A shareholder owns 25% of a profitable Turkish company. Relations with the majority shareholder deteriorate. Months later, the minority shareholder discovers through the Trade Registry Gazette that the company’s capital has been increased dramatically.

The majority shareholder subscribed to almost all of the newly issued shares.

The minority shareholder’s interest has fallen from 25% to 2%.

He says:

“Nobody informed me. I never agreed to the capital increase. Can they legally dilute my shares like this?”

Under Turkish company law, the answer depends on how the capital increase was carried out.

A majority shareholder does not automatically need the consent of every minority shareholder to increase the company’s capital. However, Turkish law does not permit a capital increase mechanism to be used arbitrarily as a weapon to eliminate another shareholder.

The legality of the transaction must be examined through several separate questions:

• Was the shareholder properly called to the general meeting?
• Was the capital increase included in the agenda?
• Was the legally required voting quorum satisfied?
• Did the company genuinely require additional capital?
• Was the shareholder given an opportunity to participate in the increase?
• Was the shareholder’s pre-emptive right restricted or removed?
• If it was removed, was there a legally justifiable reason?
• Did the majority obtain an unjustified advantage?
• Was the real purpose of the transaction to reduce the minority shareholder’s voting power, dividend entitlement or liquidation rights?

A capital increase that is formally registered does not necessarily mean that it is immune from judicial review.

1. What Does “Share Dilution” Mean?

Dilution occurs when a company issues new shares and an existing shareholder does not acquire a proportionate number of those new shares.

Assume that a company has TRY 1,000,000 registered capital.

Shareholder A owns 80%.

Shareholder B owns 20%.

B therefore owns shares with a nominal value of TRY 200,000.

The company subsequently increases its capital from TRY 1 million to TRY 10 million.

If A subscribes to the entire TRY 9 million capital increase while B receives no new shares, B still technically owns shares worth TRY 200,000 nominally.

But B’s percentage becomes:

TRY 200,000 / TRY 10,000,000 = 2%.

B has therefore been diluted from 20% to 2%.

This has consequences far beyond a number on a share certificate.

The shareholder may lose:

• voting influence;
• minority shareholder status;
• ability to request certain corporate actions;
• ability to block qualified-majority resolutions;
• share of future dividends;
• share in liquidation proceeds;
• negotiating power in a future sale of the company.

This explains why abusive capital increases are one of the most effective tools through which a controlling shareholder may attempt to exclude a minority shareholder economically without formally removing that shareholder from the company.

But dilution itself is not automatically unlawful.

2. A Capital Increase Is Not Illegal Simply Because It Reduces a Shareholder’s Percentage

This distinction is fundamental.

Companies sometimes genuinely require additional capital.

They may need funds to:

• repay debts;
• finance investments;
• purchase machinery;
• satisfy working-capital requirements;
• enter a new market;
• restructure a financially distressed business;
• fund acquisitions;
• strengthen their balance sheet.

A minority shareholder cannot normally prevent every legitimate capital increase simply because that shareholder does not want to contribute additional funds.

The Court of Cassation’s approach is therefore not:

“If a shareholder’s percentage falls, the capital increase must be cancelled.”

Instead, the courts examine whether the power to increase capital was exercised consistently with the Turkish Commercial Code, the articles of association and the principle of good faith.

In a significant decision, the 11th Civil Chamber of the Court of Cassation, E. 2023/6790, K. 2024/8103, emphasised that the right to increase capital must not be abused and that courts should examine whether the real purpose was genuinely to meet the company’s capital requirements or instead to harm shareholders by reducing their dividend, liquidation and voting rights.

The commercial justification behind the capital increase can therefore become central to the dispute.

3. The Most Important Protection: Pre-Emptive Rights

The principal protection against dilution is the shareholder’s pre-emptive right (rüçhan hakkı / yeni pay alma hakkı).

In a Turkish joint-stock company, Article 461 of the Turkish Commercial Code provides that every shareholder is, as a rule, entitled to acquire newly issued shares in proportion to his or her existing participation in the company’s capital.

Suppose a shareholder owns 20% of the company.

If the company’s capital is increased, that shareholder should normally be given the opportunity to subscribe to 20% of the new capital.

If the shareholder exercises the right fully, the 20% ownership percentage can generally be maintained.

The same protection exists in limited liability companies. Article 591 provides, unless otherwise stipulated under the relevant rules, that every shareholder has the right to participate in a capital increase in proportion to his or her existing capital share.

Therefore, one of the first questions in a dilution dispute is:

Was the shareholder actually given the opportunity to use the pre-emptive right?

