Turkey: Share Transfers Under Electricity Market Legislation


Electricity Market Law numbered 6446 ("EML" or "Law") entered into force through publication in the Official Gazette dated March 30, 2013 and numbered 28603. Share transfers of companies that operate in the energy market became one of the newly regulated issues with the publication of the Electricity Market Licensing Regulation ("Regulation") in the Official Gazette dated November 2, 2013 and numbered 28809, upon the enactment of the EML.

This article will focus on the new regulations regarding share transfers introduced by the new Electricity Market Law and the new Electricity Market Licensing Regulation.

In accordance with the current legislation in force, prior to the commencement of their market activities, all legal entities to be engaged in market activities must obtain the relevant license for each activity, and for each facility, if the market activity in question is to be performed in more than one facility, excluding the exceptions stipulated by the Law and the Regulation. Furthermore, pursuant to Art. 6 of the EML, a preliminary license is required for generation activities. In accordance with Art. 5(2) of the Regulation, all legal entities to be engaged in generation activities must obtain a preliminary license for each facility if the generation activity is performed in more than one facility.

Generation activities that are exempt from the obligation to obtain preliminary licenses and licenses, and to establish a company, are listed in the Communiqué on the Implementation of the Regulation.

As per Art. 12(3) of the Regulation, legal entities that submit an application to obtain a preliminary license shall be established as a joint stock company or a limited liability company in line with the relevant provisions of the Turkish Commercial Code numbered 6102, and remain as such while it holds its license.

Share Transfers

In accordance with the electricity market legislation, the share transfers of the electricity energy license holder joint stock, or limited liability companies, are subject to the permission of the Energy Market Board ("Board"), provided that certain conditions are met. Thus, the Board aims to prevent real persons or legal entities that are not qualified to obtain licenses to later become the shareholders of the license holder companies through share transfers. At the preliminary license stage, in principle, the shares of the preliminary license holder company shall not be transferred.

Essentially, a license enables the realization of a public service by the private sector that is normally provided by the state. The public administration requires legal entities that are selected in accordance with various predetermined criteria in the licensing stage, to put the services they have undertaken into practice. Therefore, the license holders are both selected with care, and supervised by the public administration for due fulfillment of their relevant undertakings1.

Similar to the banking and insurance sectors, the share transfers, as well as mergers and demergers, of the license holder company are conditional pending the Board's permission because the state requires that the identities of the shareholders be provided, so long as the company holds the license2.

As per Art. 5, paragraph 3, of the Regulation, the license shall not be transferred. However, the subparagraphs of the same paragraph of Art. 5 stipulate that under certain conditions, share transfers, mergers and demergers of the license holding companies, as well as the transfer of the facilities that are the subject of the license, shall not be deemed as transfer of the license.

In accordance with the Turkish Commercial Code, shares of joint stock and limited liability companies shall be transferred freely unless a special restriction is stipulated, either by law or through the articles of association. The EML and the Regulation restrict share transfers of the companies by introducing a share transfer restriction provided by the law.

Share transfers are dichotomously stipulated by the electricity market legislation, based on the licensing process. Different restrictions are provided for the share transfers of the preliminary license holder companies, as well as the license holder companies.

Transfer of Preliminary License Holder Company Shares

Preliminary license holder companies are expected to solely operate in electricity energy investments; therefore, the public administration tends to restrict them from being active in different fields. Hence, the share transfers of preliminary license holder companies are prohibited under the law3.

In accordance with Art. 6(3) of the EML, "A preliminary license shall be cancelled if, the shareholding structure of the preliminary license holder company directly or indirectly changes for a reason other than succession or bankruptcy, its shares are transferred,, or the company concludes a transaction that will result in the transfer of its shares or the company does not comply with its obligations laid down by the Board." 4

As is clear from the wording of the provision, the transfer of the preliminary license holder companies' shares is prohibited by the law.

In parallel with these provision of the Law, Art. 57(3) of the Regulation reads as follows: "Until the license is obtained, no transaction shall be made by the company that will directly or indirectly change its shareholding structure, transfer its shares, or result in transfer of its shares."5

In addition, in order to restrict the freedom of share transfer foreseen by the Turkish Commercial Code, above, Art. 12(5) of the Regulation stipulates that such restriction shall be incorporated into the articles of association of the preliminary license holder company. Thus, third persons are prevented from claiming bona fides in the event that they acquire the shares6.

The exceptions to this restriction are listed under the subparagraphs of Art. 57(1) of the Regulation. Accordingly, this restrictive provision does not apply to (a) the changes in the shareholding structure of the publicly listed legal entities with regard to their publicly listed shares, and the changes in the shareholding structure of legal entities that have publicly listed shareholders; however, limited to the publicly listed shares of the publicly listed shareholder in question, (b) the preliminary license holder companies that are granted such license for those facilities established in line with international agreements, (c) the indirect changes in the shareholding structure of the preliminary license holding companies as a result of the changes of their foreign shareholder's shareholding structure7.

