Joint Ventures as an Ordinary Partnership in Türkiye: Contributions, Management, Liability and Exit (TCO 620-645)

This guide walks through Articles 620 to 645 of the Turkish Code of Obligations: the definition, contributions and profit sharing, decisions and management, duties between partners, new partners and exit, dealings with third parties, termination and liquidation, and sets the structure beside the commercial company.

1. The Situation: A Joint Venture Without a Company

A foreign company and a Turkish company agree to carry out a project together. They may plan to build and sell a residential development, to deliver a supply contract in common, or to operate a facility. They sign a joint venture agreement, each puts in money, assets or work, and they agree to share the result. They do not incorporate a new company.

Turkish law has a ready category for this kind of arrangement. The eighteenth chapter of the Turkish Code of Obligations (TCO, Türk Borçlar Kanunu, Law No. 6098) regulates the ordinary partnership agreement (adi ortaklık sözleşmesi) in Articles 620 to 645. Under Article 620(1), it is a contract by which two or more persons undertake to combine their labour and assets to reach a common purpose.

Article 620(2) matters just as much to a foreign investor: a partnership that does not carry the distinguishing features of the partnerships regulated by law is deemed an ordinary partnership subject to the chapter. A joint venture that was not given the form of a company can therefore fall under these rules, whether or not the parties had them in mind when they signed.

This guide covers, in order:

1. whether the venture is an ordinary partnership or a company, set side by side (TCO Article 620, TCC Articles 124, 125, 126, 329 and 573);
2. contributions and the sharing of profit and loss (TCO Articles 621 to 623);
3. decisions and management, and the rights of non-managing partners (Articles 624, 625, 629, 630 and 631);
4. duties between the partners (Articles 626 to 628);
5. new partners, exit and expulsion (Articles 632 to 636);
6. dealings with third persons and liability (Articles 637 and 638);
7. the ways the partnership ends (Articles 639 to 641);
8. liquidation (Articles 642 to 645);
9. points to settle in the joint venture agreement.

Abbreviations: TCO means the Turkish Code of Obligations; TCC means the Turkish Commercial Code (Türk Ticaret Kanunu, Law No. 6102).

2. Ordinary Partnership or Company? The Code Side by Side

Before drafting, the parties choose a structure, and the Codes allocate several consequences differently. The table below compares the ordinary partnership with the two company types that can serve as a joint venture vehicle, the joint stock company and the limited company, using only what the provisions say.

Two further points from the Commercial Code frame the comparison. TCC Article 124(1) lists the commercial companies: collective, limited partnership, joint stock, limited and cooperative companies. And TCC Article 126(1) provides that, subject to the provisions specific to each company type, the general provisions of the Turkish Civil Code on legal persons and, in matters on which that Part of the TCC has no provision, the TCO provisions on the ordinary company apply to commercial companies as well, to the extent suited to the nature of each company type. Within those limits, the rules explained below can also matter after a venture takes company form.

For a foreign investor, the practical question is whether to organise the venture as a company, with the rules described in the table, or as a contractual partnership. That is a commercial decision. Our guide to setting up a company in Türkiye as a foreigner covers the company route.

3. Contributions and the Sharing of Profit and Loss (TCO Articles 621 to 623)

What each partner contributes. Under Article 621(1), each partner must make a contribution to the partnership, in the form of money, a receivable or another asset, or labour. Under Article 621(2), unless the contract provides otherwise, the contributions must be of the importance and nature required by the partnership’s purpose and equal to one another.

Contributions of use or ownership. Under Article 621(3), if a partner’s contribution consists of the use of a thing, the provisions of the lease agreement apply by analogy; if it consists of the ownership of a thing, the provisions of the sale agreement apply by analogy. Those provisions are the ones on damage and on liability for defects and for eviction.

Profits. Under Article 622, the partners must share among themselves all profits that by their nature belong to the partnership.

Equal shares by default. Under Article 623(1), unless the contract provides otherwise, each partner’s share in profit and loss is equal, regardless of the value and nature of the contribution. A foreign partner who contributes the larger part of the money should not assume that its share follows its contribution: unless the contract says otherwise, the text gives equal shares.

