Buying Back Your Own Shares in Türkiye: The 10% Ceiling, the Authorisation the Board Needs, and What Treasury Shares Cannot Do (TCC 379-389)
Share buybacks reach Turkish boardrooms from several directions. A founder wants out and the remaining shareholders would rather have the company pay than dilute themselves. A joint venture partner is exercising a put option and the drafting assumed the company itself could be the buyer. A group wants to hold shares in reserve for an employee incentive plan. A dispute is being settled and the cleanest exit is for the company to take the departing shareholder's block. In every one of these cases the first question is not commercial but statutory: Articles 379 to 389 of the Turkish Commercial Code (Türk Ticaret Kanunu, TCC No. 6102) decide whether the company may acquire its own shares at all, how much it may acquire, who has to authorise the purchase, what happens to the shares afterwards and how quickly they must be sold again. The rules are protective, not prohibitive. Turkish law allows a joint stock company (anonim şirket) to hold up to one tenth of its capital in its own shares, provided the general assembly has authorised the board in advance, the purchase price is covered by freely distributable assets and the shares are fully paid. Outside that framework an acquisition is not merely irregular: the shares must be disposed of within six months, and if they cannot be, the capital must be reduced to cancel them. This article walks through each condition, the exceptions, the financing prohibition that catches leveraged exits, the treatment of treasury shares while the company holds them, and the parallel regime for limited liability companies in Article 612.
1. The Starting Point: One Tenth of the Capital, and Nothing Beyond It for Consideration
Article 379(1) of the TCC states the rule in one sentence: a company may not acquire for consideration, or accept as pledge, its own shares in an amount exceeding one tenth of its share capital or issued capital, or in an amount that would exceed that threshold as a result of the transaction. The same provision applies to shares that a third party acquires or takes in pledge in its own name but for the account of the company. That second sentence closes the obvious route around the ceiling: a nominee, an affiliate acting under an indemnity, or a trustee buying with the company's money is treated as the company itself.
Three features of the wording matter in practice. First, the ceiling is measured against the share capital (esas sermaye) or, for companies that have adopted the authorised capital system, the issued capital (çıkarılmış sermaye). It is not measured against market value, equity or the number of shares outstanding. A company with a capital of TRY 10 million may hold own shares with a total nominal value of TRY 1 million, whatever those shares are worth. Second, the rule covers acquisitions for consideration (ivazlı). Gratuitous acquisitions are dealt with separately in Article 383 and are not subject to the ceiling, although they are subject to the disposal deadline discussed below. Third, the rule extends to pledges. A company that takes its own shares as security for a loan it has made is, for the purposes of Article 379, treated as if it had bought them, which is why share pledges in favour of the company itself appear so rarely in Turkish security packages.
Article 379(5) adds that the same provisions apply where a subsidiary acquires shares of its parent. A parent that cannot buy more than 10% of itself cannot instruct its subsidiary to buy the remainder. The subsidiary's holding of parent shares is aggregated with the parent's own holding for the purposes of the ceiling, and, as Article 389 confirms, the voting rights attached to parent shares held by a subsidiary are frozen. For listed companies the same paragraph reserves the Capital Markets Board's power to regulate transparency and pricing, which it has done in its communiqué on repurchased shares; the TCC framework nevertheless remains the floor beneath those rules.
The ceiling is the headline figure that most foreign shareholders remember. It is, however, only the first of four cumulative conditions. A buyback that stays comfortably below 10% can still be unlawful because the general assembly never authorised it, because the price is not covered by distributable assets, or because the shares were not fully paid up.
2. The Authorisation: What the General Assembly Must Decide and What the Board Must Confirm
Article 379(2) provides that shares may be acquired or taken in pledge under paragraph (1) only if the general assembly has authorised the board of directors. The authorisation is limited to a maximum of five years, and it must specify three things: the number of shares to be acquired or taken in pledge expressed by reference to their nominal value, their total nominal value, and the lower and upper limits of the price that may be paid for them. Each time the board wishes to use the authorisation it must state that the statutory conditions have been satisfied.
