Right To Request Information Of The Shareholders in Joint Stock Companies
The right to request information is one of the most important rights granted to the shareholders, and it enables shareholders to receive solid information on the functioning, financial status and expectations of the company, as well as the quality of the management. The right to request information facilitates the company’s accountable and transparent functioning; thus, it is considered as an “inalienable right” of the shareholders. In accordance with Article 437 of the Turkish Commercial Code (“TCC”), the right to request information and examination shall not be restricted nor removed by the articles of association or the resolution of the corporate bodies. Accordingly, the TCC considers the right to request information as an element concerning the basic structure of joint venture companies, and sets forth provisions on the effective exercise of the right to request information.
Exercise of the Right to Request Information
Right of Examination Before the General Assembly Meeting
The right to request information has different aspects, and the first one is the right of examination of the shareholders before the general assembly meeting. Pursuant to Article 437/1, the company shall hold the financial statements of the company, the board of directors’ annual activity report, the audit reports, and the board of director’s proposals to distribute dividends that will be available for the shareholder’s examination at least 15 days prior to the general assembly meeting. Financial statements and consolidated statements shall also be accessible to the shareholders at the company’s registered office and branches for a one year-period. The shareholders may request a copy of the statement of income and balance sheet, and the expenses shall be covered by the company.
The TCC enables shareholders to exercise their right to request information through the website of the company if that company is under the obligation to create a website. In practice, companies do not make the relevant documents available, as the shareholders do not go to the company’s registered office to examine the relevant documents. In order to prevent any violations, the draft provision setting the forth disclosure of the financial statement and board of directors’ annual activity report for 3 years on the website of the company was thought to be the best solution. However, the draft was amended, and the scope of documents required to be disclosed was limited. As a result, the level of transparency is reduced.
It should be noted that due to the explicit provision on the inalienable character of the right to request information and examination, the resolutions of general assembly adopted by way of violation of the right of examination shall be deemed null and void. Whereas a violation of the relevant right during the enforcement period of Abrogated Commercial Code (“ACC”) is deemed as an individual non-compliance in the event of an action to void the general assembly’s resolution[1].
Right to Request Information at the General Assembly Meeting
Another aspect is the shareholders’ right to request information from the auditors and board of directors’ members at the general assembly meeting. Pursuant to Article 437/2 of the TCC, shareholders may request information on the company’s businesses from the board of directors, and the manner as to the method of audit that was conducted by the auditors.
The exercise of the right to request information is not subject to any prior condition of being necessary for the exercise of the other shareholding rights. For instance, the information does not have to be necessary for the exercise of the right to vote. Such a condition is not provided in order that the shareholders are not prevented from exercising their right to request information on the bases of unlawful causes. However, some scholars state that such a condition is necessary to prevent shareholders from requesting irrelevant information in order to block the general assembly meetings[2].
Right of Examination following the General Assembly Meeting
The TCC also enables shareholders to examine, after the general assembly meeting, the commercial books and correspondence related to questions that were addressed at the general assembly meeting. In order to exercise the right of examination after the general assembly, the shareholder shall have posed a question at general assembly meeting, and the answer shall not have been satisfactory[3]. The shareholder was not satisfied with the answer shall ensure that the same is included in the meeting minutes, and may request an authorization for the examination later from the general assembly or board of directors. The exercise of the right is subject to the explicit authorization of the general assembly or affirmative decision of the board of directors. If the authorization is granted accordingly, the right of examination may be exercised by way of an expert in accordance with Article 437/4 of the TCC.
In accordance with Turkish law, shareholders are not entitled to request written information from the board of directors without any prior condition established to address questions at the general assembly meeting. Adoption of the right to request written information from the board of directors will enable shareholders to obtain concrete and actual information on the functioning of the company.
Extent of the Information
The extent of the right to request information includes information on financial statements, the company’s business and activities, investments, relationships, and its subsidiaries, if any. Pursuant to Article 200 of the TCC, the right to request information of the shareholders of the parent company includes the subsidiary’s financial situation, assets, together with its accounting outcomes, the relationship between the parent company and subsidiaries, between the subsidiaries, shareholders of the subsidiaries, and the parent company, directors, and their related parties, as well as the transaction between the parent company and these parties, together with the results of the transactions.
