Introduction
Dividend distribution rules for public companies in Turkey are an important part of Turkish Capital Market Law. Dividends directly affect shareholder return, investor expectations, company valuation, corporate governance and market confidence. For this reason, public companies in Turkey cannot distribute profits freely without considering the Capital Markets Board of Türkiye rules, the Turkish Commercial Code, financial reporting principles, legal reserves, distributable profit calculations, public disclosure obligations and the company’s dividend distribution policy.
The principal secondary regulation is the Communiqué on Dividends II-19.1, known in Turkish as Kâr Payı Tebliği. The CMB’s official legislation list identifies the Communiqué on Dividends II-19.1 as one of the core regulations for issuers, published on 23 January 2014. The SPK’s guidance for Borsa İstanbul companies states that the procedures and principles concerning dividend distribution, dividend advances, protection of dividends and determination of dividend distribution policies of public joint-stock companies are regulated by Communiqué II-19.1.
Dividend law in Turkey is not only a technical accounting matter. It is also a shareholder rights issue. Minority shareholders, institutional investors and foreign investors often evaluate a public company’s reliability by examining whether it has a clear, consistent and legally compliant dividend policy. A company that fails to disclose dividend decisions properly, distributes dividends without sufficient legal sources, ignores accumulated losses, or favors certain shareholders may face regulatory sanctions, investor disputes and director liability.
Legal Framework of Dividend Distribution in Turkey
The dividend distribution framework for public companies is based on Capital Markets Law No. 6362, Communiqué on Dividends II-19.1, the Turkish Commercial Code, the company’s articles of association, CMB financial reporting regulations, material event disclosure rules and KAP disclosure procedures. For listed companies, the SPK expressly states that dividend proposals and dividend advance decisions must be publicly disclosed together with the dividend distribution table or dividend advance table under the CMB’s material event disclosure rules.
The SPK has also published a Dividend Guide, which helps companies prepare dividend distribution tables in compliance with the legislation and explains distributable sources, dividend advances and calculation principles. This guide states that companies distribute profits by general assembly decision, within the dividend distribution policy determined by the general assembly and in accordance with applicable legislation.
For public companies, this means that dividend distribution requires a multi-layered legal review. The company must examine whether there is distributable profit under CMB financial statements, whether legal records contain sufficient distributable sources, whether previous years’ losses must be deducted, whether legal reserves have been separated, whether donations affect the calculation, whether the dividend policy allows distribution, and whether the board proposal has been disclosed correctly.
What Is a Dividend?
A dividend is the portion of distributable profit allocated to shareholders or other persons entitled to participate in profit under the articles of association and applicable law. In Turkish practice, dividends may be paid in cash, distributed as bonus shares through capitalization, or in some cases paid in installments depending on the company’s legal status and general assembly decision.
For public companies, dividend distribution is not simply a management preference. The dividend must be based on legally distributable resources. The SPK Dividend Guide states that the full amount of the dividend proposed for distribution may be distributed only if it can be covered by net distributable profit or other distributable sources existing in legal records kept under the Tax Procedure Law. In other words, the upper limit of the dividend amount is the distributable amount available in the relevant legal record sources.
This rule is very important in practice because financial statements prepared under CMB rules and legal records may not always show the same figures. A company may report profit under one accounting framework but lack sufficient distributable sources in legal records. Therefore, dividend planning requires both financial reporting analysis and legal record analysis.
Dividend Distribution Policy
Public joint-stock companies must distribute profits according to a dividend distribution policy determined by the general assembly. The SPK guidance states that the dividend distribution policy must include at least whether dividends will be distributed, the dividend distribution ratio determined for shareholders and other persons participating in profit, the payment method, the payment time, and whether dividend advances will be distributed.
A strong dividend policy should be clear, predictable and consistent with the company’s financial capacity. It should explain whether the company generally intends to distribute dividends or retain earnings for investment, debt repayment, growth or working capital. It should also clarify whether dividends may be paid in cash, as bonus shares, or through a combination of methods.
If a company wants to amend its dividend distribution policy, the board decision and the reasons for the amendment must be publicly disclosed under the CMB’s material event disclosure rules. This protects investors because dividend policy changes may materially affect valuation. For example, a company that has historically distributed cash dividends but suddenly adopts a retention policy may cause investors to reassess expected returns.
General Assembly Decision
Dividend distribution in public companies is generally made by general assembly decision. The board of directors prepares a proposal, but the general assembly decides whether dividends will be distributed, the amount, method and timing, within the limits of law, financial statements, legal records and dividend policy.
The SPK Dividend Guide states that companies distribute profits by general assembly decision, in accordance with the dividend distribution policy determined by their general assemblies and relevant legislation. This reinforces the shareholder rights dimension of dividends. Shareholders should be informed before the general assembly and should be able to vote on the proposed distribution.
