A Roadmap For The Seizure Of Shares In Capital Companies: Differences Between Joint-Stock And Limited Liability Companies

I. Introduction A share in a capital company constitutes a complex legal value encompassing partnership status, financial rights, and managerial powers. Pursuant to the provisions of the Turkish Commercial Code No. 6102 ("TCC") and the Enforcement and Bankruptcy Law No. 2004 ("EBL"), the shares held by a debtor partner in a capital company may be seized by that partner's personal creditors. However, structural differences between joint-stock companies and limited liability companies, together with factors such as whether the shares are embodied in negotiable instruments and the function of commercial registry records, give rise to significant procedural distinctions at the seizure stage. This article examines - without entering into the sale phase - solely the procedure, legal nature, and principal practical differences in the seizure of shares in joint-stock and limited liability companies, in the light of the established case law of the Court of Cassation.

II. Statutory Basis and General Principles of Share Seizure in Capital Companies

Pursuant to Article 133(2) of the Turkish Commercial Code No. 6102, irrespective of the distinction between joint-stock companies, limited liability companies, and limited partnerships by shares, it is possible to seize and convert into money a debtor partner's shares - whether or not embodied in an instrument - in accordance with the provisions of the Enforcement and Bankruptcy Law governing movable assets. The legislature has expressly stated in the explanatory memorandum to that provision that no legal distinction arises from whether the share to be seized belongs to a joint-stock company or a limited liability company, or from whether it has been embodied in an instrument (Court of Cassation, 12th Civil Division, 30.09.2013, E. 2013/22119, K. 2013/30474; Court of Cassation, 12th Civil Division, 13.02.2014, E. 2014/719, K. 2014/3938). This regulation abolished the restriction under the former TCC No. 6762, which provided that shares in limited liability companies could not be directly subjected to seizure.

1. Seizure of Shares in Joint-Stock Companies

The seizure of shares in joint-stock companies is subject to two distinct procedures depending on whether the share has been embodied in an instrument. This distinction is of vital importance for the validity of the seizure and the integrity of the enforcement proceedings.

The share seizure procedure in joint-stock companies differs depending on whether the share has been embodied in an instrument:

• Uncertificated (Bare) Shares: Pursuant to EBL Article 94(1), the debtor's share in the company is seized by notification from the enforcement office to the company. The seizure is deemed to have been effected on the date of notification to the company, and it must be recorded in the share ledger.
   

• Shares Embodied in Share Certificates or Interim Certificates: In such cases, the provisions on the seizure of movable assets under EBL Article 88 apply. The enforcement office must physically seize and take the share certificates into custody.
   

• Bearer Share Certificates: In the seizure of bearer instruments, physical custody pursuant to EBL Article 88 is the fundamental requirement.
   

a) Seizure of Bare Shares (Uncertificated Shares)

In joint-stock companies, it is not a statutory requirement for shares to be embodied in a share certificate or interim certificate. Shares that have not been embodied in an instrument are referred to in practice and in legal doctrine as "bare shares". The seizure of bare shares is carried out pursuant to EBL Article 94(1). The Court of Cassation General Assembly, in its decision dated 04.07.2007 (E. 2007/332, K. 2007/446), expressed this position as follows: "In a joint-stock company, it is not mandatory for a share to be embodied in a share certificate. If the share is not embodied in a share certificate (or interim certificate), it remains as a bare share."

The fundamental procedure in the seizure of bare shares is the dispatch of a notice by the enforcement office to the company. In accordance with Court of Cassation decisions, where no share certificate or interim certificate has been issued in respect of shares in a joint-stock company, the debtor's share in the company is deemed to have been seized upon notification by the enforcement office to the company. The seizure is completed upon such notification. The company is obliged to record the seizure notice it receives in the share ledger. However, the recording in the share ledger is not a constitutive element of the seizure.

