At incorporated companies, the main board declares its will with a decision which is formed with the majority of votes. In some situations, this can present a problem, as the majority may only seek the fulfilment of their own interests, not caring for the needs of the minority. Therefore, the rights of the majority have been legally limited in some situations to prevent such a problem.

A- DEFINITION

The rights with which the 1/10 of the stock partners are provided so as to set a balance are called minority rights. In other words, “they are administrative rights which can come into effect at the will of their holders and which do not require the approval of a managing board”. 1 (Eren, p 70)

The article no. 411 of the Turkish Trade Act defines the concept of minority as “the holders of the at least 1/10 of all stocks for non-public companies and at least 1/20 for public companies.

B- THE MINORITY RIGHTS ACCORDING TO THE TURKISH TRADE ACT

1- Negative Minority Rights

These are the rights through which the minority can prevent the formation of a decision by presenting negative votes. The formation of the decision can be prevented through a minority right even when enough votes for the main board are present.

a - Possible Minority Rights

In a main board where a decision is to be formed by a certain number of people, the absence, the recessive or the negative votes of the minority will prevent the formation of the decision.

Except for the situation defined by the article no. 559 of the Turkish Trade Act, the above-mentioned prevention can only occur in situations where there is a legally qualified meeting or a situation in which the sufficient number for decision making is aggravated by the main contract. The article no. 559 of the Turkish Trade Act dictates that “ if the 1/10 of the stock holders in non-public companies and the 1/20 of the stock holders in public companies are against compromise and release, then compromise and release cannot be approved by the main boar.”

b - Absolute Minority Rights

The article no. 559 of the Turkish Trade Acts dictates that the members who have founded the incorporated company or are responsible for the increasement of the capital cannot be released from their responsibilities within the first four years of the company’s registration. The compromise and release which may take place after this time cannot take place if the votes of the minority are negative. It must be stated that the minority must present directly negative votes for this, not recessive ones. This ruling, which is protective in terms of damages which have occurred during the establishment of the company, is imperative and cannot be narrowed down. Nonetheless, it is possible to decrease the representation rates. For example, the %10 rate can be decreased to %7 and the %5 rate can be decreased to %3.

In accordance with the article no. 421/2, the minorities have an absolute right to prevent:

a) The decisions which come with primary and secondary responsibilities for the reparation of balance sheet damages

b) The decisions which suggest that the centre of the company should be moved abroad.

2- Positive Minority Rights

The minority can demand the following in accordance with the law:

a - The Postponement of the Discussion of the Financial Statements

In accordance with the article no. 420/1 of the Turkish Trade Act, the minority has the right to demand the postponement of the discussion of financial statements by a month. The approval of the meeting chairman is enough for such a decision and an additional decision by the main board is not obligatory. The chairman of the meeting has to comply and the minority does not have to state a reason for this demand. The verdict no. 2014/9194E.- 2014/16569K. of the Legal Chamber no. 11 of the Supreme Court is as follows:

“The defendant has claimed that the demand for the cancellation of the main board meeting for he discussion of financial statements is a misuse of rights, that the right to decide belongs to the chairman in accordance with the article no. 420 of the law no. 6102 and, therefore, the chairman had the right to not to cancel/postpone the meeting. Yet, in accordance with the article no. 420 of the law no. 6102, 1/10 of the shareholders at non-public companies and 1/20 of the shareholders at public companies have the right to demand such a postponement and the decision of the main board is not necessary for such a postponement to take place. “

As it can be understood, a clear statement of the minority is enough for the postponement.

In accordance with the article no. 420/2 of the Turkish Trade Act, the minority can demand another postponement if the responsible members, in accordance with the principle of honesty, does not provide the meeting members with proper information about the matters which were subject to objection and which have been recorded. A reason must be stated by the minority for this second postponement.

If the minority demands the postponement of the meeting and the meeting continues in spite of this, the dominant view of the doctrine and the rulings of the Supreme court suggest that the meeting decisions can be cancelled if the minority group has its objection noted down as suggested by the article no. 446/1-a.

It is possible for the discussion meeting to be postponed for more than a month. Yet, the approval of the minority is obligator for the decreasement of this duration.

The profit-damages discussions, the distribution of profit discussions, release discussions and the management board and supervisor dismissal and re-elections may have to be postponed alongside the financial statement discussions. The legal chamber no.11 of the Supreme Court has stated with a verdict dated 23.3.2016 that:

“The issue of dismissal and re-lection of the members of the board of management is included in the range of issues concerning the discussion of financial statements and related issues.”

