A co-founder leaves and nobody wants to buy their shares personally. An angel wants out before the Series A and the remaining shareholders would rather the company paid than dilute themselves. An option pool needs shares that no one wants to issue fresh. Each time, someone asks whether the company can simply buy its own shares. Under the Turkish Commercial Code No. 6102 (TCC) the answer is a qualified yes: Articles 379 to 389 allow a joint-stock company to acquire its own shares for value up to ten per cent of its capital, on a general assembly authorisation, out of freely distributable equity and only if the shares are fully paid, and they attach consequences to the shares the company holds. Article 612 gives limited companies a narrower version. The tax law then adds a rule that surprises most founders: under Article 94 of the Income Tax Law No. 193, a buyback by a non-listed company is treated as a deemed dividend distribution subject to fifteen per cent withholding when the shares are cancelled, sold at a loss or held for two years. This article explains the ten per cent rule and its conditions, the ban on financing the purchase, the exceptions, the disposal deadlines, the reserve and the frozen rights, the limited-company version, and the withholding tax, and then applies them to the founder-exit and option-pool situations startups actually face. It follows our articles on founder departures and capital reduction.
The ten per cent rule and its four conditions
Article 379(1) provides that a company may not acquire for value, or accept as pledge, its own shares in an amount exceeding, or which would exceed as a result of the transaction, one-tenth of its share or issued capital; the rule extends to shares acquired or pledged by a third party in its own name but for the company’s account. Within the limit, Article 379(2) requires an authorisation from the general assembly to the board, valid for at most five years, which states the nominal value and number of the shares to be acquired or pledged and the lower and upper limits of the price that may be paid; the board must confirm in each request that the statutory conditions are met. Article 379(3) adds the net-asset test: after deducting the price of the shares to be acquired, the company’s remaining net assets must be at least equal to the share capital plus the reserves that may not be distributed under the law and the articles, which means a buyback is paid out of freely distributable equity, never out of capital. Article 379(4) allows only fully paid shares to be acquired. Article 379(5) applies the same rules where a subsidiary acquires the parent’s shares, and leaves transparency and pricing rules for listed companies to the Capital Markets Board. For a startup the practical questions are therefore whether the shares to be bought are within ten per cent of the capital, whether there is a general assembly authorisation with a price range, whether the last balance sheet shows enough free equity to pay the price, and whether the departing shareholder has paid up in full.
Financing the purchase: Article 380
Article 380(1) makes void any legal transaction between the company and another person whose object is an advance, loan or security for the purpose of acquiring the company’s shares, so the company may not lend the buyer the money or guarantee the buyer’s loan. The provision exempts the ordinary business of credit and financial institutions and, importantly for startups, advances, loans and security given to employees of the company or its affiliates to enable them to acquire the company’s shares, provided these do not reduce the reserves the company must set aside under the law and its articles, do not breach the rules on the use of reserves in Article 519 and do not prevent the company from setting aside the reserve required by Article 520. An employee share scheme financed by company loans is therefore possible within those limits. Article 380(2) also voids arrangements under which a third party has a right or an obligation to acquire the company’s shares for the company’s account where the company itself could not have acquired them under Article 379, which blocks the obvious workaround of parking the shares with a friendly third party.
Exceptions: emergencies, reductions, universal succession, enforcement, gifts
Article 381 permits an acquisition without a general assembly authorisation where necessary to avoid an imminent and serious loss, with the board reporting to the next general assembly the reasons, the number and nominal value of the shares, their share of the capital, the price and payment terms. Article 382 lists acquisitions outside Article 379 altogether: shares acquired in applying the capital-reduction rules of Articles 473 to 475, by universal succession (for example a merger), under a statutory purchase obligation, through compulsory enforcement to collect a company claim where the shares are fully paid, or by a securities company. Article 383 allows a company to acquire fully paid shares without consideration, which is how a departing founder sometimes returns unvested shares to the company under a reverse-vesting arrangement, and applies the same rule by analogy to a subsidiary acquiring the parent’s shares as a gift. These routes matter because they are not counted against the ten per cent ceiling at the moment of acquisition, although they feed into the disposal rules that follow.