For listed companies, the dividend distribution table must be disclosed no later than the date on which the ordinary general assembly agenda is announced. This ensures that shareholders have sufficient information before voting. A dividend proposal should not be presented to the general assembly without a clear table showing distributable profit, legal reserves, donations, first dividend, second dividend, privileged share dividends and retained amounts.
Equal Treatment of Shares
The principle of equal treatment is central to dividend distribution. The SPK guidance states that dividends are distributed equally to all shares existing as of the distribution date, in proportion to shareholdings, without considering the issuance or acquisition dates of those shares. Rights relating to dividend privileges are reserved.
This means that, unless there are valid dividend privileges under the articles of association, shareholders holding the same type of shares should receive dividends proportionally. A shareholder who acquired shares shortly before the distribution date is generally treated like other holders of the same share class.
Dividend privileges must be examined carefully. Some companies may have privileged shares, founders’ usufruct certificates or other profit participation rights. If such rights exist, the dividend distribution table must reflect them transparently.
Cash Dividends and Bonus Shares
Public companies may distribute dividends in cash or as bonus shares through capitalization of internal resources, depending on the dividend policy, general assembly decision and applicable rules. The SPK Dividend Guide states that dividend distribution policies must include information on whether dividends will be distributed in cash and/or as bonus shares.
Cash dividends provide immediate return to shareholders. Bonus shares increase the number of shares held by shareholders but do not necessarily create immediate cash income. From an investor perspective, the economic effect depends on market pricing, tax treatment, capital structure and company policy.
Companies must be careful not to describe bonus share distributions as if they create the same economic result as cash dividends. Bonus shares are often perceived positively by retail investors, but they are not a substitute for cash return in every case.
Payment in Installments
Listed companies may pay dividends in equal or different installments if this is decided at the general assembly meeting where the dividend distribution is approved. The SPK guidance states that dividends may be paid in equal or different installments if resolved at the general assembly, and that the rules in the Communiqué on Dividends must be followed for installment payments.
Installment payment can be useful where the company wants to protect liquidity while still distributing profit. However, installment payment must be transparent. Shareholders must know the payment dates, amounts and conditions. If the board is authorized to determine installment details, the authorization should be clear.
Non-listed public companies are subject to stricter rules. The SPK Dividend Guide states that public companies whose shares are not traded on the exchange cannot distribute dividends in installments.
Net Distributable Profit
The key calculation is net distributable profit. The SPK Dividend Guide explains that net distributable period profit is reached by deducting previous years’ losses and the general legal reserve from net period profit.
The guide also explains the dividend distribution table structure. The table includes paid-in or issued capital, legal reserves, period profit, taxes, net period profit, previous years’ losses, general legal reserve, net distributable period profit, donations made during the year, donations-added net distributable period profit, first dividend, privileged share dividends, dividends to board members or employees, usufruct certificate holders, second dividend, legal reserves and extraordinary reserves.
This calculation is legally important because a company cannot distribute profit that is not legally distributable. A dividend decision that ignores previous years’ losses, required reserves or legal record limits may be unlawful. Directors should therefore ensure that the dividend table is reviewed by accounting, finance, legal and investor relations teams before disclosure.
Previous Years’ Losses and Legal Reserves
Previous years’ losses play an important role in dividend calculations. The SPK guidance for listed companies states that, for dividend distribution, the part of previous years’ losses exceeding the total of previous years’ profits, general legal reserves including share premiums, and certain equity items arising from inflation accounting adjustments must be treated as a deduction item in calculating net distributable period profit.
The SPK Dividend Guide also refers to the general legal reserve under Article 519 of the Turkish Commercial Code and explains that 5% of the relevant legal record profit base must be separated as general legal reserve until it reaches one-fifth of paid-in or issued capital.
The practical result is clear: shareholders cannot demand dividend distribution merely because the company has accounting profit if legal reserves and accumulated losses prevent distribution. The board must calculate distributable profit according to the correct legal order.
Donations and Dividend Calculations
Donations affect the dividend calculation. The SPK guidance states that companies must have a provision in their articles of association to make donations, that the limit of donations is determined by the general assembly if not specified in the articles, that the CMB may impose an upper limit, and that donations made during the relevant accounting period are added to the distributable profit base.
The SPK Dividend Guide explains that if donations were made during the year, the donation amount is added to net distributable period profit before calculating the first dividend. The purpose is to eliminate the reducing effect of donations on net distributable period profit and therefore on the first dividend amount.
Donations must also be disclosed and submitted to the information of shareholders at the ordinary general assembly. This is a governance issue. A controlling shareholder or management group should not reduce distributable profit through donations without transparency and shareholder oversight.
