INTRODUCTION
The legislator has granted certain rights to minority shareholders in joint stock companies in order to prevent those in a disadvantaged position from being oppressed under majority control and to protect their interests from being prejudiced. The purpose of granting these rights is to establish a balanced position between the majority and the minority in joint stock companies.
The rights granted to minority shareholders by the legislator are primarily regulated under Turkish Commercial Code No. 6102 (“TCC”). Although minority rights are addressed under the TCC without being subject to any specific classification, legal doctrine generally examines minority rights under two headings: “Positive Minority Rights” and “Negative Minority Rights”. This classification will also be adopted in this study.
In the following sections of our study, after briefly defining joint stock companies and minority rights, the rights granted to minority shareholders under the TCC will be examined individually.
1. JOINT STOCK COMPANIES AND THE CONCEPT OF MINORITY
The protection of minority rights in joint stock companies is one of the fundamental subjects of joint stock company law. Before examining minority rights in joint stock companies, it is necessary to define the concept of minority. According to the Turkish Language Association, a minority is defined as “those who, in terms of their distinctive characteristics within a community, are different from and fewer in number than the others; a minority, numerical minority, the opposite of the majority”1. Since the concepts of few and many are relative, determining the minority and majority requires objective data such as a number or proportion.2
In Continental European law, minority rights, which fall within the category referred to as “protective rights”, are regarded as rights intended to protect those who remain in the minority.3
- Definition
Joint stock companies, regulated under Part Four of Turkish Commercial Code No. 6102, are defined under Article 329 of the TCC as follows: “A joint stock company is a company whose capital is determined and divided into shares and which is liable for its debts solely with its assets.” Pursuant to Article 124/2 of the TCC, joint stock companies are classified as capital companies. Since the fundamental element in such companies is the capital contributed to the company, the capital contributions of shareholders are also of primary importance when defining the scope of the minority concept.4
Joint stock companies may be divided into publicly held and privately held joint stock companies. Pursuant to Capital Markets Law No. 6362 (“CML”), joint stock companies whose shares have been offered to the public, as well as joint stock companies deemed to have been publicly offered because the number of their shareholders exceeds 500, are considered publicly held joint stock companies. Joint stock companies that have not made a public offering or whose number of shareholders is fewer than 500 are regarded as privately held joint stock companies.
Holding shares in a joint stock company grants the shareholder certain rights under the TCC, and such rights may be exercised individually by shareholders. However, a shareholder cannot act alone where the objective is to become influential in the management of the company or to achieve a particular objective.5 For this purpose, the shareholder must come together with shareholders in a similar position and form a minority.6
The concept of minority is regulated under Article 411 of the TCC. Pursuant to Article 411 of the TCC, “shareholders representing at least one-tenth of the capital and, in publicly held companies, one-twentieth of the capital” are regarded as a minority. In determining a minority in joint stock companies, the relevant factor is not the number of shareholders but the proportion of shares held.7 In a publicly held joint stock company, the minority representing one-twentieth of the capital may consist of a single shareholder or dozens, or even hundreds, of shareholders.
As joint stock companies are capital companies, decisions are, as a general rule, adopted by majority vote.8 Regardless of their shareholding ratio, all shareholders in joint stock companies have the right to vote and to attend the general assembly. Pursuant to Article 418 of the TCC: “Unless a higher quorum is stipulated by this Law or the articles of association, general assemblies shall convene in the presence of shareholders or their representatives holding at least one-quarter of the capital.” If this quorum cannot be achieved at the first meeting, the same quorum is not required at the second meeting. Once the general assembly has convened, decisions are adopted by a majority of the votes of the shareholders attending the meeting. In this context, shareholders who vote against decisions approved by the majority of shareholders constitute the minority group. Consequently, particularly in joint stock companies with a large number of shareholders, decisions may be adopted in line with the preferences and interests of the majority, while the interests of minority shareholders may be adversely affected.
In order to prevent minority interests from being prejudiced, the legislator has introduced various provisions under the TCC and granted various rights to minority shareholders. These provisions will be examined in detail below.
In addition to the TCC, Article 11/8 of the Capital Markets Law provides that “The rights granted under Articles 341, 348, 356, 359, 366, 367 and 377 of the Turkish Commercial Code to shareholders representing at least one-tenth of the registered capital shall, in publicly held joint stock companies, be exercised by shareholders representing at least one-twentieth of the paid-in capital.”9 This provision constitutes the statutory basis for the exercise of minority rights in publicly held joint stock companies by shareholders representing at least one-twentieth of the paid-in capital.
