Further to our applicable legislation, the transfer of shares and share certificates of joint stock companies is subject to certain procedures and the general principle regarding the transfer of shares has been adopted as the principle of freedom of transfer. Although the general principle is the freedom of transfer, it has been made possible to restrict the transfer of shares by both legally and articles of association, in order to prevent alienation of the company and to preserve its existing features in joint stock companies with personal elements (non-public joint-stock companies such as family joint stock company, joint-stock company having one shareholder, joint stock companies having two different shareholders). In this newsletter, share transfer in joint stock companies, limitation of share transfer, restriction of share transfer by the articles of association, company decision regarding the transfer of shares and possible scenarios in case the share transfer is rejected by the company will be discussed.

1. WHAT IS SHARE TRANSFER IN JOINT STOCK COMPANIES? WHAT ARE THE ISSUES TO BE CONSIDERED DURING SHARE TRANSFER?

Shares of joint stock companies are small units of capital that express the shareholding position, that is, the title of ownership. Share transfer, on the other hand, can be explained as the transfer of the entire rights and debts tied to the share at the same time as the company capital.

Share certificates, on the other hand, are negotiable instruments given to the shareholders of capital companies to certify their capital shares and represent the capital of the joint stock company. As per article 484 of the Turkish Commercial Code (TCC), share certificates can be either in bearer or registered shares. Besides, although the TCC divides the share into two types as "registered" and "bearer", just like share certificates, when all articles of the TCC regarding a joint stock company are examined, this usage is not uniform and the shares of companies are not tied to any share certificate due to the fact that companies is not under the obligation to issue share certificates. In other words, it is concluded that there may be companies whose share certificates are not issued. These shares are called (bare) uncertificated securities, and therefore, share transfer in joint stock companies should be examined under three headings.

Transfer of Uncertificated Securities (Bare)

There is no regulation under the TCC and applicable legislation regarding the transfer of (Bare) uncertificated securities. The procedure in this regard has been determined by the Supreme Court decisions, doctrine and practice. The decision of the Supreme Court 11th HD. Dated 09.07.2007 and numbered 2007/8112 and 2007/10405 is in the form of "the transfer of the bare shares of a joint stock company is not dependent on the form and is possible by means of assignment of receivables. In addition, the share transfer takes effect in terms of shareholding structure only by recording it in the share ledger."

In cases where the transfer of rights is not explained separately, it does not need to be subject to a special form, but the Supreme Court's reference to another right transfer provision (transfer of receivable rights) should be considered as a correct reference to De lege ferenda. Because share transfer means the transfer of receivables tied to shares.

Therefore, the Transfer of Uncertificated Securities (Bare) are carried out according to general provisions and it is in effect in terms of the partnership with the registration of such transfer under the share ledger. Here, we would like to point out that it is not mandatory for the share transfer agreement to be made through a notary public, and that the ordinary written form is sufficient in assignment of receivables, as it is among the frequently encountered questions in practice.

Transfer of Bearer Share

Bearer share certificates, which can be issued upon the payment of the entire share of capital, shall be valid for the company and third parties only in order to transfer the share upon the transfer of possession in accordance with Article 489 of the TCC. In other words, for the transfer of bearer shares to be valid, delivery of the shares certificates to the transferee is sufficient.

Transfer of Registered Share

As stated in Article 490 of the TCC, registered shares can be transferred without any restrictions, unless otherwise stipulated under the law or articles of association. The transfer by legal transaction can be made by the transfer of the possession of the endorsed registered shares to the transferee. In other words, for the transfer of registered share certificates, if there is no contrary regulation in the law and the articles of association, the endorsement of the share certificates by the owner of the power of disposition of the share certificate and its delivery to the transferee is required, and the share transfer must be recorded to the share ledger in order to be effective for the company. Here again, we would like to remind you that the share transfer does not have to be made in writing or through a notary public. Another point that should be considered is that the endorsement should be in the form of full endorsement in which the person with the endorsement in favor of it is stated by name.

Besides, as stated in paragraph 1 of Article 490 of the TCC, the transfer of registered share certificates can be restricted by law and / or the company's articles of association. The basis of our study is based on the article of this law.

2. HOW TO LIMIT SHARE TRANSFER IN JOINT STOCK COMPANIES?

In the Articles 491 to 498 of the TCC, restrictions on the transfer of shares in joint stock companies are regulated, and two types of restrictions are mentioned, namely, legal restriction and restriction by articles of association.

Legal Restriction is the obligation to obtain company approval for registered shares whose value is not fully paid, and is the realization by the transfer of inheritance, share of inheritance, marital property provisions or compulsory execution.

The transfer of registered shares stipulated in the first paragraph of Article 491 of the TCC is an exception to the general principle of freely transferring of registered shares. Accordingly, registered shares that are not fully paid are subject to company approval in order to secure the share capital before the company. In accordance with this restriction, the company may not approve the transfer of the shares that are not fully paid under certain conditions. At this point, we would like to state that the board of directors must decide on the approval to be given within the scope of the principle of honesty, otherwise the company's board of directors may be held responsible.

