SHAREHOLDER RIGHTS IN JOINT STOCK COMPANIES-1

Back

‘Shareholder Rights’ in Joint Stock Companies in General

Under the Turkish Commercial Code No. 6102 (TCC), shareholder rights of joint stock companiesare regulated as follows,

  • The right to attend the general assembly (Art. 425),
  • Voting rights (Art. 434),
  • Right to information and inspection (Art. 437),
  • Right to request the appointment of a special auditor (Art. 438),
  • Pre-emptive right (priority in acquiring new shares) (Art. 461),
  • Right to dividend (Art. 509),
  • Right to claim interest for the preparatory period (Art. 510),
  • The right to request the distribution of the balance remaining after the liquidation (Art. 543),
  • Acquisition of bonus shares in capital increase from internal resources,
  • Right to utilise the facilities of the enterprise/company

Table 1: Relevant Articles of the TCC in terms of the Rights of the Shareholders of Joint Stock Companies

 

Shareholder Rights

TCC Article

Financial (Property) and Administrative (Managerial) Rights

Right to attend the general assembly

a.425

Voting rights

a.434

Right to information and inspection

a.437

Right to request the appointment of a special auditor

a.438

Pre-emptive right (priority in purchasing new shares)

a.461

Right to dividend

a.509

Right to claim interest for the preparatory period

a.510

The right to request the distribution of the balance remaining after liquidation

a.543

Acquisition of bonus shares in capital increase from internal resources

-

Right to utilise the facilities of the enterprise/company

-

Other Rights Ensuring the Strengthening of Financial Rights

[In a merger] Right to exit the company

a.141

Right to equal treatment

a.357

Right to request a special audit

a.438

Right to propose a conditional capital increase

a.466/1
   

 

  1. Voting Rights in Joint Stock Companies

 

a. Exercise of Voting Rights

Pursuant to Article 434 of the TCC, as a general principle, shareholders exercise their voting rights at the general assembly meeting in proportion to the total nominal value of the shares they hold. (The fifth paragraph of Article 1527 of the TCC is reserved.) Each shareholder has at least one voting right, even if he holds only one share. However, the number of votes of those holding more than one share may be limited by the articles of association. If the nominal value of the shares has been reduced during the process of correction of the financial situation of the company, the voting right recognised according to the nominal value before the reduction may be preserved. The Ministry of [Customs and] Trade may regulate cumulative voting rights in non-public joint stock companies by a communiqué

ARTICLE 434- (1) Shareholders shall exercise their voting rights in the general assembly in proportion to the total nominal value of their shares.The provision of the fifth paragraph of Article 1527 is reserved. (2) Each shareholder has at least one voting right even if he holds only one share.However, the number of votes to be granted to the holders of more than one share may be limited by the articles of association. (3) If the nominal value of the shares has been reduced during the correction of the financial situation of the company, the voting right granted over the nominal value of the shares before the reduction may be preserved. (4) The Ministry of Customs and Trade may regulate cumulative voting in non-public joint stock companies by a communiqué.

 

The voting right is subject to a different system from the abrogated TCC No. 6762:

 

  1. The mandatory rule regarding the exercise of the voting right at the general assembly has been preserved, but this rule has been relaxed by Article 1527 of the TCC. The new regulation allows the exercise of the voting right in electronic environment, i.e. online, under the conditions specified in Article 1527 of the TCC.
  2. It is stipulated that the shareholder shall exercise his/her voting right in proportion to the total nominal value of the shares he/she holds. Thus, the ‘total nominal value of the shareholder's shares’ system has been adopted from the ‘share’ system of the former Law No. 6762. Under Law No. 6762, each share was entitled to at least one vote; however, this system created a mandatory privilege such that shares with different nominal values were also entitled to one vote.

 

The provision stipulating that the shareholders exercise their voting rights in the general assembly in proportion to the total nominal value of the shares they hold, includes two basic principles:

Firstly, shareholders may exercise their voting rights only in the general assembly. Secondly, the voting right is determined on the basis of the total nominal value of the shareholder. Therefore, the voting right is linked to the “total nominal value” of the shareholder. Furthermore, there is a rule that the exercise of voting rights at the general assembly is mandatory. Pursuant to this mandatory rule, voting by letter is not valid and the votes cast in this manner shall be deemed invalid. On the other hand, it is possible to participate and vote in the general assembly meeting electronically. Since participation to the general assembly is ensured through electronic media, the votes cast in this medium shall also be deemed to have been cast in the general assembly.

The second principle, on the other hand, binds the voting right to the shareholder by placing the ‘shareholder’, not the ‘share’, at the centre of the regulation of the voting right. As a result of this rule, the voting right is determined based on the nominal value of the share. Criteria such as the number of shares, doing business with the company or secondary obligations cannot be taken as a basis for recognising voting rights.

Each shareholder has at least one voting right; in other words, the principle of ‘no shareholder without a vote’ has been adopted. Provided that this principle is adhered to, it is permitted to limit voting rights on a shareholder basis. The fact that a shareholder holds the majority may not always mean that he/she obtains the majority of the votes; this situation may be prevented by the articles of association.

