Back
3. Shareholders' Right to Information and Inspection in Joint Stock Companies
The right to information is one of the most fundamental rights of shareholders and enables them to access concrete information about the functioning, financial status, future, and quality of management of the company. This right contributes to the establishment of an accountable and transparent operation in joint stock companies. Therefore, the right to obtain information is among the indispensable rights of shareholders. Pursuant to Article 437 of the Turkish Commercial Code (TCC), the right to information and inspectioncannot be abolished or restricted by the articles of association or by the decision of one of the company organs. In this context, the right to obtain information is recognised as a right related to the basic structure of the joint stock company under the TCC and is protected by regulations for shareholders to exercise this right effectively.
a.Right to Information and Inspection
ARTICLE 437-(1) Financial statements, consolidated financial statements, annual report of the board of directors, audit reports and dividend distribution proposal of the board of directors shall be made available for the inspection of the shareholders at the headquarters and branches of the company at least fifteen days before the general assembly meeting.Of these, the financial statements and consolidated statements shall be made available for information of the shareholders at the head office and branches for a period of one year.Each shareholder may request a copy of the income statement and balance sheet at the expense of the company. (2) In the general assembly meeting, the shareholder may request information from the board of directors on the affairs of the company and from the auditors on the manner and results of the audit.The obligation to provide information shall also cover the subsidiaries of the company within the framework of Article 200.The information to be provided must be diligent and truthful in terms of the principles of accountability and honesty.If any of the shareholders has been provided with information on a matter outside the general assembly due to this title, upon the request of another shareholder, the same information shall be provided in the same scope and detail, even if it is not related to the agenda.In this case, the board of directors may not rely on the third paragraph of this article. (3) The provision of information may be refused only on the grounds that, if the requested information is provided, company secrets will be disclosed or other company interests that need to be protected may be jeopardised. (4) Explicit permission of the general assembly or a resolution of the board of directors to this effect is required for the examination of the commercial books and correspondence of the company, which are relevant to the shareholder's question.(5) The shareholder whose requests for obtaining information or examination are left unanswered, unjustly rejected, postponed and who cannot obtain information within the meaning of this paragraph may apply to the commercial court of first instance where the company's head office is located within ten days following the rejection, and in other cases after a reasonable period of time.The application shall be examined according to the simple trial procedure.The court decision may include the instruction to provide the information outside the general assembly and the manner thereof.(6) The right to obtain and review information may not be abolished or restricted by the articles of association or by a decision of one of the company organs.
Right to Examination before the General Assembly
The right to information enables shareholders to be informed about the company's operation, financial status, future and quality of management. Pursuant to Article 437 of the TCC, the financial statements of the company, the annual report of the board of directors, the audit reports and the dividend distribution proposal of the board of directors must be submitted to the shareholders at least fifteen days before the general assembly meeting. The financial statements and consolidated statements are made available to shareholders at the head office and branches for one year. Each shareholder may request a copy of the income statement and balance sheet at the company's expense.
The TCC obliges some companies to open a website and grants shareholders the right to review the documents via the internet. However, in practice, shareholders generally do not go to the company headquarters to examine the documents, and therefore the documents are not kept at the headquarters. To prevent this situation, while the draft TCC stipulated that financial statements and the annual report of the board of directors should be published on the website for three years, this scope has been narrowed with the amendments made.
Right to Obtain Information at the General Assembly
Pursuant to Article 437/2 of the TCC, each shareholder may request information from the board of directors about the company's affairs and from the auditors about the manner and results of the audit during the general assembly meeting. The exercise of shareholding rights is not required for the exercise of the right to request information. Some authors in the doctrine suggest that this requirement should be added to the TCC to prevent shareholders from asking irrelevant questions in order to prolong the general assembly.
Right to Inspection After the General Assembly
The TCC grants shareholders the right to examine the commercial books and correspondence of the company even outside the general assembly. In order to exercise this right, the shareholder must not have received a satisfactory answer to the question posed at the general assembly meeting. The shareholder who has not received a satisfactory answer may request permission for inspection by recording this situation in the minutes. Permission for inspection is granted by the decision of the general assembly or the board of directors and may also be made through an expert.
The information to be provided within the scope of the right to obtain information covers the financial statements, the company's business, activities, investments, relations and the parent company's subsidiaries. Pursuant to Article 200 of the TCC, each shareholder of the parent company may obtain information on the financial status, assets, account results of the subsidiary companies, the relations of the parent and subsidiary companies, their transactions and their results.
The right to obtain information is limited by the disclosure of company secrets and jeopardization of other interests that need to be protected. According to Article 437/3 of the TCC, the provision of information may be refused on these grounds. However, information shared with one of the shareholders outside the general assembly must be shared within the same scope upon the request of the other shareholder.
