Turkey: Turkey Is Looking Forward To Welcoming The New Commercial Code

Last Updated: 6 January 2009
Article by Şebnem Işık and Begüm Yavuzdoğan Okumuş

Introduction

The Turkish Commercial Code (hereinafter to be referred to as the "TCC") entered into force on January 1st, 1957, and for over 50 years since then while most of the European countries have adopted new codes or amended their regulations in accordance with the latest developments taking place in the world, the TCC has not been significantly amended. New structures were needed for newly-developing business transactions and relationships, especially in the area of corporate governance. Massive corporate scandals involving Enron, World.com, and Parmalat, to name but a few, obliged legislators in the United States of America and the European countries to set stricter and more transparent corporate governance and auditing rules. In this respect, the Sarbanes-Oxley Act dated July 30, 2002, was promulgated in the US, and similar legal arrangements were made in the European Union legislation. Given the fact that Turkey, as a candidate for EU membership and as an emerging market, aims to attract foreign investment, Turkish corporate legislation needed to be brought into line with the rest of the world in order to continue the economic integration that started with globalization. In 2006, the Turkish Ministry of Justice formed a commission composed of scholars, judges, and practitioners for the preparation of the draft Turkish Commercial Code (hereinafter to be referred to as the "Draft Code").

The change was essential especially taking into account developments in the modern world and the economic and legal developments taking place in Turkey since the 1950s. The Draft Code aims to be in line with the EU legislation and better meet the requirements of both foreign and local investors. The Draft Code is waiting to be ratified by the Council of Ministers.

The principles of transparency, equity, and liability are the cornerstones of the Draft Code. The main purpose of the Draft Code is to integrate modern corporate governance rules into Turkish commercial life. With regard to corporate governance matters, there are major amendments to be made to the structures and governance of all types of companies in order to provide a sustainable and reliable legal environment both for foreign and local investors. The TCC only includes provisions regarding private companies, whereas the Draft Code includes provisions governing both private and public companies. The Draft Code will be the fundamental code regulating all types of joint stock companies, both public and private (hereinafter to be referred to as "JSC").

This document aims to provide a brief outline of the reforms that will take place with the implementation of the Draft Code, particularly with respect to JSCs and Limited Liability Companies (hereinafter to be referred to as "LLC").

I. General Amendments Introduced for all Types of Companies:

  1. New Auditing System

    Pursuant to the TCC, an internal audit committee is one of the corporate organs of a company. However, experience shows that in practice this committee loses its independence and cannot be impartial vis-à-vis the shareholders. Under the Draft Code, an audit committee is no longer considered an organ of a company. The Draft Code adopts a reformist and unifying approach that obliges all types of companies to retain external auditors and be audited by eligible, professional, and independent auditors complying with international accounting standards and acting with due care. According to the Draft Code, companies' financial statements and reports will be prepared and audited in accordance with the Turkish Accounting Standards, which is almost a complete translation of the International Financial Reporting Standards. It should be noted that even though the Draft Code aims to unify the auditing principles for all types of companies, it separates large, medium, and small companies. According to their categorization, medium and small companies can be audited either by one or more sworn financial auditors or independent auditors, whereas large companies can only be audited by independent auditing firms.

    Also, in order to make sure that the independence of auditors can be preserved, the Draft Code stipulates that an auditor can only serve the same company up to maximum of 6 times within a 10-year period. Statements of accounts, annual reports, or any amendments to be made to these documents must be audited and approved by independent auditors; otherwise, they will be deemed invalid.

    The Draft Code requires that independent auditors also be audited by the Higher Audit Institution. However, until this institution is established, the Ministry of Trade will be in charge of auditing independent auditors.

  2. Obligation to launch a web-site for the company

    With the Draft Code, all types of companies will be required to maintain a company web-site. All information regarding general assembly meeting documents and invitations, financial statements, evaluation reports, nullity actions, invitations to use pre-emptive rights or any information pertaining to investors' interests (excluding company secrets or confidential information) are required to be published on the web-site of a company. All resolutions and transactions which are subject to registration will be shown on the web-site.

II. Amendments Specifically Introduced for JSCs:

  1. A company can be established by a single shareholder

    Pursuant to the TCC, a JSC must be formed by a minimum of 5 shareholders. Our experiences have shown us that most of the JSCs are dominated by one or two major shareholders. The rest of the shareholders exist only to fulfill the requirement regarding the minimum number of shareholders.

  2. Capital Issue

    The minimum capital required for a JSC remains the same, viz., NTL 50,000 (currently USD 33,445).

    The Draft Code expanded the capital in-kind which can be put into JSCs to include web sites or domain names. Considering recent technological developments, the Draft Code enables any instruments or property rights, including IP rights and domain names, to be used as capital by the JSCs if the property rights are not subject to any liens or injunctions.

    Under the current legislation, shareholders cannot transfer shares obtained as a result of their subscription into the company's capital in the form of capital in-kind within a period of two years from their subscription.

    Under the Draft Code, shareholders who have participated in a company by providing capital in-kind are entitled to transfer their shares at any time.

