1. INTRODUCTION
Nowadays the companies’ acquisition of theır own shares is a commonly used method in company law. The companies’ acquiring its own shares means any legal transaction resulted in transfer of proprietary or joint ownership rights of such shares. With the new Turkish Commercial Code (“TCC”), the joint stock and limited liability companies may acquire its own shares within the framework of the certain conditions stipulated under thereof. The Capital Markets Board has however provided opportunity to publicly traded companies to acquire its own shares by the decision numbered 26/767 which was issued on its weekly journal dated August 10th, 2011 and numbered 2011/31. Therefore, the publicly traded companies have been able to acquire its own shares since 2011. Such decision thereof has set the stage for the amendment of the provisions of TCC in this regard. In addition, with this amendment, TCC has been harmonized with the Capital Requirement Directive of European Union. The joint stock companies’ acquisition of its own shares is regulated under Article 379 and following, whereas the limited liability companies’ acquisition of their own shares is regulated under Article 612.
It must be noted that the former Turkish Commercial Code (“FTCC”), in principle, forbade a company to acquire its own shares. Article 329 of FTCC expressly stated that the companies were not allowed to acquire their own shares and in addition to this, any agreement concluded for the mentioned purpose was deemed null and invalid. However such regulations were very far from meeting the companies’ needs and also were causing various problems for the companies in business life. With TCC, the joint stock and limited liability companies may acquire their own shares within the framework of the certain conditions. In other words, the companies have limited freedom for acquiring their own shares. With the amendment adopted, the companies’ needs have been met and adapted themselves to the new business world order. In this articletter, the joint stock and limited liability companies’ acquisition of their own shares, the conditions of such acquisition, the exceptions and the unlawful acquisitions will be discussed.
2. JOINT STOCK COMPANIES
2.1. JOINT STOCK COMPANIES’ ACQUISITION OF THEIR OWN SHARES
Article 379 of TCC regulates that the joint stock companies may (i) acquire their own shares or (ii) accept thereof as a pledge. The said article clearly states that the company cannot acquire and accept as pledge its own shares in return for consideration, at an amount which exceeds or will exceed as a result of a transaction, one-tenth of its basic or issued capital. As can be seen in the mentioned article, within the scope of TCC, the companies are allowed to acquire their own shares for up to the one-tenth of its basic or issued capital. Pursuant to sub clause 2 of the said article, the general assembly (“GA”) must have authorized the board of directors (“BoD”) in order for the shares to be acquired or accepted as pledge. Thus, GA has the right to monitor the acquisition transaction. This authorization, which can be granted for a maximum of five years, must show the lower limit and upper limit of the price which can be paid for shares to be acquired and the total nominal values of the shares to be acquired or accepted as pledge. The BoD must state in each of its proposals for permission that the legal requirements have been met. In addition, according to such article, only shares that have been paid in full can be acquired. Otherwise this transaction shall be deemed null and invalid. Pursuant to Article 385 of TCC, the shares acquired or accepted as pledge in a way contrary to articles 379 to 381 shall be disposed of or the pledge on them shall be released within six months from the date of their acquisition or acceptance as pledge. The preamble of the said article states that the BoD has the authority to dispose of such shares and shall fulfill its duties in accordance with the equality and transparency principles. The preamble thereof also states that the share means both share certificate and shares.
Purpose of the abovementioned article is; (i) providing the BoD freedom by giving it the power of disposition of such shares, (ii) allowing the BoD to distribute the high profit by excluding the acquired shares from the annual profit, (iii) controlling market prices of the shares of the joint stock company and (iv) avoiding stock speculators.
In addition, sub clause 3 of article 379 of TCC regulates the obligation for the company as to preserve the legal reserve in order for performing such acquisition. In this respect, after the prices of the shares to be acquired are deducted, the company’s remaining net assets must be at least equal to the sum of the reserves that may not be distributed according to law and articles of association, and of basic or issued capital. Besides, pursuant to Article 520/1 of TCC, a company must preserve legal reserves in exchange for the value of the acquired shares. In the event of the transfer or disposal of such shares, the company may benefit from its legal reserves. Accordingly, the legal reserves preserved for acquisition of the shares cannot be used unless such shares are transferred or disposed of.