Request for Information and Examination
Pursuant to Article 437/5 of the TCC, shareholders whose requests for information or examination are left unanswered, unjustly rejected or postponed may file a lawsuit by applying to the Commercial Court of First Instance where the company's head office is located. The rejection of the application must be made within ten days following the rejection, and in other cases, within a reasonable period. The decision of the court is final and cannot be appealed.
b. Right to Request Special Audit
Special audit, as an extension of the right to obtain and review information granted to each shareholder, enables the shareholder to obtain more in-depth information about a particular event and to exercise his/her rights in an informed and correct manner. Turkish Commercial Code No. 6102 (‘TCC’) provides for the appointment of a special auditor by the commercial court of first instance upon the request of any shareholder under certain conditions, regardless of the shareholding ratio.
Special Audit Request and Appointment
Each shareholder, after exercising his or her right to information or inspection regarding a particular event, may request the appointment of a special auditor, if necessary. This requirement is related to the exercise of shareholder rights, in particular voting rights. In other words, a shareholder may request a special audit when it is necessary to have this information to exercise his/her rights arising from shareholding. In addition, to prevent unnecessary requests, the right to obtain or review information must have been exercised previously. A special audit request may be submitted even if it is not included in the agenda of the general assembly meeting, which constitutes an exception to the principle of adherence to the agenda.
Approval of the General Assembly
If the general assembly approves the request, the company or the shareholders may request the appointment of a special auditor from the commercial court of first instance where the company's head office is located within 30 days following the general assembly meeting. Under the old legislation, the authority to appoint the special auditor belonged to the general assembly, which allowed the majority shareholders to appoint the auditor of their choice. However, with the TCC, the appointment of the auditor by the court has brought efficiency to the special audit mechanism and prevented arbitrary practices.
Rejection of the General Assembly
If the general assembly rejects the request, the shareholders who constitute at least 10% of the capital (5% in publicly held companies) or whose shares have a total nominal value of at least 1 millionTRY may request the appointment of a special auditor from the commercial court of first instance within 3 months following the general assembly meeting. In this case, the rejection of the general assembly may be considered as a minority right.
Decision of the Court
If the shareholders applying to the court submit convincing statements that the founders or corporate bodies have harmed the company or the shareholders through breach of the law or the articles of association, the court may, after hearing the company and the applicants, order the appointment of a special auditor. The court shall appoint the expert to conduct the audit and, if necessary, appoint more than one independent expert.
Duties of the Auditor
The board of directors of the company must authorise the auditor to examine the books and records of the company. The auditor is authorised to examine the company's correspondence and all assets of the company, particularly negotiable instruments, cash and goods. This obligation is not limited to the board of directors; company founders, organs, representatives, employees, trustees and liquidators must also provide information to the auditor.
It is essential that the special audit is completed within a reasonable period of time without disrupting or delaying the company's business. The special audit, which is closely linked to the exercise of shareholders' rights, must be carried out in a timely manner in order to fulfil its purpose. Delays in the preparation of the audit report may damage the effectiveness of the process and render the audit dysfunctional.
4. Pre-emptive Right
In case of capital increase through internal resources in joint stock companies, the existing shareholders shall automatically acquire the bonus shares according to the ratio of their existing shares to the capital. If the increase is made through capital subscription from external sources, each shareholder has the right to acquire the newly issued shares according to the ratio of their existing shares to the capital. The purpose of the pre-emptive right is to enable the shareholder to maintain the capital ratio in the company. Although this is the principle, it may exceptionally be permitted to limit or abolish this right. In the following sections of this Newsletter article, the nature of the pre-emptive subscription right, the procedures and principles regarding its exercise, and the reasons for the abrogation or limitation of this right will be discussed in the light of the decisions of the Federal Court and the Court of Cassation, and finally, the pre-emptive subscription right will be analysed within the scope of the registered capital system.
a.Characteristics of the Pre-emptive Right and Principles of Exercise
Article 461 of the Turkish Commercial Code No. 6102 (‘TCC’) regulates the pre-emptive right in joint stock companies and the principles of its utilisation. Accordingly, the pre-emptive right is the right of each shareholder to acquire new shares issued by the company according to the ratio of the existing shares to the capital. The preamble of the article clearly states that the determination of the right to acquire new shares shall be based on the nominal value of the shares.
Pursuant to Article 461/3 of the TCC, the board of directors shall determine the principles for the exercise of the right to acquire new shares with a resolution and shall give the shareholders at least fifteen days' notice. Registration and announcement of this resolution is also obligatory. The purpose of this provision is not only to determine the fifteen-day period, but also to give an order to the board of directors. Since the article states that the period shall be at least fifteen days, granting a period of fifteen days does not necessarily mean that the board of directors has fulfilled its duty in accordance with the law, since the board of directors is also obliged to provide a period of time that is favourable for the exercise of the pre-emptive right. The date of exercise of the pre-emptive right stipulated in the resolution cannot be a day prior to the announcement of the resolution.
Article 497 of the TCC emphasises that shareholders have pre-emptive rights without any limitation. Pursuant to Article 497 of the TCC, in the transfer of listed registered shares, the transferee may not exercise the right to participate in the general assembly and voting rights and other voting rights arising from the shares until they are recognised by the company, but the acquirer is not subject to any limitation in the exercise of all other shareholding rights, and especially the pre-emptive right.
The fourth paragraph of Article 461 of the TCC expressly authorises the transfer of pre-emptive rights.