The restriction of the transfer of shares by the Articles of Association of the Company is realized with special restrictive provisions added by the shareholders to the company's articles of association under the TCC. However, here, while granting this restriction authority to the shareholders, the relevant legislation looks for certain conditions. These terms are listed below.

3. UNDER WHICH CONDITIONS IS IT POSSIBLE FOR THE TRANSFER OF SHARES IN THE JOINT STOCK COMPANIES WITHIN THE ARTICLE OF ASSOCIATION?

The joint stock company aims to restrict the transfer of registered shares in accordance with the articles of association, to keep the third parties who is not willing to obtain the title of shareholder by keeping the shareholding structure under control, and to prevent the problems caused by the collection of shares in the hands of an existing shareholder.

Considering that the transfer freedom may cause unwanted effects, especially in closed joint stock companies, the legislator has accepted that it can be foreseen that shares / share certificates can only be transferred with the approval of the company by adding a provision to the articles of association. The main purpose of these restrictions is to protect the original structure of the company and to prevent the company shares from being transferred to undesirable people and others to dominate the company.1

It should be emphasized that the restriction is only foreseeable in terms of registered shares, Whether or not the restriction is booked value by the articles of association or tied to a certificate and the transfer restrictions cannot be applied to bearer shares which are tied to certificate or not tied to certificate or converted to book value.2

The provisions regarding the limitation of the share transfer of joint stock companies may be included in the articles of association at the establishment or can be envisaged by an amendment to the articles of association. If the company's articles of association are to be amended, we would like to emphasize that there is a legally aggravated quorum here, that the relevant articles of association can only be obtained with the affirmative votes of the shareholders or representatives of the shares that constitute at least 75% of the capital, and that the same aggravated quorum will be sought in the second meeting even if the quorum is not achieved in the first meeting. At the same time, if a limitation is envisaged later, the restriction should not be in violation of the principles of objectivity, equal treatment and proportionality.

The restrictions imposed by the articles of association regarding the transfer of registered shares automatically disappear when the joint stock company enters the liquidation phase. Since the share transfer restrictions provide protection from elements that may hinder the realization of the company's purpose or harm the interests of the company while the commercial activity of the company continues actively, the reasons justifying the restriction of the principle of freely transferring to a company in liquidation disappear.3

The limitation of the transfer of joint stock company shares by the articles of association in the TCC varies depending on whether the company shares are quoted on the Stock Exchange or not.

Registered Shares Not Quoted to the Stock Exchange

A joint stock company whose registered shares have not been quoted on the stock exchange, by citing an important reason stipulated in the Articles of Association, by proposing to the transferee to purchase their shares to their own or other shareholders or third parties account at the time of application, or if the transferee does not explicitly declare that they have purchased the shares on their behalf and account, the company can reject the confirmation prompt.4

1. REJECTING THE APPROVAL REQUEST FOR AN IMPORTANT REASON STIPULATED IN THE ARTICLES OF ASSOCIATION

Joint stock companies cannot include any reason as an important reason in their articles of association. The important reason stated here is different from the justified reason that makes the relationship in the law of obligations intolerable, and expresses the reason deemed important for the company. Which reasons will be justified reasons have been counted as restricted under the TCC, and according to the provision, important reasons are categorized as the composition of shareholders' surroundings, the company's business subject and the economic independence of the enterprise. For example, if the subject of the company, such as audit companies, is of a nature that cannot be done without some professional competencies, it can be considered as an important reason for these companies not to have this professional competence. Or, share transfers to people who compete with the company may be an important reason.

2. PROPOSING TO PURCHASE THE TRANSFEROR'S SHARES FOR THEIR OWN OR OTHER SHAREHOLDERS OR THIRD PARTIES WITH THEIR REAL VALUE AT THE TIME OF APPLICATION

This possibility is a method that can be applied in cases where there is no reason to refuse the request for approval of the transfer of registered shares for a joint stock company, or when there is a reason but this reason is not material.5 This regulation does not force the shareholder who wishes to transfer own shares to transfer shares. The shareholder who wants to transfer own shares has the right to refuse the company's offer. Therefore, using this right only prevents third parties from taking over the shares.

No real value definition is made in the provision. The transferee may demand the real value of the shares from the Civil Court of First Instance at the location of the company headquarters, at the expense of the company. It is stated in the doctrine that the company can also benefit from this right. We would like to state that in the exercise of this right, it is necessary to act in accordance with the principle of honesty and equal treatment.

