Turkey: Validity Of Share Transfer Restrictions Under Turkish Law

Last Updated: 2 June 2011
Article by Şebnem Işık and Begüm Yavuzdoğan


Under Turkish law, in principle shareholders have sole debt against the company, which is payment of the capital amount that they undertake. Shareholders will not have any further debt (or obligation) once they fully pay their capital contribution1. Therefore, shareholders cannot be subject to share transfer restrictions as they cannot have further obligation other than contribution to the capital amount they have subscribed to and, in principle, they must be free to transfer their shares to any person they choose.

Keeping this main principle in mind, companies would like to ensure their sustainability as well as the continuing success of their business and therefore prefer to restrict the transfer of shares to any third party who may not have the same interests/goals with the company. Companies seek alternative ways to circumvent this principle and restrict the transfer of shares to third parties by imposing limitations on shareholders through different means.

This article will first explain (i) the legal ways to impose share transfer restrictions on shareholders and validity of these kind of restrictions under the current Turkish Commercial Code dated January 01, 1957 and numbered 6762 (the "TCC") and (ii) new rules that will come to effect after July 1, 2012 under the new Turkish Commercial Code numbered 6102 (the "New TCC")2.

(i) Share Transfers under the TCC

Under Turkish Law, share transfers in limited liability companies can be executed only after having the prior approval of the board of partners (BoP) through a BoP resolution subject to an aggravated decision quorum3. Furthermore, share transfers must be executed in writing and transfer agreements must be signed before a notary public, and finally, the share transfer must be recorded in the share ledger of the company by the partners.

In joint stock companies4, registered shares can be transferred subject to the requirements of company's articles of association (AoA). According to the TCC, in order for a share transfer to be valid, it must be recorded in the share ledger. A company may refrain from recording a share transfer in the share ledger if doing so is permitted by the AoA. Under the TCC, there is no specific provision as to how shareholders can restrict share transfers through the AoA and companies have full discretion to reject the recording of a share transfer in the share ledger, without stating any reason.

In practice, companies may choose to require that transfers of shares be subject to the approval of the board of directors (BoD) under the AoA. The TCC allows for share transfers to be registered in the share ledger at the discretion of the BoD, provided that the AoA of the company so requires. The BoD may reject the transfer of a share to a third party and accordingly, refuse to register the share transfer in the share ledger without providing a reason. Conversely, a good faith share transfer to a third party will be valid between the transferor and the transferee, but the transferee cannot claim any shareholder rights against the company as to the management of the company, such as the right to vote or the right to attend general assembly meetings, etc ("Management Rights").

As an alternative, a "prior consent" clause subjecting the transfers of shares to third parties to the prior consent of the BoD can also be inserted in the AoA of the company as a "formal requirement". However, it must be noted that insertion of such a clause to the AoA may not be approved by some trade registries as the trade registries do not have a settled opinion as to what kind of restrictions can be permissible for shareholders and they may interpret these kinds of clauses against the sole debt rule under Turkish law.

As mentioned before, under Turkish law, the sole obligation of a shareholder is to contribute to the capital of the company they have subscribed to and they cannot be subject to further obligations through the provisions of the AoA. Obligations/limitations such as "pre-emptive purchase rights" or "call option" rights impose on shareholders the obligation to sell their shares to the holder(s) of these rights, and thus they cannot be regulated by the AoA. In practice, further limitations/obligations are generally imposed on shareholders via shareholders' agreements (SHA(s)). However, since an SHA binds only the parties to it, enforcement of these rights against third parties may raise certain problems. Limitations included in SHAs are not binding on any third party unless the same clauses are also included in the AoA. In the event of a breach, the breaching shareholder is liable for the compensation of the damages of the pre-emptive right holder. Thus, even if a share transfer is not in compliance with the terms of the SHA and the BoD does not register the transfer in the share ledger, it will still be considered legally valid. As a result, the new shareholder will only obtain monetary rights, but will not be able to exercise the Management Rights of the shares vis-à-vis the company. In light of the above, we may conclude that the dual legal effect of AoA and SHA creates uncertainties and legal complications under Turkish law.

