Our professional experience is full of disputes of those who always wanted to surpass their partners, spouses and who want to benefit more financially from them. Of course, all commercial partnerships start with good wishes and principles of mutual goodwill, but as the business grows a little and makes money, profit sharing, material benefits, and privileges provided to the board of directors begin to create a crisis among partners. In particular, if the company suffers losses after a possible economic crisis, mutual accusations can cause irreparable consequences, such as termination and liquidation, for the company.
The most basic reason for the above-mentioned disputes between the parties is the fact that the representation and management in joint-stock companies are in the hands of the majority shareholders, which leads to conflicts of interest between the majority and minority shareholders. The fact that majority shareholders holding capital and voting dominance violate the basic partnership rights of minority shareholders of the company capital, who cannot be active in the management and at the general assembly, by not providing information about the management, normally, raised the problem of protecting the rights of minority shareholders.
It is precisely for these reasons that various rights have been granted to the minority, who want to be protected against the will of the majority, in joint-stock partnerships by the Turkish Code of Commerce No. 6102 (the "TCC"). Although there is no separate definition in the Law under the title of minority rights, it is possible to define it as the rights granted to the partners representing one-tenth of the partnership capital in joint-stock companies in order to provide a balance between the majority and minority in possible disputes that will occur within the company.
These rights granted to the minority provided for a balance of interests between the dominant shareholder and minority shareholders in companies while strengthening the previously weak and ineffective rights of minority shareholders, making the rights of the minority more effective and thus making the minority stronger against the majority.
First of all, we would like to note that each shareholder, whether it is a minority or not, has the right to receive information and review it, to call the general assembly to a meeting if the board of directors cannot meet continuously, to request the appointment of a special auditor, to file a liability lawsuit, and to file a cancellation lawsuit against the decisions of the general assembly and the board of directors. Minority shareholders, on the other hand, are equipped with some stronger rights in addition to the above-mentioned share ownership rights. Calling the general assembly to a meeting and requesting the addition of items to the agenda, applying to the court to ensure the appointment of an auditor in case of rejection of the request for the appointment of an auditor, postponing the general assembly meeting on the discussion of financial statements, requesting the issuance of registered share certificates, and requesting the termination of the company for a justified reason are the most important ones among the powerful and important rights granted to the minority. These important rights are explained in detail below:
- The Right to Call the General Assembly to a Meeting and Request the Addition of Items to the Agenda (TCC, art. 411-412):
According to Article 411 of the TCC; "... The shareholders owning at least one-tenth of the capital and one-twentieth of the capitalin publicly traded companies may ask the board of directors to call the general assembly to a meeting by specifying its necessitating reasons and agenda in writing or if the general assembly is already to be convened, to put on the agenda the issues they want to be decided. By the articles of association, the right to call may be granted to shareholders with a smaller number of shares." As is clear from the text of the article, the minority cannot make a meeting call and adding an item to the agenda by itself; but it can request making a call and/or adding an item to the agenda from the board of directors. The board of directors may reject or accept the request. The board of directors may notify via a notary public that it has accepted the meeting request submitted by the minority within 7 working days. If the board of directors accepts the request for a meeting, it should call the general assembly for a meeting no later than 45 days. If the general assembly is not called to the meeting despite the fact that the request for a call has been accepted during the period, in this case the call is made by the requesters. In other cases, the minority does not have the right to call the general assembly to a meeting, but if the board of directors does not hold the general assembly meeting within 45 days after accepting the meeting request, the power to call passes to the requesting minority without the requirement of any court order.
If no affirmative response is given or the request is rejected within 7 working days from the date when the minority submits the request for a call for the general assembly meeting to the board of directors, the minority has the right to apply to the commercial court of first instance at the place where the company's head office is located.
The minority also has the right to request the addition of items to the agenda if the general assembly is to convene. The request to add items to the agenda should be made within the period stipulated in the Code. According to Article 411/2 of the TCC; "... The request to add items to the agenda must have been delivered to the board of directors before the date of deposit of the announcement fee for the publication of the call announcement in the Turkey Trade Registry Gazette.'' In other words, according to the regulation, the requests for adding items to the agenda that are delivered to the board of directors after the payment of the fee for the call announcement will not be considered. According to Article 411/3 of the TCC, a request to add items to the agenda should also be made through a notary public, just like the call request. If the board of directors has not responded affirmatively to the request within 7 working days, the minority may exercise this right by applying to the court.
