According to TCC Art. 478, privileges may be granted to certain shares through the initial articles of association or by amending the articles of association. A privilege is a superior right granted to a share—such as rights to dividends, liquidation shares, pre-emptive rights, and voting rights—or a new shareholder right not provided for by law.

Privileges are regulated by the articles of association. Privileges provided for by law include:

1. Privilege in Voting Rights

Certain shares may be granted more voting rights compared to others. However, a maximum of 15 voting rights can be assigned to a single share (TCC Art. 479/1). This privilege allows control of the company management with less capital.

2. Privilege in Dividends (Profit Share)

The law does not specify how or in what manner this privilege can be granted. Consequently, joint-stock companies have full discretion in determining the form of privileged shares regarding dividends. Privilege in dividends can be structured to provide superiority to shareholders in three main points:

• 2.1 Receiving a higher share of the profit: In public joint-stock companies, this can be in the form of receiving more from the profit share by considering the first dividend.
• 2.2 Prioritized benefit from the dividend: In closed-type joint-stock companies, it is possible to grant a group of shares priority in benefiting from the profit via the articles of association. However, such a privilege cannot be granted in public joint-stock companies because Art. 15 of the Capital Markets Law (CML) mandatorily requires the first dividend to be distributed to all shareholders according to the principle of proportionality.
• 2.3 Cumulative nature of dividend privilege: If the current year’s profit is insufficient to cover the amount specified in the articles of association (i.e., a certain percentage of profit), the dividend rights accumulate and can be paid in total when the company makes a profit in future years, allowing the shareholder to demand this payment for previous years. It is possible for a company to introduce regulations in its articles of association containing one, two, or all of these alternatives.

3. Privilege in Liquidation Shares

When the company enters liquidation, privileged shareholders may receive priority or a higher amount from the liquidation balance. Accordingly, the liquidation balance is first used to pay the rights of the shareholders privileged in the liquidation balance. If a portion remains thereafter, it is distributed among the shareholders in proportion to the capital they have paid and their privilege rights, unless otherwise provided in the articles of association (TCC Art. 543/1). However, if there is a privilege in the liquidation share, the regulation in the articles of association applies.

4. Privilege in the Election of Board Members

Priority in nominating candidates or the right to elect members to the Board of Directors may be granted to certain shares (TCC Art. 360).

ARTICLE 360- (1) Provided that it is stipulated in the articles of association, the right to be represented on the board of directors may be granted to specific share groups, shareholders forming a specific group based on characteristics and qualities, and the minority. For this purpose, it may be stipulated in the articles of association that board members shall be elected from among shareholders forming a specific group, specific share groups, and the minority, or the right to nominate candidates for board membership may be granted. The candidate nominated for board membership by the general assembly or the candidate belonging to the group or minority granted the right must be elected as a member unless there is a just cause. This representation right shall not exceed half of the number of board members in public joint-stock companies. Regulations regarding independent board members are reserved. (2) Shares granted the right of representation on the board of directors according to this article are deemed privileged.

While the right to be represented on the board of directors was not explicitly provided as a privilege in the former Commercial Code No. 6762, the settled jurisprudence of the Court of Cassation for over thirty years was in favor of recognizing “group privilege.” Taking this exception into account, the legislator stipulated that the right to be represented on the board of directors can be granted to specific groups and the minority (Art. 360/1) and explicitly stated that this right is a privilege (Art. 360/2). According to the TCC, this right can be structured as electing certain members from among specific shareholder groups or granting a binding right to nominate candidates.

5. Privilege in Pre-emptive Rights

In capital increases via rights issues, privileged shareholders may be granted priority or the right to purchase above 100%. Privilege in pre-emptive rights is not commonly used in practice. In the establishment of a joint-stock company, the pre-emptive right can be granted only to specific shares or share groups (e.g., Group A shares) in the articles of association. However, it is possible to grant privilege in pre-emptive rights after establishment through an amendment to the articles of association; this requires the affirmative vote of shareholders or their representatives holding 75% of the capital (Art. 421/3, b). Since it is mandatory for the board of directors to be authorized by the articles of association to limit the pre-emptive rights of shareholders in public joint-stock companies that have adopted the registered capital system (CML Art. 18/5), the effectiveness of privilege in pre-emptive rights in public joint-stock companies is limited.