The right to request information is limited by protecting the company’s secrets and other interests that are required to be protected. Pursuant to Article 437/3 of the TCC, requesting information may only be rejected for these reasons, in principle. However, in accordance with the principle of equal treatment and Article 437/2 of the TCC, if any information is shared with a shareholder outside of the general assembly meeting, the relevant information shall be shared to the same extent and details with the other shareholders upon the request of any of its shareholder. In that instance, the sharing of information shall not be rejected on the grounds that sharing of the relevant information may place the company at risk.
The information to be shared within the scope of right to request information shall be in compliance with the principles of accountability and good faith, and shall be prudent and relevant. Accountability is in direct relation with the release by the board of directors’ members; therefore, the relevant information shall include any information that is necessary to release the directors. [4]
Right to Request Information on the Compensation of the Directors
Under certain jurisdictions, there are specific provisions regarding the shareholders’ right to request information on the compensation of the directors and the disclosure of such information. As the compensation of the directors may have adverse effects on the company’s financial situation, shareholders have an interest in obtaining information as to compensation.
There are no specific provisions on the preparation of a compensation report, or on the request of information regarding the compensation of the directors at general assembly meetings. Therefore, shareholders are only entitled to obtain the relevant information within the scope of the general provisions of the right to request information. In addition, neither the TCC, nor capital markets legislation, sets forth any provision on the disclosure of information on compensations. Some scholars state that the absence of such a provision is a deficiency considering the fact that such excessive compensations may affect the financial situation of the company[5]. On the other hand, the Communiqué on Corporate Governance (“Communiqué”) Annex-1 4.6.2 provides that companies’ compensation policies shall be presented on the related websites of the companies. Additionally, Communiqué Annex-1 4.6.5 sets forth the disclosure of the compensation granted to the board of directors’ members and directors having an administrative personal liability by way of disclosure of the annual activity report. As a result, shareholders may obtain the relevant information through the company’s website and by way of annual activity report.
A specific provision on the relevant issue may assure better protection for the shareholders. Shareholders’ access to the information on compensation is essential in order to file a lawsuit for nullity of the general assembly’s resolution that violates the principle of protection of the capital (TCC Art. 447/1, c) and to initiate the liability of the board of directors’ members in executing resolutions that grant excessive compensation to its directors[6].
Lawsuit Regarding the Request of Information and Examination
Pursuant to Article 437/5 of the TCC, the shareholder who did not obtain the relevant information, is entitled to file a lawsuit before the commercial court of first instance located at the registered Office of the company if his/her right to request information is ignored, unlawfully rejected or suspended.
The application shall be made within 10 days following the rejection and within a reasonable period of time for other cases. The lawsuit regarding the request of information and examination is subject to a simple procedure. The application and the decision of the court shall be based on the facts, and the information to be provided shall be specified. For instance, a determination of corruption may not be requested as it is too general. Additionally, the decision of the court is definitive and shall not be appealed.
Conclusion
Pursuant to the TCC, the right to request information and examination is among the “alienable rights” of the shareholders. Right to request information may be in different forms: right of examination before the general assembly meeting, right to request information at the general assembly meeting; and right of examination if unsatisfactory answers are given at the general assembly meeting. Turkish law does not provide any specific provision regarding the compensation of the directors; shareholders may obtain information on the relevant issues within the scope of general provisions on the right to request information. In any event, the information provided shall be in compliance with the principles of accountability, as well as good faith principles, and shall be provided duly. The shareholder who does not obtain information may file a lawsuit with the commercial court of first instance located at the registered office of the company and request a decision that the relevant information be provided.
[1] Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, 4. Bası, İstanbul 2015, p.321, par. 14-73.
[2] Hasan Pulaşlı, 6102 Sayılı Türk Ticaret Kanunu’na göre Şirketler Hukuku Şerhi, 2nd Volume , Ankara 2011, p. 1352-1353, par. 212.
[3] Ünal Tekinalp, p.324, par. 14-79.
[4] Ünal Tekinalp, p.322-323, par. 14-77.
[5] Işık Özer, Anonim Şirket Yöneticilerinin Mali Hakları, Ankara 2013, p. 358.
[6] Özer, p. 384.
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