(ii) Share Transfers under the New TCC

The New TCC will bring major changes and flexibility to transfers of shares, which will ensure sustainability and better protect the initially intended shareholding structure of a company. The New TCC introduces specific provisions regarding the restriction of share transfers through AoA both for limited liability and joint stock companies. We may conclude that the New TCC has moved away from the concept that shareholders only have the obligation to contribute to the amount of capital they have subscribed to.

Under the New TCC, there is an explicit provision stating that pre-emptive purchase rights, call options, other ancillary and/or additional obligations may be imposed on partners of limited liability companies by so providing for in their AoA. In keeping with the personal characteristics of limited liability companies, formal requirements5 for the transfers of shares are still applicable, although major changes have been introduced. Share transfers are subject to the approval of the BoP6 and may be rejected without any reason, unless otherwise stipulated in the AoA. However, if the AoA prohibits the transfers of shares or if the BoP rejects the transfer of a share, a shareholder who wishes to transfer his share has the right to exit from the partnership.

The New TCC provides categories of important reasons that allow joint stock companies to reject the transfer of registered shares under their respective AoA. The company may choose not to approve the share transfer by claiming an important reason stated under the AoA, or to acquire the shares to be transferred on its or shareholders or any third party's behalf by offering nominal value of the shares to the transferee7. It must be noted that the legislator requires companies to insert specific reasons allowed under the New TCC for rejecting approval transfers of shares and companies cannot simply state that any reason deemed necessary for the company are accepted as important ones. Reasons related to the nature of the shareholders, or the scope of the company's activities or the economic independency of the company are deemed important as per the New TCC. However, the list of reasons deemed important under the New TCC is not exhaustive.

If the company prefers to use an escape clause, the nominal value of the shares must be offered to the transferee. There is no definite basis for how the nominal value of shares will be determined and the transferor may apply to court for a determination of the nominal value of the shares to be transferred. If the transferee is offered a nominal value and does not reject such value within 1 month of its acknowledgment, the acquisition offer will be deemed accepted. If the company remains silent for a period of 3 months as of the date of transferee's application for approval, it will be deemed that the company has approved the share transfer. As long as the company does not approve the share transfer, the ownership of shares will remain with the transferor together with all monetary and Management Rights.


In light of the foregoing, we believe that the New TCC will better serve the needs of shareholders as well as their respective companies in terms of share transfers as the lawmakers intend to provide more flexibility for companies to restrict share transfers and resolve conflicts concerning the validity of provisions of AoA and SHAs. We believe these amendments will also provide comfort to foreign investors who gets into partnerships with Turkish shareholders while simultaneously intend to protect the composition of their shareholding structure by preventing undesirable shareholders from joining a corporation.


1. This principle is called the "sole debt rule" under Turkish law.

2. The New TCC has already been approved by the Turkish Grand National Assembly, however the provisions of the New TCC will come into force on July 01, 2012. Until July 01, 2012, the provisions of the TCC will be in effect.

3. In order for share transfer to be approved by the BoP, at least ¾ of the partners must approve the transfer and these partners must own at least ¾ of the share capital. BoP resolutions approving the share transfer and the share transfer agreements must also be registered with the relevant trade registry.

4. The shareholders may issue two types of share certificates in joint stock companies, namely, bearer shares and registered shares. Bearer shares can be transferred through delivery of possession of the certificate representing the share to the acquirer whereas registered shares can be transferred through endorsement and delivery of the share certificate.

5. The transfer of shares must be executed in writing and before a notary public.

6. Aggravated decision quorum for BoP's approval has been abolished.

7. The latter option is called "escape clause".

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.

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Begüm Yavuzdoğan
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