Turkey Confidence Rock Solid

Transcription

1 2012 / I Turkey Confidence Rock Solid t is without doubt that the world I has its eyes set on Turkey. It is out there. While governments are trying to implement austerity measures across Europe and the global markets being fragile, Turkey is maintaining an impressive economic stability in the midst of Europe and the Middle East. It is an investment safety zone, it is not only a desired holiday escape but an attractive emerging market. It is a destination of high quality but affordable production. It goes without saying that lawyers take a central role in regulating this dynamic environment because we are business lawyers. We are a growing, innovative law firm, constantly investing in our firm s growth and our fee earners, with the determination to be a legal powerhouse in the country. We have taken up new office space at our current location, Kempinski Astoria building, where we will be occupying 6 floors. Continued on page 3 Corporate 4 Audit Mechanism under the New TCC 6 Group Companies and Lawsuits arising from Group Companies under the New TCC 8 Squeezing out the Minority under the New TCC 10 Legal Aspects of Merger Transactions under the New TCC 12 Flexibility around Share Capital under the New TCC 14 Shareholder to Company Transactions Turn Debt Free with the New TCC 15 Creation of Privileged Shares under the New TCC 17 Civil and Criminal Liabilities of Executives under the New TCC 20 Capital Increase under Registered Capital System under the New TCC 22 Key Considerations for Private Equity Investors in the New TCC 24 Joint Stock Companies vs. Limited Liability Companies under the New TCC 26 Re-Buttle of AoA and Shareholders Agreement: Share Transfer Restrictions under the New TCC 28 The New CMB Communiqué on Corporate Governance 31 Corporate Governance 33 The New Investment Incentive Scheme 38 New Requirement on Corporate Boards: Independent Directors 40 Alternative Sale Methods of Renewable Energy 42 Should Mine Explorers be in Good Shape? Competition 44 Claim of Damages Arising From Competition Infringements 46 Parental Liability for Competition Law Infringements of Subsidiaries IN THIS ISSUE Finance & Projects 48 Financial Assistance under the New TCC 50 Standard Terms under the New TCO 51 Privileged Shareholders Meeting Under the New TCC 53 Surety under the New TCO 55 Effects of the New VAT exemption on the PPP Hospital Projects and BOT Projects Litigation & Arbitration 57 Turkey: International Investments and Settlement of Investment Disputes 59 Individual Application Right to the Constitutional Court 60 Construction Arbitration 62 Limits of Liability in Corporate Entities: Lifting the Corporate Veil 63 Security Obligation of Foreign Legal Entity 65 Arbitrability: What are the Limits? 67 Post-Award Remedy under Turkish Law: Setting Aside of Arbitral Awards 69 Limitations on Interest Rates 70 Lease Agreements in the New TCO 72 Draft Guide of the Visionary Tradesman in Arbitration 74 Minority Right to Request Special Audit under the New TCC Intellectual Property & Technology 76 Promotion of Unlicensed Pharmaceuticals 78 Amendments in the Pharmaceutical Pricing Communiqué 81 Trademark within Terms of Attachment and Realisation 82 Parallel Importation 84 Click-Wrap Agreements 86 Unfair Competition in the New TCC from the Consumer Protection Perspective 88 Draft Patent Law 89 Data Protection and Privacy Rights in Turkey Employment 92 Provisions of the New TCO regarding Annual Leave 94 Definite Period Employment Contracts in the light of the provisions of the New TCO 96 The New System on Compensation for Work Accidents and Occupational Illnesses 98 Home Service Agreements and Marketing Facilities Agreements determined under the New TCO 100 Controversy between the Turkish Labour Law and the New TCC with respect to Business Transfer 103 Standard Terms within the Framework of Labour Law 106 The Provisions of the New TCO regarding the Termination of Employment Contracts Real Estate 108 Turkey to Boost Foreigners Real Estate Acquisition 110 Collective Construction and Condominium Law of Turkey 111 The Recent Reform of the Legal Framework Governing Leases

2 No. 5 Disclaimer BÜYÜKDERE CAD. NO: 127 ASTORIA A KULE KAT: 6, 24, 26, ESENTEPE ISTANBUL TURKEY TELEPHONE: +90 (212) TELEFAX: +90 (212) info@yukselkarkinkucuk.av.tr WEBSITE: Legal News Bulletin Turkey YükselKarkınKüçük Adına Yayın Sahibi / Owner Cüneyt Yüksel Editör / Editor Cüneyt Yüksel Sorumlu Müdür / Responsible Gökhan Gökçe Yayın Türü / Type of Publication Yerel Süreli / Local Periodical Baskı / Printing PINARBAŞ Matbaacılık Ltd. Şti. Rami Kışla Cad. No: 88 Topçular İstanbul Tel: (212) This bulletin is designed to provide general information to the public and clients and has been prepared for educational and information purposes only. The information included herein is not for advertising purposes. The information in this bulletin is not intended to be nor does it constitute legal advice of and does not necessarily reflect the opinion of YükselKarkınKüçük Attorney Partnership. Professional legal advice should be obtained for specific questions and concerns. YükselKarkınKüçük Attorney Partnership will not be liable directly or undirectly for any loss that may arise from relying on the data included herein. Receiving this bulletin does not create an attorney-client relationship. Copying part or all of the contents in any form of this bulletin is prohibited and the contrary constitutes copyright infringement. For further information, contact Cüneyt Yüksel, Buyukdere Cad. No: 127 Astoria A Kule Kat: 6, 24, 26, Esentepe, Istanbul TURKEY, Fax: +90 (212) , info@yukselkarkinkucuk.av.tr Copyright 2012, YükselKarkınKüçük Attorney Partnership. All rights reserved.

