Dividend Rights, Minority Shareholder Protection and Legal Remedies Under Turkish Law

A foreign investor acquires shares in a profitable Turkish company.

The company performs well. Revenue increases. Financial statements show substantial annual profits.

Yet the investor receives no dividend.

Management explains that:

“The company needs the money.”

The same explanation is given the following year.

And the year after that.

Meanwhile, the majority shareholder receives a substantial salary, management fees are paid to related companies, expensive cars are purchased by the company, family members are employed and corporate funds appear to benefit the controlling shareholders.

At that point, the issue is no longer simply:

“Why has no dividend been paid?”

The more important legal question becomes:

“Is the majority legitimately retaining profits for the company’s needs, or is the dividend policy being used to deprive the foreign minority shareholder of the economic benefit of their investment?”

Under Turkish law, a profitable company is not automatically required to distribute all of its annual profits.

However, the majority shareholders do not have unlimited discretion to retain profits indefinitely.

Depending on the circumstances, a foreign shareholder may:

• inspect the company’s financial statements;
• question management regarding the use of profits;
• challenge an unlawful profit-retention resolution;
• demand a special audit;
• investigate related-party payments;
• bring liability claims against directors or managers;
• enforce dividend rights contained in a shareholders’ agreement;
• seek protection against systematic minority oppression;
• pursue judicial exit from a limited liability company; or
• in sufficiently serious cases, seek dissolution or a court-ordered buyout.

The distinction between legitimate profit retention and abuse of majority power is therefore central to Turkish shareholder litigation.

1. Does a Shareholder Automatically Have a Right to Receive the Company’s Annual Profit?

Not exactly.

Under Article 507 of the Turkish Commercial Code, each shareholder has the right to participate, in proportion to their shares, in the net profit that has been decided to be distributed to shareholders in accordance with the law and the articles of association. Article 508 further provides that annual profit is determined according to the annual balance sheet.

This creates an important distinction between:

the company making an accounting profit

and

a shareholder having an immediately payable dividend receivable.

A company may report TRY 100 million in annual profit without every shareholder automatically acquiring an immediately enforceable monetary claim against the company for their proportionate share.

For a Turkish joint stock company, decisions concerning:

• annual profit;
• dividends;
• profit shares;
• reserves; and
• the use of accumulated profit

are among the non-transferable powers of the general assembly under Article 408 of the Turkish Commercial Code.

Accordingly, the general assembly plays a central role in determining whether distributable profit will actually be distributed.

2. Does This Mean the Majority Can Simply Refuse to Distribute Profits Forever?

No.

The fact that the general assembly controls the dividend decision does not give the majority unlimited freedom.

General assembly decisions remain subject to:

• the Turkish Commercial Code;
• the articles of association;
• the principle of good faith;
• the equal-treatment principle;
• statutory shareholder rights; and
• restrictions on abusive exercise of majority power.

This is particularly important in closely held companies where the majority shareholders also control management.

A dividend decision can become legally problematic where the majority repeatedly retains profits without a genuine corporate justification, especially if the same majority shareholders obtain economic benefits from the company through other channels.

Turkish Court of Cassation case law has accepted that repeated non-distribution of profits may interfere with the substance of shareholders’ dividend rights where retention ceases to serve a legitimate company interest.

In one significant decision, the Court of Cassation upheld the invalidation of a decision concerning accumulated profits where profits from several years had repeatedly remained undistributed. The courts emphasized that company interests could not be relied upon so excessively that shareholders were effectively deprived of their right to participate in profits.

Therefore:

“The general assembly voted not to distribute dividends” is not necessarily the end of the analysis.

3. When Is Profit Retention Legitimate?

There are many legitimate reasons why a profitable company may decide not to distribute all available profit.

For example, the company may reasonably need funds to:

• purchase new machinery;
• open additional branches;
• finance research and development;
• expand production capacity;
• repay borrowing;
• improve liquidity;
• acquire another company;
• enter a new market;
• finance a large construction project;
• strengthen working capital;
• prepare for foreseeable economic risks; or
• maintain financial stability.

