Turkey: Cumulative Voting System-New Initiatives For Minority Protection In Closed JSCs?

Pursuant to capital markets regulations, the cumulative voting system was only accepted for public joint stock companies ("Public JSCs")1 and the former Turkish Commercial Code No. 6762 (the "Former TCC") does not contain any reference to the implementation of such closed joint stock companies ("Closed JSCs")2.

New Turkish Commercial Code No. 6102 (the "New TCC") in its Article 434, made smooth the path for the implementation of the cumulative voting system in Closed JSCs, subject to the adoption of the relevant secondary legislation by the Ministry of Customs and Trade. Therefore, Closed JSCs may now adopt the cumulative voting system for the election of their directors in the general assembly. The Communiqué on the Principles Concerning Practice of Cumulative Voting in General Assemblies of Closed Joint Stock Companies (the "Communiqué") entered into force through its publication in the Official Gazette numbered 28396 and dated 29 August 20123.


Scope and Aim

The scope of the Communiqué is to set forth the main rules with respect to the use of the cumulative voting system upon the election of the board of directors (the "BoD") in the general assemblies of Closed JSCs. Accordingly, the cumulative voting regime cannot be adopted for all resolutions of a general assembly; it is only possible for the election of the BoD.

The purpose of the cumulative voting system is to allow minority shareholders to elect their representatives to the BoD so as to ensure their effective participation in the management of the company4. In other words, cumulative voting gives minority shareholders the opportunity to be represented on a company's BoD.

Implementation Principles

  • Inclusion in the AoA and Publication on the Website

    Pursuant to Article 5 of the Communiqué, in order to adopt the cumulative voting system, an explicit provision that enables the shareholders to cumulatively use their voting rights in favor of one or more candidates in the election of the BoD must be duly incorporated in the articles of association of the company (the "AoA"). Web sites and general assembly meeting announcements of companies that have adopted the cumulative voting system must provide explanations regarding the implementation of this method.
  • Request of a Shareholder

    The shareholders or their representatives who are willing to adopt the cumulative voting right must inform the company in writing on their cumulative voting request at least 1 (one) day prior to the date of the general assembly5, unless all shareholders have unanimously agreed on the use of the cumulative voting system during the general assembly.
  • Election Basics

    The implementation of the cumulative voting system requires that the BoD shall be composed of a fixed number of directors of not less than 3 (three). As also defined under Article 4 of the Communiqué, the total number of votes owned by each shareholder is calculated by the multiplying the number of votes held by each shareholder (or used through a representative) by the total number of directors to be elected.

    A shareholder using the cumulative voting system is free to distribute his cumulative votes to one or more candidates. The cumulative voting allows each shareholder to aggregate the votes to which the shareholder is entitled, and then cast them in whatever number the shareholder chooses. If a shareholder distributes his/her cumulative votes to more than one candidate without explicitly stating as to the distribution among the candidates, pursuant to Article 5, paragraph 7, of the Communiqué, his/her votes are deemed to be equally distributed.

    As per Article 5, paragraph 6 of the Communiqué, the implementation of the cumulative voting system imposes that all of the directors are elected in the same general assembly6.
  • Negative Conditions

    Article 5 of the Communiqué stipulates negative conditions for the adoption of cumulative voting. Accordingly, the AoA of the company shall not include provisions relating to the representation of certain class shareholders or minority shareholders in the BoD. In addition, any right to nominate a candidate for the BoD, as well as provisions granting privileges for voting rights in the election of members of BoD as per the Article 479 of the New TCC, shall be excluded from the AoA of the company.
  • Formalities

    The Communiqué also contains, in its Article 6, save for electronically held general assemblies, the formalities to be observed with respect to the use of cumulative voting system, such as voting by ballots in which the name, signature, total number of votes hold by the shareholder, as well as the distribution of the votes among the candidates should be set forth.

    The chairman is obliged to control the number of cumulative votes and take the necessary precautions to prevent "ballot stuffing."
  • Responsibility of the BoD

    Pursuant to Article 8 of the Communiqué, the BoD is responsible for the due implementation of the cumulative voting system, and shall take all of the necessary measures in order to prevent abolishment of such system7.


Even though this new regime may be considered as a forward step for the democratic basis of closed JSCs, as it aims to ensure participation of minorities to the management, and to restrict the power and representation of the majority in the BoD level, due to the complexity of its implementation, the election process may be manipulated and, therefore, the shareholders may be deprived of their voting rights.

As well, it may also be envisaged that, in practice, the cumulative voting system will not be adopted by most of the Closed JSCs, as JSCs with more than 1 (one) shareholder may create share groups and grant privileges to share groups in the election of directors instead of adopting the cumulative voting regime, which is more complex and lends itself to being ambiguously implemented. In addition, the majority, except for the cases where privileges are granted to the minority, which is able to elect the directors of the company, will certainly be reluctant to vote in favor of adopting the cumulative voting system in the AoA of the company, which may prevent them from electing at least some of the directors, depending on the shareholding structure of and so voting allocations in the company.


1 Pursuant to Capital Markets Law No. 2499, Article 22, the Capital Market Board is responsible to make necessary regulations regarding the use of the cumulative voting system upon the election of boards of directors and boards of supervisors in the general assemblies of joint stock companies, subject to such law. In addition, the Communiqué on Principles Regarding Cumulative Voting at Shareholders Meetings of Joint Stock Corporations Subject to Capital Markets Law, imposes in its Article 5 that the adoption of the cumulative voting regime is mandatory for unlisted companies that have more than 500 shareholders for the previous two years, while it is facultative for other public joint stock corporations. Please also note that joint stock companies with more than 500 shareholders are considered to be Public JCS's in accordance with Article 16 of the Capital Markets Law No. 6362.

2 One scholar accepted that the cumulative voting system may also be applicable to Closed JSCs as well, although the others refused such possibility, and alleged that such system is prohibited to Closed JSCs.

3 It should be noted, however, that pursuant to Article 28 of the Act on Entry into Force and Implementation of the Turkish Commercial Code (the "Act of Implementation") amended by Act Amending the Act of Implementation No. 6335 and dated 14 January 2011 states that Article 434 of the New TCC will enter into force 12 months following its entry into force. As the New TCC entered into force on 1 July 2012, then the entry into force of its Article 434 will be 1 July 2013.

We understand that the Communiqué has been issued on the basis of Article 434/4 of the New TCC before the entry into force of the said Article. In consequence, the validity of the Communiqué is disputed among scholars. Some scholars are of the opinion that the Communiqué is invalid and may be annulled due to the lack of legal grounds. Such annulment will have a retrospective effect, so the Communiqué shall be considered to be eliminated from the date of its entry into force. Therefore, transactions performed based on this Communiqué shall also become legally groundless following such annulment. However, according to some scholars' opinions, personal results that are worth protecting shall remain valid as a result of the principal of the protection of vested rights following the annulment. In other words, lawful transactions that produced rights and interests in favor of persons in good faith (i.e. minority) shall not be eliminated.

4 Article 1 of the Communiqué.

5 In the event that at least one of the shareholders or the representatives notifies of the cumulative voting request, the cumulative voting regime must be applied.

6 Pursuant to Article 5, paragraph 8 of the Communiqué, upon the discharge of a director according to Article 363, or dismissal according to Article 364 of the New TCC, except for cases where the discharged/dismissed director has been elected by the affirmative vote of the majority shareholder, the new election shall contain all members of the BoD. Such rule shall not apply in the event that the discharge has occurred by the completion of the term or dismissal for just cause is accepted by a court decision.

7 In parallel with the Articles 369 and 553 relating to the duty of care and responsibility of the directors.

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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