SHAREHOLDERS’ RIGHT TO OBTAIN INFORMATION AND EXAMINATION IN JOINT STOCK COMPANIES

In joint stock companies, the only obligation of the shareholder towards the company is, as a rule, the payment of the subscribed capital contribution. The risk assumed by shareholders through their capital contribution and the management of such risk are ensured by granting certain rights and powers to the shareholders. Among these rights is the right to obtain information and examination, regulated within the framework of the relevant provisions of the Turkish Commercial Code No. 6102 (“TCC”). Owing to its critical importance, this right cannot be removed or restricted by the articles of association or by resolutions of the company’s corporate bodies. This article examines how the shareholders’ right to obtain information and examination may be exercised and which legal remedies are available if the proper exercise of this right is obstructed.

1.    Exercise of the Shareholder’s Right to Obtain Information and Examination

Under the TCC, the shareholder’s right to obtain information and examination is primarily regulated in Article 437, entitled “Right to Obtain Information and Examination.” Pursuant to this article, the financial statements, consolidated financial statements, the annual report of the board of directors, the auditors’ reports, and the board of directors’ proposal on profit distribution must be made available for inspection by shareholders at the company’s headquarters and branches at least fifteen days prior to the general assembly meeting. In addition, the financial statements and consolidated financial statements must remain accessible to shareholders at the company’s headquarters and branches for one year. Each shareholder may, at the company’s expense, request a copy of the income statement and balance sheet.

The shareholders’ right to obtain information and examination is not limited to the foregoing. At ordinary or extraordinary general assembly meetings, each shareholder may request information from the board of directors concerning the company’s business and operations, and from the auditors concerning matters related to auditing. Indeed, although (subject to exceptions) matters not included in the agenda may not be discussed or resolved at the general assembly under TCC Art. 413/2, the reasoning of TCC Art. 437/2 clarifies that the board of directors’ obligation to provide information on the company’s operations is not confined to the items on the agenda.

The obligation to provide information covers the company’s affairs and its legal and commercial relations with affiliated companies. The adequacy and accuracy of the information to be provided by the board of directors and/or the auditors must, under TCC Art. 437/2, comply with the principles of accountability and good faith.

2.    Comparison Between the Rights Granted to Shareholders and to Members of the Board of Directors

The right granted to shareholders is the right to obtain information and examination; it is more limited than the board members’ right to obtain information. Members of the board of directors may exercise their right to obtain information concerning the company’s business and operations at any time, independently of board meetings or general assembly meetings.

Moreover, for a shareholder to inspect the company’s commercial books and/or correspondence relating to the subject on which information has been requested, the express approval of the general assembly or a resolution of the board of directors is required. If such approval or resolution is granted, the shareholder may be assisted by experts (e.g., lawyers or consultants) during the inspection of the relevant data.

3.    Remedies Available to the Shareholder in Case of Obstruction of the Right to Obtain Information and Examination

Pursuant to TCC Art. 437/5, a shareholder whose requests for information and inspection are left unanswered, unjustly rejected, or postponed may apply to the commercial court of first instance where the company’s headquarters are located—within ten days following rejection, and in other cases (where the request is ignored or not duly satisfied) within a reasonable period. The application will be examined under the simplified trial procedure. The decision of the court of first instance is final, and may also include instructions that information be provided outside the general assembly and stipulate the form in which it is to be provided.

In such proceedings, the burden of proof rests with the shareholder. Courts generally evaluate the sufficiency of responses to information requests on the basis of the minutes of the general assembly. It is therefore critical that the issue of incomplete information/documentation be recorded in the minutes. Legal doctrine likewise emphasizes that, to preserve the exercise of the right to obtain information and examination, the rejection or insufficiency must be explicitly entered into the minutes. In addition, if the request is made in writing, the board of directors’ written response will constitute admissible evidence.

In practice, it is frequently observed that questions raised by a minority shareholder are not included in the minutes by majority shareholders. To prevent such situations, the following methods are recommended: requesting the presence of a ministry representative pursuant to Article 32/3 of the Regulation on the General Assembly Meetings of Joint Stock Companies; in the absence of written evidence apart from the minutes, relying on witness statements; where the shareholder submits a request for information and inspection prior to the general assembly so that it may be decided at the meeting, ensuring from the outset that the request is formally documented through a notary public, registered mail with return receipt, or by submitting a petition in person with acknowledgment of receipt.

4.    Request for Special Audit

Another right granted to shareholders under the TCC is the right to request a special audit. Pursuant to TCC Art. 438, each shareholder may, even if the matter is not on the agenda, request from the general assembly that certain matters be clarified by means of a special audit, provided that this is necessary for the exercise of shareholder rights and that the right to obtain information or examination has previously been exercised.

In the event that the general assembly approves the request, the company or any shareholder may, within thirty days following the relevant general assembly, apply to the commercial court of first instance where the company’s headquarters are located for the appointment of a special auditor.

The consequences of a rejection by the general assembly are set out in TCC Art. 439. In the event that the general assembly rejects the request, shareholders holding at least one tenth of the share capital (one twentieth in publicly held joint stock companies) or shares with a nominal value of at least TRY 1,000,000 may, within three months, apply to the commercial court of first instance where the company’s headquarters are located for the appointment of a special auditor. The court appoints a special auditor if the applicants convincingly demonstrate that the founders or the corporate bodies have, by acts contrary to law or the articles of association, caused damage to the company or to the shareholders.

5.    Conclusion

In light of the foregoing:

• The shareholders’ right to obtain information and examination is an inalienable right and cannot be restricted in joint stock companies.

• Shareholders may inspect the financial statements, consolidated financial statements, the annual report of the board of directors, auditors’ reports, and the board’s profit distribution proposal at least fifteen days before the general assembly.

• Requests for information may be rejected on the grounds of trade secrets; however, the validity of such grounds is assessed by the court on a case-by-case basis.

• A shareholder whose request for information is unjustly rejected, left unanswered, or inadequately satisfied may apply to the commercial court of first instance where the company’s headquarters are located— within ten days following rejection, and in cases where the request is ignored or not duly satisfied, within a reasonable period thereafter.

• One of the rights granted to shareholders under the TCC is the right to request a special audit. If the shareholders’ request for a special audit is rejected by the general assembly, shareholders holding a certain majority may, within three months, apply to the commercial court of first instance and, if they convincingly set out their allegations of illegality under the law or the articles of association and of damage, obtain the appointment of a special auditor.