Introduction
Although limited liability companies have been structurally aligned with joint stock companies under the Turkish Commercial Code No. 6102 (“TCC”), they continue to retain characteristics specific to partnerships, particularly with respect to shareholder relations. This hybrid structure is clearly reflected in the regime governing the transfer of shares in limited liability companies.
Unlike shares in joint stock companies, the transfer of shares in limited liability companies is subject to stricter formal and procedural requirements imposed by the legislator. The transfer is no longer a transaction that produces legal effects solely through a contract between the parties; rather, it constitutes a multi-stage process completed through internal corporate approvals and registration procedures.
In this context, the transfer of a share in a limited liability company requires the execution of a notarized written agreement, the approval of the general assembly, registration in the share ledger, and registration with the trade registry. These requirements are decisive both for the validity of the transfer and for it to produce effects vis-à-vis the company and third parties. In practice, the failure to duly complete any of these stages may result in the transfer not producing legal effects and may give rise to serious disputes.
Legal Nature of the Shares
Pursuant to Article 573/1 of the TCC, a limited liability company is a capital company with a fixed share capital, which consists of the aggregate of shares. A share represents the status of a shareholder, constitutes an asset right with economic value, and is, as a rule, transferable.
However, the transfer of a share in a limited liability company is not merely a disposition relating to assets; it is also accepted as directly affecting the partnership structure and the personal nature of the company.
For this reason, the regime governing the transfer of shares in limited liability companies is deliberately distinguished from the regime of free transferability applicable to shares in joint stock companies, and is made subject to the approval of the general assembly in order to preserve the identity of shareholders and the relationship of trust within the company. The Court of Cassation (Yargıtay) consistently emphasizes in its decisions that the transfer of shares in limited liability companies affects the internal structure of the company.
Share Transfer Agreement and Form Requirement
Pursuant to Article 595/1 of the TCC, the transfer of a share in a limited liability company must be executed in writing and the signatures of the parties must be notarized. This provision is mandatory in nature, and notarization constitutes a validity requirement. Agreements executed in simple written form or lacking notarization are invalid.
The Court of Cassation explicitly states in its decisions that share transfer agreements lacking notarization do not produce legal effects. Accordingly, practices frequently encountered in practice such as “simple written agreements + endorsement of share certificates” do not provide legal security in terms of share transfers in limited liability companies.
Approval of the General Assembly
Pursuant to Article 595/2 of the TCC, unless otherwise stipulated in the articles of association, the transfer of a share in a limited liability company is subject to the approval of the general assembly of shareholders. Through this regulation, the legislator has transformed the transfer of shares from a transaction solely between the transferor and the transferee into an institutional control mechanism aimed at protecting the partnership structure of the company. General assembly approval is a complementary and mandatory element for the transfer to produce effects vis-à-vis the company.
As a rule, the approval of the general assembly must be given in the form of a duly adopted general assembly resolution. Although it is possible to abolish the requirement of general assembly approval through the articles of association, in the absence of such a provision, it cannot be accepted that the transfer is completed solely by a notarized agreement. Where the requirement of general assembly approval has been abolished, the transferee acquires shareholder status as of the date on which the signatures on the transfer agreement are notarized. Conversely, where general assembly approval is required, the transfer remains pending until such approval is granted, and the rights and obligations of the shareholder continue to belong to the transferor.
The authority of the general assembly to approve the transfer of shares is among its non-delegable powers. Indeed, when Articles 595/2 and 616/1-g of the TCC are considered together, it is not possible to delegate the authority to approve share transfers to the managers or to third parties. Therefore, the evaluation and decision-making process regarding the transfer must be conducted directly by the general assembly.
Following the notification of the transfer to the company, the general assembly must be convened in order to grant approval. This call must be made in accordance with Articles 410 et seq. of the TCC, as referred to by Article 617. The TCC does not contain an explicit provision regarding the period within which managers must convene the general assembly following such notification. Accordingly, the call must be made within a reasonable time in compliance with the principle of good faith. In the event that the managers fail to fulfill this obligation, the transferring shareholder may, provided that it holds at least one-tenth of the company’s capital, request the convening of the general assembly pursuant to Articles 411 et seq. of the TCC applicable to joint stock companies (Article 617/2 TCC).
