Capital Increase and Pre-Emptive Rights in a Company: Dilution of Shareholding and Protection of the Shareholder

A shareholder who does not take part in a capital increase may see their shareholding percentage decrease; however, not every decrease in percentage is unlawful. As a rule, the pre-emptive right gives the shareholder the opportunity to acquire new shares in proportion to their existing shares. The removal of this right, its practical obstruction, or the allocation of new shares at a price that confers an unjustified advantage are each assessed separately. The type of company, the method of increase, and the dates of the resolution and registration determine the available means of protection. [1]

This article addresses capital increase disputes in limited companies and non-listed joint-stock companies in Türkiye. The timetable for exercising rights in companies traded on a stock exchange, coupon transactions and the regulations of the Capital Markets Board (SPK) call for a different analysis. The explanations of time limits and quorums here should be read with this distinction in mind. [1]

How does a capital increase affect a shareholder's shares?

A decrease in shareholding percentage and a loss of economic value are not the same thing

When new shares are created as a result of a capital increase, the percentage of the share capital that an existing shareholder represents may change. In practice this is called dilution of shares. The shareholder continues to own their old shares; however, the same share amount may represent a smaller portion of the enlarged total capital. The basic function of the pre-emptive right is to provide protection against this change by giving the shareholder the opportunity to acquire new shares proportionally. [1]

For example, in a company with a capital of TL 1,000,000, a person holding TL 200,000 in nominal shares has a 20% shareholding. Suppose the capital is increased by TL 1,000,000 to TL 2,000,000. Assuming there is no premium and all shares are of the same type, the calculation is as follows:

This table is a hypothetical calculation showing only the capital percentage; it is not a company valuation. The company's enterprise value, debts, cash position and the privileges attached to shares are examined separately. It cannot be said that when the percentage is halved, the economic value is necessarily halved as well. Resources entering the company may increase its total value; issuing new shares at less than the appropriate price, however, may affect the economic interests of existing shareholders. For this reason, the nominal value, the issue premium and the financing need should be assessed together. [1]

Does the shareholder's obligation to contribute arise automatically?

The existence of a pre-emptive right does not, in itself, mean a commitment to new capital. A person who wishes to acquire shares completes the subscription and payment steps in accordance with the terms of the increase. The shares previously acquired by a person who does not exercise the right do not disappear for that reason alone. By contrast, existing unpaid capital debts or the additional payment obligations that apply in a limited company are separate matters. They should not be confused with the right to acquire new shares. [1]

Differences between cash increases, contributions in kind and increases from internal reserves

Increase with a new capital commitment

In a cash increase, money is committed for the new shares. In an increase by contribution in kind, the nature of the assets that may be contributed as capital, the restrictions on them and the valuation procedure are important. The company's acquisition of real estate, or a shareholder's conversion of a receivable from the company into capital, does not in itself justify disregarding the other shareholders' right to acquire new shares. [1]

In a joint-stock company, for increases other than an increase from internal reserves, the basic requirement is that the cash value of the existing shares has been paid in full. However, TTK Article 456/1 provides that unpaid amounts that are not significant in relation to the capital do not prevent the increase. It would be incorrect to omit this exception and say that an increase absolutely cannot be made because of every small balance. [1]

For new cash share prices in a joint-stock company, the statutory system is that at least one quarter of the nominal value is paid before registration and the remainder within twenty-four months following registration; the whole of the issue premium is paid before registration. Stricter payment conditions are examined separately. In limited companies, by contrast, under the reference to the provisions on incorporation, the requirement to pay one quarter of the cash share price before registration does not apply. A single payment schedule cannot be proposed without determining the type of company. [1]

Increase from internal reserves and bonus shares

An increase from internal reserves is the transfer to capital of items within the company that can be converted into capital. It is not the same transaction as a new cash inflow from outside the company. In a joint-stock company, it must be shown through the balance sheet and the necessary declarations that the freely disposable reserves and the funds that legislation permits to be added to capital actually exist. [1]

Under TTK Article 462, the bonus shares acquired upon registration are proportional to the existing shares. This right cannot be removed or restricted, and it cannot be waived. Accordingly, the pre-emptive right that can be exercised in a cash increase and the right to bonus shares arising from internal reserves are not the same legal mechanism. [1]

