Turkish Law Blog
Share Transfers in Turkey – Part I Ownership and Transfer of Joint Stock Company Shares
Joint Stock Companies, noted as “Anonim Şirket” in Turkish (JSC), are a type of Capital Company provided for by the Turkish Commercial Code (TCC), similar to 'Corporations' in the U.S. and 'Société Anonyme' in Europe. These JSCs have certain differences with other types of capital companies (such as Limited Liability Companies) and are generally the preferred vehicle for capital investments in Turkey due to their advantages.
According to Article 329 of the TCC, a JSC is a company with a capital divided into shares, which actually refers to the “share” as a part of the total company capital. However, the term “share” can also have different meanings within the context of corporate law (such as a reference to the shareholder status or as a reference to the share certificates). So, shares are an integral part of capital companies and especially Joint Stock Companies, where the shareholder status of any given person and/or an entity effectively bestows certain rights and obligations. Shares are also the only way to claim ownership of a capital company, either in part or in whole. Therefore, the rules, procedures, and requirements for share ownership and transfer are extremely important in order to ensure the shares are acquired in due form.
II.Transfer of Shares
The TCC sets forth that the principle of transferability shall be applicable to shares of JSCs. This means that as a rule, the shares of JSCs can be freely transferred by shareholders of the relevant company to third parties without any prior permission and/or approval of any other person and/or entity. There are, of course, certain exceptions to this rule where the transfers can be limited voluntarily or due to certain provisions set forth at the law, but that is a different topic to be reviewed in a separate article. Although the principle of transferability allows for the transfer of shares, such share transfers are still subject to certain procedures, and these procedures vary for (a) shares without any issued certificate, (b) duly issued share certificates, and (c) temporary share certificates:
a.Shares Without Any Issued Share Certificate (Naked Shares)
It should be noted that according to the Turkish Company Law provisions, joint-stock companies that are not publicly traded are not required to issue share certificates and can just issue their shares as “naked shares”. Of course the TCC has certain provisions wherein certain situations where the non-public JSCs are required to issue share certificates (such as the requirement to issue bearer shares within three months from the date of full payment of share capitals, if the company articles of association sets forth that the company’s shares shall be issued as bearer shares). But other than these specific instances, the non-public JSCs are not really required to issue any share certificates for their shares.
Due to the principle of transferability, naked shares can also be transferred freely, albeit subject to certain procedures. Unfortunately, the TCC does not have any specific provisions regarding the transfer of naked shares (whereas there are separate provisions for the transfers of bearer and registered share certificates). Therefore, the transfer of naked shares shall be governed by the general rules of asset transfers, which are regulated under the Turkish Code of Obligations (TCO). It should be noted at this point that the procedures for transfer of a naked share will differ, depending on whether or not the corresponding capital of the relevant shares is fully paid.
Accordingly, if the capital amount of the respective shares to be transferred is fully paid, the shares can be transferred in accordance with the provisions of the assignment of claims, as stated in Article 183 TCO. Whereas for shares for which the committed capitals are not fully paid, the provisions of assignment of claims will not be applicable, as the transfer of such shares will also mean the transfer of debt (the debt of company capital committed by the shareholder of the company) to a third party. Therefore, in this case, the share transfer shall be subject to the debt transfer procedures as set forth at Article 195 TCO and to the approval of the company as per Article 491 TCC.
b.Shares Tied to Share Certificates
Article 484 TCC sets forth that JSCs can issue bearer or registered share certificates for the company shares. Although these are not mandatory, as mentioned above, it is still preferable to issue share certificates for company shares to establish proof of ownership and to ensure the safety of the shares. All company share certificates are deemed as securities (although there is a dispute regarding the security status of registered share certificates) and the transfer of such shall, therefore, be subject to the rules and provisions of securities. However, the rules and procedures for share transfers differ depending on whether the issued share certificates are (i) bearer share certificates, or (ii) registered share certificates:
i.Bearer Share Certificates
This type of share certificate bestows the ownership of the respective share to whomever holds the physical share certificate in his/her possession (hence the name bearer). A bearer share certificate will not have the name of the shareholder printed on it and is therefore seen as the more private alternative to registered share certificates (as it is fairly easy to hide the identity of a shareholder holding a bearer share). Due to this nature of bearer share certificates, the procedures for transfer for such shares are quite simple. Since bearer shares bestow the power of the relevant share certificates to whomever holds the physical share certificate in his/her possession, the transfer of these share certificates can be done with a simple handover of the actual physical share certificate to the relevant third party. There are no requirements to notify and/or to obtain the approval of the company, or to register the transfer into the company’s shareholder ledger.
ii.Registered Share Certificates
As noted above, there is a dispute regarding the status of registered share certificates and whether or not they should be deemed as securities. The issue arises from the provision set forth at Article 490 TCC, which states that registered share certificates may be transferred only by the handover of the actual physical share certificate containing an endorsement regarding the transfer. The disputes and the debates regarding this issue are quite complex and even the Court of Appeals has conflicting decisions. It would, therefore, be fairly lengthy and time-consuming to discuss this issue here. Instead, the safest way to finalize a transfer to avoid any possible complications will be analyzed below.
The disputes regarding the procedures for the transfer of registered shares are mainly focused on whether or not an endorsement is required to be written on the certificate in order for the transfer to be valid. To avoid these issues, it is crucial that a full endorsement is recorded on the relevant share certificates to be transferred and the actual physical certificate (containing the endorsement) handed over to the receiving third party. It is also highly important that the transferring and the receiving party sign a share transfer agreement notarized before a public notary, and transfers of registered share certificates should also be recorded to the company’s shareholder ledger, which will be analyzed in further detail in a separate article.
c.Temporary Share Certificates
Temporary share certificates are exactly what their name suggests, they are temporary certificates issued by a company, before issuing the actual share certificates (due to certain restrictions where the company is unable to issue the actual share certificates at a certain time). However, that temporary share certificates may only be issued if the company shares are deemed as registered shares at the relevant company documents (articles of association). So, for companies with bearer shares, it will not be possible to issue a temporary share certificate.
In any case, there are no separate procedures for transfers of temporary share certificates, as Article 486 TCC sets forth that rules and procedures governing the registered shares shall also be applicable to the temporary share certificates. Therefore, the procedures for temporary share certificate transfers shall be the same as the procedures for transfers of registered shares as mentioned above at section b(ii).
As noted above, the rules and procedures governing share transfers of JSC shares can be quite complex and may differ depending on the nature of the shares of a specific company. It is therefore highly recommended for companies and shareholders to consult a professional before proceeding with such transactions to avoid any possible complications in the future. Please also note that, as the title suggests, this is part 1 of our share transfers and corporate structure series, and other issues concerning share transfers, the role of the board of directors and company shareholder ledgers in these transfers shall be discussed in separate articles.