Article 476/3 of the TCC permits the reduction of the nominal value of the shares below the minimum value specified in the law, in order to improve the financial situation of a company in financial difficulty. Even if the nominal value of the share is reduced based on this provision, voting rights may be preserved over the nominal value before the reduction.

The cumulative voting system is not exclusive to public joint stock companies but is also permitted to be applied in non-public joint stock companies, and the Ministry of Commerce is authorised to regulate this system.

Finally, the voting right arises upon the payment of the minimum amount of the share determined by law or by the articles of association (Art. 435 TCC). The voting right is acquired by payment of the amount stipulated in the law or the articles of association, not by subscription of shares. Those who have subscribed for shares cannot vote for these shares unless they fulfil their payment obligation.

b. Circumstances where the shareholder cannot exercise his/her voting right

Article 436 of the TCC retains the principle of ‘deprivation of voting rights’, which was expressed in Article 374 of the Former Turkish Commercial Code No. 6102 (ETTK), with some amendments. Within this framework, the shareholder of a joint stock company

- Him/herself

- Spouse, descendants and descendants,

-Sole proprietorships in which he/she, his/her spouse, descendants and descendants are shareholders,

- Or capital companies under the control of himself/herself, his/her spouse, descendants and descendants

‘a business or transaction of a personal nature’ or “a lawsuit before any judicial institution or arbitrator” between the company and “the company”.

Another provision that includes deprivation of voting rights is applicable to the ‘members of the board of directors’ and ‘authorised signatories in charge of management’. These persons may not use their voting rights arising from their shares in ‘resolutions regarding the release of the members of the board of directors’. With the aforementioned regulation, the provision in the second paragraph of Article 374 of the former TCC, which reads as follows: ‘Those who have participated in any way in the conduct of the company's affairs shall not have the right to vote in the resolutions regarding the release of the members of the board of directors.’ is preserved. However, such persons may represent the voting rights of other shareholders who are not members of the board of directors.

On the other hand, the Supreme Court is of the opinion that in the voting for the lifting of the non-competition clause related to them pursuant to Article 436/1 of the TCC, since the decision regarding the granting of the said authorisation is related to a personal business between the shareholder and the company, it is necessary to determine whether the decision for the lifting of the non-competition clause was taken with a sufficient quorum for each member of the board of directors. In this case, even if a member of the board of directors who is also a shareholder of the company is deprived of the right to vote in the resolution regarding himself, he may participate in the voting regarding the other member of the board of directors. 

c. When the Shareholder's Voting Right Arises

The TCC provides a different method for the acquisition of voting rights than the former TCC. Pursuant to Article 435 of the TCC, ‘The voting right arises upon the payment of the minimum amount of the share determined by law or by the articles of association.’ In this context, the voting right is acquired not by subscribing to a share, but by paying the minimum amount stipulated by law and the articles of association.

In the event that all or part of the company's capital is subscribed in cash, the TCC requires that at least 25% of the nominal value of the shares subscribed in cash be paid before the registration, and the remaining 75% within 24 months following the registration of the company. Similarly, if cash capital is subscribed to the company in a capital increase, at least 25% of the nominal value of the shares representing the increased capital must be paid before the registration of the capital increase, and the remaining portion must be paid within 24 months following the registration. However, it is also possible to determine a payment rate higher than 25% by the articles of association and to collect the remaining portion in a shorter period than 24 months. For example, the articles of association may stipulate that 50% of the capital subscribed in cash shall be paid before the registration, and the remaining portion shall be paid within 12 months following the registration.

Therefore, voting rights arise upon the payment of at least 25% of the nominal value of the shares subscribed for in the incorporation or capital increase, or if the articles of association stipulate a higher rate, upon the payment of this amount. Unless the payment obligation is fulfilled, no vote shall be cast on behalf of these shares.

2. The Right of Joint Stock Company Shareholders to ‘Participate in the General Assembly’

a. Shareholders Authorised to Attend the General Assembly

Pursuant to Article 415 of the TCC, the general assembly meeting may be attended by the shareholders whose names appear in the ‘list of attendees’ prepared by the board of directors. Holders of unregistered shares, bearer shares, registered shares and dematerialised shares pursuant to Article 10/A of the Capital Markets Law or their representatives may attend the general assembly meeting. Real persons are required to show their identity cards, and representatives of legal entities are required to submit a power of attorney. Holders of bearer share certificates shall obtain an entrance card by proving that they are in possession of these certificates at the latest one day before the date of the general assembly meeting and may attend the general assembly meeting by presenting these cards. However, shareholders who prove that they have taken over bearer share certificates on a date subsequent to the issuance of the entrance card may also attend the general assembly meeting. The right to attend the general assembly meeting and the right to vote may not be conditional upon the shareholder depositing the documents proving that he/she is the owner of the shares or the share certificates with a credit institution or any other place.

b. Right to Participate in the General Assembly and Principles

Pursuant to Article 425 of the TCC, in general, a shareholder may attend the general assembly in person or send a person who is or is not a shareholder as a representative in order to exercise his rights arising from his shares. Provisions of the articles of association stipulating that the representative must be a shareholder are invalid.