Nor is every item on the balance sheet a directly usable fund. The rules in TTK Article 462/3 on first converting the funds into capital and on simultaneous increases must be taken into account. The current registration guide of the Istanbul Chamber of Commerce (İTO) separately explains the registry practice, which is subject to the representation and unanimity of all shareholders, where funds are not converted or where a commitment increase is made in an amount higher than the funds. This exception is not a power for the majority to eliminate the minority's right to bonus shares by resolution. [1, 3]

In its decision dated July 3, 2024 (E. 2023/2305, K. 2024/5492), the 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) assessed the manner in which internal reserves were used and the relationship of a cash increase to them; it upheld the cancellation judgment issued for breach of TTK Article 462/3. The decision shows the importance of examining the amount of usable funds and the sequence of the increase, rather than being satisfied with the names of balance sheet items. [8]

By what majority are a capital increase and the restriction of the pre-emptive right resolved?

In a joint-stock company: the increase resolution and the resolution removing the right

In a joint-stock company under the share capital system, the resolution on the increase belongs to the general assembly. As to the general quorums for amending the articles of association, representation of at least half of the capital and a majority of the votes present are required at the first meeting; if the quorum cannot be met at the first meeting, representation of at least one third of the capital is required at a second meeting held within the period set by law. Special statutory provisions and heavier requirements in the articles of association are reserved. [1]

The restriction or removal of the pre-emptive right, however, is separately subject to TTK Article 461. A just cause must exist, and affirmative votes representing at least 60% of the total share capital must be obtained. The 60% here is not merely the attendance rate at the meeting. At a meeting attended by 60% of the capital, the affirmative vote of more than half of that amount does not, on its own, satisfy this special requirement. [1]

The law includes among the examples of just cause a public offering, the acquisition of a business or a participation, and the participation of employees in the company. The list does not automatically legitimize every specific transaction. The purpose and scope of the restriction and to whom the shares are allocated are assessed together; no one may be unjustly favored or harmed. The board of directors' report explaining the justification and the premium calculation is also an important part of this review. [1]

In a limited company, two quorums are required together

In a limited company, a capital increase is among the important resolutions under TTK Article 621/1-d, and the restriction or removal of the pre-emptive right under Article 621/1-e. For both, at least two thirds of the votes represented and an absolute majority of the entire share capital carrying voting rights must be obtained together. These two conditions are not alternatives to each other. [1]

TTK Article 591 addresses the shareholders' right to take new shares in proportion to their existing shares together with the provisions of the company agreement and the increase resolution. A just cause and a special quorum are required for restriction or removal by a general assembly resolution. No assessment should be made without seeing any provision in the company agreement; nor should the existence of a provision be interpreted in a way that deprives the principle of equality and the prohibition on unjustified advantage of meaning. [1]

The board of directors' authority under the registered capital system

If the registered capital system has been adopted in a non-listed joint-stock company, the board of directors may decide on an increase within the ceiling and the authorization period set out in the articles of association. For the restriction of the right to acquire new shares, the board of directors must have been given authority on this matter in the articles of association. The 60% general assembly quorum in TTK Article 461/2 does not apply to this board resolution; the just cause requirement and the prohibition on unjustified advantage, however, remain important. [1]

How is the pre-emptive right exercised, and what happens if it is not?

Time limit, notice and subscription documents

In a joint-stock company, the board of directors determines the terms of exercise and gives the shareholders at least fifteen days; registration and announcement of the relevant resolution, and the website disclosure required by law, are necessary. In a limited company as well, a period of at least fifteen days is given for exercising the right. Fifteen days is the statutory lower limit; in each specific case, whether conditions genuinely suitable for exercising the right exist is assessed separately. [1]

The shareholder should check together the number of shares allocated to them, the price with or without premium, the payment dates, the place of application and the form of the subscription commitment. Merely telling the company orally that one will participate, or sending a payment with an unclear description, is not suitable for acting on the assumption that it replaces a proper subscription step. The application, the company's reply, the account details and the payments should be kept with their dates. [1, 2]

In its decision dated February 6, 2025 (E. 2024/2047, K. 2025/606), the 11th Civil Chamber of the Court of Cassation examined an increase in which a limited company shareholder's percentage fell from 30% to 1%. The cancellation judgment, issued because of deficiencies such as the failure to make a proper call to acquire new shares, was upheld. The result here was not drawn from the fall in percentage alone; the failure to enable exercise of the right and the irregularities in the decision-making process were taken into account. [5]

Transfer and allocation of unexercised shares

In a joint-stock company, the pre-emptive right can be transferred. However, in a non-listed company it cannot be assumed that a ready buyer, or a liquid coupon market as on the stock exchange, necessarily exists for this right. Nor is the position of a third party who later takes over the right the same as the protection provided to the existing right holder in TTK Article 461/5. [1]

It should not be accepted that a second statutory pre-emptive right automatically arises for the other shareholders over the shares remaining from rights not exercised within the period. The articles of association, the increase resolution and the allocation authority are examined. In legal scholarship there are also differing approaches on the body that will decide on the use of the remaining shares. Whether the allocation method is consistent with the company's interest and the principle of equal treatment is a separate assessment. [1, 4]

How is a genuine financing need distinguished from an aim of weakening the shareholder?

