In Turkey, investors are prone to form or participate in joint stock corporations rather than limited liability partnerships ("LLP"s), because joint stock corporations generally enable them to establish their investments on a solid corporate governance structure. On the other hand, since the newly enacted Turkish Commercial Code (the "TCC") offers a more flexible corporate governance structure in LLPs compared to joint stock corporations, interest in LLPs has relatively increased in recent years. This bulletin aims to provide a summary of share transfer mechanics in LLPs.
Execution of Share Transfer Agreement
Under the TCC, shares in an LLP can be transferred only by executing a written agreement before the notary public. Accordingly, the transferor and the transferee must execute a share transfer agreement before the notary public, to perform the share transfer. This would trigger notarization costs for the transaction parties, in addition to other costs including stamp tax.
Approval of the Share Transfer
Following execution of the share transfer agreement, the LLP's general assembly of partners must approve the share transfer. On the other hand, the partners may include a provision into the articles of association, and eliminate such requirement. The articles of association may also restrict any share transfer in the LLP.
If the articles of association is silent on the share transfer, the share transfer becomes valid and effective only upon the approval of the general assembly of partners. At the meeting, the share transfer must be approved by the partners representing the majority of the votes represented at the meeting. The transferor must also attend such meeting, and cast its votes in the share transfer.
Unless otherwise provided in the articles of association, the general assembly can reject the share transfer without any reason. In this case, the share transfer becomes invalid, and the transferor remains as the LLP's partner. However, the transferor may file a lawsuit at the competent commercial court and request to exit the company if there is a just cause. On the other hand, if the general assembly does not reject the share transfer within three months of the application of the transaction parties, it is deemed to have approved the share transfer.
Registration of Share Transfer
Upon the general assembly's approval, the LLP's board of managers must register the transferee in the share ledger of the company. Failure to register the transferee in the share ledger does not affect the validity of the share transfer. However, under the TCC, persons that are duly registered in the share ledger can benefit from the partnerships' rights. Therefore, the transferee must request such registration from the board of managers, in order to benefit from the rights associated with the transferred shares.
The LLP's board of managers must submit an application to the relevant trade registry and request the registration of the share transfer. If the board of managers fails to submit an application within thirty days of the transfer, the transferor may also apply to the trade registry and ask for the cancellation of its registration from the trade registry records. Failure to register the share transfer with the trade registry does not have any adverse effect on the validity of the share transfer, but any transactions of third parties relying on the inaccurate trade registry records remain valid.
Share transfers in LLPs are relatively more complicated than share transfers in joint stock corporations. For this reason, the transaction parties must be fully aware of these requisite actions in order to duly consummate the share transfer.
© Kolcuoğlu Demirkan Koçaklı Attorneys at Law 2015
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.
