In principle, the board of directors of a joint- stock company is entitled to manage the company. In other words, except for issues that are explicitly among the authorities of the general assembly, the board of directors is authorized to resolve any matter.

However, in some cases, in order to protect the shareholder's rights and due to the principle of equality between the shareholders, regulators set forth more conservative provisions in favor of the shareholders.

"Significant transactions" and shareholder's right to exit the company are also among the aforementioned provisions. The Capital Markets Board ("Board") is not satisfied with a resolution of the board of directors regarding a significant transaction but it also obliges companies subject to the capital markets legislation to hold a general assembly meeting to approve such transactions. Unless the general assembly approves such transaction, the company may not finalize the "significant transaction" in question.

"Significant transactions" and shareholder's right to exit the company are set forth in general under Articles 23 and 24 of the Capital Markets Law No. 6362, and further details regarding the same are set forth under the Communiqué on Common Principles Regarding Significant Transactions and Shareholder's Right to Exit the Company (II- 23.1) ("Communiqué").

Companies, whose shares are offered to public (or qualify as such) are subject to the foregoing regulations.

1. Significant Transactions

As per Article 5(1) of the Communiqué, following transactions are deemed as "significant transactions" provided that they also meet the significance criteria set forth in Article 6 of the Communiqué:

1. to be a party to merger or demerger transactions, issuance of decisions to change the type of the company or to terminate the company;

2. to transfer, rent or establish a right in rem on whole or an important part of the assets of the company;

3. to change the field of activity of the company totally, or to a significant extent;

4. to create privileges attached to shares, or change the content or subject of existing privileges;

5. to decide to be delisted;

6. to acquire or lease from its related parties assets that have significance; or

7. in the case of capital increases planned through issuance of rights, if sum of the funds to be derived from capital increase are to exceed the existing capital of the company, and if such funds are to be used in partial or full repayment of debts (a) owed to related parties as defined in the relevant regulations of the Board, and (b) arising from transfer of non-cash assets to the company.

The foregoing transactions are not numerus clauses. The Board has the right to qualify a transaction of a company as a significant transaction if such transaction falls within the scope of Article 5(2) of the Communiqué.

The board of directors is obliged to adopt a resolution regarding the foregoing transaction including justifications as to the significant transaction in question and then this resolution should be disclosed to public, by indicating the votes of independent board members, together with the exercise price applicable for the right to exit, within the framework of the regulations of the Board pertaining to public disclosure of material events. For companies that are also subject to the Capital Markets Law although their shares are not publicly traded, it is not mandatory to disclose at this stage, the exercise price applicable for the right to exit.

Votes of the independent board members in the company, with respect to significant transactions have great importance since they are also responsible to redress the balance between different stakeholders, and to protect their rights equally and independently. Thus, before voting, they should use their right to demand information regarding the significant transaction in hand and ask questions if anything seems to be incoherent.

2. General Assemblies Concerning Significant Transactions

Significant transactions should be submitted to the approval of the general assembly following the resolution of the board of directors in this respect, since these transactions directly affect shareholding rights of the shareholders. The following shall be included in the agenda of the general assembly meeting at which approval of the significant transactions will be voted: (i) existence of the right to exit the company for shareholders who attend the general assembly meeting and record their dissenting vote to the minutes, (ii) exercise price applicable for the right to exit, and (iii) procedure of the exercise of such right.

The general assembly's decision relating to significant transactions can be obtained by affirmative votes of at least two-thirds of the shares represented in the general assembly meeting, regardless of the meeting quorum, unless a heavier quorum is stipulated in the articles of association. However, if at least half of the shares representing the share capital are present at the meeting, decision quorum shall constitute with the affirmative votes of majority of voting shares present in the meeting, unless a heavier quorum is stipulated in the articles of association.

Provisions in articles of associations reducing the quorums set forth above are invalid.

