The doctrine of capital maintenance is amongst the fundamental principles of equity companies. The first requirement of this principle is the fulfilment of the share capital commitment by shareholders, as they undertake in the articles of association or the subscription of share capital. The fulfilment of this share capital commitment is the sole primary obligation of the shareholders in joint stock companies. This is also referred to the single obligation principle. This principle applies to both kinds of commitments: capital in cash and capital in kind. It is noteworthy to state that the principle seems to be special to the Turkish Commercial Code Law No. 6102 (“TCC”) and to privately held joint stock companies, due to the exceptions stipulated in the Capital Markets Law No. 6362 in which the scope of the obligations of the shareholders is quite wide for publicly held joint stock companies [1]. This article briefly focuses on the non-fulfilment of share capital commitment by shareholders and its conclusions within the scope of TCC.
Non-fulfilment of the Share Capital Commitment
The obligation of the fulfilment of the share capital commitment arises from either the articles of association or the subscription of share capital [2]. The articles between 480 and 483 of the TCC set forth provisions regarding the fulfilment of share capital commitment and the consequences of the non-fulfilment of this statutory obligation. It should be stated that if a shareholder does not fulfil the share capital commitment at its due date, the company may ordinarily commence execution proceedings for this debt, or it may optionally follow up the provisions for the removal of the defaulting shareholder and the annulment of shareholding rights in accordance with the article 483 of TCC [3].
If a shareholder goes into default, he/she may face a number of claims requested by the company. The shareholder is liable for the default interest as well as the share capital. Provided that it is set out in the articles of association, the company is also entitled to claim a contractual penalty (TCC Article 482/3). Moreover, the company can also claim for its further damages against the defaulting shareholder. These are the financial claims that can be requested by the company.
Conditions for Removal
The company’s board of directors is authorized to remove the defaulting shareholder from the company and to annul the shareholding rights of the defaulting shareholder by depriving such shareholder of payments that have been made. As it is a heavy sanction for shareholders resulting in the removal of the shareholder from the company, it can only be realized by operating a certain legal procedure stipulated in the Article 483 of the TCC. In this procedure, the necessary conditions to be met are as follows: (1) the shareholder should fail to fulfil their share capital commitment at the due date and should go into default, (2) a period of one month should be granted to the defaulting shareholder by the board of directors, (3) the defaulting shareholder should not fulfil their share capital commitment in such a period, then, (4) the board of directors should make a resolution on the annulment of the shareholding rights of the relevant share of such shareholder.
The first condition is that the shareholder should fail to fulfil their share capital commitment at the due date and should go into default. The issues regarding to the determination of the due date of the payment and whether the shareholder goes into default or not should be settled in the light of the Turkish Code of Obligations Law No. 6098. The article 481 of TCC sets out the provision of call for payment, if the law or the articles of association stipulates the due date of the fulfilment of the share capital commitment, then, there is no need to apply this article to put the shareholder into default. If not, call for payment should be made by the board of directors in accordance with the article 481 of TCC. As per this article, the board of directors shall demand the fulfilment of the share capital commitment from the shareholders by publication, provided that the articles of association do not stipulate otherwise. In the publication, the rate and the amount of the share capital commitment required to be fulfilled shall be clearly indicated as well as the date and the place of payment.
If the shareholder does not fulfil the share capital commitment in spite of the first call for payment, the board of directors may continue the process for the removal of the defaulting shareholder from the company and for the annulment of shareholding rights of the relevant share of the defaulting shareholder. For this, the board of directors should serve a notice to the defaulting shareholder via publication in the Turkish Trade Registry Gazette (TCC Article 483). It should also be published on the website of the company. This notice calls the defaulting shareholder for the fulfilment as well and it should be served in accordance with the Articles of Association. It should include some specific matters set forth by the Article 483 of TCC. Following points should be clearly indicated: the commitment shall be fulfilled within one month, otherwise the rights related to the shares will be deprived and the contract penalty will be demanded. The scope of the notice is regulated as a mandatory provision, and it should fully comply with the Article 483 of TCC.
The board of directors may continue the legal process for the removal of the defaulting shareholder from the company and for the annulment of the shareholding rights of the relevant shares of the defaulting shareholder, if the defaulting shareholder fails to fulfil his/her share capital commitment in one-month period. If the defaulting shareholder fulfils his/her share capital commitment in the given period, in this case, the board of directors cannot remove the shareholder from the company.
As stated above, the board of directors is the authorised body of the company to make a resolution to remove the defaulting shareholder from the company in terms of its unpaid shares. TCC does not specify a quorum requirement for this resolution. The general regulation of TCC on quorum will be applicable for this board of directors meeting, given that the articles of association does not stipulate specifically on this matter. The board of directors’ resolution will be a unilateral and formative legal transaction [4].
Consequences
Upon the board of directors’ resolution on the annulment of the shareholding rights of the relevant share of the defaulting shareholder, certain legal consequences arise. The foremost consequence is the removal of the defaulting shareholder from the company’s shareholding structure. It is noteworthy to state that a shareholder can be removed only for the shares of which he/she did not fulfil his/her commitment. He/she only loses shareholding rights for unpaid shares, if he/she fulfils his/her commitments of some of the shares, then he/she retains the shareholding in terms of such shares.
Another consequence is that the shareholder will be deprived of his/her partial payment. He/she will not be entitled to claim repayment from the company. On the other hand, in the event that such share is sold to a third party at a lower price, the shareholder is still liable for the deficit. In addition, usufruct right, share pledge and voting right pertaining to such share will also be forfeitured. Finally, the ownership right of such share passes to the company upon the board of director’s resolution on the removal of the defaulting shareholder. The board of directors is entitled to sell such share to the third parties.
Av. Kerem Toklu / Associate
[1] TEKİNALP, (Poroy/Çamoğlu), Ortaklıklar, İstanbul: Vedat Kitapçılık, 2017, N. 1019.
[2] PULAŞLI, Hasan, Şirketler Hukuku Genel Esaslar, 4. baskı, Ankara: Adalet Yayınevi, 2016 s. 599.
[3] PULAŞLI, Hasan, Şirketler Hukuku Genel Esaslar, 4. baskı, Ankara: Adalet Yayınevi, 2016 s. 599.
[4] AYTEKİN, Çelik, Anonim Şirketlerde Ortaklıktan Çıkarılma, 3. Baskı, İstanbul: Seçkin Yayıncılık, 2013, s. 161.