3 L E G A L N E W S B U L L E T I N T U R K E Y Intro Previous page to continue Whilst we continue to make lateral hires reaching a number of approximately 80 fee earners, we are setting up new focused legal departments namely, Real Estate, Criminal Law and Tax once again proving, actually going beyond our full service mantra. Chambers Europe, one of the world s leading and most reputable legal directories, has awarded our firm with the 2012 Chambers Europe Award for Excellence, making YükselKarkınKüçük the first winner of this outstanding award in Turkey as the Best Law Firm of Turkey. We are extremely proud to have served our full service law firm motto in achieving this award. It goes without saying, we take pride in ourselves to be the dealmakers. To mention the most dynamic market topic, the M&A environment, the Turkish market is hot. We have been seeing private equity backed M&A deals in the healthcare, technology (online retailers attracting venture capitalists), energy, clothing retail, and education sectors. Indeed, this is not an exhaustive list, transactions are happening in all sorts of sectors. To give an example from the top deals, we believe that the deal highlight of the year was Anadolu Efes US$ 1.9 billion strategic partnership with SABMiller in the beer market (acquiring SABMiller s beer businesses in the CIS and creating a joint venture in Turkey), being the largest acquisition completed by a Turkish investor outside of Turkey after Ülker s acquisition of Godiva. This is a significant manifestation of the power of Turkish capital which shows not only Turkey is a foreign investment attraction, but the Turkish investor is actively seeking and completing acquisitions overseas. With regards to incoming foreign direct investment, we have come to witness that foreign investors have built a trust in the Turkish legal practice and legal regime as they happen to show comfort by entering into Turkish law governed agreements. Even so where the investors wish to choose English governing law agreements, we again have the local capability and qualified team members to assist them with those. The new Turkish Commercial Code preparations are intense. As a business law firm, in order to be fully geared up for July 1st onwards, we are organising client panels, training sessions and tailor-made studies for clients in order to assist them adapt their corporate legal structures to the requirements of the new code within the relevant deadlines in the code. We have hosted a special client panel on June 11th at the Four Seasons Bosphorus honouring guest Turkish company law scholars with a focus on the new code s impact on corporate governance and liabilities. The new Turkish Commercial Code will take Turkey half a decade ahead of its time. It will become easier to obtain information on non-listed companies (which make up the majority of the market in Turkey) from their websites and online detailed registries. This will give a good head start on due diligence studies without having to directly request certain information from the company which tends to delay the process. Robust corporate governance is encouraged. Companies will need to retain IFRS audited accounts (which is still permitted but not required in most developed countries) by independent qualified auditors. The revolutionary provisions of the new Turkish Commercial Code were criticised and discussed in many platforms. Turkish council of ministers processed the lobbying and feedback of industrial organisations, businessmen and investors in relation to particularly burdensome requirements and prepared amendment proposal that was submitted to the approval of the Turkish parliament on 18 June 2012 comprising of 44 amendments. The 44 amendments are expected meliorate those concepts that were quite alien to businessmen. To the possible extent and where relevant, our articles are reflective of the amended concepts. The Turkish parliament passed the long awaited legislation enabling full real estate ownership by foreigners. The Turkish construction business have been having a blast for some time, but the new law will definitely create a real estate boom, houses on the market will meet the expected higher demand which will potentially affect the house prices. A relative development at the firm is that we have recently set up our Real Estate practice, which was previous a sub-segment of the Corporate department, with a new partner (Emre Çizioğlu) joining in to lead the practice making it a more focused practice. Over the past years, we have also become a focused firm in the hotel and leisure sector which closely relates to our real estate practice. As we have promised to make it more frequent in giving legal updates from the country, this edition of the Bulletin is our 5th successful issue rich in size and number of articles diligently prepared by the associates of the firm. You will find a special section on the new Turkish Commercial Code and the new Code of Obligations which constitute the core of company law to start with and the following sections are based on Competition, Finance and Projects, Intellectual Property and Technology, Dispute Resolution, Employment, Pensions and Benefits, and Real Estate. And there is more to come. YükselKarkınKüçük Attorney Partnership 2012/I 3

4 L E G A L N E W S B U L L E T I N T U R K E Y Corporate Audit Mechanism under the New Turkish Commercial Code Merve ARSLAN T The New Turkish Commercial Code ( New TCC ) has been enacted and will enter into force in July The core principle in drafting and enacting the New TCC is to address the shortfall of the previous legislation, the current Turkish Commercial Code ( TCC ), in order to ensure a clear and comprehensive regime for corporate affairs in Turkey, thereby, increasing confidence within Turkey and globally encouraging foreigners to invest in Turkey. The New TCC has also harmonised domestic laws with international standards by introducing a number of additional requirements such as the requirement for companies to he New TCC has also harmonised domestic laws with international standards by introducing a number of additional requirements such as the requirement for companies to appoint external professional and independent auditors in compliance with the International Audit Standards. appoint external professional and independent auditors in compliance with the International Audit Standards. Turkish Council of Ministers has received criticisms regarding the New TCC, and therefore passed an amendment proposal to the approval of the Turkish parliament on 18 June 2012 on various articles. The proposal sets forth new changes in the audit mechanism. This article reflects the amendments introduced by the proposal text. Under the current TCC, it is mandatory to appoint a statutory auditor as one of the mandatory bodies of all joint stock companies and limited liability companies having twenty (20) or more partners. Pursuant to the New TCC this requirement for a statutory auditor to be appointed as a mandatory body of a corporation has been abolished and audits are to be carried out on companies under the New TCC must be conducted by eligible, professional and independent auditors complying with both international standards and EU standards. The New TCC details two different types of audit, which are independent audit and special audit. 1. Independent Audit: The companies that are subject to independent audit are determined by the Council of Ministers. The independent auditor shall be appointed by the general assembly/partners assembly of the company. Following such appointment, the name of the person authorised to undertake auditing services shall be registered with the Trade Registry and announced in the Trade Registry Gazette and the web-site of the company. An auditor can be an independent auditor or a company, the shareholders of which are independent auditors, authorised by the Institution for Public Supervision, Accounting and Audit Standards in order to conduct independent auditing. The New TCC provides a more functional auditing system than the current TCC. An agreement shall be executed by and between the Board of the Company and the independent auditor with regard to the services to be provided by the independent auditor. The independent auditor shall only be replaced by a court decision, where the headquarters of such company is located (the Court ). 2012/I 4

