Dividend in Joint Stock Companies and Acquittal of the Board in Turkey

Determining, Discussing and Submitting The Profit to The Approval, The Method of Using The Profit, The Rates of Profit to Be Distributed And The Profit Shares

According to article 508 of the Turkish Commercial Code, if there is no contrary provision in the articles of association, the profit and liquidation share is calculated in proportion to the payments made by the shareholder to the company for the capital share. The value taken as the basis for shareholders’ participation in profit is the net profit for the period determined in accordance with the annual balance sheet of the company. Net profit for the period is determined by the provisions of the law and the articles of association. But the important issue is; Unless optional reserves foreseen in the legal and articles of association are set aside, dividends to be distributed to shareholders are not determined. Therefore, the dividend can be distributed from the annual net profit for the period and only from the free funds set aside for this purpose or without any specific purpose.

Article 507/2 of the Turkish Commercial Code constitutes an exception to the principle of equal treatment in the participation of shareholders to profit. Pursuant to this article, the articles of association have the right to apply privilege rights and special interests to some types of shares. For example, getting more profit compared to non-privileged shares, benefiting from profit with priority are some of the privileges that can be given to shares. In this case, the dividend of the shareholder is calculated in accordance with the privilege regulation specified in the articles of association and a certain percentage of distribution is made to the privileged shares first.

According to the article 408 / II-d of the Turkish Commercial Code, the duty and authority to make decisions regarding the use of profit and dividend distribution are among the non-transferable duties and powers of the joint stock company general assembly. Accordingly, in accordance with the financial statements, if the company is in profit and there is a profit to be distributed after the legal / optional reserves are set aside, the profit distribution of the joint stock company will be in question if the general assembly takes a decision on this matter. In other words, a joint stock company cannot distribute profits with the decision of the board of directors or without taking any decision on this matter; The only authorized body regarding this issue is the general assembly.

Dividend Distribution COVID-19 Limitation

On 31.03.2020, the Ministry of Commerce announced to all capital companies, except for those with public participation, to protect their equity and to limit the cash dividend distribution decisions to be put on the agenda at the general assembly meetings to be held for the 2019 accounting period to 25%.

The announcement made by the Ministry of Commerce has been enacted with the temporary article added to the Turkish Commercial Code within the scope of the 12th article of the Law.

Accordingly, the state, provincial special administrations, municipalities, villages and other public legal entities and capital companies, except for companies in which more than fifty percent of the capital is owned by the public funds, directly or indirectly more than fifty percent of the capital, first until 30.09.2020,

  • The amount of dividends they can distribute will not exceed 25% of the net profit for the year 2019,
  • previous year profits and free reserves cannot be distributed,
  • the board of directors will not be authorized to distribute dividend advance by the general assembly,
  • If the decision to distribute dividends for the 2019 fiscal period was taken by the General Assembly before the Law entered into force, but the shareholders have not yet been paid or partial payments have been made, payments for the part exceeding 25% of the net profit for the year 2019 will be postponed.

The President is authorized to extend and shorten this period of three months. In addition, the Ministry of Commerce has been authorized to determine the procedures and principles regarding the implementation and the exceptions regarding the temporary article added to the Turkish Commercial Code, by taking the opinion of the Ministry of Treasury and Finance.

Pursuant to the President’s Decree No. 2948 published in the Official Gazette dated September 18, 2020 and numbered 31248, the limitation period on dividend distribution was extended for three months (until the end of 2020).

Therefore, this limitation will be valid until the end of 2020.

Acquittal of the Board

In joint stock companies, acquittal is the acceptance by the company that the transactions and activities carried out during the accounting period and their results are not liable for the members of the board of directors in joint stock companies, the declaration that there is no claim from them, including compensation, and a statement of trust.

The acquittal of the board of directors not only removes the responsibilities of the members of the board of directors, but also means that their actions, decisions and policies are adopted and the trust in them continues. In the doctrine, the legal nature of release is that it is a “negative debt acknowledgment.” In terms of its form, release is a legal transaction that unilaterally leads to innovation. It is not necessary for the acquittal to accept for the release to have legal consequences.The most concrete result of the release is related to the legal liability lawsuits to be filed against company executives. As a rule, release removes the right to file a lawsuit, but the effect of release on liability cases differs in terms of the legal entity of the company, partners and creditors.

In accordance with the Turkish Commercial Code, the body authorized to decide on acquittal is the general assembly. The General Assembly cannot transfer this authority to any organ or representative. According to the Turkish Commercial Code, one of the matters to be included in the ordinary meeting agenda of the general assembly is the release of the members of the board of directors.

The release decision can be taken at ordinary or extraordinary general assembly meetings. A special meeting and decision quorum is not stipulated in the Turkish Commercial Code. Therefore, the decision of acquittal can be taken with the usual quorums. Since the release decision is unilateral and its legal nature is an innovative right, the general assembly cannot revoke the previously taken release decision.

The decision of the joint stock company general assembly regarding release from responsibility removes the company’s right to file a liability suit regarding the material events disclosed within the scope of the release.

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