INTRODUCTION
Various reasons, such as keeping up with the rapidly changing world, catching opportunities, increasing profitability, making investments, or exiting due to conflicts among partners, may lead companies to undergo changes in their partnership structure. Especially in the latter case, relations can be tense, and ending the partnership in the most harmless way would be beneficial for all parties involved. In this article, we will first discuss the characteristics of joint-stock companies and then answer the question of how share transfer is performed in Turkish joint-stock companies based on the nature of the share certificates.
What is a joint stock company in Turkey?
In order to answer how to transfer shares in Turkey, it is important to understand the characteristics of a joint-stock company. Article 124/1 of the Turkish Commercial Code No. 6102 ("TCC") regulates commercial companies as collective, commandite, joint-stock, limited, and cooperatives. In corporations, the source of economic activity is the capital invested in the company rather than physical labor.
In Turkish Commercial Code, joint-stock companies are defined as companies with a specific capital divided into shares, and which are liable for their debts only with their assets. The primary debt of the shareholders is the obligation to contribute capital.
Joint-stock companies can be established for any economic purpose and subject, which is not legally prohibited, and the shares of the company can be freely transferred without the need for registration and publication in the Turkish Trade Registry Gazette. However, there are exceptions to the principle of free transfer of shares. For instance, the approval or authorization of the company may be required for the validity of share transfer in cases where shareholders fail to fulfill their capital contribution obligations under Article 329 of the Turkish Commercial Code.
On the other hand, joint-stock companies can be publicly or privately held, either with one or more shareholders. Furthermore, the transfer of shares in certain qualified companies is subject to the approval of specific institutions such as the Competition Authority, Capital Markets Board, Banking Regulation and Supervision Agency.
All these characteristics mentioned above are important in the context of share transfer. Therefore, the answer to how to transfer shares in Turkey for joint-stock companies will depend on the specific characteristics of the joint-stock company.
How to Transfer Shares in Turkish Joint-Stock Companies?
Shares of joint-stock companies can be acquired either through capital increase or through transfer by inheritance or sale. The transfer of shares is a crucial aspect of acquiring shares smoothly and protecting the interests of shareholders; therefore, it is beneficial to have a share transfer agreement in joint-stock companies.
Turkish Commercial Code indicates that share certificates can be either bearer or registered. Joint-stock companies are not obliged to issue share certificates; thus, the existence and transfer of unregistered shares are possible. However, there is an exception related to minority shareholders. Article 486/3 states: "If the minority requests, registered share certificates will be issued, and distributed to all registered shareholders."
Transfer of Registered Share Certificates
Registered share certificates are freely transferable by rule. The exception to this rule arises from the reasons specified in the law or the restrictions set forth in the articles of association. One of the legal reasons includes the transfer of unpaid shares. Indeed, Article 491/1 of the Turkish Commercial Code states, "Unpaid share certificates can only be transferred with the approval of the company." The same sentence further specifies that this exception applies unless the transfer occurs through inheritance, sharing of inheritance, matrimonial property regime provisions, or enforcement proceedings. The company's approval is obtained through a decision.
Although Article 491 addresses the company's approval, the company does not have absolute discretion in granting approval. As stated in the Code, the company can refuse approval if there are doubts about the transferee's payment capability, and if the security required by the company has not been provided. The same situation applies to the restriction of transfer in the articles of association. Although the article mentions that the articles of association can provide that registered share certificates can only be transferred with the company's approval, the company can refrain from giving such approval only in the presence of significant reasons.
In cases where there is any restriction, the authority granting approval is the board of directors of the joint-stock company. After obtaining this approval, the ownership of the registered share certificates is transferred to the transferee through endorsement and delivery, as stipulated in the law. However, for this transfer to be valid, it must also be recorded in the share ledger.
Transfer of Bearer Share Certificates
The transfer of bearer share certificates is carried out through delivery and notification to the Central Registry Agency ("CRA"). As stated in Article 489/1, "The transfer of bearer share certificates shall be effective only through the transfer of possession by the transferee by the delivery." If there is no notification to the CRA, the holders of the bearer share certificates cannot exercise their rights related to these shares until the necessary notification is made.
Transfer of Temporary Certificates
Temporary certificates, equivalent to registered or bearer share certificates, indicate share ownership. A shareholder holding temporary certificates has the opportunity to exercise rights granted to shareholders, such as voting at the general assembly and receiving dividends. As stated in Article 486, "The provisions related to registered share certificates shall apply by analogy to temporary certificates."
Transfer of Bare Shares
Joint-stock companies are not required to issue share certificates except for some exceptions. Therefore, the existence and transfer of bare shares are possible. One of the exceptions is stipulated in Article 486/3, which states: "If a minority shareholder demands, registered share certificates shall be issued and distributed to all registered shareholders." The transfer of bare shares does not require a formal procedure. Therefore, an ordinary written agreement for share transfer in joint-stock companies is sufficient for the transfer of bare shares. However, as the share certificate demonstrates the receivable from the company, the provisions of the Turkish Code of Obligations regarding the assignment of claims must also be applied.
Frequently Asked Questions
Is notarization required for share transfer in joint-stock companies?
In terms of joint-stock companies in Turkey, since there is freedom of action, a share transfer agreement is not required to be notarized or approved.
Who can transfer their shares in a joint stock company?
Every shareholder can transfer its shares in a joint stock company in Turkey. However, some limitations might be applied as we have discussed above.
How is share transfer carried out in single-member joint-stock companies?
Share transfer in single-member joint-stock companies is conducted in the same way as explained above. Additionally, according to Article 338 of the Turkish Commercial Code, a single-member declaration must be made.
How do you legally transfer shares in Turkey?
Share transfer in joint-stock companies is generally easier compared to limited liability companies since joint-stock companies enjoy relative freedom of action. You may freely transfer your shares of Turkish joint-stock companies unless there is a limitation as stated above.
Conclusion
Share transfer in joint-stock companies is generally easier compared to limited liability companies since joint-stock companies enjoy relative freedom of action, and the formal requirements set by the Turkish Commercial Code for limited liability companies are not applicable to joint-stock companies. The crucial points to consider in share transfer in joint-stock companies in Turkey have been explained accordingly based on the nature of the share certificates. Share transfer can be a complex process, and careful legal steps are necessary to avoid missing opportunities and incurring losses in terms of time, effort, and capital. Therefore, it is advisable to work with an expert corporate law attorney in Turkey for any share transfer-related matters.
Originally published 10 February 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.