Acquisition and Loss of Shareholder Status

In joint-stock companies, share ownership is the fundamental legal status through participation in the company's capital, resulting in the acquisition of partnership rights and obligations. This status is not merely an economic act; it encompasses a range of legal rights signifying a say within the company's corporate structure. Acquiring and losing share ownership is one of the most fundamental technical issues in corporate law; being recognized as a shareholder grants the capacity to exercise a wide range of rights, from voting in the company's management to demanding dividends.

I. Acquisition of Shareholder Status

Shareholder status is, as a rule, acquired through the transfer of ownership of shares. These acquisition processes can occur through various legal means, either during the company's incorporation or throughout its operation

1. Acquisition During the Establishment Phase (Founding Partnership): Individuals who sign the articles of association and commit capital during the company's establishment acquire the status of "founding partner." Shareholder status is finalized upon the signing of the articles of association before a notary and the registration of the company in the commercial registry. At this stage, shareholder ownership arises with the registration of the committed capital.

2. Subsequent Acquisition (Transfer and Assignment): After the company is established, shareholder status is usually acquired through "share transfer". The Turkish Commercial Code (TTK) prescribes different procedures for registered and bearer shares:

• Registered Shares: The transfer of registered shares is accomplished by transferring possession of the share and endorsing it (or by written declaration of transfer). However, in order for the shareholder status to be asserted against the company, the transferee must be registered in the share register. The share register is the most fundamental official record identifying who the company's shareholders are.

• Bearer Shares: In bearer shares, ownership is acquired upon delivery of the share certificate. According to the regulations of the Central Securities Depository (MKK), the exercise of shareholder status in bearer shares is subject to the procedures of registration and notification of the share certificate to the MKK.

3. Legal Succession (Inheritance and Liquidation): Shareholder status can be acquired through means other than voluntary transactions. For example, upon the death of a shareholder, their heirs acquire ownership of the shares by law and become shareholders. In this case, no transaction such as endorsement or registration is required; however, it is necessary for the heirs to register their shares in the share register in order to exercise their rights (especially voting rights).

II. Loss of Shareholder Status

Both the acquisition and loss of shareholder status are legally certain. The termination of shareholder status generally occurs in the following ways:

1. Voluntary Transfer (Sale): The most common way a shareholder loses their shares is when they sell or donate them to a third party. The shareholder's status as a partner ends the moment the transfer is completed (when the shares are registered in the ledger for registered shares; upon delivery for bearer shares), and the shareholder no longer holds any shares.

2. Company Acquisition (Share Redemption and Buyback): When a company repurchases its own shares, ownership of those shares passes to the company. In this case, the partnership status technically ends with "redemption" or "merger within the company". However, this process is subject to the reduction of company capital or the disposal of shares and is governed by strict rules within the framework of capital protection principles.

3. Termination and Liquidation of the Company: As a result of the company's dissolution and liquidation process, the liquidation balance (the amount remaining after the sale of company assets) is distributed to the shareholders. With the payment of the liquidation share, all rights and obligations of the shareholder in relation to the company under the partnership law terminate.

4. Compulsory Transfer and Expulsion: The right of shareholders who control all of the capital to expel minority shareholders from the company (squeeze-out) is granted by law under certain conditions. Specifically, in the expulsion procedure, the shareholder's shares are confiscated, their value is paid to them, and their shareholder status is terminated by legal obligation.

III. Legal Significance of the Share Register

The share register plays a key role in proving shareholder status "against the company." In the case of registered shares, a person not registered in the share register is not considered a shareholder against the company. This register is the only means by which the company knows who can vote, who will receive dividends, and who has the right to speak at the general meeting. If registration is not made in the register, even if a legal transfer has occurred, the shareholder cannot attend the general meeting or exercise their voting rights. This creates a distinction between "legal partnership" and "partnership recorded in the register," and from a commercial law perspective, the register entry is decisive in terms of the exercise of rights.

IV. Proof of Shareholder Ownership and Transparency

Shareholder status can be proven by any means of evidence, but proof before third parties or the company is directly linked to the existence of share certificates. For shares not represented by certificates, the share register entry is taken as the basis; for shares represented by certificates, possession of the certificate (or the Central Securities Depository records if dematerialized) is taken as the basis. In accordance with the principles of transparency, it is impossible for shareholder status to remain secret; companies are obliged to maintain transparency regarding their ownership structure, both through registration and publication obligations, and also with the state.