3. Right to Exit

Since significant transactions generally cause essential changes to the structure of the company or lay a burden (financial or otherwise) on the company, regulators grant the shareholders with the right to exit the company, if they are not happy with significant transactions.

Main purpose of such right is to protect rights and investments of the minority shareholders and to introduce a mechanism for minority shareholders to protect themselves against mismanagement of the company.

Shareholders or their proxies who attend the general assembly meeting with the agenda of discussions on significant transactions, and record their dissenting votes to the minutes shall have the right to exit the company by selling their shares to the company.

Where a shareholder or its proxy is unjustly prevented from attending a general assembly meeting relating to discussions on significant transactions, or a due invitation is not made for the general assembly, or the meeting agenda is not duly announced, the right to exit the company is applicable without seeking the conditions of a dissenting vote at the general assembly and lodging a dissenting opinion in the meeting minutes.

Where a share is restricted by a right of usufruct, and its voting rights are used by holders of the usufruct right, such right holders cannot exercise the right to exit the company.

In this case, only the shareholder or its proxy has the right to attend the general assembly meeting and use a negative vote for the relevant transaction and lodge a dissenting opinion in the minutes, in order to use its right to exit the company.

The exercise of a shareholder's right to exit the company shall commence within 6 business days (at most) starting from the date of the general assembly meeting. The period for the exercise of such right cannot be less than 10 business days and no more than 20 business days.

Right to exit the company shall be used through an intermediary institution. The Board, upon request, may grant an exemption to such rule for companies whose shares are not traded in the stock exchange. Value of the shares (of the shareholder exiting the company) shall be paid to the shareholder, applying to the intermediary institution for exercise of their right to exit, in no later than the business day following the date of sales.

Shareholders wishing to use their right to exit are obliged to use this right for all of the shares they hold, regardless of different classes of shares, as the case may be.

Value of the shares subject to the right to exit shall be paid fully in cash.

4. Cases not Triggering the Right to Exit

For the sake of clarity, regulators set forth certain exemptions to significant transactions which trigger the shareholder's right to exit, in order to prevent any question marks which may arise in practice.

Accordingly, the following significant transactions would not trigger shareholders' right to exit the company within the scope of provisions of the Communiqué:

a) Transactions required to be executed pursuant to other relevant legislation which are applicable on the company;

b) Transactions executed by companies whose management control belongs to a governmental authority;

c) Removal of all of the privileges of the shareholders without consideration, or limitation on privileges in terms and scope;

d) Change of the status of the investment companies, cessation of the status of such companies and change in privileges in this regard;

e) Transactions which oblige takeover bids as a result of a significant transaction, or transactions approved by the Board for voluntary takeover bids;

f) Demerger transactions that establish a new partnership in which the shareholding structure of the demerged company is preserved; merger and demerger transactions in simplified form;

g) In case the transaction is made by judicial authorities or for the purposes of collection of public receivables in accordance with a judgment, the immediate buy back of the assets subject to transaction through financial leasing; and asset transfer to issue a lease certificate, security based assets or a mortgage or warranted security;

h) Lease of assets in the portfolio of real estate investments companies;

i) Establishing rights in rem over the assets in the portfolio of real estate investment companies;

j) Establishing rights in rem over the assets of the companies on behalf of themselves, or in favour of the companies consolidated in the financial statements;

k)Provided that it is deemed acceptable by the Board, transactions where, as determined by a special-purpose independent audit report, transfer of ownership of no-economic-value properties that are included in assets of a company which has lost at least half of its share capital according to its financial statements issued in accordance with the pertinent regulations of the Board will terminate the said loss of share capital; and

l) Merger and liquidation transactions to which a special-purpose acquisition company is a party.

In cases that do not trigger the right to exit, except for the events requiring a general assembly meeting pursuant to other relevant regulations, for approval of the significant transaction, it is sufficient to obtain a decision of board of directors, and a separate general assembly meeting is not required.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in December 2016. A link to the full Legal Insight Quarterly may be found here.

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.