Alternatively, the enforcement officer may proceed in person to the registered office of the company to effect the seizure. This procedure has been affirmed by the Court of Cassation in the following terms: "The seizure of a debtor's share rights held by a third party that have not yet been embodied in negotiable instruments may be effected by the enforcement office by attending the premises in person and recording the seizure in the share ledger pursuant to EBL Article 94. The fact of seizure shall also be notified to the third parties in whose possession the debtor's shares are held."

b) Seizure of Bearer and Registered Share Certificates and Interim Certificates

Where shares in a joint-stock company have been embodied in bearer or registered share certificates, such certificates acquire the character of negotiable instruments (kıymetli evrak) within the scope of TCC Articles 486 and 487. The seizure of such negotiable instruments is, entirely unlike the seizure of bare shares, subject to the provisions governing the seizure of movable assets pursuant to EBL Article 88. Under this procedure, the physical taking of the instrument into custody - that is, the transfer of possession to the enforcement office - is mandatory.

Registered share certificates issued by joint-stock companies are instruments transferable by endorsement. Accordingly, where the shareholding in a joint-stock company has been embodied in a document qualifying as a negotiable instrument, it is mandatory under EBL Article 88(1) for such certificates to be seized and taken into custody by the enforcement office. Similarly, mere dispatch of a notice to the company is insufficient; the share certificates at issue, being negotiable instruments, must be seized on-site and taken into custody by the enforcement office in accordance with EBL Article 88. Where such physical taking into custody does not occur, the seizure shall be deemed invalid.

Interim certificates issued prior to the issuance of share certificates, in order to serve in lieu thereof, are subject to the same rules. For this reason, it would be contrary to law for the enforcement office to merely send correspondence to the registry without physically taking the instruments into custody, despite the obligation to do so.

2. Seizure of Shares in Limited Liability Companies

Under the TCC No. 6102, the seizure of shares in limited liability companies is effected by the following methods:

• Seizure by Notification: The enforcement office may seize a debtor's share rights in a limited liability company - which stands in the position of a third party - by serving a seizure notice on the company.
   

• On-Site Seizure: The enforcement officer may proceed in person to the registered office of the company to serve the seizure notice and ensure its recording in the share ledger, documenting this process in an official record.
   

• Recording in the Share Ledger: The seizure is recorded in the share ledger upon the creditor's request. However, recording in the share ledger constitutes a preservation measure rather than a condition for the validity of the seizure.
   

• Commercial Registry Notification: Following the due seizure of company shares, correspondence may be sent to the Commercial Registry Office for registration purposes; however, effecting a seizure directly through the registry is deemed irregular.
   

• Status of Share Certificates: In limited liability companies, share certificates serve merely as instruments of proof; the seizure of such certificates does not produce the legal consequence of having seized the partnership share.
   

The seizure of shares in limited liability companies is governed by TCC Article 133(2) and EBL Article 94(1). Within this framework, a personal creditor of a partner in a limited liability company - which constitutes a capital company - is accorded the right to request the seizure and conversion into money of that partner's partnership share.

Although the seizure procedure in limited liability companies resembles the seizure of bare shares in joint-stock companies, it diverges with respect to the role of the Commercial Registry. The seizure is effected by the enforcement office's notification to the company or by attending the premises.

The legal consequences of such notification were elaborated upon by the Court of Cassation General Assembly in its decision dated 21.12.2022 (E. 2021/616, K. 2022/1822): "The enforcement officer who seizes the debtor's profit share, liquidation share, or company share in a limited liability company shall notify this seizure to third parties whose addresses are known - namely the company and the other partners (EBL Article 94(1)). By means of this notification, the company and the other partners are warned that henceforth any interest, profit share, or liquidation share payable to the debtor partner must be paid to the enforcement office; that all notifications to be served on the debtor partner regarding the debtor's seized share must henceforth be directed to the enforcement office; and that the consent of the enforcement office must be sought in lieu of the debtor partner for all joint transactions requiring the debtor's consent."

One of the most critical points to observe in limited liability companies is that share certificates, even when issued, do not carry the character of negotiable instruments. Share certificates in a limited liability company serve merely as instruments of proof; partnership rights cannot be transferred or assigned by delivery of the share certificate, and by the same token, neither a pledge nor a seizure can be imposed upon such rights by that means. Accordingly, acquisition of a share certificate does not entail acquisition of the capital share. Therefore, unlike joint-stock companies, delivery of a share certificate in a limited liability company does not effect the transfer of partnership rights; and accordingly, the seizure of a share certificate does not produce the legal consequence of having seized the debtor's partnership share in the limited liability company.

