Capital increases in joint stock companies are carried out in accordance with the procedure set out under the Turkish Commercial Code numbered 6102 (“TCC”) and capital increases in joint stock companies may be based on many different reasons. The general reason for capital increases is financial and capital increases are carried out in order to provide more resources to the company. With the capital increase, it is aimed to meet the capital needs of the companies related to their fields of activity, carry out the development of the company in a healthy way and to continue the activities of the company in a competitive environment, the debts of the company are paid, and sometimes it may be a legal requirement to complete the capital lost due to losses. In joint stock companies, capital increase can be made from external sources or from reserves or undistributed profits in the internal resources of the company.
According to the capital system and the conditional nature of the increase, the increase can be made in three types. These are; increase in the capital system, increase in the authorized capital system and increase in the contingent capital increase system. Within the framework of TCC regulations, capital increase in the capital system can be made through capital commitment or from internal resources. Increase through capital commitment can be carried out in three ways. These are; cash increase, capital in kind increase, or both cash and capital in kind increase.
Pursuant to Article 456 of TCC, no capital increase shall be made without the full payment of the cash consideration of the shares, except for the increase made from internal resources. However, TCC also stipulates that the non-payment of amounts that are not deemed to be significant in relation to the capital shall not prevent the capital increase. With this provision in TCC, it is intended to prevent claims that capital increases cannot be made due to insignificant unpaid amounts. However, TCC does not clearly regulate what should be considered insignificant amounts, which may lead to different interpretations on a case-by-case basis.
Article 462/3 of TCC stipulates that if there are funds in the balance sheet that are permitted by the legislation to be contributed to the capital, the capital cannot be increased through capital subscription without converting these funds into capital. However, the capital may be increased both by converting these funds into capital and by subscribing to the capital at the same time and at the same rate. With this provision, it is ensured that the mentioned funds are first converted into capital, and therefore, shareholders who will not be able to use their pre-emptive rights are protected.
In the authorized capital system, the general assembly shall resolve on the capital increase. Therefore, if a capital increase is to be performed in a joint stock company and there is no registered capital system, the capital increase shall be adopted by a resolution of the general assembly. In addition, pursuant to Article 456/2 of TCC, if the amended version of the relevant provisions of the articles of association, for which authorization is necessary, is approved by the general assembly, shall be approved by the Ministry of Customs and Trade. The increase shall be registered within 3 months following the date of the general assembly meeting. If the increase is not registered within 3 months, the general assembly resolution and the authorization, if any, shall become invalid and the payments made to the bank for the capital increase pursuant to Article 345 of TCC shall be returned to the owners.
In all capital increases, pursuant to Article 457 of TCC, a declaration shall be signed by the board of directors according to the type of capital increase. This statement is prepared in accordance with the principle of providing information in an accurate, complete, true and honest manner.
In capital increases in kind, Article 342 of TCC regulates the assets that may be contributed as capital in kind. Pursuant to Article 342 of TCC, assets without such restriction as measure, pledge and encumbrances on them, which can be convertible to cash and which are transferable, including intellectual property rights and virtual environments, can be contributed as capital in kind. Service, personal effort, commercial reputation and non-due receivables cannot be contributed as capital. Pursuant to Article 128/f.5 of TCC, in order for an asset in kind to be accepted as capital, the mentioned asset shall be included in the articles of association together with its value, if the asset is an immovable property, the fact that the immovable property has been contributed as capital to the joint stock company shall be indicated with an annotation to be submitted to the land registry, and in the event that immovable property or other real rights in kind are contributed as capital, such property shall be registered with the land registry in order for the company to dispose thereof. In addition, intellectual property rights and other assets shall be registered in special registries, if any, and movables shall be entrusted to a trustworthy person, otherwise they cannot be accepted as capital in kind.
TCC requires the capital in kind to be evaluated by the commercial court where the head quarter of the joint stock company is located. This regulation aims to protect the assets of the company. In the valuation report, the valuation method applied is the most fair and appropriate choice for everyone in terms of the characteristics of the case; the reality, validity and compliance of the receivables placed as capital with the elements specified in Article 342 of TCC, their collectability and their full value; the amount of shares that should be allocated for each asset placed in kind and their Turkish Lira equivalent shall be explained with satisfactory justifications and in accordance with the requirements of the principle of accountability. This report prepared by the expert may be objected. The expert decision approved by the court is definitive. Any capital-in-kind contribution without expert examination and/or any capital-in-kind commitment based on the valuation made by persons other than the court expert is invalid.
In the event that the capital increase in joint stock companies is performed through capital commitment from external sources, each shareholder has the right to purchase the newly issued shares according to the ratio of their existing shares to the capital. The purpose of this right is to maintain the shareholder's capital ratio in the company. When a capital increase in kind is to be performed, the question of whether or not this increase will be exclusively dedicated to capital in kind comes to the agenda in practice, i.e. whether or not the shareholders shall be obliged to subscribe for a certain category of shares. In order to reduce the shareholding rate of minority shareholders in the company or to eliminate minority shareholders, other shareholders may adopt a resolution in the general assembly by dedicating the increase only to capital in kind. In this case, minority shareholders will not be able to use their pre-emptive rights since they do not own the equity that can be capitalized. Within the framework of the prevailing opinion in the doctrine, the capital increases to be made in this manner are invalid. In such capital increases, the pre-emptive rights of some shareholders are indirectly abolished. This situation is contrary to the provisions regarding the limitation of pre-emptive rights regulated under Article 461/2 of TCC.
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.
