Minority Shareholder Protection in Corporations: Protection for Whom, Why, and How?

Protection of minority shareholders is one of the key concerns of corporate law. This paper examines how the Turkish Commercial Code (TCC) protects minority shareholders while paying special attention to close joint stock corporations with a controlling shareholder. First, it assesses how the concept of minority in corporations has been used in the TCC and existing literature and then attempts to define it. Second, it explains the legal and financial risks that necessitate minority protection using examples. Third, it explores why minority shareholders are usually unable to protect themselves from such risks and offers justifications for protection through mandatory norms. Finally, the paper analyzes the system of the TCC for minority protection by subjecting the protective mechanisms to a taxonomy. After taking a critical approach toward the so-called positive-negative minority rights dichotomy used by most Turkish scholars for its limited scope and the criterion for such dichotomy, the paper offers a novel taxonomy. The functional approach that this paper presents classifies the statutory mechanisms into five categories. The first category, voice, consists of rights allowing minority shareholders to influence corporate decisions and transactions. The second category, exit rights, enables minority shareholders to exit the corporation through a free or safe exit. The third category, foundational rights, ensures proper exercise of voice and exit rights. The fourth category, gap-filling principles, includes abstract norms that supplement the concrete rules in the previous categories. The fifth and final category, the protective walls, is part of the legal mechanisms that aim at protecting the very system that protects minority shareholders.