General assembly approval does not necessarily require a physical meeting. Pursuant to Article 617/4 of the TCC, unless any shareholder requests oral deliberation, a resolution may be adopted without a meeting through the written approval of the shareholders regarding the proposal of the manager concerning the transfer. In such case, it is still deemed that a duly granted general assembly approval exists.
Article 595/7 of the TCC aims to prevent the general assembly from leaving the transfer pending indefinitely through inaction. Accordingly, if the general assembly does not reject the transfer within three months from the date of notification to the company, the transfer shall be deemed to have been implicitly approved. Upon the expiry of this three-month period, the transferee acquires shareholder status even in the absence of an explicit resolution. Where the general assembly expressly approves the transfer, shareholder status is acquired as of the date of such approval.
The general assembly cannot grant approval subject to a condition. However, where certain conditions regarding the transfer are stipulated in the articles of association, approval is only possible upon the fulfillment of such conditions. In this respect, the approval of the general assembly constitutes an element that completes and gives effect to the transfer agreement.
In the event that the general assembly rejects the transfer, the ownership of the share remains with the transferor. In such case, the transfer agreement terminates due to subsequent impossibility, and the parties may reclaim what they have provided pursuant to the provisions on unjust enrichment. If the rejection is attributable to the fault of the transferor, the transferor’s liability may arise.
Registration in the Share Ledger and the Trade Registry
Following the approval of the general assembly, the transfer must be recorded in the share ledger. Registration in the share ledger is mandatory for the transfer to produce effects vis-à-vis the company. Within the system of the TCC, the share ledger constitutes the official internal record of the shareholding structure.
Registration of the transfer with the trade registry is important for its enforceability against third parties. Registration and announcement produce legal effects within the framework of Articles 36 et seq. of the TCC. Although the Court of Cassation considers registration to be declaratory rather than constitutive, it emphasizes its significant importance, particularly for the protection of third parties.
Practice of the Court of Cassation and Evaluation
In the practice of the Court of Cassation, it is observed that disputes regarding the transfer of shares in limited liability companies predominantly arise from deficiencies in form and procedure. In this context, the failure to execute the transfer agreement in notarized written form, the absence of general assembly approval, or the failure to duly establish such approval constitute the main areas of dispute subject to judicial review. The Court of Cassation considers such deficiencies as serious violations preventing the transfer from producing legal effects.
The Court of Cassation accepts that the formal and procedural requirements stipulated for share transfers in limited liability companies serve not only to maintain the balance of interests between the parties but also to protect the partnership structure and internal order of the company. Therefore, requirements such as notarization and general assembly approval are not regarded as mere evidentiary or formal conditions, but as mandatory elements for the transfer to produce effects vis-à-vis the company. Indeed, the 11th Civil Chamber of the Court of Cassation emphasizes that recognizing legal consequences even between the parties for transfers made in violation of formal requirements is exceptional.
Another notable point in the jurisprudence of the Court of Cassation is that the validity of the transfer agreement between the parties is not deemed sufficient for the transfer to bind the company and other shareholders. Accordingly, the Court consistently holds that even where a notarized agreement exists, transfers lacking general assembly approval do not produce effects vis-à-vis the company.
Conclusion
The transfer of shares in limited liability companies has been subjected to a detailed and multi-stage legal regime under the TCC. The execution of a written and notarized agreement, the approval of the general assembly with the correct quorum, registration in the share ledger, and registration with the trade registry constitute complementary elements for the validity and effectiveness of the transfer. The absence of any of these elements may prevent the transfer from producing effects vis-à-vis the company and third parties.
In this respect, share transfer transactions in limited liability companies must be addressed not only through the will of the parties but also within the framework of the institutional mechanisms prescribed by the TCC. In particular, careful structuring of general assembly approval and quorum requirements is of critical importance in preventing potential future disputes.
