Transfer of Shares in Joint Stock Companies
Today, one of the most frequent transactions in corporate law practice is the transfer of shares in joint stock companies. In joint stock companies, shares may be acquired with two methods. One of these is the original acquisition, which is the acquisition of shares during the incorporation phase of the company, subscription into shares during the capital increase, the acquisition of share certificates issued by the board of directors or the acquisition of shares as a result of the change of type of the company, and the other method is the acquisition by transfer, which is made through the transfer of the unregistered naked share or the registered share to another person by the shareholder after the incorporation of the joint stock company and the acquisition of legal personality.
As there is no explicit provision in the Turkish Commercial Code regarding the transfer of naked shares, the holders of fully paid naked shares may transfer their naked shares through assignment of receivables in accordance with Article 183 and the following provisions of the TCO. Pursuant to Article 184 of the TCO, the transfer of the naked shares must be made in writing, and if it is not made in writing, the transfer will be consummated. As the transfer of unpaid or partially paid shares will result in the transfer of a kind of debt to the transferee, the approval of the joint stock company shareholding is required for the transfer of such shares. Pursuant to Paragraph 2, Article 491 of the TCC, a joint stock company may request a guarantee for the transfer of naked shares for which the full price has not been paid. In case the requested guarantee is not provided and the transferee’s solvency is doubtful, the company may reject the approval of the share transfer and refrain from recording it in the share ledger. If the joint stock company approves the transfer, the former transferor shareholder will be released from the obligation to pay balance of the capital debt. The procedure for the transfer of naked shares is to submit the transfer agreement, the signing of which are certified by a notary public, and the notarized copy of the resolution of the board of directors of the joint stock company indicating the approval of the transfer to the trade registry offices, and the registry offices shall register and announce the transfer agreement.
As for the transfer of registered shares, the transfer of registered and bearer share certificates should be considered separately. Registered share certificates are negotiable instruments, and unless otherwise agreed in the articles of association, as a rule, share certificates are accepted as registered share certificates. Registered share certificates are legally recognized as negotiable share certificates. In case of transfer of registered shares, it should first be checked whether there are any restrictions in the articles of association regarding the transfer of registered shares. If there is no article in the articles of association preventing the transfer, registered certificates may also be transferred. Otherwise, in case the transfer is made in violation of the articles of association or the law and this transfer is recorded in the share ledger, a lawsuit will be filed by the relevant parties for the cancellation of the registration.
Pursuant to Paragraph 1, Article 490 of the TCC, a share certificate cannot be transferred without delivery of the share certificate to the transferee as the transfer of registered shares will be possible through endorsement and transfer of possession. The most crucial point to consider here is the transfer of the possession of the share certificate from the transferor to the transferee. In other words, the share certificates are transferred to the transferee also without endorsement, through assignment letter and transfer of possession. The crucial point is the will to transfer the ownership of the share certificates to the transferee and the transferor having the authorization to transfer. If all these conditions are met, the person in possession of the registered share certificate will be able to assert his/her right to register in the share ledger of the joint stock company, and by registering in the share ledger, he/she will be able to acquire the title of shareholder in the company.
In addition, registered share certificates may be easily transferred even if they are not fully paid. This is because the company is in a position to know to whom it should apply to collect these amounts in case of non-payment.
Pursuant to Article 492 of the TCC, companies may sometimes include ‘binding provisions’ in their articles of association that restrict the transfer of shares. These types of shares are called tied registered shares. Binding provisions may also be imposed for naked shares; however, they will be deemed invalid if they are imposed for bearer share certificates. Like registered share certificates, tied registered share certificates may be transferred by transferring the possession of the endorsed share certificate to the transferee. It should be noted that the transferee is also obliged to comply with the binding provisions. If the transferee fails to comply with the binding provisions, the transfer will not be recorded in the share ledger and the transferee will not be able to acquire share ownership.
There are also provisions in the TCC, such as Article 494/2 of the TCC, which renders the binding provisions ineffective. However, even if the binding provisions are rendered ineffective, the members of the board of directors are legally entitled to acquire the registered shares before the transferee when there is a possibility that the company may suffer a loss.
Pursuant to Article 489 of the TCC, bearer share certificates may only be transferred by transfer of possession for the purpose of transfer of ownership, and in this way, they shall be effective against third parties and the company. As the principle of freedom of transfer applies to bearer shares, the transfer of these shares will not be subject to any conditions and they will not be subject to the approval of the board of directors. Therefore, the parties may transfer the possession by endorsement or assignment.
Pursuant to the TCC, it is not required to notify the company or have the transfer registered in case of transfer of a bearer share certificate. As a general rule, the person who holds a bearer share certificate is the owner of that certificate. However, the transfer will be deemed legally valid only when the person transferring the bearer share certificate holds the certificate as the owner. If the third party who transfers the bearer share certificate does not know or is not in a position to know that the transferor is not the owner, the good faith of the transferee will be protected and the acquisition will be valid pursuant to Article 990 of the TCC.
If a legal relationship is established between the transferor and transferee parties regarding the transfer of bearer share certificates and if the former shareholder fails to transfer the certificates, a lawsuit for performance may be filed by the transferee, and if the transferor is sentenced to performance as a result of the lawsuit, the new shareholder will be able to acquire the bearer share certificates through compulsory enforcement.
Finally, in joint stock companies, a temporary or interim deed may be issued in relation to the shareholding right. These temporary or interim certificates are referred to as warrants. The shareholding rights provided by warrants are no different from the rights provided by shares certificates. Pursuant to Paragraph 2, Article 486 of the TCC, warrants are certificates issued temporarily in place of registered or bearer share certificates in the event that the company has not yet issued share certificates. Pursuant to the same article, both registered and bearer share certificates are issued as warrants and they may be transferred like registered share certificates as they are subject to the provisions regarding registered share certificates, However, it should be noted that warrants may not be transferred to another person without full payment of the consideration or the approval of the joint stock company must be obtained for the transfer.