Certain types of legal entities are classified in the Turkish Commercial Code (the "TCC"), as business associations (ticaret sirketleri) . They are (a) General Partnership (kollektif sirket); (b) Limited Partnership (komandit sirket); (c) Limited Partnership in which the Capital is Divided into Shares (sermayesi paylara bolunmup komandit sirket); (d) Limited Liability Company (Limited sirket) and (e) Joint Stock Company (Anonim sirket).
These associations acquire separate legal personality upon registration in the Trade Registry where the head quarter of the association is located.
The Joint Stock Company (hereinafter referred to as "JSC"), being the most commonly used form of business associations shall be the first subject of consideration.
JOINT STOCK COMPANIES
THE APPLICABLE LAW:
A JSC is the business association where the liabilities of the shareholders are limited to their contribution to share capital and where the capital is divided in shares. JSCs may be established by way of immediate formation under the provisions of the TCC or the shares may be offered to the public by the founders pursuant to the of Capital Market regulations. If there is a foreign founding shareholder, the provisions of Law Concerning the Encouragement of Foreign Capital shall apply.
STEPS FOR ESTABLISHING A JOINT STOCK COMPANY
The following requirements should be accomplished for the establishment:
- A Turkish JSC should have at least five founding shareholders and the share capital can not be less than 5 billion Turkish Liras. In cases where there are foreign founding shareholders, each foreign shareholder should subscribe and pay to the JSC at least US$ 50.000 or its equivalent in another foreign currency. Such payment should be realised pursuant to the permission of the General Directorate of Foreign Investment which is a department of the Undersecretariat of Treasury ("GDFI").
- If the investment is eligible for an "Incentive Certificate", such certificate may be obtained together with the requisite permit from the GDFI.
- The Articles of Association of the Company should be prepared in written form, signed by all the founders or their respective authorised representatives and notarised.
- Permission from the Ministry of Industry and Commerce
- After obtaining a permit from the municipality where the Headquarter of the Company shall be located, the Company shall be registered with the Trade Registry at the place of the head office of the Company and duly announced in the Trade Registry Gazette of Turkey. Upon registration, the Company will gain its legal-entity.
Following the registration and publication, the Company will then be registered with the Chamber of Commerce or the Chamber of Industry , the books of the Company will be certified by a Notary Public; and the Company will be registered with the tax office. The establishment of the Company should be notified to the Ministry of Industry and Commerce , and to the GDFI.
Share certificates will be issued and delivered to the shareholders only after the completion of all the formalities relating to the formation of the Company.
ORGANISATION OF THE JOINT STOCK COMPANIES
I- General Assembly of Shareholders:
The General Assembly is the organ with the ultimate control of a JSC. The General Assembly of the Company must meet at least once a year within the first three months of the fiscal year upon invitation of the Board of Directors or the Auditors. The General Assembly is vested with the powers that are highly important for the Company including among many others; the amendment of the articles of association, election and removal of the members of the Board of Directors and the auditors, increase and decrease of capital, issuing bonds and resolving on the distribution of net profit.
II- Board of Directors:
The Board of Directors is the executive organ responsible for the day-to-day business, and representation of the Company. Unless within the realm of the General Assembly, all decisions related to the administration of the company are taken and implemented by the Board of Directors (the "Board"). The Board is composed of at least three directors elected by the General Assembly. The Board is also responsible for designating the Officers of the Company, and for exercising control and supervision over such Officers.
Under Turkish Law, members of the Board and managers of a Company also have personal liabilities for Corporate acts in the following cases where:
(1) the payments made by shareholders as purchase price of the shares are not exact;
(2) the dividends distributed and paid are fictitious;
(3) the statutory books of the Company are deficient, irregular or non-existent;
(4) the resolutions of the General Meeting are not executed without any acceptable reason;
(5) the other duties given to the Board by the TCC or the Articles of Association are not fulfilled intentionally or negligently.
III- Auditors:
A JSC may have at least one but no more than five auditors to be elected by the General Assembly. The main responsibility of the auditors is to verify that, the balance sheet and profit and loss account are in compliance with the books of the Company, that these books are properly kept, and that the legal provisions concerning valuation are complied with.
THE REPRESENTATION OF THE COMPANY
RIGHTS OF SHAREHOLDERS
(i) Administrative Rights:
Shareholders possess a wide range of administrative rights under the TCC.
- The right to vote,
- The right to obtain information about the business of the Company,
- The right to file complaints with the Auditors,
- The right to institute legal action against Directors and/or Auditors,
- The right to institute legal action for the cancellation of the General Assembly resolutions.
(ii) Monetary Rights:
Shareholder possesses a wide range of monetary rights.
- Right to dividends: Every shareholder is entitled to participate to the net profits set aside for distribution to shareholders.
- To exercise pre-emptive rights: When capital is increased, shareholders are entitled to a number of new shares in the capital of the company.
- The right of having proceeds of liquidation after the payment of any debts.
- To receive payments of interest, if provided in the Articles of Association during the period preceding the "full activity".
(iii) Privileged Shares Authorised Under Turkish Law
In matters such as dividends, or the distribution of assets on the liquidation of the company, or "other privileges," it is possible for the investor to create privileged shares.
(iv) Vested Property Rights of Shareholders
Those rights belonging to shareholders which are not subject to the resolutions of the General Meeting or of the Board of Directors, are considered "vested" property rights. These rights include:
- being a member;
- voting;
- bringing a law-suit for cancellation;
- receiving dividend;
- participation in the proceeds of the liquidation No alteration may be made in the vested rights of individual shareholders without their consent.
(v) Minority rights
Minority rights have been granted to shareholders or a shareholder owning one tenth of the corporate capital.
- To postpone deliberations of the ordinary General Assembly of Shareholders related to the approval of the balance sheet
- To institute actions for damages caused to the Corporation by Directors and/or Auditors on behalf of the Corporation
- To refuse the release of Founders, Directors and Auditors in connection with the liabilities incurred.
- To appoint an ad hoc Auditor
- To complain to the Auditors
- To call the General Assembly for an extraordinary meeting.
- To add an item to the agenda of the General Assembly meeting
LIABILITIES OF SHAREHOLDERS
The company is liable for its debts to the extent of its assets. The liability of shareholders is towards the Company and limited with the shares they have subscribed.
Next Issue: Book Keeping Requirements; Distribution of Dividend; Dissolution and Liquidation of the Company
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.
