Cumulative Voting in Non-Public Joint Stock Companies
Introduction
Following the entry into force of Turkish Commercial Code numbered 6102 (“TCC”), the cumulative voting system is permitted to be practiced in non-public joint stock companies in accordance with art. 434 of the TCC regulating voting rights of the shareholders. During the period of the Turkish Commercial Code numbered 6762, the cumulative voting was possible only for the publicly held joint stock companies.
Legal Framework
Art. 434/4 stipulates that cumulative voting in non-public joint stock companies may be regulated by a communiqué to be published by the Ministry of Customs and Trade (“Ministry”). The article, by its text, presents that the Ministry is not legally obliged to publish such communiqué and the Ministry has the discretion to regulate or not to regulate the cumulative voting system. However, the justification of the Article does not grant such discretion and grants the Ministry only the authority to regulate the cumulative voting system.
Despite the inconsistency between the Article and its justification, the Communiqué on the Principles Concerning Practice of Cumulative Voting in General Assemblies of Non-Public Joint Stock Companies (“Communiqué”) entered into force through publication in the Official Gazette dated 29.08.2012 and numbered 28396.
Entry into Force of the Provisions Regarding Cumulative Voting
The date for entry into force of the Communiqué is stated, in its art. 9 titled as “Entry into Force”, as the date of publication. However, art. 28 of the Act on Entry into Force and Implementation of Turkish Commercial Code (“Act of Implementation”) modified by Act numbered 6335, the entry into force of art. 434 of the TCC, ―which is the legal base of the Communiqué―, is determined as 12 months later following the publication. Thus, the entry into force for the provisions of cumulative voting is differently stipulated in Act of Implementation and the Communiqué.
The Provisions of the Communiqué
The cumulative voting system is a practice in joint stock companies, which shall ensure effective participation and representation of the minority shareholders to administration of the company by affecting appointment of the board of directors. This function of cumulative voting is also reflected to the first article of the Communiqué stating the purpose of the Communiqué. Pursuant to this article, the purpose of the Communiqué is to regulate procedures and principles for practice of cumulative voting which shall ensure that the shareholders who do not hold the majority shares make elect a member for board of directors. The scope of the Communiqué is stated in art. 2 as regulation of the cumulative voting in election of the members for board of directors. Within the light of these two articles, it is possible to envisage that the cumulative voting is only possible for appointment of the board of directors’ members and other resolutions of the general assembly cannot be adopted by practice of cumulative voting.
Pursuant to the Communiqué, the cumulative votes shall be calculated by multiplication of the votes of the shareholders in the general assembly with the number of the board of directors’ members to be appointed. However, the practice of cumulative voting is held subject to some conditions within the Communiqué.
In art. 5 of the Communiqué, positive and negative conditions are regulated for practice of cumulative voting. The positive conditions are; the articles of association must accept practice of the cumulative voting and the number for board of directors’ members shall be determined as a fixed number, which is not less than three. The negative conditions are; the articles of association shall not stipulate any provision regarding representation of some groups in the board of directors and/or regarding determination of a candidate for board of directors within the scope of art. 360 of the TCC and it shall not stipulate a privilege in voting pursuant to art. 479 of the TCC.
The method for practice of the cumulative voting is stipulated in art. 6 of the Communiqué. According to this article, cumulative votes need to be cast with written ballots. These ballots show the distribution of the votes and include the name, signature and number of votes the shareholder has and these written ballots are submitted to the chairmanship. However this article reserves the provisions regulating the general assemblies to be electronically held.
In order to be in harmony with the provisions of TCC regulating voting with proxy, art. 7 of the Communiqué regulates cumulative voting in proxy voting. Pursuant to this article, in case the collective voting shall be a mandatory voting upon the request of other shareholders or their proxies, the representative shall also practice the cumulative voting, even there is no clear statement in its proxy. In case there is no instruction regarding distribution of the cumulative votes, the distribution amounts shall be decided by the representative.
The Communiqué obliges respect to the provisions regarding cumulative voting and holds the board of directors liable for non-application and blocking the application or lightening the effect of the practice of the cumulative voting.
Conclusion
As stated above, before the entry into force of TCC, the cumulative voting was possible only for the publicly held joint stock companies. However, there was no legal reason to grant this possibility only to publicly held joint stock companies and not to the non-public joint stock companies. Therefore, the fact that the cumulative voting can be also practiced in non-public joint stock companies which shall ensure participation of the minority shareholders to administration of the company is a favorable solution of TCC.
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