Privileged Shares in a Turkish Joint Stock Company: Voting Privilege, the Special Assembly and Board Representation (TCC 478, 479, 454 and 360)
What is a privileged share in a Turkish joint stock company (anonim şirket)? Under Article 478(1) of the Turkish Commercial Code (TCC, Law No. 6102), privileges may be granted to some shares by the initial articles of association or by amending the articles. Under TCC 478(2), a privilege (imtiyaz) is a superior right granted to a share in rights such as the dividend, the liquidation share, the pre-emption right and the voting right, or a new shareholding right not provided for in the Code. TCC 478(3) reserves TCC 360, under which shares given a right to be represented on the board of directors are deemed privileged. Below: what may be privileged, the voting privilege (TCC 479), the special assembly (TCC 454), board seats (TCC 360), a comparison table and a checklist for foreign investors. Capital markets legislation applies separately to publicly held companies and is not covered here (TCC 460(7) reserves the provisions of the Capital Markets Law on publicly held joint stock companies, and TCC 507(3) reserves the Capital Markets Law and the related legislation).
1. What Is a Privileged Share in a Turkish Joint Stock Company? (TCC 478)
The direct answer. A privileged share (imtiyazlı pay) is a share to which the articles of association attach a privilege. Under TCC 478(1), privileges may be granted to some shares either by the initial articles of association or by amending the articles. Under TCC 478(2), a privilege is a superior right granted to a share in rights such as the dividend, the liquidation share, the pre-emption right and the voting right, or a new shareholding right not provided for in the Code.
Two limbs of the definition. The first limb is a superior right within a shareholder right that the Code already provides: the statute names the dividend, the liquidation share, pre-emption and voting, and the statute introduces them with the words “such as” (gibi). The second limb is a new shareholding right not provided for in the Code. TCC 478(1) speaks of granting privileges to “some shares” (bazı paylara).
Why the articles matter. Under TCC 340(1), the articles of association may deviate from the Code's provisions on joint stock companies only where the Code expressly permits it. TCC 478(1) permits privileges for some shares; the provisions discussed below set the conditions and limits for particular privileges.
Where privileges are written and published. Under TCC 339(2)(d), the articles of association state whether share certificates are registered or bearer, the privileges granted to certain shares and any transfer restrictions; under TCC 339(2)(h), the articles also state how general assemblies are called and the voting rights. Under TCC 354(1), the whole of the articles of association is registered with the trade registry of the place of the company's seat and announced in the Turkish Trade Registry Gazette, and the matters listed in that paragraph include the share capital, the manner and conditions of its payment, the nominal values of the shares and any privileges (TCC 354(1)(d)).
Creating privileges in an existing company. Where privileges are introduced by amending the articles, TCC 421(3)(b) requires the resolution creating privileged shares to be taken with the affirmative votes of the holders or representatives of shares making up at least seventy-five per cent of the capital. Under TCC 421(4), if that quorum is not reached at the first meeting, the same quorum is required at the following meetings. TCC 421(3) lists the creation of privileged shares among resolutions amending the articles of association, and under TCC 479(3)(a) a voting privilege cannot be used in resolutions on amending the articles of association.
Shareholders who voted against. Under TCC 421(6), holders of registered shares who voted against the general assembly resolution creating privileged shares are not bound by the restrictions on the transferability of shares for six months from the publication of the resolution in the Turkish Trade Registry Gazette.
2. Which Rights Can Be Privileged, and What Does the Code Rule Out?
The direct answer. TCC 478(2) names the dividend, the liquidation share, the pre-emption right and the voting right as examples of rights in which a share may carry a superior right, and it also allows a new shareholding right not provided for in the Code; TCC 360(2) adds that shares given a right to be represented on the board are deemed privileged. The Code also sets limits: TCC 478(4) bars privileges for other shares in companies more than half of whose capital belongs to the public bodies and organisations listed there, subject to the exceptions in that paragraph, TCC 479 caps and restricts voting privileges, and provisional Article 15(2) of the TCC prevents privileges from being used against resolutions raising the capital to the amounts provided in TCC 332 and 580.
Dividend. Under TCC 507(1), every shareholder has the right to participate, in proportion to their share, in the net profit for the period that has been resolved to be distributed to shareholders under the law and the articles of association. TCC 507(2) reserves the privilege rights and special benefits granted in the articles to certain types of shares. TCC 507(3) reserves the Capital Markets Law and the related legislation.