5 The New TCC allows an auditor of an independent audit firm to prepare audit reports of the same company for only seven years in a tenyear period of time. After the end of the seventh year, such auditor shall be replaced with another auditor for at least three years. The New TCC does not allow the following to be appointed as an independent auditor: If the proposed person is a shareholder of the company, If he is a manager or employee of the company subject to auditing, or worked in this position during the recent three years, prior to appointment as an auditor, If he is employed in a corporation more than twenty percent of the shares of which is held by the company subject to auditing, or renders service for a real person who holds twenty percent of shares of the company where he is to be nominated as auditor, If he has contributed to any other activity besides auditing service, such as preparation of companies statutory books and financial tables etc., If he is the legal representative, proxy, employee, director, partner, owner of a real person or legal entity disqualified as auditor according to provisions of fifth paragraph due to his/its contribution to an activity besides auditing service or support in preparation of the company s statutory books or financial tables, If he performs a duty for an auditor who is disqualified due to reasons set forth in the first and sixth paragraphs, If more than thirty percent of the income gained from professional activities during the last five years is acquired from the auditing and consultancy services rendered to a company or a corporation holding more than twenty percent of the shares of the company limited by shares; and if the same income is expected also in the current year. 2. Special Auditor The New TCC prescribes a second type of audit referred to as the special audit, which is not mandatory but an absolute right of the shareholders, as opposed to the independent auditor. The appointment of a special auditor may be requested in the instances specified below: (i) If restrained or negative opinion is released by the independent auditor regarding the relations of the company with the parent company or group companies, (ii) the Board has declared that the company has encountered loss due to certain legal transactions or practices of the group, which could not be recovered. Provided that the right to information and investigation has been previously exercised, each shareholder, whenever deemed necessary, shall be entitled to request clarification of certain matters, including those outside the agenda, through special auditing, from the general assembly. If this request is approved by the general assembly, the company or each shareholder shall be entitled to apply to the Court and request the appointment of a special auditor within thirty days as of the date of general assembly approval. If such request is declined, the shareholders representing at least 10% of the company s capital or at least 5% of the capital in the publicly held joint stock companies or the shareholders the nominal value of the shares of which is at least TL 1,000,000 may directly apply to the Court with such request. Following the evaluation of the statements and claims of the applicants, the Court may appoint one or more special auditors to the company. Indeed, the New TCC has significantly reformed the auditing system applicable to the companies. The degree of compliance with the International Audit Standards has dramatically increased through the introduction of the concepts of independent and special auditor. 2012/I 5

6 L E G A L N E W S B U L L E T I N T U R K E Y Group of Companies and Lawsuits arising from Group Companies under the New Turkish Commercial Code Elifcan ARGÜN The new Turkish Commercial Code ( New TCC ) numbered 6102, which was promulgated in the Official Gazette on February 14, 2011 and expected to enter into force on July 1, 2012, is introducing many novelties into the business world through the dynamics of transparency and accountability. Accordingly, the New TCC regulates the notion of group of companies for the first time in Turkish Company Law. This regulation that enables lifting the corporate veil, having recourse to liability of the parent company, and limiting the liability of board members of subsidiary companies is also significant in order to cover a loophole in Turkish Company Law. The notion of group of companies relies on the dominance principle whereby the control of a dependent company ( subsidiary ) is granted to a controlling company ( parent company ). According to the New TCC, this dominance may be exercised through three different mechanisms: (i) actual control, (ii) contractual control, and (iii) other means of control. Firstly, actual control can be maintained, directly or indirectly, when a capital company (i) holds the majority of the voting rights of another capital company, or (ii) has the right to ensure the election of a sufficient number of members that constitute the majority in the executive body of another capital company on the basis of its articles of association, or (iii) can exercise the majority of the voting rights individually or with other shareholders besides its own voting rights in another capital company on the basis of a contract. Secondly, if there is a written agreement between two companies which set forth the terms and conditions of management of the subsidiary, contractual control may come into existence. In order for this agreement to be effective, it has to be registered with and announced in the relevant trade registry. However, invalidity of this agreement shall not prevent the application of other provisions with regard to liabilities and responsibilities on the group of companies. Thirdly, apart from the conditions set forth above, if a capital company has dominance over another capital company s financial and operating policies then the existence of dominance will be presumed. Holding majority of the shares or the privileged shares that have a decisive effect on a capital company shall be the prima facie evidence for the existence of control. The provisions pertaining to the group of companies will become applicable if one of the parent companies or subsidiaries principal places of business is located within the boundaries of the Turkish Republic. The existence of the above-mentioned conditions does suffice for application of these provisions to group companies; there is no further need to prove the actual exercise of dominant influence. When a capital company acquires directly or indirectly 5%, 10%, 20%, 25%, 33%, 50%, 67% or 100% of the capital of another company or its already owned shares decrease below these percentages, it should inform the situation in writing to the company and competent authorities within 10 days as of the completion of the relevant transaction. The 2012/I 6

