Turkey: Bearer Temporary Share Certificates Issued As A Substitute For Bearer Share Certificates

Last Updated: 27 March 2012
Article by Azer Öztürk and Dilara Yürekli

A share certificate is a written instrument signed on behalf of a company, and serves as legal proof of ownership of the number of shares indicated. Within the framework of the Turkish Commercial Code, companies are not legally obligated to issue share certificates. However, in practice, share certificates are issued mostly to gain corporate tax and value added tax advantages. Bearer temporary share certificates may be issued in lieu of bearer share certificates and such bearer temporary share certificates will remain valid until the issuance of bearer share certificates. Holders of bearer temporary share certificates enjoy all ownership rights associated with the shares such certificates represent. Principles set forth for bearer share certificates are mostly preserved within the framework of the New Turkish Commercial Code with some significant amendments and developments.

Pursuant to Article 409 of Turkish Commercial Code no. 6762 ("TCC"), shares of a joint stock company shall be registered or to bearer. Under the TCC, companies do not have a legal obligation to issue share certificates, however they may find it convenient to do so for the purpose of easing the transferability of shares and gaining corporate tax and value added tax advantages. Article 570 of the TCC defines bearer share certificate as a share certificate the substance or form of which indicates that the bearer of the share certificate is the legal owner of such share certificate. Bearer share certificates are issued in the form set out in Article 413 of the TCC. Pursuant to Article 413/1 of the TCC, share certificates shall indicate the trade name, the amount of the capital and the date of registration of the company and the kind and nominal value of the share and shall be signed by at least two (2) persons authorized to sign on behalf of the company. The signature may be set in the form of a stamp or seal or it may be printed. As implied from the definition stated above, one of the most unique characteristics of bearer share certificates is that such share certificates do not indicate the name of the holder of the certificate.

Another important characteristic of bearer share certificates is their method of transfer. Pursuant to Article 415 of Turkish Commercial Code, bearer temporary share certificates shall be transferred only by delivery of such certificate. This ease of circulation is unique to bearer share certificates and bearer share certificates are mostly preferred for this reason.

Bearer temporary share certificates may be issued as a substitute for bearer share certificates in the event that the company does not issue share certificates representing the shares. Bearer temporary share certificates shall be issued in the same form as bearer share certificates and issuance of such certificates shall be subject to fulfillment of the same conditions set out for issuance of bearer share certificates. Bearer temporary share certificates issued as a substitute for bearer share certificates shall be replaced with bearer share certificates once the company issues such share certificates. Upon issuance of bearer share certificates, temporary bearer share certificates issued as a substitute for such certificates shall be null and void. It should be borne in mind that in the event the company delivers the newly issued bearer share certificates without taking back bearer temporary share certificates, the board of directors shall be responsible for any loss incurred resulting from such wrongdoing. The holder of a bearer temporary share certificate may exercise all rights associated with the ownership of shares represented by such share certificate such as, inter alia, voting rights, the right to receive dividends and preemptive rights to purchase newly issued shares.

Conditions for Issuance of Bearer Temporary Share Certificates

As mentioned above, issuance of bearer temporary share certificates shall be subject to the same conditions set forth for issuance of bearer share certificates under the TCC. First of all, in order to issue bearer share certificates, issuance of such certificates has to be envisaged in the articles of association of the company. This requirement is inferred from Article 409 of the TCC, which states that in the absence of any provision to the contrary in the articles of association of the company, share certificates shall be registered. Secondly, since share certificates, either registered or to bearer, issued before the company is registered with the Trade Registry are null and void under Article 412 of the TCC, bearer share certificates may be issued only after the registration of the company with Trade Registry is complete. Last but not least, it should be noted that although the capital sum of the company determined in the articles of association does not have to be paid in full at the time of incorporation, pursuant to Regulation no. 2003/3 issued by the Ministry of Industry and Commerce, bearer share certificates may not be issued unless capital contribution corresponding to such shares is paid in full.

Exercise of Voting Rights in the General Assembly by the Holder of Bearer Temporary Share Certificates

As stated above, holders of bearer temporary share certificates shall enjoy all ownership rights that holders of bearer share certificates enjoy. Pursuant to Article 360/2 of the Turkish Commercial Code, shareholders may exercise their voting rights in person during general assembly meetings and they also may exercise their voting rights through a third party, who does not have to be a shareholder unless otherwise provided for in the articles of association of the company. Holders of bearer temporary share certificates should entrust their certificates to the company one (1) week prior to the date of the general assembly meeting in exchange for entrance cards in order to vote at the general assembly in person under Article 360/3 of the TCC. In order to exercise voting rights related to bearer temporary share certificates by proxy, entrance cards to be given in exchange for the entrustment of such certificates to the company must indicate the name and status of the representative. It should be noted that a document evidencing proxy is required to place the name of the representative on the entrance card.

Pledge on Bearer Temporary Share Certificates

Pursuant to Article 956 of the Turkish Civil Code, a bearer share certificate may be pledged by delivery of the certificate to the pledgee. In the event that bearer temporary share certificates are pledged by delivery to the pledgee, ownership rights related to the shares represented by such certificates, such as voting rights, the right to receive dividends and preemptive rights to purchase newly issued shares will remain with the legal owner of the shares. Pursuant to Article 360/3 of the TCC, voting rights associated with the shares may be exercised by the pledgee only if a proxy is granted to such pledgee in a separate document.

