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Employees constitute an integral component of a company's organizational structure and operations. The economic value generated by a company depends not only on capital allocation but also on the knowledge, experience, and labor of its employees. Within this framework, employees' acquisition of shares in a joint stock company serves as a mechanism that strengthens their commitment and motivation toward the company, while also enabling their expertise and experience to be reflected more effectively in corporate governance. In this respect, employee share ownership contributes to the company's economic success.
Employees, who are among the primary stakeholders directly affected by the company's activities and results, become economically aligned with the company's performance when granted shareholder status. Share ownership may foster a sense of "being an owner" in employees, positively influencing their approach to their work and to the organization. Furthermore, the financial rights attached to shares establish a direct link between employees' labor and the company's financial outcomes, thereby reinforcing the alignment of interests between the parties. The ability of employees, in their capacity as shareholders, to participate in decision-making processes may enhance their sense of control over the working environment, thereby supporting job satisfaction and institutional cooperation.
These developments also have implications for the company. Increased commitment and motivation may enhance performance and contribute to more efficient operations. Moreover, strengthened employee loyalty may reduce the need for continuous performance monitoring and, consequently, decrease supervision costs. A decline in the tendency of qualified employees to leave the company positively affects corporate stability and sustainability. In these respects, employee share ownership presents a multidimensional structure that supports both economic efficiency and corporate balance.
Today, companies are making greater efforts to ensure employee participation in capital in order to increase employee loyalty and performance. In Türkiye, the opening of the path for employees to acquire shares is observed predominantly within the start-up ecosystem. Entrepreneurial companies with limited cash flow and a need to manage resources prudently may grant shares or share-based rights to employees in order to compensate for salaries that may fall below market conditions and to offer the return for labor through long-term value participation. By contrast, established and large-scale companies may prefer to support high-salary policies with capital participation mechanisms such as share options in order to attract and retain qualified workforce, thereby establishing a stronger and more sustainable alignment of interests between the employee and the company. In many jurisdictions, companies grant employees the right to acquire shares within the framework of systematic plans. However, in practice in Türkiye, it is more common to encounter instances where companies or controlling shareholders grant shares or share options to specific employees through ad hoc decisions rather than pursuant to a pre-structured and institutionalized plan. This indicates that employee share ownership is often implemented through flexible arrangements shaped by concrete needs or individual performance, rather than through systematic and standardized programs.
Today, companies frequently enter into share option agreements prior to granting employees actual share ownership. Such agreements, which are dedicated to a promise of share acquisition, are commonly referred to in practice as "stock option agreements" or "share option agreements." These agreements allow certain employees to become entitled to company shares provided that they fulfill the conditions specified in the agreement and/or continue their employment for a specified period. Upon satisfying the contractual conditions, the relevant employee becomes entitled to acquire the percentage of company shares determined in the agreement. However, it should be noted that fulfillment of the conditions stipulated in the agreement does not automatically render the employee a shareholder of the company. It should further be emphasized that it is not mandatory for a company or a controlling shareholder to enter into such an agreement in order to grant shares to employees. As explained below, a company or a controlling shareholder may also grant share ownership to employees through alternative methods without executing a prior option agreement.
Under Turkish law, in order for employees who have become entitled to share ownership under a contractual arrangement to acquire shareholder status, one of the following three methods must be implemented:
- Transfer of shares by existing shareholders to employees,
- Transfer to the employee of the company's own shares previously acquired by the company,
- Conditional capital increase.
Transfer of Shares by Existing Shareholders to Employees
Under this model, the employee acquires shareholder status by taking over shares held by existing shareholders, rather than newly issued shares. The transfer procedure varies depending on the legal nature of the shares. The transfer of uncertificated shares is subject to the provisions governing assignment of receivables. In the case of registered share certificates, endorsement and delivery of possession are required, whereas for bearer share certificates, transfer of possession suffices. These transactions are disposition acts and effectuate the transfer of share ownership.
Transfer to the Employee of the Company's Own Shares Acquired by the Company
Pursuant to Article 379 of the Turkish Commercial Code, joint stock companies may acquire their own shares representing up to one-tenth of their registered or issued share capital. As a rule, the general assembly shall authorize the board of directors to exercise this power.
In addition, the law prescribes certain financial conditions for the protection of capital and creditors. In order for a company to acquire its own shares, the net assets remaining after deduction of the acquisition price shall not fall below the total of the registered or issued capital and the legal reserves required to be set aside. Furthermore, the shares to be acquired shall be fully paid-in.
Within this framework, the company's own shares so acquired may be temporarily held as treasury shares and may be used particularly for the implementation of employee share acquisition or share option plans. In this manner, the company may transfer its own shares to employees without resorting to a capital increase and without directly affecting the shareholding ratios of existing shareholders.
Conditional Capital Increase
A conditional capital increase is a method of capital increase that enables creditors holding bonds or similar debt instruments issued by the company, as well as employees, to acquire new shares by exercising conversion or subscription rights, provided that such mechanism is stipulated in the articles of association.
Pursuant to Articles 463 et seq. of the Turkish Commercial Code, this system may only be implemented through the issuance of new shares. The persons entitled to benefit from this right are limited to creditors of debt instruments containing conversion rights and employees. The total nominal value of the conditionally increased capital may not exceed half of the existing capital, and the newly issued shares must be subscribed for at least at their nominal value.
For implementation, the articles of association shall contain an explicit legal basis for the increase and must regulate the maximum amount of the increase, the characteristics of the shares, the beneficiary groups, the removal of pre-emptive rights, and any privileges or transfer restrictions, if applicable. As a rule, the issued instruments are offered to existing shareholders in proportion to their shareholding; however, this right may be removed for just cause, and employee participation in the company constitutes a just cause. Conversion and subscription rights are exercised through a written declaration and fulfillment of the capital commitment via a bank. Shareholder rights arise upon payment.
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.