7 T his notification shall be made in writing and registered with and announced in the relevant trade registry. All rights including the voting rights attached to the relevant shares will be suspended unless and until the registration obligation is satisfied. Acquisition or loss of shares at the percentages given above shall be written clearly under a separate heading in the annual report, audit report and specified in the announcements that will be made on the company s website. In addition, the board of the subsidiary shall draw up a report within the first three months of the fiscal year and elaborate the relationship between the companies. The New TCC sets forth certain rules prohibiting abuse in the exercise of dominance in a group of companies under certain conditions. Once the existence of a controlling relationship between two or more companies has been determined, the next step is to examine whether this control regulation that enables lifting the corporate veil, having recourse to liability of the parent company, and limiting the liability of board members of subsidiary companies is also significant in order to cover a loophole in Turkish Company Law. is being used legally or illegally. According to the New TCC, abuse of control may be realised through (i) transactions executed by the board, or (ii) important resolutions adopted by the general assembly, or (iii) loss of credibility of the group of companies. Transactions exercised by the board of the parent company that may result in financial loss to the subsidiary may be (i) transfer of business, assets, funds, personnel, receivables and debts, (ii) reduction or transfer of profits, (iii) restricting rights on assets by granting real or contractual rights to third parties, (iv) undertaking liabilities such as securities or guarantees; (v) resolutions or prohibitions such as the restriction or interruption of investments that may negatively affect productivity or activities, or prevent the progress of the subsidiary. If losses arising from the above are not set off until the end of the relevant fiscal year, then each shareholder of the affected subsidiary may file a lawsuit against and demand compensation from the parent and the responsible board members. On an equitable basis, the judge can decide either by demand or reason that shares of the claimant shall be bought by the parent company or another suitable and reasonable remedy other than compensation. If resolutions regarding alteration of legal status, merger, spin-off, dissolution, issuance of securities and amendment to the articles of association are taken by using dominant influence and there is no clear and justifiable reason for adoption of such decisions, the shareholders who have voted against the relevant resolution in the general meeting and have disclosed their objections and annotated to the minutes may request the parent company to compensate the losses or to purchase their shares over the exchange stock or actual value or another generally recognised value. In such case, the court shall decide on the purchase of the shares over the value that is considered justified among the foregoing values in view of the characteristics of the concrete incident. The case in question shall be established within one year as from the date of objection against the resolutions mentioned above and within two years under any circumstances. Lastly, if the reputation of the group reaches a level that gives confidence to the society or consumers, the parent company shall be liable for the credibility aroused by the use of this reputation. This is a culpable liability and it should be determined whether the parent company s reputation is used or how it is used in each case. Creditors of a subsidiary may also file a lawsuit against the parent company or its board members based on the losses incurred by the subsidiary arising from the acts of the parent company. However, if a parent company wholly owns a subsidiary the parent company s board may direct the subsidiary to enter into transactions that might lead to losses in the subsidiary. In addition to the above-mentioned remedies granted to shareholders of the subsidiary, if a parent company holds directly or indirectly at least 90% of the shares and voting rights in a subsidiary and if the minority hampers the functioning of the subsidiary and acts in bad faith, the parent company may purchase such shares held by the minority. In conclusion, the New TCC introduces new principles to boost transparency and investment confidence in Turkish markets. In this sense, the shareholders rights in the group of companies have been improved and shareholders position has been strengthened through new check and balance mechanisms. 2012/I 7

8 L E G A L N E W S B U L L E T I N T U R K E Y Squeezing out the Minority under the New Turkish Commercial Code Hazal KORKMAZ F Imagine you take over a company and you are the majority shareholder of that company (you own 90% of the total shares). Most probably, you want to control and manage your fast-growing profit-making company with your own methods, however you cannot get along with your minority shareholder. You have decided to buy-out the shares of the minority shareholder. The problem is he refused your all buy-out offers and has no interest in selling his rom July 1, it will be possible under Turkish law for the controlling shareholder (on the condition that it holds the required amount of shares) to interfere with the right of ownership of the minority shareholder(s) in its subsidiary, and in the case of mergers, for the surviving entity to buy the shares of the minority shareholder(s) of the dissolving entity, provided that the detailed requirements under the New TCC are fulfilled. shares and leaving the company. Do you have to stick with your unfriendly minority shareholder? Unlike certain jurisdictions, Turkish laws did not provide squeeze-out provisions that would enable elimination of interest of minority shareholders (10% of the joint stock companies, 5% of the listed companies). Contrary to the current Turkish Commercial Code (Law No. 6762), the new Turkish Commercial Code ( New TCC ), that will enter into force on 1 July 2012, introduces the new squeeze-out procedures in line with EU regulations by entitling the controlling block to compulsory acquisition of the Company shares held by minority shareholders, which is a big relief for the majority shareholders with minority disturbance. The New TCC sets out two occasions for squeeze-out processes as below: Mergers In the first instance, pursuant to Article 141 of the New TCC, in case of mergers, as an exception to the continuation of the shareholding of a shareholder sets out that in case a shareholder does not wish to participate to the merger process, the legal entities involved in the merger may compel the shareholder(s) of the dissolving company to sell its/their shares merely by providing compensation through payment under the merger agreement. In this case, minority shareholders of the dissolving entity will not be entitled to keep the shares in the surviving entity, but squeeze-out compensation will be paid instead. This payment can be made in cash or in assets and/or with other shares. With a view to protect minority shareholder(s) rights, the New TCC explicitly stipulates the mergers proceeds to be fair and equivalent to the real value of the shares. The article does not explicitly grant this right to minority shareholders, however reasoning of the Article attaches this article with the quorum stipulated under Article 151 (the merger agreement must be approved by dissolving entities shareholders holding 90% of the voting rights) which restricts the application of this squeeze-out procedure. 2012/I 8

