Turkey: Jouissance Shares For The Founders In The Turkish Commercial Code


Jouissance shares are the securities, different from the share certificates, which do not provide its holder with any shareholder rights but which carry some financial rights. Article 503 of the Turkish Commercial Code No. 6102 ("TCC") clearly points out that jouissance share holders cannot be provided with shareholder rights.

The jouissance shares, in general, are regulated in Article 502 of the TCC. Pursuant to this article, the general assembly may decide to issue jouissance shares in accordance with the articles of association or by amending it, in favour of the holders of the shares of which their value is legally paid off, the creditors, or persons related to the company for similar reasons. These jouissance shares may be issued to the order of someone specific or to the order of the bearer.

Article 502 of the TCC stipulates that Article 348 of the TCC shall be applied to the jouissance shares. Article 348 of the TCC regulates the interests of the founders and the limitations regarding the payments to jouissance share holders. Pursuant to this article, at most 10% of the distributable dividends can be paid to the founders holding jouissance shares after the legal reserves are made, and 5% of the dividend is reserved for the shareholders.

The Issuance of Jouissance Shares for the Founders

Article 502 of the TCC regulates that jouissance shares may be issued in accordance with the articles of association or by amending it. Article 402 of the Turkish Commercial Code No. 6762 ("former TCC"), which was repealed on July 1, 2012, similarly regulated jouissance shares. However, Aritcle 402/2 of the former TCC set forth that jouissance shares for the founders could not be issued unless it had been stipulated in the first articles of association of the company.

On the other hand, the issuance of jouissance shares for the founders in the event of capital increase was accepted even if it had not been stipulated in the first articles of association. This provision was based on Article 392 of the former TCC regulating the capital increase. This article states that capital increase by means of issuance of new shares is subject to the provisions regarding incorporation. Accordingly, the issuance of jouissance shares for the founders in cases of capital increase was accepted both by the doctrine and the High Court of Appeal.

As seen, the new TCC contains provisions that are different from the former TCC. Therefore, the cases where jouissance shares for the founders can be issued should be discussed with regards to the TCC that entered into force on 1 July 2012.

It is established that the TCC accepts the issuance of jouissance shares in accordance with the articles of association or by amending it, and removes the obligation to stipulate the jouissance shares for the founders in the first articles of association. Nevertheless, it is not possible to issue jouissance shares for the founders with just any kind of amendment in the articles of association. Jouissance shares have a raison d'etre, which is to reward the founders who contributed their efforts and encourage them as they build the corporation.

Jouissance shares for the founders cannot be issued in the event of a capital increase made in accordance with the TCC since Article 392 of the former TCC, which stated that the capital increase is subject to incorporation transactions, is not present in the new TCC. In the new TCC, contrary to the former TCC, specific references are made to certain articles regarding incorporation instead of a general reference to incorporation. Article 353 (Lawsuit for Termination), Article 354 (Registration and Announcement of the Company), Article 355 (Incorporation), Articles 342 and 343 (Subscription of Capital in kind), Articles 344 and 345 (Payment of the Fees), Article 346 (The Shares subject to Public Offering) and Article 347 (Shares with Premium) contain provisions which are to be applied analogously to capital increase transations. However, there is no article regarding the possibility to issue jouissance shares for the founders during a capital increase.

Rights Granted to Holders of Jouissance Shares

Article 503 of the TCC stipulates that jouissance share holders cannot be provided with shareholding rights but they can be entitled to a percentage of net profit, the capital surplus (if any) upon liquidation of a company or to the right to purchase new shares to be issued by the company. This article repeats Article 403 of the former TCC. Therefore, provisions in the former TCC regarding the meaning of "net profit" or "capital surplus upon liquidation of a company" are still in force.

Article 348/3 of the TCC stipulates that, in case the company has distributable profits, the jouissance share holders may be entitled to payments even if the company did not adopt a resolution on payment of dividends to the shareholders.

The Position of Jouissance Share Holders in Mergers

The jouissance share holders are not entitled to block the resolutions of the general assembly. The purpose of this provision is to protect interests of a company from being blocked by those who are not shareholders. However, it is also necessary to protect the jouissance share holders who have financial rights in the company. To that end, Article 140/5 regulates the position of jouissance share holders in the event the company merges with another.

Pursuant to said article, the transferor company must provide jouissance share holders of the transferee company with equal rights or purchase the jouissance shares at a price above the price at the date of the merger agreement. Accordingly, the current rights of the jouissance share holders available in the transferee company shall be protected exactly in the same way in the transferor company. In this situation, it is a legal obligation to provide jouissance shares to the current jouissance share holder in the transferee company.

Further, Article 142 of the Turkish Commercial Code must also be taken into consideration in the course of a merger. It states that, for the protection of the shareholder's rights, it is necessary to make a capital increase. Even though this article regulates the protection of the shareholder's rights, this article must be analogously applicable for the protection of the jouissance share holders rights, and the capital increase must be made by taking into account the jouissance share holders.

The Position of Jouissance Share Holders in a Public Offering

In a merger transaction, if the transferor or transferee company is a publicly held joint-stock company, the resolutions of the general assembly can not be executed unless the approval of the jouissance share holders is granted upon a resolution adopted by them in a special meeting. However, the procedure for adopting this resolution should be discussed. As known, pursuant to the former TCC, the general assembly of jouissance share holders was regulated with reference to the general assembly of bond holders. However, the TCC does not regulate the general assembly of bond holders and it does not have a specific regulation regarding the jouissance share holders' general assembly. Therefore, it may be opined that the approval of the jouissance share holders' general assembly stipulated under the capital market law is now without a legal basis.

On the other hand, Article 348/2 of the TCC should also be mentioned for the public offering. The aforementioned article states that joint stock companies incorporated following the entry into force of the TCC must invalidate the jouissance shares for the founders without paying any fee before the public offering; otherwise the jouissance shares for the founders will be deemed invalid ipso facto. This article was accepted and entered into force even though it has been criticized in the doctrine for the reason that it will discourage the founders of the company. Consequently, joint-stock companies incorporated after July 1, 2012 and which issue jouissance shares for its founders shall invalidate the jouissance shares for founders in case the company decides on public offering; otherwise these shares will be deemed invalid ipso facto.

The Termination of the Shares

As explained above, jouissance shares do not grant shareholding rights to its holders. It is accepted that there is a contractual relation between the jouissance share holders and the company. As a consequence, the jouissance shares may be terminated with the consent of the holders which are a party to the contract. Along with this, a jouissance share issued for a definite period of time will expire at the end of this period. However jouissance shares do not expire in cases of merger or conversion unless they have been purchased by the company at a price above their real price on the date of the merger (Art. 140/5 of TCC). Accordingly, the jouissance shares may expire in case of a public offering pursuant to Article 348/2 of the TCC mentioned above.


The amendments made through the TCC to the provisions of the former TCC regarding jouissance shares for founders result in a restriction of the cases where jouissance shares for founders can be issued, and in non-issuance of jouissance shares in the course of capital increase. It is uncertain whether the legislator desired these results or not. However, the legal provisions in force require the acceptance of these results.

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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