Turkey: Share Transfer Restrictions In Joint-Stock Companies

Generally, shareholders who do not wish to have any outsider owning shares in the company, wish to restrict the share transfers in the company. Apart from the foregoing reason, there are also restrictions that are set forth under the Turkish Commercial Code No. 6102 (the "TCC").

1. Transfer of Bearer Share Certificates

Under Turkish law, transfer of bearer shares cannot be restricted in any way. Thus, shareholders holding bearer share certificates may transfer such shares without any restriction. Transfer of bearer shares becomes effective for all parties concerned, upon the delivery of the bearer share certificates. Any restriction that may be set out under a shareholders' agreement would be a mere contractual obligation of the parties.

2. Transfer of Registered Shares

In principle, registered shares may also be transferred without limitations. Transfer is perfected by delivery of the possession of the endorsed share certificate to the transferee.

However, there are several exceptions to this rule. These are (i) restriction by laws, and (ii) restrictions which may be introduced through the articles of association of the company.

2.1. Restriction by Laws

Registered shares that are not fully paid-in may only be transferred subject to the approval of the company, unless the transfer takes place due to inheritance, division of inheritance, property regime between spouses, or foreclosure (Article 491, TCC). The phrase "approval of the company" is intended to mean a board of directors' resolution.

The company may decline approving the transfer if the transferee's ability to pay (the outstanding capital commitment) is doubtful, and the security required by the company has not been provided by the transferee.

2.2. Restrictions which may be introduced by the Articles of Association

As per Article 492 of the TCC, the articles of association may provide that registered shares may only be transferred subject to the approval of the company. However, unlike the former Turkish Commercial Code No. 6762, the provisions of the articles of association restricting share transfers "without any cause" shall not be applicable any more.

2.2.1. Unlisted Registered Shares

Article 493 of the TCC sets forth that the articles of association of a private company may restrict share transfers by providing causes of refusal, which are regulated under the TCC. The articles of association may include restrictions set out under the TCC, however, may not further restrict the conditions of transferability.

2.2.1.1.  Grounds for Refusal

a. As per Article 493/1 of the TCC, the company may decline providing approval of a share transfer by putting forward a "significant cause" specified in the articles of association.

If provisions of the articles of association concerning the "composition of shareholders" justify not providing approval to the transfer in relation to the scope of the business of the company, or its economic independence, such shall constitute a significant cause for refusal of the share transfer.

In other words, causes of refusal need to be related to the scope of the business of the company and/or its economic independence. For example, a share transfer to a competitor may be restricted due to the economic independence of the company.

Likewise, being related to a certain family or a profession may also be considered as a significant cause in order for the company to restrict share transfers to persons not belonging to the family or the profession (e.g. a partnership among lawyers or architects).

However, a share transfer restriction which bans share transfer to foreigners would not be a significant cause and thus, such a restriction would not be enforceable under the TCC.

If the significant causes of refusal are not clearly stated under the articles of association, the company would not be able to refuse a share transfer based merely on general provisions of the TCC.

b. As per Article 493/1 of the TCC, the company may also decline any request of approval, by proposing the transferor to acquire her/his shares itself or for the account of other shareholders or third parties, at a fair value to be determined at the time of application.

In this case, the company does not need to have a significant cause of refusal in order to refuse a share transfer, provided such right of offer should be stated under the articles of association. The company will have the right to make such offer and acquire such sale shares itself, or for its shareholders, or any third party, and the transferor will be obliged to transfer its shares at a fair value even if the potential purchaser's offer is higher than the fair value.

The transferee may ask the commercial court of first instance where the principal office of the company is located, to determine the fair value of shares.

c. As per Article 493/3 of the TCC, if the transferee fails to explicitly declare that s/he is acquiring the shares on her/his behalf and account, the company may refuse to record the transfer in the share ledger.

If the company has doubts that the transferor is not acting on its behalf and account, it may request a written declaration for confirmation from the transferor and if the transferor refuses to give such declaration, the company is entitled not to record the share transfer in the share ledger.

d.If the shares are acquired through inheritance, division of inheritance, property regime between spouses, or foreclosure, the company may decline the approval of transfer only if it proposes to the acquirer to acquire the shares at fair value. In other words, in either of these cases the company may not introduce a significant cause to prevent the share transfer.

2.2.1.2. Consequences of Refusal

The ownership and all rights associated with the shares remain with the transferor as long as the approval for transfer is withheld.

If the shares are acquired through inheritance, division of inheritance, property regime between spouses, or foreclosure, ownership of the shares and all associated rights thereto are transferred to the transferee immediately yet the rights to participate and vote in the general assembly can be exercised upon the company's approval.

If the company fails to respond to the request for approval within three months of receiving such request, or the refusal is unfair, the approval shall be deemed given.

2.2.2. Listed Registered Shares

As per Article 137 of the Capital Market Code No. 6362 (the "CMC"), it is not possible in public companies to refrain from registering with the share ledger the transfer of shares which are acquired as a result of a transaction realized through the exchange. In other words, there is no restriction to share transfers in listed registered shares. Articles 493 and 494 of the TCC shall apply to shares of these companies, which are not publicly traded.


This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2016. A link to the full Legal Insight Quarterly may be found here.


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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