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The fundamental principle in joint-stock companies and commercial companies in general is the majority rule. Shareholders holding control determine the fate of the company. However, to prevent this from turning into absolute dominance, the Turkish Commercial Code No. 6102 (the "TCC") grants minority shareholders various rights. The purpose of these rights is to establish a balance between the majority and the minority, and to prevent the minority from becoming entirely ineffective against the company's management.
So, do these rights truly empower the minority?
Who is the Minority Shareholder?
Pursuant to Article 441 of the TCC, the minority consists, as a rule, of shareholders representing at least 10% of the share capital. For publicly held joint-stock companies, this threshold has been set at 5%.
This study does not address the regulations under capital markets legislation as they apply to publicly held companies, but covers only the provisions contained in the TCC.
In non-publicly traded companies, it may be difficult in practice for a single shareholder to exceed the 10% threshold on its own, which may necessitate collective action by multiple minority shareholders. Accordingly, the minority threshold may be satisfied either by a single shareholder individually or through the aggregation of shares held by several shareholders acting in concert.
What Are the Fundamental Rights of Minority Shareholders?
In addition to classical shareholder rights, TCC grants minority shareholders special rights that provide the opportunity to intervene in management and exercise oversight.
(1) The Right to Call a General Assembly Meeting and Set the Agenda (TCC Art. 411)
The minorities representing, at least, 10% of the share capital may request in writing, through a notary, that the board of directors call a general assembly meeting, or, if the general assembly is already scheduled to convene, that the matters they wish to discuss are included on the agenda.
If the board of directors accepts the request, the general assembly is called to meet within at most 45 days; if it does not accept, the request holders themselves make the call. In the event that the board of directors rejects the request or fails to respond within 7 business days, the minority may apply to the court; if the court deems a meeting necessary, it may appoint a trustee to arrange the meeting and the agenda, and this decision is final.
(2) The Right to Postpone the Discussion of Financial Statements (TCC Art. 420)
Upon the request of the minority, the deliberation of financial statements and the related decisions may be postponed by the meeting chairman for 1 month without requiring a general assembly resolution. The postponement request concerning the disputed parts of the financial statements is recorded in the minutes, and the postponement is notified to shareholders by announcement and published on the company's website.
Once a postponement has been made at the request of the minority, a further postponement may only be requested on the condition that no response has been provided in accordance with the "fair accounting standard" regarding the disputed matters. Accordingly, this right is of significant importance as an indirect mechanism that compels the company to make disclosures.
(3) The Right to Request the Appointment of a Special Auditor (TCC Art. 438)
Under TCC Art. 438, any shareholder may request from the general assembly, even if the matter is not on the agenda, that certain events be clarified through a special audit, provided that such clarification is necessary for the exercise of shareholder rights and that the right to obtain information and inspection has previously been exercised.
If the general assembly approves the request, the company or any shareholder may request the appointment of a special auditor from the court within 30 days.
If the general assembly rejects the request, minority shareholders holding at least 10% may apply to the court for the appointment of a special auditor within 3 months. A special auditor shall be appointed if the applicants convincingly demonstrate that the founders or company bodies have caused loss to the company or its shareholders by violating the law or the articles of association.
(4) The Right to Request a Change of Auditor (TCC Art. 399)
Minority shareholders may apply to the commercial court of first instance in the place where the company's registered office is located to request the appointment of a different auditor, where a justified cause relating to the person of the elected auditor so requires (in particular, where there is a suspicion that the auditor has acted in a biased manner).
In order for the minority to bring such an action, they must have voted against the election of the auditor at the general assembly, had their dissenting vote recorded in the minutes, and must have held shareholder status in the company for at least three months prior to the date of the general assembly meeting at which the election took place.
(5) The Right to Request Dissolution on Justified Grounds (TCC Art. 531)
Where justified grounds exist, minority shareholders may request the commercial court of first instance in the place where the company's registered office is located to rule for the dissolution of the company. Instead of dissolution, the court may rule for the payment of the actual value of the shares of the plaintiff shareholders as of the date closest to the date of the ruling and for the removal of the plaintiff shareholders from the company, or for another appropriate and acceptable solution.
(6) The Right to Request Registered Share Certificates (TCC Art. 486)
Pursuant to Article 486/3 of the TCC, upon the request of minority shareholders, registered share certificates shall be printed and distributed to all shareholders.
(7) The Right to object to Discharge (TCC Art. 559)
The liability of founders, board members, and auditors arising from the incorporation of the company and capital increases may not be waived through settlement or discharge before four years have elapsed from the date of the company's registration. Even after the expiry of this period, a settlement or discharge shall only become valid upon the approval of the general assembly.