2. LEGAL NATURE OF MINORITY RIGHTS
Minority rights are rights granted to minority shareholders in joint stock companies, namely shareholders representing one-tenth of the company's capital (one-twentieth in publicly held joint stock companies), in order to establish a balance between the majority and the minority in conflicts of interest. They are described as rights of claim that may, as a general rule, be exercised through the unilateral declaration of intent of the minority without requiring the approval of the corporate body to which they are addressed, while remaining subject to review under the prohibition of abuse of rights.10
The Turkish Commercial Code does not provide a definition of minority rights; it merely regulates the rights granted to minority shareholders. Likewise, minority rights have not been specifically defined in legal doctrine, but the rights granted to minority shareholders under the TCC are generally examined under two headings: “Positive Minority Rights” and “Negative Minority Rights”.
Negative minority rights refer to circumstances in which, although the required quorum has otherwise been achieved at the general assembly, the minority prevents the adoption of a resolution by casting negative votes or by refraining from attending the general assembly meeting. Positive minority rights, on the other hand, refer to the exercise of a right by the minority, despite the contrary will of the majority, through a justified demand or legal action based on the minority's declaration of intent.11
- Negative Minority Rights
As stated above, negative minority rights refer to the minority's ability to prevent the adoption of a resolution supported by the majority by either casting negative votes or refraining from attending the general assembly meeting.
- Release in Incorporation and Capital Increase
Article 559 of the TCC provides that “The liability of founders, members of the board of directors and auditors arising from the incorporation of the company and capital increases may not be extinguished by settlement or release until four years have elapsed from the date of registration of the company. Even after the expiry of this period, settlement and release shall become valid only upon approval of the general assembly. However, where shareholders representing one-tenth of the registered capital and, in publicly held companies, one-twentieth thereof oppose the approval of the settlement and release, the settlement and release shall not be approved by the general assembly.”12 Under this provision, those responsible for the incorporation of a joint stock company and capital increases cannot be released from liability or discharged by settlement or release until four years have elapsed from the registration of the company.
Even after the four-year period has expired, settlement and release remain subject to the minority not voting against them. In other words, minority shareholders are granted the right to prevent settlement and release in respect of liabilities arising from incorporation. However, in order to prevent settlement and release, minority shareholders must expressly cast opposing votes; abstaining from voting is insufficient for this purpose.13
Although certain views in legal doctrine argue that the right granted to minority shareholders under Article 559 of the TCC does not technically constitute a minority right because it is not exercised in the form of a demand,14 or that the right granted under Article 559 is technically a rule concerning decision-making quorums rather than a minority right,15 the prevailing view in legal doctrine accepts the existence of a negative minority right that enables minority shareholders to prevent the formation of a general assembly resolution by casting negative votes.16 Indeed, considering that Article 559 of the TCC gives minority shareholders the power to prevent their interests from being prejudiced by a majority decision, it is entirely appropriate to regard this right as a negative minority right.
As this provision protects against losses arising during the incorporation of the company, both in relation to the general assembly and against the founders, initial members of the board of directors and auditors responsible for the incorporation, it is mandatory in nature and cannot be restricted.17 Where a general assembly resolution is adopted despite the negative votes of minority shareholders, the minority may request the annulment of the general assembly resolution.
- Qualified Quorum Requirements
Although qualified quorum requirements are not expressly regulated as minority rights under the TCC, they are regarded as minority rights in legal doctrine.18 Where a general assembly meeting is subject to a qualified quorum requirement, the minority's failure to attend the meeting, abstention or negative vote may prevent the adoption of the resolution.19
The legislator has sought to protect minority interests by imposing qualified meeting and/or decision quorums at general assembly meetings convened to adopt certain decisions that are important for the interests of the company or its shareholders.
Qualified meeting quorum requirements are regulated under Article 421 of the TCC, entitled “Meeting and Decision Quorums for Amendments to the Articles of Association”.
Pursuant to Article 421/1 of the TCC, unless otherwise provided by law or the articles of association, resolutions amending the articles of association shall be adopted at a general assembly meeting where at least one-half of the company's capital is represented, by a majority of the votes present at the meeting. If the meeting quorum required for the first meeting cannot be achieved, a second meeting may be held within one month at the latest. The meeting quorum for the second meeting is the representation of at least one-third of the company's capital. Provisions of the articles of association that reduce the quorums prescribed under this paragraph or provide for a relative majority are invalid.20
Pursuant to Article 421/2 of the TCC, resolutions amending the articles of association that impose obligations or secondary obligations for the purpose of covering balance sheet losses, as well as resolutions concerning the relocation of the company's registered office abroad, must be adopted unanimously by the holders or representatives of all shares constituting the company's capital.
Pursuant to Article 421/3 of the TCC, resolutions concerning amendments to the articles of association relating to a complete change in the company's scope of business, the creation of privileged shares and restrictions on the transfer of registered shares must be adopted by the affirmative votes of shareholders or their representatives holding at least seventy-five percent of the capital.
Pursuant to Article 421/4 of the TCC, if the quorums prescribed under paragraphs 2 and 3 of the same Article cannot be achieved at the first meeting, the same quorums shall also apply to subsequent meetings.
