New Turkish Commercial Code 2014

New Turkish Commercial Code

The new Turkish Commercial Code numbered 6102 (the “New TCC”) was promulgated in the Official Gazette on February 14, 2011.

The new Turkish Commercial Code will become effective as of July 1, 2012 pursuant to the Law numbered 6103 on the Validity and Application of the Turkish Commercial Code 1 July 2012 and Law.

On the other hand, some of the provisions therein will be effective on different dates.

Accordingly, the provisions relating to websites to be opened by capital stock partnerships for information services will become effective as of July 1, 2013; and the provisions which require the audit of capital stock companies to be made in accordance with Turkish Auditing Standards, which are in line with International Standards of Auditing and financial reporting standards will become effective as of January 1, 2013.

For many people in Turkey, the new Turkish Commercial Code is formed with a modern evolution and reformist approach whereby Turkish commercial, financial and capital markets will be bound.

The the new Turkish Commercial Code regulates the commercial undertakings, commercial companies, negotiable instruments, transportation operations, maritime law and insurance agreements.

The main reason for a new law was to integrate Turkish commercial law with European Union Law besides creating a infrastructure based on transparency. On the other hand, the New TCC also implements the universally accepted financial reporting and auditing principles and contributes either to the democracy among the shareholders or to the use of information technology tools.

The New TCC introduces material provisions regarding good management and internal and independent audit that are to be applied to all capital stock companies based on the corporate governance which is one of the dominant concepts of the New TCC.

Accordingly, full transparency is sought in the financial statements, boards of directors’ annual reports, independent audits’ reports, transactional auditors’ reports and all audit reports of individual companies and group of companies. Flow of information, right to information and oversight over the boards of directors’ reports are regulated under corporate governance regyme in the New TCC.

There are many significant changes based on the abovementioned principles, some of them are as follows:

* List of the minority rights has been expanded. * Privileged shares have been limited. * Representation possibilities for group/s of shareholders and the minority in the boards of directors have been increased. * The Capital Markets Board is provided with exclusive authority to regulate corporate governance. * The reason for such authorisation is to ensure that corporate governance remains dynamic and up-to-date. * The boards of directors of publicly held companies are now obliged to publish corporate governance reports.

Under the New TCC, all of the capital stock companies are obliged to create a website; even if the company already has a website, it must allocate part for “information society” services. “Information Society” is defined in the New TCC as a society with access to information.

All information relevant to the company in which shareholders, minorities, creditors and stakeholders have an interest, documents and calls regarding General Assembly meetings, year-end and interim financial statements and merger and division balance sheets, all kinds of audit reports, all kinds of valuation reports, offers for exercising pre-emptive right, liquidation announcements, announcements related to action for cancellation shall be broadcasted online via company websites under the New TCC.

In addition, access to the web site shall be unrestricted and available to everyone and, to ensure the right to and possibility of access.

On the other hand, company websites shall provide the means for electronic general assembly and board of directors meetings and for electronic voting.

It should also be noted that pursuant to the New TCC, the content uploaded to the company websites shall be kept there for at least six months from the upload date; otherwise it will be deemed not to have been uploaded. For financial statements, this period is five years. Article 1524 of the New TCC regulating company websites will become applicable as of July 1, 2013.

The New TCC also amended the formation of the companies established under name of Joint Stock Company (A.Ş.) and Limited Liability Company (L.Ş.).

This reform is considered to be satisfying a major need in Turkish Commercial Law. Accordingly, Single-Shareholder A.Ş. and Single-Partner L.Ş. can be incorporated under the new TCC. It should also be noted that this reform is adopted from the 12th Council Company Law Directive 89/667/EEC from European Union Law to Turkish Commercial Law.

If the shareholders/partners of an A.Ş. or a L.Ş. incorporated by and among multiple shareholders/partners drops to a single partner or shareholder, such company can legally continue its activities. If a company is incorporated with a single person, the legal form of the company, the name of the single person, trade name and address will be registered with the Trade Registry and duly announced. In case the number of shareholders/partners of a company is incorporated by and among multiple shareholders or partners drops to one for any reason, the company can continue to perform its business activities in the same manner and maintain its legal personality. This is a direct change from the current Turkish Commercial Code under which an action for dissolution must be commenced instead.

