Corporate Governance in Türkiye 2024 - Part 1

What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?

The Turkish Commercial Code (TCC) dated 13 January 2011 (Law No. 6102) entered into force on 1 July 2012. The TCC has important objectives, such as ensuring transparency, adopting corporate governance standards and introducing internationally accepted auditing and reporting standards.

In addition to the above, the other laws, communiqués and principles governing corporate rules and practice are:

• — Law No. 6335, amending the TCC;

• — the Capital Markets Law dated 6 December 2012 (Law No. 6362), which entered into force on 30 December 2012, replacing the former Capital Markets Law dated 30 July 1981 (Law No. 2499);

• — the Capital Markets Board Communiqués;

• — the Corporate Governance Communiqué dated 3 January 2014, serial II, No. 17.1 (the Communiqué); and

• — the Corporate Governance Principles (CGP) listed in Annex 1 of the Communiqué.

According to the Communiqué, publicly held companies that have shares that are traded on a stock exchange are subject to the mandatory implementation of certain corporate governance principles; however, there are minor exceptions to mandatory principles (eg, the number of independent board members). As per the Communiqué, the criteria regarding the number of independent board members shall not be applied to third-group corporations (corporations that are excluded from the first and second groups, the shares of which are traded on the National Market, the Second National Market and the Collective Products Market), so two board members are sufficient for these corporations.

There are also some listing requirements that are applied on a ‘comply or explain’ basis. For example, article 4.2.5 of the CGP stipulates that the responsibilities of the chair of the board of directors and the chief executive or general manager must be explicitly separated; however, if it has been resolved that the roles of chair of the board of directors and the CEO or general manager are considered the same, this decision (and grounds for this decision) will be presented to the shareholders’ information at the general assembly together with its justification and the reasoned explanation will be included in the annual report (CGP, article 4.2.6).

What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder or business groups, or proxy advisory firms, whose views are often considered?

The Ministry of Trade is the regulatory body responsible for enforcing the TCC’s provisions on corporations (article 210 of the TCC). The disputes arising from the TCC are mainly resolved before commercial courts.

The Capital Markets Law, the Capital Markets Board Communiqués and the CGP are enforced by the Capital Markets Board. The Capital Markets Board is the regulatory and supervisory authority in charge of the securities markets in Türkiye. It is entitled to hand out administrative sanctions to companies or individuals in the event of non-compliance. If the conditions set forth under the Capital Markets Law and the relevant legislation occur, the public prosecutor may prepare an indictment upon the written request of the Board.

The views of two associations are often considered: the Capital Market Investors’ Association (BORYAD) and the Turkish Industry and Business Association (TUSIAD). TUSIAD was established in 1971 to represent the business world, and BORYAD was established in 2001 to defend shareholder rights and promote investment.

Under the TCC, there are legal grounds for proxy advisory firms, especially to protect the rights of minority shareholders in public companies.

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

According to the Turkish Commercial Code (TCC), apart from specific exceptions (ie, the appointment of the initial board members of companies by the articles of association), shareholders have exclusive authority to appoint or remove board members. As per article 407 of the TCC, shareholders may use this authority during a general assembly. An exception to this rule is that should a board member leaves his or her post, the board may also temporarily appoint a new member. However, temporary appointments must also be approved during the next general assembly.

Article 408 of the TCC similarly determines the authority of the general assembly to appoint and dismiss board members. Accordingly, the general assembly is authorised to make decisions as set forth under the law and the articles of association. The same article also stipulates the non-transferable duties and authorities of the general assembly. Accordingly, privileges may be granted in respect of the election, nomination, release and dismissal of board members.

Under Turkish law, shareholders holding at least 10 per cent of the share capital of non-public companies and 5 per cent of the capital of public companies are defined as minority shareholders. The minority shareholders may:

• — Request the board to call an extraordinary general assembly to question the company’s management and request that additional items be added to the agenda (TCC, article 411).

• — Ask the general assembly to appoint a special auditor to investigate and clarify certain issues, even if it was not on the agenda. For shareholders to use this option, they must first exhaust their rights of information and examination. If the general assembly accepts this request, minority shareholders can request the commercial court to appoint a special auditor (TCC, article 438). This is applicable not only for minority shareholders but for all shareholders.

