Issues Regarding Use of Right to Vote in Joint Stock Companies

November 2020 Helin Akbulut
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Introduction

A shareholder’s right to vote under the provisions of the Turkish Commercial Code No. 6102 (“TCC”) is regulated under the section of “General Assembly”. Under this section, the rights of the shareholders are listed after the provisions regarding powers of the general assembly, procedures of the meetings, and meeting quorums. The right to attend the general assembly (TCC Article 425), right to vote (TCC Article 434), right to get information and to carry out an inspection (TCC Article 437), and right to request a special audit (TCC Article 438), are regulated under the rights of the shareholders.

The scope of this newsletter article covers the issues on the use of voting rights in private joint stock companies. Firstly, general principles regarding the exercise of right to vote are stated. Then, discussions on the method of using voting rights, especially when more than one share is owned by one shareholder, are conveyed.

Exercising Right to Vote in the General Assembly

The shareholder"s right to attend the general assembly and to vote appear as two directly linked rights. It is also possible that the voting right may be viewed as the successor of the right to participate in the general assembly. As mentioned below, only the shareholder who uses the right to attend the general assembly may vote, because the voting right may only be used in the general assembly. Although participation in the general assembly is not sufficient for the exercise of the voting right, as seen in the example of deprivation of the right to vote, it is a precursor to the exercise of the voting right as explained, above.

The first sentence of Article 434(1) of the TCC contains the general rule regarding the exercise of voting rights, as follows: “Shareholders use their voting rights in the general assembly in proportion to the total nominal value of their shares”. The quoted provision contains three main principles regarding right to vote: (i) it is used by the shareholders, (ii) in the general assembly, and (iii) based on the proportion of the total nominal value of their shares to the capital of the company.

Firstly, within the scope of the principle that the right to vote shall be exercised by the shareholder, Article 432/2 should be mentioned. This provision brings an exception to the principle of exercising the right to vote by the shareholder, and regulates that if there is a usufruct right on the share, as a rule, the voting right will be exercised by the rightholder of the usufruct right. On the other hand, the fact that the shareholders may use their voting right through a representative, rather than using their voting right in person, is not an exception to the said principle. Since the representative attends the general assembly not in their own name (contrary to the case of the usufruct right) and the represents the will of the shareholder before the general assembly.

The most important result of the second principle, which is the use of voting rights in the general assembly, is that unlike the board of directors’ resolutions,[1] the general assembly resolutions cannot be rendered through a circular resolution. It is mandatory to vote during the general assembly meeting. In this context, whether a physical meeting is held or electronic general assembly system is used (TCC Art. 1527), or whether the shareholder attends in person or through a representative, this does not contradict the principle of using the shares in the general assembly. Since, for instance, in the case of attending the general assembly through electronic system, although the shareholder is not physically present in the meeting room, the shareholder has the opportunity to follow the meeting live, and to participate in the meeting and to vote in the general assembly meeting in real time.

Finally, the number of voting rights held by the shareholders is the ratio of the nominal value of their shares to the total capital, unless privilege in the right to vote is stipulated in the articles of association of the company.

Minimum Voting Right of the Shareholder

Article 373 of the former Turkish Commercial Code No. 6762 ("fTCC") contains the provision that "each stock equals at least one vote". Article 434(2) of the TCC No. 6102, which was adopted in 2011, unlike the fTCC, states that "Each shareholder has at least one voting right, even if they have only one share". The minimum voting right is regulated as having at least one vote in both the fTCC and the TCC. However, while the fTCC defines the voting right depending on the share certificate, the TCC uses the concept of shareholder as an anchor to define the minimum voting right.

This change in the wording of the TCC is interpreted by the scholars as a change in principle, and is expressed as a departure from the annulled regulation, which manifests that the joint stock company is a capital partnership in every aspect.[2] It is also underlined by the scholars that there is no provision in the rationale of the TCC regarding this change of wording.[3]

Shareholders Splitting Votes that Arise from Different Shares

As explained above, the most important result of the having the voting rights linked to the shares within the fTCC period are the discussions about shareholder voting at different directions, for the same decision. Certain scholars have argued that if the shareholders have voting rights arising from more than one share, they may both partially vote negatively and affirmatively on a given proposal.[4] This view emphasizes the principle that the right to vote should be determined based on the share, not on the shareholder, as well as the independence of the votes, since each share may be transferred independently.[5] Particularly, within the scope of voting agreements,[6] it is evaluated that it is possible to split votes.[7]

The historical source of the opposing view is the decision of the German Imperial Supreme Court in the year of 1927.[8] In the aforementioned decision, it states that voting rights may not be used in a contradictory manner when voting at the general assembly, which is the decision-making body of the company, and the requirement of uniform voting was decided. The scholars who agree with the aforementioned decision, asserting that even if each share is independent, when more than one voting right is collected through one person, the right to vote becomes personalized,[9] and they consider that voting in a different direction is inconsistent, and that it is not worthy of legal protection.[10]

