Financial Assistance in Turkey: Can a Company Fund the Purchase of Its Own Shares? TCC Article 380

Financial assistance in Turkey is a specific acquisition-financing issue: a Turkish joint-stock company must not fund or secure another person’s purchase of its own shares through a transaction prohibited by Article 380 of the Turkish Commercial Code. The provision addresses advances, loans and security. It does not make foreign ownership unlawful, and it does not automatically invalidate an independently funded purchase of shares. The issuer, purchaser, financing party and security provider must be identified separately.

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This guide is for overseas purchasers, sellers, acquisition lenders and directors reviewing a Turkish joint-stock company, or A.Ş., as an acquisition target. It explains the statutory prohibition, the defined exceptions, reserve protections, indirect acquisitions and the documents needed before money or collateral is committed. It does not assume that the joint-stock-company provision applies identically to every other company form or every agreement in a multinational transaction.

Short and clear answer

TCC Article 380(1) declares void the specified advances, loans and security transactions made by a company for acquisition of its own shares. It contains exceptions for transactions within the business activities of credit and financial institutions and for specified employee share-acquisition arrangements. The exceptions are qualified by the reserve-protection wording in the same paragraph. A transaction must satisfy the applicable statutory conditions; approval by shareholders or directors is not itself an exemption.

Article 380(2) addresses a different arrangement: a third party acquiring the company’s shares for specified company or group accounts where a direct acquisition by the company would offend Article 379. An acquisition review must therefore distinguish assistance to a buyer from an indirect acquisition for the company’s account. Neither test is answered simply by calling a facility commercial, offshore, post-closing or a group arrangement.

The legal provisions to read together

The principal provisions are Articles 379 and 380 of Turkish Commercial Code No. 6102. Article 379 regulates a joint-stock company’s acquisition or acceptance as pledge of its own shares. Article 380 addresses the financial-assistance and indirect-acquisition arrangements described above. Articles 519 and 520 matter because Article 380 expressly refers to reserve protection. These provisions should be read in the consolidated statute, rather than through an acquisition template written for a different jurisdiction.

Article 27 of Turkish Code of Obligations No. 6098 is relevant when examining mandatory-law invalidity and whether the remaining parts of an agreement can stand. TCC Articles 369 and 375 provide the surrounding management-duty framework. They are not substitutes for Article 380, and observing an internal approval procedure does not cure a prohibited undertaking. Read the official consolidated Commercial Code and the official Code of Obligations alongside the actual financing documents.

Start with the parties, not the financing label

In a share acquisition, the buyer owes the price to the selling shareholder. The target is the company whose shares are sold; it does not become the seller merely because its balance sheet determines the valuation. A lender can supply funds to the buyer, while a separate guarantor promises repayment. The first review step is to identify those legal persons and list their respective undertakings. Consolidated group names and trading brands should not conceal separate corporate identities.

A direct loan from an independent bank to the purchaser is not the same transaction as a guarantee supplied by the target for that loan. The guarantee must be examined in its own right. Equally, a shareholder lending money to the operating company raises a different legal question from the company financing a purchase of its own shares. Our shareholder-loan guide explains proof of a company’s borrowing obligation. That borrowing relationship must not be confused with acquisition assistance merely because both involve a shareholder and a loan.

Advances, loans and security: reading the whole document set

Article 380(1) expressly identifies an advance, a loan and security as the subject matter of the relevant legal transaction. An acquisition file therefore cannot be reviewed by reading only the share purchase agreement. Examine facility agreements, guarantees, mortgages, pledges, cash-collateral arrangements, deferred-payment documentation and undertakings that become effective on completion. The legal classification of each instrument matters, together with the purpose for which the target undertakes it.

Labels are not a substitute for that examination. A document described as general corporate support still requires scrutiny where its contractual function is to enable acquisition of the issuer’s shares. Conversely, a genuine operating payment is not automatically acquisition assistance just because it occurs near closing. The evidence should show the underlying obligation, recipient and commercial purpose. The point is to establish the real transaction, not to infer a prohibited purpose from timing alone or to assume that a different heading eliminates it.

The financial-institution exception is not a blanket bank exception

The statutory exception refers to transactions within the business activities of credit and financial institutions. It does not say that every acquisition supported by a bank is exempt. A bank’s participation as lender and a separate target company’s provision of a guarantee are different acts by different entities. The review must identify which institution or company performs the transaction for which the exception is invoked, and why that transaction falls within the statutory wording.

Keep the institution’s legal and regulatory identity, the facility purpose and the complete security schedule in the review file. A lender’s standard requirement for target assets does not itself establish Turkish-law compliance. Nor does an overseas legal opinion on the borrower’s capacity necessarily determine the Turkish target’s position. The Turkish opinion must address the relevant undertaking and its statutory basis, rather than merely reciting that a licensed bank is involved somewhere in the financing structure.

Employee share acquisitions and the reserve qualification

Article 380(1) also identifies advances, loans and security for employees of the company or its subsidiaries to acquire company shares. A purchaser’s employment relationship and the intended share acquisition must be substantiated. The exception cannot be replaced with a generic assertion that the transaction rewards management. Consultants, commercial partners and prospective purchasers do not fall within its wording merely because the acquisition documents describe them collectively as a management team.

The same paragraph expressly qualifies exceptional transactions by reference to reserves required by law and the articles, the use-of-reserves rules in Article 519 and the ability to set aside the reserve contemplated by Article 520. Apply that reserve-preservation wording as a whole. Do not turn qualification for an employee or institution exception into an unconditional permission to use protected company resources. The financial statements, applicable reserve calculations and proposed assistance must be assessed together.

