REPURCHASE RIGHT ON SHARES OF JOINT-STOCK COMPANIES

I. INTRODUCTION

One of the areas where the right of repurchase is exercised is shares of joint stock companies as well. However, in the doctrine, it is debated whether a right of repurchase established on a share can be asserted against third parties if it is incorporated into the articles of association. It is necessary to examine whether it is possible to incorporate this right into the articles of association and, if so, to particularly consider the status of such a right in light of the principle of sole obligation and restrictions on transferability rules.

In joint stock companies, the principle of free transferability of shares is recognized in line with the “anonymous” nature of such companies1. This principle is absolute for bearer shares, whereas registered shares may also be transferred without any restrictions unless otherwise provided by law or the company’s articles of association2. However in practice, there may arise a need to restrict share transfers in order to protect the company’s shareholder structure, prevent undesired individuals from becoming shareholders, or maintain the balance of power among existing shareholders. For these reasons, shareholders may, either in the company’s articles of association or through shareholders’ agreements concluded among themselves, subject joint stock company shares to rights such as call options, repurchase or pre-emption thereby imposing additional restrictions on share transfers3.

II. The Scope of Right of repurchase

The right of repurchase is a formative right that grants its owner the authority to reclaim the subject of the right, which has been transferred to a third party through a unilateral declaration of intent4. Upon exercising the right of repurchase, a sales relationship is established between the individual exercising the right and the counterparty, wherein the individual exercising the right becomes the purchaser and the counterparty becomes the seller5.

The scope of right of repurchase finds more relevance on immovable property compared to other rights. One significant reason for this is that the scope of the right is defined in legislation6 with respect to immovable property. However, it is possible to establish a right of repurchase over any type of property or right that can be the subject of a sales agreement7. In this context, shares of a joint-stock company are also among the elements that can be subject to the right of repurchase. This is because, in joint-stock companies, a share is considered a property value and a source of certain rights for the shareholders8. It should also be noted that there is no obstacle to establishing a right of repurchase over a partnership share in terms of creating a right over a right9. The suitability of joint-stock company shares to be subject to the right of repurchase does not create any distinction based on whether the share is registered or bearer, whether it is bare or tied to a certificate, or whether it is an ordinary or privileged share10.

A. Drafting of the Repurchase Agreement

The right of repurchase is established through a repurchase agreement. In cases where the subject matter involves shares of a joint stock company, this right is often regulated by a provision added to the company’s articles of association or a shareholders’ agreement11. In repurchase agreements, the transferring party is granted the right of repurchase while the acquiring party is the one who accepts this right. According to Article 237/2 of the TCO, the validity of a repurchase agreement is subject to the formal requirement of being executed in an official form. However, in repurchase agreements concerning shares of a joint stock company, the “official form” requirement stipulated for the transfer of immovable property is not applied by analogy.

In a repurchase agreement, the conditions for exercising the right of repurchase can be limited in terms of price or duration. Within this framework, it is possible to explicitly stipulate the price to be paid upon the exercise of the repurchase right in the agreement as well as to determine the method for calculating this price12. Similarly, provisions regarding the time period during which the right can be exercised can also be established. Such duration limitations are considered preclusive periods due to the formative nature of the repurchase right. However, it is not mandatory to limit the repurchase right to a specific duration; the parties may, if they wish, agree on an indefinite right of repurchase. Nevertheless, there is a possibility that repurchase rights with excessively long durations or those that are indefinite could be deemed invalid on the grounds of violating morality or personal rights if they excessively restrict the economic freedom of one of the parties13.

B. Repurchase Right on Joint Stock Company Shares and Expected Benefits

In practice, there are types of joint stock companies that are owned by a limited number of shareholders such as closed or family-type companies. In these types of companies, where the identity of the shareholder holds significant importance, arrangements are adopted to restrict the transferability of shares to external parties and to maintain the balance of power among the shareholders within the company. These arrangements provide existing shareholders with the priority to acquire the shares14. Repurchase right also carries a restrictive nature concerning the transfer of shares and its effect encourages the obligated party (“Obligor”) to act more cautiously when freely transferring shares. This is because if the Obligor transfers the share to a third party and subsequently the holder of the repurchase right (“Right Holder”) wishes to exercise their right, the Obligor will not only be unable to fulfill their obligation but will also face liability for compensation15.

