Ercüment Erdem Att. Tuna Colgar

Options and Similiar Rights of Shareholders in respect of the Shares of Joint Stock Companies

September 2016

Even though the principle of transferability of shares in a joint stock company is deemed a general principle, not only the Turkish Commercial Code (“TCC” or “Code”) includes provisions regarding the restriction of share transfers, but also in practice, such restrictions are often regulated under either the articles of association or shareholders agreements. In accordance with The TCC, the registered shares shall be transferred without being subject to any restrictions, unless otherwise regulated by the Code or the articles of association.

In practice, the mechanisms and options with the aim to restrict share transfers, or compel the shareholder to transfer his/her shares which serve the keeping of a balance between the company’s shareholding structure, or preserving the power relation among the shareholders, or preventing a deadlock are observed in the form of rights conferred to the shareholders over the shares. In this article, the most common versions of such rights are examined by their most important features.

The Right of First Refusal or First Option

In accordance with this right, provided that the shareholder wishes to transfer his/her shares, he/she shall be obliged to first notify the other shareholder of such intent, and offer them the share to be transferred. Other shareholders possess a “right of first refusal” in comparison to third parties who wish to purchase the shares.[1] In this case, the shareholder wishing to transfer his/her shares shall not be deprived of the right to transfer the same; however, through prevention of entry of unwanted shareholders, the composition of the shareholding circle is protected.

Different principles may be embraced in vesting of such right: (i) When the shareholder wishes to transfer his/her shares, as a first step, he/she shall communicate with the holders of the right of first refusal. However, the mere notification of the intent to sell the shares shall not be deemed as an offer; this shall constitute an invitation to deal.[2] In this version of the right of first refusal, the shareholder who wishes to sell his/her shares is obliged to transfer his/her shares to the shareholder who offers the same conditions as the conditions offered to the third party. In the event such right is executed in this manner, the selling shareholder has the right to transfer the shares to the third party who offers better conditions, or to call off the transfer altogether. (ii) The right of first refusal may also be regulated as an irrevocable obligation to make an offer. In such a case, given the shareholder wishes to transfer his/her share, he/she shall make an offer to the holder of the right of first refusal. Under these circumstances, the holder of this right may draw up the agreement by accepting the offer[3].

In either versions of the right of first refusal, if the right is not exercised, the shares shall not be transferred to a third party with better purchase prices or under better conditions.

Pre-Emptive Rights

Pre-emptive rights create a new legal status. Rights creating a new legal status are the rights that confer to the holders the authority to establish a legal relation, and to amend or terminate an existing legal relation through their unilateral declarations of intention.[4] They may also be considered as a conditional right of purchase.[5] This condition, with regard to the law of joint stock companies, is the execution of an agreement through which the shares in question are transferred to a third party. In this case, the rightholder shall have the right to become the purchaser of the shares in a preferred manner with his/her unilateral declaration of intent.

Through the unilateral declaration of the shareholder exercising his/her pre-emption right, since the selling shareholder has already expressed his/her intention to sell, the share purchase agreement shall be drawn up, and the right holder may demand registration of the shares that are subject to transfer in the share ledger under his/her name[6].

Additionally, since the regulations in the articles of association regarding the pre-emptive rights are related to the composition of the shareholding circle, they constitute an important reason as per Art. 493/2 of the TCC; therefore, in cases of non-compliant transfers, such transfers may not be approved, and the company may refrain from the registration thereof to the share ledger[7].


This option grants the shareholder the right to purchase the shares of the selling shareholder in whole or in part at a pre-determined price (even though the parties did not determine a price beforehand, they may agree on a calculation method of such price) and oblige the counterparty to sell his/her shares at the same price[8].

The call-option is a widely used mechanism in companies with different shareholders in order to prevent deadlock, or in the instances where one or more shareholders plan to continue as shareholders without other shareholder(s) if certain conditions arise.

As described, above, given certain conditions regulated by the agreement arise, the party that was granted the call-option has the right to purchase the other party’s shares through a unilateral declaration[9]. This view is based on the similarity of this mechanism to the right of purchase regulated under Art. 238, entitled “rights creating a sales relation” in the Turkish Code of Obligations (“TCO”)[10].


The put-option grants the shareholder the right to sell his/her shares in whole or in part at a pre-determined price (even if the parties did not determine a price beforehand, they may agree on a calculation method of such price) and oblige the counterparty to purchase his/her shares at the same price[11].

The exercise of such right, similar to call-option, may be made, conditional upon a deadlock situation, or in the existence of certain conditions.

Claiming that the ownership over the shares is passed to the counterparty through a unilateral declaration is more difficult when compared to the call-option, since Art. 238 of the TCO does not regulate the right to sell.[12] However, in contrast to this opinion, certain scholars also argue that the share purchase agreement shall also be formed through the unilateral declaration of the intent to sell.

Tag-Along Option

This option confers upon the shareholder an obligation to sell his/her shares under the same conditions, given that another shareholder decides to sell his/her shares. Provided that a third party aspires to purchase the shares of the shareholder to which such option is addressed, the tag-along option provides the shareholders who hold such right with the option to sell under the same conditions that a portion of their shares, which correspond to the ratio of the shares of the shareholder to which the offer is addressed to the shares of the right holder shareholder, as though such offer is made to them, as well. In this manner, the purchasing party purchases the same amount of shares, although not from the same shareholder, but from all of the shareholders exercising their right to participate in the transfer[13].

