Newsletter-21

27 COMMERCIAL LAW the TCC does not guarantee legal compliance for all events, and does prevent enforcement of the sanction of such incompliance, especially if high cross shareholding is in breach of balance sheet principles 2 . Simple Cross Shareholding Cross shareholding provisions were not regulated under Com- mercial Code No. 6762, and have been directly adapted from Article 19/1 of the German Stock Corporation Act ( Aktiengesetz , “AktG”) in the preparation of the new law. As per Article 197 of the TCC, “ Stock corporations that hold at least one fourth of each other’s shares are in cross shareholding. ” Accordingly, the situations only where both com- panies hold at least one fourth of each other’s shares are deemed as cross shareholding within the scope of the TCC. Situations where the participation ratio is below one-fourth do not technically count as cross shareholding. For example, if company X holds 30% of the shares of company Y, and company Y holds 20% of the shares of company X, there is no cross shareholding, and consequences linked thereto do not apply. For the calculation of the participation percentage, Article 196 of the TCC regarding the calculation of share and voting ratios shall be taken into consideration. For the relationship to be deemed as a simple cross shareholding, there should be no dominant relationship between the said two companies. Consequences of Simple Cross Shareholding While Article 197 of the TCC only makes a definition of cross shareholding, consequences linked thereto are regulated under Article 201 of the TCC. According to the first paragraph of the Article that regulates the consequences of simple cross shareholding, “ A stock corporation that knowingly gets into a cross shareholding situation by acquiring the shares of another stock corporation can only use one- fourth of its total votes arising from the shares subject to participation and of its other shareholding rights; all other shareholding rights, except for the right to acquire the gratis shares, shall be frozen. ” Ac- cordingly, enforcement of this limitation is subject to the condition that the subject stock corporation gets into cross shareholding situation 2 Preamble of Article 197 of the TCC.