Turkey: Group Companies Under The Trade Registry Regulation

Turkish Commercial Code No. 6102 ("TCC") regulates the principles regarding group companies under Articles 195 to 209 for the first time in Turkish law. These provisions set forth the definition of the group, impose registration, notification, reporting and auditing obligations to group companies, determine the liabilities and sanctions regarding the abuse of dominance and establish rules on some special situations.

The Trade Registry Regulation ("TRR"), published in the Official Gazette dated 27 January 2013 and numbered 28541, entered into force within the scope of secondary legislation regarding the TCC with respect to the trade registry. The TRR also sets forth regulations on group companies.

This article analyzes the regulations brought with Articles 105 to 108 of the TRR regarding group companies and their situation in relation to the provisions of the TCC.

Definition of Group and Other Basic Concepts

The TCC defines a group based on the terms "undertaking" and "dominance", but does not define these terms. Pursuant to Article 195/4-5, a group is composed of a parent company(ies), a subsidiary company(ies) and if any, an undertaking on top. In other words, for the formation of a group under the TCC, there should be at least two companies between which a dominance relationship exists1. Furthermore, the definition of group under the TCC does not refer solely to capital companies and the commercial enterprise on top, but rather uses the terms "company" and "undertaking"2 in a broad sense. Further, the explanations in the preamble of the law hold that the term "undertaking" is interpreted in a way that covers both real persons and legal entities3.

The TRR describes the group through the presence of a company and at least two companies that are directly or indirectly dependent on this company. Accordingly, in order to be considered a "group" as per the TRR, there should be at least two companies dependent on a dominant company, or where there is a dominant undertaking, which is not a company, there should be more than two companies dependent to this undertaking. In other words, the presence of at least three companies is necessary in order to be considered a group under the TRR. The quantity requirement arising out of the "group" definition under Article 105 of the TRR goes beyond its purpose and displays a characteristic which is not set forth under TCC for group companies.

The TCC's provisions on group companies are centered on the concept of "dominance" with regard to the relationship between the dominant company and the subsidiary company. Yet, the TCC does not define "dominance". It merely sets forth the ways in which dominance can be manifest based on the degree of "control", but does not define the term "control" either. In this respect, the definition of basic concepts is left to the doctrine and judicial precedents. The concept of "dominance" is defined by the scholars as the power to determine and control the investment, operation and finance policies of a company4. Whereas "control" implies the possession of legal instruments (such as holding a majority of the votes and a majority in management) which enables the "controlling" company to affect and direct the decision-making mechanisms5 of another company.

As in the TCC, the concepts of "control" and "dominance" are not defined in the TRR.

Dominance agreement

The ways of dominance set forth in Article 195/1 of the TCC are classified under three headings as dominance through shareholding, dominance through agreement, and dominance through other ways. The TRR only mentions dominance agreements, does not regulate dominance through shareholding and does not set an example regarding dominance through other ways.

Art. 106 of the TRR defines the dominance agreement. Pursuant to this article, the dominance agreement is "an agreement where a party is granted the unconditional authority to give instruction to the management body of the other party; in which the parties are not in a direct or indirect affiliate relationship, or in the event of a relationship as such, in a manner independent and isolated from the affiliate relationship." This definition considerably restricts the types of agreements that may be accepted as dominance agreements. As per this definition, the authority to give instruction contained in the agreement must be completely independent and isolated from the affiliate relationship and must be unconditional.

As stated above, the TCC aims to define the dominance relationship and group companies in very broad terms. Likewise, the TCC encapsulates all means of dominance within its scope by making reference to dominance through all other means. Notwithstanding, the TRR's restrictive definition of the dominance agreement, which is a means of dominance, may result in the exclusion of certain agreements executed for this purpose and the non-interpretation of such agreements as dominance agreements. For instance, in practice, in most situations where the dominance is established through agreements, the authority to give instructions may be conditioned upon the consent of the parties. In this situation, as per the TRR's definition, agreements comprising such conditions will not be assessed as dominance agreements.