Generally, this option is used in order to provide the minority with the opportunity to quit the company, provided that the majority shareholder decides to sell its shares and, therefore, the control over the company is changed, and is aimed to protect the rights of the minority shareholders.

Drag-Along Option

The shareholders who hold this right have the right to force other shareholders to sell their shares under the same conditions to a purchasing third party, when their own shares are being sold to such third party. Given that this right is exercised, the other shareholders who are the addressees of the drag-along option are obliged to sell their shares under the same conditions to the purchaser.

In general, this option is used when the majority shareholders wish to sell their own shares, and is intended to make all of the company shares subject to transfer through dragging the minority shareholders and, accordingly, making it possible to obtain the maximum price for company’s shares, and facilitating the transfer of shares.

Discussions Regarding the Sole Obligation Principle

In the event that the above-mentioned rights and options are regulated by the shareholders’ or similar agreements, there is no doubt that they will be valid with regard to the law of contracts. However, there are different opinions regarding the binding nature thereof, if they are regulated by the articles of association.

Pursuant to the TCC, Art. 480, “Apart from the exceptions stipulated by the Code, no other obligation shall be assigned to the shareholders by the articles of association except for the (…) payment of the share price.” In accordance with this principle, namely the sole obligation principle, the shareholder of a joint stock company shall have only one (sole) obligation, which is the payment of the share price which he/she undertakes[14].

According to one opinion, the rights of first refusal and pre-emptive rights cannot be considered as additional obligations, because the shareholders declare their intention to transfer the shares. They have their say on the conditions of the transfer, and their shares cannot be subject to transfer against their will[15].

According to another view, the rights of first refusal and pre-emptive rights create an additional obligation for the shareholders since they are required to fulfill certain conditions if they wish to transfer their shares. Additionally, since the rights to purchase, sell, and other options mentioned, above, create an obligation to purchase and sell shares against their will, they are incompatible with the sole obligation principle, and shall not be regulated in a binding manner by the articles of association.

In accordance with another opinion, the view that all obligations arising from the exercise of a right that constitutes a violation of the sole obligation principle, and that they will not be binding when regulated under the articles of association, is very strict. Each instance shall be examined, individually, with regard to its incompatibility with the ratio legis of the TCC, Art. 480[16].

In our opinion, the rights of first refusal and pre-emptive rights should not be deemed additional obligations in the sense of the TCC, Art. 480 due to the existence of the shareholders’ will, and their inclusion in the determination of the conditions of transfer. Furthermore, the sole obligation principle stipulated under the TCC, Art. 480 is a principle relating to the relationship between the company and the shareholder that regulates the shareholder’s obligation towards the company. However, the above-stated rights and options, although granted over shares, regulate the relation among the shareholders. Accordingly, it may be said that they do not violate the sole obligation principle.

In addition to the points, above, the provisions of the articles of association with regard to the organization of the company, the rights and obligations of its bodies; in short, the abstract and general provisions that form the main order of the company, constitute the real, corporate, and material provisions, thereof. Moreover, the provisions that do not serve these purposes, and which are contractual in nature, are considered unreal, non-corporate and formal provisions of the articles of association. Due to the fact that the said options and rights create a contract within the articles of association, they take effect only amongst the parties and their successors. Therefore, these provisions can neither acquire the characteristic of an objective legal norm through incorporation in line with the TCC, Art(s). 38 and 39, nor can they be brought forward against third parties[17].

In conclusion, if phrased properly, the above rights and obligations are considered valid and binding with regard to the law of contracts. Further, in accordance with corporate law, it is difficult to collectively examine all these rights and options within the framework of one principle and conclude that they are incompatible. Also, there exists no case-law on this matter. Consequently, the said rights and obligations should be carefully regulated in the shareholders’ agreements and the articles of associations, and they should be phrased in the most clear manner in consideration of various criteria.

[1] Okutan Nilsson Gül, Anonim Ortaklıklarda Paysahipleri Sözleşmeleri, İstanbul 2003, p. 211.
[2] Okutan Nilsson p. 211.
[3] Okutan Nilsson p. 212.
[4] Oğuzman Kemal-Barlas Nami, Medeni Hukuk Giriş Kaynaklar Temel Kavramlar, 17. Edition, p.157
[5] Oğuzman Kemal-Seliçi Özer-Oktay Özdemir Saibe, Eşya Hukuku, 16. Edition, p.539.
[6] Erdem Ercüment, “Nama Yazılı Hisse Senetlerine İlişkin Olarak Uygulamada Ortaya Çıkan Bazı Sorunlar ve Yeni TTK’nın Çözüm Önerileri” XXV. Ticaret Hukuku ve Yargıtay Kararları Sempozyumu, 17 December 2011, Ankara 2012 p.97-127 (Erdem Article).
[7] Erdem Article, p.120.
[8] Tekinalp Ünal, Sermaye Ortaklıklarının Yeni Hukuku, 4. Edition, Istanbul 2015, p.160.
[9] Okutan Nilsson p. 225.
[10] Tekinalp p. 161.
[11] Tekinalp Ünal, Sermaye Ortaklıklarının Yeni Hukuku, 4. Edition, İstanbul 2015, p. 160.
[12] Tekinalp p. 161.
[13] Okutan Nilsson p. 225.
[14] Tekinalp p. 162.
[15] Okutan Nilsson p. 242-243.
[16] Tekinalp p. 162.
[17] Moroğlu Erdoğan, Anonim Ortaklık Anasözleşmesi ve Hukuki Niteliği (Anasözleşme), Makaleler II, Istanbul 2006, p. 21.