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December 21, 2023

Sole Debt Principle in Joing Stock Companies

I. INTRODUCTION

In the Turkish legal system, due to the nature of stock companies, there is a cooperation between the shareholders in order to achieve a common purpose. In joint stock companies, in accordance with the mandatory regulations of the Turkish Commercial Code numbered 6102 (“TCC”), it is not possible for the shareholder, as a rule, to be obligated a debt other than the capital share committed against the company by the shareholder. Therefore, the shareholder’s capital investment debt to the company is defined as “sole debt principle”. In this article, the sole debt principle of the shareholders, which is regulated specifically for joint stock companies have been addressed.

 

II. THE OBLIGATION OF CAPITAL CONTRIBUTION IN A JOINT STOCK COMPANY AND THE SOLE DEBT PRINCIPLE

A. In General

As a rule, the only debt of the shareholders to the joint stock company arises from the capital share they have committed. According to Article 329 paragraph 2 of the TCC, shareholders are only liable to the company with the capital shares they have committed. According to article 335 of the TCC, the shareholders unconditionally undertake to pay the entire capital stated in the articles of association in the incorporation of the company. Since the shareholders are responsible for the amount of the capital shares they have committed to the company, it is not possible to apply to the shareholders due to the company’s debts. The shareholder, who duly fulfills obligation of capital contribution, has no further liability to the company. This situation is called the “sole debt principle”. Pursuant to Article 480 of the TCC, apart from the exceptions stipulated in the law, that no debt can be imposed on the shareholder except for the performance of the premium exceeding the share price or the nominal value of the share, with articles of association.

These regulations basically establish that the amount of capital commitment undertaken by a joint stock company shareholder and therefore shareholder’s responsibility cannot be increased without consent. It should be noted that the sole debt principle regulated here is a principle regulated in terms of partnership and shareholder relationship, and it governs the debt of the shareholder to the partnership. Therefore, it is not possible to impose an additional obligation on the shareholders who fulfilled capital commitment. Pursuant to this principle, the basic order of the joint stock company and the commitments of the shareholders to the company are placed on a mandatory basis.

Thus, article 447 of the TCC emphasis on the general assembly resolutions which disrupt the basic structure of the joint stock company or are contrary to the provisions of the protection of capital shall be null and void. Hence, it is not possible to draft contrary to the “sole debt principle” of the shareholder, neither with the articles of association at the incorporation nor with a general assembly resolution.

In accordance with the principle of freedom of contract, it will not constitute a violation of the sole debt principle that the shareholders make various commitments to each other to enter into various debts that only bind them by making a contract among themselves. In case of breach of such agreements between the shareholders, sanctions regarding the law of obligations will be applied.

How the shareholders can invest capital in the joint stock company is regulated clearly in the TCC. In this sense, the partners can commit capital in cash or as capital in kind, which can be evaluated in cash and transferred including intellectual property rights and virtual environments, which do not have limited real rights, liens and measures.

Shareholders who invest in cash to the joint stock company as capital, in accordance with Article 339 paragraph 2 subparagraph j of the TCC, have made a capital commitment by writing the amount they have committed to bring as capital in Turkish lira or foreign currency into the articles of association, and as a rule, they are bound by their commitments.

According to Article 344 of the TCC, at least 25% of the nominal value of the shares committed in cash shall be paid before the company is registered, and the remaining part to be paid within 24 months following the incorporation.

Noting further, pursuant to article 342 of the TCC, acts of service, personal labor, commercial reputation or unmatured receivables cannot be capital. The principle of capital maintenance is guaranteed by this article.[1]

B. Exceptions of the Sole Debt Principle

The only legal exception to the sole debt principle in joint stock companies is secondary (subsidiary) liabilities. Pursuant to the Article 480 paragraph 4 of the TCC, “In cases where share transfers are subject to the approval of the company, in addition to the debt arising from the capital commitment, the shareholders may also be obliged to fulfill certain recurring acts that are not the subject of pecuniary with the articles of association. The nature and scope of these secondary obligations can be written on the back of the stock certificates or interim certificates.”

Accordingly, in cases where the transfer of shares in joint stock companies is subject to the approval of the company, the secondary obligations that may be imposed on the shareholder must include periodic performances that are not subject to pecuniary. Although the secondary obligations essentially make the joint stock company a cooperative to a certain extent, the fact that they are limited as a result and contain periodic acts which are not the subject of pecuniary can lead to results for the benefit of both the company and the shareholder.

Secondary obligations must be included in the articles of association, either in the establishment or through an amendment of the articles of association. The approval of all shareholders is required for amendments to the articles of association. Apart from above, due to the mandatory character of the sole debt principle, additional obligations cannot be imposed on the shareholders by the articles of association.

As regulated by the Supreme Court Jurisprudence, imposing a fidelity obligation to the shareholders in a way that exceeds the rule of good faith constitutes a violation of the sole debt principle. In this respect, shareholders in joint stock companies should not prevent the realization of the purpose of partnership within the framework of the rule of good faith and should avoid actions that harm the purpose. In this context, in case of loss due to breach of the fidelity obligation, a claim for compensation may be made against the shareholder, who violated the obligation, based on general provisions.

In joint stock companies, the obligation of capital contribution of the shareholder does not cease with the dissolution or liquidation of the company. Likewise, it is not possible to return the capital invested to the company by the shareholders later. Even if the joint stock company does not need a part of the capital, this part cannot be returned to the shareholders as a rule. The distribution of this part to the shareholders or the waiver of demand for the unpaid commitment from the relevant shareholder can only be possible through capital reduction or with the provisions regarding the liquidation share.

III. CONCLUSION

The main feature of the joint stock company is the use of the wealth commercially which created by the payment of the capitals committed by the shareholders to the company. In accordance with the sole debt principle in Article 344 of the TCC, the commitment and responsibility of the shareholder cannot be increased without shareholder’s consent, except for the situations stipulated. As a result of the joint stock company being a stock company, it is important for the shareholders to participate in the partnership in confidence by knowing the amount they are responsible for, and to know that they are not unlimitedly liable with their assets in case of future damage. In this sense, it is crucial that the commitments and obligations of the shareholders of the company, which are regulated both by the articles of association and the shareholders’ agreement, are determined very carefully.

[1] Şener, s.110

Authors

Gülenay Kavcar

Gülenay Kavcar

Çağla Yargıç

Çağla Yargıç

Lawyer