ABSTRACT
Turkish Commercial Code No. 61021 (“TCC”) has a flexible and liberal approach to capital companies acquiring their own shares. These transactions, which are prohibited as a rule in the Turkish Commercial Code No. 6762 (“OTCC”), have been liberalized within the limits of the TCC and the rule in the OTCC has been softened. Thus, although a sufficiently strong protection has been established in terms of the prohibition on return of capital, the harsh prohibitive regulation made by the legislator, worried about the need to protect creditors, was discarded with the new provisions and limited freedom obtained for the acquisition of shares.2
I. INTRODUCTION
Regulations relating to joint-stock companies acquiring their own shares are in Articles 379 to 388 of the TCC. The regulation regarding limited companies acquiring their own shares is in Article 612 of the Turkish Commercial Code.
In accordance with the principle of capital maintenance, companies with share capital are as a rule prohibited from acquiring their own shares due to the fact that it means the return of capital.3 The underlying concern of this prohibition is that the assets of the corporation may be melted against the creditors through the share acquisition institution. In order to prevent the loss of a company’s creditors as well as the principle of capital maintenance, it is important to introduce such a limit to a company’s acquisition of its own shares, but liberty is granted within certain limits by the TCC. In this way, it was ensured that the TCC complied with the regulations of the European Union (arrangements prior to the amendment to Directive 2006/68 of the Second Companies Directive No. 77/91), and regulations in German and Swiss law4.
Another disadvantage of a company acquiring its own shares is the possibility of violating the principle of equal treatment. The principle of equal treatment is regulated by Article 357 of the TCC, which states that shareholders shall be treated equally under equal conditions5.
According to the TCC, the limits on share acquisition, the status of cheating against the law and the exceptions are more detailed for joint-stock companies compared to limited companies. In this respect, the conditions for limited companies to acquire their own shares are in line with joint-stock companies.6 In the following section, the subject is examined primarily and mainly on the basis of joint-stock companies. In the last part, limited companies acquisition of their own shares is mentioned briefly.
II. REQUIREMENTS FOR JOINT-STOCK COMPANIES
A. Introduction
Acquisition of own shares is the acquisition of the shares of a company within its own legal entity on behalf of the company legal entit7. The acquisition of own shares of a joint-stock company is regulated in Articles 379 to 389 of the TCC. The TCC allows companies to acquire their own shares within certain limits. Within the scope of these limits, other requirements for the proper transfer according to the TCC are examined below. It should be stated that, in accordance with Article 338/3 of the TCC, a joint-stock company cannot acquire the shares of a company as a sole shareholder8.
B. Requirements of Acquisition of Own Shares by a Company
1. Requirement Regarding Quantity
A joint-stock company may acquire its own shares in amounts that do not exceed one tenth of the capital or the issued capital or exceed the end of a transaction. As emphasized in the preamble of the provision, the nominal value of the shares is not the stock value. The nominal value is taken into consideration in determining the tenth of the capital limit9.
2. Requirement for Payment of the Full Amount of Shares
The price of the shares acquired with or without consideration must be fully paid. According to Tekinalp, the fact that the price of the shares being acquired must be fully paid prevents some shareholders from transferring their shares to the joint-stock company temporarily and not paying the capital commitments payable to it10.
3. Requirement for the General Assembly to Authorize the Board
The general assembly (the “GA”) shall authorize the board of directors (the “BoD”) to acquire up to a limit of ten percent of the company’s shares. This authorization may be granted for a maximum of five years and the upper and lower limit of the total nominal value of the shares that can be accepted as acquisitions or pledges by stating the nominal values.
4. Requirement for Sufficient Equity
After deducting the BoD authorization and the prices of the shares to be acquired in addition to the ten percent (10%) limit, the remaining company net assets must be at least as much as the total of the reserve funds, which are not allowed to be distributed under the principal or issued capital and law and the articles of association. For example, where a company with total assets to the amount of 70,000 TL has original capital to the amount of 50,000 TL and allocates 8,000 TL as legal reserve and 2,000 TL as voluntary reserve, the maximum amount that the company may pay in acquisition costs is 10,000 TL.
C. Acquisition by BoD in order to Eliminate a Close and Serious Danger of the Partnership,
According to the TCC, in case of a close and serious danger to the company, it is possible for the BoD to acquire shares without the authorization of the GA. The BoD shall give written information to the GA about the reason and purpose of the acquisition at a first meeting, the number of shares to be acquired, the total amount of the nominal values and the amount of the capital represented, and the price and the payment conditions (Article 381 of the TCC).
