ATTRACTING EXTERNAL FINANCING AND PRE-EMPTIVE RIGHTS OF SHAREHOLDERS

External Capital Attraction in Turkish JSCs: Protecting Existing Shareholders’ Rights

Share capital increase through external financing is a powerful growth tool for Turkish companies. However, the process requires careful balance between attracting new investment and protecting existing shareholders’ rights.

External Capital Attraction Methods

According to Article 459 of Turkey’s Commercial Code, external capital increase is implemented two ways: through charter amendments with general meeting approval or through investor participation obligations.

Participation Obligation: Legal Guarantees

Participation obligation is a document confirming investor intentions to acquire new shares. It must contain capital increase purposes, share quantity and price, payment schedule, investor data, and premium amount if applicable.

Preemptive Right: Existing Shareholder Protection

Article 461 Commercial Code grants existing shareholders priority right to acquire new shares propor‐ tional to their stake. This prevents control dilution and allows maintaining influence on corporate de‐ cisions.

Practical Implementation Examples

DEF A.Ş. attracted 50 million lira for factory expansion. Existing shareholders used preemptive rights, maintaining their stakes, while strategic partners received remaining shares. 7 In another case, XXXX A.Ş. shareholder owning 10% used the right and preserved stake. Refusing shareholders saw influence decrease from 10% to 7-8%.

Preemptive Right Limitation and Transfer

General meeting can limit rights by 60% capital vote for objective reasons: IPO, mergers, strategic investor attraction. Rights can transfer to third parties absent charter restrictions.

Consequences of Right Non-Exercise

Shareholders may refuse additional share purchase, resulting in company stake reduction and decreased management decision influence. Proper capital increase mechanism application ensures balance between investment attraction and shareholder protection, creating sustainable corporate governance foundation.

Remember that each situation requires individual consideration. For personalized consultation, contact us.

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