ABSTRACT
One of the most fundamental financial rights of shareholders in joint-stock companies, which carry out economic activities to receive economic benefits, is to receive dividends from the profits of the joint-stock company. Undoubtedly, the purpose of individuals who become shareholders in a joint-stock company and undertake the debt of capital payment is the improvement of their economic interests. However, the legal nature of the right to receive dividends and whether a joint-stock company is obliged to distribute dividends are subjects currently under discussion in the doctrine. This article will review the discussions on the legal nature of the dividends and the liability of joint-stock companies to distribute dividends.
I. INTRODUCTION
Joint-stock companies are companies where the participation rate in relation to capital is important, not the personalities of the shareholders who undertake the payment of capital. In a joint-stock company, the shareholder participates in the administration in proportion to his capital and his responsibility is to the jointstock company and limited to the capital he has undertaken1.
Undoubtedly, the aim of a shareholder when undertaking the capital payment debt by being an investor in a joint-stock company is to have the rights, competencies and interests that the position of shareholder brings. Rights arising from the fact that the shareholder is a shareholder in the joint-stock company, in particular, the rights of property and participation rights constitute the fruits of the investment made by the shareholder.
The shareholder will expect to obtain dividends from the joint-stock company in return for the capital he/she has paid. The most important right of a person who has invested certain savings or assets in a joint-stock company is to participate in the annual profit of the company and to receive dividends, unless the company is liquidated. From this point of view, getting dividends is one of the biggest property rights of being a shareholder2. The right of a shareholder to receive dividend in the jointstock company arises as a result of the economic purpose of the company3.
In this study, the nature of the right to receive a dividend will be discussed in light of the opinions in the doctrine, clarifying the issue by giving general information about profit shares.
II. DIVIDEND
Although the dividend is not explicitly defined in the Turkish Commercial Code (“TCC”), it is stated in the Dividends Communiqué, in which it refers to the amount decided by the general assembly to be distributed to shareholders and other persons participating in the profit over the net period profit and other resources that may be subject to profit distribution within the framework of the policy determined by the general assembly4.
The concept of dividend is defined in different ways in the doctrine. Birsel defines the dividend as the part of profit that can be paid to a shareholder by a company and the distribution of which is decided by the general assembly. Arslanlı argues the dividend is the legal fructus of the share and the financial income arising from it in certain periods6.
Pulaşlı states that the dividend is a conditional demand that arises from the share. In order to distribute dividends to shareholders in a joint-stock company, the company must have made a profit at the end of the relevant period or it should have distributable values. According to Pulaşlı, the conditional demand is transformed into a right to receive dividends by the decision of the General Assembly of the joint-stock company to distribute dividends in accordance with the Articles of Association. Since it is unclear whether a joinstock company will be able to make a profit in a particular operating period, the fact that the company has made a profit in the operating period is a delay condition, as defined under article 170, paragraph 1 of the Turkish Code of Obligations (“TCO”)7.
III. DETERMINATION OF DISTRIBUTABLE PROFIT AND DISTRIBUTION
Article 508, paragraph 2 of the TCC regulates that the annual profit shall be adjusted according to the annual balance sheet. If both the annual commercial balance sheet and the annual financial balance sheet have been issued, the commercial balance sheet will be used for profit share determination. In commercial balance sheets, the profit of the company appears less and the loss of the company appears more. When various expense items that are not accepted as debit are not deducted from profit in the annual financial sheet, they can be deducted from profit in the annual commercial sheet. The sheets reflecting the real status of the company are annual commercial sheets.8
The purpose of issuing an annual balance sheet is to present the results the joint-stock company’s activities in the relevant period. In this sense, the main purpose of the annual balance sheet is to present the results. The results may show that the company has a profit or it has a loss. The shareholders’ right to receive a dividend is determined as per the net profit for the period specified in the balance sheet.9
Net profit for the period is calculated as a result of deducting the previous years' losses and tax and financial liabilities that the jointstock company is liable to pay. Free reserves are added to the net profit for the period. This calculation results in the distributable profit. The distributable profit is calculated by adding the free reserves to the net profit after deducting the previous year’s losses and the tax and financial liabilities still to be paid.10
Once the distributable profit is determined, the first transaction required to distribute the dividend is completed. The next stage is the decision of the general assembly of the jointstock company for dividend distribution. A dividend distribution proposal is made by the board of directors of the joint-stock company in consideration of the financial sheets. The dividend distribution proposal should be made at least 15 days before the general meeting where the issue will be discussed and it should be submitted to the shareholders for their review. However, it is also possible for shareholders to propose how the profit will be distributed. Although, as a rule, the proposal for the distribution of profit is prepared by the board of directors, the general assembly has the authority to decide on the distribution of profit.11
Lastly, pursuant to section (d) of paragraph 2 of article 408 of the TCC, making decisions regarding the annual report of the board of directors, disposition on the annual profit, determination of the provisions and earning shares, the participation of the reserve fund to the capital or the profit to be distributed are among the non-transferable powers of the general assembly.
