TEMPORARY SHARE CERTIFICATES: DEFINITION, ISSUANCE, AND KEY ASPECTS
In joint-stock companies, securities issued to temporarily substitute final share certificates are known as temporary share certificates.
In limited liability companies, pursuant to the Turkish Commercial Code, the capital share is expressed as partnership share and cannot be tied to a share certificate. Therefore, it is also not possible to issue temporary share certificates for limited liability companies.
Temporary share certificates grant holders rights such as attending meetings, voting, and earning dividends. However, after the final share certificates are issued and distributed to shareholders, these rights are nullified.
The issuance of temporary share certificates is governed by Article 486 of Turkish Commercial Code No. 6102 (“TCC”). Temporary share certificates can be granted while the final certificates are printed, and they are similarly subject to the same rules as registered share certificates. These certificates provide permanent shareholding rights even if they are only temporary.
Earnings from the sale of temporary share certificates are subject to taxation under the relevant provisions of the Income Tax Law. No special permissions are required for issuing them, and they can be printed by any printing house or created electronically. For legal validity, temporary share certificates must be signed by the chairman and a board member of the joint-stock company and delivered to shareholders.
It should be noted that, as per Article 486 of the TCC, share certificates issued before registration of the company or the share capital increase shall be null and void, including temporary share certificates.
Content of Temporary Share Certificate
According to Article 487 of the TCC, regardless of its type, each share certificate shall include the following information: (i) title of the Company (in Turkish, “şirketin unvanı”), (ii) share capital amount of the Company (in Turkish, “sermaye tutarı”) (iii) date of incorporation of the Company (in Turkish “kuruluş tarihi”), (iv) the amount of share capital on the date of incorporation (in Turkish, “bu tarihteki sermaye tutarı”), (v) issuance number of the share certificate (in Turkish, “çıkarılan pay senedinin tertibi”) (vi) registration date of the relevant corporate act which forms the basis for issuance of the share certificate (in Turkish, “bunun tescilinin tarihini”) (e.g. registration date of company incorporation or share capital increase), (vii) type of the share certificate (in Turkish, “senedin türü”) (viii) nominal value of the share certificate (in Turkish, “nomimal değeri”) and (ix) number of the shares represented by the share certificate (in Turkish, “kaç payı içerdiğini belirtmesi”). Additionally, such certificates must be signed by at least two persons who are authorized to sign on behalf of the Company.
Moreover, Article 487/2 states that registered share certificates (in Turkish, “Nama Yazılı Pay Senetleri”) must also state the name and surname (or commercial title) of the shareholder, their place of residence, and the amount of the share price that has been paid. These certificates must be recorded in the Company’s share ledger.
While a share certificate that lacks these formal elements is not automatically invalid, the board of directors may be held liable in case of disputes. Issuing temporary certificates is not mandatory, however it is advisable to issue such certificates for the above-mentioned tax reasons that we shall detail in the upcoming Newsletter, when permanent share certificates are unavailable.
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