Moreover, a single shareholder or partner is also able to use all powers of the General Assembly and accordingly he/she is entitled to adopting resolutions in writing. On the other hand, all resolutions adopted on behalf of the General Assembly must be specified as resolutions of General Assembly.

The notion of group of companies (“Group”) which describes the management of more than one capital stock company is regulated for the first time in Turkish Commercial law by the New TCC. This regulation was also significant in order to cover the loophole in Turkish Commercial Law.

Parent company sustaining the control and subsidiary company under control are clearly defined and accordingly, specified with the legal status and inter-company relations of these companies. The board of directors of parent and subsidiary companies are obliged to report their inter-relations annually pursuant to the New TCC. It is significant to note that there are several provisions under New TCC adopted in order to prevent the abuse of control by the Parent Company.

There are also some structural changes in terms of spin-off, split-up, merger and conversions of the capital companies under New TCC. Those provisions are mostly related to protection of the partners, the partnership creditors and the employees in order to secure their rights and credits in accordance with the provisions of the European Union’s Sixth Council Directive 82/891/EEC.

Furthermore, there are remarkable changes in the section related to commercial books. The rules related to provisions regarding the bookkeeping, opening balance sheet, financial statements, balance sheet principles, prohibition on capitalisation, prepaid expenses and deferred income, valuation, custody and disclosure are brand new.

Most significantly, regarding the commercial books, the New TCC does not include the use of commercial books as evidences in legal disputes. The reason for this change should be that such provisions are no longer in practice under any modern law. However, courts still may decide on the submission of commercial books.

It is also noteworthy that Turkish Accounting Standards Board is appointed pursuant to the New TCC as sole and exclusive authority to set and publish Turkish Accounting Standards.

No doubt, new audit provisions under the New TCC will change the structure and organisational units of joint stock companies and limited liability companies. This change conforms to the new regulations adopted in the United States and the European Union. The new audit will be conducted in accordance with professional ethics, with all due professional scepticism, transparently and in compliance with International Auditing Standards by a professionally competent auditor who is an independent auditor. It is certain that this change is going to make a substantial contribution to establishing trust in national and international markets for Turkey.

Author(s): Güvenç Ketenci, Managing Partner

Erman M. Yurdakul, Senior Associate

Ketenci&Ketenci provides significant advice to corpoare entities and entrepreneurs in relation to their ventures in Turkey.

Turkey Company Information

Turkey Company formation in Istanbul

At Ketenci&Ketenci we regularly assist foreign corporations and investors to form new companies and branches in Turkey. Thanks to the Turkish Direct Foreign Investment regulation; foreign investors can incorporate or participate in all types of companies in Turkey which are available for local investors in accordance with the equal treatment principle

In General

There are two kinds of limited liability companies in Turkey. There are certain similarities and differences between these two forms, namely Anonim Sirket (“AS”) and Limited Sirket (“LS”).

Similarities and differences are as follows;

Both AS and LS are actually limited liability companies where the liability of shareholders of both the AS and the LS are limited to their respective capital commitment in the company.

Both AS and LS can be established by sole shareholder.

Under the current Turkish Commercial Code numbered 6102 (the “TCC”), minimum capital required for LS is 10,000.00 Turkish Liras (approximately €4,249.- EUR as of 18.01.2013) and a minimum capital of 50,000.00 Turkish Liras (approximately €21,250.- EUR as of 18.01.2013) is required for the incorporation of an AS. However, for the AS companies which accepted the registered capital system, it is a requirement to have a minimum capital of 100,000.00 Turkish Liras.

An AS is managed by its board of directors. It is possible to have a single person within the board of directors. An LS does not have board of directors but is managed instead by its general manager and shareholders.  All authorities of the shareholders relating to the management of LS can be granted to a general manager or one of the shareholders.

Call for an assembly, general assembly without any calls, minutes, right to call and to make proposal of the minority, agendum, unauthorized attendance subjects which are held under articles relating to AS under TCC, shall also be applied to an LS in comparison when required.  

Companies pre-defined by the Councils of Ministers shall be subject to an independent external auditing. A draft has been announced but yet not entered into force. Financial data included in the annual reports of executive organs shall be subject to auditing for the abovementioned companies as well to state if they are in parallel within the overseen financial statements. On the other hand, the board of directors’ members of an AS is empowered to review and audit the accounts, transactions, commercial books and such of the company.

