How Do You Distribute Dividends in a Turkish Joint Stock Company?
Before profit distribution, the legal reserve fund specified in Article 517 of the Turkish Commercial Code (TCC) must be set aside. The TCC profit distribution rules are subject to the provisions regarding the reserve fund. Dividend distribution cannot be made without setting aside the amounts listed below:
- Legal reserves
- Reserves set out in the articles of association
- Other monies specified in the law and articles of association
After the amounts above are set aside, dividend distribution may be made upon the decision of the General Assembly. Five per cent of the annual profit is set aside as the legal reserve fund until it reaches twenty per cent of the paid-in capital. These ratios may be increased but not decreased by the articles of association. After the legal reserves are set aside in this order, the payments stipulated in paragraph 2 of Article 519 of the TCC are set aside, and finally, a five per cent dividend is paid to the shareholders. Afterwards, ten per cent of the total amount to be distributed to the persons who will receive a share of the profit shall be set aside as legal reserves.
Other reserves may be stipulated in the articles of association. Secondly, additional funds may be set aside by a general assembly resolution. The conditions for setting aside reserves by a general assembly resolution are listed in paragraph 2 of Article 523.
The general assembly can decide on dividend distribution with the basic meeting and decision quorums. The meeting quorum consists of the shareholders and their representatives, representing one-fourth of the capital present at the meeting. The affirmative vote of the majority of those present at the meeting is required for a resolution. The articles of association may increase these quorums.
Which Body Makes the Decision to Distribute Dividends in Joint Stock Companies?
The general assembly decides dividend distribution in joint stock companies. The general assembly’s duties and powers are listed in the TCC. Transferring some of these duties and powers to other bodies is prohibited. Determination of dividends, profit shares, and resolutions regarding reserves are among the non-transferable powers (Art. 408(2)d).
If the general assembly does not determine the dividend distribution date, the board of directors may determine the date.
Is a General Assembly Required for Dividend Distribution in Joint Stock Companies?
A general assembly resolution is required for dividend distribution in joint stock companies. Determination of dividends and profit shares is among the general assembly’s inalienable duties and powers.
Is Dividend Distribution Mandatory in Joint Stock Companies?
If the shareholders never decide on dividend distribution in the general assembly or make incomplete dividend distributions, this will interfere with partnership rights. Cancellation of the decision regarding the distribution of incomplete dividends may be requested.
What Happens If Dividends Are Not Distributed in Joint Stock Companies?
As stated, cancellation of the general assembly decision will be requested because of interferance with shareholder rights in distributing deficient dividends.
Regarding the conditions of dividend distribution, it is also necessary to look at the principle of prohibition of shareholders’ indebtedness to the company. This principle is stated in the Turkish Commercial Code. According to this principle, two conditions must be met for the shareholders to owe money to the company
- fulfilment of the due debts arising from the capital commitment,
- the ability of the profit and the free reserves to cover the losses of the previous years.