Turkey: Legal Framework Of Preference Shares In Joint Stock Companies

I. General Overview

The new Turkish Commercial Code Nr. 6012 ("TCC") introduces a new regulation on preference shares as a result of the 50 years of practice and the Turkish Supreme Court decisions. With the new provisions on preference shares, the lawmaker aimed to clarify controversies, to fill legal gaps and more importantly to strengthen the corporate governance principle1. Preferences on shares constitute an exception to the principle of equality among shares. As the name suggests, these preferences, as a general rule, are granted not to persons but to shares2.

In terms of the concept of preference shares, provisions of the former Turkish Commercial Code Nr. 6762 ("FTCC") and the TCC are worth comparing. The FTCC, albeit providing a list of rights on which preferences can be established, lacks a definition of the term. The TCC, however, introduces a definition of preference. According to its Article 478/2, a preference is a superior right or a new shareholding right not foreseen in the law which is granted on dividend, liquidation share, pre-emptive right, voting right and other similar rights. Nevertheless, superior vote of the chairman of the board of directors ("BoD"), limitations for the transfer of shares set forth in the articles of association or option rights such as put and call options offered for certain shareholders cannot be qualified as preferences3.

Preferences should be stipulated in the articles of association of a joint stock company (Art. 478/1). If the articles of association are intended to be amended to grant preference rights, the affirmative vote of the shareholders representing %75 of the capital is required (Art. 421/3/b). For the publicly-held companies, on the other hand, the BoD may issue preference shares or restrict the rights of preferred shareholders only if the articles of association regulate such an authority (Capital Market Law Art. 18/5).

According to Art. 478/4 of the TCC, no preferences can be granted to other shares, shareholders forming a certain group, certain share groups and the minority in joint stock companies where more than % 50 of the company or its affiliates are owned by governmental authorities; yet the shares held by the governmental authorities listed in this article can be granted preferences. This provision does not apply to credit and financial institutions and joint stock companies whose shares are being traded in the stock exchange.

II. Preference in Voting Right

Voting preference is created by granting different number of votes to the shares with identical nominal values (Art.479/1). The method which includes granting of the same number of votes to the shares with different nominal values is not accepted by the TCC4. Let's say, the nominal value of each Group A share in a joint stock company is TL 1,00 and each Group A share grants one vote. Although Group B shares have the same nominal value, by establishing a preferred voting right, two votes may be granted to each Group B share. However, groups consisting of shares with different nominal values cannot have the same number of votes. For instance, Group A share with the nominal value of TL 1,00 and Group B share with the nominal value of TL 3,00 cannot be granted the same number of votes.

There are also certain limits introduced for the preferred voting right. Accordingly, a single share may grant maximum number of 15 votes (Art. 479/2). This upper limit for the preferred voting right has been newly introduced with the TCC to our legal system by considering the opinions of the scholars that such right should not be misused.

In cases of necessity for corporate objectives of the joint stock company or of just causes, this upper limit of 15 votes may be removed. An application to the court is needed in order to be exempted from such limit. As far as corporate objectives are concerned, a detailed project has to be submitted to the court. As regards to just causes, on the other hand, the applicants have to prove the existence and relevance of such cause.

It should be noted that the preferred voting right cannot to be exercised in general assembly resolutions regarding; the amendment of the articles of association, and the actions to be filed for release and liability (Art. 479/3).

III. Preference in Representation in the BoD

According to Art. 360 of the TCC, provided that it is stated in the articles of association, certain share groups, shareholders forming a certain group in terms of their characteristics, and the minority shareholders (holder of at least one tenth of the capital in non-public companies and one twentieth of the capital in publicly-held companies) may be granted the right to be represented in the BoD.

Preference is granted not to every single share in the group but to the group as a whole. Preferences granted to the shares in a group should be used together. In order to be entitled to the representation right, groups have to be specifiable. "Certain share groups" correspond to a group consisting of preferences granted to "shares", whereas "shareholders forming a certain group in terms of their characteristics" consist of preferences granted to certain "shareholders". In other words, the shareholders in the second group have a common feature such as being employees, creditors, distributors or suppliers of the company. If their shares were sold to a person sharing no common feature with the former owner and the rest of the group, this person would not be entitled to exercise such right5.

For this purpose, the articles of association of a joint stock company can stipulate that board members shall be elected from among certain share groups, shareholders forming a certain group and the minority; or that the right to nominate a candidate for the BoD shall be granted to them, as well.

The above mentioned clause is an exception to Article 478 whereby the preference is granted solely to the shares, not to persons (Art. 478/3). Despite the fact that the preference in representation did not exist in the FTCC, the doctrine and the Supreme Court have already accepted this concept as the "group preference"6.

With the new Capital Market Law, on the other hand, preferences concerning voting right and representation in the board of directors shall be removed by the decision of the Capital Markets Board in publicly-held companies which have had losses consecutively for five years (Capital Market Law Art. 28/2).

IV. Preference Shareholders Meeting

Some resolutions of the general assembly may violate the rights of preferred shareholders. These resolutions have to be confirmed by the Preference Shareholders Meeting in order to be valid. General assembly resolutions on the amendment of the articles of association, general assembly resolutions related to granting authority to the BoD for capital increase and the BoD resolutions on the capital increase which bear the risk to violate the rights of the preferred shareholders should be confirmed in the Preference Shareholders Meeting (Art. 454/1). If preferred shareholders cast their votes in the general assembly in favor of the said decisions, Preference Shareholders Meeting does not need to be held for the same matters (Art. 454/4).

The Preference Shareholders Meeting convenes with at least %60 of the capital representing preferred shares and the resolutions are adopted by the majority of those present or represented in such meeting (Art. 454/3).

The BoD has the right to file an action for the annulment of Preferred Shareholders Meeting resolution and for the registration of the general assembly decision within 1 month as of the date of the Preferred Shareholders Meeting resolution, by claiming that the general assembly resolution does not violate the rights of the preferred shareholders (Art. 454/7).


Unlike the FTCC, provisions on the preference shares in the TCC determine the framework of and the rights attached to the preference shares. Upper limit for the preferred voting right, representation of certain groups in the BoD, required quorums for Preference Shareholders Meetings along with other disputable issues on the preference shares are clarified with the TCC. In a legal atmosphere where preferences in voting right are gradually limited or totally removed from the legislation of various countries, TCC stipulates preferred voting right in a restricted manner as well, in order to promote corporate governance principle. It will be observed in time whether the practice of preference rights will be in line with the object and purpose of the law.


1 Ozan Niyazi Günel, İmtiyazlı Hisse Senetleri, Başkent Üniversitesi Sosyal Bilimler Enstitüsü, Yüksek Lisans Tezi, Ankara, 2009, p. 3

2 Hasan Pulaşlı, Şirketler Hukuku Genel Esaslar, Güncellenmiş 2. Baskı, Ankara, Adalet Yayınevi, 2013, p. 519.

3 Pulaşlı, ibid, s. 516.

4 Tekinalp, ibid, p. 317.

5 Pulaşlı, ibid, p. 520, Tekinalp, ibid, p. 198.

6 11 HD., 16.10.1979, E. 1979/4286, K.4769, 11. HD., 8.10.1993, E. 1992/6626, K. 1993/6317

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