Repurchase right can also be utilized in share transfers for security purposes. Shares may be temporarily transferred to secure the repayment of a specific debt or to establish a certain order within the company. Within the scope of the contract established for this purpose, a provision is included that allows the transferor to repurchase the shares once the debt is paid or the obligation is fulfilled, thereby enabling the shareholder who has paid the debt to reacquire the shares by exercising the repurchase right. Furthermore, in cases where the shares are pledged to one of the parties to the contract, protection can be provided against the rule of lex commissoria (the prohibition on acquiring pledged property) as stipulated in Article 873 of the Turkish Civil Code, which prohibits the direct transfer of the pledged property to the creditor in the event of non-payment of the debt. In this context, it is stated that establishing a repurchase right by transferring the share in advance as security, subject to the condition of debt repayment or a specified period and exercising this right after the debt is paid or within the determined period, renders the acquisition of the share legally valid16. Additionally, one of the matters that can be arranged is to attribute a sanction function to the repurchase right against non-compliance with the debt by incorporating a penalty clause within the agreement.

C. Determination of Right of Repurchase Through Shareholders’ Agreement

A shareholders’ agreement is a binding contract concluded between the current or future shareholders of a company, regulating their mutual relationships as well as their relationship with the company and addressing matters such as rights and responsibilities, management, voting rights and share transfers. Through such agreements, issues that are not covered by the company’s articles of association or are subject to limited regulation under the law can be determined more flexibly and comprehensively based on the mutual consent of the shareholders. In this context, a shareholders’ agreement may also encompass arrangements that cannot be stipulated in the articles of association17.

A shareholders’ agreement, by its nature, is a relative obligation under the law of obligations and the right of repurchase stipulated in such an agreement cannot be asserted against third parties. Additionally, in the event of non-compliance by the party bound by the shareholders’ agreement, an application for enforcement through a judicial execution procedure can be made to ensure compliance. Within this framework, a lawsuit for specific performance, characterized as an “action for performance”, is filed, seeking the transfer of ownership of the shares in question. In cases where the shares are either bearer or registered, ownership can be acquired through the assignment of the claim based on a court decision. However, for shares tied to a certificate, the transfer of possession is also required. In situations where the share certificate subject to the right is not in the possession of the obligated party or has been sold and transferred to a third party, specific performance becomes significantly more challenging and this factor must also be taken into consideration18.

As previously mentioned, a shareholders’ agreement produces legal effects and consequences solely between the parties involved. Unless they are explicitly authorized or subjected to obligations under the agreement, shareholders who are not party to the agreement cannot rely on its provisions. Furthermore, even if the company becomes aware of the right of repurchase in some way, it is not possible to assert this right, as stipulated in the shareholders’ agreement, against the company. From this perspective, a transfer made to a third party will also be valid with respect to the company19.

In contrast, provisions included in the articles of association, which bear a corporate character, have a binding effect not only on the current shareholders of the company but also on future shareholders who join the company20. The inclusion of the right of repurchase in the articles of association aims to achieve this effect. However, it should be noted that the impact of formal provisions in the company’s articles of association is not significantly different from the provisions of a shareholders’ agreement. In this regard, it is necessary to determine whether the record of the right of repurchase added to the articles of association is considered among the corporate provisions.

III. INCLUSION OF RIGHT OF REPURCHASE ON JOINT STOCK COMPANY SHARES IN THE ARTICLES OF ASSOCIATION AND ITS EFFECT AGAINST THIRD PARTIES

As discussed above, shares of joint stock companies are often subject to option rights restricting share transfers, such as right of repurchase for various purposes. These rights, which are restrictive in nature with regard to transfers, are frequently incorporated into the articles of association to become an integral part of the company’s corporate structure. However, this practice may impose additional obligations on shareholders in violation of the principle of sole obligation, exceed the limits of the principle of free transferability of shares and ultimately result in the breach of imperative provisions21. Additionally, there arises a need to evaluate the status of a share subject to the right of repurchase in relation to the exceptional share transfer restrictions arising from the law, such as restrictions on transferability rules.

Right of repurchase granted over a share in a company may be included in the articles of association, endorsed on the back of stock certificates, or recorded in the share ledger. The purpose, undoubtedly, is to ensure that the right imposing a restriction on share transfer can be asserted against third parties. In this regard, in addition to incorporating the right of repurchase into the articles of association, it is also necessary to consider the implications of recording it on stock certificates and entering it into the share ledger.