Another important issue regarding the companies’ acquisition of their own shares is that the acquisition of the company’s all shares leads to the dissolution of the company or not. In this respect, according to some opinions, in the event that a company acquires all of its shares, this will result in the dissolution of the company. However, such transaction is not readily specified as a reason for the dissolution of a company under TCC. For this reason, according to some other opinion, the acquisition all of the company’s shares should not be deemed as dissolution of the said company. It is also noteworthy that such transaction is not against the public order.
2.2. EVASION OF LAW
In the light of foregoing, the joint stock companies may acquire their own shares within the framework of the certain conditions. Article 380 of TCC regulates the situation in which the companies provide financial support to third parties that will acquire the company’s shares, instead of acquiring its own shares. The legislation brings a strict rule for such transaction. In this regard, any legal transaction which the company performs with a third person for the acquisition of its shares with regard to granting an advance, a loan or security, shall be null and void.
Such article regulates the prohibition of an advance, granting a security or a loan in order to acquire shares of a joint stock company. Such transactions between the company and third parties in order to acquire the company’s shares are deemed null and invalid. However this nullity provision shall not be applied to transactions within the scope of activity of credit and finance organizations and to legal transactions in regard to granting an advance, a loan or security to the employees of the company or of its dependent companies for the purpose of acquiring the company’s shares.
2.3. AVOIDING AN IMMINENT AND SERIOUS LOSS
For a joint stock company to acquire its own shares, pursuant to Article 379 of TCC, GA has to authorize the BoD to act in this manner. Even though it is clearly stated in the mentioned article, in some events, TCC permits the BoD to perform such transaction without the authorization thereof. In this regard, in the case of the existence of an imminent and serious loss for the company, the company may acquire its own shares with the abovementioned the onetenth capital limit to avoid an imminent and serious loss in the absence of a GA resolution regarding authorization. However, in the event of occurrence of such circumstance, the BoD shall provide the first GA with written information regarding; i) the reason and purpose of the acquisition, (ii) number of acquired shares, sum of their nominal values and percentage of the capital they represent, and (iii) price and terms of payment. The term “an imminent and serious loss” means a serious loss will be resulted in near future which avoids the joint stock company to carry on its operation and threatens its assets, development and plans or the relationship between the shareholders. For instance, in the event that a shareholder of the company is willing to sell its shares to the parties which may harm the joint stock company or the company is threatened to collect its receivables, the company may acquire its own shares in the absence of a GA resolution regarding authorization.
2.4. EXCEPTIONS
The conditions regarding the companies’ acquisition of their own shares have been described in foregoing. Although the conditions of such acquisition are readily stated in under relevant articles, pursuant to Article 382 of TCC there are some certain exceptions to such conditions. In this regard, a joint stock company may acquire its own shares even though if the condition regarding the one-tenth capital limit is not applied or the company is not threatened. Exceptions stated within the scope of Article 382 of TCC will be examined herebelow. It's rather important to stress that the provisions in other laws regarding the company’s acquisition of its own shares remain valid. According to the preamble of Article 387 of TCC, the possibilities are limited to those listed in the law and they cannot be broadened by interpretation. Also in the event of an administrative regulation that will include special provisions regarding the companies’ acquisition of its own shares, the relevant administration which will make such regulation must have been expressly authorized to act in this manner.
First exception is the Articles 473 and 475 of TCC regarding decreasing the basic or issued capital of the company. According to TCC, the share acquisitions which have been performed for the purpose of returning the unused part of the basic or issued capital to the shareholders are allowed. Second exception is in regard to the principle of universal succession. A joint stock company may acquire its own shares without any limitation in circumstances such as merger, acquisition and demerge. For instance, in any merger, a joint stock company taking over the assets of the acquired company is not subject to limitations stated under Article 379 of TCC, on condition of having its own shares in the acquired assets.
