How Is a Share Transfer Made in a Limited Liability Company? Conditions, General Assembly Approval and Registration Process

How Is a Share Transfer Made in a Limited Liability Company? Conditions, General Assembly Approval and Registration Process One of the principal methods of changing the ownership structure of a limited liability company is the transfer of a capital share. A shareholder may transfer all or part of their share to another shareholder or to a third party. However, a share transfer in a limited liability company is not a simple sale completed merely by agreement between the parties. The Turkish Commercial Code provides specific rules concerning the form of the transfer agreement, general assembly approval, restrictions in the articles of association, the share ledger and trade registry procedures. The provisions of the Turkish Commercial Code No. 6102 concerning limited liability companies regulate the transfer of capital shares particularly under Articles 593 to 598. Therefore, in matters involving corporate legal consultancy in Istanbul, Ümraniye, Ataşehir, Üsküdar and Çekmeköy, the articles of association, the share to be transferred and the obligations of the parties should be assessed together before the transfer is carried out. What Is Corporate Law? Corporate law regulates legal relationships between companies, shareholders, directors and third parties from the formation of a company until its termination. Corporate law includes matters such as: Formation of limited liability companies, Transfer of capital shares, Rights and obligations of shareholders, General assembly resolutions, Duties and liabilities of managers, Amendments to the articles of association, Withdrawal and expulsion of shareholders, Shareholder disputes, Company mergers and liquidation. Because a share transfer in a limited liability company directly changes the shareholder structure, the transaction must be assessed not only between the transferor and transferee but also from the perspective of corporate law. What Is a Share Transfer in a Limited Liability Company? The transaction commonly referred to as a “share transfer” in practice is legally a transfer of a capital share under the Turkish Commercial Code. Under Article 593, capital shares in a limited liability company may be transferred in accordance with the statutory provisions and may also pass by inheritance. The company records the capital shares held by its shareholders and transfers of those shares in the share ledger. As a result of the transfer, the transferor ceases to hold the transferred share, while the transferee may become a shareholder when the legal requirements for a valid transfer have been satisfied. Can a Limited Liability Company Share Be Transferred to Another Shareholder? Yes. The Turkish Commercial Code expressly permits capital shares to be transferred between existing shareholders. Accordingly, a share may be transferred: To an existing shareholder, To a third party outside the company. However, restrictions contained in the articles of association and any requirement for general assembly approval must be observed. Must a Limited Liability Company Share Transfer Be Made in Writing? Yes. Under Article 595/1, the transfer of a capital share and transactions creating an obligation to transfer must be made in writing. In addition, the signatures of the parties must be certified by a notary. Therefore, an oral agreement or a document that does not satisfy the required formal conditions should not be treated as sufficient to complete a limited liability company share transfer. Is Notarial Certification Required for a Share Transfer? Under Article 595, the signatures of the parties to the transfer agreement must be certified by a notary. Accordingly, the formal requirement is not limited to preparing a written contract. The transfer agreement should clearly identify: The transferor, The transferee, The share being transferred, The nominal value of the share, The transfer price and other relevant contractual conditions. What Should Be Included in the Share Transfer Agreement? The Turkish Commercial Code requires certain obligations and rights relating to the articles of association to be stated in the transfer agreement. Under Article 595/1, the transfer agreement should address, where applicable: Additional payment obligations, Ancillary performance obligations, A non-compete obligation that has been intensified or extended to all shareholders, Rights to receive an offer, Pre-emption rights, Repurchase rights, Purchase rights, Conditions relating to contractual penalties. For this reason, the transfer should be assessed not only in terms of the value of the share but also in terms of the existing obligations attached to it. Is General Assembly Approval Required for a Limited Liability Company Share Transfer? As a general rule, yes. Under Article 595/2, unless otherwise provided in the articles of association, a transfer of a capital share requires approval of the general assembly of shareholders. According to the statutory provision, the transfer becomes valid upon this approval. Therefore, signing a notarised share transfer agreement may not by itself be sufficient where the articles of association do not remove the approval requirement. Can the Articles of Association Remove the General Assembly Approval Requirement? Yes. Article 595/2 requires general assembly approval only “unless otherwise provided in the articles of association.” Accordingly, the articles may provide that a share transfer can take place without general assembly approval. This is why reviewing the articles of association is one of the essential steps before a limited liability company share transfer. Can the General Assembly Refuse a Share Transfer? Yes. Under Article 595/3, unless otherwise provided in the articles of association, the general assembly may refuse approval without stating a reason. This is an important feature of limited liability companies because it allows the company to preserve its shareholder structure. Accordingly, the fact that the transfer agreement has been executed does not necessarily mean that the company must accept the proposed new shareholder. Can the Articles of Association Completely Prohibit Share Transfers? Yes. Under Article 595/4, the articles of association may prohibit the transfer of capital shares. Therefore, before a transfer