Article 425 of the TCC makes the principle of representativeness, which constitutes the basis of shareholder rights, a legal rule that cannot be abolished by articles of association, general assembly resolutions, other regulations and especially administrative acts. This provision also renders invalid the regulations that attach heavy formal requirements to representativeness. In the domestic and foreign doctrine, it is argued that this provision prevents the regulations that bind the representation authority to heavy formal requirements. Other valid and invalid limitations will be determined by the doctrine and court decisions.

The expression ‘one person as a representative’ in the provision should not be interpreted in a way to prevent the shareholder from delegating the representation authority to more than one person. This provision also covers the ‘representative of the depositary’ representation under Article 429 of the TCC.

All shareholders included in the list prepared by the board of directors, which includes those who may attend the general assembly meeting, are entitled to attend the general assembly meeting. These shareholders may attend the general assembly meetings in person, or they may send a third person as a representative. The provision of the articles of association stipulating that the representative must be a shareholder is invalid.

Real person shareholders shall sign the list of those who may attend the general assembly meeting by presenting their identity cards. Legal entity shareholders, on the other hand, shall be included in the list by submitting the identities and authorisation certificates of the persons authorised to represent and bind the legal entity. In addition, the persons who will attend the general assembly on behalf of real or legal person shareholders must also submit their representation certificates.

Holders of bearer share certificates may attend the general assembly meeting by obtaining and presenting an entry card by proving their ownership of these certificates at the latest one day before the date of the general assembly meeting. A person who holds bearer share certificates by virtue of a pledge, right of imprisonment, custody agreement or usage loan may attend and vote at the general assembly meeting if authorised by the shareholder.

If there is a usufruct right on a share, unless otherwise agreed, the right to attend the general assembly meeting and vote shall be exercised by the usufructuary. In this case, the person attending the general assembly meeting must certify that he/she is the beneficial owner.

If a share is jointly owned by more than one person, these persons may attend and vote in the general assembly meeting only through a representative to be selected from among themselves or from outside.

In non-public companies, the power of attorney must be notarised in order for both registered and bearer share certificate holders to be represented at the meeting through their proxies. The Regulation on General Assembly Meetings of Joint Stock Companies to be held in Electronic Environment and the regulations of the Capital Markets Board regarding participation and voting by proxy in general assembly meetings of publicly held companies are reserved for the appointment of proxies through the Electronic General Assembly System.

It is essential that each shareholder be represented by only one person at the General Assembly. However, in the event that more than one person is authorised to represent or more than one person authorised to represent and bind legal entity shareholders attends the general assembly, only one of them may vote. The person authorised to vote must be specified in the authorisation document. Pursuant to Article 429 of the TCC, this provision does not apply to the representatives of the depositor, each of whom has voting rights, in cases where the shares are deposited to more than one person. The representation of the shareholders at the general assembly through legal representatives is subject to the documentation of this situation.

Shareholding rights arising from unregistered shares, registered share certificates and bearer share certificates shall be exercised by the shareholder registered in the share ledger or by the person authorised in writing by the shareholder. The person who proves that he is in possession of a bearer share certificate is authorised to exercise the rights arising from share ownership against the company (Art. 426 TCC). Shareholders who are registered in the share ledger may prove their rights through the share ledger; for bearer share certificates, they may prove their rights through possession. In the event that listed registered shares are sold on the stock exchange, the Central Registry Agency shall notify the company of the identity of the transferor and the number of shares sold in accordance with the regulations of the Capital Markets Board or provide the company with technical access to such information (TCC Art. 496). The term ‘shareholding’ refers to the recognition of this title of a person by the company. When this title is recognised, the exercise of shareholding rights becomes possible and the material condition for the appointment of a representative is fulfilled. If there is no share ledger, share ownership shall be proved by other evidence (grounds of Article 426 of the TCC).

The person participating as a representative shall comply with the instructions of the represented person. Violation of the instructions shall not invalidate the vote. The rights of the represented person against the representative are reserved. A person who holds a bearer share certificate for reasons such as pledge, right of imprisonment, custody agreement or usage loan may exercise his/her shareholding rights only if authorised by the shareholder with a special written document (TCC Art. 427). It is stated that the instruction belongs to the internal relationship of the proxy agreement and shall not invalidate the vote. The authorisation to represent bearer share certificates that are not in the possession of the holder must be given by a written document.

On the other hand, if the depositary representative is authorised to exercise the participation and voting rights arising from the shares and share certificates deposited with him/her on behalf of the depositor, he/she is obliged to apply to the depositor before each general assembly meeting to receive instructions on how to act. If the request is made in due time but no instruction is received, the delegated person shall exercise his/her participation and voting rights in accordance with the general instruction of the delegator; if there is no such instruction, the vote shall be cast in accordance with the recommendations of the board of directors (TCC Art. 429/1-2).

SHAREHOLDER RIGHTS IN JOINT STOCK COMPANIES-1