Under Turkish Commercial Code numbered 6102 ("TCC"), the principle of transferability of shares in joint stock companies is essential. Within the scope of this principle, shares of joint stock companies can be freely transferred without the approval of any organ or person. Article 490 of TCC regulates that registered shares may be transferred without any restriction, unless otherwise regulated by law or the articles of association. This principle under TCC also gives meaning to the concept of "anonymity" in joint stock companies. Considering that this principle under TCC may cause problems in certain circumstances, the legislator has also regulated exceptions to the principle of free transfer of shares.
LEGAL AND CONTRACTUAL RESTRICTIONS
1. Legal Restriction
The first exception to the free transfer of shares in joint stock companies is regulated under Article 491. This exception regulated under Article 491 of TCC is called "legal restriction". Pursuant to this article, except for acquisitions through inheritance, division of inheritance, marital property provisions between spouses or acquisitions realized through enforcement, registered shares, which have not been totally paid up, may only be transferred with the approval of the company. However, even in this case, the company may refuse to approve the transfer only if the transferee's capacity to pay is doubtful and the guarantee required by the company has not been provided. If the transferee has ability to pay or has provided the necessary guarantee for the balance capitalization obligation, the company is obliged to approve the transfer. It is important to mention that even if the legal restriction is not regulated under articles of association, it is possible to restrict the transfer of registered shares that have not been fully paid.
The legal restriction regulated under Article 491 of TCC prevents persons who are unable to pay from becoming shareholders, and thus aims to protect the capital of the company. In addition, this article also prevents fraudulent transfers and damage to third parties when the registered shares are not fully paid.
2. Contractual Restrictions
The second exception to the free transferability of shares is regulated under Article 492. This exception regulated under Article 492 of TCC is called "contractual restriction". Pursuant to Article 492 of TCC, the articles of association may stipulate that registered shares may be transferred only with the approval of the company. With this provision of TCC, it is possible to bring a restriction on the transfer of shares by articles of association in addition to the restriction imposed by law. Thus, if there is a provision in the articles of association restricting the transfer of registered shares, the approval of the board of directors of the joint stock company will be required for the transfer of the registered shares even if they are fully paid. The transfer of share certificates which is restricted pursuant to the articles of association of the company, are called "restricted registered share certificates".
Although Article 492 of TCC regulates that share transfer procedures may be subject to approval under articles of association of a joint stock company, the situations where the company may avoid approval are not regulated. According to TCC, the restriction of share transfer by contract is categorized into two categories: unlisted shares (closed joint stock companies) and listed shares. In this article, unlisted shares will be discussed.
2.1. Contractual Restrictions on Unlisted Shares
Article 493 of TCC regulates the situations in which the company may prevent the transfer of shares; these situations are the existence of important reasons specified under articles of association and the situations called escape clause.
2.1.1. Important Reasons Determined under Articles of Association
The company may restrict the transfer of shares by claiming an important reason foreseen under articles of association. Article 493/2 of TCC regulates what the important reasons shall be. In accordance with this article, the subject of the company's business or matters affecting the economic independence of the company are important reasons. The following issues may be considered as examples of important reasons may fall under the scope of Article 493/2 of TCC:
- Transfer of shares of the company established by certified public accountant to persons who are not certified public accountant,
- Share transfers to persons working in another company that may be a competitor of the company,
- Share transfers ensuring that the company becomes a dependent company (in cases where economic independence is important),
- Share transfers in which the foreign element creates a legal obstacle to fulfil the subject of the company or to eliminate the independence of the business,
- Share transfers to persons other than certain family members. This issue is debatable in the doctrine. However, it should be mentioned that in some cases, the transfer of shares to a person other than family members may affect the economic independence of the company and this issue should be considered as an important reason.
2.2.1. Escape Clause
The Company may reject the request for approval by offering the transferor shareholder to purchase his/her shares for company's own account or for the account of other shareholders or third parties at the actual value at the time of application. The company's rejection of the approval request in this way is called the escape clause in the doctrine. For the company to use the escape clause, there shall be no article in articles of the association of the company and the company shall not be required to rely on a significant reason. However, at this point, it would be incorrect to say that the company has an unlimited discretion to benefit from this opportunity. While using this right, the Company must act within the scope of the duty of care, the duty of loyalty, the principle of equal treatment and the prohibition of abuse of right.
Through the escape clause, the company avoids accepting a person whom the company does not want to see as a shareholder. The company's use of the escape clause does not give rise to the shareholder's obligation to sell his/her shares; the shareholder has the right to decide not to sell his/her shares. However, in this case, the shareholder will not be able to sell his/her shares to a third party.
Within the scope of the regulation under TCC, it is understood that the offer to be made by the company should not be for a certain amount of the shares, but for all of them.
2.3.1. Rejection for Other Reasons
The company may refrain from authorizing a share transfer in the presence of other circumstances besides the material reason set forth under articles of association and escape clause. The first of these is the situation where the company may refuse to register the transfer in the share registry book if the transferee does not clearly declare that he/she has acquired the shares on his/her own behalf and account. This regulation under Article 493/3 of the TCC aims to prevent persons, who are referred to as straw men in the doctrine, from holding shares in the company. It is attempted to prevent the person who fulfils the conditions to be a shareholder from holding the shares in the name and account of another person in a way to cause consequences.
The second situation is where the company refuses to give its approval to the person acquiring the shares in the event that the shares are acquired by inheritance, division of inheritance, marital property provisions between spouses or by acquisitions realized through execution, only if the company proposes to acquire the shares at their real value.
2.4.1. Transition of Rights Arising from the Shares
Pursuant to Article 494/1 of TCC, the ownership of the shares and all rights attached to the shares shall remain with the transferor, unless the approval required for the transfer is granted. The approval decision of the company is foundational in terms of the transfer of ownership of shares and related rights.
In accordance with Article 494/2 of TCC, in the event that the shares are acquired by inheritance, division of inheritance, marital property provisions between spouses or by acquisitions realised through execution, the ownership of the shares and the rights related to the assets arising out of them shall be transferred to the transferee immediately, and the rights to participate in the general assembly and voting rights shall be transferred to the transferee only upon the approval of the company.
Approval shall be considered granted if the Company does not reject the request for approval within three months at the latest from the date of receipt or if it is wrong to reject it.
2.5.1. Cases where the Contractual Restriction loses its Effect
Pursuant to Article 492/3 of TCC, if the company is in liquidation, the limitations on transferability are reduced.
Article 421/6 of TCC regulates another situation where the contractual restriction loses its effect. With this article, the registered shareholders who have voted negatively on the general assembly decision regarding the complete change of the subject of business or the creation of privileged shares are not bound by the restrictions on the transferability of shares for six months following the publication of this decision in the Turkish Trade Registry Gazette. With this regulation, it is aimed to give the shareholder, whose transfer is restricted, the right to exit from the partnership by transferring his/her shares without any restriction in the event that the company's field of activity is completely changed and/or privileged shares are created.
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.
