Companies can resort to capital increase under TTK 456 and the subsequent articles, in order to expand their business scale, enter new markets, prevent loss of capital caused from economic crysis and industrial circumstances. Although the meaning of capital is not defined in TTK, it can be defined as the money or assets which companies need for reaching their goals. The amount of capital is among the information which needs to be shown while establishing a corporation. Even though capital increase is actually an amendment of articles of incorporation, TTK includes special articles for it. There is no need for showing just cause in order to increase capital but this mustn't infringe the rights of shareholders otherwise it would violate TMK 2 which regulates the rule of honesty. If a capital increase is aimed in pursuit of violating the rights of shareholders, then nullity suits may be directed towards it. Another issue which may prevent capital increase is, a company may have undergone a process of insolvency and liquidation. Reason for this is, a company which is in the process of liquidation can only execute operations which serves the process of liquidation hence capital increase, which is executed by changing articles of incorporation, is outside the limits in which a bankrupt company can operate.

Capital Increase In Capital Systems

Capital systems in joint stock companies are divided into two different branches which are registered capital and principle capital. The organ entitled to decide on executing a capital increase differs under the system established by TTK 332. If board of directors is not entitled with this authority, it means principle capital system is adopted. In this system, general assembly is the organ which can decide on capital expenditure. Registered capital system can be defined as the system which allows board of directors to execute a capital increase without needing to go through some formalities otherwise needed, but this entitlement can be given for a maximum of 5 years and the upper limit of a new capital must be demonstrated while giving this authority. This system aims to overcome problems which arise in principle capital system by making capital increase more swift and easy.

In a company which has adopted principle capital system, the relevant article of articles of incorporation can be changed with a general assembly decision and a ministry representative must be present at the general assembly while doing so. Another issue which holds importance is everything must be stated precisely in the text of amendment and also the decision must be registered in three months. If not, the decision on capital expenditure and ministry permission (if given) lose their validities. This rule corresponds to a need in practice, which is preventing dragging on capital increases.

Meanwhile, registered capital system allows board of directors to increase the capital within the limits that has been set and this authority is regulated in TTK and the articles of incorporation. This authority can be given for a maximum of five years. Board of directors must demonstrate the amount of increase, nominal values of new shares, whether rights to preference are constrained or not and the conditions and durations of using them. Board of directors must declare the new versions of articles, the decision of board of directors on capital increase, limitations on privileged shares and preferrence rights, records concerning premiums and rules concerning execution of the decision; in the way that is guided by the articles of incorporation. This decision must be registered in three months, otherwise it loses its validity. As a result, capital increase occurs in external relations at the moment of registration.

Preconditions of Capital Expenditure

TTK searches for some preconditions for capital expenditure. In both conditions, the capital needed by the company must be provided from the company's own resources first and if not tried, the result is absolute nullity.

  • According to TTK 456/1; "Apart from increase made with inner resources, it is forbidden to increase capital if the prices of shares has not been paid completely yet. Amounts which are so little compared to capital does not prevent capital increase." The law wants companies to resort to its own resources or already pledged capital commitments first. However, exceptions to this can be listed as;
    • If the amount of unpaid pledged capital commitments are so low when compared with the total capital, this would not prevent capital increase. However, the article does not refer to a ratio or a calculation way to decide which amount is relatively low. The reasoning of the article includes the phrase; "relatively negligible amount". The doctrine and the decisions of district courts accept %5 as a relatively small amount.
    • If the increase is made from the inner resources, it is not important if an unpaid capital commitments are present or not.
  • The law prohibits to increase capital by committing capital if there are inner funds suitable for capital increase. TTK 462 states that if funds are present in financial statements, capital increase by commitment can't be made unless these funds are converted to capital. As a result, if such funds are present, these inner resources must be converted first. This clause is imperative and violation of it will result with nullity.

Types of Capital Increase

Three different versions of capital increase are adopted in TTK. These are capital increase by commitment, capital increase from inner resources and conditioned capital increase.

1. Capital Increase by Commitment

TTK 461 states that capital increase by commitment is made when shares are exported in return of money or other assets. In this system, every shareholder can demand a share proportionate with their already existing shares. Right to demand them is called right to preference. This right can be constrained or taken away with a general assembly decision. Yet just reasons for this is needed and some reasons can be listed as public listing, taking over of company or some parts of it or of its affiliates and the participation of workers to company. But still shareholders can't be forced to bear a loss which is not just. Both shareholders and third persons can commit.

  • TTK 344 states that if capital is committed in the form of money, 25% of the increased amount must be paid before the registration. The rest must be paid in the 24 months following the registration date.
  • All types of assets can be put as real capital to increase capital, including intellectual property rights and virtual environments. However, these must not have limited real rights or confiscation or injunction on them. TTK 343 states that these assets will be valued by the experts assigned by the commercial court of first instance located in the place where the company's center is registered.

2. Capital Increase From Inner Resources

Capital increase from inner resources is newly regulated and it was not present in the old version of TTK. TTK 462 states that contingency reserves which are not reserved for a special purpose and which are reserved with a GA decision or articles of incorporation, parts of legal reserves which can be expensed freely and the funds which law lets to be put into the financial sheets and added to capital can be converted to capital and hence the capital can be increased from the inner resources. When inner resources are used, shareholders are not expected to pay a new amount but still their shares will be increased in proportion to the ratio of their shares to the capital. The reason for this is, an already existing resource which company owns becomes a capital hence this amount is among the profits which has not been distributed to shareholders so shareholders already has a right on them. Since this right is given to shareholders automotically, rights on them can't be taken away or constrained.

3. Conditioned Capital Increase

Conditioned capital increase is a way of capital increase which can be made easily by creating stock certificates and convertible bonds. General assembly is again the authorized organ for doing it, but capital increase and share export transactions must be completed by board of directors. Even though general assembly decides on the issue, the decision on the amount and ratio of the increase does not get set by GA because it is not probable to know how many of shareholders and convertible bonds owners will opt to use their rights. As a result, the execution of GA decision gets postponed to a further date and it depends on whether third persons who have right will use it or not. Board of directors execute capital increase only when the related persons use the relevant right. The action which the board of directors undertakes is not the capital increase itself but the execution of a decision which has already been given by GA.


Capital increase articles which aim to protect legal personality of companies, shareholders, payees and other third persons can be summed up as such.

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.