Matters to be Considered When Creating Privileged Shares;

• As a rule, privilege can be granted to the share, not the person.
• Only rights where the principle of proportionality applies can be subject to privilege (proportional to the number of shares owned/capital ratio; more shares, more rights).
• Privilege can be created in the initial articles of association or through an amendment to the articles of association.
• If it is to be created through an amendment, it can be done with the affirmative vote of shareholders holding 75% of the capital share.
• In the registered capital system, provided that authority is given in the articles of association, the board of directors may also issue privileged shares regarding voting rights after establishment. (The registered capital system allows the board of directors to increase capital up to a determined upper limit without having to obtain permission from the general assembly.)
• The type, subject, scope, limits, conditions, the order and ratio in which the privilege is earned, and if privilege is granted in voting, the number and duration must be shown in the articles of association in an unambiguous manner.
• Privileges cannot be utilized in decisions regarding release of liability (ibra), liability lawsuits, and amendments to the articles of association. (Because these matters are directly related to the honest and fair management of the company and the equality of shareholders. The legislator intended to prevent the management from releasing itself via privilege, escaping liability via privilege, and arbitrary changes to the articles of association in favor of privileged shares.)

Release of liability (ibra) is a general assembly decision expressing that the company will not claim compensation from board members and managers by approving their actions regarding the relevant fiscal period. Pursuant to the third paragraph of Article 479 of the TCC, privilege in voting cannot be used in release decisions. Accordingly, in a release vote, the vote of each shareholder is considered equally regardless of the number of shares held. The purpose of this regulation is to prevent the easing of the removal of directors’ liability through weighted votes of privileged shareholders and to ensure the accountability of the company management.

Non-utilization of privilege in liability lawsuits: Deciding whether or not to file a liability lawsuit against board members and managers is also among the matters concerning the fundamental interests of the company. Pursuant to TCC Art. 479/3, privilege in voting cannot be used in general assembly decisions regarding the filing or not filing of a liability lawsuit. This prohibition aims to prevent board members from being protected from liability through privileged shareholders and to ensure that the will of the shareholders on this matter is manifested equally.

Non-utilization of privilege in amendments to the articles of association: The articles of association are the “constitutional document” of the joint-stock company and bind all shareholders. Therefore, granting a distinction in voting power among shareholders in decisions regarding the amendment of the articles of association is of a nature that could disrupt the internal balance of the company. Pursuant to TCC Art. 479/3, privilege in voting cannot be utilized in amendments to the articles of association. Thus, it is prevented that changes concerning the basic structure of the company are imposed by the superior voting power of certain share groups.

A.a. Conditions for the Recognition of Privileged Shares

The main elements of privilege are explained in the TCC, and these elements are shown as being a superior right granted to the share, being granted primarily in property rights, and granting a new shareholder right or rights to certain shares through the articles of association.

For a share to be considered privileged, it must be explicitly written in the articles of association (TCC Art. 478/1). The type of privilege, its scope, and to which shares it is granted must be specified in the articles of association.

TCC 421/1: Unless otherwise provided by law or in the articles of association, decisions amending the articles of association are taken by a majority of the votes present at a general assembly where at least half (50%) of the company capital is represented. If the quorum required for the first meeting is not met, a second meeting may be held within one month at the latest. The quorum for the second meeting is the representation of at least one-third (33.33%) of the company capital. Provisions of the articles of association that lower these quorums or provide for a relative majority are invalid.

Pursuant to TCC Art. 421/3, the affirmative votes of shareholders representing at least seventy-five percent (75%) of the capital are required for the creation of privileged shares.

Privileges can also be granted to shares after establishment, but this requires an amendment to the articles of association in the General Assembly, with aggravated meeting and decision quorums (TCC Art. 421). Additionally, if it affects the rights of existing shareholders, the approval of the special assembly (TCC Art. 454) is required. (Meeting quorum: Representation of at least half of the capital. Decision quorum: At least two-thirds of the votes represented at the meeting. Purpose: To prevent decisions that disrupt the balance between shareholders, such as privileges, from being taken easily.)

