ABSTRACT

Limited liability companies (“LLCs”) may wish to terminate their legal personality and cease to exist for various reasons, primarily economic. However, termination may also become necessary due to reasons such as bankruptcy.

Upon termination, LLCs enter the liquidation process, which is a natural consequence of the company’s dissolution. Liquidation involves a series of steps, including the conversion of assets into cash, collection of receivables, payment of debts, and distribution of net assets to shareholders in accordance with their liquidation shares. Proper management of the liquidation process is essential to protect the rights of both creditors and shareholders. This article analyzes the liquidation process of LLCs and its legal consequences under Turkish law.

Keywords: Limited Liability Company, Liquidation, Turkish Commercial Code, Liquidator, Creditor

1. INTRODUCTION

LLCs may be terminated for various reasons, including (i) the expiration of the term specified in the articles of association, (ii) a decision by the general assembly to liquidate the company, (iii) the bankruptcy of the company, (iv) the occurrence of a termination event specified in the articles of association, or (v) other grounds for termination as outlined in the Turkish Commercial Code No. 6102[1] (“TCC”).[2]

Although the TCC does not provide specific regulations for the liquidation of LLCs, Article 643 of the TCC stipulates that the liquidation provisions applicable to joint stock companies shall apply to LLCs by comparison.[3] The proper execution of the liquidation process is critical to safeguarding the interests of both shareholders and creditors.

2. LIQUIDATION PROCESS

Liquidation is the process of winding up a company’s affairs, which involves converting its assets into cash, collecting receivables, settling debts, and distributing any remaining assets to shareholders in proportion to their capital shares.[4]

2.1. Initiation of Liquidation

To initiate the liquidation process, the shareholders must pass a resolution at a general assembly meeting. Unless the articles of association provide otherwise, a resolution to approve the liquidation requires at least two-thirds of the votes represented at the general assembly meeting and a simple majority of the entire share capital with voting rights.[5] The resolution must then be registered with the trade registry and announced in the Turkish Trade Registry Gazette (“TTRG”). Upon the commencement of liquidation, the company’s activities are restricted to liquidation-related procedures, and the phrase “in liquidation” (“tasfiye halinde”) must be appended to its trade name.[6]

2.2. Appointment of Liquidators

The liquidation process is managed by liquidators, who may be appointed either through the articles of association or by a resolution of the general assembly. If no liquidator is appointed, the company’s director assumes the role of liquidator.[7]

Liquidators must meet specific qualifications under the TCC. Pursuant to Article 536 of the TCC, at least one liquidator authorized to represent the company must be a Turkish citizen and domiciled in Türkiye. If the company director lacks the necessary qualifications to act as liquidator, the court will appoint a qualified individual to fulfill this role.[8]

2.3. Stages of the Liquidation Process

2.3.1. Preparation of Inventory and Balance Sheet

Under Article 540 of the TCC, liquidators are required to prepare an inventory and balance sheet detailing the company’s financial status at the commencement of liquidation. These documents, which outline the company’s assets and liabilities, must be submitted to the general assembly for approval. Once approved by the general assembly, the liquidators are authorized to manage the company’s assets, settle receivables and payables, and take control of all relevant documents and books.[9]

2.3.2. Notification to Creditors

Protecting the rights of creditors is a key aspect of the liquidation process. Liquidators must identify known creditors by reviewing the company’s records and notify them of the liquidation via registered mail. Additionally, pursuant to Article 541 of the TCC, liquidators must publish three announcements in the TTRG at one-week intervals, inviting creditors to submit their claims.[10]

2.3.3. Settlement of Debts and Distribution of Assets

Following the creditor notifications, liquidators must settle the company’s debts in accordance with the statutory order of priority. Any ongoing legal disputes involving the company must also be resolved before the liquidation process can be finalized.[11]

Once all debts have been paid, any remaining assets are distributed to shareholders in proportion to their capital shares and any privilege rights they may hold.[12]

2.3.4. Completion of Liquidation

After the final TTRG announcement, a three-month waiting period (“Waiting Period”) begins, as required under Article 543 of the TCC. During this period, creditors may assert their claims. However, the court may authorize the distribution of remaining assets to shareholders before the expiration of the Waiting Period if there is no risk to creditors.[13]

At the end of the Waiting Period, liquidators must prepare a final liquidation balance sheet and submit it to the general assembly for approval. Upon approval, the liquidation process is deemed complete, and the company’s legal personality is terminated.

To finalize the process, the general assembly resolution must be registered with the trade registry and announced in the TTRG. The company’s trade registry record is then deleted, and the liquidators must notify relevant administrative authorities of the company’s liquidation.[14]

3. LIQUIDATION IN CASE OF INSOLVENCY

If the liquidator determines that the company’s liabilities exceed its assets, the liquidator must notify the court. In such cases, the court may declare the company bankrupt, and the liquidation process will be conducted under the provisions of the Enforcement and Bankruptcy Law No. 2004[15], rather than the TCC.[16]

4. WITHDRAWAL FROM LIQUIDATION

Under certain circumstances, an LLC may withdraw from the liquidation process. If the company has been terminated due to the expiration of its term or by a general assembly resolution, and the distribution of assets has not yet commenced, the shareholders may decide to reverse the liquidation. This decision requires the approval of shareholders representing at least 60% of the company’s capital.[17]

5. CONCLUSION

Liquidation is the legal process through which an LLC is terminated. Throughout the liquidation process, the company retains its legal personality and continues to operate under its trade name with the addition of the phrase “in liquidation.” The process involves several key stages, including the preparation of an inventory and balance sheet, notification to creditors, settlement of debts, and distribution of remaining assets.

Liquidators, whose qualifications are regulated under the TCC, are responsible for managing the liquidation process. If no liquidator is appointed, the company’s director assumes this role. Upon completion of the liquidation process, the company’s trade name is removed from the registry, and its legal entity ceases to exist.

REFERENCES

1. Poroy/Tekinalp/Çamoğlu, “Ortaklıklar Hukuku II”, Vedat Kitapçılık, 2023

2. Prof. Dr. Hasan Pulaşlı, “Şirketler Hukuku Şerhi”, Volume IV, Adalet Yayınevi, 2022

3. Doç. Dr. Mustafa Yasan, Prof. Dr. Kemal Şenocak (Ed.), “Şirketler Hukuku Şerhi”, Volume – 4, Seçkin, 2023