Profit and Loss-sharing Certificates (PLSC)
Providing profit- or loss-sharing rights, these securities are issued by companies/corporations in TRY or indexed to a foreign currency in Turkey, or in TRY/foreign currency or indexed to a foreign currency overseas in order to meet their financial needs.
PLSCs may be offered to public or sold without public offering. In the case of a sale through public offering, the involvement of an intermediary institution is mandatory. In relation to PLSCs that are sold through public offering, principal and dividend payments are made through the intermediary institution.
The underlying purpose in issuing profit and loss sharing certificates is to multiply and diversify the instruments exchanged in the securities market. In addition, profit and loss sharing certificates constitute a characteristic security which offers non-interest revenues.
Issuers may also issue “Convertible Profit and Loss Sharing Certificates”. This type of PLSCs entitle to get shares representing the increased capital - in exchange for the amount payable at maturity -. The right to be exchanged with a share can only be granted to PLSCs that are sold through public offering, and the replacement of PLSCs with shares can only be carried out at maturity.
While these certificates entitle one to share in profit and loss and to a shareholding interest, they are not shares. Profit and loss sharing certificates do not entitle their holders to vote in the company’s management, and unlike a share, they have a maturity. At maturity, the principal and dividend are paid back to certificate holders.
For PLSCs, the term is minimum one month and maximum seven years. Terms may be specified in months and multiples of a month in various lengths taking into account the nature of the sharing model.
This kind of certificates do not have any relation with profit-sharing bonds, because in the event of loss, the holder has to share in the loss.
Participating Shares (PS)
These kind of securities issued by companies in consideration of cash give the right to share in profit without holding any shareholding benefits, to participate in the liquidation balance, to get new shares, and to benefit from part or all of the possibilities described in the respective notice.
Participating shares (PS) do not represent any capital share, therefore do not give the holder the right to participate in the management of the company and to cast votes.
Non-voting Shares (NVS)
These securities may be issued by companies through a capital increase, and do not give any voting right to the holder, but give the right to share in the profits and the liquidation balance with priority when desired, and provide other partnership rights.
A priority should be attached to NVS holders in respect of the dividends at a ratio to be specified in the articles of association. Unless the preferred dividend provided to NVS holders is allocated in cash, it is not permitted to set aside further reserve funds, to carry any profits forward to the next year, or to distribute profits to members of the boards of directors, employees and persons/entities such as foundations which have been established for various purposes.
Provided that it is described in the articles of association, the company may provide priority to NVS holders with respect to participation in the liquidation balance. In that case, the amount remaining after paying out the debts of the corporation in liquidation is first allocated to preferred NVS holders provided that the provision of the Turkish Commercial Code (TCC) article 401 is reserved.
Public offering should be used during the first issue of NVSs. If the company does not distribute profits for 3 years in succession, or where the legislation does not permit it, it does not distribute profits for one year, then NVS holders become entitled to a voting right in proportion to their participation in the principal capital in the year that succeeds the date of the general assembly meeting at which the situation becomes final, and NVSs are converted to common stock.