4. “You Could Have Paid but You Didn’t” May Be a Valid Defence

Consider the following example.

A shareholder owns 30%.

The company validly decides to increase capital.

The shareholder receives proper notice.

The shareholder is informed of his right to subscribe to 30% of the new shares.

He is given the statutory period to exercise the right.

He chooses not to invest additional money.

The majority shareholder subscribes for the remaining shares.

The minority shareholder’s percentage subsequently falls.

In principle, the resulting dilution cannot automatically be described as unlawful.

The law protects the shareholder’s opportunity to maintain his percentage. It does not generally require the other shareholders to finance his participation.

This is why documentary evidence concerning the offer of new shares and the exercise period is extremely important.

5. The Minimum Period for Exercising Pre-Emptive Rights

A pre-emptive right cannot be offered merely on paper while being made practically impossible to exercise.

For joint-stock companies, TCC Article 461 requires the board of directors to establish the principles governing exercise of the right and to grant shareholders at least fifteen days. The relevant resolution must also be published through the prescribed mechanisms.

Limited liability companies are subject to a similar minimum period. TCC Article 591 provides that shareholders must be granted at least fifteen days to exercise their pre-emptive rights.

Accordingly, a scenario such as:

“We increased the capital on Monday and gave the minority shareholder until Wednesday to transfer TRY 5 million”

would require serious legal scrutiny.

The majority cannot circumvent shareholder protection merely by creating commercially impossible conditions.

6. Can the Majority Remove the Minority Shareholder’s Pre-Emptive Right?

Yes, but only under restrictive conditions.

In joint-stock companies, Article 461 provides that pre-emptive rights may be restricted or removed only where there is a just cause, and the decision requires the affirmative vote representing at least 60% of the capital.

The law expressly gives examples of potential just causes, including:

• public offerings;
• acquisition of businesses or parts of businesses;
• acquisition of participations;
• employee participation in the company.

More importantly, Article 461 expressly prevents the restriction or removal of pre-emptive rights from being used to confer an unjustified advantage on one person or cause another person unjustified loss.

This final rule is crucial in shareholder exclusion disputes.

Imagine that an 80% shareholder adopts the following structure:

• capital is increased dramatically;
• minority shareholder’s pre-emptive rights are removed;
• all new shares are allocated to the majority shareholder;
• no convincing business justification exists;
• majority ownership rises from 80% to 98%.

Even if the formal voting threshold has been reached, the transaction may still be challenged.

Meeting the numerical voting requirement does not grant the majority unlimited power.

Limited liability companies are governed by a similar principle. Under Article 591, pre-emptive rights may be restricted or removed only for just cause, and no person may obtain an unjustified benefit or be unjustifiably disadvantaged through such restriction.

7. What If the Shareholder Was Never Told About the General Meeting?

This presents an additional legal problem.

In a joint-stock company, the general assembly must normally be convened in accordance with TCC Article 414. The law regulates publication of the call and also requires specified notification to shareholders whose names and addresses are recorded in the company’s records. The call must normally be made at least two weeks before the meeting, excluding announcement and meeting dates.

An unannounced general meeting can be held only under the conditions of Article 416. In principle, all shareholders or their representatives must be present and none may object to holding the meeting without formal call procedures.

Therefore, the majority cannot normally characterise a meeting attended only by itself as a valid “general meeting without notice” while an existing shareholder has been completely excluded.

For limited liability companies, Article 617 provides that the general meeting is called by the managers and that the meeting must generally be called at least fifteen days in advance, subject to the permitted articles-of-association modifications. The provisions governing joint-stock company meeting calls and unannounced general assemblies also apply by analogy.

If the shareholder genuinely had no knowledge of the meeting because the call procedure was not followed, this may provide an important basis for challenging the decision.

8. Failure to Invite a Shareholder Does Not Automatically Cancel Every Resolution

There is an important procedural nuance.

Under TCC Article 446, a shareholder who was not properly called, who was prevented from attending or voting, or who alleges similar procedural irregularities may bring an annulment action where the irregularity affected the adoption of the resolution.

Therefore, the lawsuit should not merely state:

“My client was not invited.”

It should explain how the exclusion affected the shareholder’s legal position and the resolution.

For example:

• the shareholder could have opposed the capital increase;
• the shareholder could have questioned the company’s alleged financing need;
• the shareholder could have exercised pre-emptive rights;
• the shareholder could have proposed alternative financing;
• the shareholder could have recorded opposition in the minutes;
• the shareholder could have challenged the restriction of pre-emptive rights;
• the shareholder could have demanded information concerning the pricing of the new shares.

