Termination and liquidation of an unregistered company

An unregistered company is an engagement in which at least two people come together to make a common cause of their labour and assets, defined under the Turkish law of Obligations, between articles 620-645. An unregistered company is established by combining the elements of persona, contract, share, and common cause and cooperating for a common purpose (affectio societatis). The main features of an unregistered company are; being an unlimited company, not having a legal entity, not having the capacity to have rights and standing, depending on mutual trust, depending on good faith and principle of equal treatment, being conducted according to the principles of co-ownership and the partners having joint responsibility. The reasons which cause the termination of an unregistered company are regulated explicitly in Art. 639 of the Turkish Obligations Act. Those reasons are the realization of the purpose of the company or its impossibility, the death of one of the partners, the expiration of the term in the unregistered companies with a fixed period, the liquidation of one of the partners' liquidation share through forced execution, the bankruptcy or disability by a court decision towards one of the partners, the dissolution of the unregistered company with the unanimous decision of the partners, the termination request of one of the partners and the termination of the company by a court decision in the presence of a justified reason. As a natural consequence of the termination of an unregistered company, the company shall enter into the liquidation process. An unregistered company entering into the liquidation process undergoes a change of purpose. The purpose of liquidation then replaces the common purpose of the unregistered company. The liquidation process of an unregistered company is regulated in article 644 of the Turkish Law of Obligations. Although three new regulations differ from the repealed Code of Obligations No. 818 regarding the liquidation process, the adjustments are insufficient. In practice, in most disputes regarding the liquidation of an unregistered company, a gap arises in terms of the applicable law. The rule is that the liquidation is carried out jointly by the partners. However, it is also possible to appoint a liquidator by a specific term of the unregistered company, a decision taken later by co-decision procedure or upon the request of one of the partner's application to the court. The partners can also request that the court carry out the liquidation. The court shall not carry out the liquidation itself but with the help of liquidators and experts in their fields. The court shall manage and supervise the liquidation process itself. If the liquidation procedure is not determined in the unregistered company's contract or by the co-decision procedure, the relevant articles of the Turkish Obligation Act as to the liquidation procedure shall be applicable. The liquidation shall take place in five stages; the determination of the assets of the unregistered company and the assets reliquidation, the payments of the debts to the third parties, restoring the expenses and advances made by the partners, the return of the participation shares of the partners, and the allocatğion of the profit and loss. The partners shall be successively liable for the damage.