IV. SHAREHOLDERS’ RIGHTS TO RECEIVE DIVIDENDS
In joint-stock companies, the right of the shareholders to receive dividends competes with the purpose of protecting the interests of the joint-stock company by keeping the period income inside the company as much as possible. While the purpose of the jointstock company is to keep the period income inside the company as much as possible, the interest of the shareholder is to receive a dividend in proportion to the capital he/she brings to the joint-stock company. Managing the joint-stock company by taking into consideration the balance of interests in the face of competing demands and interests ensures that long-term investments will be successful. This is because a sufficient amount of money is kept in the joint-stock company as it provides an increasing number of real and legal persons who want to be shareholders in the company and eliminates the danger of losing existing shareholders since sufficient dividends have been distributed. However, if the joint-stock company prefers instead to make new investments, it may risk losing existing shareholders in the future12.
High credibility in commercial life in terms of a joint-stock company is necessary for the company's reliability in the market. One way to achieve this is to take good initiatives, create good dividends, and distribute them to the shareholders as profit. Failure to keep dividends in the company for a long time will reduce the number of investors willing to invest in the company. Therefore, it is important to protect existing investors and attract new investors by distributing the required profit in the joint-stock company. While distributing dividends to the shareholders that exceed the company's resources violates the prohibition of the return of capital, the continuous use of the earnings in new investments constitutes a violation of shareholders’ rights to receive dividends13.
The right to receive dividends has two meanings. The first meaning is the indispensability of the right to receive a dividend. The second meaning is the weak relative right. Defining the dividend in these two different ways, as an indispensable right and as a relative right, produces different results14. In this respect, in order to shed light on whether it is mandatory to distribute dividends or not, it is important to determine whether the legal nature of the dividend is an indispensable right or a relative right15.
According to Pulaşlı, the indispensable right aspect arises from the purpose of the jointstock company. The purpose of the join- stock company is to perform economic activities that are not prohibited by law. Unlike Swiss law, in Turkish law it can only be established for economic purposes, in which case economic purposes are the inseparable, sticking and unchangeable nature of the company16.
Tekinalp also states that the ultimate goal of a joint-stock company is to make profit and distribute dividends to shareholders. He also states that this aim is not required to be written in the articles of association and that the aim arises from the common goal criterion and partnership concept that separates the company from associations of persons regulated in various laws. Tekinalp states that all the bodies of the joint-stock company should act for the purpose of obtaining profit and distributing them to the shareholders and that they cannot act contrary to this purpose. Consequently, the joint-stock company cannot abandon its purpose of making profit and distributing dividends to its shareholders and cannot postpone it temporarily or permanently17. In addition, Tekinalp states that the relative vested right nature of dividends ended with the TCC18.
According to Pulaşlı, the second aspect of the dividend, being a weak relative right, is based on the right of the shareholder to participate in the annual reserves and reserves allocated for distribution as a result of the decision of the general assembly of the joint-stock company within the framework of the articles of association and the law. Because the annual profit is not fully distributed, a portion is saved as reserves. In addition, some people other than shareholders may participate in the profit allocated from the profit share. In this context, Pulaşlı argues that the percentage of dividends to be distributed may be reduced or may not be distributed, so this is classified as a relative vested right19.