  3. Privileged Shares

    The TCC allows privileges to be attached to a company's shares without setting a limit on the number of votes a privileged share can have. This situation causes serious inequality between majority and minority shareholders. Under the Draft Code, voting privileges are limited to 15 votes per share. However, this number can be increased by a court decision. The possibility of privileged shares' blocking a capital increase has been renounced. In addition, privileged votes cannot be used in voting on resolutions regarding amendment of the articles of association (hereinafter to be referred to as the "AOA") of a company, appointment of a transaction auditor, or filing of discharge or liability suits.

  4. Registered Share Capital for JSCs

    The Draft Code introduces the registered share capital system as an option for JSCs. Under the current legislation, the registered share capital system is available solely to public companies. Under the Draft Code, a company which adopts the registered share capital system is required to have a minimum capital of NTL 100,000, and the company may increase its capital without going through the burdensome procedures of holding a general assembly meeting. Instead, increases can simply be made by a board of directors' resolution.

  5. General Assembly

    With the ratification of the Draft Code, it will be possible for the shareholders of a JSC to hold general assembly meetings on-line.

    Furthermore, for corporate governance reasons, the Draft Code obligates the board of directors of JSCs to frame an internal regulation governing the procedures for convening general assembly meetings.

    One of the most important rights of shareholders is probably the right to have access to company information. In this regard, the right of shareholders to information has also been revised with the Draft Code, and these rights have been expanded and specified.

  6. The Board of Directors may be composed of a single director

    With the Draft Code, the Board of Directors can now be composed of only one director, and this director is not required to be a shareholder of the company. The Draft code also enables legal entities to become board members. However, a legal entity board member will be represented on the board of directors by only one representative.

    The Draft Code aims to increase the number of professional board members. To this end, it requires that at least one-quarter of the members of the Board of Directors have graduate degrees from universities.

    As mentioned above, the Draft Code enables the board of directors' meetings to be held on-line, and this will provide the directors the opportunity to attend to the meeting without having to travel to the place where the meeting will take place. This amendment will especially be favored by companies who have board members residing in a foreign country.

    The Board of Directors is entitled to acquire or accept as a pledge up to 10% of the fully paid capital of the company upon an authorization granted by the general assembly. Such an authorization must be used within 18 months from the date of the relevant authorization. These authorizations may be used solely to benefit the company, to protect company instruments, and to prevent the abuse of the company. This provision aims to grant the board of directors the right to introduce certain measures to protect the interests of the company. In cases where it is likely for the company to suffer a severe loss, the board of directors is entitled to acquire the company shares without being subject to the 10% limitation and without having to obtain authorization from the general assembly. In this regard, hostile takeovers and manipulations can be considered as close and serious dangers.

  7. Liability

    Under the Draft Code, the liability of the board of directors has been regulated in detail. According to the Draft Code, members of board of directors are jointly liable for each and every transaction of the company unless a responsible person is assigned for a specific duty with a written resolution of the board of directors. In this respect, the assigned person or persons or, if there is no assignment of duty, the members of the Board of Directors will be liable if any documents or declarations regarding the company or its transactions are fraudulent, misleading or illegally prepared.

    The Draft Code, in fact, brings a new aspect to the TCC by imposing personal criminal liability on the members of the board of directors. Criminal records of judicial fines cannot be expunged from the judicial records for 5 years even though the fines have been duly paid.


III. Amendments Specifically Introduced for LLCs:

The Draft Code, like the TCC, does not contain detailed provisions regarding LLCs. Provisions regarding JSCs are considered to be applicable to LLCs by way of reference in cases where the Draft Code remains silent on LLCs.

The minimum capital required for the establishment of an LLC is increased from NTL 5,000 (currently USD 3,345) to NTL 25,000 (currently USD 16,723) with the Draft Code. The capital in the form of cash must be fully paid up in one installment by the partners in order for the LLC to be established.

Under the Draft Code, partners may be granted veto rights or privileged voting rights.

The Draft Code enables partners to have more than one share, and also expedites and simplifies the transfers of shares. The bankruptcy of a partner will not lead to the bankruptcy of the company since the creditor will only be able to place an attachment on the share of the debtor-partner and cannot request the liquidation of the company.

The Draft Code enables the board of partners' meetings and the board of managers' meeting in LLCs to be held on-line.

Conclusion

As also mentioned in the introduction, significant changes had to be made to the TCC to bring it into line with the generally accepted principles used in the rest of the world and to meet the needs of commercial enterprises and investors. Most of the reforms contemplated by the Commission are reflected in the Draft Code, and it is now awaiting ratification by the Council of Ministers. It should be noted that since the Draft Code has not yet been finalized, amendments may still take place before its ratification. Commercial enterprises and investors are looking forward to the enactment of the Draft Code with great anticipation. Given the fact that the world is at the edge of an enormous financial crisis due to the current credit crunch, it is now even more vital for an emerging market like Turkey to be attractive for foreign investors. The only way to accomplish this is to create a transparent and secure business environment, which is also the aim of the Draft Code. Therefore, we hope that the Draft Code will be ratified as soon as possible without losing any more time in this critical period.

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
Begüm Yavuzdoğan Okumuş
 
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
 
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