However, if shareholders representing the minority shares are opposed to the approval of the settlement or discharge, the settlement or discharge shall not be approved by the general assembly.
In addition to the rights granted to minority shareholders discussed above, there are certain important general shareholder rights provided under TCC for all shareholders, which may also be exercised by the minority.
(8) The Right to Obtain Information and Inspect (TCC Art. 437)
Under the Turkish Commercial Code, the most fundamental individual right granted to shareholders, and consequently to minority shareholders, is the right to obtain information and inspect documents.
Within the scope of this right, financial statements, the board of directors' annual activity report, audit reports, and the profit distribution proposal must be made available for inspection by shareholders at the company's registered office and its branches at least 15 days prior to the general assembly. A shareholder may request information from the board of directors regarding the company's affairs, and from the auditor regarding the manner in which the audit was conducted and its results, at the general assembly.
The provision of information may only be refused on the grounds that disclosure of the requested information would reveal company secrets or jeopardize company interests that warrant protection. If a request for information or inspection is left unanswered, unjustifiably refused, or deferred, the shareholder may apply to the commercial court of first instance; the court's decision is final and may also encompass the provision of information outside the general assembly.
This right may not be removed or restricted by the articles of association or by a resolution of any company body.
(9) Action for Annulment and Nullity Against General Assembly Resolutions (TCC Art. 445 - 447)
An action for annulment may be brought before the commercial court of first instance in the place where the company's registered office is located, within 3 months from the date of the resolution, against general assembly resolutions that are contrary to the law or the provisions of the articles of association, and in particular to the principle of good faith.
The following persons are entitled to bring an action for annulment: (i) a shareholder who voted against the resolution at the meeting and had their objection recorded in the minutes; (ii) shareholders who assert that procedural violations such as an irregular notice of meeting, failure to properly announce the agenda, voting by unauthorized persons, or the wrongful exclusion of a shareholder from the meeting had an effect on the resolution; (iii) the board of directors; (iv) board members whose personal liability would be triggered by the implementation of the resolution.
General assembly resolutions that restrict or eliminate shareholder rights, or that narrow the rights to obtain information, inspect, and audit beyond the limits permitted by law, shall be void.
(10) Pre-emption Right (Right to Subscribe to New Shares) (TCC Art. 461)
Each shareholder has a pre-emption right to subscribe to newly issued shares on a priority basis during a capital increase of the company, in proportion to their existing shareholding relative to the share capital.
The pre-emption right of a shareholder may be restricted or removed by the general assembly's resolution on the capital increase only where justified grounds exist and only with the affirmative vote of, at least, sixty percent of the share capital.
The pre-emption right is a critical instrument for protecting minority shareholders against dilution (the erosion of their shareholding ratio). Whilst the supermajority requirement provides minority shareholders with an important safeguard, restriction may nonetheless arise in circumstances where the majority is able to meet this threshold.
(11) Right to Dividend and Liquidation Proceeds (TCC Art. 507 - 508)
Each shareholder is entitled to participate, in proportion to their shareholding, in the net profit for the period that has been resolved to be distributed to shareholders in accordance with the provisions of the law and the articles of association. In the event of the company's dissolution, each shareholder shall, unless otherwise provided in the articles of association, participate in proportion to their shareholding in the amount remaining upon completion of the liquidation.
(12) Right to Representation on the Board of Directors (TCC Art. 360)
The articles of association may grant certain groups of shareholders, shareholders with special characteristics, or minority shareholders the right to nominate candidates or maintain representation on the board of directors. By virtue of such an arrangement, minority shareholders may be effectively represented on the board of directors and may thereby obtain the opportunity to participate directly in the management of the company and to access inside information.
This right is only enforceable where it has been expressly provided for in the articles of association; it does not arise automatically by operation of law. It is therefore of considerable importance that minority shareholders negotiate and secure the inclusion of this safeguard in the articles of association at the time of incorporation or during any subsequent amendment thereof.
Conclusion
The TCC offers minority shareholders in joint-stock companies not merely a guarantee of existence, but the opportunity to serve as an active counterbalance to majority rule; yet the true value of these rights lies not in their written definition, but in how and when they are exercised. Taken together - from calling a general assembly and requesting a special auditor, to objecting to discharge and seeking dissolution on justified grounds - these rights can confer genuine influence when deployed with awareness and strategic intent; that said, some require meeting requisite thresholds or pursuing judicial remedies, whilst others, such as board representation, must be proactively negotiated and anchored in the articles of association from the very outset.
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.