Turkish law expressly recognizes that profits can be allocated to reserves.

Article 519 requires a general statutory reserve to be formed from annual profit until the statutory threshold is reached. Article 523 further permits additional reserves in certain circumstances, including where they are required to replace assets or are justified by the company’s continuing development and a stable dividend policy, taking into account the interests of all shareholders.

The important concept is therefore:

corporate justification.

Retaining TRY 50 million because a company is constructing a new factory may be entirely reasonable.

Retaining TRY 50 million every year while the majority shareholders simultaneously extract equivalent value through management fees and related-party transactions is a very different matter.

4. The Question Is Not Simply “Was a Dividend Paid?”

A proper legal analysis should ask:

What happened to the profit?

For example:

Company A makes:

TRY 100 million net profit.

The general assembly decides not to distribute any dividend.

That fact alone may not establish illegality.

The next questions should be:

• Was the money reinvested in the business?
• Did cash remain in the company’s accounts?
• Were debts repaid?
• Were new assets acquired?
• Did the company make a major investment?
• Were excessive reserves created?
• Was money transferred to affiliated companies?
• Were loans made to shareholders?
• Did directors receive unusually high compensation?
• Did the majority shareholders receive other financial advantages?

These questions often determine whether a dividend dispute is really a profit-retention dispute or a broader minority-shareholder abuse case.

5. What If the Majority Shareholders Are Taking Money Out Through Other Channels?

This is one of the strongest warning signs.

Consider the following structure.

A foreign investor owns 30%.

The Turkish founder owns 70%.

For four years, the company makes substantial profits.

No dividend is distributed.

However, the majority shareholder receives:

• a large management salary;
• annual bonuses;
• company-paid accommodation;
• company vehicles;
• management fees through another company they own;
• consulting payments to family members; and
• loans from the company.

Commercially, the result may be obvious:

The minority shareholder receives nothing.

The majority shareholder receives substantial economic value despite formally receiving no dividend.

In such circumstances, the investor should not analyse the dispute solely under dividend law.

The case may also involve:

• breach of management duties;
• related-party transactions;
• equal-treatment issues;
• hidden distribution of value;
• misuse of company assets;
• directors’ liability;
• shareholders’ information rights; and
• potentially just cause for stronger corporate remedies.

The Court of Cassation has specifically recognized, in the context of just-cause dissolution claims, that prolonged unjustified non-distribution of dividends or merely symbolic dividends combined with the transfer of economic benefits to controlling managers can be relevant to minority-shareholder protection.

6. The Foreign Investor Should First Examine the Financial Statements

Before commencing litigation, the investor needs to establish whether there is actually distributable profit.

Accounting profit and legally distributable profit are not always identical.

Article 509 of the Turkish Commercial Code provides that dividends may only be distributed from:

• net period profit; and
• free reserves.

Accordingly, a shareholder should obtain and examine:

• annual balance sheets;
• profit-and-loss statements;
• cash-flow information;
• statutory reserves;
• accumulated past losses;
• retained earnings;
• shareholder loans;
• related-party receivables;
• management remuneration;
• affiliated-company transactions; and
• the board’s dividend proposal.

This review often reveals whether:

there genuinely is no distributable cash

or

the company is profitable but management simply does not want the minority shareholder to receive anything.

7. A Joint Stock Company Shareholder Has a Statutory Right to Financial Information

Under Article 437 of the Turkish Commercial Code, financial statements, consolidated financial statements, the annual activity report, audit reports and the board of directors’ proposal concerning profit distribution must be made available for shareholder review before the general assembly.

Shareholders may also request copies of the income statement and balance sheet at the company’s expense. At the general assembly they may ask the board questions regarding the company’s affairs.

The information right cannot simply be abolished by:

• the articles of association;
• a board resolution; or
• a general assembly resolution.