The causal significance of the procedural violation should therefore be addressed carefully.

9. Different Voting Rules Apply to Joint-Stock and Limited Liability Companies

This is another reason why the company’s legal form must be identified immediately.

Joint-Stock Companies

Capital increases under the principal capital system require a general assembly resolution. General rules concerning amendments to the articles of association are contained in TCC Article 421.

As a general rule, amendments require representation of at least half of the company’s capital at the first meeting and approval by the majority of votes represented, unless the law or articles require a stricter threshold. If the first meeting fails to reach the required representation, statutory rules govern the second meeting.

Different or additional thresholds may apply depending on the precise structure of the transaction, particularly where pre-emptive rights or privileged shares are involved.

Limited Liability Companies

The rule is more explicit.

TCC Article 621 classifies both:

• increasing the registered capital; and
• restricting or removing pre-emptive rights

as important resolutions.

Such resolutions require both:

at least two-thirds of the votes represented at the meeting, and

an absolute majority of the entire voting capital.

The articles of association must also be checked because they may impose additional lawful requirements.

10. Can a 70% or 80% Shareholder Increase the Capital Without the Minority’s Consent?

Potentially, yes.

A minority shareholder does not possess an automatic veto over every capital increase.

If the majority satisfies:

• the correct meeting procedure;
• required voting thresholds;
• articles-of-association provisions;
• capital increase rules;
• pre-emptive right protections;
• equal treatment obligations;
• good-faith requirements,

the capital increase may be valid even though the minority shareholder voted against it.

This is why the strongest legal argument is usually not:

“I did not consent.”

It is:

“The statutory procedure was violated and/or the capital increase power was used for an improper purpose to dilute my shareholder rights.”

11. The Equal Treatment Principle

Turkish company law contains another important protection.

TCC Article 357 states:

“Shareholders shall be treated equally under equal conditions.”

This rule restricts arbitrary discrimination between shareholders.

A capital increase may therefore become problematic where, without legitimate justification:

• one shareholder receives substantially better subscription conditions;
• the majority is privately informed before the minority;
• the majority receives additional time to pay;
• the minority is denied information necessary to exercise its right;
• new shares are deliberately structured so that only the majority can practically acquire them;
• shareholders in materially equal positions are treated differently.

Equal treatment does not mean that every shareholder must receive the same number of new shares.

It means that shareholders in equivalent circumstances must not be subjected to unjustified differential treatment.

12. The Good-Faith Test: Was the Company Really in Need of Capital?

This is frequently the central issue in litigation.

The court does not normally act as the company’s management and decide whether every commercial decision was optimal.

However, when a shareholder alleges that a capital increase was merely a tool for exclusion, the court may examine whether the stated commercial justification is genuine.

Relevant questions may include:

• Was the company suffering from negative equity?
• Did it have significant debts?
• Was there an investment plan?
• Were additional funds genuinely required?
• Could the requirement have been met from existing cash?
• Did the company hold substantial undistributed reserves?
• Was the capital increase disproportionately large?
• Why was that particular amount selected?
• Where did the increased capital go after payment?
• Did the majority shareholder actually pay the subscribed amount?
• Was the money immediately transferred back to the majority?
• Was the increase linked to a genuine acquisition or expansion project?

The Court of Cassation has made clear that courts should assess whether the transaction reflects an actual corporate financing need or instead an intention to damage shareholders and reduce their voting, dividend or liquidation rights.

Importantly, however, a very large capital increase is not automatically abusive merely because it is large. Judicial and academic analysis of Court of Cassation decisions shows examples where significant increases were justified by genuine corporate financing requirements.

The economic purpose therefore matters more than the percentage increase alone.

13. Example: Legitimate Dilution

Company X has capital of TRY 2 million.

A owns 70%.

B owns 30%.

The company has accumulated substantial debt and requires TRY 8 million in additional capital.

A and B are properly called to the general meeting.

The financial situation is disclosed.

The capital increase is validly approved.

B is formally offered the opportunity to subscribe for 30% of the new shares and receives the statutory exercise period.

B decides that he does not want to invest further funds.

A subscribes to the unsubscribed shares.

B’s shareholding percentage falls significantly.

In this example, dilution alone is unlikely to justify cancellation.

B was given the opportunity to protect his percentage and voluntarily chose not to participate.

14. Example: Potentially Abusive Dilution

Now consider another case.

A owns 75%.

B owns 25%.

The company is financially healthy.

