Fraud Prevention Measures for Share Certificates (original) (raw)

2020, International Congress of Eurasian Social Sciences 4

6102 numbered Turkish Commercial Code (TCC) includes provisions concerning the form and printing of corporations’ share certificates. TCC Art. 487 articulates the clauses required to be written on share certificates and provides that fraud prevention measures shall be applied in close corporations. However, the statutory provision does not define close corporations or fraud prevention measures. Accordingly, there is an uncertainty about how to apply share certificate fraud prevention measures in the context of close corporations. In this study, the meaning and importance of fraud prevention measures required to be applied in the printing of share certificates are discussed in relation with the related statutes, including 5237 numbered Turkish Criminal Code and 6362 numbered Capital Market Law. It is expressed that the scope of share certificate fraud prevention measures should be drawn pursuant to the obligation to act as a prudent businessman. Furthermore, it is shown that shareholders of a corporation would be able to hold board of directors liable for lack of share certificate fraud prevention measures. It is opined that features of fraud prevention measures may change depending on the respective corporation’s activities, trade volume, value, sector and the cost of applying fraud prevention measures. Local and international common security measures are exemplified, and TCC Art. 487 is compared with the pertinent rule of California Corporations Code. It is suggested that holding stock ledger records electronically in close corporations and cooperation between institutions would both minimalize fraud and reduce the associated costs. It is envisioned that this study will help to reduce the legal uncertainty and improve foreseeability concerning the application of the abovementioned statutory provision and would further help the lawmaking improvement efforts.