V. DISCUSSION REGARDING THE OBLIGATION OF DISTRIBUTING DIVIDENDS
In this section, the question of whether a joint-stock company is obliged to distribute dividends to the shareholders each year or not will be discussed.
First of all, both the TCC and the Swiss Code of Obligations do not explicitly regulate the obligation to distribute dividends to shareholders. The debate on this issue came to the fore particularly with the amendment made by the TCC numbered 6102. This is because the sentence stating "after deducting 5% from the net profit for the shareholders other than the reserves set forth in the first paragraph", regulated in paragraph 1 of article 466 of the former Commercial Code and which comes right after the sentence stating "Each year, one-twentieth of the net profit shall be set aside as general reserve until it reaches one fifth of the paid-in capital" in section 3 paragraph 2 of article 466 of the former Commercial Code, changed to "Ten percent of the total amount to be distributed to the persons who will receive a share after the dividend is paid to the shareholders" in section (c) of paragraph 2 of article 519 of the TCC. Therefore, the sentences determining the amount to be allocated to the general legal reserves after the five percent of the annual profit reaches twenty percent of the paid-in capital, "after deducting 5% percent to shareholders" was changed to "after distributing 5% to shareholders" and the question of whether it is mandatory to pay a 5% dividend by the joint-stock company became controversial.20
This issue was also discussed at the time of the former Commercial Code. Some authors argue that the distribution of the first 5% dividend is an obligation for the joint-stock company under the former Commercial Code21 and some authors claim that 5% profit distribution is not mandatory for the joint-stock company every year based on the wording of the sentence "deducting dividend"22.
At the time of the former Commercial Code, the Court of Cassation rendered different decisions on this matter. Firstly, in its decision, the Court of Cassation considers it mandatory to distribute 5% dividend23, but later it decided that the dividend may not be distributed. Then in another decision, the Court of Cassation stated various criteria in favor of the distribution of the dividend and decided that the question of whether the profit share should be distributed or not would be concluded by taking these criteria into consideration.24
Although the provision that results in the deduction of the 5% ratio has been amended to result in the payment of profit, in the preamble of article 519 of the TCC, it was stated that the relevant provision was taken from article 466 of the former Commercial Code and significant changes were made in the wording and syntax, but there was no change in the opinion that dominated the content.25
Moreover, when article 519 of the TCC is examined, it is understood that 5% of the first dividend must be paid to the shareholders in order to allocate the second legal reserve. In the event that a second reserve fund is to be set aside, the amount of this second reserve fund should be 10% of the total amount to be distributed to the persons who will receive a share from the profit – not after the 5% dividend had been allocated for the shareholders but after it is distributed to shareholders26. Therefore, in the event that allocating a second reserve fund is not necessary and if the second reserve will not be reserved, we cannot reach the conclusion that the joint-stock company is obliged to distribute the first dividend amount of 5%. In light of this information, it can be said that the relevant provision is not about whether to distribute dividend or not, but it is about in which case the second reserve fund will be allocated. As a result, this provision is not appropriate for assessing whether there is an obligation to distribute dividends each year27.
On the other hand, Yanlı argues that paragraph 2 of article 532 of the TCC should be taken into consideration in determining whether the company will distribute dividends. Pursuant to this provision, the general assembly may allocate a reserve fund for the re-provision of assets, and unlike the former Commercial Code, paragraph 2 (b) of the relevant article states that the interests of all shareholders shall be taken into consideration28. According to Gürbüz Usluel, this provision is not suitable for assessing whether the joint-stock company is obliged to distribute shares, since the provision determines the limits regarding the decision to distribute dividends, not when the dividend is distributed or when the dividend will not be distributed29.
However, it should be noted that even if it is accepted that the joint-stock company is not obliged to distribute dividends every year, the general assembly of the joint-stock company cannot arbitrarily deprive the shareholders of the right to a dividend30.