This provision, which is regarding acquisition without permission from the GA in order to eliminate the close and serious danger of the partnership, is considered a precaution against price-generating “manipulations” in the stock market, blackmail by the shareholders of the management of the jointstock company, hostile takeover moves, and the risk that the strategic shares of the jointstock company will be held by competitors or adventurers11.
The Article provides an example of the market-maker of the stock exchange, and thus, the risk of artificial pricing of the shares of the joint-stock company. An example of this is the transfer of a shareholder’s shares to a person who could harm the joint-stock company, for example the transfer of shares to a competitor who would close or block the joint-stock company12.
D. Exceptions
According to Article 382 of the TCC, in some cases, a company may acquire its own shares without the limits mentioned in the general rule regarding share acquisition. However, the exception should not be understood as exemption from all requirements. Even if a joint-stock company acquires its own shares under Article 493/1, it is still a requirement that all prices be paid, which is a condition under Article 379/313.
1. Deciding on the Reduction of Original Capital
The reduction of capital is the numerical reduction of the nominal value of the capital, which is in the passive part of the balance sheet, written in the articles of association and registered in the trade registry14.
The General Assembly decides which shares will be taken over in this way and that they will be amortized when deciding that the reduction of capital will be realized through the acquisition of the shares. The General Assembly shall act in accordance with the principle of equal treatment regulated in Article 357 when acquiring these shares and when acquiring shares upon the decision to reduce capital. The acquisition of only the shares of certain shareholders is contrary to the principle of equal treatment. The decision to be taken by the General Assembly in this regard, like other decisions, is subject to the provisions of Article 445 et al15.
The articles of association may indicate which shares are subject to redemption. In this case, it is possible to perform the redemption of shares without the consent of the shareholder. However, the principle of equal treatment shall be applied unless it is stated which shares are to be redeemed in the articles of association16.
2. As Requirement of Universal Subrogation
A company is allowed to acquire these shares if the acquired firm, the merged partnership or the inherited real person has its own company shares in their assets. This is because the legislator does not deem it necessary to allocate those shares in the company’s assets in such an assumption.
Under this exception, no restriction is regulated in the Law on the proportion of shares the company may acquire, and it is not important whether the shares in the acquired assets constitute the majority shares of the capital of the acquiring company17.
3. Due to Fulfillment of a Mandatory Purchasing Transaction
Within the scope of this provision, the shares acquired under the Law on Privatization Practices or any other provisions of another law shall be included. Despite the expression “any provision of another law” in the preamble of the Article, in this context, Article 531, which regulates termination of joint-stock company with justified reasons, should also be evaluated18. In accordance with this Article, the dissentient may ask the commercial court of first instance to decide on the termination of the company. The court may decide to terminate the company upon the request of the dissentient, and may decide to be paid the actual values of the shares closest to the date of the decision to plaintiff shareholders be removed from the company and for the company to take over the shares rather than termination.
4. Provided that the Shares are Fully Paid Up, the Collection of a Company’s Receivables by Enforcement of Court Decision
A joint-stock company may be a creditor against its shareholders for various reasons. In order to be able to collect this receivable, it may also recourse to the debtor’s assets and its own shares. The law recognizes such an opportunity provided that the necessary requirements are met (Article 382/1-d). Thus, a joint-stock company may acquire its own shares from a forced execution without being subject to the limitations in Article 379, and may participate in the sales by the execution office and submit a bid in the tender. The purpose of the legislator recognizing such an exception is to provide that the joint-stock company be able to collect its receivables.19 However, this provision in Article 382/I (d) of the TCC is unnecessary in light of the possibility in Article 381 and may give rise to misuse20.
5. As Requirement of the Company’s Object of Activities
In this context, it is necessary for interpretation to determine the scope of the provision. The type of partnership mentioned here are banks, investment trusts and intermediary institutions21.
6. Acquisition without Consideration22
A company may acquire its own shares free of charge provided that the shares are fully paidup (Article 383/1). There is no prohibition relating to acquisition without consideration23.
If the subsidiary company acquires the shares of the parent company without consideration, the company may acquire its own shares if its shares are fully paid up24.
