1. INTRODUCTION

The Turkish Commercial Code ("TCC") governs regulations specifically for group of companies consisting of two or more legally independent companies (including but not limited to a joint stock company (public or non-public) or a limited liability company) which are affiliated with each other in respect of shareholding, management or audit and which are usually managed and administered from a top controlling entity according to predetermined policies.

According to the TCC, if a company, directly or indirectly, i) owns the majority of the voting rights in a legal entity; or ii) is entitled to vote on the appointment of a sufficient number of members to establish the majority in the management of such legal entity; or iii) has the capacity to exercise majority of the voting rights in such legal entity on its own or with other shareholders arising out of a contractual relationship; or iv) controls such entity via a contract or in any other manner; such company qualifies as the parent (controlling) company and the latter legal entity qualifies as the subsidiary (controlled) company.

In case a company holds the majority of the shares of another entity, it is automatically assumed to that such company has a control over the latter entity unless otherwise is proven, even if none of the abovementioned situations occur.

2. REPORTING BY THE SUBSIDIARY COMPANY

According to the TCC, the Board of Directors/manager(s) of the subsidiary company is required to prepare a report regarding the relationship of the subsidiary company with the parent company within the first 3 months of each fiscal year.

The said report must include information on:

i) all transactions conducted in the previous fiscal year with the parent company and with a third company also controlled by the parent company,

ii) all transactions conducted through the direction of the parent company that serves to the benefit of the parent company or the said third company,

iii) all other measures taken or refrained from being taken to the benefit of the parent company or the third company,

iv) for all transactions mentioned above in i), the performances and counter performances and for all the measures taken, the reasons for such measures,

v) In case a loss is compensated, how it is compensated and how the company is benefited from such compensation.

The said report must also explain – for every transaction the subsidiary company conducted with the parent company and with a third company also controlled by the parent company – whether the subsidiary company obtained appropriate counter-performance or incurred any loss because of the measures it has taken or refrained from taking.

If the company incurred any loss, the Board of Directors/manager(s) must indicate in the annual report whether such loss has been compensated. This explanation must only be made in the annual report.

3. REPORTING BY THE PARENT COMPANY

On the other hand, each member of the Board of Directors/manager(s) of the parent company can request from the chairman to have a report prepared on:

1- assets and financial standing of the subsidiary company and 3 month accounting results of the subsidiary company,

2- the relationship between the parent company and the subsidiary company, relationship the controlled companies have with each other as well as the relationship the controlling and controlled companies have with their respective shareholders, directors/managers and their relatives,

3- the transactions the abovementioned companies and parties have conducted and their outcomes and effects.

Subsidiary companies are required to provide the information and documents necessary for preparing the abovementioned report, unless there is a concrete justified reason not to do so (which is evaluated on case-by-case basis).

In case a Board of Directors member/manager requests such report for the interest of a third party, he/she will be responsible for such request.

4. SHAREHOLDERS' RIGHT TO REQUEST INFORMATION ON THE SUBSIDIARY COMPANY

Each shareholder of the parent company is given right by the TCC to request at a General Assembly meeting satisfactory information on:

1- the relationship between the parent company and the subsidiary company,

2- the relationship the controlled companies have with each other as well as the relationship the controlling and controlled companies have with their respective shareholders, directors/managers and their relatives,

3- the transactions the abovementioned companies and parties have conducted and their outcomes and effects.☼

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.