Turkey: The Impact Of The New Turkish Commercial Code On Joint Stock Companies And Limited Liability Companies

Last Updated: 22 November 2011
Article by Levent Cengiz

The new Turkish Commercial Code (NTCC) No. 6102 will enter into force on July 01, 2012. The ultimate purpose of the legislator is to modernize Turkish Commercial Law by adopting parallel provisions to the ones being used in the EU. In this respect, it provides a more practical procedure for establishment, includes various requirements to increase transparency, obliges companies to use generally accepted accounting standards and requires them to use information technology tools. In this article, brief information on these novelties is provided.

The gradual incorporation of joint stock companies (JSCs), which has not gained currency in practice, has been abolished. The NTCC has replaced this impractical mechanism with public incorporation. The NTCC has also changed the minimum capital requirement of limited liability companies (LLCs) by increasing the minimum capital from TRY 5.000 to TRY 10.000. The capital must be fully paid in cash upon establishment. It has remained same as TRY 50.000 for JSCs; however, it has been determined as TRY 100.000 for non-public JSCs which adopted the registered capital system. This system makes it easier to increase capital for JSCs, as it can be performed by BoD and the onerous procedure of holding a general assembly meeting is not necessary. Moreover, intellectual property rights can now be invested as capital in kind. According to the preamble of the NTCC, this term covers, among others, trade names, designs, patents and geographical signs. Web sites and domain names are also qualified. A significant change in the NTCC is that both JSCs and LLCs may be established by one shareholder/partner instead of 5 and 2, respectively. Accordingly, single shareholder may act as the BoD alone. Furthermore, legal entities and non-shareholders can now be appointed as members on the Board of Directors.

The promotion of transparency is another focus of the NTCC. In this sense, all companies are obliged to have a web site. The web site must be open to everyone and contain all necessary data including financial statements, declarations, and audit reports. Noncompliance with this obligation will not only cause the cancellation of the relevant decision, but may also give rise to legal and criminal liability of the BoD members and executives.

The group companies have been introduced to Turkish Law for the first time. Shortly, the NTCC regulates the relationship between the parent (controlling) company and its affiliated companies which are subject to the same principles and policies of the same administration.

Two types of mergers are regulated in the NTCC. In a nutshell, companies may merge by the way of (i) Take-over of a company by another company, or (ii) Merger of companies by incorporating a new company. Merger contracts are made in written and signed by the executive bodies of the companies involving in the merger process and approved by the general assemblies of those companies.

In general, unless a person is appointed for a particular task, the BoD members shall be jointly liable for all transactions of the company. In order to provide legal protection to the third parties, the NTCC has also annulled the ultra vires principle and stated that the companies shall be liable for their transactions even if such transaction does not fall within the company's scope of activities. In this case, the person who exceeds his authority shall be liable to the company. Furthermore, the NTCC also allows the board meetings to be held in an electronic environment. Accordingly, voting the board resolutions via e-signatures is possible.

The NTCC has significantly changed the auditing system. Briefly, itrequires all type of companies to be audited by independent audit firms, sworn financial advisers or independent accounting financial advisers. Turkish Accounting and Auditing Standards which are in line with International Accounting and Auditing Standards shall be taken as basis by the companies to enable the independent expert to analyze the financial situation of the company in a short time.

Moreover, The NTCC provides a more democratic mechanism for shareholders. In this sense, the shareholder rights including gathering information, taking a legal action and making an inspection have been improved and shareholders' position has been consolidated. For instance, any shareholder is entitled to ask for a special audit and request clarification of certain issues.

In conclusion, the NTCC is an important step in the harmonization process of Turkish Law with EU legal system. It replaces the insufficient and outdated provisions with practical ones and focuses on the important issues such as establishment, corporate governance, transparency and accounting. In order to be prepared for the NTCC, the companies should use the transition period wisely by adapting their organizations to these novelties.

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.

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