Turkey: Shareholder Rights And Obligations: Insights From Turkish Stock Corporations

Shareholders Rights in Turkish Stock Corporations

In Turkish stock corporations, the term "shareholder" refers to individuals or entities that hold shares or ownership stakes in the company. Shareholders are also commonly referred to as "stockholders" or "equity owners."

Shareholder rights and benefits

Shareholders are an integral part of a corporation as they have a vested interest in the company's success and are entitled to various rights and benefits, including:

• Ownership Stake: Shareholders own a portion of the corporation based on the number of shares they hold. The ownership stake represents their financial interest in the company.

• Voting Rights: Shareholders typically have the right to vote at the company's general assembly meetings. The number of votes they can cast is often proportional to the number of shares they hold. Voting allows shareholders to influence corporate decisions, including the election of the board of directors and approval of important company matters.

• Dividends: Shareholders may be entitled to receive dividends, which are a portion of the company's profits distributed to shareholders. The dividend amount is usually determined based on the number of shares held.

• Information Rights: Shareholders have the right to access certain company information, such as financial statements, annual reports, and meeting minutes. This transparency helps shareholders make informed decisions about their investment.

• Transferability: In many cases, shares can be bought, sold, or transferred, allowing shareholders to manage their investments as needed.

• Preemptive Rights: Shareholders may have the option to purchase additional shares before the company offers them to external parties. This helps maintain the proportional ownership of existing shareholders when the company issues new shares.

• Liquidation Rights: In the event of the company's dissolution or liquidation, shareholders may be entitled to a share of the remaining assets after all debts and obligations are settled.

It's important to note that the specific rights and obligations of shareholders in Turkish stock corporations are governed by the Turkish Commercial Code and the company's articles of association. Shareholders play a crucial role in the corporate governance and decision-making processes of the corporation, making their involvement essential for the corporation's success and compliance with legal requirements.

Shareholder duties and responsibilities

Shareholders in Turkish stock corporations have certain duties and responsibilities outlined in the Turkish Commercial Code and the company's articles of association. These duties and responsibilities are designed to ensure transparency, fairness, and the smooth operation of the corporation. Here are the key duties and responsibilities of shareholders in Turkish stock corporations:

• Duty to Attend General Assembly Meetings: Shareholders are typically required to attend general assembly meetings or appoint proxies to represent them. General assembly meetings are essential for making important decisions about the company's management, financial matters, and strategic direction.

• Exercising Voting Rights: Shareholders have the responsibility to exercise their voting rights responsibly. They should participate in the election of the board of directors, approve financial statements, and vote on significant company matters.

• Compliance with Articles of Association: Shareholders must adhere to the provisions of the company's articles of association. This includes following any restrictions on share transfers, voting procedures, and other rules outlined in the company's governing documents.

• Disclosure of Interests: Shareholders are obligated to disclose any conflicts of interest they may have in transactions with the company. Transparency regarding potential conflicts helps maintain the integrity of corporate decision-making.

• Payment of Share Capital: Shareholders are responsible for paying the agreed-upon share capital as outlined in the company's articles of association. Failure to fulfill this obligation can result in legal consequences.

• Participation in Capital Increases: Shareholders may have the opportunity to participate in capital increases. They should consider whether to exercise their preemptive rights and purchase additional shares when the company issues new stock.

• Monitoring and Oversight: Shareholders have a role in monitoring the company's management and financial performance. They can request information, review financial reports, and engage in discussions to ensure the corporation is operating effectively.

• Protection of Minority Shareholders: Shareholders, especially those with significant ownership stakes, have a responsibility to protect the rights of minority shareholders. They should act in the best interests of the company as a whole, rather than solely pursuing their own interests.

• Participation in Legal Proceedings: Shareholders may participate in legal proceedings on behalf of the company if they believe that the company's interests are at risk due to actions taken by the board of directors or other shareholders.

• Compliance with Laws and Regulations: Shareholders must comply with all applicable laws and regulations governing stock corporations and securities transactions.

It's important to note that the specific duties and responsibilities of shareholders may vary depending on the company's articles of association and the nature of its business. Shareholders should be familiar with the governing documents of the corporation and act in accordance with their legal obligations to ensure the proper functioning of the company. Failure to fulfill these duties may lead to legal consequences or penalties.

Domination agreement

In a general rule, all shares in a Turkish stock corporation confer equal rights, including equal voting rights, rights to receive dividends and information rights. Voting rights are usually exercised per share or in proportion to the par value of the share.

The shareholders of a stock corporation, unlike shareholders of Turkish limited companies, have no direct influence on the management board. Their influence is limited to electing the members of the supervisory board, who, in turn, appoint and remove the members of the management board.

A shareholder representing a majority of the voting rights or the share capital of a corporation may de facto have a controlling influence on the stock corporation's management. On emay ask whether the controlling shareholder may legalise its influence on the stock corporation by concluding a domination agreement with the stock corporation.

