Minority Shareholders' Rights in Joint Stock Companies

In order to prevent the majority shareholders, who hold the superiority of capital and voting in the management of joint stock companies, from executing unfair and unjust acts against the minority shareholders and violating the rights of the minority shareholders, the legislator has granted some special rights to the minority shareholders and allowed them to protect their interests against the decisions taken with the influence of the majority. Thus, the balance of interests between the majority shareholders who have a voice in the management of joint stock companies and minority shareholders has been tried to be maintained.

Pursuant to the Article 411 of the Turkish Commercial Code ("TCC"), shareholders who constitute at least 10% of the total capital in non-public companies and at least 5% in publicly-held corporations are considered as "minority" shareholders. In addition to the rights granted to minority shareholders by law, minority shareholders may also be granted contractual rights that protect minority shareholders by arranging provisions in the articles of association or in the shareholders' agreement between shareholders such as the requirement of unanimous voting for certain resolutions or rights regarding representation in management.

Regulations for the protection of minority shareholders should not be considered as a freedom of behavior against the interests of the company and majority shareholders and it should be kept in mind that minority rights are subject to abuse of right supervision.

Pursuant to the TCC, the rights granted to minority shareholders in non-public joint stock companies are as follows:

Right to Request Information and Exemination

The TCC grants shareholders a comprehensive right to request information and examination based on the principles of corporate audit, transparency and honest accountability. This right granted to shareholders is one of the inalienable rights and cannot be abolished or restricted.

Shareholders have the right to physically review the company's financial statements, annual reports and audit reports at least fifteen days before the date of the general assembly meeting. In addition to that, financial statements and consolidated statements are actively kept open for one year for shareholders to obtain information. In this context, each shareholder has the right to request a copy of the balance sheets provided that the expenses are covered by the company.

Each shareholder may request information from the board of directors regarding the operation of the company and from the auditors regarding its audit at the general assembly.

Shareholders have the right to review the company's commercial books and internal correspondence even outside the general assembly. The prerequisite for the exercise of this right is that the shareholder has not been received a satisfactory answer during the general assembly. It is possible to refuse the shareholder's request to exemination only on the grounds that providing the requested information would disclose company secrets or jeopardize the interests of the company.

Shareholders whose requests for information or examination are left unanswered, rejected, postponed and who are unable to obtain information may apply to the commercial court of first instance where the company's headquarter is located within ten days following the rejection or in other cases after a reasonable period of time.

The Right to Convene the General Assembly to Meeting and Add Items to the Agenda

Minority shareholders may request in writing by specifying the reasons for delay and the agenda  from the board of directors to convene the general assembly or if the general assembly will already be convened, to add the matters they wish to be discussed and resolved at the general assembly to the agenda of the meeting.

The request to add an item to the agenda must be submitted to the board of directors before the payment of the announcement fee for the publication of the announcement calling for the general assembly meeting in the Turkish Trade Registry Gazette. Both the calling for the meeting and the request to add an item to the agenda must be made through a notary public.

If the board of directors accepts the call, the general assembly shall be convened for a meeting to be held within 45 days at the latest, otherwise the call shall be made by the requesters.

In the event that the board of directors rejects the requests of the minority shareholders to call the general assembly meeting or to add an item to the agenda or fails to respond positively within 7 business days, the commercial court of first instance in the place where the company headquarter is located may decide for certain to convene the general assembly by reviewing the file upon the application of the minority shareholders.

With this right granted to minority shareholders, it is aimed to resolve the dispute between the company's board of directors and minority shareholders regarding the calling of the general assembly, to hold the general assembly meeting upon the request of the minority and to participate in the management of the joint stock company in a sense by ensuring that the issues that the minority wants to be discussed are included in the agenda.

Right to Request the Appointment of a Special Auditor

Each shareholder may request the general assembly to clarify certain events through a special audit, even if it is not included in the agenda, if it is necessary for the exercise of shareholder rights and the right to obtain information or review has already been exercised. The purpose of the request for the appointment of a special auditor is to ensure that the shareholders are informed about the shareholding relations and certain events that directly or indirectly concern the company and to exercise their shareholding rights in the light of the information obtained as a result of the audit. Although the request for a summary audit is an individual right granted to all shareholders regardless of their shareholding percentage, in the event that the general assembly rejects the request for a special audit, minority shareholders must come together to provide a sufficient shareholding percentage to apply to the court. In the application to the court, shareholders holding at least one tenth of the capital in non-public companies or having a total nominal value of at least one million Turkish liras may request the appointment of a special auditor from the commercial court of first instance where the company headquarter is located within three months.

