Turkey: Capital Increase Through Capital Subscription

Last Updated: 4 November 2014
Article by Selen Ozturk

The domestic or external increase of the amount stipulated in a company's articles of association is referred to as the "capital increase". Due to the fact that this amount is stipulated in the articles of association, in principle, the capital increase is considered as an amendment to the articles of association. However, the nature of the capital increase may differ due to the capital system adopted by the company. The capital increase through capital subscription in non-public joint stock companies and especially, capital increase in companies that adopted a registered capital system shall be examined in this newsletter article.

General

Capital increase may be examined under two main branches; namely capital increase concluded through capital subscription and capital increase through internal funds. The increase through capital subscription requires the shareholders who made a commitment in order to subscribe to the capital increase, to bring capital in kind or capital in cash to the company. The TCC stipulates two conditions for the capital increase through external funds. Accordingly, the first condition is that the share prices shall be fully paid. However, in accordance with the second sentence of Turkish Commercial Code ("TCC") Art. 456, "If the unpaid amount is insignificant in proportion to the share capital, it shall not prevent the capital increase". This provision is added to the new TCC in order to prevent doctrinal conflicts. Moreover, the second condition foreseen in the TCC stipulates that the funds allowed to be added to the capital by the legislation, shall not be on the balance sheet. This is a new provision regulated in the TCC that aims to protect shareholders who do not have enough financial power by prohibiting the high amount of capital increase concluded from external funds, even though there are enough domestic funds to conclude a domestic capital increase. Therefore it is a mandatory rule and there are no exceptions to it1.

Common Provisions regarding the Capital Increase through Capital Subscription

As in the establishment, the capital increase shall be made through cash subscription and payment, through commitment in kind or through conversion of the debts of the company into capital.

Each shareholder has the right to purchase the newly issued shares in accordance with his capital-share ratio. If just causes exist, pre-emption rights may be restricted by the affirmative votes of shareholders representing at least sixty per cent of the share capital. Except for the regulation concerning quorum, the principals regarding the exercise and the restriction of pre-emption rights are also valid for the board of directors' resolution on the registered capital system.

Moreover, according to the Ministry Communique issued in line with TCC Art. 333, if the company in question requires the consent of the Ministry of Customs and Trade, such consent must be taken.

Another provision adopted by the TCC is the declaration of the board of directors. Accordingly, the board of directors should prepare and sign an explicit, complete and correct declaration in compliance with the principal of honest accountability. If there is capital in cash or an in kind contribution, the content of the declaration shall include that this procedure is dully fulfilled, legal and administrative obligations are abided by, the reasons for the abolishment of pre-emption rights in case of a removal and the names of the shareholders having pre-emption rights, including their justifications, in detail. This declaration shall be signed by all members of the board of directors. Any inadequacy in the declaration may provoke the annulation or even nullity of the resolution, as it is considered a violation of transparency and the principle of accountability.2

The general assembly or the board of directors' resolution regarding the capital increase shall be registered within three months following the resolution date. Otherwise, the resolution and the consent (if obtained) shall be deemed invalid. Additionally, this registration will have a constitutive affect.

Principal Capital System

In a principal capital system, a capital increase is concluded through the adoption of a general assembly resolution and this constitutes an amendment to the articles of association. Thus, if a higher quorum is not set forth in the articles of association, like any other amendment to the articles of association, the resolution must be adopted by the simple majority of the general assembly in which at least half of the shares are represented. The amendment must be approved by the board of directors. The approval resolution must be adopted by the simple majority of the board of directors, unless otherwise stated in the articles of association.3

In the principal capital system, all of the shares representing the increased capital shall be subscribed in the amended version of the articles of association or in the letter concerning participation commitment. The commitment for participation must be unconditional.

Registered Capital System

In General

In a registered capital system, the board of directors is entitled to increase the capital up to the authorized capital amount stated in the articles of association. This system allows for a more flexible capital structure and quicker capital increases; it therefore addresses the needs for financing. In non-public joint stock companies with registered capital systems, the minimum initial capital cannot be less than one hundred thousand (100,000) Turkish Liras. This amount may be increased by the Council of Ministers.

The board of directors independently decides when and how much the capital will be increased within the framework of the authority it has been given. However, in order for the board of directors to issue preferential shares or shares with a higher value than their nominal values or to restrict pre-emption rights, an explicit provision in the articles of association is required. The board of directors shall indicate the amount of increase, nominal values of the newly issued shares, their quantity, type, whether the shares are preferential or premium, the time period in which the pre-emption right will be exercised and the method of exercise and whether or not the pre-emption rights are restricted. In the registered capital system, the shares are subscribed with a commitment for participation. The board of directors has to be expressly authorized by the articles of association in order to issue premium shares or shares with a higher value than their nominal values or to restrict pre-emption rights.

Another important point is that the members of the board of directors or shareholders may file an annulment action against this resolution. A reference is made to TCC Art. 445 with respect to the annulment of the resolution of the board of directors in a registered capital system which regulates the annulment of general assembly resolutions, since as a rule, the resolution regarding the increase of capital is adopted by the general assembly. The right to bring an action shall lapse after 1 month following the resolution to increase capital and TCC Art. 48-451 will be taken into consideration in this action by analogy4.

Restrictions

There is no restriction with respect to the authorized capital cap under the TCC. Thus the only limit for the board of directors is the authorized capital stipulated in the articles of association. However, Article 5/5 of the Communiqué Pertaining to the Registered Capital System for Non-Public Joint Stock Companies, dated 19.10.2014, adopts the following restriction: "Authorized capital shall not exceed five times of the initial share capital. ... Following the adoption of the registered capital system by way of amendment or at the time of establishment, the authorized capital shall not exceed five times of the issued capital at the time of the general assembly concerning the amendment of the articles of association." Thus the limit for the authorized capital is determined as five times of the share capital.

No restrictions concerning the method of payment or the type of capital to be subscribed are stipulated for the registered capital system. However, such a restriction may be stipulated in the articles of association.

Finally, the authority to increase the capital granted to the board of directors is limited to five years by the TCC. Thus, in order to authorize the board of directors for another term, the articles of association shall be amended and the new term shall be determined. Change of the members of the board of directors shall not remove the authority granted and the board of directors shall maintain such authority until the end of the term determined. According to Swiss doctrine, the authority commences from the registration of the resolution but not from the adoption of the resolution by the general assembly. As the TCC does not have any regulation in this regard, the same solution may be adopted for Turkish law5.

Conclusion

As is seen, non-public joint stock companies may adopt a principal capital system in which the general assembly decides to increase the capital or a registered capital system in which capital increase is adopted by the board of directors' resolution. Nevertheless, in order to adopt the registered capital system, a provision as such must be stipulated in the articles of association. In addition, the increase of the capital up to the authorized capital amount shall not qualify as an amendment of the articles of association, since the registered capital cap is already stipulated in the articles of association. Joint stock companies may adopt any of these systems according to their need for capital and size.

Footnotes

1PULAŞLI Hasan, Şirketler Hukuku Genel Esaslar, Ankara, 2013, p.599

2 TEKİNALP Ünal, Sermaye Ortaklıklarının Yeni Hukuku, Istanbul, 2013, p.107

3 TEKİNALP Ünal, Sermaye Ortaklıklarının Yeni Hukuku, Istanbul, 2013, p.106

4 KENDİGELEN Abuzer, Türk Ticaret Kanunu Değişiklikler, Yenilikler ve İlk Tespitler, İstanbul, 2011, p.314

6 KARAHAN Sami, Şirketler Hukuku, 2012, p.573

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
Erdem & Erdem Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
Erdem & Erdem Law
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions