts.
Liquidators
Liquidators are the key figures responsible for managing the liquidation process.
1. Appointment
They are appointed by the general assembly or, if necessary, by the court. They do not need to be shareholders.
2. Authority
They represent the company but only for liquidation purposes.
3. Duties
- Preparing inventory and balance sheet
- Notifying creditors
- Selling assets
- Paying debts
- Distributing remaining assets
- Preserving records
4. Duty of Care
They must act with due diligence. Mismanagement leads to liability.
5. Removal
They may be removed by the general assembly or court.
6. Compensation
They are entitled to remuneration determined by the general assembly or court.
Liquidation Procedures
1. Inventory and Balance Sheet
A full inventory of assets and liabilities is prepared.
2. Creditors’ Notice
Announcements are made three times.
3. Sale of Assets
Assets are sold at market value.
4. Payment of Debts
Debts are paid in order of priority.
5. Pending Litigation
Ongoing lawsuits are continued.
6. Distribution
Remaining assets are distributed to shareholders.
7. Final Balance Sheet
A closing balance sheet is prepared.
Deregistration from the Trade Registry
Deregistration is the removal of the company from the trade registry, meaning its legal existence ends.
1. Conditions
All liquidation must be completed.
2. Process
Liquidators apply to the registry office.
3. Legal Effects
The company ceases to exist. Organs terminate. Contracts generally end.
4. Finality
Deregistration is generally final but may be reversed in exceptional cases.
5. Announcement
Published in the Trade Registry Gazette.
6. Record Retention
Records must be kept for 10 years.
Post-Liquidation and Revival
1. Supplementary Liquidation
If assets or liabilities are discovered after deregistration, the company may be temporarily reinstated.
2. Revival from Liquidation
A company may resume operations if liquidation is not completed and shareholders decide so.
Conclusion
This series has examined in full the legal lifecycle of joint-stock companies’ termination and liquidation process. Company law is a discipline that begins with the enthusiasm of incorporation and ends with the discipline of liquidation.
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