Liquidation share. Under TCC 543(1), after the debts of a company in liquidation have been paid and the share amounts have been returned, the remaining assets are distributed among the shareholders, unless the articles of association provide otherwise, in proportion to the capital they paid and their privilege rights. The same paragraph adds that where a privilege exists in the liquidation share, the arrangement in the articles applies. TCC 507(1) sets the general rule that, if the articles contain no other provision on the use of the assets of the dissolved company, each shareholder participates in the amount remaining after liquidation in proportion to their share.
Pre-emption. TCC 461(1) gives every shareholder the right to take newly issued shares in proportion to their existing shares in the capital, and TCC 478(2) names pre-emption among the rights in which a superior right may be granted. Any restriction of pre-emption rights in a capital increase remains subject to TCC 461(2): the general assembly may restrict or remove the right only where there are just causes and with the affirmative vote of at least sixty per cent of the share capital, and no one may be benefited or harmed in an unjustified way through the restriction or removal. TCC 461(4) provides that the pre-emption right is transferable.
Voting. TCC 479 sets a cap and a list of resolutions in which a voting privilege cannot be used; section 3 covers it.
A new shareholding right. The second limb of TCC 478(2) allows a privilege in the form of a shareholding right not provided for in the Code. The statute itself gives no list of such rights.
What the Code rules out or restricts.
- Companies owned by public bodies and organisations. In joint stock companies more than half of whose capital belongs, alone or together, to the State, special provincial administrations, municipalities and other public legal entities, trade unions, associations, foundations, cooperatives and their umbrella organisations, and in their subsidiaries in which these companies hold the same proportion of capital, no privilege regulated in the Code may be established for other shares, shareholders forming a certain group, certain share groups or the minority, except privileges that may be established for the shares those owners hold (TCC 478(4), added by Law No. 6335 of 26 June 2012). The rule does not apply to joint stock companies whose shares are traded on the stock exchange, or to credit institutions and financial institutions defined in Article 3 of Law No. 5411.
- Voting limits. The fifteen-vote cap and the resolutions closed to the voting privilege (TCC 479(2) and (3)).
- Raising capital to the amounts in TCC 332 and 580. At general assembly meetings held to raise the capital to the amounts provided in TCC 332 and 580, no meeting quorum is sought, resolutions are taken by the majority of the votes present, and privileges cannot be used against these resolutions (provisional Article 15(2) of the TCC, added by Law No. 7511 of 23 May 2024). The period in provisional Article 15(1) runs to 31 December 2026, and the Ministry of Trade may extend it by one year at a time, at most twice (provisional Article 15(3)).
- Board issuing privileged shares. In the registered capital system, the board of directors may issue privileged shares only if it has been authorised by the articles of association (TCC 460(4)).
3. How Far Can a Voting Privilege Go? (TCC 479)
The direct answer. Under TCC 479(1), a voting privilege may be granted by giving shares of equal nominal value a different number of votes. Under TCC 479(2), a share may be granted at most fifteen votes; this cap does not apply where institutionalisation requires it or where a just cause is proven, and in those two cases the commercial court of first instance (asliye ticaret mahkemesi) at the company's seat must examine the institutionalisation project or the just cause and decide on the exemption. Under TCC 479(3), a voting privilege cannot be used in resolutions on amending the articles of association or on release and filing a liability action.
The baseline the privilege departs from. Under TCC 434(1), shareholders exercise their voting rights at the general assembly in proportion to the total nominal value of their shares, and TCC 434(1) reserves TCC 1527(5). TCC 434(2) provides that every shareholder has at least one vote even if they hold only one share, and that the articles of association may limit the number of votes granted to shareholders holding more than one share. Under TCC 435(1), the voting right arises upon payment of the minimum amount of the share set by law or by the articles of association.
Equal nominal value, different votes. Under TCC 479(1), the voting privilege is granted by giving shares of equal nominal value a different number of votes. Under TCC 339(2)(d) and (h), the articles of association state the privileges granted to certain shares and the voting rights.
Going above fifteen votes. The fifteen-vote cap in TCC 479(2) does not apply in the two situations the paragraph names: where institutionalisation requires it, or where a just cause is proven. In both, the commercial court at the company's seat examines the institutionalisation project or the just cause and decides on the exemption from the cap. Every change to the project is subject to a court decision, and the court may withdraw the exemption where it becomes clear that institutionalisation will not take place or that the just cause has ceased.