The Transfer of License Holder Company Shares

As stated in the Introduction section of this Article, the legislator makes the transfer of the shares conditional upon the permission of the Board, provided that the transferred shares in question exceed a certain percentage, therefore securing the public administration's inspection and supervision over the shareholding structure of the company to which a certain public service is conveyed through licenses.

Accordingly, Art. 5(3) of the EML stipulates that "The below-mentioned transactions of the legal entities operating in the market are conditional to the Board's permission. The principles and procedures regarding obtaining the Board's permission are established under the regulation enacted by the Authority. a) the capital share changes that amount to five per cent or more in publicly listed companies, ten per cent and more in other companies, b) any transaction that will result in a change in the shareholding structure and c) the transactions that will change the ownership or usage rights over the facilities."8

When this provision is observed, it can be inferred that the requirement to obtain the Board's permission is introduced in three different instances.

The first instance is the percentage of the capital share to be transferred. The five per cent or more capital share for publicly listed companies, and ten per cent or more capital share for other companies are required to enjoy minority rights under the Turkish Commercial Code. The minority shareholders have certain additional rights that enable them to affect the functioning and sometimes even the control of the company. Thus, the above-mentioned percentages and their transfers are deemed important and made subject to the Board's permission.

Secondly, any transaction that will result in a change in the shareholding structure of the company is conditional upon the Board's permission. The legislator aims to control the adoption of decisions that can affect the company or any interference with such decisions. An example can be the transfer of privileged shares. Even though they do not amount to the percentages stipulated by the legislation, the transfer of the privileged shares is also subject to the Board's permission. In addition, by using the phrase "any transaction," the legislator includes the share pledge agreements and usufruct agreements into the scope of the requirement to obtain the Board's permission.

The last criterion for the permission requirement is the transactions that will change the ownership or usage rights over the facilities. Apart from share transfers, a transfer of the facilities or usage rights that can be referred to as the transfer of assets are subject to the Board's permission for the supervision of the public service conveyed.

Art. 57(2) of the Regulation expands the provisions laid down by the Law regarding share transfer restrictions. The said provision reads: "The direct or indirect acquisition of the shares representing ten per cent (five per cent in publicly listed companies) of the license holder companies' capital or more by a real person or a legal entity, and independent from the share transfers stated, above, shares transfers resulting in the change of control over the shareholding structure of the legal entity and the establishment of a pledge over the shares of the legal entities whose tariffs are subject to regulation, and the establishment of an account pledge in relation to these companies are subject to the Board's approval each time. Any type of direct changes in the shares in the shareholding structures of the legal entities holding market operation licenses are subject to the Board's approval independent from the above-stated capital share changes. The approval is granted to the legal entities whose tariffs are subject to regulation by the Board, others are granted by the relevant main service unit."9

The Regulation includes two points that are dissenting from the Law. The first of these is that share pledges are listed among transactions that require the Board's permission along with share transfers; however, usufruct rights are not included. In accordance with the clear wording of the Law, the establishment and transfer of usufruct rights are also subject to the Board's permission. Another dissenting point included in the Regulation is the usage of the word "approval" instead of "permission." Permission and approval differ with respect to the time period that they can be obtained. Permission is required prior to the transaction; whereas an approval is the confirmation of the compliance of an already existing transaction. In this case, instead of the wording of the Regulation that must be in compliance with the Law, the phrase utilized in the Law shall prevail, and the transactions listed in the Regulation shall be submitted to the Board's permission prior to their conclusion10.


It is a legal obligation for the companies operating in the electricity market to obtain licenses, excluding the exceptions laid out, above. In order for this obligation to be fulfilled, these companies shall be established as either a joint stock or a limited liability companies. The free transfer of shares that are stipulated by the Turkish Commercial Code for these types of companies are restricted in the electricity market field, a market where public service is conveyed, in order to ensure administrative supervision. It is important for investors that will be active in the electricity market to consider the legal restrictions set forth in this article while planning the investments regarding credit supply and project finance in order for their investments to be well-grounded and durable.


1.ÖZDAMAR Mehmet, Elektrik Piyasasında Faaliyet Gösteren Şirketlerde Pay Devri, Energy Law Journal 2014/1, p. 119.

2.ÖZDAMAR Mehmet, Elektrik Piyasasında Faaliyet Gösteren Şirketlerde Pay Devri, Energy Law Journal 2014/1, p. 116.

3.ÖZDAMAR Mehmet, Elektrik Piyasasında Faaliyet Gösteren Şirketlerde Pay Devri, Energy Law Journal 2014/1, p. 121.

4.Official Gazette. D. 30.03.2013, No. 28603.

5.Official Gazette. D. 02.11.2013, No. 28809

6.ÖZDAMAR Mehmet, Elektrik Piyasasında Faaliyet Gösteren Şirketlerde Pay Devri, Energy Law Journal 2014/1, p. 121.

7.Official Gazette. D. 02.11.2013, No.28809

8.Official Gazette. D. 30.03.2013, No. 28603.

9.Official Gazette. D. 02.11.2013, No.28809

10.ÖZDAMAR Mehmet, Elektrik Piyasasında Faaliyet Gösteren Şirketlerde Pay Devri, Energy Law Journal 2014/1, p. 124 -125.

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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