Pursuant to Article 329 of the Turkish Commercial Code numbered 6102 ("TCC"), a joint stock company is a company whose capital is fixed and divided into shares, where only the legal entity of the company is liable for its debts with its own assets, and where the shareholders are liable only for the capital shares they have subscribed and only to the company.
Pursuant to Article 573 of the TCC, a limited liability company is a type of company established by one or more real or legal persons under a trade name, with a definite capital, and this capital is composed of the sum of the capital shares. The shareholders of a limited liability company are not liable for the debts of the company and are only obliged to pay the capital shares they have subscribed for, and to fulfil the additional payment and ancillary performance obligations stipulated in the company agreement.
Pursuant to Article 124/2 of the TCC, joint stock and limited liability companies are considered as capital companies.
How to Transfer Shares in Limited Liability Companies?
The issues regarding the transfer of shares in limited liability companies are regulated under Article 595 of the TCC. Pursuant to the relevant provision, the transfer of the share capital and the transactions shall be made in writing and the signatures of the parties shall be notarized. Additionally, additional payment or secondary performance liabilities, if non-compete obligation is aggravated or extended as to cover all partners, this issue and rights of being the first to be offered for subscription, first refusal, redemption and purchasing and conditions of contractual penalties shall be stated in the transfer contract. Unless otherwise stipulated in the articles of association, the approval of the general assembly of shareholders is required for the transfer of the capital shares. The transfer shall be valid with this approval. This transfer is also valid for the transfer of all or part of the shares of the limited liability company shareholder in the company.
Unless otherwise stipulated in the articles of association, the general assembly of shareholders may reject the approval without giving any reason. The transfer of shares may be prohibited by the articles of association. If the articles of association prohibits the transfer or the general assembly refuses to approve the transfer, the shareholder's right to exit the company for just cause is reserved. If the articles of association stipulates additional payment or secondary performance obligations, the general assembly may refuse approval even if there is no provision in the articles of association, if the required guarantee has not been provided due to the solvency of the transferee is considered questionable. If the general assembly does not refuse within three months following the application, the approval shall be deemed to have been granted.
As a consequence, the procedure to be applied in the transfer of the shares in limited liability companies consists of the commitment and disposition process and the execution of a written share transfer agreement, notarization of the signatures, approval of the general assembly, registration in the share ledger, and registration and announcement at the trade registry directorate.
The transfer of shares in limited liability companies is subject to strict rules compared to joint stock companies. This is due to the fact that limited liability companies are generally designed for small and medium-sized enterprises, where personal relationships between shareholders are at the centre. Pursuant to Article 595 of the Turkish Commercial Code (TCC), the share transfer process is subject to certain formal requirements at both the commitment and disposition stages. In addition, the general assembly approval, registration in the share ledger, registration and announcement processes shall be completed.
How to Transfer Shares in Joint Stock Companies?
Within the scope of TCC, the validity of the transfer of shares in joint stock companies differs within the framework of whether the shares of the joint stock company are certificated or uncertificated.
- Transfer of Uncertificated Shares
The shares of a joint stock company, in other words, the bare shares, which have been fully paid and are not certificated, are transferred within the framework of the assignment of receivables provisions regulated in Articles 183 and following articles of the Turkish Code of Obligations (TCO). In order for the transfer of bare shares to be valid, a written assignment of receivables agreement shall be executed. If the price of the shares has not yet been paid, in order for the transfer to be legally valid, the provisions regarding the transfer of debt shall also be considered in addition to the assignment of receivables. In this case, since the transferor is still a debtor before the company, the explicit consent of the company shall be required for the transfer of the debt. Due to the transfer of the debt, the joint stock company shall approve the transfer as a creditor in order for the transaction to be completed. After the transfer is completed, the transferee shall be registered in the share ledger of the joint stock company. Although this registration does not directly affect the validity of the transfer, the Turkish Commercial Code requires this registration in order to assert the transfer against the company.
- Transfer of Certificated Shares
Pursuant to TCC 484, share certificates may be in bearer or registered shares. In this context, the transfer of registered and bearer share certificates shall be examined separately.
- Transfer of Registered Share Certificates
Pursuant to Article 490 of the Turkish Commercial Code (TCC), registered shares may be freely transferred, unless otherwise provided by law or the articles of association. The transfer of shares is performed by endorsing the registered share certificate and transferring the possession of the certificate to the transferee. The transfer of registered shares is performed in two stages: Endorsement of the share certificate and transfer of possession to the transferee. In addition, it is stated that registered shares may be claimed against the company, as in the case of unregistered shares, provided that the transferee is registered in the share ledger. It is also possible to transfer registered shares within the framework of the assignment provisions regulated under Articles 183 and following articles of TCO. In such a transfer, the assignment agreement shall be in writing and the possession of the share certificate shall be transferred to the transferee.
- Transfer of the Bearer Share Certificates
The transfer of bearer shares is completely free in joint stock companies and no restrictions may be imposed on these shares. Pursuant to Article 489 of the Turkish Commercial Code (TCC), the transfer of bearer shares is only valid upon the transfer of possession to the transferee, and this is binding only against the company and third parties. Therefore, the transfer of shares can only be made by the transfer of possession to the transferee. However, the transfer of possession shall have the purpose of transferring the ownership; in other words, the transferee shall accept that the ownership has been transferred to himself.
Unlike limited liability companies, share transfers in joint stock companies do not require registration and announcement at the trade registry directorate. However, if there is a change regarding the sole shareholding status as a result of the share transfer or a difference in the shareholding ratios of the shareholders in the company within the framework of the percentages specified in Article 198 of the TCC, a resolution of the board of directors shall be adopted and the relevant changes shall be registered and announced by applying to the trade registry directorate where the company is located
- Transfer of Registered Share Certificates
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.