 Shareholder's Financial Rights

One of the most fundamental motivations for participation in a joint-stock company is the economic value of the share and its increase over time. In return for the capital invested, the shareholder has the right to receive a share of the company's profits, liquidation balance, and changes in the company's capital structure. These rights, regulated under the Turkish Commercial Code (TTK), are referred to as "shareholder's financial rights" and are inseparable from the ownership of the share. These rights are directly related to the health and profitability of the company and represent the investor aspect of the partnership.

I. Right to Dividends

Dividends refer to the share of a company's net profit at the end of an accounting period distributed to shareholders in proportion to their capital holdings. As a fundamental economic right of shareholders, dividends are the process of transferring the company's earnings as a "legal entity" to the shareholders' "personal assets".

• Conditions for Dividend Distribution: For dividends to be distributed, the company must first have generated a net profit for the period, and legal reserves must have been set aside from this profit. The board of directors submits a dividend distribution proposal to the general assembly; however, the general assembly has the exclusive authority to decide whether or not to distribute the profit, or how much of it will be distributed.

• Principle of Equality: Dividends are calculated according to the par value of the shares and their ratio to the capital. Unless there is a provision to the contrary in the articles of association (such as preferred shares), all shareholders must be treated equally in the distribution of profits.

• Risk of Annulment: If the general assembly, acting contrary to the principle of good faith and without objective justification, decides not to distribute dividends despite the company having sufficient profits, this decision can be challenged in court by shareholders. This is because dividends are an inalienable financial right of the shareholder.

II. Pre-emptive Right (Right to Acquire New Shares)

When a company increases its capital, the right of existing shareholders to acquire a share of the increased capital in proportion to their existing shareholding is called "pre-emptive right". This right allows the shareholder to maintain their ownership percentage in the company and, consequently, their controlling power (voting share).

• Restriction of Rights: Pre-emptive rights can only be restricted by a qualified majority (quorum) determined by the general assembly in the articles of association or a general assembly resolution, if there are justifiable reasons. For example, situations such as the company taking on a strategic partner from outside or distributing shares to employees can be considered "justifiable reasons." However, this restriction should not impose an unfair loss on existing shareholders and should not violate the principle of equality.

• Economic Significance: If pre-emptive rights are not exercised, the shareholder's ownership percentage decreases. Therefore, companies must give shareholders a reasonable period (at least 15 days) to exercise their pre-emptive rights.

III. Right to Shares Without Consideration

If a company adds profits to capital instead of distributing them, or converts funds accumulated in equity (such as reserves or revaluation surplus funds) into capital, it may issue additional shares to shareholders. Since no additional payment is requested from the shareholder in exchange for these shares, they are called "bonus shares".

Bonus shares do not change a shareholder's proportion of the total capital; however, they increase the number of shares held. This recalculates the division of the company's market value or book value among its shares. While it does not provide a direct cash inflow to the shareholder's assets, it allows the company to maintain its financial strength within its equity.

IV. Liquidation Share

In the event of the termination of a company's legal entity (dissolution and liquidation), the remaining assets are distributed to shareholders after all debts have been paid. The liquidation share is the asset remaining to the shareholder at the end of the company's life cycle.

• Priority: When distributing the liquidation balance, the rights of preferred shareholders, if any, and the distribution procedures specified in the articles of association shall be taken into account. Unless there is a specific provision in the articles of association, the liquidation share shall be distributed among the shareholders in proportion to the amount of capital they paid in.

V. Interest Entitlement During the Preparation Period

During the company's incorporation or capital increase phases, if it has not yet reached the production or profit-making stage, shareholders may be paid "preparation period interest" for a limited period, provided this is stipulated in the articles of association. This practice provides shareholders with a kind of "return on investment" for the period their capital remains idle. However, this is an item separate from dividends and requires explicit authorization in the articles of association.