If information is improperly refused, postponed or left unanswered, the shareholder may apply to the Commercial Court of First Instance in accordance with Article 437.

Therefore, when the majority says:

“There is no money available for dividends.”

the foreign shareholder is entitled to ask:

Why?

8. The Investor Should Ask Specific Financial Questions

General requests such as:

“Show me everything.”

are often less effective than targeted questions.

For example:

“Please identify all payments made to shareholders, directors and their related parties during the 2025 financial year.”

“Please explain why TRY 85 million of net profit was retained rather than distributed.”

“Please identify the investment project for which the retained profit has been reserved.”

“Please provide the board’s profit-distribution proposal and the calculation of statutory and discretionary reserves.”

“Please explain payments made to Company X, which is controlled by the majority shareholder.”

The more specific the questions, the easier it becomes to establish whether the refusal to distribute profits has a legitimate economic basis.

9. A Special Audit May Be Requested

If the financial picture remains unclear, a foreign shareholder may consider a special audit.

Under Article 438, any shareholder may request that specific events be investigated through a special audit where:

• the investigation is necessary to exercise shareholder rights; and
• the shareholder has previously exercised their information or inspection rights.

For example, the investor might seek examination of:

• transactions with companies owned by the majority shareholder;
• unexplained management fees;
• loans to shareholders;
• transfer of intellectual property;
• sale of company assets below market value;
• unexplained increases in operating expenses; or
• the real reason accumulated profits were retained.

If the general assembly rejects the special-audit request, qualifying minority shareholders may apply to the Commercial Court under Article 439 if the statutory conditions are satisfied.

A special audit can therefore convert a shareholder’s suspicion into independently examined evidence.

10. Can the Foreign Shareholder Challenge a Decision Not to Distribute Profit?

Yes, potentially.

Article 445 of the Turkish Commercial Code permits specified persons to seek annulment of general assembly resolutions that violate:

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

The action must generally be filed within:

three months from the date of the general assembly resolution.

This deadline is extremely important.

If a shareholder attends the meeting, Article 446 generally requires the shareholder to:

• vote against the resolution; and
• have their opposition recorded in the meeting minutes

to preserve the right to bring an annulment action, subject to the other statutory situations covered by Article 446.

Therefore, a foreign shareholder who objects to a no-dividend resolution should not merely remain silent at the meeting.

11. A Proper Objection Should Be Recorded in the General Assembly Minutes

Suppose the majority proposes:

“No dividend shall be distributed and the entire year’s profit shall remain within the company.”

The foreign shareholder should consider formally stating:

• that they oppose the proposal;
• that no adequate corporate justification has been provided;
• that the company has sufficient liquidity;
• that the proposed reserves are disproportionate;
• that management has failed to explain the intended use of retained profit; and
• that the decision may violate shareholder rights and the principle of good faith.

The shareholder should then ensure that their negative vote and opposition are properly entered into the minutes.

Court of Cassation practice is strict on this procedural requirement.

A shareholder’s objection during discussion before voting is not necessarily sufficient. The shareholder should vote against the actual resolution and properly record opposition where required.

This procedural detail can determine whether the later annulment action is admissible.

12. Turkish Courts Can Annul an Unjustified No-Dividend Decision

A general assembly has discretion regarding profit distribution, but that discretion is judicially reviewable.

In one appellate case, the Istanbul Regional Court of Appeal upheld annulment of a general assembly resolution not to distribute profits where the company had failed to establish through concrete evidence that its financial situation justified withholding the dividend.

The court treated the unjustified non-distribution decision as inconsistent with the principle of good faith.

This illustrates an important point.

A company should be able to explain why retaining profit serves a legitimate corporate purpose.

Statements such as:

“We might need the money later.”

may not always be sufficient where the evidence shows substantial accumulated profits and no credible investment or financial need.

13. But Annulment Does Not Automatically Mean the Court Will Calculate and Pay the Dividend

This is one of the most important procedural distinctions.

