Transferability of bearer shares (consideration of which has fully paid in) in joint stock companies cannot be limited or restricted in any way. Whereas, transferability of registered shares can be subject to certain restrictions required by the Turkish Commercial Code ("TCC") or the articles of association as drafted by the shareholders.
I - As a restriction arising from the TCC, registered shares, consideration of which are not fully paid in, can only be transferred with the permission of the company (save of transfers made as a result of an execution proceeding or allocation of heritage or marital property). However in such case, the company may only reject the transfer if it is not clear that the transferee has the sufficient means to pay the consideration for the transferred shares and the security requested by the company is not provided.
II - The transferability of registered shares can be restricted in the articles of association by requiring the consent of the Board of Directors (to decide with simple majority), but only in the following way (cannot be more severe):
In companies which are not publicly-traded (of which shares are not traded on a stock exchange):
- the company may reject a transfer only based on a justified reason explicitly indicated in the articles of association (not applicable for transfers made as a result of an execution proceeding, allocation of heritage or marital property) or
- the company may offer to have the shares transferred either to the company, another shareholder, or a third party at their real value (at the time of application) or
- the company may also reject the transfer if the transferee does not explicitly declare that he/she acquired the shares.
As to the justified reason (mentioned in paragraph i above); according to Article 493/2 of TCC, if the explicit provisions of the articles of association with respect to the composition of the shareholders justify the rejection of a share transfer for the purposes of realizing the company's purpose and/or maintaining the economic independence of the company, the company may reject the transfer of shares.
Due to the fact that the above-mentioned rule (regarding the justified reason requirement) is a very recent addition to Turkish law with no established practice and court precedents yet, investors who are seeking to restrict share transfers in joint stock companies usually just copy Article 493/2 into their articles of association.
However, according to Turkish scholars and especially the mindset of the legislator, the general rule is the free transferability of shares in joint stock companies, therefore restricting a share transfer based on a justified reason can be valid in rare occasions only if the rule under Article 493/2 is strictly met. To give an example, the company can reject share transfers made to the competitors if it is indicated as a reason in the articles of association. Not allowing a competitor in the company is related to the composition of the shareholders and has direct effect on the company's purpose and maintaining the economic independence of the company. Another example would be allowing only the producers of certain goods that the company is engaged in selling and trading when such producers directly sell their goods to the company. Again, if such reason is indicated in the articles of association, it is related to the composition of the shareholders and has direct effect on the company's purpose and maintaining the economic independence of the company.
Therefore, it is advised that if a company seeks to restrict its share transfers, the relevant provisions of articles of association should be diligently drafted with the help of legal professionals.
If a share transfer is rejected by the company which is not publicly-traded, such transfer is deemed completely void and the transferee does not acquire any shareholding rights (financial or other).
However, in transfers made as a result of an execution proceeding or allocation of heritage or marital property, only financial rights pass on the transferee, but other non-financial rights such as right to vote in the General Assembly are not transferred.
In publicly-traded companies (of which shares are traded on a stock exchange):
The transfer of shares can only be rejected:
- if the threshold set for share transfers in the articles of association is exceeded or
- if the transferee does not explicitly declare that he/she acquired the shares.
In publicly-traded companies (traded on a stock exchange), if a share transfer is rejected by the company, only financial shareholding rights pass on the transferee, but other rights such as right to vote in the General Assembly are not transferred.
However, the company cannot reject transfers made on a stock exchange, sales made as a result of an execution proceeding or allocation of heritage or marital property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.