Turkey: Voting Agreements Under Turkish Law

Introduction

In principle, shareholders exercise their right to vote in general assembly meetings in accordance with the ratio of the total nominal value of their shares to the company's share capital. Each shareholder is entitled to one vote, even if it has only one share. Shareholders who do not possess a sufficient number of shares to have a meaningful role in the company's management need the support of the other shareholders, which they can provide by means of voting in the same vein as such shareholder, in general assembly meetings. In order to secure such other shareholders' voting support, a voting agreement is usually entered into between these parties. A voting agreement can be defined as an agreement that contains an undertaking as to vote in a certain direction or via a specific representative, not to vote completely or partially, or to give abstaining vote in the general assembly meeting(s) of a company1. This Newsletter article examines the legal characteristics, types, validity and limits of voting agreements, as well the consequences attached to the failure to comply with the provisions thereof.

Legal Characteristics and Types of Voting Agreements

Voting agreements are subject to the provisions of the law of obligations. As it is not possible to burden the shareholders with any obligation other than the payment of the share value and the related premium, if any, as per Article 480 of the Turkish Commercial Code numbered 61022 ("TCC"), it would not be appropriate to regulate a voting agreement under the articles of association3.

Voting agreements are usually classified by legal scholars in several groups in terms of obligations of the parties, capacities of the parties to the agreement, and continuity of the voting undertaking4:

  • In terms of obligations of the parties:
  • Unilateral voting agreements: Only one party gives an undertaking as to its voting right.
  • Reciprocal voting agreements: Both parties give an undertaking to each other as to voting in a certain direction.
  • Multilateral voting agreements: Two or more shareholders give an undertaking as to voting in a certain direction.
  • In terms of capacities of the parties:
  • Voting agreements between the shareholders
  • Voting agreements between the shareholders and third parties
  • Voting agreements between the shareholders and the company
  • In terms of continuity of the voting undertaking:
  • Non-continuous (one-time) voting agreements: Parties give a voting undertaking for a specific general assembly meeting or a specific agenda item of a general assembly meeting.
  • Continuous voting agreements: Parties give a voting undertaking not limited to a specific general assembly meeting or a specific agenda item of a general assembly meeting. Such an undertaking is usually given for a limited period of time.

Validity and Limits of Voting Agreements

Voting agreements are not subject to any statutory condition as to form. Limits of the freedom of agreement determine the validity of voting agreements5. As per Article 27 of the Turkish Code of Obligations numbered 60986 ("TCO"), voting agreements that are in violation of the mandatory provisions of the laws, ethics, public order, personal rights, or those that contain a subject matter which is impossible to achieve, are null and void.

It is possible to enter into voting agreements for the votes attached to all or a part of a shareholder's shares. As the right to vote is attached to the share, itself, but not the shareholder, the shareholders are free to cast each of their votes in different directions and, therefore, provide a voting undertaking in relation to their certain shares.

Certain types of voting agreements are examined, below, in terms of their validity:

  • Voting Agreements for an Indefinite Period of Time: Some legal scholars are intended to deem the voting agreements made for a very long period, or an indefinite period of time, as invalid on the grounds of violation of personal rights7; while others believe that a long period would not automatically render the agreement invalid, the agreement must, at the same time destroy or substantially limit the economic freedom of the subject shareholder in a given specific case8.
  • Voting Agreements regarding the Votes to be cast in Board of Directors/Managers Meetings: There are differing views of legal scholars on voting agreements regarding the votes to be cast in board of directors meetings of joint stock companies and board of managers meetings of limited liability companies. According to Çamoğlu, votes of the members of boards of directors cannot be subject to voting agreements, as the representation agreement between the member of the board of directors and the company, as well as the diligence and loyalty obligation of the board of directors member, constitute an obstacle against such undertakings9. On the other hand, Moroğlu argues that both the voting agreements and the votes cast by members of boards of directors in violation of the diligence and loyalty obligation are valid, yet lead to the contractual liability of the relevant member of the board of directors towards the company10.
  • Voting Agreements between the Shareholders and the Company: A voting undertaking from the shareholder of a company to the company, itself, means that the company's legal entity participates in, and affects, the constitution of its own will through voting agreements. This situation creates a violation of the principle of separation of powers between the decision and management bodies of the companies. Therefore, voting agreements between the shareholders of a company and the company itself should be considered invalid11.

