An Atypical Joint Stock Company under Turkish Law: Basic (Atypical) Principles in the Establishment and Share Issuance of Investment Companies with Variable Capital

Year 2024, Issue: 75, 87 - 103, 06.01.2025

Numan Sabit Sönmez

https://doi.org/10.26650/annales.2024.75.0004

Abstract

Thanks to the instruments offered to investors in capital markets, even owners of small savings have the opportunity to buy and sell these instruments and generate income. However, not all investors will have the same level of knowledge and experience in capital markets. Moreover, in such a diversified environment, investment by experts, i.e. professionals, is desirable for everyone in order to maximise profits. Yet it is inconceivable that small investors would hire professionals to make their investments. Collective investment schemes are institutions that offer capital market instruments to investors in return for which they create a portfolio of investment instruments in various markets and allow professionals to manage the portfolio, thus providing access to basic investment principles, such as professional management and risk allocation, for small investors. Collective investment schemes can be established as a company or fund. The established companies may prefer fixed or variable capital systems. The variable capital system allows investment companies to conduct their activities under the status of joint stock companies. On the other hand, there are many aspects that constitute derogation from the fundamental principles of joint stock companies. As the name suggests, this type of company does not have fixed capital in its articles of association. In these companies, capital is equal to the net asset value of the company and changes as the value of the assets changes. In addition, because of capital volatility, shares do not have a nominal value. Thus, basic principles such as the protection of capital, prohibition of return of capital, and nominal value, intended to be protected in the TCC regulations for joint stock companies, are completely eliminated in companies with variable capital. Although there is no protection of capital in such companies, different mechanisms are expected for protecting investors in portfolio management. In addition, in companies with variable capital, shares are divided into founder and investor shares. Founder shares are issued to the persons who founded the company or, with the permission of the Board in the subsequent issuance of founder shares, to the persons who have subscribed to such shares and grant all shareholding rights to the holders. Investor shares are issued through public offering or other special methods and do not grant any rights to their holders other than profit and liquidation dividends. Thus, a type of share that is completely deprived of various rights that do not exist in the TCC has been established. Moreover, the investor shares can be sold to the company at any time, and the company is obliged to return the net asset value per share to the investor. Thus, the basic principle of the TCC regarding the company’s acquisition of its shares is eliminated in such partnerships. In this study, issues regarding the establishment, capital structure, and shares of variable capital partnerships, which differ from the basic principles of joint stock companies, are discussed.

Keywords

Collective investment schemes, investment companies, variable capital, founder’s share, investor’s share

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