Joint stock companies are capital companies in their nature and are the companies that operate for all kinds of economic purposes and subjects that are not prohibited by law. The common purpose of such companies is to make a profit and to distribute this profit to the partners. Due to this characteristic of joint-stock companies, the right to dividends of a shareholder is one of the non-renounceable rights that cannot be removed by a decision.1 The right to dividends cannot be removed even with the consent of the shareholder, and the shareholder cannot waive this right.2

In order to distribute profits, some conditions should be met; first of all, since profit distribution is one of the exclusive powers of the general assembly, a general assembly decision should be made in accordance with the profit distribution policies to be determined by the general assembly with the articles of association and the provisions of the relevant legislation.

Each shareholder has the right to participate in the net profit for the period decided to be distributed to shareholders based on his/her share in accordance with the provisions of the law and the articles of association. Unless there is a provision to the contrary in the articles of association, the dividend is calculated in proportion to the payments made by the shareholder to the company for the capital share. On the other hand, it is also possible to grant the right of concession and special interest to some types of shares with the articles of association, and the provisions of the CMB and related legislation are reserved.

According to the TCC, five percent of the annual profit must be allocated as a general legal reserve fund until it reaches twenty percent of the paid-up capital, and in practice, this type of reserve fund is called the primary legal reserve fund. The dividend, which will be allocated at the rate of five percent of the annual profit to be given to the shareholders and is also called the first dividend, is possible only after the allocation of the primary legal reserve fund.

After the general legal reserve fund reaches twenty percent of the paid-in capital, ten percent of the total amount to be distributed to those, who will receive a dividend, is added to the general legal reserve fund after the payment of "a) the part of the premium provided with the issuance of new shares that have not been used for issuance expenses, redemption provisions, and charitable payments, b) the remaining part of the amount paid for the cost of the cancelled shares due to dismissal, after deducting the costs of issuing new shares to be replaced by them, c) five percent dividend to the shareholders" specified in Article 519/2 of the TCC. This reserve fund, which is called the secondary legal reserve fund, is also separated from the net profit for the period, and unlike the primary legal reserve fund, has no limit. In order to allocate the secondary legal reserve fund, the primary legal reserve fund must be allocated and five percent of the remaining net profit for the period must be distributed to the shareholders.3

It is possible to stipulate in the articles of association that more than five percent of the annual profit will be allocated to the reserve fund and that the reserve fund may exceed twenty percent of the paid capital, as well as other reserve funds may be allocated, and their allocation purpose, ways, and conditions of spending may also be determined.

The general assembly of the joint-stock company may also decide to allocate additional reserve funds other than those stipulated in the law and the articles of association, if this is necessary for the restoration of assets or if it is justified in terms of the company's continuous development and the distribution of dividends as stable as possible, taking into account the interests of all shareholders.

Likewise, even if there is no provision in the articles of association, the general assembly may also decide to allocate a reserve fund from the balance profit in order to establish or maintain provident funds and other assistance organizations for the company's staff, or to provide other charitable contributions.

The dividend to be distributed to the shareholders may be distributed from the net profit for the period and free reserve funds after the allocation of legal and discretionary reserve funds stipulated in the articles of association. The upper limit on the amount of the dividend to be distributed consists of the distributable amount of the relevant profit distribution resources contained in the legal records.

Consequently, the distribution of profits in joint-stock companies established for the purpose of making a profit and distributing this profit to the partners depends on the fulfillment of the conditions specified in the TCC and the relevant legislation in a complete manner. In this context, first of all, a general assembly decision should be made on the distribution of profit in a joint-stock company that makes a profit based on the annual balance sheet, the primary legal reserve fund should be allocated, five percent dividend should be paid to the shareholders from the remaining net profit for the period, and then the secondary legal reserve fund should be allocated. If no other reserve fund has been decided to be allocated in the articles of association and by the decision of the general assembly, the remaining amount after deducting the primary legal reserve fund, first dividend, and secondary legal reserve fund will be the maximum limit of the second dividend that the joint-stock company will pay to the shareholders, and the dividend that the shareholders will receive in total will consist of the sum of the first and second dividends. 

Footnotes

1 Prof. Dr. Erol Ulusoy, Anonim Şirketlerde Bireysel ve Azınlık Pay Sahibi Hakları (Individual and Minority Shareholder Rights in Joint Stock Companies), p. 100-101

2 Tekinalp (Poroy/Çamoğlu), Ortaklıklar Hukuku I (Law of Partnerships I), Bilgili/Demirkapı, p. 515

3 Prof. Dr. Erol Ulusoy, Anonim Şirketlerde Bireysel ve Azınlık Pay Sahibi Hakları (Individual and Minority Shareholder Rights in Joint Stock Companies), p. 104

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