• — Request the board issue registered share certificates. If made, this request of the minority shareholders must be accepted and registered share certificates must be delivered to owners (TCC, article 486).

• — Request the company to be dissolved if there is ‘just cause’. The TCC does not define what a ‘just cause’ is, but it is accepted among scholars that there would be just cause to request dissolution if a general assembly was called to numerous meetings contrary to the law, the rights of minority shareholders were violated (especially the right to examine and demand information) or if the company constantly loses assets and does not generate any profit (TCC, article 531).

All shareholders are entitled to request information for them to examine. Pursuant to article 1.2.1 of the Corporate Governance Principles (CGP), which is applicable to public companies, this right cannot be limited or cancelled by the articles of association or by a decision of the company.

In addition, any shareholder has the right to:

• — ask the general assembly to file a lawsuit for damages against board members or auditors (TCC, articles 553 to 555);

• — request to inspect the company’s books and records and request information from the company’s auditor; and

• — request a court limit or abolish a managers’ right to manage the company, if there is just cause (TCC, article 630).

The shareholder vote required to elect and dismiss directors is the simple majority of the votes represented in a general assembly unless provided otherwise by law or the articles of association. The necessary quorum for the general assembly is shareholders or their representatives corresponding to at least one-quarter of the capital. If this quorum cannot be reached in the first meeting, no quorum is sought for the second meeting (TCC, article 418).

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

According to article 408 of the TCC, a general assembly has exclusive authority over:

• — amending the articles of association;

• — releasing the auditors and the board of directors or holding them liable;

• — appointing the members of the board of directors, determining their fees, term of duties, discharging and replacing them;

• — appointing and discharging auditors, except for the cases set forth under the law;

• — taking decisions regarding:

•      — financial statements;
•      — annual reports of the board of directors;
•      — savings on annual profits;
•      — determining dividends and gain margins (including the injection of reserve funds into capital or the profit to be distributed); and
•      — the use of the reserve fund;
• — deciding on the company’s dissolution, except for cases set forth under the law; and

• — selling a substantial part of the company.

If the conditions stated under the Capital Markets Law and related legislation are met, some exclusive powers of the general assembly may be transferred to the board of directors. For example, if a company chooses the registered capital system, the share capital of the company can be increased upon a board of directors’ resolution. In addition, when it is permitted by the articles of association, the board of directors may restrict the pre-emptive rights of shareholders (Capital Markets Law, articles 18/2 and 18/5).

Under Turkish law, there are no matters that can be resolved by a non-binding shareholder vote.

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

The TCC has a ‘one share, one vote’ principle. Accordingly, each share grants at least one voting right (TCC, article 434).

Pursuant to article 479 of the TCC, disproportionate voting rights may be granted to privileged shares. However, the voting privileges for private companies are limited to a maximum of 15 votes per share. This number can only be increased by a court decision for the sake of institutionalisation or because of just cause. Thus, under the TCC regime, it is no longer possible to block a capital increase through the use of privileged shares. Privileged votes do not extend to resolutions regarding the amendment of a company’s articles of association, or the filing of discharge or liability cases.

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

Article 1.3.1 of the CGP stipulates that the announcement regarding general assembly meetings should be made by means of all kinds of communication to reach as many shareholders as possible, including electronic communication, in addition to the procedures stipulated by the legislation, at least three weeks in advance of the meeting.

According to the TCC, shareholders are invited to the meeting as stipulated under the articles of association through an announcement published on the company’s website (if the company is required to have a website) and in the Turkish Trade Registry Gazette. This announcement must be made two weeks before the general assembly meeting (TCC, article 414).

Article 415 of the TCC stipulates the shareholders who are entitled to attend meetings. Accordingly, shareholders whose names are written in the attendance list prepared by the board of directors have the right to attend the meeting.

Pursuant to article 437 of the TCC, which regulates the right to examine and demand information, the following must be made available to the shareholders at least 15 days before the meeting:

• — financial statements;

• — consolidated financial tables;

• — annual reports of the board;

• — audit reports; and

• — the board’s suggestions regarding the method of distributing dividends.

Pursuant to the TCC, electronic signatures can be used to prepare meeting documentation, and meetings can be held electronically (TCC, article 1527).

