Understanding Shareholder Rights in Turkey: Prohibition of Competition Explained

"Illustration showing the concept of shareholder rights and competition prohibitions in Turkey's joint-stock companies
Shareholder Rights in Turkey: Prohibition of Competition Explained

Shareholder Rights in Turkey: Prohibition of Competition Explained

Shareholder rights in Turkey hold significant weight, particularly concerning the prohibition of competition within joint-stock companies. This legal framework restricts individuals involved in decision-making from conducting independent commercial transactions within the company’s domain or engaging in competing ventures. This restriction extends to board members, managers, and other decision-makers throughout their tenure.

Prohibition of Competition in Joint-Stock Companies

The cornerstone of the prohibition of competition lies in preventing individuals privy to the company’s trade secrets and decision-making processes from unfairly exploiting their positions. According to Article 396 of the Turkish Commercial Code (TCC), board members are barred from engaging in commercial activities within the company’s operational scope without the general assembly’s consent. This prohibition encompasses both personal involvement and share ownership in competing entities.

In case of a violation, repercussions range from financial damages to treating such actions as performed on behalf of the company. Notably, the prohibition typically ceases upon board members’ termination of service.

Shareholder Rights and Prohibition of Competition

While the TCC doesn’t explicitly regulate shareholder competition, debates persist regarding their obligations. The principle of single obligation suggests that shareholders’ primary duty is capital investment. However, discussions arise concerning whether shareholders should adhere to loyalty obligations, potentially extending to competition prohibition.

Contractual Prohibition of Competition for Shareholders

Controversy surrounds whether articles of association can enforce competition prohibition on shareholders. Some argue against it due to the single obligation principle, yet shareholders’ agreements serve as recognized avenues for imposing such obligations.

Evaluation and Discussion

The crux of the debate lies in whether shareholders controlling board decisions should be subject to competition prohibitions. In sectors where expertise holds more value than capital, shareholders’ involvement in competing ventures may hinder company goals, challenging the validity of the single obligation principle.

While shareholders aren’t inherently subject to competition prohibitions, exceptions apply when their actions conflict with the company’s interests. Court rulings hinge on evaluating the shareholder’s role, company dynamics, and sector specifics, ensuring equitable application of shareholder rights in Turkey.