Protection Of Minority Shareholders In Capital Markets Law

INTRODUCTION

In publicly held companies, the shareholder relationship inherently involves a structural imbalance, as managerial powers are concentrated while economic risk is dispersed across a broad base of investors. This imbalance between shareholders who effectively control corporate management and minority shareholders who are able to exert only limited influence over management processes necessitates investor-protective interventions under capital markets law.

From the perspective of capital markets law, the concept of a minority shareholder should be assessed differently from the classical ratio-based approach adopted under the Turkish Commercial Code No. 6102 (“TCC”). In publicly held companies, even shareholdings representing very small percentages may correspond to economically significant investment amounts, and such shareholders may be directly affected by the company's strategic decisions. For this reason, within the framework of the Capital Markets Law No. 6362 (“CML”), protection is shaped not around a quantitative definition of minority status, but rather through an investor-protection-oriented perspective.

Article 1 of the Capital Markets Law No. 6362 (“CML”) adopts as its fundamental objective the protection of investors' rights and interests and the обеспечение of the sound, transparent, and stable functioning of capital markets. In line with this objective, the CML and secondary legislation provide for specific mechanisms aimed at mitigating the risks arising from minority shareholders' limited influence over corporate management.

Among these mechanisms, the right of withdrawal and the mandatory tender offer regime stand out as key instruments that grant minority shareholders the opportunity, in the event of certain structural changes, to exit the company or dispose of their shares under fair conditions.

A. Legal Nature of the Right of Withdrawal

The right of withdrawal is regulated under Article 24 of the CML and constitutes an exit right granted to shareholders who do not participate in certain material transactions carried out by publicly held companies. It serves as a special exit mechanism afforded to minority shareholders in the face of transactions that fundamentally affect the economic and managerial framework of shareholding in publicly held companies. The scope and procedure for the exercise of the right of withdrawal are regulated in detail under Communiqué No. II-23.1 on Material Transactions and the Right of Withdrawal (“Communiqué on Material Transactions”).

By its legal nature, the right of withdrawal is a formative right exercised through the unilateral declaration of will of the shareholder, and upon its exercise, it enables the shareholder to terminate the shareholder relationship. In this respect, the right of withdrawal constitutes an exceptional protective mechanism that eliminates the minority shareholder's obligation to remain bound to the company in situations where the will of the majority produces binding effects on minority shareholders through general assembly resolutions.

The primary function of the right of withdrawal is to protect shareholders against majority decisions that compel them to continue the shareholder relationship where the structural characteristics of the company in which they have invested are materially altered without their consent. In this context, the right of withdrawal is regarded as one of the concrete and directly effective instruments of investor protection in capital markets law.

1. Circumstances Giving Rise to the Right of Withdrawal

Pursuant to Article 24 of the CML, the right of withdrawal arises solely in the event of the execution of “material transactions.” The transactions that qualify as material are defined in detail under the Communiqué on Material Transactions. In accordance with this Communiqué, transactions that materially affect the economic or managerial balance of the shareholder relationship give rise to the right of withdrawal.

In this context, transactions such as mergers and demergers, conversion of type, the complete or substantial alteration of the company's field of activity, the granting of privileges to shares, or the expansion of the scope of existing privileges are regarded as structural changes that directly affect shareholders' investment decisions and therefore give rise to the right of withdrawal.

For the right of withdrawal to be exercised, the shareholder must attend the general assembly meeting at which the relevant transaction is discussed, vote against the resolution in question, and have their dissent recorded in the minutes of the general assembly. These conditions are designed to ensure that the right of withdrawal may be exercised only by shareholders who do not wish to be bound by the resolution and who have clearly expressed their will in this regard.

2. Determination of the Withdrawal Price

The effectiveness of the right of withdrawal as a means of investor protection largely depends on the fair and objective determination of the withdrawal price. Pursuant to the relevant provisions of the CML and the Communiqué on Material Transactions, in the case of shares traded on the stock exchange, the withdrawal price is calculated based on the average of the market prices over a specified period preceding the public disclosure of the general assembly resolution.

While this method aims to provide an objective benchmark based on market conditions, it also gives rise to certain debates in practice. In particular, in companies with low share liquidity or in situations where the market price does not reflect the company's actual economic value, criticisms arise that the withdrawal price fails to fully meet shareholders' investment expectations. This demonstrates that, despite its normative protective purpose, the right of withdrawal may produce a limited effect in practice.

3. Limits of the Right of Withdrawal

While the right of withdrawal constitutes a strong protective mechanism in favor of minority shareholders, it is not regulated as an absolute or unlimited right under capital markets law. Considering that the simultaneous exercise of the right of withdrawal by a large number of shareholders could seriously affect the company's financial structure, the legislation provides detailed rules regarding the scope, conditions of exercise, and exceptions to the right of withdrawal.