Shareholder's Management Rights

Shareholder ownership is not merely a status involving capital investment and expecting dividends; it also encompasses a set of "managerial rights," including the power to influence the management of capital by participating in the company's decision-making processes. In corporate law, the principle of "shareholder sovereignty" is embodied in the definition of the general assembly as the highest decision-making body. Shareholders' managerial rights are the most fundamental mechanisms ensuring that the company is managed in a transparent, accountable, and participatory manner. These rights serve as a "legal shield," enabling shareholders to have a say in decisions regarding the company's future.

I. Right to Participate and Vote in the General Assembly

The general assembly is the sole platform where shareholders express the will of the company. In this context, every shareholder has the right to attend the general assembly and express their views on company affairs, even if the articles of association stipulate otherwise.

• Absolute Right to Participate: A shareholder may attend the general meeting in person or through a representative. Companies cannot introduce restrictive rules in their articles of association, such as requiring the representative to be a shareholder; such provisions are contrary to law and are invalid. Preventing or hindering a shareholder's participation in the general meeting constitutes a direct ground for action to annul the decisions.

• Nature of Voting Rights: The most tangible managerial right of a shareholder is the "right to vote." Shares confer voting rights proportionally to their par value. However, to maintain the managerial balance of the company, certain limitations on voting percentages may be imposed in the articles of association. Voting rights arise upon payment of the capital commitment (even in part) and are a fundamental element ensuring the legitimacy of decisions at the general assembly.

II. Right to Information and Investigation

The first step in managerial control is information. A shareholder cannot cast a rational and informed vote at the general meeting without having information about the company's operations. Therefore, the right to access and inspect information is the most important "internal control" tool of the shareholder over management.

• Examination of Documents: The board of directors must make the financial statements, annual activity report, and dividend distribution proposal available to the general assembly at least 15 days prior to the meeting. Shareholders have the right to request copies of these documents.

• Questioning at the General Assembly: Shareholders may ask the board of directors questions about the company's affairs and the auditors questions about the results of the audit during the general assembly meeting. The board of directors' answers to these questions, even if justified by "trade secrets," must reflect the true state of the company and comply with the principle of good faith. Unanswered or unfairly rejected requests for information give shareholders the right to pursue legal action.

III. Right to Inspection and Litigation

Shareholders' managerial rights are not limited to expressing their opinions; they also include the right to monitor management errors and irregularities and to pursue legal remedies.

• Requesting a Special Auditor: In cases where the right to information is insufficient or doubts persist, a shareholder may request the appointment of a "special auditor" from the general assembly, or, if the general assembly rejects this request, from the court. This involves a professional expert scrutinizing specific transactions of the company.

• Annulment and Nullity Actions: If decisions made by the board of directors or the general assembly are contrary to law, the articles of association, or the principle of good faith, shareholders may request the court to annul or declare these decisions null and void. This right is a balancing element that prevents the management from exercising "unlimited power."

IV. The Right to Refuse Release

The "discharge" process, which signifies the exoneration of board members at the general assembly, is the final stage of shareholder oversight. Discharge is the approval of the board's actions. Shareholders have the right to reject the managers' wrongful actions and open the door to future liability lawsuits by voting "no" in the discharge vote. Managers who are not discharged face a much higher risk of liability lawsuits.

V. Violation of Administrative Rights and Its Consequences

Preventing shareholders from exercising their managerial rights signifies a departure from the company's corporate governance principles. Unjustly preventing a shareholder from attending a general meeting or restricting their voting rights constitutes sufficient legal grounds for the annulment of all decisions made at that meeting. These rights establish a balance of power between the shareholders, who own the company, and the board of directors, who manage it.

Protection of Minority Shareholders

The "majority principle" applies to the management structure of joint-stock companies; that is, as a rule, the company's decisions are shaped by the will of the shareholders holding the majority of the capital. However, this majoritarian structure carries the risk of minority shareholders with lower capital being excluded or having their rights usurped by the controlling shareholders. The Turkish Commercial Code (TTK) has foreseen a number of special rights to remedy this imbalance and protect minority shareholders. These rights are mechanisms that curb the unlimited power of the majority and establish the principle of "justice" in company law.