9 Furthermore, according to reasoning of this article, squeezed-out minority shareholder(s) are not entitled to object to the general assembly s resolution to squeeze-out. By Controlling Shareholder of the Company Pursuant to Article 208 of the New TCC, the shareholder who controls the company directly or indirectly, holding 90% of the share capital and having 90% of the voting rights Controlling Shareholder has squeeze-out right. According to this provision, in case the minority shareholder(s) acts obstruct the company s operations, or in case the minority shareholder(s) act in bad faith or creates disruption in the company, or acts irresponsibly the Controlling Shareholder is entitled to use its squeeze-out right, to buy-out the shares of the minority shareholder through the competent court. However, due to the fact that the New TCC does not define the conditions of occurrence of such right, the limits for the exercise of this right and determination of concrete assessment of minority shareholder(s) bad faith or irresponsible act is not easy to do and the method of determining the behaviors and attitude will be further clarified by the precedent judgments of the courts. This article does not only elaborate the circumstances that may trigger the squeeze-out right, it also stipulates calculation of the payment method for the minority shareholder(s) shares to be purchased by the controlling shareholder. In this case, the actual amount or value or the amount determined by the competent court will be paid to the minority shareholder(s) as a purchase price. As regards to the listed joint stock companies, the purchase price of the minority shareholder(s) shares will be calculated as per the stock exchange price, if the stock exchange prices does not seem to correspond to a fair value, the actual amount or value or the amount determined by the competent court will be paid to the minority shareholder(s). Conclusion The New TCC brings a major exception to the current principle, the continuity and preservation of the shareholding of any shareholder, for the minority shareholder(s). From July 1, it will be possible under Turkish law for the controlling shareholder (on the condition that it holds the required amount of shares) to interfere with the right of ownership of the minority shareholder(s) in its subsidiary, and in the case of mergers, for the surviving entity to buy the shares of the minority shareholder(s) of the dissolving entity, provided that the detailed requirements under the New TCC are fulfilled. 2012/I 9

10 L E G A L N E W S B U L L E T I N T U R K E Y Legal Aspects of Merger Transactions under the New Turkish Commercial Code Özlem ALTAY T he The New Turkish Commercial Code ( New TCC ), to enter into force on 1 July 2012, regulates merger transactions in detail in comparison to the currently applicable legislation. Existing rules under the Current Turkish Commercial Code ( TCC ) are inadequate to meet the needs of the practice. The New TCC attaches importance and enforces a comprehensive legal regime for restructuring of the corporations. It introduces new principles New TCC attaches importance and enforces a comprehensive legal regime for restructuring of the corporations. concerning types of mergers and also determines liabilities of the companies that are involved in merger transactions, as well as the liabilities of their shareholders. Fundamental principles of the New TCC, with respect to merger transaction, are summarised as follows: There are two merger types defined in the New TCC: (i) merger by acquisition (ii) merger by formation of a new company. New TCC sets out which company or cooperative can merge with which company or cooperative as transferor and transferee. Merger rules regarding the companies in the process of dissolution and companies subject to insolvency has been regulated under the New TCC. According to the Current TCC, the merger of such companies is forbidden. Continuity of the Rights. Shareholding rights of the shareholders of the transferor will continue in the surviving entity in the same manner. There is a new provision concerning a compensation called equalisation payments. The shareholders of the transferor have the right to make a claim on the shares and rights in the transferee at the value that matches their existing equity shares and shareholding rights. An equalisation payment can be provided while determining the change in company shares, provided that the partnership shares assigned to the shareholders of the transferee do not exceed 1/10 th of their actual value. Compensation can be paid to shareholders in exchange for privileges that will not be preserved after the merger. The right to continue with a non-voting share in the transferee is granted, if not available, the right to acquire a share with voting rights is granted. An equivalent right is granted to the owner of the redeemed share, or the purchase of such share is stipulated. Exist and Squeeze out. In a merger agreement, entities participating in the merger can provide shareholders of the transferor with the option to choose either to have equity shares and shareholding rights in the surviv- 2012/I 10

11 ing entity or to receive squeeze-out compensation equal to the actual value of the company shares to be acquired. In such a case, the minority shareholders of the dissolving entity will not be entitled to obtain shares in the surviving entity, however, they will be paid squeeze-out compensation. The compensation amount and the reasons as to why only compensation is paid, instead of granting equity and shareholding rights, must be stated in the merger report. Pursuant to Article 151 of the New TCC if the minority shareholder(s) of the dissolving entity is forced to accept the squeeze-out compensation payment in the merger agreement, shareholders holding 90% of the voting rights of such dissolving entity must approve the merger agreement Merger Agreement and Merger Report. The merger agreement and merger report has been regulated under the New TCC in detail. The merger agreement shall be in writing and it is signed by the management of the entities participated in the merger and approved by the general assembly. The merger report is prepared by the managing bodies of the entities participating in the merger individually or jointly to set forth the purpose of the merger and its consequences. Transaction auditor. The merger agreement, merger report and the balance sheet must be audited by the transaction auditor. Inspection Right. The merger agreement or merger report, annual activity report, audit report and financial statements for the last three years, including financial interim reports if necessary, shall be submitted to the review of the shareholders, owners of the redeemed share and bearers of securities for their inspection, in addition to the partners of the partnerships taking part in the merger. Registration. Mergers enter into force with the registration in the trade registry. Upon registry, the full succession is realised. Protection of Creditors. The Creditors are entitled to request collaterals within the threemonth period following the announcement of the merger in the Trade Registry Gazette if it is determined in the transaction auditor s report that there is a risk for the creditors arising from merger and collaterals are necessary. Different from the Current TCC, the merger procedure will not be delayed and it will be possible to continue the merger process by giving collaterals to the creditors. Facilitated merger. Facilitated merger has been introduced with the New TCC. Facilitated merger will be applicable for (i) merger of two small sized companies, (ii) merger of the controlling shareholders with a fully owned subsidiary, (iii) merger of the controlling shareholder with a subsidiary that owns 90% of shares. In these three situations there is no need to realise all the formalities. The Lawsuits. In a merger, if company shares or rights are not protected properly or squeeze out compensation is not adequate each partner/shareholder may demand compensation within two months following the announcement of the resolution to merge. It is possible to initiate a lawsuit for the cancellation of a general assembly decision pertaining to the merger. The merger is not suspended upon such claim. Liability. All persons including the transaction auditors, in some way involved in the merger process, are liable for the damage that they give to the companies, partners/shareholders and creditors resulting from their negligence. Personal liabilities of Shareholders. Shareholders who were liable for the debts of the transferee company prior to the merger continue to be liable after the merger, provided that these debts were incurred prior to the announcement date of the merger resolution, or reasons causing these debts have occurred prior to that date. The statute of limitations for personal liability of the shareholders is three years from the announcement date of the merger resolution. If receivables become due after the announcement date, the period of limitation begins as of the maturity date. This limitation of personal liability does not apply to the liabilities of the shareholders who a personally liable for the debts of the transferee. The existing merger rules were inadequate to meet the growing requirements of today s legal world. Therefore, the New TCC introduces detailed regulations on merger transactions in order to find solutions for today s problems. With the enactment of the New TCC, all rules applied to the merger transactions will be set out in detail and further merger procedures, for which the current law is silent, will be introduced. 2012/I 11