Non-Listed Public Companies
Public companies whose shares are not traded on the exchange are subject to special rules. The SPK guidance for non-listed public companies states that the dividend distribution ratio for such companies cannot be less than 20% of the net distributable period profit with donations added, as calculated under the Communiqué on Dividends, and that these companies must pay dividends fully and in cash.
The same guidance states that non-listed public companies may decide not to distribute dividends for the relevant accounting period if the dividend amount to be distributed is lower than 5% of capital according to the latest annual financial statements submitted to the general assembly, or if net distributable period profit is below 100,000 TL. In such cases, the non-distribution and its reason must be publicly disclosed under material event disclosure rules.
This distinction is important. Listed companies generally have more flexible dividend policies, while non-listed public companies have a minimum cash distribution rule unless an exemption applies. The policy reason is investor protection: shareholders in non-listed public companies may have less liquidity, so mandatory cash dividends may function as an important return mechanism.
Dividend Advances
Dividend advances allow a company to distribute profit before the annual profit is finalized, subject to strict conditions. The SPK guidance confirms that Communiqué II-19.1 regulates both dividends and dividend advances, and dividend distribution policies must state whether dividend advances will be distributed and the relevant principles if they will be distributed.
Dividend advances require careful legal and financial assessment because the company is paying before the final annual profit is confirmed. If later results do not support the advance, legal and accounting issues may arise. The board must ensure that the dividend advance decision is based on legally valid interim financial statements, sufficient profit and compliance with CMB rules.
The dividend advance table must also be disclosed where applicable. Listed companies must publicly announce board decisions concerning dividend advances together with the dividend advance table under material event disclosure rules.
Public Disclosure and KAP
Disclosure is essential in dividend distribution. For listed companies, the board’s dividend proposal or dividend advance decision must be publicly disclosed together with the dividend distribution table or dividend advance table. The dividend distribution table must be disclosed no later than the announcement date of the ordinary general assembly agenda.
This allows investors to assess the proposed distribution before the general assembly. Investors can compare the proposal with the dividend policy, financial statements, previous years’ practice and company liquidity needs.
Dividend disclosures are also relevant for market pricing. A higher-than-expected dividend may affect share price positively, while a decision not to distribute dividends may affect investor expectations. For this reason, companies must avoid selective disclosure. Dividend proposals should not be leaked to preferred investors or analysts before public disclosure.
Dividends to Board Members, Employees and Non-Shareholders
Dividends may sometimes be distributed to board members, employees, usufruct certificate holders or other persons if permitted by the articles of association and general assembly decision. However, the SPK Dividend Guide provides an important priority rule: reserves required under the Turkish Commercial Code and dividends determined for shareholders under the articles of association or dividend policy must be separated before deciding to allocate other reserves, carry profit forward, or distribute profit shares to usufruct certificate holders, board members, employees or persons other than shareholders. It also states that if the dividend policy provides for cash dividends to shareholders, those cash dividends must be paid before profit shares can be distributed to such persons.
This rule protects shareholders. Management or employees should not receive profit participation while shareholders are denied the dividend required under the policy and law. If a company grants profit shares to non-shareholders, the legal basis in the articles of association and the dividend table must be reviewed carefully.
Dividend Privileges
Some companies may have privileged shares with special dividend rights. The SPK guidance states that dividends are generally distributed equally to all existing shares in proportion to shareholdings, but dividend privilege rights are reserved.
Dividend privileges may affect minority shareholder rights, valuation and investor expectations. A company with privileged dividend shares should disclose such privileges clearly in its articles of association, public offering documents, annual reports and dividend distribution tables. Investors should examine whether ordinary shares and privileged shares receive different economic treatment.
If dividend privileges are unclear or applied inconsistently, shareholder disputes may arise. The board must ensure that privileges are applied strictly according to the articles of association and applicable law.
Banks and Special Legislation
The SPK Dividend Guide notes that, under Article 136/5 of Capital Markets Law No. 6362, the dividend distribution principles of banks whose shares are sold through public offering are subject to their special legislation.
This is important because banks and certain regulated financial institutions may be subject to additional restrictions by the Banking Regulation and Supervision Agency or sector-specific laws. Capital adequacy, prudential requirements, retained earnings, reserve policies and financial stability concerns may limit dividend distribution even where the company has accounting profit.
Investors in publicly traded banks should therefore analyze not only CMB dividend rules but also banking legislation and regulator decisions.
Director Liability in Dividend Distribution
Board members have significant responsibility in dividend distribution. The board prepares the dividend proposal, ensures that the dividend table is accurate, reviews whether legal records contain distributable sources, evaluates previous years’ losses, checks legal reserves, considers company liquidity and discloses the proposal properly.