In Turkish corporate law, there is no specific legal instrument referred to as a "domination agreement with the stock corporation" for controlling shareholders. However, controlling shareholders in Turkish stock corporations may enter into various agreements or arrangements that can help them maintain control and influence over the company. These agreements are typically designed to protect the interests of controlling shareholders and ensure the stability of their control.

Some common arrangements and mechanisms that controlling shareholders may utilize include:

• Shareholders' Agreements: Controlling shareholders may enter into shareholders' agreements with other significant shareholders to outline their rights and obligations. These agreements can address matters such as voting rights, the appointment of directors, dividend policies, and dispute resolution mechanisms.

• Voting Agreements: Shareholders with significant stakes may enter into voting agreements to coordinate their voting decisions on specific matters. This can help secure their collective control over important decisions at general assembly meetings.

• Board Representation: Controlling shareholders often seek representation on the board of directors to ensure their interests are represented in the company's management. They may appoint directors who are loyal to their interests.

• Preemptive Rights: Controlling shareholders may negotiate preemptive rights that allow them to purchase additional shares before the company offers them to external parties. This helps them maintain their proportional ownership and control.

• Management Contracts: In some cases, controlling shareholders may have contracts or agreements with the company that grant them influence over the management or decision-making processes.

• Exit Strategies: Controlling shareholders may also consider exit strategies, such as buy-sell agreements, in case they decide to sell their shares or exit the company in the future.

It's important to note that while these arrangements are common, they must comply with Turkish corporate law and not violate the rights of minority shareholders. The Turkish Commercial Code and regulations aim to protect the interests of all shareholders and ensure fair treatment.

Additionally, controlling shareholders must act in accordance with their fiduciary duties and avoid any actions that could be considered oppressive or prejudicial to minority shareholders. Violations of these duties can lead to legal disputes and potential legal consequences.

Before entering into any agreements or arrangements, shareholders and controlling shareholders should seek legal advice to ensure compliance with Turkish corporate law and protect their rights and interests within the bounds of the law.

Shareholder activism

Shareholder activism in Turkish stock corporations refers to the actions taken by shareholders – often minority shareholders – to influence corporate governance, decision-making processes, and the overall direction of a company. Shareholder activism can take various forms and is driven by the desire to protect shareholder interests, promote transparency, and hold the company's management and board of directors accountable. Here are some key aspects of shareholder activism in Turkish stock corporations:

• Objectives of Shareholder Activism: Shareholder activists typically have specific objectives that they aim to achieve through their activism. These objectives may include improving corporate governance practices, advocating for changes in executive compensation, seeking changes in board composition, pushing for environmental or social responsibility initiatives, or opposing controversial corporate actions.

• Communication: Shareholder activists often engage in communication with other shareholders, the company's management, and the board of directors to express their concerns and demands. This communication can occur through formal channels, such as general assembly meetings or written statements, as well as through informal discussions.

• Proxy Voting: Activist shareholders may seek to influence corporate decisions by exercising their voting rights during general assembly meetings. They may vote against board nominees, executive compensation plans, or proposed mergers or acquisitions to express their dissent.

• Filing Lawsuits: In cases where shareholders believe their rights have been violated or that the company's management has engaged in wrongful conduct, they may file lawsuits to seek legal remedies or to challenge specific corporate actions.

• Proposing Resolutions: Activist shareholders may propose resolutions for consideration at general assembly meetings. These resolutions can cover a wide range of topics, including changes to the company's bylaws, governance reforms, or environmental and social responsibility initiatives.

• Engaging with Institutional Investors: Activist shareholders often seek support from institutional investors, such as pension funds or mutual funds, which hold significant stakes in the company. Institutional investors' support can lend credibility to activist campaigns.

• Engaging with Regulators: Shareholder activists may engage with regulatory authorities to raise concerns about corporate governance practices or alleged misconduct. Regulators can investigate and take enforcement actions if necessary.

• Media and Public Relations: Activists may use media and public relations strategies to bring attention to their causes and put pressure on the company's management to address their concerns.

• Long-Term vs. Short-Term Activism: Shareholder activism can be either short-term or long-term in nature. Short-term activists may seek immediate changes or financial gains, while long-term activists may focus on sustainable, structural changes within the company.

• Legal Framework: Shareholder activism in Turkish stock corporations is governed by the Turkish Commercial Code and related regulations. Activists must comply with legal requirements and procedures when pursuing their objectives.

It's important to note that while shareholder activism can be a powerful mechanism for change, it should be conducted within the bounds of the law and with consideration for the best interests of the company and its stakeholders. Activist shareholders should be aware of their rights and responsibilities and, if necessary, seek legal counsel to ensure compliance with Turkish corporate law.

Takeover defenses

Takeover defenses in Turkish stock corporations refer to the various strategies and mechanisms that a company's board of directors and management can employ to resist or deter hostile takeover attempts by external parties, such as other companies, individuals, or activist shareholders. These defenses are designed to protect the company's interests and maintain control over its operations. Here are some common takeover defenses in Turkish stock corporations:

• Poison Pills: A poison pill is a strategy that allows existing shareholders, other than the hostile acquirer, to purchase additional shares at a discount in the event of a hostile takeover bid. This dilutes the hostile acquirer's ownership stake, making the acquisition more expensive and less attractive.