VI. CONCLUSION
The question of whether the right to receive dividends is an indispensable right or a relative right in the doctrine is an ongoing debate. While Tekinalp believes that the right to receive dividends is an indispensable right and it is not possible to decide not to distribute dividends even for a year, the opposite views have a strong position in the doctrine.
While the debate on whether the company is obliged to distribute dividends is based on the amendment of the relevant provision of article 519 of the TCC numbered 6102, Tekinalp argues that the change of the word “deducting” to “distributing” implies the obligation to distribute dividends; and Gürbüz Usluel states that this provision cannot be applied in cases where the second reserve fund will not be allocated since the relevant payment statement indicates a duty that must be fulfilled before the second reserve fund is allocated.
The purpose of a joint-stock company is to make profit by carrying out economic activities that are not prohibited by law and to distribute this profit to its shareholders. In our opinion, since this purpose cannot be changed or postponed in terms of the joint-stock company, even if the distribution of the profit share depends on conditions such as the existence of the joint-stock company’s profit and the decision of the general assembly, these conditions do not affect the nature of the indispensable right to receive dividends because if a company doesn’t make a profit, it doesn't mean that any rights are waived. In addition, as Tekinalp had stated, joint-stock companies are obliged to act for the purpose of obtaining and distributing dividends. In this respect, the general assembly is obliged to adopt a dividend distribution policy that keeps in balance the interests of the company and of the shareholders. As long as this is kept in balance, the joint-stock company must distribute dividends and since any decision taken by the General Assembly in the contrary to this will be contrary to the law, the decision of the General Assembly is not a requirement for the distribution of profit, it is simply a transaction related to the form of distributing dividends.
Finally, it should be stated that the aim of a joint-stock company is to carry out economic activities regardless of the varying opinions laid out in this article. Arbitrary prevention or restriction of the distribution of dividends and, in particular, continuing such a situation over a period of years would be a violation of the right of the shareholder to receive dividends and, therefore, contrary to the law.
BIBLIOGRAPHY
ARSLANLI, HALİL, Anonim Şirketler, C.IV-V. İstanbul: Fakülteler Matbaası, 1960.
AYHAN, RIZA, ÇAĞLAR HAYRETTİN & ÖZDAMAR MEHMET, Şirketler Hukuku Genel Hükümler. Ankara: Yetkin Yayınevi, 2019.
BADAK, ZEHRA, Anonim Şirkette Pay Sahibinin Kar Payı Hakkı. İstanbul: On İki Levha Yayıncılık 2018.
BİRSEL, MAHMUT, Anonim Şirketler Hukukunda Kar Kavramı. İzmir: Ege Üniversitesi Matbaası, 1973.
CANÖZÜ, SALİH, Anonim Şirketlerde Kar Payının Tespiti ve Dağıtılması. Ankara: Seçkin Yayıncılık, 2016.
GÜRBÜZ, USLUEL & ASLI, E., Anonim Şirketlerde Pay Sahibinin Kar Payı Alma Hakkı. Ankara: Banka ve Ticaret Hukuku Enstitüsü, 2016.
KIZILKAYA, SİNEM, Anonim Şirket Ortağının Kar Payı. Yayınlanmamış Yüksek Lisans Tezi, Gazi Üniversitesi, Sosyal Bilimler Enstitüsü, Ankara 2012.
POROY, REHA, TEKİNALP, ÜNAL & ÇAMOĞLU, ERSİN, Ortaklıklar Hukuku. İstanbul: Vedat Kitapçılık, 2019.
POROY, REHA, TEKİNALP, ÜNAL & ÇAMOĞLU, ERSİN, Ortaklıklar ve Kooperatif Hukuku. İstanbul: Vedat Kitapçılık, 2009.
PULAŞLI, HASAN, Şirketler Hukuku Şerhi, Cilt II. Ankara: Adalet Yayınevi, 2014. YILDIZ, ŞÜKRÜ, Anonim Ortaklıkta Pay Sahipleri Açısından Eşit İşlem İlkesi. Ankara: Seçkin Yayıncılık, 2004.
