Joint stock companies are among the most common types of capital companies, and share transfers play a central role in the management of such companies. Share transfers enable changes in both the company’s capital structure and shareholder relations. However, this process is subject to certain rules and limitations under the Turkish Commercial Code (TCC) and the company’s articles of association.

Under the Turkish Commercial Code, share transfers in joint stock companies may have various legal consequences regarding both the company’s internal operations and its relations with third parties. Share transfers create significant impact on the company’s activities, while also containing provisions that protect the rights of shareholders. In particular, there are legal differences between registered shares and bearer shares, and each type of share transfer is subject to different conditions and procedures.

In this bulletin, we will examine the share transfer provisions in joint stock companies in detail, addressing the legal framework for share transfers and the potential limitations that can be introduced by the company’s articles of association.

Transfer of Bearer Shares

  • If the share is a bearer share, the board of directors must issue and distribute share certificates to the shareholders within three months from the date the full payment for the shares is made (TCC Art. 486/2). If the transfer occurs before this period or before the share certificates are issued, the transfer will be governed by the provisions for bare shares.
  • Bearer shares are transferred by the delivery of the share certificate (TCC Art. 489). According to Article 32 of Law No. 7262 and Article 489 of the Turkish Commercial Code No. 6102, for transfers made after April 1, 2021, the transfer must be notified to the Central Securities Depository for the transfer to be valid. The notification date to the Central Securities Depository is considered the effective date for asserting the rights linked to the bearer share certificate against the company and third parties (TCC Art. 489/2).

Transfer of Registered Shares

  • A registered share is transferred by endorsing the share certificate to the new owner. Registered share certificates are issued in the name of a specific person, and their transfer is carried out by endorsing the share certificate. The endorsement is the process of transferring the share certificate, and with it, the possession of the share passes to the transferee [1].
  • However, it should be noted that for the transfer of a registered share certificate to be valid, the company’s approval may be necessary, as further explained below.

Transfer of Uncertificated Shares

  • As a general rule, companies are not required to issue certificates for registered shares [2].
    Just like under the former Turkish Commercial Code No. 6762, the TCC does not provide explicit regulation for the transfer of uncertificated shares. However, this should not be interpreted as meaning that uncertificated shares cannot be transferred [3].
  • The first article of the Turkish Commercial Code serves as a general gap-filler and stipulates that the TCC is an integral part of the Turkish Civil Code No. 4721. The provisions for the transfer of claims provide the necessary legal framework for the transfer of uncertificated shares, as regulated under the Turkish Code of Obligations (TCO) Article 183 and following articles. According to these provisions, unless prohibited by a contract, law, or the nature of the matter, the creditor can transfer their claim to a third party without the debtor's consent. The validity of the transfer depends on it being made in writing.
  • In this case, the shareholder wishing to transfer an uncertificated share may do so through a written share transfer agreement with the new shareholder. Since the transfer of a claim is a dispositive act, the uncertificated share passes to the transferee through a valid transfer. This was confirmed by the 11th Civil Chamber of the Court of Cassation in its decision No. 765/1011 of 13.02.2001. Accordingly, the transfer of uncertificated shares will be carried out in accordance with the provisions on the transfer of claims in Articles 163 (TCO 183) and following of the Turkish Code of Obligations. Since the transfer of a claim is a dispositive act, the uncertificated share passes to the transferee through an assignment. The assignment must be made in writing as specified for the transfer of claims.
  • In terms of form, the transfer of an uncertificated share will take place when a written assignment statement indicating the transfer of the share is given to the transferee.
  • In the case of the transfer of an unpaid bare share, it is considered that the transferee assumes an internal debt, meaning they assume a debt in the sense of Article 195 of the Turkish Code of Obligations (TBK). In other words, according to this provision, the transferee of an unpaid or partially paid share undertakes an internal debt obligation with the transferor, who remains liable.
  • Under Article 195, the transferee may either fulfill the debt themselves or, with the creditor's consent, assume the debt, thereby relieving the original debtor from their obligation.
  • For internal debt assumption, the transferee or the debtor with the transferee’s consent must notify the creditor, indicating that the debtor is released from their obligation.

Legal Restrictions on Share Transfer

  • Article 491 of the Turkish Commercial Code limits the transfer of registered shares with unpaid capital. The transfer of such shares can only take place with the company’s approval. However, if the transfer is made through inheritance, division of inheritance, the provisions of the matrimonial property regime, or compulsory execution, the company’s approval is not required. The company may only refuse approval if the transferee’s payment capability is in doubt and adequate collateral is not provided.

Restrictions in the Articles of Association

  • The articles of association may make the transfer of registered shares subject to the company’s approval. However, these restrictions do not apply when the company enters liquidation.
  • The scope of restrictions in the articles of association is defined by law. For non-listed registered shares, the company may refuse approval by invoking a legitimate reason specified in the articles of association. These reasons may include (i) the composition of the shareholder base, (ii) the company’s subject matter, and (iii) the company’s independence. These grounds are not limited to those explicitly mentioned in the provisions.
  • The scope of restrictions in the articles of association is defined by law. For non-listed registered shares, the company may refuse approval by invoking a legitimate reason specified in the articles of association. These reasons may include (i) the composition of the shareholder base, (ii) the company’s subject matter, and (iii) the company’s independence. These grounds are not limited to those explicitly mentioned in the provisions.
  • As a second reason for refusal, the company may propose buying the shares at their fair value, either for itself, other shareholders, or third parties.
  • The transferee may apply to the court to learn the fair value of the shares, and the court will determine it based on the most recent date available. If the transferee disagrees with the value determined, they must reject it within one month. Thirdly, if the transferee does not explicitly declare that the shares are acquired on their behalf, the company may also refuse approval.

Conclusion

  • Share transfers in joint stock companies are subject to different procedures depending on the type of share and the company’s articles of association. Bearer shares are transferred by delivering the share certificate, while registered shares are transferred through endorsement. The transfer of uncertificated shares is generally carried out through assignment of claims. However, the company’s articles of association may impose additional restrictions and require approval for share transfers.
  • Additionally, under Article 491 of the Turkish Commercial Code, the transfer of registered shares with unpaid capital requires the company’s approval. These provisions ensure that the company’s internal operations are protected while also safeguarding the rights of shareholders. However, limitations specified in the articles of association increase the company’s control over share transfers. Therefore, the share transfer process in joint stock companies is shaped by the company’s internal structure and legal regulations.
  • In this context, it is important for companies to carefully examine the regulations regarding share transfers and be prepared for potential legal risks in the process.

 

Bibliography

[1] Hasan, Pulasli. Sirketler Hukuku Genel Esaslar, Adalet Yayinevi, 9. Baski, Ankara, Ocak 2024, s. 748.

[2] Bilgili, Fatih, Şirketler Hukuku, 2. Basım, İstanbul, 2012, s. 240-241.

[3] Poroy, Reha/Tekinalp, Unal/Camoglu, Ersin, Ortakliklar Hukuku I, 15. Basi, İstanbul, 2020, s. 618-619.

[4] Poroy, Reha/Tekinalp, Unal/Camoglu, Ersin, Ortakliklar Hukuku I, 15. Basi, İstanbul, 2020, s. 618-619.