• Staggered Board: Some companies may have staggered boards of directors, where only a portion of the board is up for reelection in any given year. This can slow down the process of gaining control of the board through shareholder elections.

• Supermajority Voting Provisions: Companies may have provisions in their bylaws or articles of association that require a supermajority vote (e.g., two-thirds or three-fourths majority) for certain significant decisions, such as approving a merger or selling a substantial portion of assets. Achieving a supermajority vote can be challenging for a hostile acquirer.

• Proxy Contests: Companies may engage in proxy contests to influence shareholder voting outcomes. They may encourage shareholders to vote in favor of the company's preferred board nominees or policies, effectively countering the influence of hostile acquirers.

• Litigation: Companies may initiate legal actions to challenge the legitimacy of a hostile takeover attempt. This can result in delays and legal costs for the hostile acquirer.

• Golden Parachutes: Golden parachutes are severance packages provided to top executives in the event of a change in control, such as a takeover. These packages can discourage executives from cooperating with a hostile acquirer.

• Change of Control Clauses: Debt agreements and contracts with suppliers or customers may contain change of control clauses that allow the counterparty to terminate the agreement if a takeover occurs. This can impact the target company's operations and finances.

• Share Buybacks: Companies may repurchase their own shares from the market, reducing the number of shares available for acquisition by a hostile party.

• White Knight: A company facing a hostile takeover bid may seek an alternative, friendly acquirer (a "white knight") who is willing to acquire the company and protect its interests.

• Negotiations: In some cases, the target company's board may engage in negotiations with the hostile acquirer to reach a mutually acceptable agreement that benefits both parties.

It's important to note that while takeover defenses can protect a company from hostile takeovers, they must be used in accordance with Turkish corporate law and must not violate the rights of shareholders. Additionally, the Turkish Commercial Code and related regulations impose certain restrictions and disclosure requirements on takeover bids and acquisitions to ensure transparency and fairness in the process.

Contact with shareholders

Each shareholder may request the management board to provide information regarding the affairs of the company. A shareholder's information right, however, may be exercised only during a general meeting and is limited to information that is reasonably required by the shareholders to appropriately assess the topics on the agenda of the general meeting. The management board may refuse to provide the requested information only for a limited number of reasons enumerated in the Act – in particular, if providing the information would, in the assessment of a reasonable businessperson, be harmful to the company. To the extent the management board proactively communicates with shareholders, it must observe the principle of equal treatment of shareholders and the rules regarding disclosure of inside information.

Corporations must identify their shareholders (know your shareholder). In particular, at the request of a company, financial intermediaries must provide the information that is necessary to identify the shareholders, including names and contact details.

Although fostering investor relations and communication with (potential) investors and other stakeholders of the company generally fall within the remit of the management board, the supervisory board and, particularly, its chair may, within certain limits, also communicate with the company's stakeholders. The chair of the supervisory board should be available – within reasonable limits – to discuss supervisory board-related issues with investors. However, investor communication by the (chair of the) supervisory board is limited to issues that fall within the remit of the supervisory board. In particular, these do not include corporate strategy and the management of the company, which are the sole responsibility of the management board.

Death of a shareholder

The death of a shareholder can give rise to a host of adverse consequences for a business. When so much time is taken up by building and running a successful business, dealing with health planning for business owners and entrepreneurs is bound to be a low priority. However, taking the time to plan for unexpected illness or unexpected death is vital to avoid the potentially devastating consequences for the loved ones of the business owner, other shareholders, investors, employees and for the business itself.

When determining what happens to the shares of a deceased shareholder, the starting point is to check the most recent shareholders agreement and articles of association. If there are no specific provisions relating to the death of a shareholder, the shares will pass in accordance with the deceased's Will or, if there is no Will, under the intestacy rules.

The risk with not including any specific provisions in the shareholder's agreement (or not having one at all) is that family members with no real knowledge of the business or how it operates may be required to make business decisions, sometimes with potentially huge consequences, at an already incredibly difficult time. The beneficiaries' interests may not, necessarily, align with those of the other shareholders, or they may not have any desire to be involved with the business. This can cause tension between relatives, as well as tension between the family and the shareholders and the company.

A big potential problem could arise if the new shareholders do not understand their responsibilities or, sometimes more disruptively, do not engage with the company. This could mean no decisions in relation to the business can be made because the required percentage for board or shareholder decisions cannot be reached without their involvement.

If the deceased is the sole shareholder and sole director of the company, further issues can arise. The delay caused by the need to apply to the court can cause huge problems for the business in the interim. While there is no director appointed, assets in the name of the company cannot be accessed, contracts cannot be signed and decisions cannot be made. This could mean that suppliers and employees cannot be paid for some time, as there are no directors to authorise any payments. Clearly, this could have a significant impact on business.