A company being profitable does not eliminate the need for capital

For a capital increase to be necessary, the company need not be on the verge of bankruptcy. The working capital need, debts falling due, the investment plan and the cost of financing are considered together. Profitability and cash sufficiency are different questions; the presence of a certain amount in the bank account may also not explain the entire financing need. [1, 6]

In its decision dated May 13, 2024 (E. 2023/660, K. 2024/3852), the 11th Civil Chamber of the Court of Cassation took into account a cash capital need determined on the basis of the financial structure and borrowing conditions even though the company was not over-indebted, and upheld the dismissal of the request for cancellation. The financial ratios in the decision are not a statutory threshold for all companies. It rests on an assessment that examines the specific company's balance sheet, debts and financing options. [6]

With which documents are suspicious transactions tested?

Repeated increases that strain a particular shareholder's ability to pay, information being given only to the majority, no justification being prepared for an issue without premium, or allocation of shares to related persons may call for scrutiny. But these are not, on their own, ready-made criteria that invalidate all increases. The claim should be linked to the need on the date of the resolution, the alternatives, the pricing and the duty of equal treatment. [1, 2]

For example, can the difference between the financing needed and the increase amount requested be explained? Were shareholders in the same position given the same opportunity to apply and pay? Did the board of directors document why the new shares were issued with or without a premium? These questions provide a more concrete basis for review than the statement “they reduced me to a minority” alone. [1]

Conversion of a shareholder's receivable into capital

In the set-off of a receivable against capital, the actual existence of the debt, its validity and its capacity to be contributed as capital are examined. The appearance of a shareholders' current account in the accounting records does not, in itself, mean that the entire review has been completed. The registry documents for a shareholder receivable arising from cash lending and for a receivable arising from another transaction may also differ. [1, 3]

In its decision dated February 23, 2022 (E. 2020/2166, K. 2022/1193), the 11th Civil Chamber of the Court of Cassation assessed a case in which a paid-in increase was carried out against the receivables of certain shareholders, without the other shareholders being given the opportunity to participate at the same percentage and without any resolution on the pre-emptive right. The cancellation judgment, which was based on breach of equal treatment and of the right to acquire new shares, was upheld. The decision does not prohibit the conversion of a shareholder receivable into capital altogether. [7]

Which information and documents should the shareholder gather?

TTK Article 437 for joint-stock companies and TTK Article 614 for limited companies are the basic grounds for the right to information and inspection. The scope of the rights and the way they are exercised are not the same. In a joint-stock company, making financial documents available for inspection, requesting information at the general assembly and inspecting certain sections of the books are subject to separate rules. In a limited company, the right to request information from managers and to inspect is regulated differently. [1]

The table is a sample framework for preparing a file; not every document may exist or be directly accessible in the same scope in every company. The general rule of proof is that the relevant party must prove the fact from which it derives a favorable result. Under HMK Article 194, it should be stated clearly which evidence shows which fact. Requests made and refusals received where a document could not be obtained should also be recorded. [2]

What remedies are available against a capital increase resolution?

Distinguish the exercise period from the time limit for bringing an action

The table's time limits are based on TTK Articles 445, 456, 460, 461, 591 and 622. In a limited company, the provisions for joint-stock companies apply by analogy to the annulment of general assembly resolutions. A time limit should not be calculated without determining which body made the resolution. [1]

For the annulment of a general assembly resolution, the negative vote of the shareholder attending the meeting and the recording of their dissent in the minutes are important. Situations such as a breach of the right to notice or attendance are separately regulated in TTK Article 446; in these cases the conditions of attending the meeting and dissenting are not required in the same way, and the relevant conditions and the effect of the breach on the resolution are examined. An action for annulment of a general assembly resolution is brought against the company before the commercial court of first instance at the company's registered seat. [1]