Despite this, issues concerning the members and supervisors who are to be elected newly and permissions concerning business and rivalry can be discussed and decisions can be provided.

b- The Appointment of a Special Supervisor by the Court

In accordance with the article no. 438/1 of the Turkish Trade Act, the shareholder may demand from the main board the appointment of a special supervisor for the investigation of certain issues. If this demand is met with a negative answer, 1/10 of the shareholders at non-public companies and 1/20 of the shareholders at public companies, or the shareholders whose share relatively net 1 million Turkish liras, may demand from the local commercial court within the same region as the company’s centre the appointment of a special supervisor within 3 months. In accordance with the article no. 439/2, a special supervisor will be appointed if it turns out that the founders and the departments of the company, in contrast with the law and the main contract, are diminishing or damaging the profits of the shareholders. According to the Supreme Court, there must be sufficient evidence for this; otherwise, the demand will be refused. It must be noted that the Supreme Court looks for sufficient evidence, not absolute evidence. The verdict no. 2014/4577E. 2014/10290 K. of the Legal Department no. 11 of the Supreme Court is as follows:

“It is not obligatory for the minority to provide an absolute evidence for the appointment of a special supervisor. An evidence which is merely suggesting is enough in such cases.”

If the court finds the demand fitting, it will appoint one or more than one supervisor.

The article no. 444 of the Turkish Trade Act points out the rulings concerning the appointment of the special supervisor; “1- The court will state the expenses necessary for the appointment. If there are special conditions, the expenses may partially or fully become the responsibility of those who demanded the appointment. 2- If the appointment of the special supervisor was through the decision of the main boar, then the company will cover the expenses.”

c- Calling The Main Board for a Meeting and Demanding New Issues to be Discussed

-I Applying to the Board of Management

The minority has the right to call the main board for a meeting or demand new issues to be discussed if the board was already going to come together. This demand must be fulfilled with a notary verification. The minority must have demanded such a thing from the board of management to apply to the court about this matter. The delay of the board of management is also important concerning the verdict of the court. In accordance with the article no. 411/2 of the law, the minority must have filed a demand to the board of management before the payment of the Turkish Trade Registry Gazette announcement.

The board of management must comply with the minority’s demand if it is in written form and legally appropriate. Yet, it is not obligatory to take the demand into consideration if it is not so. The verdict no. 2016/2371E.-2017/1397K of the Legal Department of the Supreme Court is as follows:

“The minority has to comply with the legal procedures to demand call the main board for a meeting. A direct notification to the partners through the notary without having taken the above-mentioned procedures into consideration are ineffective.

In accordance with the article no. 414, the main board must be called to the meeting within 45 days if the board of management has accepted the demand. Otherwise, the minority will call for the meeting.

-II Applying to the Court

The law has allowed the minority to apply to a regional commercial court if their demand to call for a meeting and the discussion of new issues has been met with a negative answer or has been ignored. If the court sees it necessary, it can appoint a supervisor to hold the meeting and make sure the issues are discussed and outlines the authority of the supervisor with its verdict.

d- Representation on the Board of Management

The article no. 360 of the Turkish Trade Act dictates that certain shareholder groups and minorities can be represented on the board of management if it has been so determined. Such a right to representation may have been particularly determined by the articles of the main contract or the main contract may include an article allowing members to put forward candidates for the board of management. The candidate who was suggested by the main board must be elected if there are no viable reason for the candidate to not to be elected. The number of the members elected in such a way cannot be more than the half of the members of the board of management at public incorporated companies. With this article, the law has given the right to be represented to the shareholders and minorities.

The above-mentioned groups and minorities must be clearly defined with their peculiarities so as to distinguish them from regular shareholders.

e- Printing of Share Certificates

There are two share certificates for incorporated companies: registered and bearer share certificate. The article no. 486/3 of the Turkish Trade Act dictates that the minority has the right to demand all the registered share certificates to be printed. This does not concern only those who have demanded such a thing, but all the registered certificate holders because the board of management would wish all the registered certificates to be printed and not only some of them. 2 (Karahan/Bozgeyik, Şirketler Hukuku (Corporate Law), p. 640.)

