Contact: Prof. Dr. H. Ercüment; Erdem & Erdem (Turkey)
The dispositions of the New Turkish Commercial Code (“New TCC”) concerning share transfer restrictions differ from the Turkish Commercial Code (“TCC”). The Swiss Code of Obligations
has a great influence on the preparation stage of the relevant dispositions. In the pre-legislative stage of the Code, the factors; having a similar Company Law with Switzerland and the evidenced success of Swiss Legal System in this field have been taken into consideration on this matter. The possibility for the company to disapprove the registration of the transfer of share to the share ledger without giving any reason has been abrogated with the New TCC. Therefore, the discretionary use of these competences has been prevented.
Principles Concerning the Transfer of Ownership of Bearer Share Certificates and Registered Share Certificates
Pursuant to Article 489 of the New TCC, the basic principle concerning the transfer of ownership of bearer share certificates is that the transfer of the share is only valid with regards to the company and third persons by the transfer of possession of the share. The relevant disposition is identical with the TCC. On the other hand, in the relevant article of the TCC, the term “delivery” was used instead of the term “transfer of possession”. The New TCC preferred the latter term in order to describe the concept more clearly.
Concerning the transfer of the registered share certificates, the basic principle is that these shares may be transferred freely. Pursuant to Article 490 of the New TCC, except stated otherwise by legal provisions or the articles of association, registered share certificates may be transferred without any limitation. On the other hand, pursuant to Article 490/2 of the New TCC, the transfer concerning legal transactions is realized by the transfer of possession of the registered share certificate which has been endorsed. While Article 416 of the TCC respects the same principle, it does not make any distinction between transfers based on legal transactions and transfers based on legal provisions. This issue caused misinterpretations in the practice. The New TCC has made a distinction between legal transaction and legal provision, and the letter of the law has been corrected.
Share Transfer Restrictions Concerning the Registered Share Certificates
Article 491 of the New TCC regulates the legal restrictions to be applied to the transfer of registered shares. Pursuant to the relevant article, registered shares, which have not been totally paid up, may only be transferred with the approval of the company. This particular case is a share transfer restriction provided by law. However, in the event that the transfer has been realized by means of inheritance, distribution of inheritance, marital property regime between spouses or enforcement procedures, the said rules does not apply. As may be seen, the basic principle adopted by the New TCC is that the shares may be freely transferred. On the other hand, as an exception to this rule, the company is required to give approval concerning the shares, which have not been totally paid up. Therefore, the company will not be faced with shareholders who do not have the sufficient ability to pay. Pursuant to Article 491/2, the company may only refuse to grant its approval in the event that the transferee’s ability to pay raises doubts and the security requested by the company is not provided. Consequently, the company may not refuse the approval in case the transferee has sufficient ability to pay or can afford. In the event that the transfer has been realized by means of inheritance, distribution of inheritance, marital property regime between spouses or enforcement procedures, the approval of the company is not required.
Article 492 of the New TCC regulates the restrictions laid down by the articles of association (“contractual share transfer restriction”) concerning the transfer of shares. Pursuant to the relevant article, the articles of association may regulate that the registered shares may only be transferred under condition to obtain the company’s approval. The said article sets forth the basic rule concerning the restriction of the transfer of shares. The different rules, that shall be applied to the listed and non-listed shares have been regulated by the subsequent articles of the New TCC.
The New TCC provides qualified quorums concerning the share transfer restrictions realized by the amendment of the articles of association. Pursuant to Article 421/3/c of the New TCC, amendments of the articles of association concerning the transfer restrictions of the registered shares shall be made by the affirmative votes of the shareholders holding at least seventy five percent of the capital, or their representatives. Therefore, amendments of the articles of association concerning the restriction of the transfer of shares will be realized with the participation of a higher majority.
Additionally, the New TCC provides different share transfer restrictions concerning the listed and non-listed registered share certificates.
Share Transfer Restrictions Concerning the Non-Listed Registered Share Certificates
Article 493 of the New TCC regulates the share transfer restrictions to be applied to non-listed registered shares. Pursuant to the said article, the transfer of the relevant shares may be dissent based on an important reason laid down under the articles of association, or by offering to the transferor to purchase the shares on their actual value at the time of application. Therefore, the company may no longer dissent the transfer of share without giving any reason.
