I. INTRODUCTION
Due to the requirements of commercial life, Turhish law enables the establishment of restrictions on ownership rights. Such restrictions may have the purposes of providing security to parties of a transaction or granting broad usage rights to such parties. Ownership right, as the widest authority on a property, entitles its owner to use, benefit from and dispose of such property. As per Turkish law, the ownership right has been defined as a real right. However, Turkish law has also defined the term of limited real right such as easement right, pledge and usufruct which, to some extent, restricts the scope of the ownership rights. As stated above, usufruct is a limited real right regulated between Articles from 794 to 822 of the Civil Code and it entitles a particular person to benefit from an asset, a right or a property which is owned by another person. In this relationship, owner holds the ownership of a property or a right, while entitling the usufructuary to benefit from certain rights. Accordingly, usufructuary may (i) use the property or right, (ii) benefit therefrom, or (iii) collect the natural fruits arising from such property or right.
II. USUFRUCT ON SHARES
Company shares which have an economic value may be the subject of usufruct and the usufruct may be established thereon regardless whether the company has issued share certificates, i.e. issuing share certificates is not a requirement for establishment of usufruct on shares.
Considering its content and scope, usufruct enables the usufructuary to benefit from the economic and periodic rights granted by the company shares during the term of usufruct.
Share certificates are movable properties and provisions both regulating movable properties and usufruct may be applied on share certificates.
Usufruct established on the shares may have both contractual and statutory basis. Furthermore, provisions of the Commercial Code regarding transfer of company shares shall be applicable to establishment of usufruct on the company shares.
III. ESTABLISHING USUFRUCT
Bearer Share Certificates
Bearer share certificates must be delivered to usufructuary for the purposes of establishing the usufruct.
In addition to the foregoing, the parties must clarify the reason which the delivery is based on and indicate that the purpose of such delivery is establishing a usufruct. This condition can be met by a written agreement or placing usufruct record upon share certificate. It should be noted that, such record is not qualified as an endorsement.
Registered Share Certificates
In order to establish a usufruct on registered share certificates, possession of such certificates must be transferred to usufructuary by endorsing and writing down a record on the registered share certificate emphasizing the usufruct (e.g. “for usufruct”). Such endorsement can be both full and blank endorsement.
As per Article 499 of the Commercial Code, the board of managers shall register the usufructuaries with the company’ share ledger. It should be noted that only the registered persons will be deemed usufructuary by the company and usufructuary may not be registered with the share ledger unless it is evidenced that such usufruct is duly established.
In addition to endorsement, usufruct can be established on registered share certificates by assignment. For establishing usufruct via assignment, a record regarding the establishment of usufruct must be stated and the certificate must be delivered to usufructuary. Such record may be stated either on the certificate or in an agreement. In such case, delivery of the share certificates to usufructuary is also a requirement.
IV. RIGHTS OF USUFRUCTUARY
Proprietary rights of the usufructuary arise from the beneficial ownership which is a result of usufruct’s legal character. Therefore, dividends and natural fruits (interest and other economic incomes) of the shares belong to the usufructuary.
Management Rights
Voting Right
In case the usufruct is established on share certificates, voting right of such share shall belong to the usufructuary10. Usufructuary is obliged to use its voting right pursuant to justice principals.
As per Article 432 of the Commercial Code; “If usufruct is established on a share, unless otherwise is agreed, the voting right shall be exercised by the usufructuary. But, the usufructuary shall be responsible towards the shareholder for any act performed unjustly without considering the interests of the shareholder.” However, the Parties may agree on otherwise and stipulate that the usufructuary will not have the voting right. Usufructuary may leave its voting rights to the shareholder by an agreement or authorizing it accordingly.
Right to Participate in General Assembly Meetings
Usufructuary who has the right to vote may participate in the general assembly meetings as such voting right may only be used in general assembly.
Right to Demand Information
Usufructuary has the right to demand information, (i) as a natural consequence of its voting right and (ii) for performing the obligation of “acting pursuant to justice principals” stated in Article 432 of the Commercial Code.It should be accepted that the shareholder also has the right to demand information even though its rights are being exercised by the usufructuary
Right to File Annulment Action
As stated in Article 446 of the Commercial Code, right to file an annulment action is not granted only to the shareholders. Usufructuary may also file an annulment action against the general assembly resolution which is contrary to law, company’s articles of association and principal of good faith. Such action may be filed before the commercial court of first instance located in the province where the company has its headquarter within three (3) months as of the general assembly’s resolution in accordance with the same article.
Financial Rights
Usufruct established on the share certificates grants the usufructuary the dividend rights and periodic rights (such as preparatory term interest or entrance into company facilities, if any) during the term of usufruct.
Dividend is the natural fruit of the shares and firmly connected to the capital contributed by shareholders. Considering that the usufruct is a beneficial ownership, collecting the dividend falls within the scope of usufruct.
However, the capital rights emerged after the company’ liquidation shall belong to the shareholder, because such right is an absolute right arising from the shareholding and cannot be considered as a natural fruit. However, if the capital rights emerged after the liquidation exceed share certificate’s nominal value, usufructuary may be entitled to such exceeding part.
Differences from Share Pledge
Pledge is a limited real right just as the usufruct and can be established on company shares which represent the shareholding rights.
The shareholding comprises diverse rights such as management and financial rights. Even though the usufruct comprises usage of and benefiting from certain shareholding rights, the pledge grants the right to liquidate the pledged shares. For example, the pledgee may not participate in general assembly meetings or demand information from the board of managers while the usufructory is entitled to do so.
Differences from Dividend Right Certificate
Dividend right certificates and usufruct are different terms due to the fact that dividend right certificates rely on a contract made between company and dividend right certificate owner. Upon execution of such contract, rights of all the current shareholders are restricted. However, establishing the usufruct on the shares is based on a bilateral contract amongst the shareholder and the usufructory.
Main difference between the dividend right certificate and the usufruct established on shares is that the usufructuary has the rights of voting, demanding information, filing an annulment action, receiving dividend while the dividend right certificate owner does not have any management rights. Dividend right certificate entitles its owner to net profit and capital rights of the company emerged after the liquidation as well as acquisition of the shares to be issued by the company.
In light of the foregoing, establishing a usufruct on company shares is subject to diverse regulations of Turkish law since a company share certificate is both a movable property and a negotiable instrument while it has branches such as bearer and registered certificates.
Usufruct grants its beneficiary the rights similar to ownership and therefore, the parties should carefully determine the scope of usufruct.