If the board proposes an unlawful dividend, fails to disclose the dividend table, miscalculates distributable profit, ignores legal record limits or distributes dividends that impair capital maintenance, liability may arise. Directors must also avoid using dividend policy to favor controlling shareholders unfairly.
A well-documented board process is important. The board decision should refer to financial statements, legal records, dividend policy, distributable profit calculation, legal reserves and the proposed payment method. If the company decides not to distribute dividends despite profit, the commercial and legal reasons should be explained transparently.
Investor Protection
Dividend distribution rules protect investors in several ways. First, the dividend policy provides predictability. Second, general assembly approval gives shareholders voting power. Third, public disclosure through KAP ensures equal information. Fourth, distributable profit rules protect company capital and creditors. Fifth, legal reserve rules prevent excessive distribution. Sixth, non-listed public company minimum cash dividend rules protect shareholders who may lack market liquidity.
Investors should read dividend disclosures carefully. A high dividend yield may be attractive, but investors should ask whether the distribution is sustainable. A company may distribute a high dividend from past reserves, but that does not guarantee future profitability. Conversely, a company may retain earnings for investment, debt reduction or growth, which may be commercially reasonable if properly explained.
Common Legal Mistakes
Common mistakes include failing to adopt a clear dividend policy, not disclosing policy changes, preparing an inaccurate dividend distribution table, ignoring legal record limits, failing to deduct previous years’ losses, not adding donations back when calculating the first dividend base, distributing dividends to non-shareholders before satisfying shareholder dividend requirements, failing to disclose the board proposal before the general assembly agenda, and treating bonus shares as equivalent to cash dividends without explanation.
Another frequent mistake is assuming that accounting profit automatically means distributable profit. Under Turkish public company dividend rules, the company must examine legal reserves, accumulated losses, CMB financial statements, legal records and available distributable sources.
Practical Checklist for Public Companies
A public company planning dividend distribution should follow a structured checklist:
Review the dividend distribution policy.
Check whether the policy requires amendment and disclose any proposed amendment with reasons.
Review CMB financial statements and legal records.
Deduct previous years’ losses and legal reserves.
Calculate net distributable period profit.
Add donations to the dividend base where required.
Check whether legal records contain sufficient distributable sources.
Prepare the dividend distribution table.
Review privileged shares, usufruct rights and other profit participation rights.
Prepare the board proposal.
Disclose the proposal and table through KAP where required.
Submit the proposal to the general assembly.
Ensure payment timing and installments comply with the communiqué.
Preserve all board, accounting and disclosure records.
Practical Checklist for Investors
Investors should review:
The company’s dividend distribution policy.
The board proposal and dividend distribution table.
Whether the company has accumulated losses.
Whether dividends are cash or bonus shares.
The payment date and installment schedule.
Whether privileged shares exist.
Whether donations affected distributable profit.
Whether the dividend is paid from current profit or past reserves.
Whether the company’s legal records support the distribution.
Whether non-distribution is properly justified.
Dividend yield should not be evaluated alone. Sustainable dividend capacity depends on profitability, cash flow, debt, investment needs, regulatory restrictions and corporate governance.
Conclusion
Dividend distribution rules for public companies in Turkey are governed primarily by Capital Markets Law No. 6362, the Communiqué on Dividends II-19.1, the Turkish Commercial Code, CMB financial reporting rules and public disclosure obligations. The SPK states that Communiqué II-19.1 regulates dividend distribution, dividend advances, protection of dividends and determination of dividend distribution policies for public joint-stock companies.
Public companies distribute profits by general assembly decision within the dividend distribution policy and applicable legislation. The policy must state whether dividends will be distributed, the dividend ratio, payment method, payment timing and dividend advance principles. Dividends are generally distributed equally to all shares existing on the distribution date, in proportion to shareholdings, without considering issuance or acquisition dates, while dividend privileges are reserved.
The amount to be distributed must be supported by legal distributable sources. The SPK Dividend Guide emphasizes that the upper limit of the dividend is the distributable amount available in legal records. For non-listed public companies, the rules are stricter: they generally must distribute at least 20% of donations-added net distributable period profit fully and in cash, unless specific exemption conditions apply.
For companies, dividend compliance requires careful calculation, correct board procedure, general assembly approval, accurate KAP disclosure and protection of shareholder rights. For directors, dividend proposals create liability risks if legal reserves, losses, legal records or disclosure duties are ignored. For investors, dividend rules provide transparency and legal protection but do not guarantee future returns.
In conclusion, dividend distribution in Turkish public companies is not only an accounting decision. It is a regulated capital market process combining corporate law, financial reporting, investor protection and public disclosure. Any public company, board member, controlling shareholder or investor dealing with dividend distribution in Turkey should obtain professional legal advice where the calculation, policy, payment method, legal reserves, non-distribution decision or shareholder rights are disputed.
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