Share Transfers in Limited Liability Companies: Formal Requirements and Practical Tips

Since limited liability companies are closely held entities where the identity of the shareholders matters, changes in the shareholding structure are subject to strict formalities. Article 595 of the Turkish Commercial Code No. 6102 makes the validity of a share transfer conditional on several requirements being met together.

Written Form and Notarisation

The share transfer agreement must be made in writing and the parties’ signatures must be notarised. Transfer agreements that do not meet this formal requirement are invalid. In practice the agreement should clearly state the nominal value of the shares, the transfer price and payment terms.

General Assembly Approval

Unless the articles of association provide otherwise, the transfer only becomes effective upon approval of the general assembly, which may refuse approval without stating any reason. It is therefore essential to review pre-emption, approval and transfer restriction clauses in the articles at the outset.

Share Ledger and Registration

After approval, the transfer must be recorded in the share ledger and the managing directors must apply for registration with the trade registry. Registration and publication matter for asserting the transfer against third parties.

Conclusion

Failure to comply with the formalities may render the transfer invalid and lead to serious shareholder disputes. The articles of association, tax consequences and the company’s liabilities should be assessed together before the transaction.