Turkey

6 Chapter Corporate Law

    • Establishment System

      The Turkish Commercial Code lists and defines the types of companies which can be incorporated in Turkey:
      - Joint stock company;
      - Commandite company;
      - Collective company;
      - Cooperative company.
       
      The Code also makes clarifications regarding the sole trader: the one-man company that supplies goods and services. Also regulated by the Code are groups of companies (“Group”).
       

    • Shareholder

      All shareholders may be foreign real persons and/or foreign entities. A minimum initial capital of TL 50,000 (approximately USD 23,000 / EUR 17,000) is required at all times. It is possible for the foreign shareholders' capital contribution to be kept in a foreign currency deposit account in the name of the company without being converted into Turkish currency.  
       
      ■Number of shareholders
      The New Turkish Commercial Code allows the establishment of joint stock companies (anonim şirket) or limited companies (limited şirket) with a single shareholder  
       
       
      ■Number of quorums
      The quorum for board meetings of a joint stock company is the majority of the total number of members of the board (Article 390, Commercial Code).
      Resolutions are passed by a majority of board members in attendance. For example, the quorum for a board of directors consisting of three members is two. Online board meetings and written resolutions are also possible. Online meetings must be permitted in the articles of association to be valid. Quorum requirements are regulated by Article 418 and 421 of the Commercial Code. General meetings must be attended by shareholders with a minimum holding of 25% of the company's capital. Resolutions can generally be passed by a simple majority. Specific voting majorities are regulated by Article 421 of the Commercial Code    
       
       
      ■Vote
      A company holds ordinary or, if necessary, extraordinary general meetings where shareholders exercise their voting rights on corporate matters.
      A simple majority is usually required for passing resolutions at general and board meetings. A specific voting majority is required for certain corporate actions. Resolutions to do the following must be unanimously approved in a general meeting (Article 421/2, Commercial Code):
      •To transfer the registered office to another jurisdiction.
      •To settle balance sheet losses that imposes an obligation on the company.
       
      For the following corporate actions, the consent of shareholders who hold at least 75% of the capital of the company is required (Article 421/3, Commercial Code):
      •Amendments to the area of operation.
      •The issue of preference shares.
      •Restrictions of assignment of registered shares.
       
      The following resolutions can be passed at a general meeting of a publicly held company by simple majority (Article 421/5, Commercial Code):
      •Increases and decreases of share capital.
      •Mergers and acquisitions.
       
       
      ■Protection of minority shareholders
      In general, all shareholders of a company have the right to (Article 225, Commercial Code):
      •Be informed about the company's business condition.
      •Examine the company's booking records or documents.
      •Be provided with an account statement that indicates the financial position of the company. 
      Most shareholders agreements structure for a blocking minority through veto rights, increased meeting and decision quorums for significant decisions, appointing directors to the Board and the like, ensuring that the investing partners have at least joint decision making powers on the overall management of a company and its affairs regardless of their stake in its capital. These are equally applicable to shareholders resolutions and Board decisions.  
       
       

    • Board of directors

      Under the New Turkish Commercial Code, in compliance with the EU legislation, and in line with the single-shareholder joint stock companies, the board of directors of a joint-stock company may comprise of a single person instead of at least three members. 
      The New Turkish Commercial Code does not require physical presence of board members. It allows board meetings to be held in an electronic environment.
       
      ■Number of people
      Single person at least three members
       
      ■Requirement
      The chairman of the board and board members must have full capacity and be older than 18 years old. 
       
      ■Selection
      Directors can either be (Article 359/1, Commercial Code):
      •Elected by the General Assembly.
      •Appointed under the articles of association (for example, by the other shareholders). 
       
       
      ■Representation right
      The TCC provides all shareholders of a joint stock company with the following rights (which may be exercised also by proxy):
       
      a. to participate in shareholders meetings
      b. to cast one vote per share (additional voting rights may be provided for in the articles of association, but non-voting shares are possible only for public companies)
      c. to review the annual report and financial statements (to be made available by management at least 15 days before each annual shareholders meeting)
      d. to require from the company's auditors clarification of the accounts of the company or of transactions entered into by the company
      e. to bring legal action against (general assembly of) shareholders' decisions where such decisions violate the law, the articles of association or the shareholders' duty of good faith (which is generally interpreted as a duty not to infringe on the interests of minority shareholders without legal justifications)
      f. to participate, pro rata to such shareholders' existing shareholding, in each increase in the company's capital, (except as may be restricted by the articles of association or a shareholders' resolution)
      g. to receive a pro rata share of dividends (except as may be restricted by the articles of association)
      h. to receive a pro rata share of any proceeds resulting from liquidation of the company (except as may be restricted by the articles of association)
      I. to ask for a special audit (if it is essential for the exercise of a shareholding right and if right to demand information and examination has been exercised before)
      j. preferential right regarding new shares which occurred from the increase of capital
      In addition, the TCC provides holders of shares representing 10% or more of the capital of a joint stock company with the following rights, which cannot, through the articles of association or otherwise, be limited:
      a. to be represented in board of directors on conditions that is provided in the articles of association
      b. to demand a special auditor from the court for the company (if general assembly rejected the request for a special audit)
      c. to demand the rightful termination of the company
      d. to demand the publish of the nominative share certificates in non-public companies
      e. to call an extraordinary general assembly of shareholders or require the inclusion of additional matters in the agenda of scheduled general assembly of shareholders
      f. to bring legal action regarding the auditor's removal and appoint a new auditor
       
       
      ■Responsibility  
      The primary obligation of a shareholder is to pay the outstanding portion of its capital subscription as and when called by the board of directors (or by the shareholders). In the event that a shareholder defaults in the payment of his/her capital commitment, the board of directors of the company can revoke all rights of such shareholder with respect to the shares of such shareholder that are not subscribed for, and deprive such shareholder from the said shares.
      In addition, shareholders have the obligation to maintain the confidentiality of commercial secrets of the company. Shareholders, who violate this obligation, shall compensate the damages suffered by the company. 
       