One fixed share fixes the other. Under Article 623(2), if the contract determines the partners’ shares in either profit or loss, that determination also expresses the share in the other.

The partner who contributes labour. Under Article 623(3), an agreement under which a partner shares in profit without sharing in loss is valid solely for a partner who has contributed only labour. For a joint venture in which one side supplies capital and the other supplies work, this is the provision to read on the sharing of loss.

4. Decisions and Management (TCO Articles 624, 625, 629, 630 and 631)

Decisions. Under Article 624(1), the partnership’s decisions are taken by the unanimous vote of all partners. Under Article 624(2), if the contract states that decisions will be taken by majority, the majority is determined by the number of partners (ortak sayısına göre). The text counts the majority by the number of partners. A foreign partner that expects voting power to follow its contribution should read Article 624(2) against that expectation.

Who manages. Under Article 625(1), unless management has been left, by the contract or by a resolution, exclusively to one or more partners or to a third person, all partners have the right to manage the partnership. Under Article 625(2), where all or several of the partners manage, each of them may act without the others; however, each partner entitled to manage may prevent an act by objecting before it is completed.

Extraordinary matters. Under Article 625(3), the unanimity of all partners is required to appoint a general representative for the partnership and to conduct its extraordinary affairs. In cases where delay would be harmful, each managing partner is competent in this matter.

Removing a partner’s management authority. Under Article 629(1), management authority given to one of the partners by the partnership contract cannot be removed or limited by the other partners without just cause. Under Article 629(2), even if the contract states that the authority cannot be removed, each of the other partners may remove it where there is just cause. Under Article 629(3), just causes exist in particular where the managing partner grossly neglects the duty or loses the ability required for good management.

The managing partner’s accounts. Under Article 630(1), unless the chapter or the partnership contract provides otherwise, the relations between managing partners and the other partners are subject to the provisions on the agency contract. Under Article 630(2), where a partner without management authority handles the partnership’s affairs, or a partner with that authority exceeds it, the provisions on agency without authority apply. Under Article 630(3), managing partners must render accounts at least once a year and pay the partners their profit shares; an agreement extending the accounting period is absolutely void, and the same rule applies where the person managing is not a partner.

Information and inspection. Under Article 631(1), even without management authority, each partner has the right to obtain information about the running of the partnership, to inspect its books and records, to take copies of them and to extract a summary of its financial position. Under Article 631(2), agreements to the contrary are absolutely void. A foreign partner that leaves day-to-day management to the Turkish side keeps these rights as a statutory matter.

5. Duties Between the Partners (TCO Articles 626 to 628)

Non-competition. Article 626 is headed ‘non-competition’. It provides that partners cannot, in their own interest or that of third persons, carry out acts that are obstructive of the partnership’s purpose or harmful (ortaklığın amacını engelleyici veya zarar verici işler). The text refers to the purpose of the partnership. A joint venture agreement that intends a wider or more specific restriction should state it in the contract.

Expenses and debts. Under Article 627(1), the other partners are liable to a partner for the expenses that partner has incurred, or the debts it has assumed, for the partnership’s affairs; they must also make good the damage that partner directly suffers through managing the partnership and the damage arising from the dangers that result from the partnership’s management. Under Article 627(2), a partner who advances money to the partnership may claim interest from the day of the advance. Under Article 627(3), a partner who has spent labour on the partnership’s affairs without being obliged to do so may claim the compensation that equity requires.

Care. Under Article 628(1), each partner must show in the partnership’s affairs the effort and care that the partner shows in its own affairs. Under Article 628(2), each partner must make good to the others the damage it causes by its own fault, without a right to set it off against benefits it has procured for the partnership in other matters. Under Article 628(3), a partner who runs the partnership’s affairs for a fee is liable under the provisions on agency.

6. New Partners, Exit and Expulsion (TCO Articles 632 to 636)

Admitting a new partner. Under Article 632(1), admitting a new partner depends on the consent of all partners. Under Article 632(2), if a partner unilaterally makes a third person a partner in its share, or transfers its share to that person, that third person does not acquire partner status.