ARTICLE 461- (1) Each shareholder has the right to acquire the newly issued shares according to the ratio of his existing shares to the capital. (2) The pre-emptive right of the shareholder may be restricted or abolished by the decision of the general assembly regarding the increase of the capital only if there are justified reasons and with the affirmative vote of at least sixty per cent of the share capital.In particular, public offerings, acquisitions of enterprises, parts of enterprises, subsidiaries and participation of workers in the company shall be considered justified reasons.No person may be unfairly favoured or disadvantaged by the limitation or abolition of pre-emptive rights.Except for the quorum requirement, this provision shall also apply to the decision of the board of directors in the authorised capital system.The board of directors shall explain the reasons for limiting or cancelling the pre-emptive right, the reasons for issuing new shares with or without premium, and how the premium is calculated in a report.(3) The board of directors shall determine the principles for exercising the right to acquire new shares by a resolution and shall give at least fifteen days to the shareholders in this resolution.The resolution shall be registered and announced in the (...)61 newspaper mentioned in Article 35.(4) The pre-emptive right may be transferred. (5) The Company may not prevent the shareholders to whom it has granted pre-emptive right from exercising this right by claiming that the transfer of registered shares is restricted by the articles of association.
b. Limitation or Removal of Pre-emptive Right
Although the basic principle is that the pre-emptive subscription right cannot be restricted or cancelled, the law permits this in the presence of certain conditions: (i) the existence of an aggravated quorum at the relevant general assembly meeting and (ii) the existence of just cause for the limitation or cancellation. Even in the presence of these conditions, no person may be unduly favoured or disadvantaged by the limitation or abrogation of the pre-emptive right. Furthermore, the board of directors is obliged to explain the reasons for the limitation or cancellation of the pre-emptive subscription right in a report. This report must be registered and announced.
5. Dividend Right
Joint stock companies are established for the purpose of earning and distributing profits. The right to dividend is one of the fundamental shareholder rights in joint stock companies. The Turkish Commercial Code No. 6102 (‘TCC’) contains regulations on the determination of dividends, the body authorised to determine dividends, and the manner of distribution of dividends. In addition, it is necessary to examine the regulations for public joint stock companies due to the differences they bring.
ARTICLE 509- (1) No interest may be paid for capital. (2) Dividends may only be distributed from net profit for the period and free reserves. (3) In companies not subject to the Capital Markets Law, advance dividends are regulated by a communiqué of the Ministry of Customs and Trade.
a.Determination of Dividend
Pursuant to Article 508 of the TCC, unless otherwise stipulated in the articles of association, the profit and liquidation share shall be calculated in proportion to the payments made by the shareholder to the company for its capital share. The value taken as basis for the shareholders' participation in the profit is the net profit for the period determined in accordance with the annual balance sheet of the company. The net profit for the period is determined in accordance with the provisions of the law and the articles of association. However, it should be noted that the dividend to be distributed to the shareholders cannot be determined unless the legal reserves and the optional reserves stipulated in the articles of association are set aside (TCC Art. 523/1). Therefore, dividends may be distributed out of the net profit for the year and only out of the free reserves set aside for this purpose or that do not carry any specific purpose (TCC Art. 509/2).
Unlike the former Commercial Code No. 6762 (‘TCC’), the TCC uses the term ‘net profit for the period’ instead of ‘net profit’ in the determination of dividends. Thus, as stated in the preamble of the TCC, it is aimed to concretise the right to profit by including a concept in the Turkish Accounting Standards.
Article 507/2 of the TCC constitutes an exception to the principle of equal treatment for shareholders' participation in profits. Pursuant to this article, the articles of association may grant privilege rights and special benefits to certain types of shares. For example, receiving more profits than non-privileged shares, priority benefit from profits are some of the privileges that may be granted to shares. In this case, the shareholder's dividend is calculated in accordance with the privilege arrangement determined in the articles of association, and the privileged shares are distributed first at a certain rate.
b. Dividend Distribution under the TCC
In order for the general assembly to decide to distribute dividends, legal and optional reserves must be set aside (TCC Art. 523/1). The general assembly must first set aside five per cent of the annual profit as legal reserves (‘first legal reserve’) until it reaches twenty per cent of the paid-in capital (TCC Art. 519/1). The articles of association may stipulate that the reserve fund to be set aside shall be higher than this ratio (for example, ten per cent of the annual profit). After reaching the amount determined in this way, a) the portion of the premium provided for the issuance of new shares that has not been used for issuance expenses, redemption provisions and charitable payments, b) the amount paid for the price of the share certificates cancelled due to clawback, c) after five per cent dividend is paid to the shareholders, ten per cent of the total amount to be distributed to the shareholders and other persons who are determined by the articles of association to receive a share of the profit shall be added to the general legal reserve fund (TCC Art. 519/2) (‘second legal reserve’).
The articles of association may stipulate that reserves may be set aside for the establishment of charitable organisations for company executives, employees and workers.
Finally, even if it is not stipulated in the articles of association, the general assembly may decide to set aside a reserve fund if it is necessary for the restoration of assets and if it is justified for the development of the company and the distribution of dividends as stable as possible, taking into account the interests of all shareholders.