As is known, the New Turkish Commercial Code ("New TCC") has been accepted by the Grand National Assembly of Turkey on January 14, 2011. Within the framework of the New TCC, one of the sections subject to fundamental changes is, without any doubt, commercial companies. To this respect, since commercial companies are widely-used and crucial in practical terms, the changes and innovations brought by the New TCC for joint stock companies should be analyzed. However, as all changes and innovations can not be handled in a single essay, this issue will be handled as a series of essays.
Moderation of the principle of Ultra Vires
Pursuant to Turkish Commercial Code ("TCC"), like any other commercial company, the principle of ultra vires is applied in terms of capacity to have rights of joint stock companies. Therefore, transactions out of the extent of the article of purpose and scope are null and void. Within this framework, the article of purpose and scope draws the lines of the capacity of joint stock companies.
Pursuant to Article 125/2 of the New TCC; "Commercial companies can enjoy rights and undertake obligations within the scope of Article 48 of Turkish Civil Code." With reference to the relevant article of the Civil Code, it has been emphasized that commercial companies can acquire rights and obligations, except for those which are specific to humans, such as gender, age and consanguinity. Therefore, from now on, article of purpose and scope does not draw the lines of capacity of joint stock companies. The article of purpose and scope will still be significant, since it defines the scope of recourse of the joint stock company to the persons who effectuated the operation in question.
Pursuant to Article 371/2 of the New TCC; in case third persons are acquainted that the operation is out of the purpose and scope or supposed to be acquainted, the company is not bound by the operation in question. Therefore, it is possible for the company to by-pass the operation.
The modification of the principle of "ultra vires" was made by taking into account the directive of the European Economic Community (EEC). With the New TCC, in the direction of the purpose of the Directive, third persons are protected; their assumption concerning the company to be bound by the operations of the authorized persons is protected, and the safety in the market is established.
Capital contribution obligation
Values that can be contributed as capital have been diversified with the New TCC. Pursuant to Article 127/1/h of the New TCC; values such as electronic medias, domains, names and signs can be contributed as capital. This article indicates that the New TCC aims to comply with technologic developments. The expression "...such as" enables the contribution as capital of new values that can emerge as a result of technologic developments.
Generalization of the registered capital system
Pursuant to Article 332/1 of the New TCC, non-public joint stock companies are enabled to choose the registered capital system. This possibility would have a positive effect, considering the fact that the allocation of the registered capital system to publicly held joint stock companies does not have any theoretical base and the efforts of reducing the differences between publicly held and non-public joint stock companies. The minimum capital for the companies choosing the registered capital system is 100.000 TL. Thus, capital increases by non-public joint stock companies can be effectuated up to the registered capital limit, through the decisions of the Board of Directors, without amending the articles of association.
System of Establishment Certificates
Pursuant to Article 336 of the New TCC, "Articles of association, incorporators' statement, valuation reports, agreements related to incorporation concluded between the company to be established, incorporators and other persons and transaction auditor's report are establishment certificates. These certificates are submitted to the registry file and a copy of each is kept by the company for five years." System of establishment certificates is new to Turkish law. The purpose of this disposition is to provide transparency and to prevent, as far as possible, the conclusion of secret agreements. This disposition shall be considered within the scope of the principles of information and transparency.
Incorporators' statement is among the establishment certificates. This statement includes the suitability of the provision for the capital in kind and the necessity of such capital contribution. In addition; acquired securities and their price, important commitments assumed by the company, connections concerning the purchase of machinery or similar goods and any active value, prices, commissions and any kind of debt are clarified, comparatively with their peers. Besides, the statement should include any fact, operation and development concerning the incorporation. The statement should be prepared and signed by all of the incorporators.
Another important certificate among the establishment certificates is transaction auditor's report. Within the scope of the New TCC, some important operations effectuated within the joint stock company are audited by the transaction auditor. Incorporation takes part among these operations. The transaction auditor will audit whether the shares are totally undertaken, the minimum amount of share prices is deposited to the bank and the existence of other establishment certificates.
The corporation sole for joint stock companies has been adopted with Article 338/1 of the New TCC. Pursuant to this article, one or more incorporators are required for the incorporation of a joint stock company. Some of the reasons for the adoption of corporation sole system are as follows:
- Presence of "straw men" for the incorporation will not be necessary
- Transparency of the shareholding will be established
- Small and medium sized enterprises will be released from the unlimited liability
- Foreign investors will have less difficulty in breaking into Turkish markets
- Foundations and associations will be able to establish joint stock companies without the need to have other partners
There are some notification requirements for the corporation sole. The establishment of a joint stock company as a corporation sole and the transformation of a multi-shareholder company into a corporation sole is registered to the trade registry and published. Therefore, those who may be concerned will be informed.
Removal of the gradual incorporation system
The incorporation of joint stock companies was regulated under immediate and gradual incorporation. Even though gradual incorporation was not a widely-used system, it was regulated by more detailed provisions. On the other hand, provisions of the Capital Markets Law were getting ahead of the TCC provisions. Gradual incorporation system has been removed by the New TCC. "Public incorporation" system has been adopted with the Article 346 of the New TCC. According to this system, the shares to be offered to public are undertaken by one or more incorporators. The fact that the shares will be offered to public within at least two months from the registry of the company is specified in the articles of association. The integral amount of the shares offered to public and not sold in time and twenty five percent of the shares not offered to public in time will be paid in three days following the two-month period. With this disposition, a system which can be easily understood and applied has been adopted.
Registration and publication of the articles of association
Dispositions of the articles of association that are obligatorily published in the trade registry gazette were enumerated in the TCC. However, despite this provision, the integrity of the articles of association was published in practice. The New TCC provides the reflection of this application to the legislation. Pursuant to Article 354 of the New TCC, the articles of association will be published in their integrity. On the other hand, each disposition of the articles of association will not have an effect to eliminate the good faith of third persons. Pursuant to this provision, the dispositions of the articles of association will benefit from the positive effect of registration, only for the subjects enumerated in the relevant article.
Possibility to file an action for annulment
In company law, the principle that the registration fills every legal deficiency is applied. According to this principle, the company can not be declared null land void after the incorporation. This principle is crucial for the protection of the transaction security. However, actions for annulment are more convenient for the balance of interests. TCC does not provide any provision concerning the action of annulment. This legal gap has arisen from the abrogation of the action for annulment regulated under the Article 299/f of the TCC by the Statutory Decree dated June 24, 1995 and numbered KHK/559.
Article 353 of the New TCC has filled in this legal gap by regulating the possibility to file an action for annulment. Pursuant to this article, concerning the incorporation and capital increase, in the presence of important reasons, an action of annulment can be filed. However, the condition is that the interests of the creditors, shareholders or the public are significantly jeopardized or violated by the infringement of legal provisions concerning the incorporation of the company.
Claimants of the action for annulment are enumerated based on the numerus clausus principle. Accordingly, upon demand of the Board of Directors, the creditor in question or of the shareholder, the commercial court situated at the location of the company's registered office can decide on the annulment of the company. The court may grant a delay for the correction of deficiencies and illegalities, instead of an annulment decision. The annulment should be used as the last resort.
Provisions of the New TCC concerning the incorporation of the joint stock companies should be considered within the scope of filling the deficiencies of the TCC, implementation of necessary reforms and simplification of proceedings. Provisions concerning the corporation sole and action for annulment that meet the needs of the practice are included in the New TCC. Provisions concerning the registered capital system and public incorporation aim to facilitate the proceedings. Additionally, principles such as the right of information and principle of transparency are emphasized with the notification obligations concerning the incorporation proceedings.
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.