Minority Shareholder Protection in Corporations: Protection for Whom, Why, and How?Abdurrahman Kayıklık
Protection of minority shareholders is one of the key concerns of corporate law. This paper examines how the Turkish Commercial Code (TCC) protects minority shareholders while paying special attention to close joint stock corporations with a controlling shareholder. First, it assesses how the concept of minority in corporations has been used in the TCC and existing literature and then attempts to define it. Second, it explains the legal and financial risks that necessitate minority protection using examples. Third, it explores why minority shareholders are usually unable to protect themselves from such risks and offers justifications for protection through mandatory norms. Finally, the paper analyzes the system of the TCC for minority protection by subjecting the protective mechanisms to a taxonomy. After taking a critical approach toward the so-called positive-negative minority rights dichotomy used by most Turkish scholars for its limited scope and the criterion for such dichotomy, the paper offers a novel taxonomy. The functional approach that this paper presents classifies the statutory mechanisms into five categories. The first category, voice, consists of rights allowing minority shareholders to influence corporate decisions and transactions. The second category, exit rights, enables minority shareholders to exit the corporation through a free or safe exit. The third category, foundational rights, ensures proper exercise of voice and exit rights. The fourth category, gap-filling principles, includes abstract norms that supplement the concrete rules in the previous categories. The fifth and final category, the protective walls, is part of the legal mechanisms that aim at protecting the very system that protects minority shareholders.
Anonim Şirkette Azınlığın Korunması: Kim İçin, Neden ve Nasıl Bir Koruma?Abdurrahman Kayıklık
Azınlık pay sahiplerinin korunması, anonim şirketler hukukunun temel meselelerindendir. Bu çalışma, Türk Ticaret Kanunu’nun (TK) azınlığı koruyan sistemini incelemektedir. Çalışma, bir hâkim pay sahibinin bulunduğu kapalı anonim şirketlere odaklanmaktadır. Bu amaçla ilk önce azınlık kavramının içi doldurulmakta, TK’da ve öğretide kavramın nasıl tanımlandığı incelenerek alternatif bir tanım sunulmaktadır. Devamında azınlığın korunmasını gerektiren hukuki ve iktisadi riskler çeşitli örnekler üzerinden açıklanmaktadır. Azınlığın söz konusu risklere karşı kendisini neden koruyamadığı üzerinde durularak korumanın emredici kanun hükümleriyle sağlanması gerekçelendirilmektedir. TK’nın azınlığı koruyan sistemi, azınlık pay sahiplerini koruyan hukuki kurumlar tasnife tabi tutularak açıklanmaktadır. Bu amaçla öncelikle Türk öğretisinde benimsenmiş olan olumlu - olumsuz azınlık hakları ayrımı, hem kapsam hem de bu ayrıma esas alınan tasnif kriteri bakımından eleştirel bir gözle incelenmektedir. Daha sonra TK’da azınlık pay sahiplerini koruyan tüm mekanizmalar yeni bir tasnife tabi tutulmaktadır. İşlevsel bir yaklaşımla azınlık pay sahibini koruyan mekanizmalar beş kategoriye ayrılmaktadır. Bunlardan ilki olan söz hakları, azınlık pay sahiplerinin şirket iradesine etki etmesini sağlayan araçlardır. İkinci kategori olan çıkış hakları, pay sahibinin hisselerini satarak şirketten ayrılmasına imkân tanıyan mekanizmalardır ve serbest çıkış ve güvenli çıkış olarak iki alt başlıkta incelenmiştir. Altyapısal haklar, ilk iki hak grubunun gereği gibi kullanılmasını temin eden yardımcı mekanizmalardır. Dördüncü kategori olan boşluk doldurucu ilkeler, münferit koruma araçlarının yetersiz kaldığı hallerde tamamlayıcı role sahip genel prensiplerdir. Son olarak çeperler, azınlığı koruyan sistemin kendisini koruyan normları ifade etmektedir.
Protection of minority shareholders is one of the fundamental issues in corporate law. In this regard, three questions are of critical significance. First, whom exactly does corporate law protect as “minority shareholders?” Second, why does corporate law protect minority shareholders? Third, how does corporate law protect minority shareholders? This paper seeks to answer these questions by analyzing the protection afforded to minority shareholders under the Turkish Commercial Code (TCC).
Part I of the paper explains the scope of this analysis and lays out the assumptions that the analysis will be based on. Corporate law protects minority shareholders vis-àvis two agency problems. The first agency problem is the managerial agency problem and the second one is the controlling shareholder agency problem, which arises in corporations with a controlling shareholder (CSH). Since most Turkish corporations are private corporations shares of which are not listed on a stock exchange, the latter of the two is the more important one when it comes to minority protection in Turkish corporate law. Therefore, this paper analyzes minority protection in corporations: (i) which are close and non-listed; (ii) which have a CSH; (iii) in which there is a personal relationship between the CSH and minority shareholders; (iv) in which minority shareholders are not protected by non-TCC means (i.e., the charter or a shareholders’ agreement); and (v) in which it is difficult for the minority shareholder to sell their shares for fair value.
Part II focuses on the concept of “minority.” The TCC refers to shareholders representing 10% (5% for public corporations) of the share capital as minority shareholders in several provisions. These shareholders are considered as minority shareholders in provisions where a right is bestowed upon the shareholders meeting that threshold. However, a thorough analysis shows that this use of the word minority is not consistent within the TCC, as there are instances where the term is used without there being a threshold or where the term is not mentioned despite there being a threshold of 10% of the share capital. Nevertheless, most scholars define minority shareholders as shareholders who satisfy the aforementioned threshold(s). Notably, defining minority shareholders as such excludes shareholders with a stake less than 10%. Therefore, this definition fails to accurately reflect the type of shareholders protected by the TCC protects as the minority. This paper argues for a more functional definition and offers a definition based on the minority’s positions vis-à-vis the CSH.
Part III seeks to answer these two questions: Why do minority shareholders need protection and why does this protection need to be in the form of mandatory norms? The first question is answered through examples that demonstrate how minority shareholders are vulnerable to several legal and financial risks. The paper then explains why minority protection should mostly be afforded through mandatory norms instead of default ones. It answers the second question in two parts. First, during the stage of investment in a minority stake, informational deficiencies as well as the fact that there is, as assumed by this paper, a personal relationship between the CSH and minority shareholders can result in investors waiving their statutory rights. Second, the majority principle, which allows the CSH to amend the charter in the general assembly, implies that any protective mechanism that is not mandatory can be wiped out by the CSH at the post-investment stage. This explains why norms that aim at protecting investors should, in principle, be mandatory.
In the final part, this paper offers a new taxonomy of the TCC’s minority protection mechanisms. It classifies the mechanisms into five categories, building upon the voice and exit taxonomies already prevailing in the US literature. The first category is voice, which refers to mechanisms that allow minority shareholders to influence corporate decisions and transactions. The second category, exit rights, enables minority shareholders to exit the corporation through a free or safe exit. The right to a free exit means that shares are freely transferable without any restrictions. Since a free exit is unlikely due to legal and financial restrictions, a safe exit allows minority shareholders to sell their shares to the corporation or CSH at fair value. The other three categories, which are concepts first developed in this paper, supplement the first two. Foundational rights are mechanisms such as informational rights and antidilution norms that ensure proper exercise of voice and exit rights, while gap-filling principles are abstract norms that supplement the more concrete rules in previous categories. Finally, protective walls are legal mechanisms that aim at protecting the very system that protects minority shareholders, such as the doctrines of nonwaivable and acquired rights as well as the principle of mandatory norms regarding charter provisions.