NECESSARY UPDATE OF THE ARTICLES OF ASSOCIATION OF COMMERCIAL COMPANIES REGARDING SHARES TRANSFERS TO THE TURKISH COMMERCIAL CODE
1) GENERAL CONDITION
According to the Article 22 of the Law Regarding Effectiveness and Implementation of the Turkish Commercial Code, joint stock corporations and limited liability companies shall have their articles of association complied with the Turkish Commercial Code until 1 July 2013. In the event that the necessary amendments are not made within this period, the relevant provisions of the Turkish Commercial Code shall apply instead of the regulations set forth in the articles of association.
Additionally, the Article 28/7 of the said Law states that, “joint stock corporations which limit the transfer of registered shares, by showing or not the dismissal’s reasons, shall amend their articles of association within one year as from the effective date of the Turkish Commercial Code and make it correspond with the Article 492-498 of the same code; otherwise all limitations will be invalid after the aforementioned term’s expiration.”
Articles 340 and 579 of the Turkish Commercial Code state that the provisions of this Code regarding the content of articles of association of joint stock corporations and limited liability companies shall be mandatory. The regulations of articles of association of a company may deviate from the relevant provisions of this Code, only if explicitly authorized by law.
2) FOR JOINT STOCK CORPORATIONS
The provisions regarding limitations about share transfer set forth in articles of association are considered mandatory. As of the date of 1 July 2013, only those restrictions accepted/provided by the Code shall apply and be valid. General limitations which enable the Board of Directors to disapprove the share transfer, such as “The Board of Directors shall approve the share transfer.” shall become invalid; because the Article 493/7 signifies that “Articles of association may not aggravate the conditions of share transfer [set forth in law]”.
The limitations deemed valid by the new Code are as follows: The Code makes distinctions on the kind of the shares and whether or not the company is listed.
2.1. Transfer of Shares to the bearer
The first distinction is between shares to the bearer and registered shares. We can state that shares to the bearer cannot be subject to any limitations and their transfer shall be neither subject to approval of the board of directors nor registered to the shares book. As a result, companies prefer registered shares to shares to the bearer.
2.2. Transfer of Registered Shares
Unless otherwise provided by law or by the articles of association, registered shares might be transferred without being subject to any limitations. Share transfer may be realized by the transfer of the possession of the endorsed share certificate.
As set forth under the Article 491, there are two kinds of legal transfer restrictions (to be applied even if and when there is no relevant provision in the articles of association):
a) Registered shares, which have not been fully paid up, may only be transferred with the company’s approval;
b) The company can also refuse the transfer if the transferee’s solvency is not reliable and the guarantee demanded by the company is not produced.
2.3. Non-Quoted Registered Shares
Article 493 and subsequent make another distinction regarding the limitations for share transfers: publicly-traded companies and non-publicly-traded companies. For non-quoted share transfers, the regime is staggered as follows:
2.3.1. The important reasons to be set forth in the Articles of Association
According to the Article 493, the board of directors of a non-publicly-traded company may only reject a share transfer on the ground of “important reasons” provided that they are set forth in the articles of association. As set forth in the second paragraph of the same article, the important reasons that might be specified in the articles of association and must be raised by the board of directors to reject the share transfer are as follows:
a) Articles of association provisions regarding the composition of the circle of the shareholders,
b) Field of operation of the company,
c) Economic independence of the firm.
As of the date of 1 July 2013, in the event that there is no explicit provision in the articles of association regarding this subject and such grounds, the board of directors shall not reject the share transfer submitted to its approval on the ground of such important reasons. Provisions of articles of association which set forth otherwise shall be deemed to be invalid.
2.3.2. On its behalf and account
Additionally, as set forth in the Article 493/3 of the Turkish Commercial Code, with the condition to set forth this condition in the articles of association, the company (the board of directors) shall be entitled to reject to registration of the share transfer to the share book unless the transferee explicitly states that he/she/it is buying the shares for his/her/its own behalf and account.
2.3.3. First option to buy
The company has a “first option to buy”, to be exercised by the board of directors, provided it is set forth in the articles of association. The Board of directors may reject the share transfer submitted to its approval and offer the relevant shares to be transferred to another shareholder, or to the company, or to any other third person that the company may suggest, in consideration of the real value of these shares. The real value shall be determined by the court. Valuation expenses shall be covered by the company.
The company’s offer to purchase shall be deemed to be accepted by the new transferee, unless the price is rejected within one month as from the date of determination of the real price.
2.3.4. Three months term
According to the Article 494 of the Turkish Commercial Code, ownership of the shares and all other rights attached to them shall be kept by the transferor unless the necessary approval for the transfer is granted. The company shall evaluate the approval request within three (3) months as of the date of submittal. The company shall be deemed to accept the approval request unless it is rejected within the aforementioned term or if the rejection was not grounded.
2.4. Quoted Registered Shares
Share transfer restrictions for listed shares are valid if set forth in the articles of association but in a narrower frame.
According to the Article 495 of the Turkish Commercial Code,
“The company may refuse to recognize as shareholder a person who/which acquires the quoted registered shares only if an upper limit to the acquisition which is based on a percentage of the share capital is set forth in the articles of association and the said upper limit is exceeded by the acquisition.”
Additionally, the company may also refuse to register the shares to the share book in the event that the transferee does not explicitly declare that he/she/it is acting on his/her/its own behalf and account, although he/she/it has been requested to do so.
There shall be no other possible restriction to be set forth in the articles of association.
As set forth in the Article 498 (1) of the Turkish Commercial Code, “The transferee shall be deemed to be recognized as a shareholder unless the company refuses the transfer within twenty days as from application.”.
As a consequence, with the new Turkish Commercial Code, joint stock corporations become much more opened to share transfers compared with the former code. Providing stricter conditions in the articles of association than those stipulated in law is not possible according to the new Code.
We would like to draw the attention of companies with several shareholders and especially joint ventures. As from the date of 1 July 2013, the limitations stipulated in the articles of association will be invalid, unless the required amendments to the articles of association are made.
3. FOR LIMITED LIABILITY COMPANIES
As under the former code, share transfer shall be made in presence of a notary public and in any case, there shall be a resolution of shareholders’ assembly.
Conversely with the former code, the resolution shall not necessarily be taken with the positive votes of at least the three-fourths of the shareholders representing at least the three-fourths of the share capital; the approval of the absolute majority of the capital shall be sufficient.
On the other hand, differently from joint stock corporations, restrictions even prohibitions to transfer shares, right of first refusal, rights of pre-emption, redemption and purchase may be stipulated in the shareholders’ agreement.
Should you have any further questions, our Firm is at your disposal for any assistance.