Resolutions where the privilege cannot be used. TCC 479(3) lists the resolutions in which a voting privilege cannot be used: (a) amendment of the articles of association and (c) release (ibra) and the filing of a liability action. Item (b) of that list was repealed by Law No. 6335 of 26 June 2012.
What this means for a privileged holder. For a shareholder whose influence rests on a voting privilege, TCC 479(3)(a) means that the voting privilege cannot be used in resolutions on amending the articles of association. Under TCC 421(1), unless the law or the articles provide otherwise, resolutions amending the articles are taken at a general assembly at which at least half of the company's capital is represented, by the majority of the votes present; certain amendments, including the creation of privileged shares, require the heavier quorums in TCC 421(3).
4. When Must the Special Assembly of Privileged Shareholders Approve a Resolution? (TCC 454)
The direct answer. TCC 454(1) covers three kinds of resolution: a general assembly resolution amending the articles of association, a general assembly resolution authorising the board of directors to increase the capital, and a board resolution increasing the capital. Where such a resolution is of a nature to violate the rights of privileged shareholders, the special assembly rules apply. Under TCC 454(1), such a resolution cannot be implemented unless it is approved by a resolution of the privileged shareholders taken at a special meeting in accordance with the following provisions of that article.
Calling the special assembly. Under TCC 454(2), within one month at the latest from the date on which the general assembly resolution is announced, the board of directors calls the special assembly to a meeting. If it does not, each privileged shareholder may, within fifteen days starting from the last day of the board's calling period, ask the commercial court of first instance at the place of the company's seat to have the special assembly called.
Quorums. Under TCC 454(3), the special assembly meets with the majority of sixty per cent of the capital representing the privileged shares and takes its resolution by the majority of the shares represented at the meeting. A Ministry representative also attends the special assembly meeting within the framework of TCC 407(3) and signs the minutes (TCC 454(6)).
If the special assembly finds a violation. TCC 454(3) sets a formal procedure. If the special assembly concludes that the rights of the privileged shareholders have been violated, the resolution is stated in reasoned minutes, and the minutes must be delivered to the company's board of directors within ten days. Together with the minutes, the board receives a list containing the signatures of those who voted against approving the general assembly resolution, in at least the number forming the quorum, and a joint address for service for the action that may be brought under TCC 454(8). The minutes, with the information delivered with them, are registered and announced in the Turkish Trade Registry Gazette. If these conditions are not complied with, the special assembly resolution is deemed not to have been taken.
When no separate meeting is needed. Under TCC 454(4), no separate special meeting is held if, at the general assembly, the holders or representatives of the privileged shares voted in favour of the amendment of the articles of association in line with the meeting and resolution quorums set in TCC 454(3). Under TCC 454(5), if the special assembly cannot meet within the period despite the call, the general assembly resolution is deemed approved.
The board's action against a refusal. Under TCC 454(7), the board of directors may, within one month from the date of the special assembly's refusal, bring an action at the commercial court of first instance at the place of the company's seat for the annulment of that refusal and for the registration of the general assembly resolution, on the ground that the general assembly resolution does not violate the shareholders' rights. Under TCC 454(8), the action is directed against those who voted against approving the general assembly resolution.
Registered capital companies. TCC 454(1) expressly includes the board's resolution increasing the capital. In the registered capital system, the board announces the restrictions concerning privileged shares as provided in the articles of association and publishes them on the company's website, and states in its resolution whether the new shares are privileged (TCC 460(2)), and it may issue privileged shares only if the articles of association authorise it (TCC 460(4)).
5. Can Privileged Shares Carry a Right to Board Seats? (TCC 360)
The direct answer. Yes, if the articles of association provide for it. Under TCC 360(1), certain share groups, shareholders forming a certain group by their characteristics and qualities, and the minority may be given a right to be represented on the board of directors. Under TCC 360(2), shares given a right to be represented on the board under that article are deemed privileged, and TCC 478(3) reserves TCC 360.
The board itself. Under TCC 359(1), a joint stock company has a board of directors consisting of one or more persons appointed by the articles of association or elected by the general assembly. Under TCC 359(2), if a legal entity is elected as a board member, only one natural person, designated by the legal entity, is also registered and announced on behalf of the legal entity, and only that registered person may attend meetings and vote on its behalf. Under TCC 359(3), board members and the natural person to be registered on behalf of a legal entity must have full legal capacity.