Pursuant to Article 421/5 of the TCC, in companies whose shares are traded on stock exchanges, unless otherwise provided in their articles of association, the meeting quorum set out in Article 418 shall apply to general assembly meetings held for the adoption of resolutions concerning amendments to the articles of association relating to capital increases and increases in the registered capital ceiling, as well as mergers, demergers and changes of company type. Article 418 provides that general assemblies shall convene in the presence of shareholders or their representatives holding at least one-quarter of the capital, unless a higher quorum is stipulated by the Law or the articles of association.
As can be seen, although Article 421 of the TCC concerns quorum requirements, the participation of minority shareholders may be necessary to satisfy those quorums. Accordingly, certain highly significant decisions capable of affecting the future of the joint stock company cannot be adopted without the affirmative votes of minority shareholders. Therefore, there is no objection to classifying the mechanism regulated under Article 421 of the TCC as a minority right.
Footnotes
2. Kayar, İsmail, “Minority Rights in Joint Stock Companies”, (Marmara University Institute of Social Sciences, Department of Law, Private Law Division, Unpublished Master's Thesis), Istanbul 1989, p. 4.
3. Sert Canpolat, Selin, TBB Journal, Issue 74, 2008, p. 158.
4. İkiz, Meltem, “Minority Rights in Joint Stock Companies”, (Antalya Bilim University Graduate Education Institute, Private Law Master's Program with Thesis, Master's Thesis), Antalya 2022, p. 3.
5. Kırca, İsmail/Şehirali Çelik, Feyzan Hayal/Manavgat, Çağlar, “Law of Joint Stock Companies”, Vol. 1, Banking and Commercial Law Research Institute, Ankara, 2013, p. 257.
6. Kırca/Şehirali Çelik/Manavgat, p. 257.
7. Turkish Commercial Code, https://www.mevzuat.gov.tr/mevzuatmetin/1.5.6102.pdf
8. Altıntaş, Hasret, “Minority Rights in Joint Stock Companies within the Framework of Turkish Commercial Code No. 6102”, (Gazi University Institute of Social Sciences, Department of Private Law, Unpublished Master's Thesis), Ankara 2015, p. 3.
9. Capital Markets Law, https://www.mevzuat.gov.tr/MevzuatMetin/1.5.2499.pdf
10. İmregün, Oğuz, Commercial Law Lectures, (Commercial Law), Istanbul 1987, p. 444.
11. Sert Canpolat, Selin, TBB Journal, Issue 74, 2008, p. 161.
12. Turkish Commercial Code, https://www.mevzuat.gov.tr/mevzuatmetin/1.5.6102.pdf
13. Aytaç, Zühtü, Release in Joint Stock Companies, Ankara 1980, p. 107.
14. Helvacı, Mehmet, “The Legal Nature and Definition of Minority Rights Arising from the Commercial Code in Joint Stock Companies”, (Minority Rights), Festschrift for Prof. Dr. Oğuz İmregün, Istanbul 1998, p. 302; Ali Dural, “Regulation of Negative Minority Rights in Joint Stock Companies”, p. 299 (fn. 7).
15. Moroğlu, Erdoğan, Invalidity of General Assembly Resolutions in Joint Stock Companies (Invalidity), p. 86.
16. İmregün, Oğuz, (Conflicts of Interest), p. 48; Birsel, Minority Rights in Joint Stock Companies, pp. 637–638; Sümer, Protection of Minority Rights in Joint Stock Companies and Termination of a Joint Stock Company for Just Cause, p. 22; Poroy (Tekinalp/Çamoğlu), Law of Companies, p. 433; Helvacı, (Minority Rights), p. 299 (fn. 7).
17. Domaniç, Hayri, Practice of Joint Stock Company Law, p. 410.
18. İmregün, Oğuz, (Conflicts of Interest), pp. 23-24; Sümer, Protection of Minority Rights in Joint Stock Companies and Termination of a Joint Stock Company for Just Cause, pp. 18-19; Birsel, Minority Rights in Joint Stock Companies, p. 631.
19. Poroy, Reha, (Tekinalp/Çamoğlu), Law of Companies, p. 433; İmregün, (Conflicts of Interest), pp. 23-24; Seda Ulaş Kısa, “Preventive Legal Instruments Intended to Ensure that Conflicts of Interest in Joint Stock Companies Do Not Harm Minority Shareholders”, Festschrift for Prof. Dr. Ünal Tekinalp, Istanbul 2003, p. 522; Erdoğan Moroğlu, “Protection of Majority Shareholders Against Minority and Privileged Shareholders in Joint Stock Companies”, (Protection of Majority Shareholders), BATIDER 1994, Vol. 17, p. 51.
20. Turkish Commercial Code, https://www.mevzuat.gov.tr/mevzuatmetin/1.5.6102.pdf
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