Several drafting consequences follow. A general assembly resolution that simply "authorises the board to buy back shares as it sees fit" does not meet the statutory description and will not support a purchase; the number, nominal value and price band are mandatory contents, not optional detail. An authorisation that is silent on duration is not open-ended; the statutory ceiling of five years applies, and a purchase made in the sixth year rests on nothing. The price band should be drafted with the company's actual valuation in mind, because a purchase outside the band is a purchase without authority even if the aggregate stays under 10%.
The authorisation is also a reserved matter in a practical sense. Turkish company practice often places the buyback resolution on the agenda of the annual meeting together with the accounts, so that shareholders can see the balance sheet they are being asked to authorise a distribution against. Nothing in the Code requires this timing, but it makes the net-assets test in paragraph (3) easier to document, and it forces the board to think about the purpose of the buyback before asking for the power. Foreign shareholders who hold a blocking minority should note that the authorisation is an ordinary resolution unless the articles provide otherwise: there is no statutory supermajority for buybacks, which is why shareholders' agreements frequently add one.
The board's own statement that the conditions are met is not a formality either. Article 379(2) requires the board to confirm, on each request for permission, that the legal requirements have been fulfilled. In a dispute, that confirmation is the document the board will be held to. Where the net-assets test was close, the safer course is to have the confirmation supported by a balance sheet drawn up close to the purchase date rather than the last audited accounts.
There is one situation in which the board may act without prior authorisation. Under Article 381, where the acquisition is necessary to avoid an imminent and serious loss, the company may acquire its own shares without a general assembly resolution. The board must then give written information to the next general assembly on the reason and purpose of the acquisition, the number of shares acquired, their total nominal value and the proportion of the capital they represent, and the price and payment terms. The provision is an emergency valve, not a general alternative: the other conditions in Article 379, including the 10% ceiling and the net-assets test, continue to apply, and a board that invokes it for an ordinary exit will have to defend the "imminent and serious loss" before shareholders and, if necessary, a court.
3. The Money Test: Net Assets, Non-Distributable Reserves and Fully Paid Shares
A buyback returns money to a shareholder. Turkish law treats it, economically, as a distribution, and Article 379(3) applies the same logic that governs dividends: after the purchase price of the shares to be acquired has been deducted, the company's remaining net assets must be at least equal to the sum of the share capital (or issued capital) and the reserves that may not be distributed under the law and the articles of association. The company may, in other words, pay for its own shares only out of what it could otherwise have paid out as dividend.
The non-distributable reserves are principally the general statutory reserve under Article 519 up to the level the law protects, the reserve for the company's own shares under Article 520, and any reserve the articles designate as non-distributable. Reserves that the general assembly has created voluntarily and may release at will do not count against the test; they are part of the free equity that can fund the purchase. The computation therefore depends on a correct reading of the equity section of the balance sheet, and a company whose statutory reserve is below the 20% level that Article 519(1) contemplates will find that a larger part of its equity is locked than management may have assumed.
Article 520(1) adds an accounting consequence that is easy to overlook when the deal is being priced. The company must set aside a reserve equal to the acquisition value of its own shares. That reserve may be released only when the shares are transferred or cancelled, and only to the extent of their acquisition value. The effect is that a buyback does not simply reduce cash and add an asset; it also immobilises an equal amount of equity for as long as the shares are held, which in turn reduces the distributable profit available for the next dividend and the headroom for the next buyback.
Article 379(4) supplies the last condition: only shares whose price has been fully paid may be acquired. A company that bought partly paid shares would be releasing the shareholder from the unpaid capital contribution, which is a reduction of capital by the back door. The same policy explains Article 388, discussed below, which prohibits the company from subscribing for its own shares at all.
For a foreign parent planning the exit of a local partner through a buyback, the practical sequence is therefore: confirm the shares are fully paid; compute net assets on a recent balance sheet; identify the non-distributable reserves; check that the price, plus the Article 520 reserve, leaves the required cover; and only then take the authorisation to the general assembly with the number, nominal value and price band that the numbers support.