Assuming an unlimited right to sue against a registered increase is dangerous

In a joint-stock company capital increase, TTK Article 456/4 also refers to Article 353 on dissolution at incorporation. Because of this special provision, the general explanations known about the nonexistence or nullity of general assembly resolutions should not be transferred directly to the increase. The registration stage, the legal outcome sought and the breach alleged are assessed together. [1]

In its decision dated January 13, 2026 (E. 2025/3504, K. 2026/90), the 11th Civil Chamber of the Court of Cassation emphasized that, because of this reference, nonexistence and nullity of capital increase resolutions cannot be sought after their registration. In light of this approach, the thought “the resolution is invalid anyway, I can sue whenever I want” may lead to a loss of rights. [9]

The route based on the analogous application of TTK Article 353 is not an automatic cure for every irregularity. In addition to the breach of law, the significant endangerment or violation of protected interests, the right of action and the special time limit are examined. The article provides for a three-month preclusive period from registration and announcement. It should not be assumed that this has the same starting point as the annulment period in TTK Article 445, which runs from the date of the resolution. [1]

Bringing an action does not stop the increase automatically

Under TTK Article 449, a stay of execution of the resolution and, if the conditions are met, an interim injunction are considered. The harm that the requested measure would prevent should be made concrete. Within the framework of HMK Articles 389–392, danger, prima facie proof, the scope of the measure and security are raised together. An objection petition filed with the registry, or the mere filing of an action, does not take the place of a court injunction. [1, 2]

In its decision dated April 22, 2025 (E. 2024/4151, K. 2025/2708), the 11th Civil Chamber of the Court of Cassation held that, while an action against the increase resolution was pending, there was no legal interest in a separate action filed for a declaration of the former shareholding percentage. It was held that the requests for an injunction and for preservation of evidence should be raised in the existing action. This result does not mean that every action for a declaration of shareholding will be dismissed; it concerns the specific function of a separate action filed for the same dispute. [10]

A request only for annulment of the general assembly resolution should also be distinguished from a separate request for a monetary claim or damages. Mediation as a condition precedent to litigation under TTK Article 5/A arises with respect to the monetary commercial claims listed in that article. In the cost estimate, court fees, service of notices, expert witnesses, possible security and attorney's fees are assessed according to the nature of the claim; a single cost cannot be stated for all files. [1, 2]

Conclusion

Protecting a shareholder in a capital increase requires three reviews: whether the opportunity to acquire the new shares was properly provided, whether the increase is explained by the company's need and by fair terms, and whether the appropriate legal remedy is used within the time limit. A decrease in percentage is the starting point of this review; on its own it is not a measure of unlawfulness or of economic loss. [1]

The shareholder's first step is to determine the dates of the resolution and the announcement and to examine the agreement, the terms of exercise, the financial reports and the meeting minutes together. For the company's management, explaining the genuine need, the price of the new shares and the allocation method with clear documents directly affects the merits of the dispute. One should act bearing in mind that the available remedy may change once registration has taken place. [1, 9]

Related articles: Shareholders’ Agreement: Voting, Tag-Along and Exit; Unpaid Capital Debt: Interest, Default and Forfeiture; Annulment of a Company General Assembly Resolution: Time Limits, Invalidity and Stay of Execution; The Right to Information and Inspection in Limited and Joint-Stock Companies.

Frequently Asked Questions

If I do not take part in a capital increase, am I removed from the company?

No. Not taking new shares does not by itself eliminate your existing shares. However, because the total capital grows while your share amount stays the same, your percentage may decrease. The consequences tied to non-payment of an earlier capital debt are assessed separately. [1]

Can the majority shareholder alone remove my pre-emptive right?

Merely holding the majority is not sufficient. The quorum appropriate to the type of company, a just cause and the prohibition on unjustified advantage are examined. In a joint-stock company, the affirmative vote of at least 60% of the total share capital is required at the general assembly; in a limited company, the two quorums of TTK Article 621 apply together. [1]

If I do not bring an action within fifteen days, is my right lost?

Fifteen days is the statutory minimum period for exercising the right to acquire new shares. The three-month period for annulment of a general assembly resolution and the one-month period for certain registered capital board of directors' resolutions are separate matters. The starting points of the periods are also not the same. [1]

If the company is profitable, will a cash increase resolution be annulled?

Profit alone is not a sufficient criterion. The cash need, debts falling due and financing conditions are assessed. The claim that the increase was unnecessary or abused must be supported by concrete financial and procedural facts. [1, 6]

Do I have to pay money in a bonus issue as well?

