ABSTRACT
One of the significant novelties enacted by the Turkish Commercial Code numbered 6102 is the opportunity for the stock companies to hold an electronic general assembly. As per the relevant legislation, while holding general assembly meetings in an electronic environment is obligatory for the listed companies, it is presented as an optional right for other stock companies. By means of such opportunity, the shareholders are enabled to participate in assemblies and to exercise their shareholder rights much easier. However, the lack of detailed regulation within the relevant legislation regarding general assemblies to be convened in an electronic environment is likely to bring some substantial problems with it.
1. INTRODUCTION
Significant novelties on the activities of the stock companies have been brought by the Turkish Commercial Code (the “TCC”) numbered 6102 which became effective on July 1st, 2012. In this respect, one of the most significant novelties of the TCC is the implementation of electronic general assembly. Electronic general assembly has become applicable for stock companies through publishing the Regulation on Participation to General Assemblies of Joint Stock Companies in Electronic Environment (the “Regulation”) on August 28th, 2012 and the Communiqué on Electronic General Assemblies Implemented in General Assemblies of Joint Stock Companies (the “Communiqué”) on August 29th, 2012 in the Official Gazette.
In this article, significant issues regarding general assemblies to be held electronically, that are analyzed with regard to the TCC, the Regulation and the Communiqué and considered as key features thereof. Afterwards, the detailed explanations on the obligations of stock companies which intend to hold their general assemblies in an electronic environment in accordance with the Regulation and the Communiqué and the process of the Electronic General Assembly System (“EGAS”) are presented in detail.
2. CONCEPT OF THE ELECTRONIC GENERAL ASSEMBLY
Participation in general assembly meetings in an electronic environment is considered as one of the significant developments which reflect technological developments on law by the TCC1. Article 1527 of the TCC states that participation, making proposals, giving opinions and voting in electronic general assemblies of stock companies shall bear the full legal consequences of participation therein in person. In this manner, there are three main purposes that the legislator intends to realize by enabling participation into general assemblies in an electronic environment2: The first purpose is to minimize the gap of the authority in general assemblies; the second is to ensure duly implementation of the accountability principle; and the third is to introduce other unknown shareholders and investors of the company to managers and board members as well.
2.1. Advantages and Disadvantages of Electronic General Assembly
2.1.1. Advantages
Participation to a general assembly in an electronic environment grants numerous advantages for both the company and the shareholders. In the case where general assembly meetings are held physically, participation or representation of shareholders in the general assembly meetings might have high-costs and great difficulty. In this respect, the opportunity of being able to hold electronic general assembly meetings shall ensure the participation of the shareholders conveniently by removing the difficulties that could have been faced with in terms of both costs and time.
The primary purpose of enabling an electronic general assembly is to ensure the participation of the shareholders to general assembly and, by this means, to provide management transparency of companies.
Through the removal of dependence on a physical environment, investors who are shareholders in more than one company and, in particular, foreign investors will also be able to participate in general assembly meetings from their current location and to exercise their all shareholding rights. Thus, the foreign investors will have the opportunity to save time and transportation costs as well3.
In case that a general assembly meeting is held physically, there might be expenses incurred for both the company and the shareholders. Therefore, considering the transportation or accommodation expenses, holding the general assemblies in an electronic environment will be much more beneficial in reducing the meeting costs.
Electronic general assembly reduces the costs of holding the general assembly, as well as, provides a transparency and an opportunity of functional reporting. The agenda which was discussed in the meeting, the conclusions and the decisions were taken therein are constituted rapidly and properly due to the conveniences of which the electronic environment provides without any compilation process at the end of the meeting. Moreover, by means of carrying out the whole process in a digital environment, the retrospective analysis could be conducted smoothly.