4. The Financing Prohibition in Article 380: Loans, Advances and Security Are Void
Article 380(1) deals with the transaction that most often accompanies a buyback in practice: the company helping someone else to buy its shares. Legal transactions concluded by the company with another person, the subject of which is the grant of an advance, loan or security for the purpose of acquiring the company's shares, are void (batıl). The nullity is absolute. It is not cured by shareholder approval, it does not depend on the 10% ceiling, and it applies whether the acquirer is an existing shareholder, a management team or an outside investor.
The provision carves out two categories. The first covers transactions that fall within the ordinary business of credit and finance institutions: a bank that lends to a customer who happens to use the money to buy the bank's shares is not caught merely because of the borrower's choice. The second covers advances, loans and security granted to employees of the company or of its affiliated companies to enable them to acquire the company's shares, which is the statutory basis for employee share ownership plans in Turkish companies. Both exceptions are qualified: they do not apply if the transaction would reduce the reserves that the company is required to set aside by law or under its articles, or would infringe the rules in Article 519 on the use of reserves, or would leave the company unable to set aside the reserve for its own shares required by Article 520. An employee scheme financed out of protected reserves is therefore as void as any other assistance.
Article 380(2) reaches arrangements that shift the purchase onto a third party. An arrangement between the company and a third party that grants that person the right, or imposes the obligation, to acquire the company's shares for the account of the company, of a company controlled by it, or of a company in which it holds the majority of shares, is void if the acquisition would have infringed Article 379 had the company made it directly. The paragraph mirrors the nominee rule in Article 379(1): the Code looks through the structure to the economic buyer.
The consequences for deal structuring are significant. A leveraged exit in which the company borrows from a bank, guarantees the buyer's acquisition debt or pledges its assets so that the buyer can pay the seller is not a buyback problem but a financial-assistance problem, and it fails under Article 380 regardless of size. A shareholder who wants to be bought out with the company's money has, under Turkish law, essentially one lawful route: a buyback within Article 379, authorised by the general assembly, funded from distributable equity, and capped at 10% of the capital. Beyond that, the remaining shareholders must fund the purchase themselves, or the company must reduce its capital under Articles 473 to 475, which is the route Article 382(a) expressly preserves.
5. The Exceptions in Articles 382 and 383: Capital Reductions, Universal Succession, Enforcement and Gifts
Article 382 lists five situations in which a company may acquire its own shares without being bound by Article 379, that is, without the 10% ceiling, the general assembly authorisation or the net-assets test:
- where the company is applying the capital reduction provisions in Articles 473 to 475 (a reduction by cancellation of shares necessarily involves the company taking them in);
- where the acquisition is the consequence of the rule of universal succession, typically a merger or the inheritance of an estate that includes the company's own shares;
- where it arises from a statutory obligation to purchase;
- where it is aimed at the collection of a company claim through compulsory enforcement, provided the shares are fully paid;
- where the company is a securities company.
Article 383 adds a sixth: a company may acquire its own shares gratuitously, again provided they are fully paid, and the same rule applies by analogy where a subsidiary acquires shares of its parent without consideration. A shareholder who wishes to donate shares back to the company, or who leaves them to the company by will, does not trigger the Article 379 machinery.
The exceptions are narrower than they first appear, because Article 384 attaches a disposal obligation to most of them. Shares acquired under Article 382(b) to (d) and under Article 383 must be disposed of as soon as this is possible without causing the company any loss, and in any event within three years of their acquisition, unless the total of such shares held by the company and its subsidiaries does not exceed one tenth of the share capital or issued capital. The exceptions therefore permit the acquisition; they do not permit the company to keep shares above the 10% line indefinitely. A company that ends up with 25% of its own shares after a merger has three years to place 15% of them with investors or existing shareholders, or to cancel them.
Two of the exceptions are not subject to the three-year rule: shares acquired in the course of a capital reduction under Article 382(a), which are cancelled as part of the reduction itself, and shares held by a securities company under Article 382(e), for which holding shares is the business. For every other exception, the board should diary the three-year deadline on the day of acquisition, because Article 386 provides that shares which cannot be disposed of within the time allowed are to be cancelled immediately by a reduction of capital.
