Turkey: Jouissance Shares For The Founders In Turkish Commercial Code

Introduction

Jouissance shares are the securities, different from the share certificates, which do not provide its holder with any shareholder right but which carry some financial rights. Art. 503 of the Turkish Commercial Code numbered 6102 ("TCC") clearly points that the holders of jouissance shares cannot be provided with shareholders rights.

The jouissance shares, in general, are regulated in art. 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 favor of the creditors, the holders of the shares which value is legally paid off or similar relevant persons to the company. These jouissance shares may be issued to the order of someone specific or to the order of the bearer.

Art. 502 of the TCC stipulates that art. 348 of the TCC shall be applied to the jouissance shares. Art. 348 of the TCC regulates the interests of the founders and the limitations regarding the payments to holders of jouissance shares. 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. Art. 402 of the Turkish Commercial Code numbered 6762 ("former TCC") which is abrogated on July 1, 2012, similarly regulated the jouissance shares. However, art. 402/2 of the former TCC set forth that the jouissance shares for the founders cannot be issued unless it has 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 it had not been stipulated in the first articles of association. This opinion was based on art. 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, TCC contains certain differences with relation to the former TCC. Therefore, the cases where jouissance shares for the founders can be issued should be discussed with regards to TCC which entered into force on 1 July 2012.

While 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 any kind of amendment in the articles of association, because of the raison d'être of the jouissance shares for the founders, since the purpose of the jouissance shares for the founders is to reward the persons who contributed their efforts and to encourage the founders for incorporation.

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

Rights Granted to the Holders of the Jouissance Shares for the Founders

Article 503 of the TCC stipulates that holders of jouissance shares 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 art. 403 of the former TCC. Therefore, the discussions for former TCC regarding the meaning of "net profit" or "capital surplus upon liquidation of a company" are still in force.

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

The Position of Holders of Jouissance Shares in Mergers

The doctrine accepts that the holders of jouissance shares are not entitled to block the resolutions of the general assembly. The purpose of this opinion is to protect the company interests from blocking intentions of those who are not shareholders. However, it is also necessary to protect the holders of jouissance shares who have financial rights in the company. To that end, art. 140/5 regulates the position of holders of jouissance shares in merger of the company with another.

Pursuant to said article, the transferor company must provide the holders of jouissance shares of the transferee company with equal rights or to purchase the jouissance shares over the price at the date of the merger agreement. Accordingly, the current rights of the holders of jouissance shares 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 holders of jouissance shares in the transferee company.

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

The Position of Holders of Jouissance Shares in 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 cannot be executed unless the approval of the holders of jouissance shares 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 former TCC, general assembly of holders of jouissance shares was regulated with reference to the general assembly of bond holders. However, TCC does not regulate general assembly of bond holders and it does not have a specific regulation regarding the holders of jouissance shares' general assembly. Therefore, it may be opined that the approval of the holders of jouissance shares' general assembly stipulated under the capital market law is now without a legal basis.

On the other hand, art. 348/2 of the TCC also should be mentioned for public offering. The aforesaid article states that the joint stock companies incorporated following the entry into force of the TCC will 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, the 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, the jouissance shares do not grant shareholding rights to its holders. It is accepted that there is a contractual relation between the holders of jouissance shares 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 over their real prices 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.

Conclusion

The amendments made through the TCC in the provisions of the former TCC regarding the jouissance shares for founders result in 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 these results are preferred by the legislator. 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.

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
 
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