to another shareholder or third party is planned, the articles of association should be reviewed for any such prohibition. Can a Shareholder Withdraw from the Company If Share Transfers Are Prohibited? Under certain conditions, yes. Article 595/5 provides that where the articles of association prohibit a transfer or the general assembly refuses approval, the shareholder's right to withdraw for just cause remains preserved. Accordingly, preventing the transfer of a share does not necessarily mean that the shareholder has no legal route to leave the company. Withdrawal for just cause is, however, a separate legal mechanism with its own requirements. What Happens If the General Assembly Does Not Decide Within Three Months? Under Article 595/7, where the general assembly does not reject the transfer within three months from the application, approval is deemed to have been granted. This rule prevents a transfer application from remaining indefinitely unresolved. The date on which the application is submitted to the company is therefore particularly important. Can the Transfer Be Refused If the Transferee Lacks Financial Capacity? In certain circumstances, yes. Where the articles of association provide for additional payment or ancillary performance obligations, the transferee may be required to provide security if their financial capacity is considered doubtful. Under Article 595/6, if the required security is not provided, the general assembly may refuse approval even where the articles of association do not contain a specific provision authorising such refusal. Accordingly, the transferee's ability to pay the purchase price is not necessarily the only financial issue; the ability to fulfil obligations attached to the share may also be relevant. Is the Transfer Recorded in the Share Ledger? Yes. Under Article 594, a limited liability company is required to maintain a share ledger. The share ledger contains information including: Names and addresses of shareholders, Number of capital shares held by each shareholder, Nominal values and classes of the shares, Transfers and transitions of capital shares, Usufruct and pledge rights over the shares. Accordingly, the company's internal records should be updated following a valid share transfer. Is Registration with the Trade Registry Required? Yes. Under Article 598, the company managers must apply to the trade registry for registration of transfers and other transitions of capital shares. Therefore, once the internal corporate stages of the transfer have been completed, the trade registry procedures must also be followed. Who Applies to the Trade Registry? Under Article 598/1, the application for registration is made by the company managers. After the general assembly and other internal corporate procedures are completed, the managers must therefore carry out the necessary steps to register the change in the trade registry. What Can the Departing Shareholder Do If the Managers Fail to Apply for Registration? The Turkish Commercial Code gives the departing shareholder a specific right in this situation. Under Article 598/2, if the registration application is not made within thirty days, the departing shareholder may directly apply to the trade registry to have their name removed in relation to the transferred shares. The registry director then gives the company a period within which to identify the person who acquired the shares. Why Is Registration Important in a Share Transfer? Keeping trade registry information concerning the shareholder structure up to date is important for the company, the shareholders and third parties. Article 598/3 also provides that the reliance of a good-faith third party on the trade registry record is protected. For this reason, changes in the shareholder structure should be reflected in the trade registry in a timely manner. Is General Assembly Approval Required When a Share Passes by Inheritance? As a general rule, no. Under Article 596, where a capital share passes through: Inheritance, Matrimonial property regime rules, Enforcement proceedings, the rights and obligations attached to the share pass to the acquiring person without the need for general assembly approval. However, the company has certain rights regarding these statutory transitions. Can the Company Refuse to Accept a Person Who Acquires a Share by Inheritance? Under certain conditions, yes. Under Article 596/2, the company may refuse to approve the person who acquired the share within three months after learning of the acquisition. However, the company must offer to acquire the shares at their real value: For its own account, For the account of another shareholder, For the account of a third party designated by the company. What Happens If the Company Does Not Reject the Inherited Share Within Three Months? Under Article 596/4, if the company does not expressly and in writing reject the transition within three months, approval is deemed to have been granted. The three-month period is therefore also important in inheritance and other statutory transitions. What Happens If There Is a Dispute Concerning the Real Value of the Share? The Turkish Commercial Code allows the parties to apply to the court. Under Article 597, where the law or the articles of association provide that the real value of the capital share is to be used and the parties cannot agree on that value, either party may apply to the Commercial Court of First Instance at the company's registered office. The court determines the real value of the share. Is the Transfer Price Always Equal to the Nominal Value of the Share? No. The nominal value of a share and its economic or real value are different concepts. The economic value of the share may be influenced by factors such as: The company's assets, Liabilities, Profitability, Business activities, Market conditions. Where the law requires an assessment based on real value, nominal share capital alone is therefore not decisive. Article 597 also permits the court to determine the real value in certain disputes. Can the Articles of Association Provide for Pre-Emption Rights? The articles of association may provide rights relating to shares such as: Pre-emption rights, Repurchase rights, Purchase rights, Rights to receive an offer. Articles 593 and 595 require such rights to be considered in relation to shares and transfer transactions. Where they exist, the