10%: the ceiling on what a joint stock company may acquire of its own shares, and on its own it explains why a family exit cannot be funded from the company’s till. The first serious crisis in a family company begins with an ordinary need for cash. One sibling wants capital to start something of his own. Another is divorcing. A nephew who inherited shares works out that they have never paid him anything. The company looks valuable on paper and is well regarded at its banks, yet none of it reaches a shareholder’s pocket.
The sequence is always the same. The member who needs money hints at it, sends a written request when the hints go nowhere, and months later is talking to a buyer outside the family. By then what is negotiated is no longer price but control. Passed through a liquidity window defined in advance, the same request would have been a two-meeting exercise.
Three doors are open to such a member: selling the shares back to the company, selling to other family members, or selling to an outsider. In conversation they sound interchangeable; in law they are separate regimes — the first governed by mandatory limits protecting capital, the second by transfer restrictions in the articles of association (esas sözleşme), the third by the family’s balance of control.
Is waiting for a dividend an answer to the liquidity problem?
The first suggestion is nearly always the same: distribute a dividend so everyone takes his share. Under TTK Article 507 every shareholder participates, in proportion to his shareholding, in the net profit whose distribution has been resolved upon and in the balance remaining on liquidation. The decisive words are “resolved upon”. That resolution belongs to the general assembly (genel kurul), so in practice to the majority; a minority member’s expectation of dividends is not a liquidity plan.
The second limit comes from the company’s own shape. Distributable profit cannot be calculated before the statutory reserves are set aside, and TTK Article 523 lets the general assembly resolve on further reserves where this is justified by the company’s continuous development and by dividends as stable as circumstances permit. In a family company that funds growth from equity, that justification is usually genuine. Dividends produce income; they do not meet a need for capital.
The company buying its own shares, and the limits on it
A buyback looks the most attractive route, and it is the one most commonly mis-structured. Attractive, because it removes the search for a buyer: the company pays and the departing shareholder leaves. Mis-structured, because the limits in TTK Article 379 are not formalities but part of a system protecting capital.
Four elements must be read together. The shares acquired may not exceed 10% of the share capital or issued capital. The general assembly authorises the board for at most five years, and an acquisition without that authority is not a defect to be cured afterwards. The shares must have been paid up in full. After the acquisition the company’s net assets must not fall below the sum of its capital and the reserves that may not be distributed: capital cannot be consumed to buy the company’s own shares.
That ceiling is the wall companies hit first. Where five siblings own a manufacturing company equally, one leaving entirely means a fifth of the capital changing hands, which a buyback cannot absorb alone. Either the exit is staged and partial, or the buyback complements a sale inside the family.
A short cut also gets tried: using company money so the others can buy out the one leaving. The company borrows and on-lends to the shareholder, or secures his bank loan. That runs into the prohibition on financial assistance in TTK Article 380, which forbids advances, loans and security given for the purpose of acquiring the company’s shares. Redrafting the paperwork does not help. The assessment turns on economic substance.
The real protective force of transfer restrictions in the articles
The standard clause we add to a family company’s articles of association makes the transfer of registered shares subject to the company’s approval. TTK Article 492 confirms the articles may impose such a restriction; the machinery sits in TTK Article 493. Under TTK Article 493/1 the company may refuse approval by relying on an important reason set out in the articles, or by offering to take the shares at their real value. Refusal is rarely free.
Nor is an “important reason” a blank cheque. TTK Article 493/2 treats provisions of the articles on the composition of the body of shareholders, the company’s business object or the economic independence of the undertaking as important reasons. Absent a clear and reasoned provision about shares staying in the family, refusing a transfer because an outsider is unwelcome becomes difficult. That is the recurring gap: the restriction is there, the reasoning behind it was never written.
The second critical distinction concerns inheritance and matrimonial property. Under TTK Article 493/4, where shares were acquired through succession, the division of an estate, the matrimonial property regime between spouses or execution proceedings, the company may refuse approval only if it offers to take them at their real value. After a death or a divorce this is the family’s most concrete card, and playing it requires cash — the most practical reason for designing the window in advance.
In a limited liability company the picture is starker: under TTK Article 595 the transfer of a capital share is subject to general assembly approval. How that approval operates, how a refusal is reasoned and what the refused member is offered belong in the documents from the outset. A right of first refusal lets family buyers take their turn. With a vague period and no price reference it becomes a waiting room.
Who fixes the price, when, and by what formula?
Every route ties itself into one question: what is the shareholding worth? The common mistake is seeking the answer only after the need arises. The member who wants out argues high and those staying argue low, each right on his own terms, because no method was agreed. Valuation written before a dispute is technical; attempted afterwards it becomes bargaining material.
In a buy and sell agreement, or in arrangements tied to the articles, we suggest settling four points in advance:
- The method. How value is found — discounted cash flow, adjusted net equity, a sector multiple or a combination — should be recorded with a worked example, not one sentence. If a discount applies to transfers inside the family, its rationale belongs in the same clause.
- Choosing the valuer. If the document is silent on who appoints the valuer when the parties disagree, the process stalls at once. Each side naming an expert, and those two selecting a third, produces the least friction.
- Data and cut-off date. Which statements form the basis, how extraordinary items are adjusted and how payments to family members are normalised all need settling. Otherwise the report becomes one more document to argue about.
- Payment structure. Lump sum or instalments, what secures them, and what happens on default should be written down. Payment spread over time protects working capital and lifts the uncertainty over the departing member’s claim.
Price has a less visible side. Where the buyer is the company itself or another company of the same family, the transaction is between related parties. Article 13 of the Corporate Tax Law no. 5520 treats dealings with related persons at prices departing from the arm’s length principle as a disguised distribution of profit through transfer pricing. A convenient intra-family price carries tax consequences of its own.
What an unopened window leaves behind
Where no window exists, matters block at the same point every time. The member who wants out blocks distribution resolutions, presses information requests and litigates. Those staying hold the cash tighter still. At the end of that spiral comes an action for dissolution on justified grounds — TTK Article 531 in a joint stock company, TTK Article 636 in a limited liability company. It may be a way out, but a slow one that wears down relationships with banks and customers.
Contractual tools keep matters away from that point. A shotgun clause makes pricing honest, because whoever names the figure must live with it. Between siblings of unequal cash strength it can become an instrument of pressure, so it needs careful drafting. A shareholders’ agreement (pay sahipleri sözleşmesi) is the natural home for these arrangements, with one caveat easily forgotten: it binds only those who sign it.
Writing the same arrangements into a family constitution (aile anayasası) and stopping there is common but incomplete: such a text is not regulated by the TTK and is not an instrument of company law. It records intentions; the binding skeleton comes from the articles and the shareholders’ agreement.
The order we suggest is this. Separate the family’s actual need first — income or capital. Then commit all three doors to writing: the buyback’s limits and the board’s authorisation, how the transfer restrictions work on a family sale, and who steps in on a sale to an outsider. Settle the valuation formula and the payment timetable while everybody is calm. Finally decide when the window opens — once a year, on rules announced beforehand. Where it has not been defined in advance, what arrives with the first need for cash is not a negotiation but a crisis.
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.
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