In a properly conducted increase from internal reserves, the bonus shares are acquired in proportion to the existing shares; there is no new cash commitment for these shares. If a paid-in increase has also been made in the same resolution, the conditions of the cash portion should be examined separately. [1]

Can I take, with priority, the shares that the other shareholders do not exercise?

It cannot be assumed that a second statutory priority exists automatically for unexercised shares. The agreement, the increase resolution and the allocation arrangements should be examined. In distributing these shares, the company's bodies must rely on grounds consistent with equal treatment and the company's interest. [1, 4]

If the capital increase has been registered, are there no remedies left?

Registration does not mean that all avenues of recourse automatically end. However, nonexistence, nullity, annulment and the remedies assessed under TTK Article 456/4–353 should be distinguished from one another. The specific request and the nature of the resolution should be determined before the relevant time limits pass. [1, 9]

Sources

1. Turkish Commercial Code No. 6102 (Türk Ticaret Kanunu); in particular Arts. 5/A, 342–345, 353, 357, 421, 437, 445–449, 456–462, 585, 590–591, 614, 621–622. Ministry of Justice Legislation Information System (Adalet Bakanlığı Mevzuat Bilgi Sistemi), checked on October 14, 2026. https://mevzuat.adalet.gov.tr/mevzuat/103039
2. Code of Civil Procedure No. 6100 (Hukuk Muhakemeleri Kanunu); in particular Arts. 190, 194, 389–392 and 401. Ministry of Justice Legislation Information System (Adalet Bakanlığı Mevzuat Bilgi Sistemi), checked on October 14, 2026. https://mevzuat.adalet.gov.tr/mevzuat/103103
3. Istanbul Chamber of Commerce (İstanbul Ticaret Odası), “Joint-Stock Companies” (“Anonim Şirketler”), section “Share Capital Increase Procedure for Joint-Stock Companies” (“Anonim Şirket Esas Sermaye Artırımı İşlemi”); explanations on increase documents, the source of the shareholder receivable and simultaneous increases from internal reserves. Accessed on October 14, 2026. https://www.ito.org.tr/tr/hizmetler/ticaret-sicili-islemleri/tescil-islemleri/anonim-sirketler
4. Nihan Değirmencioğlu Aydın, “Anonim Ortaklıklarda Rüçhan Hakkının Kullanılmaması Sonucu Artan Payların Akıbeti” (The Fate of Shares Remaining Where the Pre-Emptive Right Is Not Exercised in Joint-Stock Companies), Hacettepe Hukuk Fakültesi Dergisi (Hacettepe University Faculty of Law Journal), 12, Special Issue, 2022, pp. 360–381; in particular pp. 366–368. DOI: 10.32957/hacettepehdf.1094245. https://dergipark.org.tr/tr/pub/hacettepehdf/article/1094245
5. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), February 6, 2025, E. 2024/2047, K. 2025/606. Text of the decision: https://avarsis.com/karar/yargitay-11-hukuk-dairesi-e-2024-2047-k-2025-606-1131369
6. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), May 13, 2024, E. 2023/660, K. 2024/3852. Text of the decision: https://www.sonkarar.com/kararlar/yargitay-11-hukuk-dairesi-2023-660-esas-2024-3852-karari-93794cb2-6783-5f14-be73-08a652beb6da
7. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), February 23, 2022, E. 2020/2166, K. 2022/1193. Text of the decision: https://www.ictihatlar.com.tr/ictihatdetay-38042-11hukukdairesi-Yargitay-11-Hukuk-Dairesi-2020-2166-Esas-2022-1193-Karar-Sayili-Ilami.html
8. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), July 3, 2024, E. 2023/2305, K. 2024/5492. Text of the decision: https://www.sonkarar.com/kararlar/yargitay-11-hukuk-dairesi-2023-2305-esas-2024-5492-karari-c202ce50-53d7-5f1d-b11d-7c4b29c0933c
9. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), January 13, 2026, E. 2025/3504, K. 2026/90. Text of the decision: https://avarsis.com/karar/yargitay-11-hukuk-dairesi-e-2025-3504-k-2026-90-746001
10. Court of Cassation, 11th Civil Chamber (Yargıtay 11. Hukuk Dairesi), April 22, 2025, E. 2024/4151, K. 2025/2708. Text of the decision: https://www.arakarar.com/karar/yargitay-11-hukuk-dairesi-2024-4151-e-2025-2708-k-073c3fc88d4c