Where an investor wishes to enjoy some managerial rights in a company he shall invest in, then it would be appropriate to add provisions allowing it in a shareholders’ agreement and to incorporate them into the articles of association.
Article 360 of Turkish Code of Commerce titled “Representation of Certain Classes of Shares in Board of Directors” define that the right to be represented in the board of directors may be vested in certain classes of shares, or shareholders that form a specific group by their features and qualifications.
There are various methods to secure that a shareholder may enjoy certain rights in the management, which include the following:
- A right to nominate candidates for the board may be granted to the class of shares held by that shareholder.
- A right to be appointed to the board of directors may be granted to the class of shares held by that shareholder.
- A preferential vote may be allowed in board resolutions.
It is suggested that certain provisions dealing with the foregoing issues should be incorporated in a shareholders’ agreement. This way an investor shall be guaranteed a secure place in the management if that investor believes that he may soundly contribute to the growth and high market capitalization of the company until his exit in the case that he holds a position in its management and has a say in its material decisions,
Designation of Share Classes:
For illustrative purposes, for a company with three share classes (A, B and C), three members of a five-member board may be elected among from Class B Shareholders or candidates to be nominated by them.
For instance, the shareholders with the surname “Yılmaz” may be entitled to be represented in the management. The doctrine favours that it is not possible to grant a specific individual the right to be represented in the board, meaning that a provision in the articles of association prescribing that “Mr. Mehmet Yılmaz is hereby nominated for board membership” would be null and void.
If certain provisions allowing candidates with specific qualifications are to be introduced, it is recommended that these qualifications should be precisely defined without leaving any margin of doubt, such as, “from among shareholders employed by the company” or “from among engineers”.
Preference in votes
It is also possible that certain provisions may be introduced so that specific resolutions may not be adopted without the “vote” by a board member appointed from among candidates nominated by a specific class of shareholders. For instance, “company cars may be sold only on the condition that the board member nominated by Class G shareholders is present and votes affirmatively.”
There may be circumstances if the participation of an investor in the management is particularly desirable by both the company and investor. While, in most cases, companies welcome new investors only as a financial support, the value proposition that an investor will bring to the company may be more advisable and wiser in specific circumstances. In light of this fact, those provisions referred to above are highly effective in order to secure that these investors are not denied a board membership position by certain shareholders (by their votes) at such times when it is strictly desirous for a company to have an investor or a candidate nominated by him in the management.
These rights which are frequently invoked by existing shareholders as well next to new investors in the company also help those shareholders defend their position in the company against new shareholders if the former is willing to increase capital but is anxious of losing his effective grasp over the company.