A. Incorporation of the Right of Repurchase Provision into the Articles of Association

The regulation of right of repurchase over a share through a debt agreement provides the right holder with only the possibility of claiming compensation in the event of a breach; therefore, holders of the right of repurchase cannot directly assert a claim over the share, nor does it create any binding effect with respect to the company. This situation has led to the exploration of alternative legal avenues in practice to enhance the effectiveness of the right of repurchase and to strengthen the right itself. At this point, it has been sought to endow the right with a corporate effect by incorporating it into the articles of association.

The provisions of the articles of association, which regulate the fundamental structure of the company’s legal personality, its organs and the relationships among shareholders and which bind the company itself, its organs and all shareholders, are referred to as corporate provisions. Shareholders, instead of regulating option rights such as the right of repurchase through a mere debt agreement, seek to establish a corporate provision by including such rights in the articles of association. This is because, upon the registration of the articles of association, the possibility arises to assert these rights against third parties as well22. However, it should be noted that not every provision included in the articles of association inherently possesses a corporate effect solely by virtue of being included therein. In addressing this approach, the principles of sole obligation, imperative provisions and the rule that the articles of association cannot impose stricter conditions on transferability will be examined separately.

1. The Sole Obligation Principle

In the law of joint-stock companies, the shareholder’s single obligation is regulated under Article 480 of the TCC as follows: “Except for the exceptions stipulated in the law, no debt may be imposed on the shareholder by the articles of association, except for performance of the premium exceeding the share price or the nominal value of the share”. The right of repurchase, by its nature, imposes a conditional obligation on the Obligor to transfer the share. In this case, the Obligor undertakes a second obligation, in other words, commits to a specific behavior beyond the capital they have pledged23. This situation results in a violation of the single obligation principle and leads to the conclusion that the right of repurchase cannot be attributed a corporate value within the articles of association. Moreover, although the single obligation principle prohibits the existence of a second obligation relationship for the shareholder, personal commitments must be considered separately. In legal doctrine, the right of repurchase and other rights of this nature incorporated into the articles of association are accepted as ordinary obligations under the law of obligations24. Within this scope, although the right of repurchase established over a share cannot be attributed a corporate value by being included in the articles of association, there is no obstacle to asserting the right against the parties25. However, in the event of a subsequent change in the structure of the existing shareholders, it will not be possible for the share repurchase provision to remain valid through conversion.

2. The Imperative Provisions Principle

Another aspect to be considered in the inclusion of provisions regarding share transfer restrictions in the articles of association of joint-stock companies is the principle of imperative provisions introduced by Article 340 of the TCC. This regulation constitutes an exception to the “freedom of contract” principle stipulated under Article 26 of the TCO with respect to joint-stock companies. Article 340 of the TCC represents an application of the invalidity provision due to “contravention of imperative provisions of the law” as foreseen under Article 27 of the TCO, specifically in the context of articles of association. This is because imperative provisions limit the freedom of contract by stating that the articles of association may deviate from the provisions concerning joint-stock companies only to the extent explicitly permitted by law.

The single obligation principle regulated under Article 480 of the TCC and the rule under Article 493/7 of the TCC, which prohibits the aggravation of transferability conditions in the articles of association, must be evaluated within the scope of the imperative provisions principle. In our study, we reiterate the interpretation we provided regarding the single obligation principle. Accordingly, while it may be possible to include the right of repurchase in the articles of association, the positive effect of registration cannot be invoked for provisions that contravene imperative provisions. This is because, even if the entire articles of association are registered, a rule that violates imperative provisions will not carry a positive effect; consequently, rights arising from such a provision cannot be asserted against third parties26.

3. The Non-Aggravation of Transferability Conditions Principle

Article 493/7 of the TCC contains the provision: “The articles of association cannot aggravate the transferability conditions”. This article, due to its position within the systematic structure of the law, applies only to registered shares that are not traded on the stock exchange. The provision is imperative in nature and any restriction originating from the articles of association that exceeds the share transfer limitations foreseen under Article 493 of the TCC results in a violation of the law. In this regard, provided that they remain within the scope of the “restrictions on transferability rules” that constitute an exception to the principle of free transferability under the Turkish Commerical Code, it is possible to allow arrangements in the articles of association that fall within the scope of these provisions and serve the same purpose, leading to the conclusion that such provisions may acquire a corporate character. In the subsequent sections of our study, we will also seek to address this topic in our evaluation of the right of repurchase as one of the restrictions on transferability rules.