The TRR contains an explicit provision stipulating that credit agreements containing an obligation "to get the approval of the credit institution before a transaction can be conducted" shall not be included in the definition of a dominance agreement. Furthermore, it explicitly holds that agreements such as shareholding agreements to which the company is not a party do not qualify as dominance agreements.

In accordance with TCC Article 198/3, the TRR requires approval by the general assembly of the subsidiary company and registration with the registry in order for the dominance agreement to be deemed valid. Accordingly, the dominance agreement must be registered with the registry of the dominant company or in the event that the dominant company is abroad, with the registry where the headquarters of the subsidiary company is located. If the agreement is in a foreign language, a notarized Turkish translation must be submitted to the registry. Registries have the right to request other documents within this scope.

Obligations of Notification, Registration and Announcement

Pursuant to Article 198 of the TCC, in the event that an undertaking directly or indirectly holds 5, 10, 20, 25, 33, 50, 67 or 100 percent of the shares of a company, or its shares fall under such percentages, the undertaking should inform the said company and the relevant authorities of the situation within ten days as of the completion of the relevant transactions. The acquisition or disposal of shares at the percentages stated above should be indicated in the annual activity and audit reports under a separate title and should be announced on the company's web site. Additionally, there are specific obligations of provision of information set forth for the members of the board of directors and other executives of both the undertaking and the company. Pursuant to Article 198 of the TCC, all rights, including any voting rights arising from the acquisition of shares, shall be suspended unless and until the registration and announcement obligation is satisfied.

TRR Article 107/2 requires the obligation to notify only if the undertaking, or the company acquiring or disposing of the shares, is part of a group company. Such a provision highly restricts the notification requirement set forth under the TCC. When considering the limitation of the TRR's definition of group companies, the scope of this notification obligation provided by the law is further restricted. In other words, pursuant to the TCC, notification to the relevant registry is required for share transfer transactions exceeding the designated thresholds, whereas pursuant to the TRR, the presence of a group company (a structure comprising three companies) will be confirmed first and serving a notification shall be brought into the agenda accordingly.

Pursuant to the TRR, where there is an indirect affiliate relationship, notification with respect to all of the undertakings or companies exceeding the threshold or dropping below the threshold may be conducted by one of them. If the notification is not served, the rights arising out of the aforementioned shares are considered as ceased as per the TCC. The TRR repeats this sanction as well.

Besides explanations with respect to the notification obligation, Article 107 of the TRR covers in great detail voting and share ratio thresholds and stipulates the issues, if any, that should be considered in cross-shareholding calculations and how the calculations should be conducted.

Audit of the Group

Pursuant to Article 108 of the TRR, the group auditor is appointed by the general assembly of the parent company. For each activity period, a general assembly resolution for the appointment of an auditor must be taken by the end of the fourth month of the activity period, and in any case before the end of the activity period during which he shall fulfill his duty. After the appointment, the board of directors shall register the auditor without any delay. In the event a group auditor has not been appointed by the general assembly of the parent company, the auditor of the parent company is registered as the group auditor.


Although the TCC aims at broad implementation of the provisions regarding group companies, the TRR includes restrictive provisions that are contrary to this aim. In this regard, the provisions of the TRR that limit the scope of implementation are inconsistent with the aim of the lawmaker and the spirit of TCC, and deviates from its regulating purposes.


1. OKUTAN NILSSON, Gül, Türk Ticaret Kanunu Tasarısı'na göre Şirketler Topluluğu Hukuku, 1. Baskı, İstanbul, 2009, p. 71..

2. Please see Justice Sub Committee Report, preamble of Article 195, 198.



5. With reference of OKUTAN NILSSON, p. 210, p. 211, Grundmann, European Company Law, Belgium 2007, p. 342.

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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