FOOTNOTE
1 Zehra BADAK, Anonim Şirkette Pay Sahibinin Kar Payı Hakkı, (İstanbul: On İki Levha Yayıncılık 2018), p. 1.
2 Aslı E. GÜRBÜZ USLUEL, Anonim Şirketlerde Pay Sahibinin Kar Payı Alma Hakkı, (Ankara: Banka ve Ticaret Hukuku Enstitüsü, 2016), p. 1. In the same direction Rıza Ayhan / Hayrettin Çağlar / Mehmet Özdamar / Şirketler Hukuku Genel Hükümler, (Ankara: Yetkin Yayınevi, 2019), p. 552.
3 Şükrü YILDIZ, Anonim Ortaklıkta Pay Sahipleri Açısından Eşit İşlem İlkesi, (Ankara: Seçkin Yayıncılık, 2004), p. 124.
4 Kar Payı Tebliği, Official Gazette numbered 28891, 23 January 2014, article. 3.
5 Mahmut BİRSEL, Yargıtay Kararlarının Işığı Altında Şirket Karı Konusunda Anonim Şirket ile Pay Sahibi Arasındaki Menfaat Çatışması, (Ankara: Banka ve Ticaret Hukuku Enstitüsü, 1971), p. 10.
6 Halil ARSLANLI, Anonim Şirketler, C.IV-V, (İstanbul: Fakülteler Matbaası, 1960), p. 212.
7 Hasan PULAŞLI, Şirketler Hukuku Şerhi, Cilt II, (Ankara: Adalet Yayınevi, 2014), p. 140; GÜRBÜZ USLUEL, s. 2.
8 PULAŞLI, p. 1405.
9 PULAŞLI, p. 1405.
10 Gürbüz USLUEL, p. 12-15.
11 Salih CANÖZÜ, Anonim Şirketlerde Kar Payının Tespiti ve Dağıtılması, (Ankara: Seçkin Yayıncılık, 2016), p. 90-91.
12 Sinem KIZILKAYA, Anonim Şirket Ortağının Kar Payı, Yayınlanmamış Yüksek Lisans Tezi, Gazi Üniversitesi, Sosyal Bilimler Enstitüsü, Ankara 2012, p. 1.
13 Gürbüz USLUEL, p. 1, Karl STEIGER, Der Anspruch des Aktionars auf die Dividende, Bern 1947, p. 4.
14 Reha POROY / Ünal TEKİNALP / Ersin ÇAMOĞLU, Ortaklıklar ve Kooperatif Hukuku, (İstanbul: Vedat Kitapçılık, 2009), p. 532.
15 Gürbüz USLUEL, p. 96.
16 PULAŞLI, p. 1404.
17 POROY / TEKİNALP / ÇAMOĞLU, Ortaklıklar ve Kooperatif Hukuku, p.532.
18 POROY / TEKİNALP / ÇAMOĞLU, Ortaklıklar Hukuku, (İstanbul: Vedat Kitapçılık, 2019), p. 696.
19 PULAŞLI, p. 1404.
20 Gürbüz USLUEL, p. 91.
21 Veliye YANLI, Anonim Şirketlerde Kar Dağıtımı, Batıder 2014, V. XXX, N. 1 p. 15.
22 Mahmut BİRSEL, Anonim Şirketler Hukukunda Kar Kavramı, (İzmir: Ege Üniversitesi Matbaası, 1973) V. I, p.54; Hayri DOMANİÇ, Anonim Şirketler Hukuku ve Uygulaması, Şirketler Kanunu Şerhi II, (İstanbul: Temel Yayınları, 1988), s1532.
23 Supreme Court 11. Civil Chamber, dated 12.05.1970, E. 1969/2085, K. 1970/1970.
24 Supreme Court 11. Civil Chamber, dated 14.10.1982 E. 1982/3556, K. 1982/3887.
25 Gürbüz USLUEL, p. 93.
26 YANLI, p. 19.
27 YANLI, p. 21.
28 YANLI, p. 25.
29 Gürbüz USLUEL, p. 95.
30 Gürbüz USLUEL, p. 95.
