The transfer clauses in a startup’s shareholders’ agreement, the right of first refusal, tag-along, drag-along and lock-up, are promises between the signatories. They do not by themselves stop a shareholder from selling to a stranger, and they do not stop the company from registering that stranger in the share ledger. What stops the transfer at company level is the Turkish Commercial Code No. 6102 (TCC): the statutory restriction on unpaid shares in Article 491, the articles-based approval requirement (bağlam) that Articles 492 to 494 allow a joint-stock company to adopt, and, in a limited company, the general assembly approval that Article 595 requires by default. This article explains the default of free transferability and how registered shares actually change hands, the two statutory grounds on which a company may refuse a transfer, the buyout offer at real value that is the price of refusal, the three-month deemed approval and the split of rights pending approval, the seventy-five per cent vote needed to introduce a restriction into existing articles, the different and stricter limited-company regime, and how to make the shareholders’ agreement’s promises bind at company level. It follows our articles on the share ledger and ten critical points of a shareholders’ agreement.
The default: registered shares transfer freely
Article 490(1) provides that, unless the law or the articles provide otherwise, registered shares may be transferred without restriction; Article 490(2) adds that transfer by legal act is effected by endorsing the registered share certificate and delivering possession to the transferee. Where no certificates have been issued, the share is transferred by a written assignment of the shareholder’s rights under the general rules of the Code of Obligations, which is why the absence of certificates, discussed in the cost of never printing share certificates, affects both the tax position and the mechanics. The transfer is then entered in the share ledger under Article 499, and only the person registered there is treated as a shareholder towards the company. The statutory starting point is therefore hostile to founders who assume that a co-founder “cannot sell”; unless the articles say so, he can, and the company must register the buyer.
Two grounds for refusal: unpaid shares and the articles
Article 491(1) restricts by statute the transfer of registered shares whose consideration has not been fully paid: they may be transferred only with the company’s approval, except by inheritance, division of an estate, matrimonial property regimes or enforcement, and Article 491(2) allows the company to refuse only where the transferee’s ability to pay is doubtful and requested security has not been given. The second ground is the articles: Article 492(1) allows the articles to provide that registered shares may be transferred only with the company’s approval, a restriction that also applies when a usufruct is created (Article 492(2)) and that lapses when the company enters liquidation (Article 492(3)). For a startup the articles-based restriction is the tool that makes the shareholders’ agreement’s transfer regime effective, because the company, acting through its board, can refuse to register a transfer that breaches it, provided the refusal fits Article 493.
Article 493: important cause or a buyout at real value
For shares not listed on an exchange, Article 493(1) allows the company to refuse approval on one of two bases: by invoking an important cause stated in the articles, or by offering to acquire the shares from the transferor, for its own account or for the account of other shareholders or third parties, at their real value at the time of the request. Article 493(2) defines important cause: provisions of the articles concerning the composition of the shareholder body constitute an important cause where they justify refusal in light of the company’s business purpose or economic independence. A clause limiting shareholders to persons who are not competitors, or requiring that shareholders be founders, employees, investors approved under the shareholders’ agreement or their affiliates, is the type of composition clause that supports a refusal; a bare “the board may refuse at its discretion” is not, because Article 493(7) prohibits the articles from making transferability harder than the Code allows. Article 493(3) adds a procedural ground: the company may refuse registration if the transferee does not expressly declare that it acquires the shares in its own name and for its own account, which is the statutory basis for refusing nominee structures. Where the shares are acquired by inheritance, estate division, matrimonial property regime or enforcement, Article 493(4) allows refusal only by offering to acquire the shares at real value. The transferee may ask the commercial court at the company’s seat to determine real value, which the court fixes as at the date closest to the company’s decision, at the company’s expense (Article 493(5)), and is deemed to have accepted the company’s offer if he does not reject the price within one month of learning it (Article 493(6)). The buyout route therefore has a price, literally: a company that wants to block an unwelcome buyer without a composition clause must be ready to fund, or to find shareholders who will fund, the purchase at real value.