There is no material debt and no documented investment plan.

Without properly informing B, A causes an extraordinary general meeting to be held.

The capital is increased from TRY 1 million to TRY 20 million.

B’s pre-emptive rights are not effectively offered to him.

A subscribes to the entire increase.

Within weeks, B discovers that his interest has fallen from 25% to approximately 1.25%.

The newly contributed capital is subsequently transferred through transactions involving companies connected with A.

This scenario raises substantially stronger grounds for:

• annulment of the capital increase resolution;
• allegations of violation of pre-emptive rights;
• violation of the good-faith principle;
• violation of equal treatment;
• potential management liability;
• forensic examination of the capital contribution and subsequent transactions.

15. What Lawsuit Can the Diluted Shareholder File?

The principal remedy will often be an action for annulment of the general assembly resolution.

TCC Article 445 provides that general assembly resolutions contrary to:

• the law;
• the articles of association; or
• particularly the principle of good faith

may be challenged before the Commercial Court of First Instance at the company’s registered seat.

The statutory period is critically important:

The annulment action must generally be filed within three months from the date of the general assembly resolution.

This is a forfeiture period.

A shareholder who discovers a questionable capital increase should therefore not wait merely because the Trade Registry process is continuing.

For limited companies, TCC Article 622 expressly provides that the provisions governing annulment and nullity of joint-stock company general assembly resolutions apply by analogy.

16. What If the Resolution Is So Seriously Unlawful That It Is Null?

Not every unlawful resolution is merely voidable.

TCC Article 447 provides that certain particularly serious general assembly resolutions are null and void, including resolutions that:

• restrict or eliminate indispensable shareholder rights;
• unlawfully restrict information, inspection and audit rights;
• violate the fundamental structure of the joint-stock company or capital-protection provisions.

Whether a capital increase defect gives rise to annulment or nullity must be determined according to the specific violation.

The distinction is important because the legal consequences and time analysis differ.

A lawyer should therefore avoid automatically characterising every defective capital increase as “null.” Many capital increase disputes properly fall within the annulment regime and its strict three-month period.

17. Can the Court Stop the Capital Increase While the Lawsuit Is Pending?

Potentially, yes.

TCC Article 449 provides that when an annulment or nullity action is filed against a general assembly resolution, the court may, after hearing the board of directors, suspend implementation of the contested resolution.

This can be exceptionally important.

If a shareholder merely files an annulment action but allows the corporate consequences of the increase to continue unrestricted, the majority may meanwhile:

• exercise the increased voting power;
• pass additional resolutions;
• change management;
• approve further transactions;
• alter the control structure.

Accordingly, in an urgent dilution case, the possibility of requesting suspension of execution should be considered immediately.

18. Registered Capital System: The Time Limit May Be Even Shorter

Special care is required where a non-public joint-stock company operates under the registered capital system and the board of directors itself has authority to increase capital.

TCC Article 460 permits such board authority within statutory and articles-of-association limits.

Most importantly, Article 460/5 provides that qualifying challenges against such a board resolution may be brought within one month from publication of the resolution.

Therefore, the lawyer must determine immediately:

Was the capital increase adopted by the general assembly or by the board of directors under the registered capital system?

Applying the wrong limitation period could result in loss of the claim.

19. Can Directors Become Personally Liable?

Annulment of the capital increase may not always be the only remedy.

TCC Article 553 provides that founders, board members, managers and liquidators who breach obligations arising from the law or the articles of association may be liable for damage caused to the company, shareholders or creditors, subject to the statutory conditions.

Board members are also subject to the duty of care and loyalty under Article 369 and must protect the company’s interests in accordance with good-faith principles.

Accordingly, where management knowingly engineers an unlawful dilution transaction for the personal benefit of the controlling shareholder, a separate liability analysis may be required.

However, damage, causation, breach and standing must be analysed carefully. The fact that a capital increase was challenged does not automatically create personal liability for every director.

20. Information Rights Can Be Crucial

A minority shareholder may initially know only that his percentage has changed.

He may not know:

• why capital was increased;
• whether the majority actually paid;
• what happened to the money;
• whether a valuation report existed;
• whether the company truly required financing.

Information and inspection rights therefore become strategically important.

Where appropriate, shareholders may request information and inspect corporate documents under the Turkish Commercial Code.

The Code also provides a mechanism for special audit (özel denetim) in joint-stock companies.

Under Article 438, a shareholder who has previously exercised information or inspection rights may, where necessary to exercise shareholder rights, request that specific matters be clarified through a special audit.

