Certain Shareholder Rights in Companies’ Acquisition of its Own Shares

June 2020 Melisa Sevinç Atılganer
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Introduction

The acquisition of its own shares by a company is subject to certain restrictions under Turkish Commercial Code No. 6102 ("TCC"). In addition to these limitations, Article 389 of the TCC stipulates that the shares repurchased by companies do not grant any shareholding rights, except for the acquisition of gratis shares. Accordingly, “The shares of the parent company acquired by the subsidiary company and the shares repurchased by the company, are not taken into account in the calculation of the meeting quorum of the general assembly of the parent company. Except for the acquisition of gratis shares, the company"s own repurchased shares do not grant any shareholding rights. The voting rights and respective rights pertaining to the parent company shares acquired by the subsidiary company, are suspended.”

The stand of the shareholder rights in the company acquiring its own shares is independent of whether the shares are acquired within or in accordance with legal restrictions[1]. In the preamble of the Article, it is interpreted that shares acquired by the company in accordance with the law or breach of the law, do not grant any shareholding right to the company; the company may only acquire gratis shares arising from those shares; and the respective gratis shares shall also not provide shareholding rights to the company.[2] Under this study, firstly, the scope and purpose of the regulation will be examined and then the certain aspects related to various shareholding rights will be discussed.

Shares Acquired by the Company and Stand of Shareholding Rights

As mentioned, above, Article 389 of the TCC does not stipulate any condition on its own shares acquired by the company. In addition, it is explicitly stated in the preambles of the Article that the acquisition of shares by the company in accordance with the law is not critical in terms of the state of shareholding rights. Accordingly, in the event that the company acquires its own shares based on the exceptions specified in Article 382 of the TCC, it is even granted by an exemption from the conditions under Article 379, no exemption shall arise concerning the consequences foreseen under Article 389 (the legal position of the shares due to the acquisition).[3]

In this context, the regulation in question is not in the nature of exception of the company acquiring its own shares illegally. The purpose of regulation is evaluated in various aspects in the doctrine.

One opinion argues that the aim of the regulation is to prevent the unbalanced deterioration of the balance of power between the board of directors and the general assembly as a result of the misuse of the rights over the shares acquired legally by the company managers.[4]

Another view argues that the suspension of shareholding rights arising from the shares repurchased by the company, except for the acquisition of gratis shares arising from the shares repurchased by the company, is grounded on the impossibility of being a shareholder of its own. Accordingly, in order to gain the status of shareholding against a joint stock company, a third person is required to acquire the share. In the event that the company acquires its own shares, just like a third party, it is not possible to deem that the company is granted with the shareholding rights due to nature of the status of shareholding.[5]

It is explicitly stated under the Article that the shares acquired by the company do not grant any rights other than the acquisition of gratis shares, and these shares are not to be taken into consideration in the calculation of the meeting quorum, as well as the voting rights, and other rights related to the parent company shares acquired by the subsidiary company are suspended.[6] While the suspension of the rights pertaining to the shares acquired by a subsidiary is regulated in Article 389 of the TCC, the stand of the rights repurchased by the company, i.e. whether the respective rights are suspended or revoked, is not foreseen. In this sense, it can be considered that there is an intentional avoidance of the matter in question. Furthermore, it is pointed out in the preambles of the Article that this aspect is left to the doctrine and opinion of the judiciary. Additionally, in the preambles of the Article, the issues that may arise within this scope are exemplified as (i) whether the meeting quorum shall be decreased by the number of the shares in question; (ii) whether the accrued dividend shall be deemed as legal reserve funds and has become the asset of the company, or whether it shall be transferred to an exclusive account and to be transferred to the transferee through the transfer of the share; (iii) whether the exercise of the pre-emptive right may be compared with gratis shares. Further, in the preambles of the Article, it is explained that the opinion adopted in the foreign doctrine regarding the stand of shareholding rights is temporary and, through the transfer of shares to a third party, these rights shall be restored.[7]

General Assembly Meeting Quorums

Article 389 of the TCC explicitly states that shares repurchased by the company shall not be taken into account in the calculation of the meeting quorum of the general assembly. In addition, in the preambles of the Article, it is explained that the bearer shares repurchased by the company, cannot be represented in the general assembly even if these are transferred through a fiduciary assignment.