The important reasons that may prevent the company from assenting are listed in the second paragraph of the aforesaid article. According to this article, in the event that provisions of the articles of association concerning the composition of the shareholders justify the disapproval with respect to the purpose and scope or economic independence of the company, the company may dissent the transfer of shares.
The second case in which the transfer of shares may be dissent by the company is the offer made by the company to purchase the shares in exchange for their actual value by the company, other shareholders or third persons. Therefore, the company may avoid the transfer of shares that it dissents. This notion is called as escape clause by the doctrine, and plays an important role in order to avoid alienation within the company.
Pursuant to Article 493/3 of the New TCC, in the event that the transferee does not declare that he purchased the shares on his behalf, the company may refuse to register the transfer on the share ledger. This disposition aims to prevent the elimination of share transfer restrictions with fictitious transactions.
Pursuant to Article 493/4 of the New TCC, in the event that the transfer has been realized by means of inheritance, distribution of inheritance, marital property regime between spouses or enforcement procedures, the company may dissent the transfer only by offering to purchase the shares on their actual value. The said disposition is similar to Article 418/4 of the TCC.
The ownership of the shares concerning the cases in which the company disapproves the transfer was controversial under the TCC. There are two theories on this matter: Separation and unification theories.
According to the separation theory, in the event that the company does not approve the transfer and refuses to register the transfer on the share ledger, the transfer is null and void with regards to the company; however, the ownership of the shares passes to the transferee. On the other hand, according to the unification theory, the ownership of the shares does not pass to the transferee. Under the TCC, the majority of Turkish doctrine supported the separation theory. The said theory was subject to criticism since it created an inconvenient system with regards to the ownership of the shares. According to this theory, the shareholder which is the legal owner of the shares was not recognized by the company, or the person recognized as a shareholder by the company was not the legal owner of the shares. This unstable legal status was criticized by the doctrine.
Article 494 of the New TCC regulates that in the event that the company disapproves the transfer of shares, the ownership of the shares and all the rights related thereto shall be borne on the transferor. Consequently, the unification theory was adopted, and criticism made by the doctrine was taken into consideration.
Share Transfer Restrictions Concerning the Listed Registered Share Certificates
Share transfer restrictions concerning the listed registered share certificates are laid down under Article 495 of the New TCC. Pursuant to this article, companies, which provided a limit in the articles of association for the registered shares that can be acquired, may disapprove the recognition of the transferee as a shareholder, in case this limit is exceeded. This limit shall be designated as a certain percentage of the capital. Therefore, the cases such as alienation within the company, the loss of independence of the company and the loss of the company’s privileges are prevented. Additionally, like the non-listed registered shares, in the event that the transferee does not declare that he purchased the shares on his behalf, the company may refuse to register the transfer on the share ledger.
Concerning the shares quoted on the stock exchange, the New TCC has made a distinction with regards to the transfer of the rights related to shares between the shares acquired on the stock exchange and out of the stock exchange. Pursuant to Article 497, in case the shares are acquired on the stock exchange, the rights related to the shares shall pass to the transferee with the transfer of shares. As a result, the transfer will be realized in conformity with the stock exchange principles. On the other hand, in case the shares are acquired out of the stock exchange, the relevant rights shall pass to the transferee at the time of the transferee’s application to the company for the recognition of his shareholder status.
Pursuant to Article 497/2 of the New TCC, the transferee may not enjoy his rights of participation to the general assembly, right to vote and other rights related to the right to vote until his recognition by the company. On the other hand, the transferee may enjoy his rights related to the patrimony without being recognized by the company. Persons who acquire the shares will be registered to the share ledger as shareholders deprived of the right to vote. Therefore, the publicity of this record is guaranteed. The legal status of the shareholder who was registered to the share ledger has not been clarified and left ambiguous by the New TCC, and this issue will be treated and found interpretation by the jurisprudence and the doctrine.
Article 498 of the New TCC provides an assumption. According to the said article, in the event that the application of the transferee to the company for his recognition as a shareholder is not rejected within twenty days, the transferee deemed to be recognized as a shareholder. The relevant disposition will encourage the company to evaluate the applications within twenty days.
Conclusion
The dispositions of the New TCC concerning the transfer of shares provide significant innovations compared to the TCC. The company is no longer entitled to dissent the transfer without giving any reason. Listed and non-listed registered shares are distinguished from each other, and the transfer of these shares has been regulated under different dispositions. The fact that the New TCC adopted a more advantageous system compared to the TCC is incontestable.