relevant conditions must also be stated in the transfer agreement. Accordingly, before a transfer to a third party, it is important to determine whether existing shareholders have priority rights. Is a Share Transfer the Same as Withdrawal from the Company? No. In a share transfer, the shareholder transfers the share to another person and may leave the shareholder structure in this way. In a withdrawal, shareholder status ends under the mechanisms provided by the Turkish Commercial Code and the articles of association. Therefore: Share transfer, Withdrawal for just cause, Expulsion from the company, are separate corporate-law mechanisms. Is a Share Transfer the Same as a Sale of the Company? Not always. Where a shareholder transfers only part of their shareholding, the transaction changes only the ownership percentages. Where all of the shares or a controlling percentage of the shares are transferred, control of the company may economically change hands. In such transactions, it is important to examine not only the share transfer rules under the Turkish Commercial Code but also: Company debts, Commercial agreements, Tax and financial obligations, Employment relationships, Pending litigation, Company assets. Why Is Legal Due Diligence Important Before a Limited Liability Company Share Transfer? A transferee does not merely acquire a percentage of capital. Provisions in the articles of association and certain obligations attached to the share may also become relevant. Before a transfer, it is therefore important to review: The articles of association, Trade registry records, Share ledger, General assembly resolutions, Company debts, Additional payment obligations, Ancillary performance obligations, Non-compete obligations, Pre-emption and purchase rights. The fact that Article 595 requires certain obligations and rights to be expressly stated in the share transfer agreement also demonstrates the importance of this review. Why Is Corporate Legal Consultancy Important During a Share Transfer? Through an ongoing corporate legal consultancy agreement, the share transfer process can be legally managed from the initial stage through registration. Corporate legal consultancy may include: Reviewing the articles of association, Preparing the share transfer agreement, Managing the general assembly approval process, Assessing pre-emption and other shareholder rights, Updating the share ledger, Following trade registry procedures, Defining the obligations of the transferor and transferee. This approach allows the transfer to be assessed as a complete corporate-law process rather than being reduced solely to the notarial stage. How Are Corporate Legal Consultancy Fees Determined? Corporate legal consultancy fees may vary depending on: The company's shareholder structure, Percentage of shares to be transferred, Scope of the articles of association, Existence of restrictions on the transfer, Contract drafting requirements, General assembly and registration procedures, Legal due diligence, Existing disputes between the parties. The scope of corporate legal consultancy should therefore be determined according to the characteristics of the particular transfer. Limited Liability Company Share Transfers in Istanbul Share transfers in limited liability companies in Istanbul may arise in circumstances such as: Transfers between existing shareholders, Transfers to third parties, Transfer of company control, Transfers in family companies, Share transitions caused by inheritance, Shareholder exit processes. For this reason, in matters involving corporate legal consultancy in Istanbul, Ümraniye, Ataşehir, Üsküdar and Çekmeköy, the articles of association, the general assembly process and trade registry procedures should be assessed together. What Should Be Considered When Choosing the Best Corporate Legal Consultancy in Istanbul? When researching the best corporate legal consultancy in Istanbul, relevant factors may include: Experience in corporate and commercial law, Experience with limited liability company share transfers, Knowledge of drafting and reviewing articles of association, Familiarity with general assembly procedures, Ability to manage trade registry procedures, Experience in shareholder disputes, Experience in contracts and legal due diligence. Conclusion A share transfer in a limited liability company is an important corporate-law transaction that changes the shareholder structure and is subject to specific formal and approval requirements under the Turkish Commercial Code. Under Article 595, the share transfer and transactions creating the obligation to transfer must be made in writing and the signatures of the parties must be certified by a notary. Unless otherwise provided in the articles of association, general assembly approval is required and the transfer becomes valid upon such approval. Unless otherwise provided in the articles, the general assembly may refuse approval without stating a reason, and the articles of association may completely prohibit transfers. If the general assembly does not reject the transfer application within three months, approval is deemed to have been granted. Following the transfer, the company managers must apply to the trade registry. If this application is not made within thirty days, the departing shareholder may apply directly to have their name removed in relation to the transferred shares. Where shares pass through inheritance, matrimonial property rules or enforcement, the rights and obligations pass to the acquiring person without general assembly approval. However, subject to the statutory conditions, the company may refuse to accept the acquiring person within three months. Where the parties disagree on the real value of the share, the Commercial Court of First Instance at the company's registered office may determine that value. Accordingly, issues such as limited liability company share transfer, transfer of capital shares, corporate law, share transfer agreement, general assembly approval, corporate legal consultancy in Istanbul, corporate legal consultancy in Ümraniye, corporate legal consultancy in Ataşehir, corporate legal consultancy in Üsküdar, corporate legal consultancy in Çekmeköy, corporate legal consultancy agreement and corporate legal consultancy fees should be assessed according to the specific articles of association and shareholder structure of the company.