Shareholders Pre-Emption Right In The Transfer Of Shares Of A Joint Stock Company

What is Preemption Right?

The right of pre-emption is a right that allows the right holder to demand priority in the sale or transfer to himself in case of sale to someone else. The right of pre-emption may arise from the law as well as from the contract.

The right of pre-emption can be made for a maximum of ten years with a written contract. Unless otherwise agreed, the right of pre-emption agreed by contract cannot be transferred, but it can be passed on to heirs. In the event of a sale or a transaction equivalent to a sale, the person who is granted the right of pre-emption by the contract may exercise this right. The right of pre-emption arising from the contract is a personal right. For this reason, the right must be annotated in order to be asserted against third parties. If the conditions of the pre-emption right are not determined while annotating the land registry, the conditions in the sale of the immovable to the third party are taken as basis. The right of pre-emption can only be exercised by filing a lawsuit and this lawsuit must be filed within the period agreed upon in the contract. In any case, this period cannot be more than ten years.

The right of pre-emption arising from the law arises at the time of the establishment of the shared ownership relationship and can be used in the event that a shareholder sells his share to a third party who is not a shareholder. The exercise of the pre-emption right does not constitute an obligation and is entirely at the discretion of the shareholder. The right of pre-emption can only be exercised through a lawsuit. The shareholder must file this lawsuit against the purchaser of the share within three months from the notification of the sale through a notary public and in any case within two years from the sale, at the Civil Court of First Instance where the relevant immovable is located.

The right of pre-emption cannot be exercised in the sales made by the shareholders among themselves, in the sales made by forced auction, when the right of pre-emption is waived, in cases where there is no sale or transaction equivalent to sale, in cases where it is known by whom the relevant part of the immovable is used. The main subject of this article is whether the pre-emption right may be exercised in the transfer of shares in joint stock companies, and if so, how this right may be exercised.

Preemption right of shareholders in joint stock companies

The characteristic of joint stock companies that is different from other companies is that the shares can be freely transferred without permission, even if they are not registered. Due to this feature, it is not important who the transferee of the share is, it can be any real or legal person. In joint stock companies, the most important thing is the capital debt and the shareholders cannot be put under any other obligation. For this reason, there is no pre-emption right arising from the law in joint stock companies.

The pre-emption right for company shares is recognised only by a shareholders’ agreement and binds only the parties to the agreement(*). The pre-emption right may be granted to third parties or other shareholders through these agreements, which are called ‘blockage agreements’ and are regulated in accordance with the principles of the law of obligations. In order to ensure the fulfilment of the right, the facilities provided by the law of obligations such as interest, penal clause, surety may be utilised(**).

 

The general explanations made above for the contractual pre-emption right shall also apply here. Unless otherwise agreed in the contract, the owner of the pre-emption right shall acquire the share under the conditions agreed with the third party. However, it should not be forgotten that these conditions must be determined in accordance with the rule of good faith. Transfers made in violation of this agreement shall be valid, and the shareholder who is obliged to transfer the share shall be liable for compensation to the other parties to the agreement.

Preemption rights for company shares can only be granted by contract, and it is not possible to grant preemption rights by the articles of association of the company. This pre-emption right agreed in the articles of association can only be accepted as an invitation to offer. Many authors in the doctrine argue that the reason for this situation is the ‘principle of single obligation’ and that such an obligation cannot be imposed on shareholders except for the obligation to contribute capital.

The principle of single obligation is not absolute and has an exception arising from the law. This exception is regulated under Article 493 of the Turkish Commercial Code. Pursuant to this article, the Company may reject the request for approval by offering to acquire shares on behalf of itself or other shareholders or third parties, or by claiming an important reason stipulated in the articles of association. The purpose of this article is to protect the legal entity, shareholders and public interest

In summary; the principle of single debt is the main principle in joint stock companies. For this reason, it is not possible to limit the transfer of shares with the pre-emption right. The Turkish Commercial Code recognises an exception to this rule, and Article 493 stipulates that the company may reject the approval request by offering to purchase shares on behalf of itself or other shareholders or third parties, or by asserting an important reason stipulated in the articles of association. In addition to this, according to some opinions, it is possible to regulate the pre-emption right of the shareholders in the articles of association of the company, while according to some opinions it is not possible. According to the majority opinion, the shareholders may enter into an agreement regarding the pre-emption right, but such agreements shall only bind the parties to the agreement.

*(UÇAR, Sercan: ‘Preemption and priority rights in the transfer of joint stock company shares’, Uludağ University Master’s Thesis, 2017-01-19)

**(BAHTİYAR, Mehmet: ‘Partnership Law’, Istanbul 2021, p.277).