I. The Concept of Minorities and Their Legal Status

In the Turkish Commercial Code, minority shareholders are defined as those holding at least ten percent (10%) of the capital in privately held companies and five percent (5%) in publicly held companies. Shareholders holding these percentages can, individually or collectively, exercise the "special powers" granted by law against the company management. These rights cannot be abolished or restricted by the articles of association; as they are "mandatory" legal protections that safeguard the shareholder's presence in the company.

II. Calling the General Assembly Meeting and Setting the Agenda

A majority board of directors may avoid convening a general meeting or may not include issues that shareholders wish to discuss on the agenda. Minority shareholders have legal powers to overcome this impasse

• Authority to Call a General Assembly Meeting: Minority shareholders may request the board of directors to convene a general assembly meeting or to add specific items to the agenda of the general assembly.

• Legal Recourse: If the board of directors rejects this request or fails to fulfill it within a reasonable time, minority shareholders can apply to the court to request authorization to convene a general assembly meeting. This is the most effective tool available to the minority against the possibility of the management "blocking decision-making processes."

III. Postponement of the Discussion of the Financial Statements

A critical defense mechanism for minority shareholders is the postponement of the discussion of the financial statements. Minority shareholders a one-month postponement clarification. This right to postpone is a "time-gaining" right granted to the minority shareholders to obtain information and conduct necessary reviews. When this request is made, the meeting chairperson is obligated to grant the postponement without the need for any further decision by the general assembly.

IV. Appointment of Special Auditor

In cases where there are concrete suspicions that the management or controlling shareholders have misused company resources, minority shareholders may request a "special audit." If a special audit request is rejected by the general assembly, the minority shareholders may take the matter to court. Independent auditors appointed by the court will examine the company's books and assets and report on whether the management has engaged in any illegal activities. This report constitutes the strongest evidence for holding the management accountable.

V. Dissolution of the Company and Expulsion from Partnership for Just Cause

The most extreme right available to minority shareholders is to request the dissolution of the company for just cause from the court. If there is a deep deadlock in the company's management, or if the controlling shareholders are acting in a way that completely alienates the minority from the company, the court may decide to dissolve the company or (more commonly) order the company or the controlling shareholders to purchase the minority shareholders' shares at their "fair value". Furthermore, in some cases, the minority may exercise their "right of exit" by requesting that their shares be purchased by the company if the controlling shareholders mismanage the company.

VI. Right to File a Liability Claim

If the company suffers damages as a result of board members violating the law or the articles of association while performing their duties, the company's legal entity can file a liability lawsuit against these directors. However, the board of directors is generally reluctant to file lawsuits against its own members. At this point, minority shareholders can file a liability lawsuit against the directors to recover the company's losses. This right is a form of "substitute audit" exercised by the minority to protect the company's assets.

Shareholder's Debts and Responsibilities

Shareholder ownership in a joint-stock company brings with it various rights, as well as certain obligations and legal responsibilities towards the company's legal entity. While the most fundamental characteristic of joint-stock companies is the principle of "limited liability," this principle does not absolve the shareholder of all legal responsibilities. Within the framework of the Turkish Commercial Code (TTK), the primary obligation of a shareholder is to fulfill their capital commitment. In addition, ancillary obligations determined by the company's articles of association, the duty of confidentiality, and especially the obligation of shareholders with controlling stakes to protect the company's financial structure, constitute the legal limits of shareholder ownership.

I. Basic Obligation: Fulfillment of Capital Commitment

A shareholder's most fundamental and indispensable obligation to the company is to fulfill the capital commitment they undertook when acquiring shareholder status. Shareholders are obligated to pay the amount of capital they have committed within the periods specified by the company.

• Default and its Consequences: A shareholder who fails to fulfill their capital commitment on time is considered "in default." The company may take legal action against the defaulting shareholder; it may compel the shareholder to pay the capital, suspend their rights to the shares (such as dividends), and ultimately ensure the shareholder fulfills their commitment by selling their shares or transferring them to the company. Failure to fulfill the capital commitment prevents the shareholder from exercising their managerial rights (such as voting rights).

II. Ancillary Obligations Stipulated in the Articles of Association

Article 483 of the Turkish Commercial Code stipulates that the articles of association may impose "ancillary obligations" on shareholders beyond their capital commitment. These obligations are performance-oriented liabilities that directly contribute to the company's business activities.

