Corporate governance is among the basics of the Turkish Commercial Code1 ("TCC"), which was entered into force in 2012 and is ratified recently. As globally accepted, transparency, equal treatment, accountability and responsibility are the mail principles of TCC in terms of corporate governance. By doing so, the TCC aims to arrange a more reliable Turkish commercial life, by protecting the corporations even from their own shareholders, directors, holding companies etc.
In this context, TCC imposes certain obligations on the group companies to prevent the holding company to use its dominating position over the affiliated company in a destructive way.
Affiliated Company Reports must be Prepared until March 31, 2016.
According to Article 199 of the TCC, the board of directors of the affiliated joint stock companies (board of managers in the limited liability companies) must prepare a report on its relations with the holding and the affiliated companies within the first three months of each activity year. The board of directors/the board of managers, who fail to do so, are imposed a judicial fine corresponding at least 200 days.
What is an Affiliated Company?
Under the TCC, the affiliated company would be constituted;
If a corporation directly or indirectly:
- holds the majority of the voting rights of another corporation, or
- is entitled to ensure the election of members forming a resolution quorum in the management body of another commercial entity under the articles of association, or
- holds the majority of the voting right of another corporation, directly or together with other shareholders.
Furthermore, if a commercial corporation is able to control another corporation under its control in accordance with an agreement or through other means; the initial corporation constitutes the holding company and the latter the affiliated company.
The provisions relating to the group of companies in the TCC, will be applied if headquarters of at least one of these companies (holding company or affiliated company) is located in Turkey.
What must be included into the Affiliated Company Report?
TCC provides that the affiliated company report should cover the following:
- Relationships with the holding company and with other affiliated companies,
- Performances and counter performances under legal transactions,
- In case of measures imposed against the affiliated company by the holding company, the reason of the measure and its advantages and disadvantages for the affiliated company,
- If a loss of the affiliated company by the holding company was compensated, the method of compensation by the holding company or what kind of a demand right from the holding has been provided to the affiliated company against such loss.
Consequently, affiliated companies in Turkey must prepare their affiliated company reports until March 31, 2016 in order for their directors not to be imposed a judicial fine. Needless to say, the report must be prepared in accordance with true and fair accounting principles.
1 Turkish Commercial Code; dated January 13, 2011 and numbered 6102 and published in the Official Gazette dated February 14, 2011 and numbered 27846.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.