Pending approval and the three-month rule
Article 494(1) provides that until the required approval is given, ownership of the shares and all rights attached to them remain with the transferor; the buyer has paid but is not a shareholder, and cannot vote, receive dividends or bring shareholder actions. In the inheritance, estate, matrimonial and enforcement cases, Article 494(2) splits the position: ownership and the economic rights pass immediately, while the right to attend the general assembly and to vote passes only with the company’s approval. Article 494(3) supplies the deadline that boards forget: if the company does not reject the request within three months of receiving it, or if the rejection is unjustified, approval is deemed given. A board that sits on a transfer request to buy time has, after three months, approved it; a board that refuses without an Article 493 ground has approved it as well, and the court will say so. The practical routine is a board resolution within the period, stating the ground, and, where the buyout route is used, the offer and the valuation basis.
Introducing a restriction: the seventy-five per cent vote
A restriction can be written into the articles at incorporation, when the founders agree it unanimously in any event. Adding one later is an amendment that Article 421(3)(c) subjects to the affirmative vote of shareholders representing at least seventy-five per cent of the share capital, a quorum that applies in every meeting, not just the first (Article 421(4)), and that the articles may raise but not lower. An investor coming into a company whose articles have no restriction will therefore require, as a closing deliverable, an articles amendment adopted with that majority, together with the composition clause that defines who may hold shares and the approval mechanism; a company that cannot reach seventy-five per cent has a cap-table problem to solve before it has a transfer regime.
The limited company: approval by default
The limited company inverts the default. Under Article 595(1) the transfer of a capital share, and any transaction creating an obligation to transfer, must be in writing with the signatures notarised, and the transfer agreement must state any additional payment or ancillary performance obligations, any aggravated or extended non-compete, and any rights of first offer, pre-emption, repurchase or purchase and any penalty. Unless the articles provide otherwise, the transfer requires the approval of the shareholders’ general assembly and is effective only with that approval (Article 595(2)); unless the articles provide otherwise, the general assembly may refuse without giving reasons (Article 595(3)); the articles may prohibit transfer altogether (Article 595(4)); where transfer is prohibited or approval refused, the shareholder keeps the right to exit for just cause (Article 595(5)); and if the general assembly does not refuse within three months of the application, approval is deemed given (Article 595(7)). Article 596 handles inheritance, matrimonial regimes and enforcement: rights pass without approval, but the company may refuse the acquirer within three months if it offers to buy the share at real value. The limited-company regime is why investors insist on conversion to a joint-stock company before a round, as we set out in converting a limited company before the first round: a discretionary refusal right in the hands of a shareholder majority is not a transfer regime an investor can price. The exit and expulsion consequences of a blocked transfer are in our limited-company exit and expulsion article.
Making the shareholders’ agreement bind at company level
The combination that works in a joint-stock company is a composition clause in the articles that defines permitted holders by reference to categories the shareholders’ agreement uses, an approval clause under Article 492, a board procedure that checks compliance with the agreement’s right of first refusal, tag-along and lock-up before approving, a share ledger kept under Article 499 that records only approved transfers, and, as a backstop, the buyout route of Article 493(1) funded by the other shareholders under the agreement’s right of first refusal. The agreement itself should oblige each shareholder to procure that the board acts accordingly and should make a transfer in breach both a default under the agreement and a ground for the company’s refusal. What the articles cannot do is convert the agreement’s economic terms into corporate law: a drag-along cannot force a minority to sell through the articles, and a penalty for breach belongs in the agreement, not in the articles, because of the single-obligation principle in Article 480.
Can the board simply refuse a transfer to a competitor?
Only if the articles contain a composition clause that excludes competitors, which is an important cause under Article 493(2), or if the company offers to buy the shares at real value. Without either, a refusal is unjustified and approval is deemed given under Article 494(3).
Our co-founder sold his shares without the board’s approval. What happened?
If the articles require approval, nothing at company level: under Article 494(1) ownership and all rights stay with him until approval. The buyer has a contract claim against him. The board must still decide within three months on any request that is made.
Is a right of first refusal in the articles enforceable?
A composition and approval clause is enforceable through refusal; a full right of first refusal with price mechanics is better placed in the shareholders’ agreement and backed by the Article 493(1) buyout offer, because Article 493(7) prohibits articles that make transfer harder than the Code permits.
Related: right of first refusal · tag-along · drag-along · minority rights in a Turkish A.Ş..
Sources. Turkish Commercial Code No. 6102 (Articles 421, 480, 490–494, 499, 595–596). 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.