The reserve review should identify the relevant balance-sheet figures and the effect of the particular transaction, including contingent exposure where security is proposed. Accounting preparation and legal assessment have different roles: an accurate schedule supplies the figures, while the statute determines their significance. Neither a programme brochure nor a board resolution replaces the financial analysis. Where the parties disagree about the statutory reservation, the report should identify that issue instead of presenting a mechanical checklist as a conclusive legal opinion.

Article 380(2): buying through another person

The second paragraph addresses an arrangement between the company and a third person that gives that person a right, or imposes an obligation, to acquire the issuer’s shares for the account of the company, its subsidiary or a company in which it holds a majority of shares. The provision tests whether the acquisition would have infringed Article 379 if the company itself had made it. This is a statutory anti-circumvention comparison, not simply another description of a purchaser’s independent bank loan.

Identify who bears the economic acquisition cost, for whose account the shares are held, who directs the purchase and how the arrangement allocates benefits and risks. The registered holder’s name is not the whole inquiry where the documents establish an acquisition for another company’s account. A nominee or intermediary does not automatically make the arrangement unlawful, but it does not remove the need for the comparison expressly required by Article 380(2).

Why the ten-percent own-share rule does not answer everything

Article 379 sets the general ten-percent limit for paid acquisition or acceptance as pledge of a company’s own shares, and requires the general meeting’s authorisation within the terms of the provision. It also contains net-asset and fully-paid-share conditions. Other provisions create specific exceptions, which must be identified when relevant. It is therefore inaccurate either to present ten percent as the sole test or to say that every own-share acquisition is prohibited.

The ten-percent figure is not an allowance for providing acquisition assistance to any purchaser. A company cannot answer an Article 380(1) question simply by calculating that the proposed buyer will acquire less than ten percent. The first paragraph’s advances, loans and security prohibition and the second paragraph’s Article 379 comparison are distinct. Keeping the tests separate prevents a numerical limit from being used as an exception that the legislature did not provide.

What is void, and what must be examined separately?

Article 380 states the invalidity consequence for the transactions it describes. In a particular file, the relevant instrument might be a target loan, guarantee or other security undertaking. It does not follow automatically that the entire share purchase, every independent facility and all closing documents are void. The parties must identify the affected obligation and then examine the legal relationship between that obligation and the other agreements.

Under TCO Article 27, partial invalidity requires attention to whether the remaining provisions can stand and whether the agreement would have been concluded without the invalid part. A contractual severability clause can be relevant to that assessment but is not a statutory waiver. The purchaser, seller and lender should each examine what remains payable or enforceable if the target’s undertaking cannot be relied upon. That exercise concerns actual contractual rights, not a transaction-wide slogan that everything is either valid or invalid.

Signing, closing and post-closing assistance

Record when the acquisition agreement, financing commitment and security obligation are signed, become effective and are performed. Those dates can differ. A guarantee signed before closing might take effect only after the purchaser becomes a shareholder; a later undertaking might be expressly linked to refinancing the acquisition debt. The documentary connection and purpose require examination. The calendar alone does not supply a general exemption for post-closing assistance.

For the seller, the practical question is whether the purchaser can pay the agreed price without relying on an unavailable target undertaking. For the lender, it is which obligors and security remain enforceable. For the target’s directors, it is whether the company is being asked to assume an obligation the statute forbids. These questions should be resolved before disbursement, rather than left to an after-closing declaration that the transaction had a general commercial rationale.

Corporate approvals, directors and a defensible record

Article 369 concerns the care and loyalty expected of board members and managers; Article 375 addresses non-delegable board functions. Those duties support a documented review of the company’s proposed undertaking, but they do not confer power to approve what Article 380 makes void. The distinction between authority to sign and legality of the transaction must remain clear. A duly authorised signature does not answer every mandatory-law objection.

The board materials should identify the transaction, the statutory analysis, the financial evidence and any unresolved conditions. Avoid retrospective minutes suggesting that a review occurred when it did not. Preserve the versions of the financing and security documents actually considered, including amendments. Where advice depends on assumptions about the buyer, employee relationship, institution status or reserves, the factual basis should be documented rather than silently carried into the final approval.

A practical review package for an overseas acquisition team

Prepare the target’s current trade-register information, articles, legal form and ownership records; the share purchase agreement; all financing and security documents; a funds-flow statement; the latest relevant financial statements and reserve schedules; and the proposed corporate approvals. Include side letters and undertakings connected to drawdown or completion. A review limited to the headline loan agreement will miss obligations documented elsewhere.

Mark each undertaking by the entity giving it and the obligation it supports. Reconcile the security list with the actual asset owner. Distinguish conditions that must be satisfied before closing from matters the parties merely intend to resolve later. Where an exception is relied upon, provide the records supporting that exception and the reserve assessment. This practical organisation does not predetermine the legal result; it makes the statutory analysis possible without confusing different companies or transactions.

Foreign governing law and Turkish corporate requirements

A multinational acquisition can involve agreements governed by different laws. A foreign-law clause is not proof that the Turkish issuer’s company-law position has disappeared. Separate the law governing each contract, the capacity and duties of each corporate party and the requirements applicable to each item of security. This guide does not assume that every document in an international transaction is governed by Turkish law; it identifies the Turkish corporate provision that must not be overlooked.

Coordinate Turkish counsel’s review with the overseas financing and acquisition teams so that the opinions address the same final documents. The guide to foreign board members’ responsibilities and the guide to minority shareholder rights cover related corporate questions. They do not replace the transaction-specific Article 380 assessment. Nationwide file management and remote document review can be organised through the firm’s contact page.

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