12 L E G A L N E W S B U L L E T I N T U R K E Y Flexibility around Share Capital under the New Turkish Commercial Code Berat HAMZAOĞLU The new Turkish Commercial Code ( New TCC ) gives Turkish joint stock companies much more flexibility in terms of what they can do with their share capital when compared to the current code which is to be abolished in July 2012 ( TCC ). Under the New TCC, a private joint stock company may buy back up to 20% of its share capital; or implement a conditional capital increase (which seems to enable for example debt equity swaps by the general assembly. The period of this authorisation cannot exceed 5 years. In this authorisation, the total nominal value of the shares to be acquired and the minimum and maximum consideration that may be paid to these shares must be stated. A company may not acquire its own shares in return for a consideration that exceeds, or will exceed, as a result of a transaction, 10% of its basic or issued capital. T he New TCC has also introduced particular new provisions which have made capital increase and capital reduction process easier compared to the previous TCC. Share buybacks must not cause a reduction in the company s net assets under the sum of: (i) the company s reserves that are not allowed to be distributed according to law and the company s articles of association; and (ii) the company s basic or issued capital, calculated after the cost of the shares to be acquired are deducted from the company s net assets. and employee share option schemes). The New TCC has also introduced particular new provisions which have made capital increase and capital reduction process easier compared to the previous TCC. Within the context stated herein, we have summarised and analysed the key changes brought in by the New TCC below. Share Buybacks Under the previous TCC, except for certain circumstances, the companies are prohibited from acquiring their own shares. However, under the New TCC, share buybacks are permitted provided that certain conditions are fulfilled. These conditions may be summarised as follows: The board of directors should be authorized Share buybacks are allowed only for shares of which the amounts have been fully paid. The above conditions apply also in the event of an acquisition of a parent company by its subsidiary. The company may acquire its own shares without the authorisation of the board of directors by the general assembly in order to protect the company from suffering a serious loss. In such a case the board must inform the general assembly with regard to reason and purpose of the buyback, the number of the acquired shares, total nominal value of these shares and the percentage they represent in the share capital of the company along with the consideration and payment terms. 2012/I 12

13 T hrough It is also important to note that in the below circumstances the company must dispose of the acquired shares unless the total amount of these shares owned by the company and the subsidiary company exceeds 10% of the company s basic or issued capital. Buyback is made as a result of complete succession (külli halefiyet); Buyback is made with a purpose to collect the receivables of the company by execution proceeding provided that the relevant shares are fully paid; Buyback is gratuitous provided that the relevant shares are fully paid. Conditional Capital Increase The New TCC has introduced a new method for capital increase namely conditional capital increase ( CCI ). Through CCI, the company will increase its share capital by making the holders of debt securities and its employees the shareholders of the company. The capital will be increased at the time and to the extent the right to CCI, the company will increase its share capital by making the holders of debt securities and its employees the shareholders of the company. acquire or exchange is exercised and the capital subscription (sermaye borcu) is paid or exchanged. The holder of debt security and the employee may only exercise their right to acquire or exchange with a written statement addressed to the company and a reference must be made to the relevant article of the articles of association of the company. In order for conditional capital increase to take place: CCI must be explicitly stated in the articles of association of the company. A general article relating to CCI is not sufficient. A specific CCI article should be established for each instance of CCI. A resolution must be passed by the general assembly of the company It is also important to underline that the share capital to be increased at each instance of CCI may not exceed 50% of the company s total share capital. The legislator has also protected the rights of the shareholders and has stipulated that in the event of issuance of certificates that contain the right to exchange or acquire, these certificates first must be proposed to the current shareholders. Capital Increase and Capital Reduction The New TCC has introduced certain provisions which have simplified the process of capital increase and capital reduction process when compared to the previous TCC. Regarding capital increase, the previous TCC has a requirement that the entire share capital of the company must be fully paid in before the capital increase. On the other hand, the New TCC has provided more flexibility and stated that if certain amounts are not paid and if these amounts are not considered as significant when compared to the entire share capital, the company may still increase its share capital. Changes regarding capital decrease may be summarised as follows: The report for capital reduction is prepared by the transaction auditor appointed by the general assembly instead of an expert which is appointed by a court judgment. The transaction auditor s report must state that the company holds sufficient assets to satisfy the rights of the creditors of the company despite the capital reduction. Otherwise, the general assembly cannot approve the transaction auditor s report. Parallel to the transparency principle of the EU Directive, the reasons, purpose and method of capital reduction must be stated in the published board resolution calling for the general assembly and relevant notification published in the website of the company. Further, the board is obliged to present a report to the general assembly. The report must be approved by the general assembly and then announced in the Trade Registry Gazette. 2012/I 13

14 L E G A L N E W S B U L L E T I N T U R K E Y Shareholder to Company Transactions Turn Debt Free with the New Turkish Commercial Code Gizem GÖKER T aking Among many others, the new Turkish Commercial Code ( New TCC ) brings a significant change into shareholders lives and forces them to let go of old habits. The criticised new rule restricting shareholder/ director to company transactions by way of restricting shareholders/directors from becoming indebted against their companies used to be rather strict, but the real intention being to get in the way of shareholders habit of withdrawing cash from company accounts is expected to serve its purpose. Due to the criticisms, Turkish council of ministers into account potential approval of the 44 amendments by the parliament, it is expected that shareholders, only at times the company is not solvent and directors relatives will be banned from borrowing from companies, while a director of the board will be able to with the approval of the shareholders. prepared and passed an amendment proposal to the approval of the Turkish parliament on 18 June 2012 comprising of 44 amendments. The draft proposes to get rid of the restrictions against borrowings by directors, banning their relatives only. Taking into account potential approval of the 44 amendments by the parliament, it is expected that (1) shareholders, only at times the company is not solvent and (2) directors relatives will be banned from borrowing from companies, while a director of the board will be able to with the approval of the shareholders. 1) What does the New TCC bring with regards to shareholder-company dealings that give rise to shareholder debts against the company? Article 358 of the New TCC restricts shareholders of a company to become indebted against the company except for capital subscriptions, unless the shareholders have paid their due capital subscriptions; and the company s profits together with free reserves are at a sufficient level to meet previous year s losses. [1] This rule should not interfere with the regular course of usual commercial transactions, as long as the financial standing of the company is at a sufficient levels. 2) What does the New TCC bring in relation to inter director-company dealings? Unless permitted by the general assembly (i.e. a shareholders meeting), a director of the board cannot enter into a transaction with the company on his or others behalf according to Article 395/1 of the New TCC. Otherwise, the company may claim annulment of the transaction (whereas the other party to the transaction cannot). In any event, directors relatives are prohibited from incurring debt in form of cash or in kind (i.e. non-cash assets) against the company, neither can the company guarantee or secure the obligations of, take over liabilities of nor take on [1] Before the 44 amendments, this used to be unless the debt: has arisen from a transaction necessitated by (1) the company's area of business and (2) the shareholder's business; and is at arm's length terms. 2012/I 14

15 liabilities for these persons. [2] This is governed under Article 395/2 of the New TCC. Otherwise, the creditors of these transactions may pursue these persons directly for the relevant amounts owed by the company. 3) Which type of companies does the rule apply to? The rule applies to joint stock and limited liability companies. 4) What sort of companies are exempt from this restriction? (a) Group companies. Provided that the parent company does not cause losses to the subsidiary in exercising control thereupon, intra group [3] surety and guarantees are permitted. (b) Banks. This rule will not prejudice the special provisions of Banking Law. 5) Is there a timing to comply with this rule and is there a transition period for existing debts? The rule goes live on 1 July 2012 with the New TCC s entry into force. As for existing debts, shareholders have until 1 July 2015 to fully repay their debts to the company accounts in cash. [2] This restriction was extremely criticised because it used to also prohibit the directors of the board and companies in which a director holds at least 20% shares from borrowing from the company, but is now being amended by the Turkish parliament. [3] The New TCC has also introduced the concept of "group" to company law for the first time in Turkey with a similar definition to EC merger regulation control definition in controlling a subsidiary. Persons failing to repay the owed amounts until this deadline will be sanctioned in accordance with the section 6 below as if they have created the obligations after 1 July ) What are the sanctions in implementing the debt restriction? Persons breaching the no-debt rule or failing to repay their existing debts to the company in cash may face judicial fines [4], these are namely (1) persons lending money to the shareholders against Article 358 [5] and (2) persons breaching the provisions of Article 395/2 [6] (these can be the directors relatives borrowing from the company and representatives of the company lending to them). * * * As expected to be meliorated by the 44 amendments, we believe that the main intention in introducing this restriction is to protect company accounts. The implementation of the rule will tell us more about this when there is comparable practice in the near future. Although it may be challenging to get accustomed to this rule (which I would expect to be deeply felt in family owned businesses), in the long run it should be quite useful in maintaining the equity standing of companies. [4] At least 300 days multiplied by the daily regulatory fine [5] This originally was persons borrowing money and is now being amended by the parliament. [6] This originally was persons borrowing money and is now being amended by the parliament. Creation of Privileged Shares under the New Turkish Commercial Code Nihan PALTA Under Turkish Law Joint-stock companies, forerunners of modern corporations, differentiates from other types of companies as they suitability for a considerable amount of participants, permitting significant growth of capital by combining small investment amounts which would not be significant individually. Privileged shares which grant superior rights to its holders in the articles of associations is a method used to attract such small investments. Since the principle of equality of shares remains for the shares of the same nature and there is no absolute equality among the shares under Turkish Law, there are no legal 2012/I 15

