Ercüment Erdem Prof. Dr. H. Ercument Erdem

Share Pledges in Joint Stock Companies

May 2018

Share pledges in joint stock companies are not specially regulated under the Turkish Commercial Code (“TCC”). Therefore, the provisions of the Turkish Civil Code that regulate the general rule regarding pledges, shall apply. Under Turkish Civil Code Article 954, transferable receivables and other rights may be subject to pledge. The pledge established on a share in joint stock companies is a "pledge right established on the right." A pledge is established on shareholding rights. A pledge on receivables and rights is subject to the principles of movable pledges. (Turkish Civil Code Article 954/2).

Establishment of the Right of Pledge on a Share

In General. The right of pledge on the share of a joint stock company is established by the act of disposal after the promissory transaction.

A promissory transaction is the pledge contract (Turkish Civil Code Article 955/1, 3). The subject of the pledge contract is the undertaking of the debt to establish a pledge on behalf of the creditor on the share of a joint stock company owned by a person. It results in the obligation of performing the act of disposal. The parties to the pledge contract are the pledger and creditor. The pledger may be the debtor of the receivable that is secured, or a third party. On the other hand, the creditor may only be the owner of the secured receivable, in accordance with the accessory nature of the right of pledge.

An act of disposal shall be conducted after the conclusion of the pledge contract. An act of disposal depends on whether or not the share is certified (Turkish Civil Code Article 955/1, 3) and the type of the share certificate (Turkish Civil Code Article 956). Although these two legal actions appear as a single action when performed at the same time, two different successive actions ensue.

Another condition of establishment of a pledge is that the pledger has the power of disposition.

Uncertified Shares. It is sufficient to conclude a pledge contract for the establishment of the pledge right on an uncertified share (Turkish Civil Code 955/3). The pledge contract referred to here is an act of disposal, as opposed to a pledge contract, which is a promissory transaction. The written format is a condition of validity of the pledge contract that is an act of disposal.

Dematerialized shares are also qualified as uncertified shares. Security contracts regarding capital market instruments are regulated under Article 47 of the Capital Markets Law (“CML”). Accordingly, security contracts covering the capital market instruments monitored by the Central Registry Agency (“CRA”) are drawn up in writing. The contract of security mentioned in the Article is also qualified as an act of disposal. The pledge is established by concluding the security contract. The notification of the pledge right established on the registered share to the CRA is important in terms of asserting the right of pledge against third parties. As a matter of fact, when the rights on a capital market instrument pursuant to Article 13/5 of the CML is asserted against third parties, the notification date to the CRA is taken as the basis.

Certified Shares. In the event the shares of the joint stock company are connected to a certificate, they may also be subject to a pledge. Shares issued by a joint stock company are qualified as negotiable instruments.

However, the issuance of a share certificate in terms of a right to partnership, and obligations related to partnership, is explanatory, not constructive, as it is in commercial bills. Under Article 484/1 of the Turkish Commercial Code, joint stock companies may issue bearer share certificates or registered share certificates. For shares that are not paid in full, bearer share certificates cannot be issued.

The right of a pledge under Turkish Civil Code Article 956 depends on different principles according to whether the certificate is a bearer share certificate or a registered share certificate.

Bearer Share Certificates. The rule in Turkish Civil Code Article 956/1 applies to the pledge of bearer share certificates: delivery of certificates to the pledged creditor is sufficient for the pledge of bearer share certificates. The act of disposal consists of a transfer of possession and in rem contract. According to Article 939/3 of the Turkish Civil Code, a right of pledge is not borne so long as the movable is under the sole control of the pledger. Thus, transfer of possession to the creditor must end the sole possession of the pledger on the share certificate. Under Article 647 of the Turkish Commercial Code (“TCC”), in order to establish ownership or a limited real right on a negotiable instrument, the transfer of its possession is necessary. Transfer of the possession of the pledged movable provides for the publicity of the right of pledge. Alignment of declaration of consents regarding the purpose of establishing a pledge by transferring the possession of the bearer share certificates constitutes the in rem contract. The in rem contract here is not subject to any form requirements; it can be concluded explicitly or implicitly. The right of pledge is established when the conditions for the in rem contract and transfer of possession are satisfied.

The parties may also establish a pledge by adopting a method such as disposition or endorsement and delivery, although it is not required.

In the event that someone, who is not owner of the bearer share certificates, entitles the pledged creditor the right of pledge on these certificates, the good faith of the pledger who is in the position of a third party shall be protected in accordance with Article 990 of the Turkish Civil Code.

Registered Share Certificates. Two options are available under Article 956/2 of the Turkish Civil Code: (i) concluding a written pledge contract and delivery of registered share certificates (Turkish Civil Code 955/1); or (ii) endorsement and transfer of the registered share certificate (Turkish Civil Code Article 647/2; TCC Article 689/1) is required. Here, delivery means transfer of possession.

A connection with the negotiable instrument must be established in the written pledge contract, as the two cannot circulate, separately. When the debtor is given the registered instrument, he must be able to determine the real rights holder. In the event the pledge declaration is written on registered share certificates, this shall qualify as an endorsement. (TCC Article 689/1). On the other hand, in the event the registered share certificate is transferred with the written declaration of transfer of the certificate, the rule of “no one can transfer more than his right” shall apply, and the pledge right cannot be acquired with good faith.