2.1.2. Disadvantages
a. Being Unable to Participate in the Physical Meeting due to the Statement on Online Participation in the Electronic General Assembly
Shareholders may participate in general assembly in person as well as in an electronic environment. However, in case that Article 7 of the Regulation and Article 4 of the Communiqué are interpreted together, the shareholder who declares to participate in general assembly in an electronic environment in person or by representative will not be able to participate in the physical general assembly. However, the necessity and the justness of such regulation are criticized. Unable to participate in the physical meeting as well due to the fact that a shareholder fails to participate in the electronic general assembly meeting for any reason (such as a power outage or any sudden health problems etc.) on the date of the meeting, is being considered as a violation of the rights of the shareholder to participate and to cast a vote in the general assembly.4
b. Disconnection of the Visual or Audio Transmission
Technical problems such as disconnection of the visual or audio transmission may be occurred during electronic general assembly. Such problems might occur due to reasons arising from the company’s own website or the shareholder. In the first case where the disconnection is due to the reason arising from the website, even if the visual and audio transmission are disconnected, it does not cause crucial issues since the information and summary regarding of the general assembly will be shown on the company’s screen5. On the other hand, if the problem is a result of the audio and visual disconnection due to the reason arising from the shareholder, this might cause more serious issues. However, there is not any evident solution for such issues foreseen under the relevant legislation. For instance, there are not any provisions regulated under the Regulation or the Communiqué with regard to whether the shareholder shall continue to exercise its administrative rights or shall log in the system once again in case that the shareholder log out from an electronic general assembly meeting by mistake or intentionally. Lack of regulation in the legislation for such or similar issues is considered as a significant deficiency of the electronic general assembly regulation.6
2.2. The Amendment of the Articles of Association for the Electronic General Assembly
The principles and the procedures concerning general assemblies to be held electronically and technical issues and security criteria thereof are set out in detail under the Regulation and the Communiqué and several obligations are imposed on stock companies that intend to hold their general assemblies in an electronic environment therein.
As per the Regulation, participation and voting electronically in the general assembly meetings became obligatory for the listed companies while it is provided as an optional right for other stock companies. According to Article 5 of the Regulation, the listed companies which are obliged to hold their general assemblies in an electronic environment and other stock companies that intend to hold their general assemblies in an electronic environment are required to amend their articles of associations and to include the provision just as stated in the Regulation therein. In this regard, the relevant provision which is required to be included in the articles of associations of the stock companies is as follows:
“Pursuant to Article 1527 of the Turkish Commercial Code, shareholders who have a right to participate in the general assemblies are able to participate therein electronically as well. The company may set up the system to implement the electronic general assembly method or may procure such services from third parties accredited for this purpose to enable its shareholders to participate, make proposals, provide comments and vote in general assemblies electronically in accordance with the provisions of the Regulation on Participation to General Assemblies of Joint Stock Companies in Electronic Environment. Pursuant to the article of the articles of association of the company, rights of the shareholders or their representatives which are stipulated under the provisions of the above mentioned Regulation shall be exercised through the set up system in all general assemblies to be held.”
As per provisional article 1 of the Regulation, listed companies are obliged to make the amendment of the articles of associations which is mentioned above in their first coming general assembly. However, there is not any specific period of time set out for other stock companies which intend to hold their general assemblies in an electronic environment in order to amend their articles of associations.
2.3. EGAS
The stock companies that intend to hold their general assemblies in an electronic environment are obliged to set up an Electronic General Assembly System (the “EGAS”) in order to complete the process regarding the electronic general assemblies. While the EGAS is provided by the Central Registry Agency (the “CRA”) for the listed companies; all non-listed stock companies may either set up an EGAS by themselves or get a support service from authorized companies to set up the EGAS as well in accordance with Article 13 of the Regulation.
Pursuant to Article 6 of the Regulation, companies which intend to hold their general assemblies in an electronic environment, are required to provide the compulsory invitations to be made as per articles of association and the TCC and all necessary documents concerning the relevant general assembly including the agenda of the meeting to their shareholders with electronic signature in the EGAS within the period specified under the relevant provisions of the TCC and in their website that must be set up as per the 3rd paragraph of Article 1527 of the TCC. By imposing such an obligation, the TCC aims to procure the transparency of the electronic general assembly system and to eliminate the distrust of the digital environment therewith.
