As known, groups of companies were not regulated under the former Turkish Commercial Code numbered 6267. Regulations regarding the assurance of the independence of the subsidiary against the parent company, and transparency in the market regarding groups of companies have been included within the Turkish Commercial Code numbered 6102 ("TTC") so the law could regulate the necessities of commerce.
Art. 195 to 210 TCC and 105 to 107 of the Trade Registry Regulation ("TRR") constitute the body of legislation regarding groups of companies. These regulations define the notions of control and group of companies, as well as implementing certain obligations and responsibilities. It should be noted that TRR provisions are for the most part parallel to TCC provisions, but include certain provisions to which special attention must be paid.
Basic notions regarding group companies are encompassed in TCC Art. 195. Pursuant to Art.195, control may be realized contractually or through capital contributions to a company. If a commercial company, directly or indirectly:
- Holds the majority of the voting rights in another commercial company;
- Has the right to appoint a number of directors, which form a majority allowing the adoption of a resolution ofthe managing body of another commercial company pursuant to the articles of incorporation (or other equivalent of such document);
- Holds the majority of the voting rights by means of an agreement on its own or together with other shareholders;
if a commercial company controls another commercial company contractually or by any other means, then the first company is the parent company and the second is the subsidiary.
Where control is attained via one or more affiliated companies this shall constitute indirect control.
Art. 195 also provides a legal presumption as to the existence of control, which may be proved false. According to said provision, the possession of the majority of a company's shares or an amount enabling the adoption of resolutions that implement the management of such company shall indicate control. There are no specifications as to what such resolutions which implement the management of a company may be.
Group of Companies
A group of companies consists of one commercial company and at least two commercial companies that are directly or indirectly controlled by it. Art. 195 TCC is not clear as to whether one parent company and one subsidiary company would be sufficient to constitute a group of companies. However, this is expressly regulated under TRR, which determines that a group of companies must contain one parent company and at least two other subsidiaries.
It must be noted that, pursuant to Art. 195 TCC and Art. 107 TRR, an enterprise which is not a commercial company with two or more direct or indirect subsidiaries shall also form a group of companies in which the parent shall be the enterprise.
Obligation of Notification and Registration
The TCC stipulates certain obligations in order to preserve the independence of the subsidiary vis-à-vis the parent company. One of these obligations is found in Art. 198 TCC which concerns obligations of notification and registration which arise in case of share transfers.
According to Art. 198 TCC, share transfers, which directly or indirectly result in the shares possessed in the capital of a company to exceed or drop below 5%, 10%, 20%, 25%, 33%, 50%, 67% and 100%, must be notified to the competent authorities and to the company whose shares are acquired.
In the TCC's preamble, it is stated that criteria such as minority limits, cross participation limits, presumption of control etc. were used to determine the above-mentioned limits. Depending on the case, the competent authorities may be private institutions or governmental institutions such as the Capital Markets Board of Turkey, Banking Regulation and Supervision Agency, Turkish Competition Authority and the Undersecretariat of Treasury.
According to TRR Art. 107/5, a company or enterprise whose shares exceed or drop below the limits must notify in writing the company whose shares are subject to transfer, within 10 days as of the transfer. Companies which receive such notifications must have them registered with the relevant trade registry and published in the Trade Registry Gazette within 10 days from the date of receipt.
It must also be pointed out that share transfers in the above mentioned percentages must also be accounted for in annual reports and audit reports, and disclosed on the web site of the company.
A similar obligation of notification exists for directors of companies or undertakings: directors are obliged to notify the company where they are director for the transfer of such company's shares resulting in the amount of the shares owned being above or below the limits. This notification obligation shall also apply for the transfer of shares owned by their spouse, their children and companies wherein the director himself, his spouse, or his children own more than 20% of the shares.
In the case of a transfer below or over the limits, it must be remembered that the entire transaction shall be notified, not just the part exceeding the limit.
In practice, the company, whose shares have exceeded or dropped below the mentioned limits, notifies the company whose shares are transferred, and the latter notifies the relevant trade registry. This notification is then registered with the trade registry and published in the Trade Registry Gazette.
According to TRR Art. 107, in the presence of a notification for more than one indirect subsidiary, it is possible that only one of these companies make a single notification for all of the enterprises or companies that indirectly exceed or drop below the limits. For instance, if the control between the parent company and its subsidiary is realized through other subsidiary companies, and if there is a change in the shareholding of more than one company because of a single transaction, this may be notified by just one of the subsidiaries for the entire group.
Non-Fulfillment of the Obligation of Notification and Registration
Not applying to the trade registry within the prescribed time shall result in the shareholding rights arising from the relevant shares being suspended. This means voting rights cannot be used either. As a result, if such voting rights affect the quorum of a resolution that has been adopted without the necessary notification and registration, such resolution may be rendered invalid. However, the lapse of the prescribed period shall not nullify such shareholding rights, but merely suspend them. Thus, the fulfillment of the obligation of registration shall enable the usage of shareholding rights.
The obligation of notification is important as it promotes transparency in the market by disclosing the shareholding status, and is declaratory especially in consideration of potential liabilities. However, non-fulfillment of this obligation can even result in the invalidity of companies' decisions. In practice, it has been observed that problems occur with the registry procedure, for example the trade registry rejecting applications for registration on the grounds that the 10 day period has lapsed, therefore causing the suspension of shareholding rights for long periods of time. Consequently, the fulfillment of the obligation is important for the prevention of loss of rights, which may especially occur during this period of transition.
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.