On January 13, 2011 the Turkish Parliament adopted the new Turkish Commercial Code 1("TCC"), which governs the commercial transactions as well as the formation and governance of companies. The TCC entered into effect on 1st of July, 2012 and altered many aspects of Turkish commercial and corporate life. This Memorandum deals with some of the main features of two company types, namely joint stock companies and limited liability partnerships, which can be used by foreign investors in Turkey under the provisions of the TCC.
- Number of Shareholders
A single shareholder is sufficient to establish a joint stock company ("JSC") and limited liability partnership ("LLP"). A LLP may not have more than fifty shareholders. No such limitation for number of shareholders is applicable for JSC. Under both company types, single shareholder or shareholders may be real persons or legal entities.
Except for companies that will engage in certain specified businesses, a JSC or LLP may be fully owned by foreign shareholders that do not have to be resident in Turkey.
- Share Capital
The minimum capital requirement for the establishment of LLP is 10,000TL (approximately USD5,000) and the minimum capital requirement for the establishment of JSC is 50.000TL (approximately USD25,000). For non-public JSCs which has adopted the registered capital system the minimum capital requirement is 100.000TL.
The TCC stipulates that one-forth of the share capital will be paid before the incorporation and the balance may be paid within 24 months.
- Share Transfers
The transfer of the shares of LLP is restricted and a relatively long course of procedure has to be fulfilled (i.e. signature of the share transfer agreement before the Notary Public, approval of the Board of Shareholders (unless otherwise provided in the Articles of Association of the company), registration in the domain of the Trade Registry and announcement in the Trade Registry Gazette). In contrast, the shares of JSC can be transferred by either physical delivery or endorsement without being subject to such procedure.
The capital gain obtained by real person shareholders of JSC from sale of share certificates or temporary share certificates is exempt from income tax provided that the shares are owned more than 2 years. There are no such tax exemptions in case of sale of LLP shares.
A JSC is managed by its Board of Directors. Some of the important issues related the Board of Directors are as follows:
- BoD of a JSC may be comprised of one or more members.
- Under the TCC, minority shareholders and shareholders who form a class may be granted the right of nominating members to the BoD if such right is provided in the Articles of Association ("AoA") of the corporation. General assembly cannot refrain from electing the members nominated by such minority shareholders or shareholders belonging to a class unless there is a valid cause for rejecting such election. The number of members of the BoD appointed according to this provision may not exceed one-half of the number of BoD members in publicly held companies.
- Board of Directors members do not have to own any shares of the company. Non-shareholder real persons or shareholder legal entities may serve as members of the BoDs.
- A shareholder legal entity may be a BoD member and may be represented by a real person appointed by that legal entity for carrying out the activities of the BoD member and such representative must be registered at the Trade Registry as the sole representative of that legal entity. Only that representative may participate in the BoD meetings and vote.
- With respect to the management duties of the BoD, the TCC brings the concept of "internal regulation", whereby the BoD may partially or wholly delegate its management duties to one or more of its members or to a third party who is not a BoD member provided that such delegation is authorized by the provisions of the AoA. The "internal regulation" governs the management of the corporation and shows each duties and chain of reporting structure of the corporation. The BoD will inform the shareholders and the creditors of the company who provides satisfactory evidence of their receivables upon their demand.
- BoD may delegate its authority to represent the company to one or more directors or third parties as managers. However, at least of one member of the BoD must have the authority to represent the company.
- Within the general aim of adapting to technological developments, the TCC, enables the BoD to hold meetings electronically. The BoD resolutions, however, must be in the written form and signed by the members. It is possible to adopt the resolutions by way of circulation. In contrast to the old TCC, however, the TCC does not require to have the signatures of each of the members on the same paper when adopting a resolution by way of circulation. Each member may sign the resolution on a separate paper, all of which may then be affixed to the company's ledger, which will substantially ease adopting resolutions in cases where each of the members resides in a different country. It is explicitly provided that the members cannot vote on behalf of one another or through a proxy.
- As to the meeting quorums, the old TCC provides that the meeting quorum is one member more than half of the number of the members whereas the TCC provides the quorum as the majority of the members. Accordingly, as an example, in the case of a three member BoD, the meeting quorum would be three members according to the interpretation of the Court of Appeal under the old TCC whereas the quorum would be two under the TCC. The decision quorum is majority of the members that are present.
- The BoD members may be foreign real persons or nonresident
legal entities. A real person, who does not have to be a Turkish
citizen, is appointed to represent the legal entity Board member.
A LLP may be managed by one or more managers. Manager or managers may be real persons or legal entities. Same as JSCs, in the event that a legal entity is appointed as manager, the legal entity appoints its sole representative to carry out the duties. If there is more than one manager in a LLP, one of them should be appointed as the chairman of the board of managers. Although, all authorities of the shareholders relating to the management of a LLP may be granted to a general manager or one of the shareholders, at least one of the managers should be a shareholder. The managers may be foreign real persons or nonresident legal entities. A real person, who does not have to be a Turkish citizen, is appointed to represent the legal entity manager.
- General Assembly and Board of Shareholders Meetings
The TCC amends the procedure for the General Assembly and Board of Partners meetings of JSCs and LLPs. In the old system, the government representative must be present in all of the General Assembly meetings of all of the JSCs. According to the TCC, it is stipulated that the types of companies that are required to have government representatives in the meetings shall be determined by a regulation to be issued by the Ministry of Customs and Commerce ("Ministry"). The Regulation on the Procedure for General Assembly Meetings of Joint Stock Companies and the Ministry of Customs and Commerce Representative was published in the Turkish Official Gazette dated 28 November 2012 Numbered 28481. According to the aforesaid regulation, the government representative shall be present in all of the General Assembly meetings of companies which need to obtain clearance from the Ministry for their establishment and amending of AoA procedure. For other companies, government representative shall have to be present only in meetings where a decision for a capital increase or reduction, having or abandoning registered capital system, increasing registered capital ceiling, amending the company's main subject of activities, merger, de-merge or company type amendments will be adopted. In all other general assembly meetings, the government representative may participate in the meeting only upon demand of the corporation.
With regard to the LLPs, under the old TCC, the LLPs do not have to hold annual shareholders meetings unless they have more than 20 shareholders. The TCC requires all of the LLPs to hold annual meetings, but in the event that all of the shareholders so agree the resolutions may be adopted by way of circulating the resolution to all of the shareholders for their approval. The presence of the government representative is not required for Board of Partners meetings of LLPs.
Another significant change introduced by the TCC is related to the JSCs and LLPs auditors. The auditing function shall be carried out by independent audit firms or alternatively, medium and small scale companies may have the services of one or more than more than one sworn financial advisors or public accountants. Such audit requirement, however, shall be applicable only to some corporations, which are determined and announced by the Cabinet of Ministers. The regulation on independent audit was adopted on 26 December 2012. The companies other than those subject to independent audit shall also have to audited. The regulation that shall govern such audit has not been adopted yet.
- Liability of Shareholders and Liability for Public Debts
The liability of shareholders of both JSC and LLP is limited to the amount of their capital undertaking. However, the shareholders LLPs may be held personally liable, in proportion to their capital undertaking for the public debts which can not be recovered from the assets of the LLP whereas the shareholders of JSC do not bear such a liability. In JSCs, the BoD members are personally liable for the public debts which can not be recovered from the assets of the JSC.
1. Turkish Commercial Code No.6102, published in the Official Gazette dated February 14, 2011 numbered 27846.
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.