If the general assembly rejects the request, qualifying minority shareholders may under Article 439 apply to the Commercial Court of First Instance for appointment of a special auditor where the statutory conditions are satisfied.

In an abusive dilution dispute, a special audit may potentially investigate matters such as:

• whether the company genuinely required financing;
• how the majority’s capital contribution was funded;
• whether the contribution was actually paid;
• where the funds were subsequently transferred;
• whether related-party transactions followed the increase.

21. What Documents Should Be Obtained Immediately?

A shareholder who discovers an unexpected capital increase should immediately obtain and preserve:

1. the company’s current articles of association;
2. all amendments to the articles of association;
3. the Turkish Trade Registry Gazette publications;
4. general assembly call documents;
5. proof of postal or electronic notification;
6. the meeting agenda;
7. attendance list;
8. general assembly minutes;
9. voting results;
10. objections recorded in the minutes;
11. the capital increase resolution;
12. pre-emptive-right notices;
13. evidence concerning the fifteen-day exercise period;
14. subscription declarations;
15. bank records showing payment of the increased capital;
16. balance sheets and income statements;
17. independent accountant or auditor reports;
18. board resolutions;
19. documents showing the stated reason for the capital increase;
20. transactions occurring immediately after the new capital was paid.

Timing is crucial because the legal challenge period may already be running.

22. The Most Important Questions for a Lawyer

A practical case review should normally proceed in the following order.

Step 1 — Identify the Company Type

Is it:

• a joint-stock company (A.Ş.), or
• a limited liability company (Ltd. Şti.)?

Step 2 — Identify Who Made the Decision

Was the increase approved by:

• the general assembly, or
• the board under a registered capital system?

Step 3 — Check the Articles of Association

The articles may contain:

• higher voting thresholds;
• privileges;
• special shareholder rights;
• additional notification requirements;
• special provisions concerning capital increases.

Step 4 — Examine the Call

Was the shareholder properly informed?

Was the capital increase clearly listed in the agenda?

Step 5 — Check the Voting Quorum

Did the meeting legally have sufficient representation and votes?

Step 6 — Examine Pre-Emptive Rights

Was the shareholder given the opportunity to preserve his percentage?

Were at least fifteen days provided where required?

Step 7 — Investigate Any Restriction of the Right

If pre-emptive rights were restricted:

What was the just cause?

Who benefited?

Step 8 — Investigate the Company’s Real Capital Need

Request the financial records.

Step 9 — Follow the Money

Was the increased capital really paid?

What happened to it afterwards?

Step 10 — Calculate the Litigation Deadline Immediately

Do not postpone this analysis.

23. The Court of Cassation’s Practical Approach

Court of Cassation jurisprudence is particularly important because capital increase disputes normally involve a conflict between two legitimate principles.

On one side:

The majority must be allowed to manage the company and provide necessary financing.

On the other:

Corporate powers cannot be abused simply to destroy minority rights.

Recent jurisprudence confirms that the court should consider whether the real aim of the increase is corporate financing or instead the reduction of shareholders’ dividend, liquidation and voting rights.

At the same time, the Court of Cassation does not automatically invalidate a transaction simply because:

• the capital increase is very large;
• the minority opposes it;
• the minority’s percentage decreases.

A genuine financial need can justify a substantial increase.

The litigation therefore often becomes a battle over the economic purpose of the transaction.

Conclusion

A controlling shareholder can increase a company’s capital without obtaining the unanimous consent of every shareholder.

What the majority cannot lawfully do is use the capital increase mechanism as a disguised method of confiscating corporate control from another shareholder.

The most important protection against dilution is the shareholder’s pre-emptive right.

Where the shareholder is:

• properly notified;
• allowed to attend the general assembly;
• given proportionate subscription rights;
• granted the statutory exercise period;
• treated equally;

and the company has a genuine financial reason for increasing capital, dilution arising because the shareholder chooses not to participate may be lawful.

The position is entirely different where the majority:

• hides the meeting;
• excludes the shareholder;
• removes pre-emptive rights without just cause;
• allocates new shares to itself;
• increases capital far beyond any genuine corporate need;
• or structures the transaction specifically to destroy the minority shareholder’s voting and economic position.

In such cases, Turkish law provides important remedies, including annulment or, where the statutory conditions exist, a declaration of nullity, suspension of implementation, information and special-audit mechanisms and potentially management liability.

The practical lesson is simple:

A minority shareholder cannot prevent every capital increase—but the majority cannot turn a capital increase into a legal weapon for taking over the minority’s stake.