• Scope: Ancillary services typically include supplying a specific quantity of raw materials to the company, marketing the company's products for a specific period, or providing a particular service to the company.

• Legal Nature: Ancillary obligations are a debt attached to the share. This means that when a share is transferred, the new shareholder also assumes the ancillary obligations specified in the articles of association. Failure to fulfill these obligations results in the shareholder being liable to the company for damages. Ancillary obligations are a flexible mechanism that supports the growth of a joint-stock company not only through cash capital but also through "services or goods."

III. The Principle of Limited Liability and its Exceptions

The greatest attraction of a joint-stock company is its "limited liability," meaning that shareholders are not personally liable for the company's debts. Shareholders only bear risk up to the amount of capital they have committed; company debts do not affect them. However, there are some important exceptions to this principle:

• Controlling Shareholder Liability: Shareholders with controlling shareholder status may be held liable for losses or debts incurred by the company if they use the company "as if it were their personal company" and utilize its financial resources for their own benefit.

• Tax and Social Security Debts: In Turkish law, pursuant to Law No. 6183 on the Collection Procedure of Public Receivables, shareholders or managers may be held personally liable for the tax and social security premium debts of companies in their capacity as "legal representatives." This is an important exception specific to public law, exceeding the general liability limits of a shareholder.

IV. Obligation of Loyalty and Confidentiality

Shareholders are under a duty of loyalty to the company as a legal entity, based on the principle of good faith. This duty is particularly critical for controlling shareholders or those directly involved in management.

• Confidentiality: A shareholder who learns the company's trade secrets, customer portfolio, or technological data may not use them in a way that is contrary to the company's interests. Leaking company secrets or using them in favor of a competing undertaking creates tort liability for the shareholder. This obligation continues as long as the shareholder remains a partner, and sometimes even after the partnership ends.

V. Liability for Damages

If a shareholder causes damage to the company through their own negligent conduct (for example, by influencing an unfair general assembly decision or illegally depleting the company's assets), they incur a "liability for damages" to the company. This liability arises not from the shareholder's status as a partner, but from their status as "a person who has committed a wrongful act against the company.".

Whether the share is registered to the bearer or to the name of the holder is important in terms of transfer; there is a difference element here.

In joint-stock companies, shares are securities that represent shareholder rights and facilitate the circulation of these rights. Registered and bearer shares are subject to different legal regimes in terms of both transfer procedures and the exercise of rights against the company.

1. Registered Share Certificates

Registered shares are shares that bear the name and surname of a specific person (shareholder) or contain instructions for payment to "the person whose name is written".

• Transfer Procedure: transfer of registered shares endorsement and the physical transfer of possession (of the share certificate) . However, this transfer, while passing ownership of the certificate, is not sufficient to be considered a "shareholder" in relation to the company.

• Registration in the Share Register (Critical Point): For the transferee to exercise their shareholder rights (voting rights, dividends, etc.), their name must be registered in the company's share register . The board of directors may refuse the transfer if there are justifiable reasons stipulated in the articles of association or by offering the transferee the fair value of the shares (for registered shares).

• Liability: In registered shares, the transferor and transferee may be jointly and severally liable for the capital contribution owed to the company; therefore, recording the transfer in the share register is vital for tracking liability.

2. Bearer Share Certificates

Bearer shares are shares that do not bear a name, and the person holding the share is considered the owner of that share.

• Transfer Method: The transfer of bearer shares delivery (exchange of ownership) of the share certificate. No endorsement or registration in the share register is required. The holder of the certificate holds the status of shareholder in respect of the company.

• Notification Obligation to the Central Securities Depository (MKK): Law No. 7262 significantly altered the transfer and notification process for bearer shares. Holders of bearer shares the Central Securities Depository (MKK) . Unless notification is made to the MKK, bearer share holders cannot exercise their rights as shareholders (especially voting rights and dividend rights).

• Anonymity: Bearer shares offer a structure where the identity of shareholders can change constantly for the benefit of company management. However, current legal regulations, in the name of preventing money laundering and ensuring transparency, have limited the anonymity of these shares and mandated their registration with the Central Securities Depository (MKK).