One of the novelties of the Turkish Commercial Code No. 6102 (the "TCC") is the adoption of the registered capital system for non-public joint stock companies. The Communiqué Pertaining to the Principals related to the Registered Capital System for Non-Public Joint Stock Companies (the "Communiqué") was published in the Official Gazette dated 19.10.2012 and numbered 28446, and entered into force by being published.
The registered capital system may be defined as the system where it is possible, by a board of directors' resolution, to increase the capital of a company up to the capital cap determined and stipulated in the articles of association. Therefore, when increasing the capital of a company, the legal dispositions related to capital increase in the principal capital system shall not be applied.
Article 460 of the TCC outlines the registered capital system for non-public joint stock companies, while detailed provisions and rules are set forth in the relevant Communiqué.
Scope and Purpose of the Communiqué
The relevant Communiqué shall be applied to non-public joint stock companies which have adopted the registered capital system.
The purpose of the Communiqué is set forth in the first article as follows: "this Communiqué aims to establish procedures and principles pertaining to the adoption of the registered capital system, capital increase in this system, increase of the registered capital cap, leaving the system, issuance of preferential shares and shares with a premium, limitation of pre-emptive rights and other issues".
Adoption of the Registered Capital System
The conditions for the adoption of the registered capital system are set forth in Article 5 of the Communiqué. In this framework, the minimum initial capital put up at the establishment of the company should be at least 100.000 Turkish Liras. In order for the registered capital system to be accepted at establishment, the initial capital should be paid in full. However, for joint stock companies for which the initial capital for the establishment is higher than 100.000 Turkish Liras, it is not clear if the entire initial capital should be fully paid or if the payment of 100.000 Turkish Liras is sufficient.
For companies that adopt the registered capital system by way of amendment of the articles of association at a later stage, and not at the time of establishment, the issued capital should be paid in full and there should be no capital loss.
Such companies should specify the following in their articles of association:
- initial capital,
- term (maximum five years), beginning and ending dates of the term related to the power granted to the Board of Directors for the capital increase up to the registered capital cap,
- registered capital cap, and
- publication procedure of the Board of Directors resolution pertaining to the capital increase.
The relevant registered capital cap may not exceed the initial capital by fivefold.
Moreover, the articles of association should also include provisions regarding the authority granted to the Board of Directors, such as issuance of preferential shares or shares with a premium, and limitation of the pre-emptive rights.
Authorization of the Ministry of Customs and Trade
Pursuant to Article 6 of the Communiqué, joint stock companies which adopt or accept the registered capital system should apply to the General Directorate of Domestic Trade and should obtain authorization from the Ministry of Customs and Trade.
The General Directorate of Domestic Trade shall consider criteria such as "general purpose and principles of the TCC, dispositions of the Communiqué, requirements of the market, purpose of the registered capital system, rights and benefits of the shareholders, compliance with the legal obligations" when evaluating the applications.
Capital Increase in the Registered Capital System
Pursuant to Article 9 of the Communiqué, the Board of Directors should mention the amount of the increased capital, nominal value of the new shares to be issued, their number, types, whether these shares are preferential and with premium or not, whether the pre-emptive rights are limited or not, conditions and term for the use of these rights and other necessary issues, if any, in the resolution pertaining to the capital increase.
The Board of Directors is also obliged to publish the resolution pertaining to the capital increase, new disposition of the articles of association which states the issued capital, nominal value of the new shares, their numbers, types, whether these shares are preferential and with premium or not, limitations pertaining to the preferential shares and pre-emptive rights, conditions for use of these rights, and their term, any records pertaining to the premium and principles for the application of the premium pursuant to the publication procedure set forth under the articles of association.
In principle, the capital may be increased up to the registered capital cap by the Board of Directors' resolutions. This cap may not be exceeded. However, where the capital increase is achieved via internal resources or contributions, the registered capital cap may be exceeded.
The Communiqué also regulates that it is not possible to increase the capital by Board of Directors' resolutions where the registered capital cap has been reached and no new determination is made for the registered capital cap.
Exit from the Registered Capital System
Pursuant to the Article 5/6 of the Communiqué, joint stock companies which have not amended the articles of association with regards to the expiration of authority granted to the Board of Directors with a general assembly resolution during the year in which this authorization period expires, shall be considered out of the registered capital system.
Additionally, Article 8 of the Communiqué regulates the situations in which companies may exit or be removed from the registered capital system.
Companies which use the registered capital system contrary to the purpose of this system, abuse their shareholders and other relevant third party rights holders, are able to increase their capital with ease due to their corporate structure and without need for the registered capital system and which fail to meet other qualifications for the adoption of the relevant system may be removed from the registered capital system.
Companies may exit from the registered capital system voluntarily before the expiration of the determined period by the articles of association. In this case, a draft for the amendment of the articles of association shall be prepared and an application shall be made to the General Directorate of Domestic Trade. Authorization from the Ministry of Customs and Trade and a resolution of the general assembly are also required.
Adoption of the registered capital system for non-public joint stock companies created a more compatible structure between these companies and public companies. Within this framework, Capital Market legislation is applied to public joint stock companies, while the relevant provisions of the TCC and this Communiqué are applied to non-public joint stock companies.
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.