Does Resolution Of General Assembly Become Null, If First Dividend Is Not Distributed? 12 October 2016
I. What is Dividend? Under Which Circumstances It Is Distributed?
Dividend is one of the financial rights of shareholders of joint stock corporation. Decision about distribution of dividend is made by general assembly of corporation. However, some requirements shall be met in order to make such decision. As a matter of fact, all net profit for the year shall not be distributed as dividend[1]. Pursuant to the Turkish Commercial Code (“Code”) numbered 6102, conditions which are explained below shall be met firstly, than the general assembly can decide to pay dividend.
Pursuant to Article 523 Paragraph 1 of the Code, unless optional reserves which are decided in articles of association and legal reserves are separated from net profit, dividend that will be distributed to shareholders cannot be determined.
According to Article 519 Paragraph 1 of the Code, five percent of net profit for the year shall be separated as legal reserve until it reaches to twenty percent of paid capital. In other words, dividend distribution cannot be made unless legal reserve reaches the mentioned limit that is mentioned in related provision and these reserves shall be separated from net profit for the year.
In Article 519/2-c of the Code, it is regulated that: “After reach the limit that is mentioned in Paragraph 1; … After five percent dividend paid to shareholders …” According to this regulation, after the separation aforementioned items from net profit for the year, distribution of five percent dividend as first dividend is obliged by legislator.
II. What is Dividend as Acquired Right?
As all commercial partnerships, ultimate and unrestricted purpose of joint stock corporation is to derive profit and distribute this profit[2]. There are some Supreme Court decisions which are made in this direction. 11th Chamber of Supreme Court is indicated in the decision dated 21.12.20n16 and numbered E. 2005/10060 K. 2006/13738, the purpose of all commercial partnerships and consequently joint stock corporations is making distribution of the profits to the shareholders of the company. According to Supreme Court, shareholders have acquired rights on adequate dividends and all organs of corporation are liable to make decisions that are fit for this ultimate purpose. Therefore, Supreme Court makes their decisions in view of the fact that distribution of first dividend is obligation for corporation.
The money remains after the distribution of first dividend can be distributed as second dividend by corporation. In other respects, corporation can put this money to the treasury of company as contingency reserve if they wish.
III. Legal Consequences of General Assembly Resolutions without Dividend Distribution
Legal consequences of general assembly resolutions which do not contain any decision about dividend distribution are regulated under the Code.
Because nullity of general assembly resolutions did not be regulated under the abrogated Turkish Commercial Code numbered 6762, annulment of these resolutions was applicable.
Article 447 of the Turkish Commercial Code numbered 6102 regulates the nullity of general assembly resolutions. Pursuant to this article;
"The general assembly resolutions which, in particular;
a) restrict or eliminate shareholders' rights of participation to a general assembly meeting, their rights to vote, their rights to sue, and their indefeasible rights deriving from law,
b) restrict shareholders' rights to obtain information, to inspect and control except within the limits allowed by law,
c) distort the main structure of a joint stock company or conflict with the provisions on the preservation of capital
are regarded as null.”
Dividend distribution is the inalienable right of shareholders which arises from the purpose of joint stock corporation[3]. Besides, in the preamble of the Code, it is implied that decisions that made in contrast to rights of shareholders are counted as damaging the main structure of joint stock corporation.
In the light of these explanations, general assembly resolution, which is made regarding that dividend distribution will not be made, shall be considered in the scope of Article 447 of the Code, and it results with the nullity of such resolution.
[1] Prof. Dr. Hasan Pulaşlı, Şirketler Hukuku Genel Esaslar Güncellenmiş ve Genişletilmiş 4. Baskı, Adalet Yayınevi Ankara – 2016, p. 580
[2] Prof. Dr. Reha Poroy, Prof. Dr. Ünal Tekinalp and Prof. Dr. Ersin Çamoğlu, Ortaklıklar Hukuku I, Vedat Kitapçılık İstanbul – 2014, p. 624
[3] Prof. Dr. Hasan Pulaşlı, op. cit., p. 579
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