According to Turkish Civil Code Article 956/2, for the pledge of the other negotiable instruments, the certificate should be delivered by endorsement and written transfer declaration. Other negotiable instruments mean bearer share certificates that are transferred by endorsement and delivery, and registered certificates that are transferred by declaration of transfer and delivery (TCC Article 647/2). As the registered certificates are transferred by way of endorsement and transfer of possession under TCC Article 490/2, registered share certificates are negotiable instruments established to the order under the law. Transfer of the negotiable instruments to the order is subject to TCC Article 689/1, and the pledge is established by way of pledge endorsement and transfer of the possession of the share certificate.

Pledge endorsement is made by way of making an endorsement on the share certificate or on the allonge that includes the statement “its worth is guarantee,” “its worth is pledged,” or any other statement that signifies a pledge and signing by the pledger. (TCC Article 683, Article 689). As well, the right of pledge may also be established through a blank endorsement (TCC Article 683/1). In this instance, there is a hidden pledge endorsement.

Provisional Certificates. Provisional certificates are the certificates that are issued until share certificates are issued in order to be used as bearer share certificates or registered share certificates. (TCC Article 486/2) The function of provisional certificates is the same as share certificates. Provisions regarding share certificates apply to provisional certificates by comparison (TCC Article 486/2). Therefore, provisional certificates are also negotiable instruments and order instruments under the law. Provisions regarding the pledge of registered share certificates also apply to the pledge of the provisional certificates that are issued for registered or bearer share certificates.

Scope of the Right of Pledge

The shareholding rights that are subject to a right of pledge are rights related to the assets (right to profit share, right to liquidation share, right to bonus shares, right to preference, right of use of premises, and right to interest in the preparation period), not enlightening and protective rights.

As for the bearer share certificates, if the dividend is tied to coupons, and is separate from the certificate, so long as there is no contract stipulating otherwise, and coupons are not pledged in due form, dividends are not in the scope of the principle pledge. However, in the event the dividend share coupons are on the original certificate and are delivered with the certificate, it is accepted that the profit share coupons are also pledged, and the profit share is covered by the pledge.

Enlightenment rights (the right to receive information, the right to review and supervise) and the right to protective shareholding rights (litigation rights, minority rights) that cannot be converted into money cannot be subject to pledge. Rights of participation in the General Assembly and voting rights can be left to the pledged creditor with the pledge contract (TCC Article 427/2).

The right of pledge does not give the right to benefit from the rights of shareholding with respect to assets. The pledged creditor neither has the right to use nor the right of usufruct. The right to property becomes significant when the pledge is monetized. As a matter of fact, a pledged creditor cannot claim rights with respect to assets as long as the credit is due.

Acceptance of the Company's Own Shares as Pledge

Under Article 379 of the TCC, the Company is prohibited from acquiring, or accepting as a pledge, its own shares with consideration, with respect to any share that is above a certain percentage. Shares that do not exceed 1/10 of the capital may be acquired or pledged by the company. However, in order to be able to do this, the general assembly must so authorize the board of directors (TCC Article 379/2). This authorization may be given for a maximum of 5 years. At the time of authorization, the general assembly also shows the nominal value of the shares that can be acquired or pledged, as well as the total nominal value and the upper and lower limits of the price to be paid to the shares (as the acquisition price).

The pledge on shares made in defiance of Article 379 of the TCC shall be removed within six months, at the latest, after the date they are accepted as pledges (TCC Article 385).

Another issue that should be considered within the scope of the prohibition of the pledge of shares is whether or not to apply the prohibition and limitation foreseen in Articles 491 and 492 of the TCC regarding the transfer of the registered shares to the share pledge. The dominant view in the doctrine is that the provisions of Articles 491 and 492 of the TCC shall not apply to pledges of registered shares[i].


Share pledges in joint stock companies are not specially regulated under the TCC, so the provisions of the Turkish Civil Code apply. Regarding the pledge of uncertified shares, the provision of Turkish Civil Code Article 955/3 shall apply, and a written transfer contract must be concluded. With respect to certified shares, Turkish Civil Code Article 956 stipulates different provisions according to the type of the certificate. Transfer of the certificates to the pledged creditor is sufficient for the transfer or the bearer share certificates (Turkish Civil Code Article 956/1). Article 956/2 of the Turkish Civil Code stipulates two alternatives with respect to registered share certificates. As the registered share certificates to qualify as negotiable instruments to the order under the law, they may be pledged by endorsement and the transfer of the possession (TCC Article 689), or by a written transfer declaration and transfer of the possession of the certificates. (Turkish Civil Code Article 955/1).

As the rights of ownership with respect to assets fall within the scope of a pledge, the enlightening and protective rights are beyond the scope of a pledge.

The company can only accept its own shares as a pledge under Article 379 of the TCC, on condition that the acquisition does not exceed 10% of the company’s capital.

[i] Tekinalp, Ünal: Anonim Ortaklıkta Yeni Bağlam Sisteminin Esasları, İstanbul 2012, p. 23-24; Pulaşlı, Hasan: Şirketler Hukuku Şerhi, Volume II, 1st Edition, Ankara 2011, p. 1485; Akbulak, Yavuz: “TTK Işığında Anonim Şirketlerde Pay Senetleri”, Ankara Barosu Dergisi, 2006/1, p. 511.