Foreign investors engaging with Limited Liability Companies (Limited Şirket) in Türkiye often encounter complexities when transferring shares. While seemingly a straightforward contractual matter, Turkish law imposes specific procedures and requirements that, if not adhered to, can render a transfer legally ineffective and expose parties to ongoing liabilities. This guide provides a comprehensive overview of the share transfer process in Türkiye, focusing on the legal framework, procedural steps, potential liabilities, approval mechanisms, and implications for foreign investors.
Legal Framework for Share Transfers
The share transfer process in Turkish limited companies is primarily governed by the Turkish Commercial Code No. 6102 (TTK), particularly Articles 593, 595, 596, and 620. Compliance with these statutory formalities is crucial for the transfer to be legally binding against third parties and public authorities.
Key Steps for Share Transfer in a Limited Company
A valid share transfer in a Turkish limited company typically requires three mandatory steps,
Execution of a Notarized Share Transfer Agreement
As per TTK Article 595, the share transfer agreement must be:
Executed in writing: A written contract is mandatory.
Notarized: The agreement must be notarized, and signatures must be certified by a Turkish notary public. Failure to notarize invalidates the agreement.
Ideally, the agreement should also address additional clauses such as payment obligations, non-competition clauses, pre-emption or buy-back rights, and penal clauses. While their omission does not invalidate the agreement, it may lead to post-transfer liabilities for the transferring shareholder.
Approval by the General Assembly
Unless the company's Articles of Association (AoA) stipulate otherwise, the share transfer must be approved by the General Assembly, as per TTK Article 595/2. Approval is typically granted by a simple majority of votes represented at the meeting, in accordance with TTK Article 620.
The General Assembly holds the right to reject the transfer, even without providing justification. However, if no rejection is issued within three months from the application date, the transfer is deemed approved under TTK Article 595/7.
Registration and Announcement
Following General Assembly approval, company managers are obligated to register the transfer with the Trade Registry within 30 days. Required documentation includes the notarized share transfer agreement, the General Assembly resolution, an updated share ledger, and identification details of the new shareholder.
Failure to register the transfer means it does not take legal effect against third parties, and public authority liabilities may remain with the former shareholder. Additionally, administrative fines may be imposed under TTK Article 33.
Liabilities After Share Transfer
Even though limited companies are capital companies, shareholders can remain liable for public debts, including obligations to tax authorities and the Social Security Institution (SGK).
Transferring Shareholder Liability: The transferring shareholder remains jointly liable for public debts incurred before the transfer date.
Acquiring Shareholder Liability: The acquiring shareholder becomes liable for public debts incurred both before and after the transfer. Therefore, thorough financial due diligence is critical prior to acquisition.
Two-Year Liability in Full Company Transfer
If an entire company is transferred, the transferring party remains jointly liable for company debts for two years under Turkish Code of Obligations No. 6098 Article 202. This liability includes public obligations and cannot be eliminated by contractual agreements between parties against third parties.
Share Transfer Due to Death or Enforcement
In specific circumstances, such as the death of a shareholder, matrimonial property division, or enforcement proceedings, shares may automatically pass to heirs or creditors. According to TTK Article 596, General Assembly approval is generally not required unless the Articles of Association impose specific qualification requirements for shareholders.
Taxation of Share Transfers
Share transfers in limited companies may trigger tax implications:
Capital Gains Tax
Pursuant to Income Tax Law Article 80, capital gains from share transfers are taxable regardless of the holding period. Unlike joint stock companies, there is no exemption based on the duration of ownership for limited companies.
VAT Implications
Share transfers by individuals are exempt from VAT. However, corporate shareholders may be subject to VAT if the shares were held for less than two years.
What Happens If a Share Transfer is Not Approved?
In limited liability companies, if the General Assembly rejects the transfer (and the AoA doesn't state otherwise), the rejection can occur without justification. If rejected:
•Share ownership remains with the transferor.
•The transfer agreement becomes unenforceable.
•Parties may seek compensation.
However, under TTK Article 595, a shareholder whose transfer is rejected has the right to exit the company for just cause. This right may require court approval if not explicitly provided in the company’s articles.
Post-Transfer Actions
After successful registration, several actions are necessary:
•Update company internal records.
•Notify banks of the ownership change.
•Inform public institutions.
•Notify commercial counterparties.
It is important to note that existing personal guarantees of former shareholders towards banks may continue unless formally released.
Key Considerations for Foreign Investors
Foreign investors should ensure:
•Legal Due Diligence: Thorough investigation of company debts and liabilities.
•Review of Articles of Association: Examination of transfer restrictions and pre-emption rights.
•Proper Drafting of Agreements: Ensuring transfer agreements are meticulously drafted to mitigate risks.
Professional legal assistance is highly recommended due to the complexities of continuing public debt liability, stringent registration formalities, and significant tax implications.
Conclusion
Share transfer in a Turkish limited company is a legally intricate process involving notarization, General Assembly approval, and Trade Registry registration. Improperly executed transfers can lead to significant legal and financial repercussions, including ongoing public debt liability and administrative sanctions. Foreign shareholders are strongly advised to seek expert legal counsel before proceeding with any share transfer agreement in Türkiye.
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