In accordance with the law, this demand of the minority must be met with a positive answer. It is an act against the law, especially at family and non-public incorporate companies, to deprive the shareholders of their right to certify their shares, to intimidate them to not to make such a demand and to refuse their demand concerning this issue. If there is such a violation, the shareholders have the right to apply to the court.

f- The Dissolution of the Company Based on a Righteous Cause

In accordance with the article no. 531 of the Turkish Trade Act, 1/10 of the shareholders at non-public companies and 1/20 of the shareholders at public companies may apply to a regional commercial court within the same region as the centre of the company and demand the dissolution of company if there are righteous causes which would necessitate such a thing. The article also suggests that the shareholders who have sued the company can be paid the most recent (according to the verdict date) value of their shares and discarded from the company so as to find a solution or that the company and the shareholders may reach another agreement except for the dissolution of the company. This article will block the majority from using dissolution as an intimidation at developing or profitable incorporate companies. 3 ((TEKİNALP, p. 191.)

The above-mentioned righteous causes have not been exactly defined by the law, making their definition a subject of court verdicts and doctrines. The Swiss legal teachings suggest that the constant violation of the minority and shareholder rights, the deprivation of the minority of its right to receive information, the constant financial damages of the company and the constant decrease of the distributed profit can be considered righteous causes.

As it has been stated before, the law in this country did not provide any exact definitions of these righteous causes. The verdicts of the Legal Department no. 11 of the Supreme Court about the dissolution of incorporate companies are as follows:

“There must be evidence concerning the violation of the right to receive information and the lack of profit distribution. The claims of the shareholders that the subjective relation between the shareholders has been cut is not a viable basis for the dissolution of the incorporated company.” ( 2017/2874E.-2018/37K.)

“The fact that there is enmity between the partners of the company and the fact that the hotel, which is the only property of the company, has not been administered since 2007 is a righteous reason for the dissolution of the company.” (2014/16609E.- 2016/11987K.)

“As it has been stated that the managers of the companies neglect their duties, that there is no viable option of agreement between the partners, that there are many lawsuits filed by the partners against each other, that the claimant has been treated differently than the other shareholders, that the privileges of the company has been given to partners other than the claimant, that the main board meetings are not held, that the right of the claimant to receive information has been violated it is fitting that this company is to be dissolved. The financial state of the company is not sufficient to buy the shares of the claimant, leaving the dissolution as the only viable option. (2015/6768E.-2015/10302K.)

“It is fitting that the company is to be dissolved, as the financial state of the company is not sufficient to buy the shares of the claimant.” (2014/17428E.-2015/8840K.)

“It is seen that the company makes no sales and is, constantly, subject to financial damage, has tax debts, does not have main board meetings, the property of the company has been shared among the partners and the company refuses to pay the claimant the value of his/her shares. It is, therefore, fitting that this company is to be dissolved.” (2016/5493E-2017/7447K.)

“A company which has not engaged in a commercial activity since its foundation and has no main board meetings can be dissolved.” (2016/8891E.- 2017/6960K.)

g- Dismissal of a Supervisor and the Appointment of a new Supervisor

The main board chooses the supervisors at incorporated companies. Article no. 399/4/b of the law gives the minority the right to demand the dismissal of a supervisor and the appointment of a new one. According to the regulation in the law, it is possible to appoint a new supervisor if a profound basis is formed to do so and if the shareholders apply to the regional commercial court within the same region as the centre of the company about this matter. The profound basis and the righteous cause for the dismissal of a supervisor have not been exactly defined by the law. It is understood that such causes can be things like the loss of reputation, lack of efficiency, negligence etc. Yet, it must be known that such causes will be a basis for dismissal only if there is concrete event which support such notions. 3 (TÜRMOB, Anonim Şirketlerde Azınlık Hakları (Minority Rights at Incorporated Companies, s.78)

The lawsuit for dismissal of the supervisor and the appointment of a new supervisor must be filed within the 3 weeks of the announcement of the election of the supervisor on Turkey Trade Registration gazette. According to the article no. 399/5 of the Turkish Trade Act, the minority must have gained the position of being shareholders at least three months in advance of the election and they must have voted against the supervisor to be dismissed at the main board meeting and these votes must have been recorded.

CONCLUSION

As it can be seen, the law introduced several articles so as to ease the utilization of the rights of the minority. It was expected that such articles would protect the rights of the minorty against the majority and stop the utilization of the company’s financial and real property for personal interests.

Lawyer

Ceren ÇETİNTAŞ

Bibliography

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Minority Rights at Incorporated Companies

Introduction