Certain Shareholder Rights in Companies’ Acquisition of its Own Shares
Introduction
The acquisition of its own shares by a company is subject to certain restrictions under Turkish Commercial Code No. 6102 ("TCC"). In addition to these limitations, Article 389 of the TCC stipulates that the shares repurchased by companies do not grant any shareholding rights, except for the acquisition of gratis shares. Accordingly, “The shares of the parent company acquired by the subsidiary company and the shares repurchased by the company, are not taken into account in the calculation of the meeting quorum of the general assembly of the parent company. Except for the acquisition of gratis shares, the company"s own repurchased shares do not grant any shareholding rights. The voting rights and respective rights pertaining to the parent company shares acquired by the subsidiary company, are suspended.”
The stand of the shareholder rights in the company acquiring its own shares is independent of whether the shares are acquired within or in accordance with legal restrictions[1]. In the preamble of the Article, it is interpreted that shares acquired by the company in accordance with the law or breach of the law, do not grant any shareholding right to the company; the company may only acquire gratis shares arising from those shares; and the respective gratis shares shall also not provide shareholding rights to the company.[2] Under this study, firstly, the scope and purpose of the regulation will be examined and then the certain aspects related to various shareholding rights will be discussed.
Shares Acquired by the Company and Stand of Shareholding Rights
As mentioned, above, Article 389 of the TCC does not stipulate any condition on its own shares acquired by the company. In addition, it is explicitly stated in the preambles of the Article that the acquisition of shares by the company in accordance with the law is not critical in terms of the state of shareholding rights. Accordingly, in the event that the company acquires its own shares based on the exceptions specified in Article 382 of the TCC, it is even granted by an exemption from the conditions under Article 379, no exemption shall arise concerning the consequences foreseen under Article 389 (the legal position of the shares due to the acquisition).[3]
In this context, the regulation in question is not in the nature of exception of the company acquiring its own shares illegally. The purpose of regulation is evaluated in various aspects in the doctrine.
One opinion argues that the aim of the regulation is to prevent the unbalanced deterioration of the balance of power between the board of directors and the general assembly as a result of the misuse of the rights over the shares acquired legally by the company managers.[4]
Another view argues that the suspension of shareholding rights arising from the shares repurchased by the company, except for the acquisition of gratis shares arising from the shares repurchased by the company, is grounded on the impossibility of being a shareholder of its own. Accordingly, in order to gain the status of shareholding against a joint stock company, a third person is required to acquire the share. In the event that the company acquires its own shares, just like a third party, it is not possible to deem that the company is granted with the shareholding rights due to nature of the status of shareholding.[5]
It is explicitly stated under the Article that the shares acquired by the company do not grant any rights other than the acquisition of gratis shares, and these shares are not to be taken into consideration in the calculation of the meeting quorum, as well as the voting rights, and other rights related to the parent company shares acquired by the subsidiary company are suspended.[6] While the suspension of the rights pertaining to the shares acquired by a subsidiary is regulated in Article 389 of the TCC, the stand of the rights repurchased by the company, i.e. whether the respective rights are suspended or revoked, is not foreseen. In this sense, it can be considered that there is an intentional avoidance of the matter in question. Furthermore, it is pointed out in the preambles of the Article that this aspect is left to the doctrine and opinion of the judiciary. Additionally, in the preambles of the Article, the issues that may arise within this scope are exemplified as (i) whether the meeting quorum shall be decreased by the number of the shares in question; (ii) whether the accrued dividend shall be deemed as legal reserve funds and has become the asset of the company, or whether it shall be transferred to an exclusive account and to be transferred to the transferee through the transfer of the share; (iii) whether the exercise of the pre-emptive right may be compared with gratis shares. Further, in the preambles of the Article, it is explained that the opinion adopted in the foreign doctrine regarding the stand of shareholding rights is temporary and, through the transfer of shares to a third party, these rights shall be restored.[7]
General Assembly Meeting Quorums
Article 389 of the TCC explicitly states that shares repurchased by the company shall not be taken into account in the calculation of the meeting quorum of the general assembly. In addition, in the preambles of the Article, it is explained that the bearer shares repurchased by the company, cannot be represented in the general assembly even if these are transferred through a fiduciary assignment.
In the doctrine, the stand of the voting rights regarding the company"s own shares is associated with the concept of "suspension" in Article 198 of the TCC, and it is assumed that the voting rights of the relevant shares shall be suspended. The fact that the shares to which the voting rights pertain are not taken into consideration in the calculation of the meeting quorum, means that these shares shall be deducted from the total number of shares constituting the capital, and that the meeting quorum shall be calculated with the remaining shares, and the shares of which the rights are suspended, shall be deemed as if they do not exist, and the total amount shall be reduced.[8]
In terms of decision quorum, it is explained that the shares of which the voting rights are suspended shall not be taken into consideration in the decision quorum as well, and if there is no aggravating provision, the quorum shall be formed by the majority of the votes that may be used in the meeting.[9]
Right of Obtaining Information and Examination
Another right granted to the shareholder is obtaining information and examination as is stipulated under Article 437 of the TCC. In this context, the shareholders of the company are granted with the right to review certain documentation prior to the general assembly meeting and to receive information about the general meeting. In the event that the company holds its own shares, pursuant to Article 389 of the TCC, the right of examination and obtaining information, granted to the shareholders, cannot be exercised by the company. This also complies with the purpose of the right in question.
The right to obtain information and examination is one of the areas in which there is a conflict of interest between the company and its management and shareholders. Therefore, even though the company owns its own shares, it is not in the shareholder status that exercises Article 437 of the TCC. In such a case, the right of the shareholder to obtain information and to examine cannot be exercised.[10]
Conclusion
Article 389 of the TCC stipulates that in the event the company acquires its own shares, regardless of whether the acquisition is in compliance with, or in breach of, the legal provisions, the company cannot enjoy shareholding rights. However, the Article does not make any determination with regard to the shareholder rights in question. It is explained in the preambles of the Article that this aspect is left to judicial decisions and the doctrine.