E. Disposal
1. In the Case of Acquisition in Compliance with the Law
In accordance with the principle of universal subrogation, a company is obliged to dispose in respect of shares acquired without consideration on condition that all shares are paid up and in order to collect the company receivables. Disposal should probably be carried out within three years of when the acquisition was made and without a loss for the company. Also for disposal, the exception is constituted in respect of the shares not exceeding the ten percent (10%) limit regulated in Article 379. Accordingly, if the total shares owned by the company or the subsidiary company do not exceed ten percent (10%) of the company’s original or issued capital, then the obligation to dispose shall not be mentioned25.
2. In the Event of Improper Acquisition
Shares that are not within the limits specified in the law and that are accepted pledges or acquired as contrary to the prohibited bans shall be disposed within six months at the latest from the date of acceptance of the acquisitions, or the pledge on them shall be removed26.
F. Results of Violation of Prohibition
It is understood from Article 379 of the TCC that in the event of violation of prohibition, the debt process will be invalid. There is no prohibition regarding voluntary acquisition.
The provision of Article 379 states that, even if it is compulsory, each violation of the compulsory legal rules does not require nullity of the transaction. In order for an act contrary to the compulsory legal rules to be considered null, it must be explicitly stated in the law or it should be understood in the meaning and purpose of the provision without hesitation27. Transactions in violation of 379 are not accepted as null due to the fact that the law clearly does not state that it is null and the purpose of the provision is not to consider transactions in violation of this Article as null according to Articles 385-38628.
III. ACQUISITION OF OWN SHARES BY PUBLICLY HELD JOINTSTOCK COMPANIES
Article 22 of Capital Markets Law29 (“CML”) allows for publicly held companies to acquire their own shares, under the conditions specified by the Capital Markets Commission (“Commission”). However, this has not been laid out in detail. It is stated that the Commission regulates the requirements regarding publicly held companies’ acquisition of their own shares, the limits of the transactions, disposal or redemption of the shares received back and the rules and procedures regarding disclosure of these issues (Article 22/1 of CML).
In addition, it has been stated that the of purchase publicly traded shares by the partnerships included in the consolidated balance sheet as well as the partnership will be evaluated within the framework of this Article (Article 22/2 of CML).
Regulations to be stipulated by the Commission shall be applied regarding publicly traded companies’ acquisition of their own shares within the framework of Article 22 of CML. This is because, as specified in Article 379/5, authorization has been given to the Commission only for the principles of transparency and price-related rules.
IV. FOR LIMITED COMPANIES
A. Acceptance
According to Article 612 of the TCC, if the sum of the nominal values of the shares to be received by the company does not exceed ten percent of the original capital and has the required amount of equity that may be used freely, the company may acquire its own original capital shares.
There is an upper limit of twenty percent of the capital of the company in terms of the original capital shares to be acquired as a result of leaving or dismissal from the company as set forth in the articles of association or in accordance with a court verdict.
The same prohibition applies to the acquisitions of a company on behalf of a third party, but also to the company account. In addition, prohibitions under TCC 380, which regulates against fraud, will also apply to limited companies30.
As in joint-stock companies, for acquisition of a limited company’s own shares, it is not possible to acquire shares in a way that would result in the company turning into a company with itself as the only shareholder31.
B. Exceptions
Contrary to the joint-stock companies, the regulation on the acquisition of a limited company’s own shares does not constitute an exception. In the doctrine, it has been argued that Articles 382 and 383 of the TCC should be applied by analogy32. The expression “be regulated in parallel with the joint-stock company” in Article 612 of the TCC also supports this argument.
C. Obligation to Disposal
As regulated in the second paragraph, it shall be obligated to dispose or decrease in this proportion for the exceeding ten percent part of the capital within two years. In this case, there is no obligation to dispose of that part that does not exceed the ten percent.
If the argument that the exceptions constituted for joint-stock companies should be applied to the limited liability companies is taken into account, the disposal obligations related to the joint-stock companies shall also apply to the limited liability companies for the shares acquired under the exceptions.
D. Results of Acquisition
The company is required to allocate in the reserve funds the amount that it pays for its original capital shares. In this way, the voting rights arising from the acquired shares of the company and the other rights related to these shall be frozen as long as the shares are held by the company and the additional and supplementary payment obligations of such shares is not demanded for the period specified. Since the roles of creditor and debtor will merge in respect of additional and supplementary payment obligations, it is undisputed that these cannot be demanded.
V. CONCLUSION
The prohibition on capital companies to acquire their own shares is considered valid as long as they remain within certain limits set out in the TCC. In this context, a number of exceptions have been constituted in parallel with the principle of capital maintenance and to help capital companies continue their activities properly.