Leaving or being removed. Article 633 applies when the contract contains a clause that the partnership will continue with the other partners. If a partner gives notice of termination, is placed under legal restriction, goes bankrupt, has its liquidation share converted into money by compulsory enforcement, or dies, that partner, its representative or the heir of the deceased partner may leave the partnership, or may be removed by written notice from the other partners.

What the departing partner receives. Under Article 634(1), the share of a partner who leaves or is removed passes automatically to the other partners in proportion to their shares. Under Article 634(2), the other partners must return the thing whose use the departing partner left to the partnership, and must pay the liquidation share that would have been payable had the partnership been liquidated on the date the partner’s status ended, releasing that partner from joint and several liability for the partnership’s debts that have fallen due. For debts not yet due, the other partners may give the departing partner security instead of releasing it from the debt. Under Article 634(3), the liquidation share is calculated as of the date the partner status ended by an expert in financial matters (mali işlerde uzman bir kişi); if the parties cannot agree on that person, the judge appoints one.

Shortfall. Under Article 635, if the partnership’s assets at that date do not suffice to cover its debts, the departing partner must pay the other partners its share of the debt, within the rules on participation in loss.

Unfinished business. Under Article 636(1), the departing partner takes part in the profit or loss from matters not yet concluded during its time as a partner. Under Article 636(2), as of the end of that financial year it may ask for the profit share, if any, due to it from completed matters, and for the necessary information on matters in progress.

7. Dealing With Third Persons: Representation and Liability (TCO Articles 637 and 638)

Acting in its own name. Under Article 637(1), a partner who deals with a third person in its own name and for the partnership’s account becomes personally creditor and debtor towards that person.

Acting in the name of the partnership. Under Article 637(2), if a partner deals with a third person in the name of the partnership or of all the partners, the other partners become that person’s creditors or debtors only under the provisions on representation.

The managing partner’s authority. Under Article 637(3), a partner who has been given the management task is presumed to have authority to represent the partnership or all the partners towards third persons. However, for the authority concerning important acts of disposition by the managing partner, it is a condition that the authority was granted by the unanimous vote of all partners and that this is expressly stated in the authority document. A foreign partner that wants to keep important disposals under joint control has this provision as its statutory reference point.

Joint ownership of partnership property. Under Article 638(1), things, claims and rights in rem acquired for or transferred to the partnership belong to all the partners jointly (elbirliği) within the framework of the partnership contract. Under Article 638(2), unless the contract provides otherwise, the creditors of one partner can exercise their rights only over that partner’s liquidation share.

Liability to third persons. Under Article 638(3), the partners, acting together or through a representative, are jointly and severally liable to a third person for the debts they assume within the partnership relationship, unless otherwise agreed. This is the central contrast with a company, where TCC Articles 329(2) and 573(2) apply to shareholders and partners (see the table in section 2). A foreign partner that signs a joint venture agreement under which the Turkish partner contracts with suppliers, subcontractors or lenders should read this paragraph before signing.

8. How the Partnership Ends (TCO Articles 639 to 641)

The grounds. Under Article 639, the partnership ends:

1. when the purpose set in the partnership contract is achieved or becomes impossible to achieve;
2. on the death of one of the partners, if the contract has no provision on continuing the partnership with the heirs;
3. on a partner being placed under legal restriction, going bankrupt or having its liquidation share converted into money by compulsory enforcement, if the contract has no provision that the partnership will continue;
4. when all partners decide unanimously that it ends;
5. when the term set for the partnership expires;
6. by a partner’s notice of termination, if the contract reserves the right to give notice of termination or the partnership was formed for an indefinite period or for the lifetime of one of the partners;
7. where there are just causes, at any time and without any other condition, by court judgment upon a request for termination.

Notice in a partnership of indefinite duration. Under Article 640(1), if the partnership was formed for an indefinite period or for the lifetime of one of the partners, each partner may give notice of termination six months in advance. Under Article 640(2), the notice cannot be given contrary to the rules of good faith, and particularly at an inappropriate time, and it has effect only at the end of the financial year. Under Article 640(3), if the partnership is continued by the tacit will of the partners after the end of a term set in the contract, it becomes a partnership of indefinite duration.