Right to File a Lawsuit for Dissolution of the Company by Just Causes

A shareholder who is unable to voluntarily transfer his/her shares and the partnership relationship becomes unbearable for him/her may litigate and demand “the termination of the company by just cause” at the commercial court of first instance in the place where the registered headquarters of the company is located.

The TCC does not contain a definition of just cause. In terms of dissolution of joint stock companies, just cause may generally be defined as the impossibility or substantial difficulty/danger of realization of the intended purpose of the partnership and the shareholder cannot be expected to continue the partnership relationship.

In the Court of Cassation’s decisions on the subject, situations such as continuous loss making of the company, serious disputes between the shareholders, restriction of the right to request information and exemination, failure to hold general assembly meetings, irregularities in general assembly meetings, preventing the realisation of the purpose of the company's establishment, misuse of company resources, family and personal problems especially in family companies having a negative impact on the company, not distributing dividends for a long time, company managers acting in their personal interests and dragging the company into debt, etc. appear as just cause. The court will evaluate whether the asserted causes constitute just cause or not, depending on the characteristics of each substantial case.

In the presence of a just cause, it is expected that the judge will consider alternative solutions that will ensure the survival of the company holding a financial value and eliminate just causes instead of dissolving the company which has an economic value.

Hence, we observe that the Court of Cassation has ruled that in cases where it is not possible to realize the common purpose of the company and the plaintiff has not made a negative contribution to the occurrence of just causes, dismissal from the partnership is not appropriate and the best solution is the dissolution and liquidation of the company. In the meantime, in cases where the company can easily carry out its activities with its assets, the court may decide to dismiss the plaintiff shareholder from the partnership instead of dissolving the company.

Right to Prevent Settlement and Release of Founders, Board Members and Auditors

The liabilities of the founders, members of the board of directors and auditors arising from the establishment of the company and the capital increase cannot be removed through settlement and release until four years have elapsed from the date of registration of the company. Even after the expiration of this period, the settlement and release shall only be valid upon the approval of the general assembly. Nevertheless, if the minority shareholders are against the approval of the settlement and release, it is sufficient for them to vote negatively in the general assembly.

Right to Request Replacement of the Auditor

In the event that there is a justifiable cause to doubt the auditor's personality especially his/her impartiality, minority shareholders may request the replacement of the auditor by filing a lawsuit in the commercial court of first instance in the place where the company's headquarter is located within three weeks following the announcement of the auditor's election in the Turkish Trade Registry Gazette. Although the concept of just cause for the replacement of the auditor is not defined in the law, situations such as professional incompetence arising from the auditor's personality, loss of reputation, work style, failure to allocate time to the company, violation of confidentiality and impartiality obligations may constitute just cause.

Right to Request Printing of Registered Share Certificates

Upon the request of minority shareholders, the board of directors is obliged to print and distribute registered share certificates to the shareholders. With this right granted to minority shareholders, it is aimed to prevent unlawful methods such as pressuring by not printing and distributing share certificates, depriving shareholders from proving their status, and limiting transfer possibilities especially in family companies.

Right to Postpone the Discussion of Financial Statements

Minority shareholders may request postponement of the financial statements and the discussion on related matters. Upon the request of the minority shareholders, the general assembly will be postponed for one month upon the decision of the chairman of the meeting without the need for a resolution of the general assembly. With this right granted to minority shareholders, it is possible to examine in detail the information contained in the financial statements which require technical accounting knowledge.

After the discussion of the financial statements has been postponed once upon the request of the minority, the postponement of discussion of the financial statements again can only be requested if the relevant parties have not responded to the disputed points of the financial statements which have been recorded in the minutes in accordance with the principles of honest accountability.

Although it is commonly thought that the majority of shareholders control the company's management, the TCC provides detailed regulations for the rights of minority shareholders and offers them various opportunities to question and oversee the decisions made by the majority management.