Two techniques in the articles. TCC 360(1) offers two ways of giving a representation right. The articles may provide that board members are to be elected from among the shareholders forming a certain group, certain share groups and the minority. The articles may also grant a right to nominate candidates for board membership.
Election of the nominee. Under TCC 360(1), the candidate nominated for board membership, or the candidate belonging to the group or the minority to which the right has been granted, must be elected by the general assembly unless there is a just cause.
Limits. Under TCC 360(1), in publicly held joint stock companies the representation right granted in this way cannot exceed half of the number of board members, and the rules on independent board members are reserved. Shares given a representation right are deemed privileged (TCC 360(2)), and TCC 454(1) applies where a resolution of the kinds it lists is of a nature to violate the rights of privileged shareholders.
For a joint venture partner. A voting privilege adds votes within the cap in TCC 479(2), subject to the court exemption in that paragraph; TCC 360 allows a representation or nomination right for certain share groups, shareholders forming a certain group and the minority. Both rest on the articles of association.
6. Privilege Types Compared: Statutory Basis and Limits
The table sets out each privilege type, its basis and its key limit.
| Privilege | Statutory basis | Key condition or limit |
|---|---|---|
| Dividend | TCC 478(2), 507 | General rule: participation in the net profit resolved to be distributed, in proportion to the share (TCC 507(1)); privilege rights and special benefits granted in the articles to certain types of shares are reserved (TCC 507(2)) |
| Liquidation share | TCC 478(2), 543(1) | Remaining assets are distributed in proportion to the capital paid and privilege rights unless the articles provide otherwise; where a liquidation privilege exists, the arrangement in the articles applies (TCC 543(1)) |
| Pre-emption | TCC 478(2), 461 | Basic right in proportion to existing shares (TCC 461(1)); restriction or removal by the general assembly only with just causes and at least sixty per cent of the share capital (TCC 461(2)); the right is transferable (TCC 461(4)) |
| Voting | TCC 478(2), 479 | Different number of votes for shares of equal nominal value (TCC 479(1)); at most fifteen votes per share unless the court grants an exemption (TCC 479(2)); cannot be used in resolutions on amending the articles or on release and filing a liability action (TCC 479(3)) |
| Board representation or nomination | TCC 360, 478(3) | Must be provided for in the articles; the nominee must be elected by the general assembly unless there is a just cause; in publicly held companies the right cannot exceed half of the board (TCC 360(1)); the shares are deemed privileged (TCC 360(2)) |
| New shareholding right | TCC 478(2) | A new shareholding right not provided for in the Code (TCC 478(2)); the statute gives no list of such rights |
| Creating any privilege by amendment | TCC 478(1), 421(3)(b), 421(4), 421(6) | Affirmative votes of the holders or representatives of shares making up at least seventy-five per cent of the capital; same quorum at later meetings; dissenting holders of registered shares are not bound by transfer restrictions for six months from publication |
| Board issuing privileged shares (registered capital) | TCC 460(2), 460(4) | Authority in the articles required; the board's resolution states whether the new shares are privileged |
The articles of association and the trade registry file show which of these privileges exist in a given company.
7. Practical Checklist for Foreign Investors Holding or Negotiating Privileged Shares
A foreign shareholder of a Turkish joint stock company, or an investor negotiating entry into one, can work through the statutory points in this order:
- Read the articles and the registry file. Check the privileges granted to certain shares and the voting rights stated in the articles (TCC 339(2)(d) and (h)), and compare them with the articles registered and announced under TCC 354(1).
- Classify each privilege. Map each clause to the dividend, liquidation share, pre-emption or voting right, a new shareholding right (TCC 478(2)) or a board representation right (TCC 360(2)), and read it with the provision for that right (TCC 507, 543, 461, 479 or 360).
- Count the votes. Check that no share carries more than fifteen votes unless a court exemption exists (TCC 479(2)), and that the minimum amount of the shares has been paid, since the voting right arises upon that payment (TCC 435(1)).
- Mark the closed resolutions. Note that the voting privilege cannot be used in resolutions on amending the articles or on release and filing a liability action (TCC 479(3)), and check the quorums for amendments under TCC 421.