Attending the General Assembly by Proxy

Other issues regarding the shareholder"s voting right procedure may arise upon different combinations of attending the general assembly in person and/or by proxy. The first scenario is that the shareholder attends the meeting in person and with a representative authorized to exercise the voting right arising from his shares. In this case, it should be noted that the shareholder is entitled to release the representative from any power prior to the meeting. However, in cases where there is no dismissal to this end, the scholars refer to the priority principle, and it is argued that whoever uses the right to participate in the general assembly meeting, as well as the voting right, precludes the other from exercising the same right.[11]

As a second possibility, it may be considered that the shareholder exercises the voting rights arising from one part of their shares personally, and have the representative exercise the voting rights arising from the remaining part of their shares. Amongst the scholars, it is argued that it is possible to represent some of the shares in person, and the remainder through their representative.[12] On the other hand, the discussion regarding whether the votes may be split by a shareholder is also valid for this scenario, as. This is because the concerns about acting in contradiction in terms of exercising the voting right, and not creating a uniform will, may also be argued in this example.

Finally, it may be considered that the voting right, arising from more than one share of the shareholder, may be exercised through more than one representative. Regarding this issue, Article 18(8) of the Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Representatives of the Ministry to Attend These Meetings (“Regulation”), the mentioned paragraph of the Regulation’s provision is as follows:

“It is essential that each shareholder be represented by only one person in the general assembly. However, in cases where more than one person is authorized to represent, or more than one authorized persons to represent and bind legal person shareholders attend the general assembly, only one of them may vote. The authorization document must show who is authorized to vote.”

In accordance with the aforementioned Regulation, it is not be possible for shareholders to be represented by more than one representative who is authorized to vote in the general assembly of joint stock companies.

Conclusion

There are no explicit provisions in the TCC and its secondary legislation regarding whether a shareholder may use its voting rights arising from more than one share in different directions in the general assembly of joint stock companies. There are two views in the doctrine on this subject, arguing that: (i) the votes may be cast separately by emphasizing the independence of the shares, and (ii) the votes of one shareholder should be used in the same direction by referring to the prohibition of contradictory behavior.

There is no clear provision regarding the participation of the shareholder in the general assembly by representing some of their shares, personally, and others by proxy. On the other hand, Article 18(8) of the Regulation states that no shareholder may be represented at the general assembly by more than one representative who are authorized to vote.

[1] Article 390(4) of the TCC renders it possible for the decisions of the board of directors to be passed by the method of circulating the decision proposal. Pursuant to the said provision, the members of the board of directors may take a decision with the signature of the absolute majority on the draft resolution, without physically gathering.

[2] Teoman, Ömer“Türk Ticaret Kanunu Tasarısı"na Göre Anonim Ortaklıkta Pay Sahibinin Oy Hakkı” (Tasarı) Banking and Commercial Law Journal (BATİDER), Vol. 25, Issue 3, 2009, p. 9.

[3] Teoman, Tasarı, p. 9; Kendigelen, Abuzer: Yeni Türk Ticaret Kanunu: Değişiklikler, Yenilikler ve İlk Tespitler, On İki Levha Yayıncılık, May, 2016, p. 335.

[4] Teoman, Ömer: “Anonim Ortaklık Genel Kurulunda Birden Fazla Paya Sahip Olan Ortaklar Bir Öneri Konusunda Aynı Zamanda Olumlu ve Olumsuz Oy Kullanabilirler” (Olumlu ve Olumsuz Oy), Tüm Makalelerim V. I-II (1971-2001). On İki Levha Yayıncılık, April, 2012.

[5] Teoman, Olumlu ve Olumsuz Oy.

[6] Regarding the voting agreements, please see. http://www.erdem-erdem.av.tr/yayinlar/hukuk-postasi/turk-hukukunda-oy-sozlesmeleri/.

[7] Tekinalp (Poroy/Çamoğlu), Ortaklıklar ve Kooperatif Hukuku, 2003, N. 982.

[8] Decision of the German Imperial Supreme Court (Reichsgericht) dated 16.09.1927 and numbered II 21/37.

[9] Arslanlı, Halil: Anonim Şirketler, İstanbul, 1960, II-III 47, 48.

[10] Pulaşlı, Hasan: Şirketler Hukuku Şerhi, Adalet Yayınevi, Ankara, 2011, p. 1325.

[11] Üçışık/Çelik: Anonim Ortaklıklar Hukuku, I. Cilt, Ankara, 2013, p. 294.

[12] Tekinalp (Poroy/Çamoğlu), N. 982.

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