In the doctrine, the stand of the voting rights regarding the company"s own shares is associated with the concept of "suspension" in Article 198 of the TCC, and it is assumed that the voting rights of the relevant shares shall be suspended. The fact that the shares to which the voting rights pertain are not taken into consideration in the calculation of the meeting quorum, means that these shares shall be deducted from the total number of shares constituting the capital, and that the meeting quorum shall be calculated with the remaining shares, and the shares of which the rights are suspended, shall be deemed as if they do not exist, and the total amount shall be reduced.[8]

In terms of decision quorum, it is explained that the shares of which the voting rights are suspended shall not be taken into consideration in the decision quorum as well, and if there is no aggravating provision, the quorum shall be formed by the majority of the votes that may be used in the meeting.[9]

Right of Obtaining Information and Examination

Another right granted to the shareholder is obtaining information and examination as is stipulated under Article 437 of the TCC. In this context, the shareholders of the company are granted with the right to review certain documentation prior to the general assembly meeting and to receive information about the general meeting. In the event that the company holds its own shares, pursuant to Article 389 of the TCC, the right of examination and obtaining information, granted to the shareholders, cannot be exercised by the company. This also complies with the purpose of the right in question.

The right to obtain information and examination is one of the areas in which there is a conflict of interest between the company and its management and shareholders. Therefore, even though the company owns its own shares, it is not in the shareholder status that exercises Article 437 of the TCC. In such a case, the right of the shareholder to obtain information and to examine cannot be exercised.[10]

Conclusion

Article 389 of the TCC stipulates that in the event the company acquires its own shares, regardless of whether the acquisition is in compliance with, or in breach of, the legal provisions, the company cannot enjoy shareholding rights. However, the Article does not make any determination with regard to the shareholder rights in question. It is explained in the preambles of the Article that this aspect is left to judicial decisions and the doctrine.

[1] Çapa, Mehmet Sadık: Anonim ve Limited Şirketlerin Kendi Paylarını İktisap Etmesi, İstanbul: On İki Levha Yayıncılık, November 2013.

[2] Preambles of Article 389 of the TCC.

[3] Çapa, p. 108.

[4] Çapa, p. 107.

[5] Yıldırım, Ali Haydar: “Anonim Ortaklık Genel Kurul Kararları Aleyhine Toplantıda Hazır Bulunan Pay Sahibinin İptal Davası Açmasının Şartları ve Özellikle Muhalefet Şerhi.” İnönü Üniversitesi Hukuk Fakültesi Dergisi, V. 7, No. 2, 2016, p. 383-430. DergiPark, http://dergipark.gov.tr/inuhfd/issue/22944/291308.

[6] Kendigelen, Abuzer: Yeni Türk Ticaret Kanunu: Değişiklikler, Yenilikler ve İlk Tespitler, İstanbul: On İki Levha Yayıncılık, May 2016.

[7] Preambles of Article 389 of the TCC.

[8] Yanlı, Veliye: Prof. Dr. Hamdi Yasaman"a Armağan, İstanbul: On İki Levha Yayıncılık, January 2017, p. 779; Nilsson, Gül Okutan: Türk Ticaret Kanunu Tasarısı"na Göre Şirketler Topluluğu Hukuku. İstanbul: On İki Levha Yayıncılık, August 2009; Pulaşlı, Hasan: “Anonim Şirketlerde Esas Sözleşme ile Oy Hakkının Sınırlandırılması, Buna İlişkin Yöntemler ve Oyun Donduğu Haller”, Banka ve Ticaret Hukuku Dergisi, V. 33, No. 3, 2017, p. 34-36.

[9] Yanlı, p. 780.

[10] Dolu, Ali Murat: Anonim Ortaklıkta Pay Sahibinin Bilgi Alma ve İnceleme Hakkı, İstanbul: On İki Levha Yayıncılık, October 2017.

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