B. Consideration of the Right of Repurchase as a Restriction on Transferability Rule

Although the principle of free transferability of shares is fundamental, the need to restrict share transfers in the interest of the company often arises. The “restriction on transferability” provisions, which are exceptional transfer restrictions stipulated in the law serve this purpose. Under these restriction on transferability provisions, the company has the authority to withhold approval for share transfers. In this regard, the question emerges as to whether the right of repurchase can also be addressed as a restriction on transferability rule within the company’s articles of association.

Provisions regarding the restriction on transferability of registered shares are set forth between Articles 491 and 498 of the TCC. Within the systematic structure of the TCC, restriction on transferability rules are divided into two categories: statutory restrictions and restrictions based on the articles of association. In this context, registered shares whose price has not been fully paid are subject to statutory restriction rules and, as a general rule, can only be transferred with the approval of the company27. For registered shares whose price has been fully paid, limitations are introduced through the articles of association. Restrictions based on the articles of association are addressed separately for registered shares not listed on the stock exchange and those listed on the stock exchange.

With regard to shares not listed on the stock exchange, it is possible for the company, pursuant to Article 493/1 of the TCC, to refuse approval for the transfer by citing a significant reason stipulated in the articles of association. For a provision in the articles of association to be considered a significant reason, it must be based on; (i) a reason related to the composition of the shareholder group, or (ii) a reason justifying the refusal of approval in terms of the company’s business purpose or the economic independence of the enterprise.

Pursuant to the relevant provision, for the refusal of a share transfer to be deemed justified, it must be based on a reason related to the company’s field of activity or the economic independence of the enterprise28. However, it does not seem possible to directly associate the right of repurchase with these two elements29. Therefore, it is highly unlikely to argue that the right of repurchase, when included as a restriction on transferability rule in the articles of association, constitutes a significant reason that would justify the refusal of a share transfer. Moreover, according to Article 493/7 of the TCC, provisions added to the articles of association cannot exceed the limits of the restriction on transferability rules stipulated in the law and cannot impose stricter limitations on transferability than those foreseen by the law, as this provision is imperative. Due to its nature as a restriction on share transfer, it is accepted that the right of repurchase is incompatible with the restriction on transferability rules30.

With regard to shares listed on the stock exchange, it is necessary to refer to the Capital Markets Law No. 636231 (“CML”) in line with the TCC. This is because Article 137/3 of the CML states: “It is not possible to refrain from registering the shares of publicly held corporations purchased as a result of transactions at the exchange to the share registry. Articles 493 and 494 of the Law numbered 6102 shall apply to the shares of these corporations which are not traded on the exchange”. This provision clearly indicates that the principle of free transferability is strictly applied to shares listed on the stock exchange32. Indeed, the only restriction on transferability rule that can be applied under the law concerning the transfer of shares listed on the stock exchange is stipulated in Article 495/1 of the TCC. According to this article, if the company includes an upper limit for acquisition expressed as a specific percentage in its articles of association, it may decide not to approve a share transfer that exceeds this limit. However, it is not possible to reconcile this provision with the system of restrictions on transferability, nor is there any possibility of considering the right of repurchase as a reason for restriction in the context of registered shares traded on the stock exchange.

In conclusion, with regard to registered shares, a restriction on transferability provision can only be included in the articles of association for those not listed on the stock exchange; such a limitation must be based on a significant reason related to the company’s field of activity or economic independence. As for the right of repurchase, the application of such a contractual restriction on transferability provision does not seem feasible; this is because, due to the purposes and structures of restriction on transferability rules, it is quite difficult for them to serve as a basis for the right of repurchase. Furthermore, due to the additional obligation imposed by the right of repurchase that aggravates share transfer as per Article 493/7 of the TCC, it is not possible for it to be accepted as a restriction on transferability provision in the articles of association.

C. Endorsement of the Right of Repurchase on Stock Certificates

Apart from incorporating the right of repurchase into the articles of association, the method of endorsing a record of the right on stock certificates is often preferred to enhance its effect33. In this context, it should first be considered that this method cannot be applied to bearer shares. Assuming that the shares are embodied in certificates, endorsing the record of the right on the stock certificate ensures that a third party acquiring the stock certificate is aware of the existence of the right, thereby preventing their recognition as a bona fide third party under Article 3 of the Turkish Civil Code. However, even in this scenario, it would not be possible to claim the existence of bad faith. This is because, in accordance with the principle of relativity of debt relationships, the third party’s knowledge of the record on the stock certificate does not result in their classification as acting in bad faith. The Court of Cassation has also expressed a similar view in one of its decisions, ruling that the third party’s awareness of the right does not alter the outcome34. In this regard, it should be noted separately that, if the conditions are met, the provision of Article 49/2 of the TCO may be invoked.