[1] Çapa, Mehmet Sadık: Anonim ve Limited Şirketlerin Kendi Paylarını İktisap Etmesi, İstanbul: On İki Levha Yayıncılık, November 2013.
[2] Preambles of Article 389 of the TCC.
[3] Çapa, p. 108.
[4] Çapa, p. 107.
[5] Yıldırım, Ali Haydar: “Anonim Ortaklık Genel Kurul Kararları Aleyhine Toplantıda Hazır Bulunan Pay Sahibinin İptal Davası Açmasının Şartları ve Özellikle Muhalefet Şerhi.” İnönü Üniversitesi Hukuk Fakültesi Dergisi, V. 7, No. 2, 2016, p. 383-430. DergiPark, http://dergipark.gov.tr/inuhfd/issue/22944/291308.
[6] Kendigelen, Abuzer: Yeni Türk Ticaret Kanunu: Değişiklikler, Yenilikler ve İlk Tespitler, İstanbul: On İki Levha Yayıncılık, May 2016.
[7] Preambles of Article 389 of the TCC.
[8] Yanlı, Veliye: Prof. Dr. Hamdi Yasaman"a Armağan, İstanbul: On İki Levha Yayıncılık, January 2017, p. 779; Nilsson, Gül Okutan: Türk Ticaret Kanunu Tasarısı"na Göre Şirketler Topluluğu Hukuku. İstanbul: On İki Levha Yayıncılık, August 2009; Pulaşlı, Hasan: “Anonim Şirketlerde Esas Sözleşme ile Oy Hakkının Sınırlandırılması, Buna İlişkin Yöntemler ve Oyun Donduğu Haller”, Banka ve Ticaret Hukuku Dergisi, V. 33, No. 3, 2017, p. 34-36.
[9] Yanlı, p. 780.
[10] Dolu, Ali Murat: Anonim Ortaklıkta Pay Sahibinin Bilgi Alma ve İnceleme Hakkı, İstanbul: On İki Levha Yayıncılık, October 2017.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Turkish automobile and light commercial vehicle market left the 2000s behind with steadily rising sales figures and the 2010s with high and stable sales figures as well. In this period, the growth of the market was driven not only by high purchase power but also by easy access to credit and product diversity...
Turkish Commercial Code No. 6102 ("TCC") provides the right to exit from the company to the shareholders of limited liability companies and the right to squeeze out the shareholder from the company, unlike the structure of joint stock companies, with the exit and squeeze out institutions specially regulated for...
Turkish Commercial Code No. 6102 (“TCC”) preserves the rule that the board of directors shall manage and represent joint stock companies. The TCC regulates how the power of representation shall be exercised, the registration and announcement of the persons authorized to represent, the transfer of the...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
Merger and acquisition processes are one of the legal processes that most seriously affect the identities and legal status of companies. After the completion of legal, tax, financial and operational due diligence reports, the parties initiate the negotiation process in case they reach an agreement on proceeding with the...
A popular business model for expanding market reach and brand recognition worldwide is franchising. Despite being less common than distribution agreements in the form of mono-brand store agreements, franchising is another significant method for extending luxury brands' distribution networks. Luxury brands use...
In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement...
The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in...
Transfer of shares is arguably the first legal transaction that comes to mind among the legal transactions regarding the shares of a capital company, and the most common transaction in practice. However, the shares of a capital company may also be subject to various transactions, other than share purchase...
Law No. 6563 on the Regulation of Electronic Commerce (E-commerce Law or Law) has recently undergone a radical change in order to regulate the behavior of the players in the rapidly growing and developing e-commerce sector. The new regulations that came into force as of January 1, 2023 envisage important...
On 11 June 2021, the German Federal Parliament approved the German Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz) (“Act”) which affects not only German entities but also their suppliers in foreign countries (including Turkish entities). The main focus of the Act, which entered into force on...
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the...
The Turkish Commercial Code No. 6102 ("TCC") regulates maritime trade contracts under the fourth part of the fifth book of the Code. Among the types of contracts regulated in this section, the most frequently used contract in international maritime transport practice is the freight contract regulated under...
Prohibition on hidden income shifting is one of the most important issues that is broadly regulated under Capital Markets Law No. 6362 (“CML”). In conjunction with CML Article 21, which has a broader context than Article 15 of the abrogated Capital Markets Law No. 2499, another significant step has been taken...
As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency...
The Turkish Commercial Code (“TCC” or “Law”) has enabled companies to apply different structural models and to implement new legal formations by including spin-off provisions to its Article 159 et seq. In accordance with the provisions of the law, companies may transfer a certain element, or elements, of their...
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is...
Incoterms are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of Incoterms rules is to facilitate and expedite international trade in a safe and secure manner...
The regulation applicable to all Turkish ports prepared by the Ministry of Transport, Maritime Affairs and Communications that entered into force after being published in the official gazette on October 31, 2012 (˝the Regulation˝), consolidates all the bylaws, regulations and instructions in a single Regulation...
As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an...
The rules of e-commerce, which grow and develop with the digitalizing world, are changing. E-commerce has become the driving force of the digital economy. However, considering the growth rate of e-commerce and the transformation it has undergone in a short time, it is obvious that some...
The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...
Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...
Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...
Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...
Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase...
The electronic signature, which has the same legal consequences as wet signatures if it meets certain conditions, has taken its place in many legal systems and has enhanced commercial life. Although there are various types and applications in different legal systems...
INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade...