Conditional capital increase is a newly introduced concept by the New Turkish Commercial Code numbered 6102 (the "New TCC") which enables holders of certain debt instruments such as convertible bonds or other similar deeds or its employees to exchange debt claims with shares of the Company. According to Article 463 of the New TCC, those who can benefit from this system must either be holders of convertible bonds or similar debt instruments (qualified creditors) and/or employees of the company or qualified creditors of group of companies or their employees.

Conditional capital increase is contingent upon proper written notice of the beneficiary to the implementing company regardless of the resolution of the competent corporate organ of the company, in other words, the holders of the right may exercise their right of exchange by their unilateral declaration of their intention.

However, the New TCC provides a limitation on the amount of the conditional capital increase in order to protect the capital structure of the company; in essence the aggregate nominal amount of the increased capital may not exceed half of the issued share capital.

This article aims to set forth the frame of this new method along with its implementation procedure.


By this new system, corporate financing is accepted through the convertible bonds which will also comfort the investors/creditors that they will entitle to have legal rights to exchange their bonds with the shares of the company or its group of companies.

Furthermore, any restriction on the transfer of shares of the company cannot be applied to the holders of these instruments, so long as there is an explicit statement incorporated in the AoA that such restrictions will be valid even in the case of the conditional capital increase.

Issuing convertible bonds would highly likely be preferred by most of the start-up companies since these will have lower interest rates and provides short term financing costs on the issuing company. By virtue of this system, investors will have the chance to be granted convertible debt instruments, since it affords legal protection and sets forth the rights of the interested parties accordingly.

Investors may also prefer convertible debts with a lower interest since they will potentially benefit from the gain deriving from conversion.


All over the world, many companies use employee stock option plans to attract and retain the best appropriate employees for positions of substantial responsibility in order to promote the success of the Company's business and to provide additional incentive to the employees. Stock Option Plans gives employees the right to buy a specific number of the company's shares, whether depending on a certain milestones, at a fixed price within a certain period of time. Those persons who are granted stock options hope to profit by exercising their options at a higher price than when the options were granted.

Pursuant to Turkish Commercial Code numbered 6762 which was enacted in 1957 (the "Former TCC") it was not possible for the companies to acquire their own shares and also conditional capital increase was not a recognised concept. Thus, in the Former TCC the general way for the companies, in particular multinational ones, was to allocate the shares subject to stock option plans to certain shareholders to be transferred to right holder of the stock option plans pursuant to the arrangements made in accordance with the Turkish Code of Obligations.

However, by virtue of the newly introduced conditional capital increase system, the employees will be entitled to exercise their stock option rights with the comfort of a legal protection upon presenting their unilateral written demand.


According to Article 466 of the New TCC, the shareholders having the right of first refusal will be granted a priority to purchase such convertible debt instruments and avoid being subject to dilution.

This right of the existing shareholders may be restricted in case of just cause. However, such restriction cannot be used with a view to dilute the shares owned by specific group of shareholders which will be against the principle of equal treatment.

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.