Introduction

Few remedies under Turkish corporate law have consequences as significant as the squeeze-out right set out in Article 208 of the Turkish Commercial Code ("TCC"). By allowing a controlling company to compel the exit of a minority shareholder and acquire its shares at fair value, the provision directly affects one of the most fundamental rights in company law: the right to remain a shareholder.

The rationale behind the provision is rooted in the realities of corporate groups. While minority shareholders play an important role in corporate governance, disputes may arise where a minority shareholder's conduct seriously disrupts the company's operations, obstructs strategic decision-making, or undermines the legitimate interests of the corporate group. In such exceptional circumstances, Article 208 provides the controlling company with a statutory mechanism to eliminate the source of disruption and restore corporate efficiency.

At the same time, the squeeze-out right is not designed as a tool to eliminate dissenting shareholders or consolidate ownership at will. Given its direct impact on shareholder rights and property interests, Turkish courts apply the provision with particular caution, requiring strict compliance with the statutory conditions and careful scrutiny of the valuation process.

Positioned at the intersection of corporate control, minority shareholder protection, and property rights, Article 208 remains one of the most significant -and frequently debated- institutions of Turkish corporate law. Its application continues to generate substantial discussion in both legal doctrine and judicial practice, particularly regarding the circumstances that justify a squeeze-out and the safeguards afforded to minority shareholders.

Rationale of the Regulation

Article 208 of the TCC was introduced to address situations where a minority shareholder's conduct materially disrupts the operations of a company or impairs the effective management of a corporate group. The provision aims to preserve corporate efficiency and protect the economic and managerial integrity of the group structure.

As reflected in the legislative rationale, Article 208 serves two principal objectives: preserving internal corporate harmony by addressing obstructive minority conduct and providing an alternative mechanism through which complete control may be achieved within a corporate group [1].

At the same time, the provision directly affects shareholder status and proprietary rights. For this reason, the TCC permits the exercise of the squeeze-out right only under strict statutory conditions and requires the minority shareholder to receive the fair value of its shares. Whether these conditions are satisfied must therefore be assessed carefully in light of the circumstances of each case.

Conditions for Exercising the Squeeze-Out Right

Under Article 208 of the TCC, the squeeze-out right may be exercised only if all of the following conditions are satisfied:

1. Existence of a Corporate Group

The provision applies only where a corporate group exists within the meaning of the TCC [2]. The right belongs to the controlling company exercising control over the subsidiary. Article 208 does not apply to publicly held companies [3].

2. Ownership of at Least 90% of the Shares or Voting Rights

The controlling company must directly or indirectly hold at least 90% of the shares or voting rights in the subsidiary. The exceptionally high threshold reflects the legislature's intention to confine the remedy to limited and exceptional circumstances.

3. Statutory Misconduct by the Minority Shareholder

The squeeze-out right may be exercised only where the minority shareholder has engaged in one or more of the types of conduct expressly contemplated by Article 208. These include:

These concepts are broad and must be assessed in light of the particular circumstances of each case. In practice, disputes under Article 208 most often arise from the interpretation and application of these statutory concepts. Accordingly, the nature, severity and actual impact of the conduct on the company's affairs require careful examination. Mere dissent, criticism of management decisions or the legitimate exercise of shareholder rights will not, in principle, justify a squeeze-out [4].

Given the significant implications of compulsory share acquisition, courts generally require persuasive evidence that the minority shareholder's conduct has materially disrupted the company's activities or caused concrete harm to the interests of the corporate group.

In this context, “reckless conduct” extends beyond merely assertive or uncompromising behaviour. It may encompass conduct undertaken without regard to the potential consequences for the company, including its reputation, commercial relationships, standing with financial institutions and position in the market [5].

The focus of the analysis under Article 208 is therefore not the existence of disagreements between shareholders, but whether the relevant conduct has produced serious and tangible adverse effects on the company or the corporate group [6].

Determination of the Fair Value of the Shares

A squeeze-out under Article 208 of the TCC requires the minority shareholder's shares to be acquired at the value prescribed by law. Where the shares are publicly traded, the market price will generally be taken into account. In all other cases, Article 208 refers to Article 202(2) of the TCC, under which the minority shareholder is entitled to receive the fair (actual) value of its shares.

The purpose of this requirement is to ensure that a minority shareholder who is compelled to exit the company receives the full economic value of its investment. Accordingly, the valuation is not limited to the nominal value of the shares or their book value, but typically takes into account the company's financial position, assets, profitability and future prospects.

In practice, determining the fair (actual) value of the shares often requires an expert valuation. Pursuant to Article 202(2) of the TCC, the assessment is generally based on the data available as of the date closest to the court's decision. As a result, valuation issues frequently become a central point of dispute in squeeze-out proceedings and remain one of the most heavily contested aspects of Article 208 litigation.

Procedure for Exercising the Squeeze-Out Right

Article 208 of the TCC does not set out a detailed procedure for the exercise of the squeeze-out right. In particular, the provision does not expressly address whether a prior court order is required before a minority shareholder may be removed from the company.

While one view holds that a measure resulting in the compulsory termination of shareholder status should require judicial approval, another argues that Article 208 grants the controlling company a direct statutory right that may be exercised once the statutory conditions have been satisfied.

In practice, controlling companies typically adopt the necessary corporate resolutions, determine the value of the shares, pay the purchase price to the minority shareholder and record the resulting changes in the share register. However, this does not mean that the transaction is immune from judicial review. A minority shareholder may challenge the squeeze-out by alleging that the statutory requirements under Article 208 were not met and/or that the consideration paid failed to reflect the fair (actual) value of the shares [7].

Interim Injunctive Relief Against a Squeeze-Out

A minority shareholder may seek interim injunctive relief in connection with a squeeze-out carried out under Article 208 of the TCC. Such relief may be requested to preserve the parties' legal positions pending the resolution of the dispute, particularly where the implementation of the squeeze-out could result in irreversible or difficult-to-reverse consequences, such as the removal of the shareholder from the share register or the loss of shareholder rights.

Whether interim relief will be granted depends on the circumstances of the particular case. As a general matter, the applicant must satisfy the conditions for interim measures under the Turkish Code of Civil Procedure, including establishing, on a prima facie basis, the merits of its claim and demonstrating a risk of significant prejudice or irreparable harm if relief is denied.

Accordingly, the availability of interim relief will be assessed by the court in light of the nature of the dispute, the interests of the parties and the potential consequences of the squeeze-out pending a final determination on the merits.

Concluding Remarks

Article 208 of the TCC provides controlling companies with a significant mechanism for preserving corporate efficiency and maintaining stability within a corporate group. At the same time, because the provision ultimately results in the compulsory termination of a shareholder's status, its application requires careful scrutiny and strict compliance with the statutory requirements. In practice, disputes most commonly arise in relation to the existence of a corporate group, the status of the controlling company, whether the minority shareholder's conduct falls within the scope of Article 208, and the determination of the fair (actual) value of the shares. Ultimately, the proper application of Article 208 requires a careful balance between the legitimate interests of controlling shareholders and the protection of minority shareholder rights. Maintaining that balance remains central to both the effectiveness of the squeeze-out mechanism and the broader objectives of Turkish corporate law.