Suppose the general assembly decides:

“No dividend will be distributed.”

The foreign shareholder challenges that resolution and wins.

Does the court automatically say:

“The shareholder owns 25%, therefore the company must now pay them 25% of the profit”?

Not necessarily.

The Court of Cassation has emphasized that determining and distributing company profit belongs to the general assembly’s non-transferable authority.

In a case where a no-dividend resolution was found problematic, the Court of Cassation held that a court should not directly order payment of a calculated dividend where there had been no valid general assembly resolution determining and distributing that dividend.

This distinction is crucial.

There are two different cases:

Case A — No dividend distribution resolution exists

The investor may need to challenge the unlawful refusal to distribute.

Case B — The general assembly has already declared a dividend

If the general assembly validly resolves:

“TRY 20 million will be distributed as dividends,”

the shareholder’s entitlement becomes much more concrete.

If the company subsequently refuses to pay the declared dividend, the dispute can become a direct monetary receivable claim.

These two situations should not be confused.

14. Excessive Reserves Can Also Be Challenged

A company cannot necessarily avoid the issue simply by calling everything a “reserve.”

Article 523 permits additional reserves under specified circumstances.

The company should therefore be able to show a genuine commercial reason for accumulating reserves beyond those required by law and the articles.

For example:

Potentially justified

The company plans a documented EUR 10 million factory investment and needs retained earnings to finance it.

More questionable

The company has accumulated large reserves for six years but:

• has no identified investment project;
• carries little debt;
• maintains substantial cash;
• continuously refuses dividends; and
• pays significant benefits to controlling shareholders.

The second scenario presents a much stronger basis for challenging the majority’s decision.

15. Limited Liability Companies Have Their Own Profit Rules

The position should also be examined separately for a Turkish limited liability company – limited şirket.

Article 608 provides that dividends may only be distributed from:

• net annual profit; and
• reserves designated for that purpose.

Statutory and contractual reserves must first be allocated.

Importantly, Article 608 places conditions on the creation of additional reserves beyond those provided by law or the articles.

Additional reserves require a legitimate justification, such as:

• covering losses; or
• a serious investment need connected with the company’s development,

together with the other statutory conditions.

The decision concerning dividends belongs to the limited company’s general assembly under Article 616.

Accordingly, majority shareholders in a limited company do not have unlimited discretion to accumulate profits simply to deny economic benefit to the minority.

16. Limited Company Shareholders Also Have Strong Information Rights

Article 614 provides that every limited company shareholder may request from the managers:

• information about the company’s affairs and accounts; and
• inspection concerning particular matters.

If management attempts to restrict the request, statutory procedures apply, and if the general assembly unjustifiably prevents the shareholder from obtaining information or conducting inspection, the shareholder may apply to court.

For a foreign investor who receives no dividends, this right can be used to investigate:

• retained earnings;
• management payments;
• related-party transactions;
• cash movements;
• shareholder loans; and
• the actual financial need for retaining profits.

17. The Shareholders’ Agreement May Provide Stronger Dividend Protection

Foreign investors should not examine the Turkish Commercial Code alone.

The investment documents may contain a specific dividend policy.

A Shareholders’ Agreement might provide:

“At least 50% of annual distributable profit shall be distributed to shareholders unless otherwise approved by 75% of shareholders.”

or:

“No decision to retain more than 60% of annual distributable profit may be taken without Investor Consent.”

or:

“The Investor shall have a veto over changes to the dividend policy.”

These provisions can significantly strengthen the foreign investor’s position.

However, a distinction must again be made between:

corporate effect

and

contractual effect.

A shareholders’ agreement generally binds the parties contractually.

If the majority shareholder breaches the agreement, possible remedies may include:

• contractual damages;
• penalties;
• put rights;
• call rights;
• deadlock procedures;
• mandatory share purchase;
• arbitration; or
• another remedy expressly provided in the agreement.