Within this framework, the right of withdrawal is positioned in capital markets law as an exceptional and complementary mechanism aimed at balancing company continuity and market stability with investor protection. This structure means that the right of withdrawal is not a tool to be invoked in every situation but rather a “last resort” that comes into play when the shareholder relationship undergoes a substantial change.

B. Mandatory Tender Offer

The mandatory tender offer regime is regulated under Article 26 of the CML, with its details set out in Communiqué No. II-26.1 on Tender Offers (“Tender Offer Communiqué”). Pursuant to these regulations, natural or legal persons who acquire direct or indirect control over the management of a publicly held company are obliged to provide the other shareholders with the opportunity to sell their shares under fair conditions.

The mandatory tender offer represents a concrete manifestation of the principle of equal treatment in capital markets law, aiming to prevent the transformation in the controlling shareholding structure resulting from a change of control from producing unilateral and adverse effects on minority shareholders. In this respect, the mandatory tender offer is designed as a mechanism that protects investors and establishes market confidence.

1. Purpose and Function of the Mandatory Tender Offer

The primary purpose of the mandatory tender offer is to prevent minority shareholders from being compelled to maintain the shareholder relationship with a new controlling shareholder against their will following a change of control. In publicly held companies, a change of control can bring about fundamental changes in the company's strategic orientation, dividend policy, and management approach. Granting minority shareholders the opportunity to exit the company in the face of such changes is important for safeguarding the legitimate expectations of investors.

Through the mandatory tender offer, minority shareholders are able to freely decide whether to maintain their shareholder relationship with the company following a change of control and may sell their shares at a price determined in accordance with the principles set out in the legislation. This mechanism not only safeguards the investor's freedom of choice but also ensures that the individual or individuals acquiring control bear the economic consequences of that change of control.

In this respect, the mandatory tender offer operates under a different protective logic than the right of withdrawal. While the right of withdrawal arises in connection with certain general assembly resolutions adopted by the company, the mandatory tender offer comes into play as a result of a change in control within the shareholding structure. Accordingly, the mandatory tender offer is an investor protection mechanism that is triggered in situations where the will of the majority is reflected not through company decisions but through the transfer of control.

2. Concept of Control and Practical Challenges

One of the most critical and debated issues in the application of the mandatory tender offer regime is the determination of the concept of control. Pursuant to Article 12 of the Tender Offer Communiqué, control is not considered solely as a matter of shareholding percentage; any situation that provides de facto dominance over the company's management and decision-making processes is also regarded as falling within the scope of control.

Within this framework, in addition to direct shareholding control, indirect control relationships, concerted action arrangements, and the exercise of decisive influence over management through contractual arrangements are also considered within the concept of control. In practice, the establishment of de facto dominance through shareholder agreements, voting agreements, and similar arrangements is subject to case-by-case assessment by the Capital Markets Board.

The broad and flexible interpretation of the concept of control aims to prevent circumvention of the mandatory tender offer regime but also gives rise to certain debates regarding predictability in practice. For this reason, the determination of control is assessed on a case-by-case basis, taking into account the specific characteristics of each situation and within the framework of capital markets law's objective of protecting investors.

C. Other Protective Mechanisms

Apart from the right of withdrawal and the mandatory tender offer, there are complementary mechanisms in capital markets law that serve to protect minority shareholders. While these mechanisms do not grant a direct exit right, they aim to ensure that investors can make informed decisions and exercise their rights effectively.

Within this context, the disclosure obligation constitutes one of the fundamental duties of publicly held companies under Article 15 of the CML, ensuring that shareholders have timely, accurate, and complete access to information regarding the company's financial condition, operations, and significant developments. The effective implementation of the transparency obligation is critical for enabling minority shareholders to make informed use of mechanisms such as the right of withdrawal and the mandatory tender offer.

In addition, the principles of equality, transparency, accountability, and responsibility set out under Communiqué No. II-17.1 on Corporate Governance, along with the regulations concerning independent board members, constitute structural tools aimed at the indirect protection of minority shareholders. These principles ensure that the interests of minority shareholders are considered in corporate management, thereby complementing the protective function of capital markets law.

CONCLUSION

The protection of minority shareholders in Turkish capital markets law is structured as a multi-layered system built on complementary mechanisms. While the right of withdrawal provides investors with an exit opportunity in the face of decisions that fundamentally affect the company's structural characteristics, the mandatory tender offer regime implements the principle of equal treatment in situations involving changes of control.

The balanced and predictable application of these mechanisms safeguards not only the individual interests of minority shareholders but also the confidence in capital markets and the sound functioning of the market as a whole.

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