- The Right to Request the Appointment of a Special Auditor (TCC, art. 438):
According to Article 438 of the TCC, each shareholder, if it is necessary for the exercise of share ownership rights and the right to receive or examine information has previously been exercised, may request the general assembly to clarify certain happenings by a special audit, even if they are not on the agenda. If the general assembly approves the request, the company or each shareholder may, within thirty days, request the appointment of a special auditor from the commercial court of first instance at the place where the company's head office is located.
If the request is rejected by the General Assembly, the right to request the appointment of a special auditor, which is a shareholder right, converts into a minority right. Minority shareholders specified in the Code may resort to the court within 3 months after the rejection decision is made by the General Assembly and request the appointment of a special auditor from the commercial court of first instance at the place where the company's head office is located. Each shareholder may request the appointment of a special auditor, while the right to apply to the court in case of rejection of the request by the company's management is a special right granted only to minority shareholders.
A prerequisite for the exercise of this right is that the right to receive or examine information about the subject for which a special audit is requested has already been exercised. The right to request the appointment of a special auditor is one of the exceptions to the principle of adherence to the agenda of the general assembly. In order for the Court to appoint a special auditor at the request of the minority, the applicant minority shareholder must convincingly demonstrate that the founders or company bodies have damaged the company or shareholders by violating the law or articles of association.
- Postponement of the Negotiation of Financial Statements (TCC, art. 420):
In order for joint-stock company partners to have information about the financial situation of the company and to exercise their rights arising from the partnership, the financial statements must be read, negotiated, and approved at the general assembly.
In this context, according to Article 420 of the TCC, the negotiation of Financial statements and related issues may be postponed one month later by the decision of the chairman of the meeting at the request of shareholders with one-tenth of the capital and one-twentieth in the publicly traded companies, without the need for the general assembly to take a decision. According to the dominant opinion adopted by the Court of Cassation and the doctrine, there is no need to provide any justification when requesting a postponement; a minority shareholder can exercise this right directly and without any restrictions.
There is consensus in the doctrine on what are the issues that should be discussed together with the financial statements and are referred to as "related issues" in the law. That is, related issues concerning the negotiation of financial statements have been interpreted as agenda items that will be affected by the postponement of financial statements and related to them in the doctrine and judicial decisions. In this regard, the connection of profit distribution and discharge with the balance sheet (e.g. the financial statements) is indisputably recognized. In the item on the selection of members of the Board of Directors; if all the names proposed for election to the board of directors are new names, the election can be held but if there are people on the current board of directors among the proposed names, balance sheet negotiations should be completed to hold the election.
- The Right to Request the Termination of the Company for a Justified Reason ( TCC, art. 531):
Minority shareholders, although they use all the rights we have mentioned above, may not be able to exercise their basic rights arising from the share ownership. The purpose of regulating the institution of termination of the joint-stock companies for a justified reason is to ensure legal security in terms of protecting the interests of minority shareholders and to put an end to the pressures on the partnership relationship that has become unbearable from the point of view of the minority shareholder by preventing violations, especially because the majority shareholders constantly abuse their power, in cases where there is no legal remedy that minority shareholders, whose rights have been systematically violated, can resort under the law or articles of association to remedy these violations or where existing legal remedies have failed to resolve them. In such cases, the minority shareholder group may request the termination of the company by applying to the court if there are justified reasons.
Although some cases that may constitute a justified reason have been specified in the doctrine and the practices of the Court of Cassation, the Court should investigate the existence and extent of a justified reason in each specific case. The fact that the company is on the verge of bankruptcy due to constant losses, loss of principal capital or unrequited capital, the inability of the Company to make a profit for many years, even if it makes a profit, failure to distribute (or incomplete distribution of) profit continuously during the activity periods, failure to fulfill the subject and purpose of the company's business, can be considered as a justified reason.
In closed-type family companies, where personal relationships are more intense and sensitive than in an ordinary joint-stock company, the exclusion of family members who are company partners from the company management, personal disputes, death, or bankruptcy of one of the partners can be considered as a justified reason.
In the event that it is determined that the events constituting such justified reasons have occurred, the necessary measures shall be taken by the court and the fair value of the company shall be calculated. The court, in accordance with the principle that termination is a last resort and the structure of the partnership should be protected, shall decide the removal of the partner from the partnership instead of the termination of the company or deliver its ruling based on whether the events that constitute a justifiable reason can be resolved by another means.
All these rights we listed are the regulations introduced by the TCC. In relation to these percentages and rights, amendments can be made with the articles of association in favor of shareholders. In this context, it may be decided in the articles of association that shareholders having shares below 10% (for example, 5%) shall be considered minority shareholders or the special quorums stipulated above may be hardened. In addition, some additional rights may be granted to the minority in the articles of association, provided that they do not contradict the mandatory provisions of the TCC.
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.