Whether the company itself is bound depends on the transaction structure and relevant documentation.

18. Dividend Policy Can Be Used as a Minority-Shareholder Pressure Mechanism

The economic structure of a closely held company can make profit retention especially damaging.

Assume two shareholders:

Majority: 75%
Foreign investor: 25%

The majority shareholder is also CEO.

The foreign investor has no management position.

If profits are distributed, both receive economic value proportionately.

If profits are never distributed but the majority shareholder receives significant remuneration through their management position, the economic balance changes.

The majority can effectively say:

“I do not need dividends because I already receive money from the company. You do.”

Repeated use of this structure may transform what appears to be a dividend-policy issue into a broader abuse-of-control dispute.

19. Directors and Managers May Face Liability

If company assets are diverted or management decisions cause damage, the foreign investor should also consider the liability regime applicable to directors and managers.

The legal claim may not always be:

“Pay me a dividend.”

Sometimes the stronger claim is:

“Return to the company the value improperly transferred to the controlling shareholders.”

Examples may include:

• excessive related-party service fees;
• transferring company property below market price;
• unnecessary loans to affiliated companies;
• payment of personal expenses from corporate funds;
• artificial consulting arrangements; or
• other transactions harmful to the company.

Restoring the company’s assets can also restore the economic value of the minority investor’s shares.

20. Long-Term Non-Distribution May Contribute to “Just Cause”

An isolated decision not to distribute profit usually does not justify terminating the entire corporate relationship.

However, systematic conduct over several years may be different.

The Court of Cassation has explained, in the context of Article 531, that circumstances capable of contributing to “just cause” can include:

• systematic violation of minority rights;
• obstruction of information rights;
• long-term unjustified non-distribution of profit;
• consistently nominal dividend distributions;
• management using corporate advantages for itself while excluding minority shareholders; and
• other persistent abuses of controlling power.

Thus, the court looks at the broader pattern.

The relevant question becomes:

Has the majority made the minority’s continued participation in the company economically unreasonable?

21. A Minority Shareholder in a Joint Stock Company May Seek Just-Cause Dissolution

Article 531 provides an extraordinary minority remedy for joint stock companies.

Where just cause exists, shareholders representing at least:

• 10% of the capital of a privately held joint stock company, or
• 5% of a publicly held company

may ask the Commercial Court of First Instance at the company’s registered office to dissolve the company.

However, dissolution is not the only possible outcome.

The court may instead order:

• payment of the real value of the claimant’s shares;
• removal of the claimant from the company; or
• another appropriate and acceptable solution.

This can effectively produce a judicial buyout.

Turkish courts generally regard dissolution as a last resort because employees, creditors and other stakeholders may have an interest in the company’s continuation.

The Court of Cassation has therefore emphasized alternative solutions where minority rights can be protected without destroying a viable business.

22. Non-Distribution Alone May Not Be Enough for Article 531

This remedy should not be overstated.

A company deciding not to distribute profit for one year does not normally justify dissolution.

Even several years without dividends may require examination of:

• whether the company was genuinely profitable;
• whether significant investment was necessary;
• whether liquidity was available;
• whether the company had accumulated losses;
• whether majority shareholders received other benefits;
• whether minority rights were systematically obstructed; and
• whether there were other serious corporate disputes.

Courts examine the overall relationship.

For example:

Weak case

The company has strong accounting profits but is funding an objectively necessary expansion project and all shareholders are treated equally.

Stronger case

For ten years the company reports profits, refuses every dividend, prevents the minority from obtaining information and transfers economic value to businesses owned by the majority shareholders.

The second scenario is considerably more likely to support extraordinary shareholder remedies.

23. Limited Company Investors Have Additional Exit Options

Foreign shareholders in a limited liability company may have broader statutory exit mechanisms.

Under Article 636(3), every shareholder may request dissolution of a limited liability company where just cause exists.