Management authority after the end. Under Article 641(1), if the partnership ends other than by notice of termination, a partner’s authority to manage its affairs continues until the partner learns of the end, or until the time the partner would have learned of it had it shown the care the situation required. Under Article 641(2), if the partnership ends through the death of a partner, the heir must immediately inform the other partners and, until the necessary measures are taken, continues the matters the deceased partner was handling, within the rules of good faith; the other partners also temporarily continue the partnership’s affairs in the same way.

9. Liquidation: What Is Returned, What Is Shared, What Survives (TCO Articles 642 to 645)

Contributions of ownership. Under Article 642(1), a partner who contributed the ownership of a thing cannot take the thing back as it is on liquidation; the partner may claim the value assigned to the contribution. Under Article 642(2), if no value was determined, the thing is taken back at its value at the time it was contributed.

Surplus and loss. Under Article 643(1), once the partnership’s debts are paid and the advances each partner made, the expenses it incurred for the partnership and the contribution it made are returned, any surplus is shared among the partners as profit. Under Article 643(2), if the assets remaining after debts, expenses and advances are paid do not suffice to return the contributions, the loss is shared among the partners.

Who liquidates. Under Article 644(1), liquidation is carried out by all the partners acting jointly (elbirliği), including non-managing partners. Under Article 644(2), where the contract provides that a partner is to carry out certain transactions in its own name and for the partnership’s account, that partner must continue to carry them out alone after the end and account to the others. Under Article 644(3), the partners may appoint a liquidator; if they cannot agree, each partner may ask that the judge appoint one. Under Article 644(4), the liquidator’s fee, absent a contract provision or a unanimous decision of the partners, is set by the judge, having regard to the work required and the income of the partnership’s assets, and is paid from the partnership’s assets or, if that is not possible, by the partners jointly and severally. Under Article 644(5), disputes about the liquidation procedure or the share to be distributed to each partner are resolved by the judge on the request of those concerned.

Third persons are not affected. Under Article 645, the end of the partnership does not change the obligations towards third persons. Article 645 should be read together with Article 638(3) when a foreign partner plans the dissolution of a joint venture.

10. Points to Settle in the Joint Venture Agreement

Several of the provisions above open with wording such as ‘unless the contract provides otherwise’ or ‘unless otherwise agreed’ (Articles 621(2), 623(1), 630(1), 638(2) and 638(3)). The following checklist lists the points that the provisions leave to agreement or tie to specific wording.

1. Confirm the structure. Decide whether the venture is meant to be an ordinary partnership or a company, bearing in mind Article 620(2).
2. Describe the contributions and their value. Article 621 lists money, receivables, other assets and labour; Article 642 refers to the value assigned to a contribution of ownership.
3. Fix the shares in profit and loss. Without an agreement, Article 623(1) gives equal shares.
4. State the decision rule. Unanimity is the rule in Article 624(1); a majority rule must be stated in the contract and is counted by the number of partners.
5. Name the managing partners and their limits. Article 625 sets the default; Article 629 limits the removal of authority given by the contract.
6. Control representation. Article 637(3) presumes the managing partner’s authority to represent; the authority for important acts of disposition requires unanimity and an express statement in the authority document.
7. Plan reporting. Article 630(3) requires accounts at least once a year; Article 631 gives each partner rights to information and inspection.
8. Plan exit. Article 633 depends on a continuation clause; Article 634(3) provides for a calculation of the liquidation share; Articles 639 and 640 set the grounds and the notice rules.
9. Plan liquidation. Article 644(3) allows the partners to appoint a liquidator.
10. Allocate liability to third persons. Article 638(3) applies unless otherwise agreed.

These rules sit beside the company-law remedies available once a venture takes corporate form. For the contractual side of a corporate joint venture, see our guide to shareholders’ agreements in Turkish joint ventures, and for exit routes once a company exists, our guide to shareholder deadlock and exit remedies.