Originally published August 2011
Since the 1990s, businesses in Turkey were in urgent need of a new Commercial Code redesigning principal business transactions and rationalising corporate legal proceedings. Following the start of Turkey's membership negotiations with the EU, which was a motivating force for the harmonisation of Turkish law with the EU legal system, the legislator focused on incorporating the principal legal requirements of the EU into national laws, based on a short and medium-term enactment programme.
As part of this legislative reform, the new Turkish Commercial Code no. 6102, replacing the former law no. 6762 dated 1957, passed through the Parliament in January 2011. The new law reflects the essential principles of EU law in terms of corporate practices and ensures a much more modernised, transparent and corporate infrastructure for foreign and domestic companies conducting business activities in Turkey. Upon implementation of the new law, which will become effective in July 2012, the structuring and management of companies will also be subject to a technology based legal system that replaces old fashioned commercial rituals.
Economic indicators show that foreign investors' interest in Turkey will continue to increase in the coming years. In 2011, the rate of direct foreign investment generated between January and May increased by 117.7 percent compared to the same period in 2010. Considering that 87.7 percent of this international direct foreign investment originated from EU countries, it seems crucial for Turkey to harmonise its business environment and commercial legislation with EU laws in order to facilitate investment proceedings for foreigners and reduce all possible bureaucratic barriers. From this perspective, the new Commercial Code will certainly make the investment environment more comfortable for investors and will ensure their trust in the Turkish legal system.
Company formations. The new law allows the incorporation of a single member company in Turkey and the payment of the whole capital by one person. The capital may be paid in cash or may be allocated in kind, including intellectual property rights and cyber rights. The minimum capital requirement is Turkish Lira 50,000 (approximately US$30,500) for joint stock companies if the total capital is subscribed at the stage of incorporation, and Turkish Lira 100,000 (approximately US$61,000) for non-public joint stock companies which are incorporated with a registered capital (meaning that the articles of association determine a capital cap indicating the maximum amount of capital that may be increased by the board of directors). In terms of limited liability companies, the new law states the minimum capital requirement as Turkish Lira 10,000 (approximately US$6,100).
In principle, the incorporation of a company in Turkey is not subject to any official authority's permission. Companies to be incorporated in certain public service sectors, which will be announced by the Ministry of Commerce, require permission from the Ministry. The company is incorporated upon certification of the founders' signatures on the articles of association by a local notary public and the payment of the part of the capital which is subscribed in cash. Nevertheless, the company is not considered as a legal entity until it is registered with the Trade Register. The persons who transact or give commitments on behalf of the company before its registration are personally and jointly bound by these acts, unless the company approves these transactions or commitments within three months following registration, and it is certain that these acts were carried out in the name of the company.
Exclusion of 'ultra vires' principle. According to the former Law no. 6762, commercial companies were allowed to acquire rights and take on debts within the limits of their scope of activities stated in the company's articles of association. The transactions that were beyond the company's scope of activity were legally considered as null based on 'ultra vires' principle. This principle was severely criticised in Turkey for not protecting third parties' good faith and damaging the reliability of the commercial market in terms of transaction security. Considering these ongoing criticisms and the EEC directive asking member states to exclude this principle from their national laws, the Turkish legislator finally removed the ultra vires principle from the new law.
Mergers and acquisitions. The law determines two types of merger: (i) takeover of a company by another company, in which case the whole assets of the acquired company are taken over by the acquiring company and the acquiring company is obliged to increase its capital to the extent it is necessary for protecting the rights of the acquired company's shareholders; or (ii) merger of companies by incorporating a new company. The law allows the takeover of a company under liquidation, provided that the distribution of its assets has not yet begun.
The terms and conditions of the merger are precisely stated in a merger agreement, which has to be approved by the board of directors and the general assemblies of the merging companies. The merger resolutions of the general assemblies are registered with the Trade Register, and the acquired company is declared as dissolved upon registration.
The new law also contains particular provisions concerning the entire or partial spin-off of a company, which determine a legal procedure similar to the merger provisions.
Corporate management. In joint stock companies, the company is managed by a board of directors consisting of at least one person. The members of the board may be appointed from third parties who are not company shareholders. Except for single member companies, the company is represented with joint signatures towards third parties. According to the new law, at least one of the board members authorised to represent the company should be a Turkish citizen and resident in Turkey.
In limited liability companies, the corporate management is executed by the director(s) who may be appointed from the shareholders or third parties. At least one of the directors is required to be appointed as a director for the management and representation of the company.
The law enables online meetings of the board of directors in both joint stock and limited liability companies, provided that this condition exists in the articles of association. Likewise, the shareholders may use their voting rights via the internet in the general assembly meetings or the shareholders' meetings.
Unfair competition. Unfair competition is one of the most important issues for both domestic and foreign companies with commercial activities in Turkey. The new law significantly modifies the provisions of the former law concerning unfair competition acts by redefining 'unfair competition' and listing the types of commercial behaviours considered to be unfair competition practices. Under the new law, any act affecting the relations between competitors or between suppliers and customers as a result of misleading practices or by means of violation of the 'good faith' principle is considered illegal and unfair. In line with the legal precautions provided in the Intellectual Property Law, the new Commercial Code allows the person who is affected or at risk of being affected by an unfair competition act to stop and request the prohibition of this act, to claim the material and moral damages incurred due to unfair competition, to seek the correction of misleading statements and remedies for the destruction of goods, if the latter is necessary to avoid violation.
First published in August 2011 issue of Financier Worldwide Magazine.
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