Instead of ordering dissolution, the court may:

• order payment of the real value of the claimant’s shares;
• remove the shareholder from the company; or
• adopt another appropriate solution.

Article 638 separately allows each shareholder to bring proceedings seeking judicial exit where just cause exists. The court may also adopt protective measures during the proceedings.

Therefore, a foreign investor trapped in a limited company that systematically refuses to distribute profits may eventually have an exit route if the conduct is sufficiently serious and forms part of a broader just-cause dispute.

24. What If the Company Has Already Declared a Dividend but Does Not Pay It?

This is a much simpler factual scenario.

Suppose the general assembly validly decides:

“TRY 40 million shall be distributed to shareholders.”

The foreign investor owns 25%.

The investor’s dividend is therefore calculated under the valid corporate resolution.

The company subsequently refuses to make payment.

The dispute is no longer primarily about whether profits should have been distributed.

It is about non-payment of an established shareholder receivable.

Depending on the circumstances, the investor may then seek:

• payment of the dividend;
• default interest;
• enforcement proceedings;
• litigation for the receivable; and
• where legally justified, interim enforcement protection.

The distinction between a declared but unpaid dividend and profit that the general assembly never decided to distribute is fundamental.

25. Mandatory Mediation May Become Relevant to a Monetary Claim

If the dispute becomes a commercial monetary receivable action—such as an already declared dividend that remains unpaid—the Turkish mandatory commercial mediation regime should also be reviewed before filing proceedings.

This procedural issue should be analysed separately from an annulment action concerning the general assembly resolution itself.

The investor should therefore avoid assuming that every dividend-related claim follows exactly the same procedural path.

26. Public Companies Require a Separate Capital-Markets Analysis

If the Turkish company is publicly traded, the analysis does not stop with the Turkish Commercial Code.

The investor must also review:

• the Capital Markets Law;
• Capital Markets Board regulations;
• the company’s publicly disclosed dividend policy;
• public disclosure obligations; and
• any special rules applicable to publicly held companies.

Therefore, the position of a foreign investor holding shares in a private family company can be materially different from an investor holding shares in a Borsa İstanbul-listed company.

27. The Investor Should Examine Whether the Company Is Hiding Profits

Sometimes the problem is not technically “non-distribution.”

Management may be reducing the apparent profit itself.

For example:

Revenue may be transferred to another majority-controlled company.

Expenses may be artificially increased.

A related company may charge excessive:

• consulting fees;
• trademark fees;
• management fees;
• rent;
• commission; or
• service charges.

The Turkish company then reports:

Profit: TRY 5 million

instead of the:

TRY 100 million

that might have existed without the related-party transactions.

In such a case, challenging the dividend decision alone may be insufficient.

The investor should investigate the underlying accounting and related-party structure.

28. A Special Audit Can Be More Valuable Than Immediately Filing a Dividend Case

Consider this example.

A French investor owns 35% of a Turkish manufacturing company.

The company has reported significant revenue growth for five years.

No dividends are paid.

Management says:

“Margins are too low.”

The investor discovers that the company pays TRY 30 million annually to a logistics company owned by the majority shareholder.

Before demanding dividends, the strategically stronger approach may be to determine:

• whether the logistics services actually exist;
• whether the fees reflect market rates;
• whether the transaction was properly approved;
• whether company funds have effectively been shifted to the majority-controlled business.

A special audit may therefore reveal that the true dispute is not:

“Why aren’t profits distributed?”

but:

“Why have profits been transferred elsewhere before they can be distributed?”

29. What Evidence Should the Foreign Investor Preserve?

A foreign shareholder concerned about repeated profit retention should collect:

• articles of association;
• shareholders’ agreement;
• investment agreement;
• general assembly minutes;
• general assembly notices;
• financial statements;
• audit reports;
• management reports;
• dividend-distribution proposals;
• board resolutions;
• annual activity reports;
• statutory reserve calculations;
• historical dividend records;
• information requests;
• responses from management;
• bank records available to the shareholder;
• related-party transaction documents;
• shareholder and director compensation records;
• loan agreements;
• affiliated-company contracts; and
• correspondence regarding dividend policy.

