Privileged Shares and Rights Under Commercial Law

In joint-stock companies, privileged shares grant certain shareholders superior rights in areas such as dividends, liquidation shares, pre-emptive rights, and voting rights. These shares can be created through the company’s original articles of association or through amendments to the articles. Establishing privileged shares requires the affirmative vote of shareholders representing at least 75% of the capital.

Privileges provide certain shareholders with rights that exceed standard shareholder rights, such as dividends, voting rights, liquidation shares, and pre-emptive rights. The articles of association may stipulate that specific shareholder groups, including minorities, have the right to be represented on the board of directors. These privileges play a crucial role, especially in determining board members.

According to Article 360 of the Turkish Commercial Code, the right to board representation granted to privileged shares in publicly held joint-stock companies cannot exceed half of the board members. Provisions regarding independent board members also remain in force to maintain balance in board representation.

Under the Turkish Commercial Code, companies with more than half of their capital owned by government entities, municipalities, or public institutions cannot establish privileges for other shareholder groups. This restriction ensures fair management practices, and similar limitations apply to publicly traded companies and financial institutions as defined by Article 3 of the Banking Law No. 5411.

In principle, privileges cannot be removed by court order. However, if privileged shareholders’ rights are violated or if there are breaches of the company’s articles of association, the special assembly may review the matter and request the removal of privileges.

Article 28 of the Capital Markets Law limits certain privileges in publicly traded companies. In cases of consecutive losses over five years, voting and board representation privileges may be removed by the Capital Markets Board. However, privileges held by public institutions are exempt from this regulation.

Voting privileges are recognized by allocating a different number of votes to shares of equal nominal value. The maximum voting privilege a share can hold is 15 votes, although, in cases of corporatization or significant reasons, an asliye ticaret court decision may allow exemptions. However, voting privileges cannot be exercised in key decisions, including amendments to the articles of association and filing lawsuits for accountability.

To protect the rights of privileged shareholders, some decisions by the general assembly require the approval of a special assembly. Changes to the articles of association and the nomination of board members fall under this provision. The special assembly must convene with the participation of at least 60% of the capital representing privileged shares, and decisions are taken by the majority of the shares present.

In cases of rights violations, a detailed report is presented to the board of directors. Shareholders with the right to withdraw may sell their shares to the publicly held company.

The right of withdrawal, regulated under Articles 23 and 24 of the Capital Markets Law, grants shareholders the option to exit the company during significant transactions such as changes to privilege rights. This right serves as a security measure for shareholders during mergers, divisions, or similar transactions that may affect investment decisions.

Attorney Hüseyin BAYAR highlights the importance of protecting the rights of privileged shareholders and the significance of the special assembly. He emphasizes the need to carefully manage privileges, especially in publicly held companies, to ensure the fair representation and protection of shareholders’ rights.

Legal Notice: This article was written by Attorney Hüseyin Bayar and belongs to Bayar Law Firm. Unauthorized use or copying is prohibited.