The following requirements have to be met to vote online:

• — the company must have a website allocated for this purpose;

• — shareholders who wish to participate in the online general assembly meeting must make such a request in advance;

• — a technical report must be produced to prove that the electronic platform tools are sufficient for efficient participation and this report should be registered and published; and

• — the identities of the online voters must be kept confidential.

The Ministry of Trade issued the Regulation on General Assembly Meetings of Joint Stock Companies Held Electronically (Regulation), regarding the procedures of online general assembly meetings, published in Official Gazette No. 28395 of 28 August 2012. A company must integrate the sample article stating that the meetings can be held electronically into its articles of association. This article can be found in the Regulation published by the Ministry of Trade (Regulation, article 5). The article must be incorporated as is because it is not possible to amend the article while adopting it.

Electronic meetings are mandatory for publicly listed companies.

Shareholders acting on behalf of shareholders by proxy can participate in meetings that are held electronically.

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

Article 411 of the TCC stipulates that shareholders holding at least 10 per cent of the company’s capital (or at least 5 per cent for public companies), may request a general assembly meeting. If such a meeting has already been convened, then they have the right to request that certain topics to be included on the agenda, including director nominations. If their request is not accepted by the board or not responded to within seven days, these shareholders have the right to apply to the commercial court to enforce their request.

According to article 446 of the TCC, the dissenting opinions of the shareholders must be recorded in the minutes of the general assembly to grant shareholders a right to claim these decisions as invalid.

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Under Turkish law, controlling shareholders do not have any specific duties to the company or to non-controlling shareholders. However, all controlling shareholders must exercise their rights by complying with good faith principles. Further, there are special provisions for minority shareholders.

Additionally, the TCC regulates provisions with regard to group companies, and article 202 of the TCC specifically stipulates that the dominant (controlling) company cannot exercise its dominance in a way that may give rise to a financial loss of a subsidiary (eg, instruct the subsidiary to be the guarantor of a loan), unless this loss is compensated within the same financial year or a right to claim compensation is granted to the subsidiary within the same financial year by providing details on when and how the loss will be compensated. The loss concept herein covers causing a potential risk to the company’s financial assets or future profitability as well as value depreciation on them. Therefore, not only the actual losses sustained, but also potential risks that may arise thereof, fall within the definition of ‘loss’.

Both the shareholders of the subsidiaries and their creditors may claim the indemnification of the loss of the subsidiary company from the dominant company by filing a lawsuit.

Can shareholders ever be held responsible for the acts or omissions of the company?

According to the TCC, the shareholders’ liability is normally limited to their subscribed capital contribution. This rule is applicable for both joint stock companies and limited liability companies. There is an exception for limited liability companies concerning government debts. Accordingly, shareholders of a limited liability company are personally liable for government debts and this responsibility should be calculated over the shareholding ratio in the company capital.

Regarding tax debts, the Council of State’s General Assembly on Unification of Judgments decided that tax debts that are due and cannot be collected from a limited liability company (in whole or in part, or that are understood to be uncollectible from the company itself) can be collected from its shareholders directly in proportion to their share capitals. In such a case, there is no need to collect the debts in question from the legal representatives first.

Other than the foregoing, the shareholders are not responsible for the acts or omissions of the company, unless such an act or omission results from the shareholders’ own acts and has criminal elements.

What role do employees have in corporate governance?

According to the TCC, employees do not have a specific duty in terms of corporate governance, unless they have been provided with the responsibility to represent the company as commercial representatives under an internal directive to be issued by the board members. However, under the CGP, employees are also listed as stakeholders, and companies must ensure that the rights and benefits of the stakeholders are protected (CGP, article 3.1.1).

Are anti-takeover devices permitted?

At present, share transfer restrictions are not permitted except on legal grounds determined under the Turkish Commercial Code (TCC). However, the TCC introduces specific provisions regarding the restriction of share transfers through the articles of association separately for limited liability companies and joint stock companies. Unless otherwise is stipulated by law or the articles of association, registered shares may be transferred without any restriction (TCC, article 490/1). Article 492 of the TCC stipulates that the registered shares can be transferred only with the approval of the company and requires that joint stock companies include the specific reasons why share transfers may be rejected in their articles of association. Article 493 of the TCC stipulates the reasons why share transfers may be rejected. Reasons related to the nature of the shareholders’ composition or the scope of the company’s activities or the economic independence of the company are deemed as important grounds for rejection under the TCC. This is not an exhaustive list, therefore, shareholders must select predetermined grounds for rejecting share transfers, and be very specific if they want this protection to be reflected in the articles of association. Otherwise, limitations on share transfer will continue as a contractual obligation pursuant to the shareholders’ agreement.