Consequences of Failure to Comply with the Provisions of Voting Agreements

Failure to comply with the provisions of the voting agreements does not lead to any consequences in terms of the law of corporations, regardless of whether or not such provisions are regulated under the articles of association, as well. Breach of the provisions of the voting agreements cannot be alleged against the subject company; the votes cast are valid, despite violating the voting agreement; and the cancellation of the decision of the general assembly meeting taken, based on such votes cannot be requested12.

In terms of the law of obligations, in the event of a breach by a shareholder of its voting undertaking, the counterparty will be entitled to seek compensation in accordance with the general provisions of the law of obligations, either material, or spiritual, or both, subject to the legal conditions of each such compensation.

Whether or not the beneficiary of the voting undertaking can request specific performance of the undertaking to vote in a certain direction is a problematic issue. Despite the view that the beneficiary can request specific performance, and request the court to allow it to fulfil the obligation, itself, as per Article 113/1 of the TCO13, a counter-view argues that no option is available other than compensation as either the subject matter of the obligation becomes impossible to achieve in the event of one-time voting agreements, or it is unknown as to what direction the subject shareholder will cast its vote in the following general assembly meetings, in the event of continuous voting agreements14. There is no precedent that has become subject to a decision of the Courts of Appeal in Turkish practice.

Conclusion

In practice, voting agreements are entered into by the shareholders of a company usually with the other shareholders or third parties, whereby the shareholder(s) undertake(s) to vote in a certain direction for various objectives. Voting agreements are subject to the provisions of the law of obligations, and failure to comply with the provisions, thereof, does not lead to any consequences in terms of the law of corporations, regardless of whether or not such provisions are regulated under the articles of association, as well. Voting agreements are usually classified by the legal scholars in several groups in terms of the obligations of the parties, capacities of the parties to the agreement, and continuity of the voting undertaking. In the event of a breach by a shareholder of its voting undertaking; whereas, it is clear that the counterparty will be entitled to ask for compensation in accordance with the general provisions of the law of obligations, whether or not it can request specific performance of the undertaking to vote in a certain direction is still a much-debated issue.

Footnotes

1 Erdoğan Moroğlu, Oy Sözleşmeleri, Gözden Geçirilmiş ve Güncellenmiş 5. Baskı, p. 3; Çamoğlu (Poroy/Tekinalp), Ortaklıklar Hukuku I, Yeniden Yazılmış 13. Bası, İstanbul 2014, p. 507.

2 TCC (Official Gazette 14.02.2011, No. 27846) has entered into force on July 1, 2012.

3 Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, Değişiklikler ve İkincil Düzenlemelerle Güncelleştirilmiş 4. Bası, p. 372.

4 For more information on the types of voting agreements, please see Moroğlu, p. 34 ff.

5 Çamoğlu (Poroy/Tekinalp), p. 508.

6 TCO (Official Gazette 04.02.2011, No. 27836) has entered into force on July 1, 2012.

7 Çamoğlu (Poroy/Tekinalp), p. 509.

8 Moroğlu, p. 77.

9 Çamoğlu (Poroy/Tekinalp), p. 507.

10 Forstmoser/Meier Hayoz/Nobel, Schweizerisches Aktienrecht § 31 N. 36-40 (p. 360-361), cited from Moroğlu, p. 31-32.

11 Moroğlu, p. 62.

12 Gül Okutan Nilsson, Anonim Ortaklıklarda Paysahipleri Sözleşmeleri, İstanbul 2004, p. 289.

13 Moroğlu, p. 108 ff.

14 Çamoğlu (Poroy/Tekinalp), p. 509.

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
 
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”

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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.