Grant of Usufruct Right on Bearer Temporary Share Certificates

In the event that a usufruct right is granted upon a bearer temporary share certificate, such share certificate shall be delivered to the holder of the usufruct right or entrusted to a secure place, such as a bank under the name of the holder of the usufruct right. The holder of the usufruct right shall be entitled to receive dividends during the term that such usufruct right is in effect. The holder of usufruct right is entitled to vote at general assembly meetings unless otherwise provided for in the articles of association or stipulated in an agreement concluded between the shareholder and usufruct right holder. However the holder of the usufruct right should observe the interests of the shareholder while exercising voting rights at the general assembly and should not exercise such voting rights to the detriment of the shareholder.

Regulation Set Forth in the New Turkish Commercial Code for Bearer Temporary Share Certificates

Bearer share certificates are also regulated in Turkish Commercial Code no. 6102 ("New TCC") in several articles. Although the current system set forth for bearer share certificates in the TCC is mostly preserved in the New TCC, the New TCC includes some significant amendments to the current system, especially in terms of issuance of bearer share certificates and temporary bearer share certificates and exercise of voting rights associated with bearer shares.

The New TCC preserves the definition (Article 487), form (Article 487) and method of transfer of bearer share certificates (Article 489) and envisages the same requirements set forth for the issuance of such in the TCC (Articles 484 and 486) with some differences. First of all, the New TCC does not explicitly state that the shares of a company shall be registered unless otherwise provided for in the articles of association. It should be noted that the exclusion of this provision in the New TCC is considered a significant gap in the New TCC, therefore it is recommended to the companies being incorporated under the New TCC to include a provision allowing issuance of such shares as a precaution.

The New TCC also imposes a new legal obligation on joint stock companies the shares of which are to bearer. Pursuant to Article 486 of the New TCC, in the event that the shares are to bearer, the board of directors has to issue bearer share certificates within three (3) months of the capital contribution corresponding to such shares being paid in full. In addition, the board of directors is also obligated to announce the issuance of such share certificates and register the board resolution taken for the issuance of such certificates with the Trade Registry. As mentioned above, within the current system of the TCC, joint stock companies are not obligated to issue share certificates either registered or to bearer even though capital contribution corresponding to such shares is paid in full therefore the obligation imposed on board of directors to issue share certificates for bearer shares can be accepted as a significant amendment to the current system. It should be borne in mind that, even though not explicitly provided for in the TCC, today in practice board decisions taken for issuance of bearer share certificates are announced in accordance with the procedures set forth in the articles of association of the company and registered with the Trade Registry. Therefore it can be concluded that obligation imposed on board of directors regarding registration of board resolutions taken for issuance of share certificates with the Trade Registry reflects the common business practice.

Article 486/2 of the New TCC also regulates issuance of temporary share certificates and states that temporary share certificates may be issued for a period of three (3) months until the company issues bearer share certificates. Therefore within the framework of the New TCC, temporary share certificates may only be issued as a substitute for bearer share certificates for a period of three (3) months and at the end of such period such temporary certificates need to be replaced with bearer share certificates. Article 486/2 also sets forth that provisions applicable to registered shares shall be applied to such temporary share certificates. This means that temporary share certificates shall bear the name of their owner, shall be registered with the share ledger of the company and shall be transferred by virtue of endorsement and delivery without regard the kind of shares they are substituting. From this provision, it can be inferred that the concept of temporary bearer share certificates is ruled out within the framework of the New TCC. For this reason, this regulation can be considered a significant amendment to the current system.

Pursuant to Article 425 of the New TCC, shareholders may exercise their voting rights in person during general assembly meetings and they also may exercise their voting rights through a third party who may but is not required to be a shareholder of the company. It should be noted that the New TCC expressly declares provisions in the articles of association requiring representatives to be shareholders null and void, which means voting rights may also be exercised through a third person who is not a shareholder even though the articles of association of the company provides otherwise. In addition, the New TCC imposes an obligation on representatives to comply with the instructions of the shareholder while exercising voting rights. Although noncompliance with the instructions shall not render the vote invalid, it is important to point out that such obligation is not articulated within the system of the TCC. Pursuant to Article 415/3 of the New TCC, holders of bearer temporary share certificates should receive their entrance cards by proving possession of shares at least one (1) day prior to the date of the general assembly meeting in order to vote at the general assembly in person. It is important to point out that the New TCC expressly prohibits provisions requiring share certificates to be deposited with the company or any other institution in order to attend the general assembly and exercise voting rights. This prohibition can also be considered a significant amendment to the current system set forth for participation in general assembly meetings and exercise of voting rights at general assembly meetings.

It should be noted that provisions regulating the pledge of share certificates and grant of usufruct right upon the shares and rights of the pledgee or usufruct right holder are reserved in the New TCC.

Conclusion

In conclusion, under the TCC, a joint stock company may issue share certificates to represent the capital of the company. Joint stock companies may issue temporary share certificates as a substitute for share certificates. Holders of such temporary share certificates shall enjoy all the ownership rights associated with the shares represented by such certificates. However, within the framework of the New TCC, temporary share certificates are subject to provisions regulating registered shares and new obligations are imposed on joint stock companies, such as the obligation to issue bearer share certificates within three (3) months of payment of the capital contribution corresponding to the bearer shares which will be represented by such share certificates. Therefore it can be concluded that the concept of bearer temporary share certificates has significantly changed within the system set forth by the New TCC.

www.gsimeridian.com

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions