The New Turkish Commercial Code no. 6102 (the ''New Code") was adopted by the Turkish Grand National Assembly on 13thJanuary 2011 and came into force on 1stJune 2012.
The third paragraph of Article 509 of the New Code foresees the regulation of advance dividend payment of joint stock companies that are not subject to Capital Markets Law, via a communiqué. According to Articles 565 and 644 of the New Code, advance dividend payments are also enabled for limited liability companies and commandite partnerships with the capital divided into shares.
As a consequence of these regulations, "The Communiqué for the Advance Dividend Payment" was drafted by the Ministry of Customs and Trade and published in the Official Gazette 28379 and entered into force on 9thAugust 2012. These changes are expected to satisfy an important need of small-sized and mid-sized companies in Turkey by allowing payment flexibility prior to dividend distribution at the end of the fiscal year; answers to some common questions on this new basis for advance dividend payments are set out below:
1. Which companies are able to pay advance dividends?
- Joint-Stock Companies
- Limited Liability Companies
- Limited Partnerships Divided into Shares
2. What are the conditions to be able to pay advance dividend?
It is required that;
- Profit is made according to the interim financial statements at 3, 6 and 9 months for the related accounting period to the advance dividend.
- Previously paid advance dividends shall be appropriated from the net profit of the related fiscal year.
3. What is the required procedure?
- It is sufficient that the advance dividend distribution be
resolved by the General Assembly, respecting the quorums as
- Joint-Stock Companies and Commandite Partnerships
Divided into Shares:
Shareholders or their representatives who hold at least a quarter of the capital and who will maintain this quorum throughout the General Assembly must be present and from those present a majority of the votes are required in the respective General Assembly.
- Limited Liability Companies
Simple majority of votes represented in the General Assembly.
- Joint-Stock Companies and Commandite Partnerships Divided into Shares:
- Circumstances in which the board of directors can demand advance dividend payment shall be stated in the related resolution of the General Assembly.
Advance dividend distribution of joint-stock companies which are subjected to Capital Market Law is issued by the Annunciation numbered 27, Serial IV.
4. How is the payable advance dividend calculated?
- After the amount(s) below is/are extracted from the
period's income, the advance of profit share shall be paid up
to a maximum of half of the remaining balance:
- All past loss (if any)
- Taxes, funds and financial provisions
- Reserve funds that shall be reserves according to law and the contract
- Amounts (if any) that shall be reserved for privileged shareholders, beneficial owners and other persons who contribute to the profit, and
- Advance dividends which were paid in the previous interim periods or fiscal year (if any).
5. Can advance dividend payments be made more than once in any one accounting period?
- Yes. However, in cases where there was a capital increase between these two advance dividend distributions or where a new shareholder was taken on, the payments shall be made primarily to the new shareholder until the total advance dividends provided to the new and previous shareholders are balanced.
6. When shall the advance dividend payments be made?
- Advance dividends shall be paid within six weeks following the General Assembly's resolution.
7. Which method is followed to make the payments?
- Advance dividends shall be paid commensurate with the rate of the shares of the shareholders, without taking into account the privilege that might be granted to certain shares in distribution of profit.
- No advance dividend shall be paid to beneficial owners, to members of the board of directors who are not shareholders or to others who participate to the profit without being a shareholder.
- In the event that shareholders are in debt to the company, except for capital commitments payable, the debt shall be absorbed from the advance dividend to be paid to that related shareholder.
8. Can the company demand repayment of the advance dividend?
- If the net profit for the year is insufficient to cover the amount of the advance dividend, or where loss occurs, full or partial repayment of advance dividends paid out may be demanded by the management of the company. The management will need to evaluate the sufficiency of the legal and free reserve funds in making the decision to demand.
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.