The investor should preferably create a year-by-year table showing:

profit → reserve allocation → dividend → shareholder benefits → retained cash.

Patterns become much easier to prove when presented chronologically.

30. A Practical Example

Consider the following case.

A British investor owns 30% of an Istanbul-based software company.

The Turkish founder owns 70% and controls management.

The company’s financial results are:

The majority shareholder states that all profits are needed for growth.

However:

• the company has no major debt;
• cash reserves are substantial;
• no significant new investment has been announced;
• the majority shareholder’s annual remuneration has increased significantly;
• TRY 20 million per year is paid to an affiliated consulting company owned by the majority; and
• the foreign investor’s requests for detailed financial information are refused.

The investor may consider a multi-stage strategy.

Step 1 — Obtain Information

Use statutory information and inspection rights to identify where the money is going.

Step 2 — Review the General Assembly Decision

Determine exactly what resolution was adopted concerning profit and reserves.

Step 3 — Record Formal Opposition

Vote against an unjustified no-dividend resolution and properly record opposition in the minutes.

Step 4 — Consider Annulment

If the resolution is contrary to law, the articles or the principle of good faith, consider an Article 445 action within the three-month period.

Step 5 — Request a Special Audit

Investigate payments to the related consulting company.

Step 6 — Analyse Management Liability

If payments have damaged the company, consider claims against responsible directors or managers.

Step 7 — Review the Shareholders’ Agreement

Determine whether the majority has breached a contractual dividend policy, veto right or reserved-matter provision.

Step 8 — Consider Exit Remedies

If the investor is systematically denied all economic benefit and the relationship has become untenable, evaluate just-cause remedies.

The appropriate strategy therefore goes far beyond simply sending a letter saying:

“Please pay my dividend.”

31. Can a Foreign Investor Demand That the Majority Buy Their Shares?

Not automatically merely because no dividend has been paid.

However, a buyout may become possible through several routes.

Contractual Route

The shareholders’ agreement may contain:

• put options;
• deadlock provisions;
• material-breach exit rights; or
• buy-sell mechanisms.

Negotiated Route

The investor may negotiate a sale of their shares to the majority.

Judicial Route

In sufficiently serious cases:

• Article 531 may provide an alternative judicial solution for qualifying joint stock company minorities; or
• Articles 636 and 638 may provide remedies for limited-company shareholders.

The valuation question then becomes critical.

A minority shareholder should not automatically accept a valuation based on artificially depressed profits if the majority’s conduct itself caused the company to appear less profitable.

32. Share Valuation Can Become a Major Issue

Suppose the foreign investor paid EUR 2 million for 25% of the company.

Five years later, no dividends have been distributed.

The majority offers:

“We will buy you out for EUR 500,000.”

The investor should not assume that lack of dividends means the shares have little value.

The company may possess:

• cash;
• accumulated reserves;
• valuable real estate;
• intellectual property;
• customer contracts;
• recurring revenue;
• trademarks;
• machinery; and
• retained earnings.

A proper valuation should therefore examine the company’s real economic position rather than only the dividend history.

This is particularly important where judicial remedies refer to the real value of the shareholder’s interest.

33. Not Every Dispute Should Immediately Go to Court

Dividend disputes often benefit from a staged strategy.

A strong sequence may be:

financial investigation → formal shareholder request → general assembly objection → special audit or corporate action → negotiation → litigation if necessary.

Why?

Because the commercial objective may not be to destroy the company.

The investor may prefer to:

• restore a regular dividend policy;
• negotiate a guaranteed minimum distribution;
• obtain board representation;
• establish stronger reporting rights; or
• negotiate a fair-value exit.

Litigation remains important, but it should support the investor’s commercial objective.