The granted privilege cannot be contrary to the Law, the essence of rights, or the principle of equal treatment. For example: It is unlawful for one share to completely eliminate the voting rights of all other shares.

A.b. Protection of Privileged Shares

When privileges are granted to certain company shares via the articles of association, those who own these shares will be privileged shareholders. In the dynamics within joint-stock companies, it is possible for majority shareholders to take various decisions alone by meeting the relevant quorums and to take decisions that will affect the interests of privileged shareholders.

The legislator, in order to ensure the protection of these privileged shares in the event that the rights of privileged shareholders are violated by other shareholders within the company, establishes various mechanisms in Article 454 of the TCC and regulates the principles of the Privileged Shareholders’ Special Assembly (“Assembly” or “SAPS”).

It is regulated that general assembly or board of directors’ decisions specified in Article 454 of the TCC, provided that they are of a nature to violate the rights of privileged shareholders, cannot be implemented unless they are approved by a decision to be taken by privileged shareholders in a special meeting.

ARTICLE 454- (1) If the decision of the general assembly regarding the amendment of the articles of association or the authorization of the board of directors regarding the increase of capital, or the decision of the board of directors regarding the increase of capital, is of a nature to violate the rights of privileged shareholders, this decision cannot be implemented unless it is approved by a decision to be taken by said shareholders in a special meeting in accordance with the following provisions.

(2) The board of directors shall call the special assembly to a meeting within one month at the latest from the date the general assembly decision is announced. Otherwise, each privileged shareholder may request the convening of this assembly from the commercial court of first instance at the place where the company’s headquarters is located, within fifteen days starting from the last day of the board of directors’ call period.

(3) The special assembly convenes with a majority of sixty percent of the capital representing the privileged shares and takes decisions with the majority of the shares represented at the meeting. If it is concluded that the rights of the privileged shareholders have been violated, the decision is stated in a reasoned minutes. It is mandatory to deliver the minutes to the company’s board of directors within ten days. Together with the minutes, a list containing the signatures of those who voted against the approval of the general assembly decision in at least the number forming the quorum and a common notification address to be valid for the lawsuit that can be filed pursuant to the eighth paragraph of this article are also given to the board of directors. The minutes are registered and announced in the Turkish Trade Registry Gazette along with the information provided. If the conditions in this provision are not complied with, the special assembly decision is deemed not taken.

(4) If the owners or representatives of privileged shares have voted affirmatively for the amendment of the articles of association in the general assembly in accordance with the meeting and decision quorum provided in the third paragraph, a separate special meeting is not held.

(5) If, despite the call, the special assembly cannot convene within the period, the general assembly decision is deemed approved.

(6) A Ministry representative shall also be present at the special assembly meeting and sign the minutes.

(7) The board of directors may file a lawsuit for the cancellation of this decision and the registration of the general assembly decision in the commercial court of first instance at the place where the company’s headquarters is located, within one month from the date of the decision, against the non-approval decision of the special assembly, on the grounds that the general assembly decision in question does not violate the rights of the shareholders.

(8) The cancellation lawsuit is directed against those who voted against the approval of the general assembly decision.

Special Assembly (TCC Art. 454) The approval of the special assembly consisting of privileged shareholders is mandatory for every amendment to the articles of association that affects the rights of privileged shareholders. If a decision accepted in the general assembly is rejected by the special assembly, the decision cannot be implemented. For the Assembly to convene, the following conditions must be met:

1. Existence of Privilege: The first and most important condition for the SAPS to convene is the existence of a privilege within the scope of the TCC; in other words, the privilege must be stipulated in the articles of association.
2. Specific Decisions: The second condition is that the decision in question must be one of the decisions specified in the article: the general assembly’s decision regarding the amendment of the company’s articles of association, the decision to authorize the board of directors regarding the capital increase, or the board of directors’ decisions on capital increase.
3. Nature of Violation: The final condition is that the aforementioned decisions are of a nature to violate the rights of privileged shareholders.

The Assembly can only convene and take decisions if the above conditions are met. Since the decisions mentioned in the second condition are listed exhaustively, even if a decision violating the rights of privileged shareholders is taken outside of these decisions, the privileged shareholders will not be able to convene within the scope of TCC Art. 454 and will need to apply for other legal mechanisms such as a cancellation lawsuit. The definition of “violation” in the article should be interpreted as decisions that abolish or largely limit the rights of privileged shareholders.

