Turkey: The Transfer Of Principal Capital Share Of Limited Partnership By Article Of Incorporation In Turkish Limited Partnership Law

1. Limited Liability Partnership In Turkish Law

Due to the fact that joint-stock and partnership companies ended up not fulfilling the needs occurred in practice within the flow of business life, an alternative type of company has needed[1]. As a consequence of this requirement, the concept of limited liability partnership ("LLP") has been arisen.

LLP was furnished by German legislator and based on[2] Limited Company Law (Gesetz betreffend die Gesellschaften mit beschränkter Haftung/GmbHG) dated 1892; it was regulated in Commercial Law No. 865 dated 1926 for the first time in Turkish Law.

In Turkish Law LLP is regulated under Article 573 in the Turkish Commercial Code No.6102 ("TCC"). In this context, "Limited Liability Company is a company which is established by one or more real persons or legal entities under a trade name; its principal capital, which is made up of the sum or the shares of principal capital, is certain,

Partners are not liable for the debts of company and are only obliged to pay the capital shares that they committed and to perform the duty of additional payment and subsidiary action responsibilities provided in the articles of association."

2. The principal capital share in LLP

The principal capital share of LLPs regulated under Article 583 of TCC determining the minimum amount for contribution of a partner to principal capital of company and it is expressed in cash[3]. According to the article; it is stated that, the minimum limit of nominal value of principal capital share is twenty five Turkish Liras; however, the nominal value of all principal capital shares may not be equal. (TTK 585/1,2)

Thereunder this article, it isn't indicated that principal capital share gives minimum one voting right, but each twenty-five Turkish Liras gives and will give one voting right unless a higher amount is determined in articles of association, (TTK 618/1). Values of principal capital shall be twenty five Turkish Liras and multiples of it. A partner can own more than one principal capital share (Article 583/3). Value of principal capital shares are paid in cash or in kind or by exchanging a receivable or as in capital increase by conversion of freely utilized equity into principal capital as set forth in the articles of association. (Article 583/5)

3. The acquisition of Partnership Title in Limited Partnership

The acquisition of the right and title of partnership can be in two different ways in case of a LLP: original acquisition and acquisition by transfer. Original acquisition is the proceeding of entitling as "first hand" without seeking for transfer and transition of right and title of partnership.[4]Such title of partnership shall be acquired by registration during the establishment or during capital increase (TCC Article 588). In addition, original acquisition occurs by registration during change of company type and merger.

Acquisition by transfer of the title can be seen in different forms/situations such as; (i) LLP's capital share transfer by contract, (ii) inheritance, (iii) acquisition through enforcement, (iv) acquisition by a court decision, (v) acquisition in accordance with the provisions of the marital property.

4. The Transfer of Principal Capital Share in LLP by Article of Incorporation

As a general rule, share of principal capital shall be transferred in LLPs. Founders shall facilitate the transfer by drawing up the provisions in articles of incorporation related to share transfer freely[5]. However, it is possible to make the transfer of share more difficult by an article in the articles of association, when establishing non-public limited partnership is aimed.[6]

Transfer of principal capital share in LLP is regulated under Article 595 as follow; "Unless otherwise indicated in the articles of association, approval of general assembly is required for transfer of principal capital. Transfer becomes valid upon this approval". While the term of "unless otherwise mentioned" in the Article is drawn attention, otherwise shall be determined[7] with articles of association and transfer shall be made differently than specified by law. As it is seen, legislator sets forth requirement form and necessitates the registration to trade registry with the approval of the particular majority of other partners. (TCC Article 598/1)

Transfer of principal capital share and transactions causing transfer obligation are made in written and signatures of parties are notarized (TCC Article 595/1). Same form requirements are needed for promissory and dispositive transactions regarding the transfer of principal capital share[8]. Regulating form requirements as "Confirmation of Signature" is essential in terms of evidence and provide safety. On the other hand it is a suitable way for leading parties to think about supplementary payment and subsidiary obligations and other contractual obligations

The form for transactions of transfer required by law is an obligatory provision and it is mandatory to obey; otherwise the transactions shall be null and void[9]. Sanction of requirement form is invalidity.

In order to allege the partnership, registration to stock ledger is not compulsory and in principle share transfer completed with the approval of general assembly shall be registered to ledger and thereafter it shall be applied to trade registry for registration unlike TCC No.6762. [10]