Article 493/1 of the TCC provides an escape clause for joint stock companies through the option to reject a share transfer, without basing its decision on the grounds explained above, by offering to acquire, at real value, the transfer shares itself or on behalf of its shareholders or a third party.

For shareholders to resolve on the transfer restrictions of registered shares, an affirmative vote of 75 per cent of the shareholders or their representatives is required (TCC, article 421/3).

In contrast to the joint stock companies, the TCC explicitly allows limited liability companies to limit share transfers based on pre-emptive purchase rights, call options or other ancillary or additional obligations by providing for them in their articles of association. These limitations may also be subsequently included in the articles of association by a decision of the general assembly. In this regard, a positive vote of two-thirds of the general assembly is required (TCC, article 621).

In limited liability companies, share transfers are subject to the approval of the general assembly and may be rejected without a just reason, unless otherwise stipulated in the articles of association (TCC, article 577).

Given the differences between limited liability companies and joint stock companies, investors aiming to reflect the provisions of the shareholders’ agreement to the articles of association may prefer to incorporate a limited liability company, provided that the regulations in their field of activity allow this.

Any agreement between the joint stock company and a third party regarding the third party acquiring the joint stock company’s shares in lieu of the joint stock company, its affiliate or parent company must comply with the terms set forth under articles 379 and 380 of the TCC. An agreement or obligation to this effect in violation of the terms of article 379 of the TCC will be invalid.

The TCC bans any joint stock company, a third party, a joint stock company’s subsidiary acting for their parent or a joint stock company’s subsidiary promising shares in its parent, from selling treasury shares (TCC, article 380/2).

May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?

Under the TCC, new shares are issued upon capital increases, and this requires a shareholders’ resolution. In public joint stock companies that adopt a registered capital system, capital can be increased without the approval of the shareholders; thus new shares can be issued accordingly, within the registered share capital (TCC, articles 459 and 460). In addition, according to article 461 of the TCC, existing shareholders have pre-emptive rights to acquire newly issued shares in proportion to their shareholding. Pre-emptive rights of shareholders may be restricted by a decision of the general assembly meeting, in the presence of just cause and with the positive vote of shareholders representing at least 60 per cent of the capital (TCC, article 461).

The TCC has introduced two new systems regarding capital. First, there is the new registered capital system for private joint stock companies, which was previously available only for public companies. A private joint stock company can adopt the registered share capital system by a provision to this effect in its articles of association. The articles of association must indicate the aggregate ceiling of the capital and the time limit for the board of directors’ authority to increase capital within that set limit, which cannot be longer than five years. The company may then increase its capital without going through the burdensome procedures of holding a general assembly meeting up to a predetermined ceiling (TCC, articles 459 and 460). The minimum capital requirement for a joint stock company adopting the registered capital system is 500,000 Turkish lira (TCC, article 332).

Second, as a financing method for joint stock companies, the TCC introduced a conditional capital increase system, through which the company’s creditors (eg, holders of bonds or other debt securities) and employees may partake in its equity. The conditional capital increase is not triggered by new capital commitments of the shareholders but through the exercise of exchange (conversion option) and pre-emptive rights by creditors and employees (TCC, article 463).

Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?

The Capital Markets Board prohibits restrictions on the transferability of shares of a public company. Accordingly, the transfer of shares must not be limited and other restrictions must not be imposed on shareholders to prevent them from going public. Further, pursuant to article 8(ç) of the Listing Directive issued by Borsa İstanbul, a company is prohibited from including any share transfer restrictions in its articles of association regarding securities to be listed on Borsa İstanbul. Article 490 of the TCC stipulates that fully paid, registered shares can be transferred without any restriction unless otherwise provided by law or by the articles of association. The transfers of bearer shares are subject to the transfer of possession.