It is significant to note that LS shareholders, unlike AS shareholders, may be personally liable for amounts owed by the LS to government authorities for taxes, duties and charges if the company cannot make the required payments.  Therefore, the liability of the shareholders of LS, in this respect, is not limited to their own capital contribution in the company. However, in an AS, the legal representatives of the company may be liable for the non paid aforementioned public receivables. 

Any transfer of shares in LS must be approved by shareholders representing the simple majority of the company and the share transfer document must be notarized and registered with the Trade Registry Office and published in the Turkish Trade Registry Gazette. A share transfer in AS does not need to be in compliance with aforementioned requirements. However, in an AS, the board of directors may object the share transfer in certain circumstances designated in TCC.

At this point, it should also be noted that AS is recommended where shareholders with potentially conflicting interests come together, such as in a joint venture, since it is possible to establish classes on the shares of AS. On the other hand, the LS may be preferable when the sole objective is to establish a wholly owned subsidiary of a foreign parent company with minimum capitalization and administration requirements.

Steps for the Establishment of a Limited Liability Company in Turkey:

Preparation of the AoA

Pursuant to Article 575 of the TCC, the AoA shall be in writing, signed by each of the shareholders of the Company. Moreover, signatures of all of the signing shareholders shall be notarized by a Turkish Notary Public. 

Under Article 576, paragraph 1 of the TCC, it is mandatory to state the address of the head office of the company in the AoA.

Because the trade names of the legal entity merchants are protected in Turkey, it is a must that the determined trade name has not previously been registered with any Trade Registry Office.
Following taxes and charges shall be applicable in connection with the execution and certification by a Turkish Notary Public of (i) the AoA, and (ii) the lease agreement of the head office of the company;
(i) For the AoA;

Pursuant to the Stamp Tax Law, a stamp tax, which is calculated at the rate of 5‰ of the face value of the AoA is levied on the AoA.  Such stamp tax shall be due on the date of the execution of the AoA.  However, the documents with respect to the establishment of a company are exempt from the stamp tax.  Therefore, no stamp tax is paid for the AoA.

Pursuant to Schedule 2 of the Law of Charges, a notary public charge, which is calculated at a rate of 1.13 ‰ of the face value of the AoA is levied for each signature put on the same. However, the documents with respect to the incorporation of a company are exempt from the payment of such notary public charge.

Only the certication fee will be paid to the Notary Public for the execution of the AoA.
(ii) In case of a lease agreement for the registered office;
Pursuant to Stamp Tax Law, a stamp tax, which is calculated at the rate of 1.89 ‰ of the total value of the rentals to be determined in accordance with the term of the lease agreement, is levied on the lease agreement for the head office of the company. Such stamp tax shall be due on the date of execution of the lease agreement. Pursuant to Schedule 2 of the Law of Charges, a notary public charge, which is calculated at the rate of 1.13 ‰ of the face value of the lease agreement is levied for each signature put on the lease agreement.

Registration with the Local Chamber of Commerce and the Trade Registry

The company must be registered with the relevant Trade Registry where its registered office will be located, and the notice of incorporation, the AoA and the signature circular containing the authorized signatories of the company must be published and announced in the relevant Trade Registry Gazette in order to put third parties on notice of the establishment thereof. Pursuant to Article 588 of the TCC, the company shall be deemed established upon its registration with the relevant Trade Registry.

Documents to be filed by the founders of the Company

After executing the AoA of the company before a Turkish Notary Public, the founders of the company or their duly authorized representatives shall apply to the relevant Trade Registry Office within thirty (30) days following the execution of the AoA before the Turkish Notary Public. 

Following documents shall be attached to the application letter which shall be filed with the relevant Trade Registry Office:

Incorporation Notice Form;

Notarized AoA (four (6) original copies one of which must be original);

Signature declarations of the managers of the company under the company’s trade name drafted by the Turkish Notary Public,

Commitment letter which is pursuant to Article 29 of the Registry Regulation dated 08.02.1957, a commitment letter is required from real persons or legal entities that apply for the registration of its company or the trade name of the company or from their representatives. The commitment letter must include; the trade name, capital, address, commencement date, the actual scope of activity of the company.

Original of the receipt of Türkiye Halk Bankasi, Corporate Branch of Ankara evidencing that 0.04% of the capital of the company has been paid to the account of Competition Authority;

For each manager a notarized copy of his/her identity card or passport copy;

For each foreign legal entity shareholder, the original and the notarized translation of the “certificate of activity” which will be issued by the industrial and/or commercial registry with which such shareholder is registered or by the competent courts. The certificate of activity must be certified by the relevant Turkish consulate or apostilled in accordance with the Hague Convention.

