Newsletter-21

31 COMMERCIAL LAW the subsidiary company and related rights shall freeze. This means that shares acquired by the company, itself, and the parent company shares acquired by the subsidiary company, are considered to be the same in terms of consequences attached thereto. Despite the cross shareholding situation, not all of the rights arising from the shares of the subsidiary company, but only the voting rights, freeze. However, this does not cover only 25% of its shares, but all of them. Finally, it should be mentioned that if there is no dominant rela- tionship, it is irrelevant that the subsidiary company holds at least one- fourth of the parent company’s shares, in terms of the attached con- sequences. No matter in which ratio the subsidiary company acquires the shares of the parent company, shall it be subject to the provisions of Articles 389 and 612 of the TCC. This consequence means stepping outside of the scope of the definition of cross shareholding in terms of Article 197 of the TCC in the existence of a dominant relationship. Conclusion Although cross shareholding brings with it several drawbacks, various jurisdictions have chosen to make it subject to sanctions, instead of prohibiting it. Within the scope of the TCC, technically, stock corporations that hold at least one-fourth of each other’s shares are deemed to be in a cross shareholding situation. Cross sharehold- ing is addressed in two different categories that may be identified as simple and qualified, and different consequences are attached thereto. In simple cross shareholding situations where both companies hold at least one-fourth of each other’s shares, but are not in dominant posi- tions against each other, the company that has knowingly created the cross shareholding situation can only use one-fourth of its total votes arising from the shares that it holds in the other company and of its other shareholding rights; all of its other shareholding rights freeze. In qualified cross shareholding situations where at least one company is dominant over the other, instead of the sanction of shares freezing, consequences attached to dominance, and especially to the acquisition by the subsidiary company of the parent company’s shares, apply.