- Plan for new privileges. Creating privileged shares by amendment needs the affirmative votes of the holders or representatives of shares making up at least seventy-five per cent of the capital (TCC 421(3)(b)); dissenting holders of registered shares are not bound by transfer restrictions for six months from the publication of the resolution in the Turkish Trade Registry Gazette (TCC 421(6)).
- Diarise the special assembly periods. Before an amendment of the articles, a capital increase authorisation or a board capital increase that may be of a nature to violate the rights of privileged shareholders, note the periods in TCC 454(2), (3) and (7) and whether TCC 454(4) makes a separate meeting unnecessary.
- Secure board seats in the articles. Write any representation or nomination right into the articles (TCC 360(1)); where a legal entity sits on the board, it designates one natural person to be registered (TCC 359(2)).
- Check the registered capital clause. If the company is in the registered capital system, check whether the articles authorise the board to issue privileged shares (TCC 460(4)).
- Check the shareholder base. If more than half of the capital belongs to the public bodies and organisations listed in TCC 478(4), privileges for other shares are barred, subject to the exceptions in that paragraph.
- Plan for restructuring. In a merger, equivalent rights or appropriate consideration are given in the acquiring company for privileges attached to shares in the transferring company (TCC 140(4)), and the merger agreement must state the rights the acquiring company grants to holders of privileged shares (TCC 146(1)(c)); in a change of company type, shares of the same value are given or appropriate compensation is paid for privileged shares (TCC 183(2)).
- Watch the minimum capital meetings. Privileges cannot be used against resolutions raising the capital to the amounts in TCC 332 and 580 (provisional Article 15(2)).
Lexin Legal advises shareholders and boards of Turkish joint stock companies on drafting and reviewing privilege clauses in the articles of association, board representation rights, special assemblies of privileged shareholders and the registration of the related resolutions.
Frequently asked questions
What is a privileged share in a Turkish joint stock company?
It is a share to which the articles of association attach a privilege. Privileges may be granted to some shares by the initial articles or by amending them (TCC 478(1)); a privilege is a superior right granted to a share in rights such as the dividend, the liquidation share, the pre-emption right and the voting right, or a new shareholding right not provided for in the Code (TCC 478(2)).
How many votes can one share carry?
A voting privilege is granted by giving shares of equal nominal value a different number of votes, and a share may be granted at most fifteen votes (TCC 479(1) and (2)). Above that cap, an exemption from the commercial court at the company's seat is needed, where institutionalisation requires it or a just cause is proven (TCC 479(2)).
Can a voting privilege be used to amend the articles of association?
No. A voting privilege cannot be used in resolutions on amending the articles of association or on release and filing a liability action (TCC 479(3)).
What majority is needed to create privileged shares in an existing company?
The resolution creating privileged shares is taken with the affirmative votes of the holders or representatives of shares making up at least seventy-five per cent of the capital (TCC 421(3)(b)); if that quorum is not reached at the first meeting, the same quorum is required at the following meetings (TCC 421(4)).
When is a special assembly of privileged shareholders required?
Where a general assembly resolution amending the articles, a general assembly resolution authorising the board to increase capital, or a board resolution increasing capital is of a nature to violate the rights of privileged shareholders, it cannot be implemented unless approved by the privileged shareholders at a special meeting (TCC 454(1)). No separate meeting is held if the holders or representatives of the privileged shares voted in favour of the amendment at the general assembly in line with the quorums in TCC 454(3) (TCC 454(4)).
What quorum applies at the special assembly?
The special assembly meets with the majority of sixty per cent of the capital representing the privileged shares and takes its resolution by the majority of the shares represented at the meeting (TCC 454(3)). If it cannot meet within the period despite the call, the general assembly resolution is deemed approved (TCC 454(5)).
Does a right to nominate board members make shares privileged?
Yes. If the articles provide for it, certain share groups, shareholders forming a certain group by their characteristics and qualities, and the minority may be given a right to be represented on the board, and the articles may also grant a right to nominate candidates for board membership; the nominated candidate must be elected by the general assembly unless there is a just cause (TCC 360(1)); shares given that right are deemed privileged (TCC 360(2)).
What happens to privileges in a merger or a change of company type?
In a merger, equivalent rights or appropriate consideration are given in the acquiring company for privileges attached to shares in the transferring company (TCC 140(4)). In a change of company type, shares of the same value are given or appropriate compensation is paid for privileged shares (TCC 183(2)).