Third exception is in relation to a statutory purchase liability. In the event that, a company is obliged to purchase its own shares pursuant to relevant legislation, it may acquire its own shares without being bound by the limitations stated above. For example, in case relevant parties take action for dissolution of the company, the company shall have liability to acquire its own shares within the scope of Article 531 of TCC.
Another exception for a company to acquire its own shares without any of the mentioned limitations, provided that the full price is paid and if it is intended for the collection of a company receivable through execution proceedings.
In addition, in the event that the company which is willing to acquire its own shares is a stock exchange company, such company may acquire its own shares. In this circumstance, subject of activity of the joint stock company must be the stock exchange.
It must be noted that, the shares acquired pursuant to Article 382 of TCC as soon as their transfer is possible without causing any loss to the company and in any case within three years as of their acquisition, unless the sum of these shares owned by the company and by the subsidiary exceeds ten percent of the company’s basic or issued capital. Additional to the exceptions stated in Article 382 of TCC, Article 383 of TCC is in regard to joint stock companies gratuitously acquiring their own shares. Pursuant to such clause, the joint stock companies may gratuitously acquire their own shares, provided that prices of all the shares are paid in full.
3. LIMITED LIABILITY COMPANIES’ ACQUISITION OF THEIR OWN SHARES
Limited liability companies’ acquisition of their own shares is regulated under Article 612 of TCC. In parallel with the joint stock companies, the limited liability companies may also acquire their own shares under certain conditions. Pursuant to the said article, a limited liability company may acquire its own shares only if; (i) it has the necessary equity that can be freely used to purchase them and (ii) the nominal value of shares to be purchased does not exceed ten percent of the total basic capital.
It should be noted that, within the scope of Article 612 of TCC, ten percent capital limit may be increased to twenty percent. Such article regulates that in case of the acquisition of basic capital shares due to withdrawal or dismissal from the company set forth in the articles of association or awarded by the court decision the maximum limit as twenty percent shall apply. The basic capital shares acquired above ten percent of the basic capital of the company shall be disposed of or redeemed through capital reduction in two years.
In the event that a limited liability company acquires its own shares, the transfer of such shares shall be made in accordance with Article 595 of TCC that regulates conditions of transfer of the shares of a limited liability company. The directors of the limited liability company must sign the share transfer contract and in case of any condition of transfer are specifically determined, the transfer shall be realized in conformity with thereof.
4. CONCLUSION
With TCC, both limited liability and joint stock companies may acquire their own shares within the framework of the certain conditions stipulated under thereof. It's worth mentioning that henceforward the companies have more freedom in business life and TCC has to a great extent loosened the prohibition on the companies’ acquisition of their own shares. In this manner, this method which is commonly used by the companies is a significant improvement in Turkish Law and provides the companies’ directors and members of board of directors considerable freedom. However, it should be particularly considered the unlawful acquisitions and exceptions set forth under TCC on this subject.
FOOTNOTE
1 14.02.2011 tarih ve 27846 sayılı Resmi Gazete’de yayımlanan 6102 sayılı Türk Ticaret Kanunu.
2 13 Aralık 1976 tarih ve 77/191/AET sayılı Yönerge. Anılan Yönerge 2012 yılında yenilenmiştir. Bkz. 25 Ekim 2012 tarih ve 2012/30/AB sayılı Yönerge.
3 09.07.1956 tarih ve 9353 sayılı Resmi Gazete’de yayımlanan 6762 sayılı Türk Ticaret Kanunu.
4 TEKİNALP Ünal, Sermaye Ortaklıklarının Yeni Hukuku, 3. Bası, İstanbul, 2013, s. 84.
5 PULAŞLI Hasan, Yeni Şirketler Hukuku Genel Esaslar, Ankara, 2012, s. 827.
6 TTK madde 381.
7 TEKİNALP Ünal, Sermaye Ortaklıklarının Yeni Hukuku, 3. Bası, İstanbul, 2013, s. 88.
8 TTK madde 387.
9 TTK madde 384.
