Summary: The Acquisition of a Joint Stock Company’s Own Shares is Analysed in This Article Within the Scope of Articles 379 to 389 of Turkish Commercial Code, in Comparison With the Former Code’s Provisions on this Issue.
The acquisition and pledge acceptance of a joint stock company’s (anonim şirket)1 own shares are regulated under Articles 379 to 389 of the Turkish Commercial Code (“TCC”). Compared to the old text of TCC, these provisions have brought a considerable flexibility to the mentioned ban and lead up the acceptance of the acquisition and pledge of the company’s own shares within certain exceptions and conditions.
Under the mentioned provisions, it is not possible for a joint stock company to accept its own shares as acquisition and pledge by consideration exceeding one-tenth of the original and issued capital amount of the company.
In the event of a share acquisition not exceeding one-tenth of the original capital amount of the company, is required that the general assembly of the company authorizes the Board of Directors about this matter – this authorization is valid at most for 5 years. In this authorization, the nominal value numbers which will be accepted as acquisition and pledge and the lower and upper limits of the amount which can be paid by its total nominal value will be indicated. Only the shares whose whole amounts have been paid can be acquired in this manner.
The exceptional circumstances relating to the ban of acquisition and pledge are as below – In the following cases, it has been made possible that a joint stock company may acquire and pledge its own shares:
- Share acquisition with the intent of preventing a close and serious loss (Article 381 of TCC).
- Hostile takeover (transfer of the ultimate shares controlling the company contrary its demand), dummy price making with falsifying on share prices and cause loss to the company in this way, the possibility of share selling of a shareholder to the persons (for example to a competitor) who can cause loss in company and share acquisition intent to collect of a bad debt can be given as examples to this situation.
- Share acquisitions without consideration provided that their whole amounts are paid (Article 383 of TCC).
- In principle, the situation subject to the ban within the scope of the relevant provisions of TCC is a company acquiring its own shares for a certain consideration. In the event that the whole share amounts are paid, it will be possible for a company to acquire its own shares without any consideration.
- Implementation of the provisions of Articles 473 to 475 of TCC related to capital decrease.
- The company may acquire its own shares due to the capital decrease intent to refund the unused part of the capital. This is one of the exceptions of the ban for a company to acquire its own shares.
- Share acquisition pursuant to the universal succession.
- In the event of share acquisition with universal succession such as merger, spin-off and transfer of commercial enterprise, there is no acquisition ban for the company’s own shares. Thus, in the event that one of the mentioned cases arises, the company may acquire its own shares.
- Legal liability for acquisition.
- Acquisition of a company’s own shares due to dissolution with a valid reason can be given an example for this situation.
- Acquisition of the company’s own shares to collect its receivables by enforcement action.
- This is applicable providing that the whole share amounts have been paid.
- If the company is operating in securities trade.
- In the event that the operation field of the company is securities trade, it is possible for the company to acquire its own shares.
The shares acquired or accepted as pledge contrary to the provisions of TCC are required to be disposed or the pledge be lifted within 6 months from their acquisitions (Article 385 of TCC). Otherwise, a liability claim may be put against the BoD. In the event that the BoD cannot be disposed of the shares despite all efforts, the capital may be reduced and amortized in this way (Article 386 of TCC).
Above mentioned provisions will also be applicable for the acquisition of the shares of parent company by its subsidiary (Article 379/5 of TCC). The reason of the inclusion of the company to the acquisition ban for its own shares is due to the fact that the purchasing the shares of the parent company by its subsidiary may cause many different disadvantages. For example, causing ambiguities on the balance sheet, putting pressure on the subsidiary company by the BoD using its voting power according to shares for its own benefits. For this reason, in the event of the acquisition of the subsidiary company in defiance of the provisions of TCC, the rights of the subsidiary company (including voting power) arising from its own shares will freeze (Article 389 of TCC). Consequently, the subsidiary company will not be able to represent itself, vote or receive any dividends at the general assembly of the parent company.
The above mentioned provisions of the TCC regulating the company’s acquisition of its own shares shows a more liberal approach than the absolute prohibition stipulated under the (former) Turkish Commercial Code no. 6762. Amongst the main reasons for this preference to provide for a more liberal approach there may be issues such as preventing manipulations in stock market that may damage the company, procuring that company’s employees invest and therefore have interests in the company and ensuring that the company acts as market maker. Accordingly, the mentioned institution which has both positive and negative aspects has now been regulated under Turkish law, being subject to certain limitations.
1A Limited Liability Company’s (limited şirket) acquisition of its own shares and acceptance thereof as pledge is regulated in Article 612 of the TCC. This memo does not touch upon the mentioned subject, which bears additional conditions different than the joint stock company’s.