Pursuant to Article 13 of the Regulation which regulates the obligations of the stock companies that set up the EGAS by themselves and the companies that provide a support service for the same; the stock companies are required to submit the information on body representatives, independent representatives and corporate rep resentatives if any, to the EGAS for the shareholders that are entitled to participate to the general assembly. Besides, all the records of the transactions made in the EGAS and identity information of the shareholders and their representatives who participated in the general assembly in an electronic environment must be kept by the stock companies or the companies that provide the support service for ten years. This obligation is also fulfilled by the CRA for the listed companies.
In case the companies prefer to get support services instead of setting up the EGAS by themselves, the stock companies using electronic means for their general assemblies and companies that provide technical support services shall be jointly liable for damages arising from the usage of the EGAS against the shareholders, who participated in the general assembly electronically, and this liability shall be determined in accordance with the general provisions. In other words, the company which gets support services and the company which provides support services shall be jointly liable for technical functioning of the system and all outcomes thereof.
In addition to the above mentioned obligations, as per Article 8 of the Communiqué, the companies that provide technical support service and the stock companies that set up the EGAS are obliged to determine the convenience of the EGAS in accordance with the Regulation, the Communiqué and the provisions of the TCC with a technical report and to register and to announce such technical report in the relevant trade registry office where the headquarter of the company is located. Technical report shall be obtained from the Scientific and Technological Research Council of Turkey, Information and Communication Technologies Authority or any company which is entitled to audit in this area and shall be renewed triennially. It is aimed to minimize the potential security risks of the system by giving the permission of operating in this area to the qualified service providers.
3. THE APPLICATION OF THE ELECTRONIC GENERAL ASSEMBLY
3.1. Notification on the Participation in the General Assembly in an Electronic Environment and the Participation Therein
Pursuant to Article 1527 of the TCC, making proposals, giving opinions and voting electronically in the general assemblies of stock companies shall bear the full legal consequences of participation in person. This provision pursues the same system of Article 5 of the Electronic Signature Law numbered 5070 and Article 15 of the Turkish Code of Obligations numbered 6098 which set out that the secured electronic signature shall bear the same legal consequences of the handwritten signature.
In case that the shareholders intend to participate in a general assembly electronically; such participation shall take place with the entry of shareholders or their representatives into the EGAS with their secure electronic signatures as per Article 8 of the Regulation. Identity information of the representatives of the shareholders who shall participate in the general assembly via representative is required to be registered in the EGAS. In the event that the representatives shall participate in the general assembly physically, authorization may also be made through the EGAS. Representatives who are appointed through the EGAS shall be able to vote on behalf of the shareholders in the electronic or physical general assembly.
Pursuant to paragraph 2 of Article 7 of the Regulation, a shareholder may grant full or special authorization to his representative. In case the shareholder gives a special authorization, casting vote shall be exercised by selecting accept or reject options which are seated next to each item of the agenda in the EGAS. In this manner, the representative shall cast a vote by logging into the EGAS at the beginning of the general assembly in accordance with the instructions of the shareholder which have been previously entered into the system by the shareholder. It is being prevented to cast a vote against the intention of the shareholder by the representative through such opportunity provided by the EGAS7.
Shareholders who intend to participate in the general assembly in an electronic environment are obliged to notify with regard to their preferences via EGAS until two days prior to the date of the general assembly. The companies shall accept or reject such preferences via EGAS by checking the same within two business days at the latest following the arrival of the relevant notification. Shareholders and their representatives have a right to log into the EGAS one hour prior to the starting time of the general assembly at the earliest and five minutes prior to the starting time thereof at the latest.
