For foreign investors entering the Turkish market, whether through Joint Ventures or direct equity participation, holding a “minority” stake often raises concerns about control and security. However, the Turkish Commercial Code (“TCC”) provides robust, modern mechanisms to prevent the abuse of majority power.
This guide outlines the key legal mechanisms under the Turkish Commercial Code (TCC) that enable minority shareholders to secure their rights against the majority.
Decodıng “Minority” Status And Control Under Turkısh Law
Under Turkish corporate law, for a shareholder to hold ‘minority’ rights, they must retain a specific percentage of the share capital. This ratio is at least 10% in non-public (closed) joint stock companies and 5% in public companies.
However, this mathematical ratio does not always signify managerial powerlessness. Despite holding a low share ratio, shareholders who can take decisions unilaterally thanks to special privileges recognized by the Articles of Association (e.g., the right to elect the simple majority of the board of directors members or increased voting rights) are evaluated legally not as a ‘minority,’ but under the status of ‘Holding Management Control’ (Controlling Shareholder). Consequently, the privileges to be negotiated during the investment phase can be more determinant than the share ratio.
Capital Increases and the Protection of Shareholding Ratios
One of the greatest concerns of foreign investors may be the possibility that the majority shareholder may conduct a capital increase in a manner that dilutes the minority’s share. Under Turkish law, the legal consequences of this scenario vary depending on the source of the capital increase.
In the case of a Capital Increase from External Resources, where cash or in-kind contributions are brought into the company from outside, the company’s assets increase in real terms. Pursuant to Article 461/1 of the Turkish Commercial Code (“TCC”), existing shareholders have a pre-emptive right (rüçhan hakkı) to acquire the newly issued shares. This right arises directly from the law and exists even if not explicitly stated in the articles of association; its purpose is to protect the shareholder’s proportional power within the company.
By contrast, a Capital Increase from Internal Resources, made by using the company’s reserves or profits, does not create any real increase in assets; it is merely an accounting transaction. In such increases, the pre-emptive right does not apply; instead, shareholders acquire the right to receive bonus (free) shares. As a result, in internal resource capital increases, the shareholder’s proportionate shareholding is automatically preserved, and no dilution occurs. In summary, your shareholding ratio is legally protected as long as you exercise your pre-emptive right in external resource increases, and automatically protected in internal resource increases.
Rights of Participation in Management and Supervision
1) Requesting the Issuance of Registered Share Certificates:
Minority shareholders enjoy statutory protection regarding participation in the company’s management and supervision. Under TCC Article 486, minority shareholders may request the company to issue Registered Share Certificates (nama yazılı pay senedi) and deliver them. The company’s management has no right to refuse such request.
2) Representation on the Board of Directors:
TCC Article 360 allows minority shareholders to be granted representation on the Board of Directors. In publicly held companies, such representation may not exceed half of the total number of board members. The general assembly may reject a candidate proposed by privileged shareholders only if a “just cause” exists. Rejecting or failing to elect the candidate without a just cause is unlawful.
Through this mechanism, the minority gains a permanent seat at the Board of Directors, the body where strategic corporate decisions are made, without waiting for the annual ordinary general assembly or other extraordinary meetings. The board members nominated by the minority and elected by the general assembly gain access to all trade secrets, financial statements, and contracts of the company.
Strategically, attending these meetings and recording dissenting votes (muhalefet şerhi) against decisions that may harm the company may later protect the minority shareholder from liability in potential lawsuits.
3) Postponement of the Discussion and Voting of Financial Statements:
Minority shareholders may request the postponement of the discussion and voting of the financial statements for one month (TCC Art. 420). Article 420 functions as a vital mechanism, granting minority shareholders additional time to thoroughly review complex financial statements with expert assistance, preventing them from being rushed into approval.
For minority shareholders, this right serves as a strategic brake mechanism that can halt critical processes such as discharge (release from liability) and profit distribution, thereby compelling company management to act transparently and answer the minority’s questions in good faith.
4) Requesting the Appointment of a Special Auditor:
Minority shareholders may request the appointment of a special auditor if just causes exist (TCC Art. 438). The core legal significance of this right is that it provides minority shareholders with strong, technical, and official evidence that may be used in future liability actions, annulment lawsuits against general assembly resolutions, or actions for dissolution for just cause. Thus, it forces transparency and accountability of the board and provides effective legal protection against arbitrary majority power.
If the general assembly rejects the request for a special auditor, minority shareholders meeting the minimum nominal share requirement may file a lawsuit within three months from the date of the resolution (TCC Art. 439). However, minority shareholders must convincingly demonstrate that the company or its shareholders were harmed through violations of the law or the articles of association.