34. What Should a Foreign Investor Do Immediately?

Where a Turkish company repeatedly reports profits but pays no dividend, the investor should determine:

1. Is the company an A.Ş. or Ltd. Şti.?
2. What is the investor’s percentage ownership?
3. What do the articles say about dividends?
4. What does the shareholders’ agreement say?
5. How much net profit has been generated each year?
6. How much profit is legally distributable?
7. What reserves have been created?
8. Why were those reserves created?
9. Has the majority received other financial benefits?
10. Are related-party companies receiving payments?
11. Has the investor exercised statutory information rights?
12. Has a no-dividend general assembly resolution been adopted?
13. Was the investor’s opposition properly recorded?
14. Is the three-month annulment period still running?
15. Is a special audit required?
16. Does the investor want dividends, management influence or an exit?

These questions usually determine the correct legal strategy.

Frequently Asked Questions

If a Turkish company makes a profit, must it distribute dividends?

No. Profitability alone does not automatically require distribution of all profits. The general assembly determines the use of annual profit subject to the Turkish Commercial Code, the articles and good-faith limitations.

Can the majority keep all profits inside the company?

Potentially, where legitimate corporate reasons justify doing so. However, indefinite and unjustified profit retention may be challenged.

Can a foreign shareholder sue because dividends were not distributed?

Potentially. A general assembly decision not to distribute profits can be challenged where it violates the law, articles of association or principle of good faith.

How long does the shareholder have to challenge the general assembly resolution?

An annulment action under Article 445 must generally be filed within three months from the resolution date.

Can the court directly order the company to pay a dividend?

Not automatically where the general assembly has never validly determined a dividend. The Court of Cassation has emphasized the general assembly’s non-transferable authority over profit distribution.

What if the dividend was already declared but the company refuses to pay?

That may create a direct monetary receivable claim because the issue is then non-payment of an established dividend rather than whether a dividend should have been declared.

Can I inspect why the company is retaining the profit?

Yes. Turkish company law provides significant information and inspection rights.

Can I investigate payments to the majority shareholder?

Potentially. Information rights and, where conditions are satisfied, a special audit can be used to investigate specific transactions.

Can repeated non-payment of dividends justify leaving the company?

In sufficiently serious circumstances and together with other evidence of abuse, prolonged unjustified non-distribution can contribute to a just-cause claim. The available exit mechanism differs between joint stock and limited liability companies.

Can a minority shareholder ask the court to buy out their shares?

In certain just-cause cases, the court may adopt a solution involving payment of the real value of the minority’s shares rather than dissolving the company.

Conclusion

A foreign investor should not assume that a profitable Turkish company is legally required to distribute all annual profits.

At the same time, a majority shareholder cannot necessarily use control of the general assembly to keep profits inside the company indefinitely while depriving the minority investor of every economic benefit.

The decisive issue is why the profits are not being distributed and where the money is going.

Legitimate reasons may include:

• genuine investment needs;
• working-capital requirements;
• debt reduction;
• statutory reserves; and
• long-term business expansion.

More problematic circumstances include:

• repeated profit retention without a credible commercial reason;
• excessive reserves;
• payments to majority-controlled entities;
• unusually high management compensation;
• denial of financial information;
• systematic rejection of minority rights; and
• the majority extracting economic benefits while the minority receives nothing.

In these circumstances, Turkish law provides a range of remedies.

A foreign investor may use information and inspection rights, special audit procedures, annulment proceedings against abusive general assembly resolutions, management-liability claims, contractual rights under a shareholders’ agreement and, in sufficiently serious cases, judicial exit, buyout or just-cause dissolution remedies.

The most important practical distinction is between:

a company that legitimately retains profits to grow

and

a majority shareholder that uses profit retention as a mechanism to economically squeeze the minority out of the company.

Where the second situation is developing, early legal action is important—particularly because a challenge against a general assembly resolution may be subject to the strict three-month period under Article 445 of the Turkish Commercial Code.