6. What Happens to an Unlawful Acquisition: Six Months to Sell, Then Cancellation
The Code does not respond to a buyback that breaches Articles 379 to 381 by declaring the share purchase void. It responds with a deadline. Under Article 385, shares acquired or taken in pledge in breach of Articles 379 to 381 must be disposed of, or the pledge over them lifted, within at most six months from the date of acquisition or of the pledge. Article 386 then closes the loop: shares that cannot be disposed of under Articles 384 or 385 are cancelled immediately by way of a capital reduction.
The practical position of a board that discovers, after the fact, that a purchase exceeded the ceiling or lacked a valid authorisation is therefore clear but uncomfortable. It has six months to find a buyer for the excess shares at a price that does not damage the company, and if it cannot, it must convene a general assembly to reduce the capital and cancel them. Both steps create a record, and both may expose the directors to liability towards the company under the general provisions if the unlawful purchase caused loss, for instance because the shares were bought at a price the company can no longer recover on resale.
The interaction with the seller deserves a separate word. The shareholder who sold to the company in breach of Article 379 has received the price, and the Code does not order it to be repaid; the sanction is directed at the company's holding, not at the transfer. Where the buyback was the mechanism for a shareholder's exit under a shareholders' agreement, the remaining parties should assume that a subsequent forced resale at a lower price, or a capital reduction that requires creditor notices under Articles 473 to 475, will follow, and they should allocate that risk in the exit documentation rather than discover it afterwards.
Article 388 addresses a related but distinct prohibition: a company may not subscribe for its own shares. Subscription by a third party or a subsidiary in its own name but for the company's account counts as subscription by the company. Where the prohibition is breached, the shares are deemed to have been subscribed by the founders at incorporation, or by the members of the board of directors in a capital increase, and those persons become liable for the subscription price, unless they prove that they were not at fault in the unlawful subscription. The same rules apply by analogy to a subsidiary that subscribes for shares of its parent, in which case the subsidiary's own directors are deemed the subscribers. A capital increase in which the company itself, or a subsidiary funded for the purpose, takes up shares is therefore not merely voidable; it creates a personal payment obligation for the directors who allowed it.
7. Treasury Shares in the Company's Hands: No Rights, No Quorum, and a Frozen Vote for Subsidiaries
Once the company lawfully holds its own shares, Article 389 determines what those shares can do, which is almost nothing. Shares acquired by the company, and shares of the parent acquired by a subsidiary, are not taken into account in calculating the meeting quorum of the parent's general assembly. With the exception of the acquisition of bonus shares, the company's own shares confer no shareholder rights whatsoever. The voting rights, and the rights attached to them, of parent shares held by a subsidiary are frozen.
The practical effects are worth spelling out. A company holding 10% of its own shares cannot vote them, so the remaining 90% of the capital decides everything, and majorities are computed on a smaller base. A shareholder who held 46% before a buyback of 10% from a departing partner may find that the same shares now represent a majority of the votes that can actually be cast. Dividend entitlement on treasury shares does not accrue to the company; the distributable profit is shared among the other shareholders. Pre-emptive rights in a capital increase are likewise not exercised by the company on its own shares. The single exception, the right to receive bonus shares issued out of internal resources, exists so that the proportion the company holds is not diluted by a capitalisation of reserves that it did not choose.
The subsidiary rule has a sharper edge in groups. Where a Turkish subsidiary holds shares of its foreign or domestic parent, those shares cannot be voted at the parent's general assembly, and the subsidiary's holding is aggregated with the parent's own for the 10% ceiling under Article 379(5) and the three-year disposal rule under Article 384. Cross-holdings that arose historically, for example through mergers within the group, need to be identified and either unwound or accounted for in the parent's voting arithmetic.