Protection Against Amendments to the Articles of Association

Aggravated quorums and Special Assembly approval are mandatory for the removal, narrowing, or limitation of a privilege. (Normally: The general assembly can convene if at least 1/4 of the capital is represented. Some decisions profoundly affect the company structure and shareholders’ rights. Therefore: Aggravated meeting quorum requires the representation of at least half of the capital in the general assembly. This rule applies in cases such as granting, removing, or narrowing a privilege in amendments to the articles of association.)

Protection Against the Principle of Equal Treatment

Pursuant to TCC Art. 357, the company must comply with the principle of equal treatment among shareholders. Therefore, privileged shares cannot be arbitrarily rendered ineffective. TCC Art. 357 states: The company must treat shareholders in the same situation equally. This principle binds the board of directors, the general assembly, and all organs of the company. The removal or limitation of a privilege is only possible by complying with the procedures and quorums provided for by law.

A.c. Removal of Privileged Shares

Privileges can only be removed through an amendment to the articles of association, aggravated general assembly quorums, and the approval of the privileged shareholders’ special assembly. Removal without special assembly approval is absolutely null and void.

The removal of privileged shares means that the superior rights granted to these shares are completely eliminated and the privileged shares are brought to the same legal status as ordinary shares. Since this situation results in the limitation or termination of the existing rights of privileged shareholders, it is of special importance regarding the acquired rights of the shareholders.

In joint-stock companies, the removal of privileged shares is an important amendment to the articles of association that directly affects the balance of interests among shareholders. For this reason, the legislator has tied the removal of the privilege both to the general assembly decision and to the approval of the privileged shareholders’ special assembly. Decisions taken without special assembly approval are as a rule invalid. However, it is accepted that the removal of a privilege may be possible in the presence of exceptional and justified reasons, and this situation must be carefully evaluated in each concrete case.

Non-privileged shares (ordinary shares), according to the Turkish Commercial Code (TCC), are shares that do not grant any additional rights or superiority other than the general rights legally provided for company shares.

The rights of these shareholders are the same as all other shareholders, and no distinction is made between any shareholders due to the principle of equality.

B.a. Fundamental Rights of Non-Privileged Shareholders:

• Right to vote in the general assembly

• Right to dividends (profit share)

• Right to liquidation share

• Right to information and inspection

• Pre-emptive (new share acquisition) right

B.b. Registered and Bearer Share Certificates

In joint-stock companies, there is no requirement to link the share to a share certificate; such shares are called “naked shares.” Share certificates are important for proving share ownership and facilitating legal transactions regarding the share. Share certificates can be issued as either Bearer or Registered.

Registered Share Certificates: These are shares issued in the name of the owner, where the identity of the shareholder is recorded. The validity of the share transfer is possible only by recording it in the company share ledger. Pursuant to the TCC, transfer restrictions may be introduced via the articles of association, but this is only possible in exceptional cases. In registered share certificates, the transfer process takes place in the form of endorsement + transfer of possession + recording in the share ledger. Advantages of these share certificates:

• The identities of the shareholders are certain.

• Company control and the partnership structure are more transparent.

• They are preferred in managerial and strategic companies.

Bearer Share Certificates: In bearer share certificates, the share belongs to the person holding the certificate. Its transfer is very easy and is carried out solely by the transfer of possession. In joint-stock companies, bearer certificates are used entirely for the purpose of free circulation. Advantages of bearer certificates:

• Fast and easy transfer

• Ease of circulation in the market

• They allow fast entry and exit to the partnership structure; the rights of the shareholder belong to the holder of the certificate.

• They reduce the administrative tracking burden.

With the amendment made after 2021, an obligation has been introduced in Türkiye to report bearer shares to the Central Securities Depository (MKK). This regulation was implemented to prevent the untraceable transfer of bearer share certificates.

Joint-stock companies are established when the founders declare their will to form the company in the articles of association, which must be prepared in accordance with the law, unconditionally undertaking to pay the entire capital, and having their signatures notarized.

