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NEWSLETTER 2011
26
Innovations in the New Turkish Commercial Code
Concerning Preference Shares
5
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Prof. Dr. H. Ercüment Erdem
Preference shares are of significant importance, and regulated under
special provisions since they provide wider rights to investors compared
to ordinary shares. The provisions of the New Turkish Commercial
Code (“New TCC”) concerning preference shares aim to, on one hand,
remedy the current issues that arise under the Turkish Commercial Code
(“TCC”), on the other hand, reckoned among the dispositions with a view
to improving and strengthening corporate governance principle.
Overview
In joint stock companies, the principle of equal treatment of
shareholders and protection of their rights is adopted. Nevertheless,
this does not mean that all types of shares will be treated with absolute
equality but rather it means the shares that belong to the same category or
classification will receive equal treatment. With the contractual provisions
inserted to the Articles of Association it is possible that particular shares
or group of shareholders may be privileged and given more favorable
status than other group of shareholders regarding the nature and content
of their rights and duties. As a consequence of such differentiation of
shareholding rights the class of shareholding, preference shares- also
known as preferred stock- is created which provide wider rights to
shareholders compared to ordinary shares. The preferences are granted
in favor of shares, and not in favor of persons. Preference rights granted
to certain persons have a contractual basis and cannot be construed as
privileges.
While the TCC regulates preference shares, it avoids giving the
precise definition of the term “preference shares”. Article 401 of the TCC
stipulates that it is possible to grant preferential rights in favor of certain
shares through the articles of association with regards to dividend or
distribution of the assets of a company in liquidation, and similar issues.
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Article of May 2011