Introduction

In this article, the procedure to be followed for the validity of the transfer of the capital shares of limited liability companies, which is a type of company defined in the Turkish Commercial Code ("TCC", ""Code"), will be analysed.

What is a Limited Liability Company?

The limited liability company which is regulated under Articles 573 et seq. of the Code is a company established by one or more real or legal persons under a trade name to operate in every purpose and subject not prohibited by law. In these companies, the share capital is determined and this capital consists of the sum of the shares of the share capital.

Share Transfer in Limited Liability Companies

In limited liability companies, the transfer of shares in the capital of the company by one or more of the shareholders of the company to the shareholders of the company or to an outsider is called share transfer. The procedure of share transfer is regulated in detail in Article 595 of the Code. According to the relevant article, one of the most important issues is that the share transfer transactions shall be made in writing and the share transfer agreement shall be issued by a notary public.

  • Written and Notarised Share Transfer Agreement

According to the Code, the transfer of the share capital and all of the transactions that give rise to the transfer obligation shall be made in written form. In this context, it is essential that the share transfer agreement to be executed in written form. In the share transfer agreement, conditions such as pre-emption right, repurchase right, prohibition of competition and penalty of the agreement are also required to be specified in writing.

Notarisation of the written share transfer agreement is important for the validity of the transaction. Notary publics are not authorised to examine the content of the agreement, they are only authorised to examine the signatures of the parties and the form of the agreement. In case of non-compliance with the written form subject to this official approval, the transaction will be deemed invalid even if the general assembly of the company approves the share transfer.

  • Approval of the General Assembly

Unless otherwise stipulated in the articles of association, the approval of the general assembly is required for the transfer of the share capital. The approval of the general assembly for the transfer of shares is one of the constitutive elements in terms of validity; however, the assembly is not obliged to approve the share transfer resolution. Pursuant to Article 595/3 of the TCC, the general assembly may reject the share transfer without any reason, and in this respect, the authority granted to the board by the Code is very broad. However, the Code has provided a solution to the efforts of the board to delay the work by extending the decision-making period, and it is regulated that if the share transfer is not rejected within 3 months following the application, the board will be considered to have given its approval.

The articles of association of some companies may stipulate that the approval of the general assembly shall not be required for the transfer of shares. In such cases, the validity of the share transfer will not be dependent on the approval of the general assembly, and the share transfer may be carried out without the approval of the general assembly. In addition, some companies' articles of association may also prohibit the transfer of shares. If the transfer of shares in limited liability companies is prohibited by the articles of association or if the general assembly does not approve the transfer of shares, the shareholder who wants to transfer shares will have the right to exit the company for just cause.

  • Registration to the Share Ledger

It is an obligation for every limited liability company to have a share ledger and to keep its records properly. The book containing the shares of the main capital in companies is called the share ledger. Since the share ledger contains the shares of the main capital, when a share transfer is made, it must be recorded in this ledger. This issue is of great importance in terms of proof. If the information of the person who transfers the share from the company shareholder and how much he/she has taken over is not written in the share ledger, this person will not appear as a company partner.

The registration of share transfers in the share ledger is important in terms of proof, but it is not a constitutive element for the validity of the transfer. The share transfer shall become valid upon the approval of the general assembly and shall be recorded in the share ledger. In cases where the share ledger cannot be accessed and therefore the transfer cannot be recorded, the share transfer will be deemed valid if it has been approved.

  • Registration of Share Transfer through Trade Registry

After the share transfer is completed, the transfer shall be registered with the Trade Registry Directorate in the region where the company is affiliated. For the registration process, an application must be made within 30 days after the completion of the share transfer. An application shall be made to the registry with a petition, and in addition, a notarised copy of the general assembly resolution regarding the share transfer, a notarised share transfer agreement, and the relevant page of the share ledger where the share transfer is recorded must be submitted. Upon approval of the application, the share transfer will be published in the trade registry gazette. In this regard, it would be beneficial to consult a lawyer regarding the necessary criteria required in the documents.

In Conclusion

If share transfer is not prohibited in the articles of association, share transfers may be made in limited liability companies. In order for the share transfer to be valid, the agreement must be in writing and notarised, the approval of the general assembly shall be taken, unless otherwise stated in the articles of association, and the transfer must be recorded in the share ledger. The procedure shall be completed with the publication of the share transfer transaction in the trade registry gazette after the registry application is made.

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.