A Guide for Share Transfers in Joint Stock and Limited Liability Companies in Turkey

Right to transfer shares are one of the most substantial rights of the shareholders. Share transfers role may differ depending on the type of the transaction: share transfer may be a way out of the company for an unsatisfied shareholder or may be conducted as a part of a merger or an acquisition. In addition to their role in company law, share transfers are subject to the many disputes especially with the SMEs.

Share transfers are subject to different rules in joint stock and limited liability companies and depending on type of the share. In joint stock companies share transfers are easier compared to the limited liability companies. Such differences and analysis of the share transfers in accordance with the Turkish Commercial Code numbered 6102 and dated 14.02.2011 (“TCC”) are as follows:

Joint Stock Companies

As a form of a pure equity company, share transfers have few restrictions in joint stock companies. Restrictions differ depending on the type of the shares. As per the TCO, there are two types of shares, namely, bearer and registered shares.

Bearer Shares: Bearer shares are transferred through the transfer of the actual possession of the shares. As a result of such rule, bearer shares have to be printed as share certificates by the company in three (3) months subsequent to the issuance by the company. Printing bearer shares is only possible if the share capital contribution concerning the bearer share is fully paid by the relevant shareholders. Company may not impose share transfer restrictions on bearer shares due to the nature of such shares. Nevertheless, non-printed bearer shares may not be transferred. 

Registered Shares: Like the bearer shares registered shares may be transferred without any restriction per se. Transfer are conducted through transfer of the actual possession and indorsement (ciro). However, through articles of association, shareholders may opt to put some restrictions on share transfers. To impose share transfer restrictions on registered shares following steps must be taken:

1. Through an amendment or during the incorporation, articles of association must include a provision stating that the company’s consent is required prior to the transfer. Company’s consent in this context shall mean the consent of the board of directors of the company.
2. Restrictions stipulated through an amendment of the articles of association requires a resolution quorum of shareholders representing 75% percent of the share capital.

It should be noted, however, share transfers restrictions may not be imposed by the board of directors for every share transfer. TCC sets forth four (4) possible occasions for share transfer restrictions:

1. Justified reasons that are stipulated in the articles of association. Justified reasons should be objectified and closely linked with shareholder characteristics, financial independence and company’s area of activity. For example, company may restrict a share transfer to a lawyer if the articles of association states that shareholders consist of engineers. In addition, company may restrict the share transfer if the shares in question are transferred to a competitor’s shareholder. Numerus clauses principle is not applied to share transfer restrictions as long as such restrictions are related with the shareholder characteristics, financial independence and company’s area of activity.
2. Company may acquire the shares that are subject to the transfer. This is also referred as an “escape clause”. Price of the shares shall be based on the market value. Company may buy shares on behalf of third parties and shareholders as well. The 10% rule regarding Company’s acquisitions of its own shares may not apply.  Company’s offer to the shareholder that has the intention sell the shares in question must include a price.
3. Company may acquire the shares that are subject to inheritance, partition of the inheritance, division of the assets between the spouses and compulsory execution on shares in question. Such circumstances are subject to the numerous clauses principle and may not be extended through articles of association. Share price shall be based on market value.
4. Company may restrict the share transfer if the acquiring person refused to declare that he/she is buying the shares on his/her behalf. In the event of a false declaration company may erase the records of the acquiring shareholder from the share ledger.

If share certificate is not printed, a written share purchase agreement as the assignment of receivables provisions of the Turkish law apply to such transfers.

Limited Liability Companies

Regardless of the type of the shares of the limited liability company, a written agreement (a share purchase agreement) and the signatures of the persons that are parties to the written agreement should be endorsed by a notary public. Written agreement shall also include rights such as right of first refusal and right of first offer (if stipulated under the articles of association). Consent of the general assembly of the limited liability is required for the share transfer per se; however, through the articles of association such rule may be abolished. General assembly does not need justified reasons to restrict the share transfer. Share transfers are registered to the relevant trade registry and declared in Trade Registry Gazette. 

Unlike the joint stock companies, a total share transfer restriction may be imposed through articles of association. However, shareholders under some circumstances are entitled to an exit right and such restriction may be a ground for an exit.  

Conclusion

Although both equity companies, share transfers and restrictions thereto are differ in joint stock and limited liability companies. Investors and other prospective shareholders should keep in mind the nature of such companies and they should diligently review the articles of association of the company that imposes share transfer restrictions to avoid future problems. Articles of association can be reviewed through the Trade Registry Gazette website. 

Author: Batuhan Ecin, LL.M