Regardless of the preferences of the shareholders, electronic and physical general assembly shall start at the same time. The shareholder or his representative that participated in the general assembly meeting in an electronic environment; may watch the live broadcast from the meeting room on the screen to be provided through the EGAS or may deliver an opinion and cast a vote following the start of the voting.
Determination of fulfillment of the conditions stated in the relevant legislation by Ministry Representative is obligatory in order to open the electronic general assembly. As per Article 32 of the Regulation on Principles and Procedures of General Assembly Meetings of Joint Stock Companies and Representatives of Ministry of Customs and Trade, regardless of the items of the agenda, it is required to have the Ministry Representative present at the electronic general assemblies with regard to the joint stock companies.
The shareholder who formerly requested to participate in the general assembly in an electronic environment may withdraw such preference through the EGAS until the day before the date of the general assembly. In case that the shareholders or their representatives do not withdraw their preferences on the participation in general assembly electronically in due time, they cannot use their right to physically participate either. As the disadvantages of the electronic general assembly mentioned above, such regulation is considered as a regulation that may violate the rights of the shareholder to participate and to vote in the general assembly and is criticized as well.
3.2. Delivering an Opinion and Voting in an Electronic Environment
Shareholders or their representatives shall deliver their opinions through the EGAS in writing during the electronic general assembly. In any case, all the delivered opinions are required to be read and taken into consideration. In order to prevent the abuse of the right to deliver opinions by giving too many or too long opinions, the shareholders or their representatives have a right to give maximum of two opinions include a maximum of 600 characters separately for each agenda item. Through this limitation, lock of the discussion of the electronic general assembly and misuse thereof shall be prevented.
Shareholders or their representatives, who participated in general assembly electronically, shall cast their votes via the EGAS within two minutes following the notice of the chairman of the meeting. Each of the agenda item is required to be voted by the shareholders or their representatives and such casted votes regarding the agenda item of the same cannot be changed as well.
4. CONCLUSION
One of the most important novelties brought by the Turkish Commercial Code concerning the commercial life is the opportunity to hold the general assemblies in an electronic environment. By removal of the dependence on the physical environment, the investors who are shareholders in more than one company and, in particular, the foreign investors will also be able to participate in the general assembly meetings from their current location and to exercise all their shareholding rights. The opportunity of being able to hold electronic general assembly meetings shall ensure the participation of the shareholders conveniently by removing the difficulties that have been faced with respect to both costs and time. In addition to this, the electronic general assembly provides transparency and an opportunity of practical reporting as well. In conclusion, the opportunity brought by Turkish Commercial Code to hold electronic general assemblies is a very significant step in implementing the corporate governance principles.
BIBLIOGRAPHY
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FOOTNOTE
1 Leyla Keser Berber ve Ümit İhsan Yayla, “Elektronik Genel Kurullar Türkiye Uygulaması”, Regesta Ticaret Hukuku Dergisi 3 (2012), 22.
2 Abdülkadir Bulut, Anonim Şirket Elektronik Genel Kurul Uygulamasında Pay Sahiplerinin Bilgi Alma Hakkı, (Ankara: Adalet Yayınevi, 2014), 73-74.
3 Mehmet Emin Bilge, “Pay Sahiplerinin Anonim Ortaklık Genel Kurullarına İnternet Aracılığıyla Katılımı”, Bilgi Toplumunda Hukuk Ünal Tekinalp’e Armağan, (İstanbul: Beta, 2003), 221.
4 Mehmet Bahtiyar ve Esra Hamamcıoğlu, Anonim Ortaklık Genel Kurul Toplantıları, (İstanbul: Beta Basım, 2014), 23.
5 Ümit Yayla, Anonim Ortaklık Genel Kurulları Elektronik / Elektronik Genel Kurullar, (İstanbul: On İki Levha Yayıncılık, 2013), 170.
6 Bulut, Anonim Şirket Elektronik Genel Kurul, 102.
7 Keser Berber ve Yayla, “Elektronik Genel Kurullar Türkiye Uygulaması”, 36.