3. REJECTION DUE TO THE TRANSFEREE NOT CLEARLY DECLARING THAT TRANSFEREE PURCHASED THE SHARES ON OWN NAME AND ACCOUNT

Joint stock companies, in case the transferee and fulfilling the restriction condition in the articles of association have doubts about whether the person who has taken over these shares in his/her own name and account, the company can ask this person whether or not the person has bought the shares in own name and account. If the transferee does not answer this question explicitly or if the answers given cannot satisfy the doubts of the joint stock company objectively, the joint stock company may reject the request for registration in the stock register.

Registered Shares Quoted on the Stock Exchange

The share gain in joint stock companies whose shares are traded on the stock exchange can be limited to a certain percentage. For example, it can be decided that acquisitions exceeding 3% of the company's capital will not be recorded in the stock register in order to protect the composition of the shareholders and to ensure legal security. Besides, the Company has the right to refuse the approval of the transfer of shares, due to the Transferee does not explicitly declare that transferee has purchased the shares on own behalf and account, as is the case with registered shares not quoted on the stock exchange. According to Article 495 of the TCC, in the event that the shares quoted on the stock exchange are acquired through inheritance, sharing of inheritance, the provisions of the marital property or compulsory execution, the transferee cannot be refused to take the title of shareholder.

4. WHAT IS THE DECISION PERIOD GIVEN TO THE COMPANY IN LIMITING THE TRANSFER OF SHARE AND SHARE CERTIFICATES BY AGREEMENT?

Pursuant to the third paragraph of Article 494 of the TCC, if the joint stock company does not refuse the request for approval within 3 months at the latest from the date of receipt, or if the rejection is unjust, the approval is deemed to have been granted. In this sense, the company has 3 months period to make a decision regarding the transfer of shares. There is no provision under the TCC as to whether who will make the decision regarding the rejection decision being unjust and from what date the decision will have consequences. Nevertheless, we are of the opinion that the decision will be made by the court upon the application of the transferee and it is in accordance with the logic of law that the decision will result from the date of application to the partnership for approval.

5. WHAT ARE THE LEGAL CONSEQUENCES OF REFUSAL ON THE LIMITATION OF THE TRANSFER OF SHARE AND SHARE CERTIFICATES BY AGREEMENT?

Asper Article 494 of the TCC, in case the company does not approve the transfer in violation of the limitation in the articles of association and therefore, in case the transferee's request to register to the share ledger is rejected, the legal consequences of the transfer and the legal result of the transfer and the situations of the transferor and transferee are regulated. In this case, in accordance with the aforementioned article, the ownership of the shares and all rights related to the shares remain in the transferor.

In this respect, we would like to state that obtaining company approval for the transfer of registered shares of joint stock companies is an important exception to the negotiable instruments law principles.

At the same time, if the joint stock company proposes to purchase the mentioned shares / shares in accordance with paragraph 4 of Article 493, all rights related to both ownership and share certificates pass to the company.6

SUMMARY AND CONCLUSION

In joint stock companies, registered shares and uncertificated securities (bare) can be freely transferred as a general principle. However, it is possible to limit this freedom by law or by the articles of association. The restriction to be imposed by the articles of association can be included in the articles of association during the establishment of the company, or can be later taken with the affirmative votes of the owners or representatives of the shares that constitute at least 75% of the capital. The limitation with the articles of association regarding the Shares Not Quoted On The Exchange may be based on an envisaged important reason for the joint stock company, or may be by proposing to buy the transferred shares to their own or other shareholders or third parties account with their real value at the time of application, or may be in the form of refusal of the approval request if the transferee does not explicitly declare that the transferee purchased the shares in own name and account. For the shares quoted on the stock exchange, the limitation with the articles of association may be in the form of limiting the share gain to a certain percentage. Joint Stock Company has 3 months period regarding a transfer contrary to the articles of association. Within this period, the approval decision regarding the transfer not rejected or unjustly rejected is deemed to have been made. If the transfer is refused, the ownership of the shares and all rights related to the shares remain transferred. If a joint stock company proposes to buy a share, all rights related to both the ownership and the share certificate pass to the company.

Footnotes

1. BAHTİYAR, Mehmet, Ortaklık Hukuku, Beta Publishing, İstanbul 2011, page 249

2. UZEL, Nedret, Anonim Ortaklıkta Esas Sözleşmesel Bağlam, On iki Levha Publications, İstanbul 2013, page 108.

3. KARASU, Rauf, "Türk Ticaret Kanunu Tasarısına Göre Nama Yazılı Payların Devrinin Sınırlandırılması", Journal of Gazi University Faculty of Law Ankara 2008, C. XII, Sa. 1-2, page 134

4. BİLGİLİ, Fatih ve DEMİRKAPI, Ertan, Şirketler Hukuku, Dora Publications, Adana 2012, s.314.

5. KENDİGELEN, Abuzer, Türk Ticaret Kanunu Değişiklikler, Yenilikler ve İlk Tespitler, 12 Levha Publishing, İstanbul 2011.

6. Turkish Trade Law Draft and Justice Commission Report.

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.