III. Similarities and Differences Between Share Seizure in Joint-Stock and Limited Liability Companies

Similarities

Procedural Similarity: By virtue of TCC Article 133(2) No. 6102, it is accepted that in both types of companies the seizure of shares shall be carried out within the framework of the EBL's provisions on movable assets (Articles 88 and 94).

Differences

The principal practical differences between the share seizure procedures in joint-stock and limited liability companies centre on registration, possession, and the rights of third parties, with further distinctions existing with respect to sale and transfer, and the nature of documents.

Sale and Transfer

In limited liability companies, where the capital share passes by way of enforcement proceedings, the rights vest in the acquirer pursuant to TCC Article 596 without the need for general assembly approval; however, the company retains the right to offer to purchase the share at its fair value within three months. In joint-stock companies, the sale of uncertificated bare shares is subject to the procedure for the sale of movable assets (EBL Article 94).

Nature of Documents

Share certificates in limited liability companies serve merely as instruments of proof, whereas share certificates in joint-stock companies have the character of negotiable instruments, and their seizure requires physical taking into custody (EBL Article 88).

Registration and Announcement

Although notification to the Commercial Registry is provided for both types of company under EBL Article 94(1), the legal nature of such notification differs. In joint-stock companies, where no share certificate or interim certificate has been issued in respect of a share, the debtor's share in the company is seized by notification by the enforcement office to the company. The seizure is deemed to have been effected on the date of notification to the company even if it has not been recorded in the company's share ledger, and the enforcement office notifies the Commercial Registry for registration purposes. In this context, registration is declaratory rather than constitutive in effect.

In limited liability companies, registration in the Commercial Registry carries greater functional significance by virtue of the rule that share transfers are also subject to registration in the registry. However, notification to the registry alone is not sufficient for the completion of the seizure; the essential act is notification to the company. Furthermore, the seizure must be directed at the debtor partner's share rather than at the legal personality of the company or its registry entry.

Possession

The most conspicuous distinction emerges in relation to the element of possession. In joint-stock companies, since share certificates and interim certificates issued pursuant to TCC Articles 486 and 487 constitute negotiable instruments, seizure is only possible through the enforcement office's assumption of actual physical possession of the instrument pursuant to EBL Article 88. In limited liability companies, however, the share certificates that are issued serve merely as instruments of proof; accordingly, physical taking of the instrument into custody does not produce the consequence of seizure, and seizure is only completed by means of registry recording, entry in the share ledger, and notification to the company.

Rights of Third Parties and Standing to File a Complaint

The seizure takes effect against bona fide third parties in the case of bare shares in joint-stock companies from the moment the notice is served upon the company. In limited liability companies, the protective effect of registration and announcement in the Commercial Registry against third parties is more pronounced.

On the other hand, since notices issued in connection with the seizure of bare shares in joint-stock companies are not directed at the company's own assets, the company has no legitimate legal interest in bringing a complaint against such seizure.

IV. Conclusion

The procedure for the seizure of shares in capital companies is sharply differentiated according to the type of company and the legal status of the share. The most common error in practice is the view that, in the seizure of uncertificated bare shares in joint-stock companies, it is sufficient to send correspondence solely to the Commercial Registry, or, in the case of certificated shares, to merely serve a notice on the company rather than effecting actual physical custody (EBL Article 88). However, as firmly established by the case law of the Court of Cassation, notification to the company is a mandatory and constitutive element in the seizure of bare shares in joint-stock companies, whilst if a share certificate or interim certificate exists, physical taking of the instrument into custody is indispensable. In limited liability companies, even where share certificates have been issued, since such certificates do not possess the character of negotiable instruments, physical custody does not produce the consequence of seizure; the essential requirements are notification to the company and recording in the share ledger. For the validity of enforcement proceedings and the security of the subsequent sale phase, strict compliance with these procedural rules and with the statutory terminology at the seizure stage constitutes a legal imperative.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.