In addition to the abovementioned documents, the local chamber of commerce also requires the following documents to be submitted therewith:

Chamber Registration Statement: The Statement must bear the shareholders’ photographs and must be filled in.

If the founding shareholder of the company is a legal entity, decision regarding the participation to the company.

If the founding shareholders of the company are legal entities and their head offices are not located in Istanbul, in addition to the above-mentioned participation decision, signature circulars of the founding shareholders approved by a notary public based on the decision of the recent appointment of the board of directors, in case the founder shareholders are AS and the decision of the Shareholders’ Assembly, regarding the election of directors, in case it is an LS.

      Pursuant to Article 39 of the Law numbered 4054 which was incorporated with the Article 29 of the Law numbered 5234 on 17.09.2004, the partners of the LS and the shareholders of AS shall pay 0.04% of their capitals at the incorporation and in case of capital increase, the increased amount of capital to the Competition Authority. This is a condition for the registration of such companies. The partners must give bank slip to the competition authority for official registration.

Notifications regarding the foreign investors

There are no approvals and/or authorizations required for a foreign investor in addition to the ones required for a local company in establishing a company or participating in an existing one in Turkey.

However, under Article 4 and 5 of the Direct Foreign Investment Implementation Regulation some notification obligations have been amended for the foreign investors and the companies within the scope of the regulation which shall be made to the Incentive Application and Foreign Capitals General Directorate under Ministry of Economy ("FCGD").

Documents to be provided by the local chamber of commerce:

Under Article 4 of the Regulation, the local chamber of commerce shall provide the FCGD with the following documents:

A copy of the Incorporation Notice Form,

A copy of the amendments to the AOA of such companies which have to be registered with the trade registry and published in the Trade Registry Gazette,

List of partners or list of attendees which will be issued to the chamber of commerce by these companies.

In light of the foregoing information, the relevant Chamber of Commerce shall provide the FIGD with a copy of the Incorporation Notice Form, which will be filled out by the founders of the Company.

Documents to be provided by the investors:

Under Article 5 of the Regulation, the companies shall provide the FCGD with the following documents:

Annual “Activity Information Form for Direct Foreign Investments”, which has to be issued latest in May of each respective year.

“Capital Information Form for Direct Foreign Investments”, which has to be issued within one (1) month after the payment of the capital.

“Share Transfer Information Form for Direct Foreign Investments”, which has to be issued within one (1) month after the transfer of shares.

In light of the foregoing information, for the establishment of the company, the company shall provide the FCGD with the Capital Information Form for Direct Foreign Investments issued within one (1) month after the payment of the capital.

Payment of the Capital

Although the TCC does not require the subscribed capital to be paid in at the time of incorporation, pursuant to relevant instructions, at least 25% of the subscribed capital of the company must be paid in prior to the registration of the company. Such payment shall be completed by the submit of the AoA duly notarized to a authorized bank. In this respect relevant bank shall open a blocked account for the capital to be paid (at least 25% of the total capital). Procedures to be completed with the bank shall be finalized after the issuance of a letter of bank guarantee to be submitted to the trade registry. Upon the registry of the letter of bank guarantee to the Trade Registry, the abovementioned obligation of Payment of Capital shall be executed duly. The blocked account shall remain blocked for 3 months and the payment of the balance capital (if the partial payment has been made) will be determined by the resolution to be announced of the general assembly.  In case partial payments to be made in an amount of at least 25% of the total capital, the balance shall be paid within 24 months of the registration. 

Further Procedural Steps

The company will have been registered with the relevant Commercial Registry Office and thus will have gained its legal entity status.

Following steps will be taken at this last stage:

A withholding tax number, value added tax number and a tax identification plaque shall be obtained from the local tax office where the head office of the company is located.

A social security number shall be obtained from the relevant Social Security Administration and employees of the company shall be registered with such administration.

A registration number shall be obtained from the relevant Labor Office and employees of the company shall be registered with such office.

The Ministry shall be notified of the establishment of the company by the Trade Registry Office.

According to the article 623 of the TCC at least one of the shareholders of the company shall be appointed as a director within unlimited acting capacity and managerial power.