D. Annotation of the Right of Repurchase in the Share Ledger

The view that the effectiveness of the right of repurchase may be enhanced by recording the right in the share ledger has also been proposed. Here, it is first necessary to consider whether it is possible to record the right in the share ledger and then to evaluate the consequences of a possible annotation. Article 499 of the TCC states: “The company records the undocumented shares and registered share certificate holders and usufruct holders in the share book with their names, surnames, titles and addresses”. Thus, the elements that may be registered in the share ledger are listed. However, those who may be recorded in the ledger are not limited to these; pursuant to Article 417/2 of the TCC, holders of interim certificates and pursuant to Article 497/3, holders of non-voting shares arising during the transfer of registered shares traded on the stock exchange, are also recorded in the share ledger.

There is an opinion regarding entries made in the share ledger, known as the “principle of adherence to the law” according to which elements not expressly stipulated in the law cannot be entered into the share ledger35. Therefore, if entries, annotations, or statements not enumerated by law are added to the share ledger, such entries will have no substantive effect. Even if the right is, in some manner, recorded in the share ledger, the correction of the entry may be sought through legal proceedings36. According to another opinion, however, it is possible and even necessary to record matters not foreseen in the law in the share ledger37. Nevertheless, in any case, since the share ledger cannot be said to have a corporate effect against third parties, it is stated that it will only serve as a presumption with respect to the exercise of rights38. For these reasons, it is not possible to enhance the enforceability of the right of repurchase against third parties by recording it in the share ledger.

E. Evaluation of the Right of Repurchase within the Scope of Article 49/2 of the Turkish Code of Obligations

Many proposals have been put forward regarding the assertion of the right of repurchase against third parties who acquire the share, but no definitive solution has been reached. At this point, it is useful to recall Article 49/2 of the TCO, which constitutes an exception to the principle of privity of contract and is based on law. The text of the article reads; “Even if there is no legal rule prohibiting harmful acts, a person who intentionally harms another person by an immoral act is also obliged to compensate for this damage”. It is understood that this provision was enacted to satisfy public conscience39. Pursuant to the article, even if there is no violation of a specific legal rule, a legal sanction is provided for acts contrary to moral principles. In cases where a third party acquires the share through an act contrary to morals, despite being aware of the contractual right regarding share transfer, the relevant provision applies, provided that damage has occurred. Thus, the article allows the right to be asserted against third parties beyond the contractual relationship between the parties40.

For the application of the legal provision, the following conditions must be met collectively: (i) the third party must have committed an act contrary to morals, (ii) this act must have been carried out with the intention to cause harm to the Right Holder and (iii) the Right Holder must have suffered damage. If these conditions are satisfied, the right holder of repurchase may hold the third party liable. The wording of the law states that the person causing the harm is obliged to remedy such harm and what is meant here is the compensation to be imposed on the third party.

The compensation to be awarded is determined in accordance with Article 51 of the TCO41. Here, the judge will determine the scope and method of payment of the compensation, taking into account the degree of fault of the third party as well. It is possible for the judge to decide on the compensation of the damage suffered by the Right Holder in cash, as well as to rule for compensation in kind. In the case of compensation in kind, the Right Holder will reacquire their shares, which constitutes an exception to the principle of relativity of debts. Under these circumstances, although it is possible to assert the right attached to the security against third parties, it cannot be said that there exists an application that would render the right of repurchase effective42.

IV. APPROACHES TO PREVENTING THE TRANSFER OF THE SHARE SUBJECT TO THE RIGHT TO THIRD PARTIES

The right of repurchase arising from a contract can be strengthened by annotating it in the land registry for immovable properties with title deeds43, whereas such a possibility does not exist for movable properties and rights subject to the right of repurchase. As mentioned above, in addition to the suggestions of inscribing the right on stock certificates and recording it in the share ledger, there have also been views put forward to make the transfer of shares to third parties more difficult.

The first of these views is the establishment of deterrent economic sanctions against the Obligor. In this method, it is proposed to stipulate a penalty clause against the Obligor who transfers the share subject to the right to a third party. The aim is to ensure that the debtor acts cautiously, as they will be required to pay a predetermined penalty clause, irrespective of any damage, in case they fail to fulfill their contractual obligation44. However, the penalty clause provision does not have an effect beyond deterring the parties. This is because the debtor can still transfer their share to third parties despite the penalty clause and in such a case, the right in question cannot be asserted against third parties. Therefore, it cannot be said that the penalty clause approach provides full protection to the Right Holder. Additionally, the amount of the penalty clause determined can be subject to judicial review under Article 182/3 of the TCO and the possibility of a reduction in the amount should also be taken into consideration45.