Disposal deadlines, the reserve and the frozen rights
Shares acquired under Article 382(b) to (d) or Article 383 must be disposed of as soon as this is possible without loss to the company and in any event within three years of acquisition, unless the shares held by the company and its subsidiaries together do not exceed ten per cent of the capital (Article 384). Shares acquired or pledged in breach of Articles 379 to 381 must be disposed of, or the pledge lifted, within six months (Article 385). Shares that cannot be disposed of within these periods must be cancelled immediately by capital reduction under Article 386, which brings the procedure we described in capital reduction. While the company holds its own shares, Article 520(1) requires it to set aside a reserve equal to the acquisition value, which may be released when the shares are transferred or cancelled; the reserve is what keeps the buyback from disguising a return of capital. Article 389 provides that the company’s own shares, and the parent’s shares held by a subsidiary, are not counted in the quorum of the parent’s general assembly, and that the shares the company holds carry no shareholder rights at all (except bonus shares), while the parent shares held by a subsidiary have their voting and related rights frozen. Article 388 completes the picture with a ban on the company subscribing for its own shares; where a third party or subsidiary subscribes for the company’s account, the founders (at incorporation) or the board members (in a capital increase) are deemed to have subscribed and are liable for the price unless they prove they were not at fault.
Limited companies: Article 612
Limited companies have their own rule. Under Article 612(1) a limited company may acquire its own capital shares only if it has freely usable equity in the amount needed to buy them and the nominal value of the shares acquired does not exceed ten per cent of the capital. Article 612(2) raises the ceiling to twenty per cent where the shares are acquired because of a withdrawal or expulsion provided in the articles or ordered by a court, with the excess over ten per cent to be disposed of or cancelled by capital reduction within two years; this is the provision that makes the exit and expulsion mechanisms we described in exit and expulsion from a limited company workable, since the company can take the leaver’s shares itself. Article 612(3) requires a reserve equal to the amount paid, Article 612(4) freezes the voting and related rights of the shares while the company holds them, and Article 612(5) suspends the additional and ancillary payment obligations attached to them; Article 612(6) applies the limits by analogy to acquisition by controlled subsidiaries. The transfer to the company still requires the notarised written form and general assembly approval of Article 595 unless the articles dispense with it.
The tax: fifteen per cent withholding on a deemed dividend
Since Law No. 7256 of November 2020 the Income Tax Law treats a buyback as a distribution. Under the paragraph added to Article 94, where a fully liable capital company acquires its own shares or partnership interests, the difference between the acquisition price and the nominal value is deemed a distributed dividend if the shares are cancelled by capital reduction, on the date the reduction resolution is registered; the difference between the acquisition price and the sale price is deemed a distributed dividend if the shares are sold below the acquisition price, on the date of sale; and the difference between the acquisition price and the nominal value is deemed a distributed dividend if the shares are neither cancelled nor sold within two full years of acquisition, on the last day of that period. Fifteen per cent withholding applies to these amounts and cannot be credited against any other tax. The President may reduce the rate to zero or double it by reference to listing, size and other criteria, and Presidential Decision No. 7343 (Official Gazette 7 July 2023, No. 32241) set the rate at zero only for fully liable capital companies whose shares are traded on Borsa İstanbul, for shares acquired from that date, leaving fifteen per cent for all other companies. A startup that buys a departing founder’s shares at a premium to nominal value and holds them for the option pool therefore faces a withholding charge two years later on the whole premium, unless it resells the shares at or above cost within the period, for example to new investors or employees; the withholding is the company’s cost, not the seller’s, and sits on top of the seller’s own capital-gains position under repeated Article 80 (mükerrer madde 80) of the Income Tax Law, where an individual’s joint-stock company share certificates held for more than two years are exempt (shares without printed certificates are not) but limited company shares are always taxable.
Can the company buy a departing founder’s shares instead of the other founders?
Yes, within ten per cent of the capital, with a general assembly authorisation stating the price range, out of free equity and only if the shares are fully paid. Plan the resale or cancellation within two years to manage the Article 94 withholding, and remember that the shares carry no rights while the company holds them, which changes the voting arithmetic among the remaining shareholders.
Can we use bought-back shares for an option pool?
The company may hold and later transfer them to employees, and Article 380 allows it to finance employees’ purchases within the reserve limits. Two constraints remain: the ten per cent ceiling on the company’s total holding, and the two-year clock in Article 94, after which the premium over nominal value is taxed as a deemed dividend if the shares are still on the company’s books.
What if we exceeded ten per cent by mistake?
The excess acquired in breach of Article 379 must be disposed of within six months under Article 385; if that fails, it must be cancelled by capital reduction under Article 386, and the board members who approved the acquisition face liability under Article 553 for any loss to the company.
Related: dividend · withholding tax · founder departures · exit and expulsion.
Sources. Turkish Commercial Code No. 6102 (Articles 379–389, 473–475, 519–520, 553, 595, 612); Income Tax Law No. 193 (Article 94, paragraph added by Law No. 7256; repeated Article 80); Presidential Decision No. 7343 (Official Gazette 7 July 2023, No. 32241). Statute links open the official Turkish texts on mevzuat.gov.tr.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