Article 387 preserves the provisions of other laws that allow a company to acquire its own shares. The most important of these for listed companies is capital markets legislation, under which the Capital Markets Board regulates buyback programmes, disclosure and pricing for publicly held companies; those rules operate alongside the TCC, and a listed company's buyback must satisfy both.
| Situation | Governing rule | Conditions | Deadline for disposal |
|---|---|---|---|
| Ordinary buyback for consideration | TCC 379 | ≤ 10% of capital; general assembly authorisation (max. 5 years, number, nominal value, price band); net assets cover capital + non-distributable reserves; shares fully paid; Article 520 reserve | None while within 10% |
| Emergency buyback to avoid imminent and serious loss | TCC 381 | No prior authorisation needed; written report to the next general assembly; other Article 379 conditions still apply | None while within 10% |
| Acquisition through capital reduction | TCC 382(a), 473-475 | Capital reduction procedure incl. creditor protection | Cancelled in the reduction |
| Universal succession, statutory purchase obligation, enforcement of a company claim (fully paid shares) | TCC 382(b)-(d), 384 | Not bound by Article 379 | As soon as possible without loss; in any event 3 years, unless total ≤ 10% |
| Gratuitous acquisition (fully paid shares) | TCC 383, 384 | Not bound by Article 379; subsidiary by analogy | As above: 3 years unless total ≤ 10% |
| Acquisition or pledge in breach of Articles 379-381 | TCC 385, 386 | — | 6 months; if impossible, immediate cancellation by capital reduction |
| Financial assistance (loan, advance, security) for acquiring the company's shares | TCC 380 | Void, save for banks in ordinary business and employee schemes, and even then only if protected reserves are untouched | Not applicable: the transaction is void |
| Limited liability company acquiring its own capital shares | TCC 612 | Freely usable equity; ≤ 10% of capital (20% on a member's withdrawal or expulsion); reserve equal to the price; rights frozen | Excess above 10% after withdrawal/expulsion: 2 years |
8. Limited Liability Companies (TCC 612) and a Checklist for the Board
The limited liability company (limited şirket) has its own provision. Under Article 612(1) an LLC may acquire its own capital shares only if it has freely usable equity in the amount required to pay for them and the total nominal value of the shares to be acquired does not exceed 10% of the share capital. Where the acquisition results from a member's withdrawal or expulsion provided for in the articles or ordered by a court, the ceiling rises to 20%, but shares acquired above the 10% level must be disposed of, or redeemed through a capital reduction, within two years (Article 612(2)). The company must set aside a reserve equal to the amount it paid (Article 612(3)); the voting rights and related rights attached to the shares are frozen while the company holds them (Article 612(4)); additional and ancillary payment obligations attached to those shares cannot be demanded during that period (Article 612(5)); and the limitation applies equally where the company's majority-owned subsidiaries acquire its shares (Article 612(6)). The general assembly of an LLC also holds, as a non-transferable power, the authorisation or approval of the managers' acquisition of the company's own shares.
The LLC rule is in one respect more generous than the joint stock company rule, because it contemplates the exit of a member at up to 20%, and in another respect more demanding, because the disposal period for the excess is two years rather than three. For groups that hold Turkish operating subsidiaries as LLCs, which is common, the practical consequence is that a buyout of a local minority member by the company is possible but limited, and the shareholders' agreement should say what happens if the departing member's stake exceeds what the company may buy.
For a board of either company type contemplating a buyback, the sequence that follows from Articles 379 to 389 can be reduced to a checklist:
- Purpose and structure. Is the company the buyer, or is it financing someone else's purchase? If the latter, Article 380 applies and the transaction is void unless it falls within the bank or employee exception.
- Ceiling. Add the shares to be acquired to the company's existing own shares and to any parent shares held by subsidiaries. Is the total within 10% of the share capital or issued capital?
- Authorisation. Is there a general assembly resolution, not older than five years, stating the number of shares, their total nominal value and the price band? Does the proposed purchase fall within all three?
- Net assets. On a recent balance sheet, do net assets after the price still cover capital plus non-distributable reserves? Has the Article 520 reserve been provided for?
