New Era for Bearer Shares in Turkish Companies
The Law numbered 7262 on Prevention of the Financing of Propagation of Weapons of Mass Destruction (Law No. 7262) introduced significant amendments to the provisions of the Turkish Commercial Code numbered 6102 (TCC) that have taken effect as of April 01, 2021. Accordingly, the Turkish Ministry of Trade has enacted the applicable secondary legislation, namely, the Communiqué on Notification and Registration of Bearer Share Certificates to the Central Securities Depositary (Communiqué). The Communiqué has been intended to set out, inter alia, the procedures and principles regarding the (i) notification and registration of bearer share certificates to the Central Securities Depositary (Merkezi Kayıt Kuruluşu A.Ş.) (CSD) as well as fees to be collected as per such newly regulated principles, and (ii) obtainment of shareholders’ chart from the CSD.
This article discusses how (i) the Law No. 7262 and the Communiqué put an end to “anonymity” in Turkish companies and (ii) the changes introduced thereunder marked a new era for bearer shares in private joint stock companies and public companies whose shares are not publicly traded. It is also noteworthy that the Communiqué will not be applicable to public joint stock companies, the shares of which are dematerialised and monitored as per Article 13 of the Capital Markets Law numbered 6362.
Recent Amendments Introduced to the TCC
- As a general rule under Article 486 of the TCC, the Board of Directors of private joint stock companies are required to issue and distribute share certificates representing bearer shares within three months as of the day on which such bearer shares are fully paid-in. In accordance with the recent amendments under the Law No. 7262, the CSD must be notified of details of both bearer shares and bearer share owners before the Board of Directors of the respective companies distributes the bearer share certificates. It should be further pointed out that an administrative monetary fine amounting to TRY 20,000 (Turkish Liras twenty thousand) shall be imposed on those who fail to fulfil such notification requirement.
- Transferee of bearer shares must notify the CSD of transfer of such shares with a view to giving effect to the share transfer via-à-vis the company and third parties which in turn means that the failure to notify the CSD of any such transfer will result with (i) non-ability to exercise rights attached to the shares until the notification date and (ii) imposition of an administrative monetary fine in the amount of TRY 5,000 (Turkish Liras five thousand).
- Owners of bearer share certificates will no longer be able to attend general assembly meetings of the respective joint stock companies by presenting entrance cards distributed by the companies at least one day prior to the meeting date. Instead, the Board of Directors shall issue a list of attendees, who are holding bearer share certificates, based on the shareholders’ chart to be obtained from the CSD after completing requirement of notification to the CSD regarding issuance of bearer share certificates.
- Owners of bearer share certificates must inform the relevant companies of their respective shareholdings so that the companies can make the required notifications to the CSD within five business days following their receipt of such information but no later than December 31, 2021. In parallel with the above, failure to meet this notification requirement will prevent the relevant shareholders from exercising rights attached to the shares until the notification date and give rise to imposition of an administrative monetary fine.
What did the Communiqué bring about?
- The Board of Directors resolution regarding issuance of bearer share certificates must include, at least, (i) number of certificates, (ii) order of certificates, (iii) par value, (iv) number, group and value of the represented shares, (v) serial number given by the company and (vii) total number and value of the represented shares. Also, the following details must be duly notified to the CSD: (i) full name, nationality, residential address, ID number or passport number of the owner (in case of a real person owner); (ii) trade name, Central Registration System (MERSIS) number, tax number or registration number given in the jurisdiction of incorporation and registered address of the owner (in case of a legal entity owner); and (iii) contact information of both the owner and the underlying company. Upon receipt of notification, the CSD will produce and assign a number specific to each bearer share certificate and the companies will be obliged to refer to such numbers in the bearer share certificates.
- In parallel with the provisions of the TCC, share certificates have to be signed by at least two authorized signatories of the companies and registration/announcement/distribution procedures must be completed within three months as of the full payment of share prices. Needless to note, the same procedures shall apply with respect to each share capital increase.
- Owners of the existing bearer shares are required to use the form annexed to the Communiqué, together with a copy of their respective share certificates, so as to apply to the company. Following the Board of Directors’ checks regarding the authenticity and validity of the share certificates, the Board of Directors will be countersign the application forms submitted by the shareholders and proceed with the filing of a notification with the CSD.
- Any notification regarding transfer of bearer shares must contain (i) a copy of the relevant share certificate, (ii) full name, nationality, residential address, ID number or passport number of the transferee (in case of a real person transferee); (iii) trade name, Central Registration System number, tax number or registration number given in the jurisdiction of incorporation and registered address of the transferee (in case of a legal entity transferee); and (iv) contact information of the transferee. Similarly, in the event of a universal succession, successors must notify the CSD thereof so the CSD may update the related records as necessary.
- In order to prepare a list of attendees, the Board of Directors of the relevant companies will need to apply to the CSD at least two days prior to the upcoming general assembly meeting. The shareholders’ chart to be prepared and circulated by the CSD shall include full name/trade name of, residential/registered address of, amount and group of shares owned by the respective shareholders. In case a general assembly meeting is held electronically, there will be no need to submit any application in advance as the shareholder’ chart may be directly obtained through the electronic general assembly system operated by the CSD.
- All recordings of bearer shares to be made under the Communiqué shall be kept by the CSD as confidential and may be disclosed to the bodies authorised by law.
- In case of cancellation of any share certificate by reason of share capital decrease or replacement of the certificate, the related company will be required to apply to the CSD for cancellation of all records relating to the cancelled share certificate.
- Any companies whose bearer share certificates are seized due to attachment or injunction imposed by an enforcement office or a judicial body, respectively, shall notify the CSD of any such attachment or injunction. It should, however, be noted that the CSD shall remove seizure-related records upon a notification to be made by the enforcement office/judicial body having imposed the relevant attachment/injunction. Furthermore, the CSD may not register any transfer of the seized share certificates unless otherwise decided by the competent enforcement office/judicial body.
- Fees to be collected by the CSD for the transactions contemplated under the Communiqué have been set out in Annex-1 to the Communiqué and the relevant fees will be subject to revaluation each year in view of the average of domestic producer index and consumer price index. For instance, registration fee and shareholders’ chart fee have been specified as net TRY 150 (Turkish Liras one hundred fifty) whereas application fee and transfer notification fee as net TRY 50 TRY (Turkish Liras fifty).
In a nutshell, Turkey, as a member of the Financial Action Task Force (FATF), has enacted the Law No. 7262 and the Communiqué with a view to complying with the FATF Recommendations for counter-terrorism financing. As a result, it would be no longer possible for owners of bearer shares to remain anonymous, since the CSD must keep records of all bearer share certificates in a way identical to dematerialised shares in public joint stock companies. Those, who are willing to convert bearer shares to registered shares due to the aforementioned changes (e.g. non-anonymity of shareholders, transaction costs charged by the CSD, paperwork for notifications, etc.), should amend the Articles of Association of their respective companies by the end of 2021 for the purpose of avoiding administrative monetary fines applicable under the TCC.
Finally, all market participants should keep a close watch on any further developments on bearer shares as well as any announcement of the CSD to see how the relevant legislative changes will be implemented in practice.
 Published in the Official Gazette dated December 31, 2020 and numbered 31351 (bis 5).
 Published in the Official Gazette dated February 14, 2011 and numbered 27846.
 Published in the Official Gazette dated April 06, 2021 and numbered 31446.
 Published in the Official Gazette dated December 30, 2012 and numbered 28513.