Another view is the transfer of the stock certificates subject to the right to a third party. For this purpose, institutions such as banks or notaries are often preferred due to their reliability. Additionally, specialized escrow agents are also chosen for this matter46. Here, the parties stipulate that the stock certificates can only be retrieved from the depository with their mutual consent47. Thus, it is intended to prevent the Obligor from transferring the share to third parties without the approval of the Right Holder. However, this method is also insufficient in achieving the objective; because if the shares are not embodied in certificates, their deposit will not be possible. Even if the shares are embodied in certificates and deposited, ownership will continue to remain with the Obligor as an indirect possessor. There is no obstacle preventing the Obligor from transferring bearer stock certificates through the transfer of possession, or registered stock certificates through the transfer of possession and assignment of the receivable48 to third parties. Furthermore, the person with whom the shares are deposited cannot refuse to deliver the stock certificates subject to the right to third parties who have acquired them, based on the repurchase relationship between the parties.

Another view is based on Article 647/3 of the TCC49. The relevant article stipulates that the debtor’s participation in the transfer may be required by law or contract. In this case, it is proposed that not only the Obligor but also the company should participate in the endorsement to be made during the transfer of the share to a third party. However, as noted by authors who have expressed opinions on the matter50, the application of this method is not possible. This is because the phrase “participation in the transfer” in Article 647/3 of the TCC does not mean “joint endorsement”51. Here, “participation in the transfer” relates to the company’s approval of the transfer transaction between the parties in its capacity as the debtor of the share ownership right. As is known, in accordance with the restrictions on transferability system of the TCC, company approval is also required for the transfer of shares in joint stock companies. Since company approval is required in both cases, it cannot be said that the relevant proposal introduces any novelty beyond the restrictions on transferability rules.

The final approach we will examine is the inclusion of the company as a party to the repurchase agreement52. According to this approach, it is proposed that the company becomes a party to the repurchase agreement and commits to giving prior approval to the transfer based on the right of repurchase. In this way, it is intended to prevent the transfer of shares to third parties through the company. However, this method will also fail to provide the expected protection to the Right Holder. It is stated that, first and foremost, this situation will not produce any legal consequences due to its non-compliance with restrictions on transferability rules53. Moreover, under Article 374 of the Turkish TCC, it is accepted that the decision regarding the transfer of shares subject to the right of repurchase belongs to the board of directors54. The company’s board of directors cannot enter into a commitment regarding whether it will give prior approval to a specific transaction; even if such a commitment is made, the company cannot be considered bound by it55. Therefore, the company’s commitment not to approve share transfers cannot be deemed sufficient to achieve the intended purpose.

V. CONCLUSION

The right of repurchase can be granted over the shares of joint stock companies; however, even if this right is incorporated into the articles of association, it does not find recognition as a corporate level right within the structure of a joint stock company. In legal doctrine, the right of repurchase stipulated in the articles of association is considered a mere debt obligation and is therefore regarded as a relative right that produces effects and consequences solely between the parties involved. It should be noted at this point that, in the event of a change in the shareholder structure, it is not possible for the record of the right of repurchase included in the articles of association to remain valid through conversion. Instead, a right of repurchase established through a separate shareholders’ agreement concluded between the shareholders is relatively preferred due to its binding effect among the parties. The inclusion of a record regarding the right of repurchase in the articles of association as a restriction on transferability provision must be evaluated in light of the conditions set forth in Article 493/1 of the TCC with emphasis on the difficulty of the right constituting a significant reason. Considering the rule that the articles of association cannot impose stricter conditions on transferability, there is no possibility of accepting the right of repurchase as a restriction on transferability provision. Additionally, proposals such as endorsing the right of repurchase on the back of stock certificates or recording it in the share ledger, aimed at enhancing its effectiveness against third parties, do not yield the expected benefit. As an exception, it should be mentioned that if the conditions under Article 49/2 of the TCO are met, the right of repurchase may be asserted against third parties. However, even in such cases, it cannot be said that there exists an application that would render the right of repurchase effective. Although various proposals have been developed to prevent the transfer of joint stock company shares subject to the right of repurchase to third parties, these approaches fall short of providing the expected contribution.