    • Accountant/Auditor

      The auditor must be appointed by the company's General Assembly. The auditor of a group of companies must be appointed by the parent company's General Assembly. An auditor must be appointed for each fiscal year and before the end of the fiscal year in which he will perform his duty.
       
      ■Obligation of setup –
      The board must register the appointment with the Trade Registry and announce it in the Trade Registry Gazette and on its website.
       
      ■Number of board of directors members
      The board of directors can be composed of one individual or entity. Minority shareholders can be represented on the board but it is not mandatory to appoint board members from among shareholders. Where an entity is appointed as a board member, it must be represented by an individual. Limited liability companies can be established with up to 50 shareholders.
       
      ■Requirement
      The auditor must be an independent auditing firm whose shareholders hold the title of either:
      ·Sworn financial adviser (Yeminli Mali Müşavir) (YMM).
      ·Certified public accountant (Serbest Muhasebeci Mali Müşavir) (SMMM).
       
      ■Selection
      If no other auditor is appointed, the auditor of the parent company is considered to be the auditor of the group.

       

    • Stock

      ■Type of shares
      Shares held by foreigners must be registered with the GDFI. Ordinary shares are usual, although preferred shares are available. Multiple-vote and nonvoting shares are permitted. A company may issue bearer shares after paying in 100% of capital, and may issue bonds up to the value of the paid-in capital and reserves. Approval from the capital market board is required to issue bonds. Ls: An Ls can issue share certificates. Limited companies may not go public.
       
      ■Issuance of new shares.
      The share issuance measure is estimated as the annual logarithmic change in shares outstanding adjusted for distribution events.
      Shares are granted to employees following a capital increase. The pre-emptive rights of current shareholders are restricted, and the employees subscribe to the newly issued shares derived from the capital increase.
      For private companies, at least nominal value of the shares must be paid. As a general rule, shares can be issued on their market prices for listed companies. Publicly held companies must have a valuation report for the share price. However, the employees can be offered a discounted price up to 20% in an IPO or SPO (Article 27, Communiqué on Sale of Capital Markets Instruments).
       
      ■Increase of capital
      Capital increase may be examined under two main branches; namely capital increase concluded through capital subscription and capital increase through internal funds. The increase through capital subscription requires the shareholders who made a commitment in order to subscribe to the capital increase, to bring capital in kind or capital in cash to the company. The TCC stipulates two conditions for the capital increase through external funds.
       
      ■Reduction of capital
      Capital reduction is regulated under articles 473-475 of the Turkish Commercial Code No. 6102 (TCC). The capital of a joint stock company can be reduced in order to return some of the capital to the shareholders, and recover the company´s loss. Can also be made concurrently with the capital increase where fully paid new shares will be issued in the amount of the reduced capital.  Capital reduction requires an amendment to the articles of association. Board of directors shall prepare an amendment text concerning the reduction.
       
      ■Treasury bills
      Treasury Bills are a type of government debt securities issued by the Turkish Republic Treasury with a term shorter than one year, while Government Bonds are a type of government debt securities issued by the Turkish Republic Treasury with a term equal to or longer than one year. If you want to make medium and long-term investment with your savings and earn secure income, then you can buy Treasury Bills / Government Bonds.  
       
       
       

    • Distribution of dividends

      The distribution of profits and the payment of an annual dividend with respect to the preceding fiscal year are recommended by the board of directors for approval by the company´s shareholders at the annual ordinary general assembly meeting, which must be held within three months following the end of the company’s preceding fiscal year. Unless higher quorums are required by the company’s articles of association, the decision quorum for the distribution of dividends is simple majority of those present at the meeting. Unless otherwise specified in the articles of association, each shareholder is entitled to receive the declared dividends, pro rata to the payment made to the company in respect of their shares.
       
      ■First Dividend
      Net Distributable profir is calculated as follows:
      A first dividend in the amount of 5% of the net distributable profit of a non-public company can be distributed only after the statutory legal reserves and the second statutory reserves have been set aside.
       
      ■Second Dividend
      10% of the part to be distributed to shareholders and other persons entitled to the profit after the distribution of the first dividend, is required to be set aside and added to the statutory reserves. Furthermore, the amount of emission premium for newly issued shares minus the expenses related to the issuance and the amount of the cancelled shares due to the expulsion of a shareholder and the expenses related to the cancellation, are added to such second statutory legal reserves.
      Only after the setting aside of the first and second statutory legal reserves may a second dividend be distributed to the shareholders. Furthermore, legal reserves can only be distributed as dividends after they reach 50 % of the companyñs paid-in capital or issued share capital. 
       
      ■Other
      In the Company Act, in order to ensure the transparency of corporation, financial statements, yearly reports and information of creditors and investors should be disclosed on the website. The information must be disclosed at least six months, except that the financial statements should be showed for 5 years.
      Turkey is ranked as 55 out of 189 economies in the World Bank’s Doing Business 2016 Report and placed above other high growth markets. Turkey stands at 94 among 189 economies on the ease of starting a business and it takes 7.5 days to start a business in Turkey.
      Turkey ranks 51 out of 140 in the Global Competitiveness index 2015 compiled by the World Economic Forum. In 2015 Turkey was ranked in the Transparency International corruption indicators as 66 out of 167 countries. Turkey placed higher than Brazil, India and China, but below South Africa, Hungary and Taiwan.