The release of the prohibitive attitude of the Former Commercial Code and the adoption of such a regulation on the acquisition of joint-stock companies and limited companies’ own shares have been quite appropriate
BIBLIOGRAPHY
AHMET TÜRK, Anonim Ortaklığın Kendi Payını Edinmesi, Ankara, 2016
ALIHAN AYDIN, Anonim Ortaklığın Kendi Paylarını Edinmesi, İstanbul, 2008
KEMAL OĞUZMAN, NAMI BARLAS, Medeni Hukuk, İstanbul 2012
MEHMET SADIK ÇAPA, 6102 Sayılı Türk Ticaret Kanunu’na Göre Şirketin Kendi Paylarını İktisap Etmesi, Anadolu Üniversitesi, Sosyal Bilimler Enstitüsü, Postgraduate Thesis, June, 2013
ÖZGE AYAN, Anonim Şirketlerin Genel Kurul Kararı ile Kendi Paylarını İktisap Etmesi veya Rehin Almasının Koşulları, Gazi Üniversitesi Hukuk Fakültesi Dergisi, Ankara 2013
REHA POROY, ÜNAL TEKINALP, ERSIN ÇAMOĞLU, Ortaklıklar Hukuku II, İstanbul, 2017
SONER ALTAŞ, Türk Ticaret Kanununa Göre Anonim Şirketler, Ankara 2017
ÜNAL TEKINALP, Sermaye Ortaklıklarının Yeni Hukuku, İstanbul, 2013
FOOTNOTE
1 Turkish Commercial Code No. 6102 published on the Official Gazette dated 14.02.2011, numbered 27846
2 Alihan Aydın, Anonim Ortaklığın Kendi Paylarını Edinmesi, İstanbul 2008, p.311
3 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıkları Hukuku II, İstanbul 2017, p.415.
4 Özge Ayan, Anonim Şirketlerin Genel Kurul Kararı ile Kendi Paylarını İktisap Etmesi veya Rehin Almasının Koşulları, Gazi Üniversitesi Hukuk Fakültesi Dergisi, Ankara 2013, p.186
5 Mehmet Sadık Çapa, 6102 Sayılı Türk Ticaret Kanunu’na Göre Şirketin Kendi Paylarını İktisap Etmesi, Anadolu Üniversitesi, Sosyal Bilimler Enstitüsü, Eskişehir 2013,p. 24
6 Çapa, p. 96
7 Çapa, p.15
8 Article.338/3 of TCC “The company shall and cannot acquire its own share in a way that it shall be the only shareholder.”
9 Ahmet Türk, Anonim Ortaklığın Kendi Payını Edinmesi, Ankara 2016, pg.158.
10 Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, İstanbul 2015, pg.104.
11 Tekinalp, pg.102.
12 Tekinalp, pg.114.
13 Çapa, p.55
14 Tekinalp, p.117.
15 Çapa, p.57
16 Çapa, p.57
17 Çapa, p.58
18 Çapa, p.59
19 Çapa, p.60
20 Aydın, p. 324
21 Çapa, p.62
22 Article 383/1 of TCC “A company may acquire its own shares provided that the shares are fully paid-up.”
23 Soner Altaş, Türk Ticaret Kanununa Göre Anonim Şirketler, Ankara 2017, p. 463
24 Article 383/2 of the TCC: “Provisions of first subsection paragraph shall be applied by analogy where the parent company’s shares are acquired without consideration by the subsidiary company.”
25 Article 384 of the TCC: “The shares which are acquired according to paragraphs (b) and (e) of Article 382 and provisions of Article 383 of the Law shall be retransferred as soon as possible, following the completion of transfer transaction, or in any case, within three years as of the date of acquisition without giving damage to the company, provided that the total amount of shares acquired by the company and the subsidiary company shall not exceed ten percent of the main or increased capital.”
26 Article 385 of the TCC: “The shares which are acquired or accepted by way of pledge contrary to the provisions of Articles 379 and 381 shall either be retransferred or released from pledge within latest six months as of the date of acquisition or pledge.
27 Kemal Oğuzman, Nami Barlas, Medeni Hukuk, İstanbul 2012, p. 222
28 Çapa, p.74
29 Capital Market Law No. 6362 published on the Official Gazette dated 30.12.2012, numbered 28513
30 Poroy/Tekinalp/Çamoğlu, p.417
31 Article 574/3 of TCC “The company cannot acquire the stock capital in a way which arise the result that the company shall turn into a company with itself as the only partner.”
32 Poroy/Tekinalp/Çamoğlu, p.416