Accordingly, for the establishment of a joint-stock company, it is first necessary to prepare the articles of association in compliance with legislation and have them signed by the founders with notarized signatures. Subsequently, it is mandatory to pay the share prices under the specified conditions and, for companies falling within certain fields of activity, to obtain Ministry permission. For the establishment of a joint-stock company, the declaration of intent by the founders is sufficient; however, the company acquires legal personality only after these stages are completed and the company is registered and announced in the trade registry.

1. PREPARATION OF THE ARTICLES OF ASSOCIATION

The articles of association of a joint-stock company is the founding contract of the company, made in writing, and requiring the notarization of the signatures of all founders. The following matters must be included in the articles of association:

• The trade name and headquarters of the company,

• The business object (scope of activity) of the company,

• The capital of the company, the nominal value of each share, and the form and conditions of their payment,

• Whether the share certificates are registered or bearer,

• Privileges granted to specific shares,

• Transfer restrictions,

• Benefits provided from company profit to founders, board members, and others,

• The number of board members and those authorized to sign on behalf of the company,

• Procedures for calling general assemblies to meeting,

• Voting rights,

• The duration of the company, if limited,

• Procedures for making company announcements,

• Types and amounts of capital shares undertaken by shareholders,

• The company’s accounting period,

• The board members. Additionally, optional provisions may be added to the articles of association, provided they do not violate mandatory rules of law.

2. PAYMENT OF SHARE PRICES

According to the TCC, the initial capital of joint-stock companies must be at least 250,000 TL. Furthermore, the law does not require the entire share prices to be paid for the company to be established. According to the Turkish Commercial Code, at least twenty-five percent of the nominal value of shares undertaken in cash must be paid before registration, with the remainder to be paid within twenty-four months following the company’s registration. However, the entirety of share issue premiums must be paid before registration.

3. MINISTRY PERMISSION (BY FIELD OF ACTIVITY)

As a rule, the establishment of a joint-stock company is not subject to any permission. However, pursuant to TCC Art. 333, Ministry of Trade permission is mandatory for certain fields of activity. Examples of those subject to permission include:

• Banks, financial leasing, and factoring companies,

• Insurance companies,

• Currency exchange offices,

• Licensed warehouse companies for agricultural products,

• Technology development zone management companies,

• Holding companies,

• Companies subject to the Capital Markets Law. In these sectors, a company cannot be registered without obtaining establishment permission.

4. REGISTRATION AND ANNOUNCEMENT IN THE TRADE REGISTRY

Technically, registration and announcement in the trade registry are not requirements for the “establishment” phase, as the law deems the founders’ declaration of intent sufficient. However, for the company to gain legal personality and engage in commercial activities, the registration and announcement procedures must be completed.

According to regulations, within thirty days following the signing of the articles of association (and the receipt of Ministry approval for relevant companies), the entire articles of association must be registered in the trade registry of the company’s headquarters and announced in the Turkish Trade Registry Gazette. The company gains legal personality only upon registration. Therefore, registration for a joint-stock company is a “constructive” element regarding legal personality, rather than a founding element for the initial intent.

Following the notary approval of the articles of association, an application is made to the Trade Registry Directorate where the company is located. All founding documents are submitted. With registration, the company acquires legal personality. Subsequently, an announcement is made in the Turkish Trade Registry Gazette.

Required Documents for Registration:

• Articles of association with notarized signatures of the founders.

• Document proving the payment of at least twenty-five percent of the cash capital.

• Payment receipt for the Competition Authority share.

• If applicable, valuation reports prepared by court-appointed experts for capital in-kind or assets taken over during establishment.

• For capital in-kind, a letter from the relevant registry stating there are no encumbrances on the asset.

• For capital in-kind, proof that the asset (immovable, intellectual property, etc.) has been annotated in the relevant registries.

• Any contracts made with founders or third parties regarding establishment or asset takeovers.

• Establishment permission or letter of conformity for companies subject to Ministry or official oversight.

• Written declarations of acceptance from non-shareholder board members, if any.

• If a legal entity is a board member, the name of the real person designated to act on its behalf and the notarized copy of the authorized body’s decision.

• Signature declarations of persons authorized to represent the company.