- Fully paid. Are the shares fully paid up? If not, they cannot be acquired.
- Board confirmation. Record the board's statement that the statutory conditions are met, with the supporting figures.
- Aftermath. Book the reserve, exclude the shares from quorum and voting, diary any disposal deadline (three years for exception shares, six months for a breach, two years for an LLC excess), and for listed companies comply with capital markets disclosure and pricing rules.
Buybacks are lawful, useful and increasingly common in Turkish private companies. What the Code does not tolerate is a buyback used as a capital reduction without the creditor protections of Articles 473 to 475, or as financial assistance dressed as something else. A transaction that respects the four conditions of Article 379 and the disposal discipline of Articles 384 to 386 will stand; one that does not will be unwound within months, at the company's expense.
Frequently asked questions
Can a Turkish joint stock company buy back more than 10% of its shares if all shareholders agree?
Not for consideration under Article 379. The 10% ceiling is a rule of capital maintenance that protects creditors, not only shareholders, so unanimous shareholder consent does not remove it. Shares above the ceiling may reach the company only through the exceptions in Article 382 (capital reduction, universal succession, a statutory purchase obligation, enforcement of a company claim, or a securities company) or gratuitously under Article 383, and in most of those cases Article 384 requires the excess to be sold within three years. If shareholders want the company to take in a larger block, the lawful route is a capital reduction under Articles 473 to 475.
Does the general assembly authorisation have to name the selling shareholder?
No. Article 379(2) requires the authorisation to state the number of shares by nominal value, their total nominal value and the lower and upper price limits, and to be limited to at most five years. It does not require the identity of the seller. In practice a resolution passed to facilitate the exit of a specific shareholder often refers to that shareholder, but the statutory validity of the authorisation depends on the three mandatory contents, and the board must in addition confirm on each purchase that the conditions of Article 379 are met.
Can the company lend the buyer the money, or guarantee a bank loan, so that an existing shareholder can be bought out?
No. Article 380(1) makes void any legal transaction in which the company grants an advance, loan or security for the purpose of the acquisition of its own shares. The only exceptions are transactions within the ordinary business of credit and finance institutions and assistance to employees of the company or its affiliates under share schemes, and even those are invalid if they would erode reserves the company must keep under Article 519 or prevent it from setting aside the Article 520 reserve. A management buyout or partner exit that relies on the company's balance sheet as the source of the purchase price must therefore be structured as a buyback within Article 379 or funded by the buyers themselves.
What are the consequences if a buyback is later found to have breached Article 379?
The purchase is not automatically void, but Article 385 requires the shares acquired in breach of Articles 379 to 381 to be disposed of within six months of the acquisition, or the pledge over them to be lifted within the same period. If disposal is not possible, Article 386 requires the shares to be cancelled immediately by a capital reduction. Directors who caused the company loss through an unlawful acquisition may face liability towards the company under the general rules on directors' responsibility.
What rights does the company have over its own shares while it holds them?
Practically none. Under Article 389 the company's own shares, and parent shares held by a subsidiary, are disregarded in calculating the general assembly meeting quorum, and they confer no shareholder rights except the right to receive bonus shares. Voting rights on parent shares held by a subsidiary are frozen. The company also cannot receive dividends on treasury shares; distributable profit is shared among the other shareholders. In addition, Article 520 requires the company to maintain a reserve equal to the acquisition value of the shares until they are transferred or cancelled.
How do the rules differ for a Turkish limited liability company?
Article 612 governs LLCs. The company may acquire its own capital shares only out of freely usable equity and up to 10% of the share capital; where the acquisition results from a member's withdrawal or expulsion provided for in the articles or ordered by a court, the ceiling is 20%, but the part above 10% must be disposed of or redeemed by capital reduction within two years. The company must set aside a reserve equal to the amount paid, the voting and related rights on the shares are frozen while the company holds them, additional and ancillary payment obligations on those shares cannot be demanded in that period, and the same limits apply to acquisitions by the company's majority-owned subsidiaries. Authorising or approving the acquisition is a non-transferable power of the LLC general assembly.
