Turkey: Communiqué On The Principles Regarding Security Investment Companies

The Communiqué on the Principles Regarding Security Investment Companies (III-48.5) ("Communiqué") published in the Official Gazette dated 27.05.2015 and numbered 29368. The Communiqué abolishing the Communiqué on the Principles Regarding Security Investment Companies (III-48.2) sets forth provisions on Investment Companies with Variable Capital ("ICVC") for the first time in Turkish law. The Communiqué regulates the investment companies with fixed capital and also introduces provisions on those with variable capital. Except for regulating investment companies with fixed capital, the Communiqué regulates the establishment and shareholders, issuance of the shares, transfer and redemption of founding shares, redemption of the investment shares, the required qualifications of the holders of the founding shares and directors, governance principles, activity principles, restriction regarding portfolio, custody and utilization of the assets of the portfolio, liabilities on public disclosure and informing investors, distribution of the dividends, liquidation and dissolution of the ICVC, and transformation of investment companies with fixed capital to the ICVC, along with the principles and procedures regarding other relevant liabilities. Art(s). 50 and 51 of the Capital Markets Law ("CML") provides certain principles regarding the ICVC; however, the Communiqué sets forth detailed provisions on security investment companies with variable capital. We will assess these reforms adopted by the Communiqué in general in this newsletter.

Definition and Portfolio of the Companies

Pursuant to Art. 41 of the Communiqué, the ICVC "is a capital market institution, of which the capital is always equal to its net asset value, and which is established in the form of a joint stock company to operate its portfolio comprised of the following assets and instruments, and may conduct activities that are permitted by this Communiqué." Art. 50 of the CML defined a net asset value as "the value reached by subtracting the total of the debts from the total of the assets." The assets and the instruments which may be included in the portfolio of the ICVC are similar to the assets and instruments that are permitted to be included in the portfolio of investment companies with fixed capital and security investment funds; such assets and instruments are provided by Art. 41/1 of the Communiqué.

Pursuant to Art. 42 of the Communiqué, the portfolio of the ICVC shall be kept by the portfolio custodians, and shall be managed by the portfolio managers having adequate information on the assets to be included in the portfolio, and those with at least 3 years of experience in the field of capital markets; such manager shall manage the portfolio for the benefit of the investors and in a manner that protects the interests of the investors. The debts and the liabilities of portfolios before the third parties shall not be set off by the receivables of the portfolio from the same third parties. Additionally, the portfolio of the company shall not be mortgaged nor have been provided as security. However, it may be mortgaged or provided as security for a loan, transactions regarding derivative instruments, or other similar transactions concluded by a party on behalf of the portfolio, provided that the transaction is concluded on account of the portfolio, and a provision is included in the articles of association and prospectus.


Art. 45 of the Communiqué sets forth conditions for establishment of the ICVC.
Accordingly, the following conditions shall be fulfilled contrary to the investment companies with fixed capital: The initial capital of 2 million TRY, undertaking to the Capital Markets Board ("Board") by the founders to increase the net asset value at least to TRY 4 million by issuance of the shares, determination of the general director and the board of directors' members, except in the case of procurement of all services to external entities in accordance with Art. 60, reference to the portfolio type of the company, and the "ICVC" abbreviation in the company name in the event that the company wishes to use a company name. Except for those stated, the ICVC shall fulfill certain other conditions that are similar to the investment companies with fixed capital, such as establishment in the form of a joint stock company, issuance of the shares in exchange of cash, and the full payment of the share prices, in cash, etc.

In addition, Art. 46 of the Communiqué sets forth the required qualifications for the founders; such qualifications are substantially similar to those provided to investment companies with fixed capital.

Issuance and Types of Shares

The shares of the ICVC may be in the form of founding shares or investment shares. In accordance with Art. 48 of the Communiqué, after the establishment of the company, the founding shares shall be issued by drafting an application, and delivering the documents stated in such form to the Board.

On the other hand, Art. 49 of the Communiqué sets forth the procedure for issuance of the investment shares. Accordingly, investment shares shall be publically offered, allocated to a determined investor group that is formed in respect to the workplace, profession, sector or other similar criteria, or sold to qualified investors. In order to issue investor shares, a prospectus and investor information form shall be prepared in accordance with the standards provided by the Board, and the company shall apply to the Board with other documents and information as required by the Board within 30 days after the registration of the articles of association regarding its establishment with the trade registry. In the event of sale to an investor group or qualified investors, an issuance document shall be prepared instead of a prospectus; however, preparation of the investor information form is facultative.

Pursuant to Art. 53 of the Communiqué, although the investment shares may be nominative or bearer, the founding shares shall be nominative. Holders of the founding shares are entitled to dividends and liquidation shares, they may participate general assembly meetings, vote in general assembly meetings, have right to be informed, and examine, demand special audits, initiate a process for annulation of the General Assembly's resolutions, and have minority rights. However, holders of investment shares are only entitled to dividends and liquidation shares, and the holders shall neither participate in the general assembly meeting, nor vote in the General Assembly. None of the holders of these shares have a pre-emption right.

Direction and the Services Permitted to be Procured by Other Entities

Election and operation of the board of directors is subject to the relevant provisions of the Turkish Commercial Code ("TCC"). Nevertheless, the Communiqué sets forth certain qualifications to be fulfilled by the board of directors' members.

In accordance with Art. 60/1 of the Communiqué, the ICVC's portfolio shall be managed by a portfolio management company. However, Art. 60/2 provides that services such as inspection, intern control, accounting and operation may be provided by investment companies; services regarding a risk management system may be provided by the investment companies or other specialized companies authorized by the Board, provided that the board of directors controls and supervises such activities. In addition, abovementioned activities may also be provided by a portfolio management company, provided that these companies have the relevant departments. Furthermore, in order for the relevant activities and relevant personnel to be procured by other entities, a special provision shall be included in the articles of association and the board of directors shall adopt a resolution.

Application of the TCC

Pursuant to Art. 91/2 of the Communiqué, "the provisions of the TCC regarding share capitals in joint stock companies, the amount of minimum capital, minimum content of the articles of association, capital contribution in kind, nominal value, acquisition of the company's shares by the company itself, capital increase and decrease procedure, share subscription and payment of the share price, restrictions on share transfers, profits and loss accounts and distribution of dividends, legal reserves and liquidation, shall not apply to the ICVC." Such issues are governed by their specific regulations.


The Communiqué introduces to Turkish law a company model enabling a more flexible structure similar to investment funds under a legal personality and a less determined capital structure. The Communiqué sets forth detailed provisions on an ICVC. Such reforms cover, in particular, the definition of a ICVC, the portfolio of the company and its management, establishment, issuance and types of shares, as well as the services permitted to be procured by the other entities. Except for as stated, those areas that the TCC shall not apply are explicitly stated; therefore, the scope of application of the special provisions on capital markets is rendered clear.

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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