5) Calling an Extraordinary General Assembly and Adding Items to the Agenda:
Under the principle of adherence to the agenda, only the items announced in the meeting agenda may be discussed at the general assembly. If the board of directors fails to include certain issues, particularly those that may result in adverse consequences for the board and the majority, the minority may, through a notary and pursuant to TCC Article 441, request the compulsory inclusion of critical agenda items. The board cannot arbitrarily ignore such requests.
Likewise, if the general assembly is stalled or delayed, such as when the management avoids discussing financials of the company, the minority shareholders may call an extraordinary general assembly without waiting for the board.
6) Voting Privileges:
Although minority shareholders may appear to be at a disadvantage compared to the majority, voting privileges set forth in the articles of association can strengthen their position. TCC Article 479 regulates voting privileges and sets an upper limit: a share may carry at most 15 times the voting power of another share. This limit also prevents the complete domination of majority shareholders over minority shareholders.
7) Protection of Privileged Shareholders:
TCC Article 454 provides a mechanism preventing the entry into force of any general assembly resolution that infringes the rights of privileged shareholders. This mechanism is the Assembly of Privileged Shareholders. If the general assembly adopts a resolution that harms privileged shareholders, the board of directors must convene this assembly within one month.
If the board fails to convene the assembly within the required period, any privileged shareholder may request the Commercial Court of First Instance located at the company’s registered seat to call the assembly within fifteen days following the end of the board’s call period.
For the Assembly of Privileged Shareholders to convene, at least 60% of the privileged share capital must be represented, and resolutions are adopted by a simple majority of those present.
However, if at least 60% of the privileged shareholders who constitute the minority have already approved the resolution at the general assembly, convening the privileged shareholders’ assembly is unnecessary.
If privileged shareholders fail to organize and convene the assembly, the general assembly resolution is deemed tacitly approved. Therefore, it is crucial for minority shareholders holding privileged shares to remain organized.
8) Veto Right:
Another significant instrument for investors is the veto right. In limited liability companies, granting certain shareholders a veto right is explicitly permitted by law (TCC Art. 577). Although the TCC does not expressly regulate veto rights in joint stock companies, certain provisions in the articles of association may impose higher voting quorums for specific resolutions at the general assembly.
In joint stock companies, the veto right is not regulated in the TCC. Therefore, provisions granting a shareholder veto power at the general assembly are considered supplementary articles of association provisions within the meaning of TCC Article 340. Article 452 provides for a limited contractual freedom by stating that, unless otherwise provided in the articles of association, all provisions may be amended in accordance with statutory requirements. Thus, veto rights may be granted to minority shareholders so long as they do not violate the structure of the TCC.[1] For example, veto rights cannot be granted in matters such as the discharge of board members or the initiation of liability lawsuits, as such amendments would contravene mandatory provisions such as Article 479/3.
Exit from the Company and Dissolution for Just Cause as a Last Resort
Where the corporate relationship becomes unbearable, the strongest remedy for minority shareholders is the action for Dissolution for Just Cause pursuant to TCC Article 531. Circumstances such as persistent losses, mismanagement, systematic violations of minority rights, material or moral pressure on the minority, or failure to convene the general assembly may be deemed just causes by the courts.
For example, in a decision of the Bakırköy 4th Commercial Court of First Instance (E. 2021/198, K. 2024/143, 21.02.2024), the court found that the company had been unable to convene its general assembly between 2015 and 2020, that the board’s term expired in 2018 without new elections, and that commercial activity had ceased. The court therefore ruled that achieving the company’s purpose had become impossible and ordered its liquidation.[2]
However, courts view dissolution as a last resort (ultima ratio), as it destroys economic value. Article 636/3 of the TCC grants the judge broad discretion to adopt an alternative measure instead of dissolution. For instance, in a decision of the 13th Civil Chamber of the Istanbul Regional Court of Appeal (E. 2022/1000, K. 2023/99), despite allegations that the defendants had siphoned assets from the company, the court found that the company’s sales had significantly increased and that operations were ongoing. It concluded that dissolution would not be equitable and that “the economic value must be preserved.” Thus, the dissolution request was rejected, and instead, the minority shareholders were removed from the company by paying them the true value of their shares (exit compensation).[3] This constitutes an effective exit strategy for foreign investors seeking to leave a deadlocked corporate structure at a fair value.
[1] • Veziroğlu, C. (2020). Anonim Ortaklıklar Hukukunda Esas Sözleşme Özgürlüğü ve Sınırları.
[2] • Bakırköy 4. Asliye Ticaret Mahkemesi, E. 2021/198 K. 2024/143 T. 21.02.2024.
[3] • İstanbul Bölge Adliye Mahkemesi 13. Hukuk Dairesi, E. 2022/1000 K. 2023/99 T. 26.01.2023.