16 L E G A L N E W S B U L L E T I N T U R K E Y S obstacles that may prevent certain shareholders to be treated differently in a way to grant certain privileges to shares held by them and therefore, issuance of privileged shares is not contrary to the equal treatment principle. This instrument is frequently used in order to grant superior rights to financial investors or private equity companies aiming to protect management control while financing the companies. Legal concept The current Turkish Commercial Code ( TCC ) and the new Turkish Commercial Code ( New TCC ) enable creation of privileged shares without specifying any limitations. A privileged share is created by granting certain superiorities and different rights to a share as compared to other ordinary shares, the content and the limit is explicitly stipulated in the articles of association. ince the principle of equality of shares remains for the shares of the same nature and there is no absolute equality among the shares under Turkish Law, there are no legal obstacles that may prevent certain shareholders to be treated differently in a way to grant certain privileges to shares held by them and therefore, issuance of privileged shares is not contrary to the equal treatment principle. Article 401 of the TCC stipulates that, The articles of association may grant preferential rights concerning dividends or the distribution of the assets of the company in case of winding up and other privileges to certain classes of share certificates. without providing a definition for the privileged share. Even though the text of the Article states that privileges can be granted to share certificates, it can be understood that the Article grants privilege to shares since the share certificate does not have a constitutive character on the issuance of shares and establishment of shareholding rights and obligations. In the New TCC, this confusion and the lack of definition for privileged share has been corrected. Article 478, paragraph 1 of the New TCC stipulates that Privilege may be granted to certain shares in the initial or amended articles of association and privilege has been defined in Article 478, paragraph 2 of the New TCC as follows: The privilege is either a superior right granted to the share concerning the dividend, liquidation share, preemptive and voting rights or a new shareholder s right not set forth in the Code. Thus, the New TCC permits a privilege to be created by granting a superior right in comparison with another share and also by granting a right not set forth in the New TCC. Issuance of privileges to groups As acknowledged by the Court of Appeal, a privilege is not only granted to a share but also to a share group. Privileges granted to certain share groups must be exercised together. In other words, the privileged rights accorded to shares held by the same group are not individually conferred, contrary to a privilege being granted to only one share. This means that a privileged right may be granted to a group as a whole, and the group may be obliged to exercise this right together, subject to certain quorums with respect to decisions to be adopted in special meetings for holders of such privileged shares. Method of issuing privilege While the underlying issuance method as to whether it is possible to issue privileged shares other than foreseeing the same in the initial articles of association is subject to discussion in the doctrine, the Court of Appeal has accepted that this may also be done through an amendment to the articles of association. The New TCC has clarified this issue by stipulating that issuance of privileged shares can be made through an amendment to the articles of association requiring a general assembly to adopt a resolution with the affirmative votes of the shareholders representing at least seventy-five per cent of the shares of the company. In case a quorum is not reached at the first meeting, the same quorum must be reached in the subsequent meetings as specified in Article 421, paragraph 3 of the New TCC. Types of privileges Pursuant to Article 401 of the TCC, privilege can be granted to dividends, distribution of liquidation proceeds and other cases. The third situation mentions that there is no such exhaustive list. Similarly, Article 478/2 of the New TCC enumerates in non-restrictive way cases where privilege can be granted stipulating specific wordings for privilege to pre-emptive and voting rights. Moreover, the New TCC foresees in Article 360 that privilege can also be granted concerning the right to be represented on the board of directors. In relation to the amendments to be intro- 2012/I 16

17 duced with the New TCC, voting rights are subject to certain restrictions. Pursuant to Article 479 of the New TCC, privilege in voting rights may be granted to shares with equal nominal value by conferring different number of voting rights which is contrary to the current legislation giving the possibility to also grant privilege in voting by conferring equal number of voting rights to shares having a different nominal value. On the other hand, while there is no limitation to the number of voting rights that may be granted to shares in the TCC; a maximum of five voting rights may be granted to one share in accordance with Article 479, paragraph 2 of the New TCC. Upon the request for the removal of such restriction due to institutionalisation or a just cause, the commercial court of first instance, where the registered address of the headquarters of the company is located, may decide to exclude such limitation upon review of just cause or institutionalisation project that the applicant is based upon. Any change to be made on the institutionalisation project is subject to court approval and the court decision for exception may be withdrawn if and when it is understood that the project cannot be realised or just cause ceases to exist. With respect to privileged rights to nominate candidates for the board of directors or the auditing committee, this right is considered as a group privilege according to the Court of Appeal s precedents. For the purposes of terminating discussions, Article 360, paragraph 1 of the New TCC envisages that the articles of association may foresee representation of certain groups in the board of directors meetings. Accordingly, in case such groups are granted the right to nominate candidates for the board of directors or auditing committees, such shares are deemed to be privileged. Civil and Criminal Liabilities of Executives under the New Turkish Commercial Code Merve ÇIKRIKÇIOĞLU- Oya UĞUR Turkey is on the verge of a new era with the enactment of the new Turkish Commercial Code ( New TCC ). Focusing on transparency and institutionalisation of commercial enterprises, the New TCC establishes new rules on corporate governance. Corporate governance is in fact a major concept introduced by the New TCC. In this respect, the New TCC also provides a systematic structure on the liability of executives. The liability concept is regulated under two sections: (i) Civil Liability and (ii) Criminal Liability. This article aims to present a framework of the amendments and modernisation brought under the New TCC in relation to the liabilities of executives. The provisions regarding civil and criminal liability of executives are separately regulated under the New TCC, which apply to both joint stock and limited liability companies. The board of directors is the key managing body in a joint stock company, whereas a limited liability company is administered by a manager or group of managers appointed by the shareholders. Accordingly, these rules regarding liability of executives mainly relate to board of directors in a joint stock company and managers in a limited liability company. However, although board of directors is the main managing body in a joint 2012/I 17

18 L E G A L N E W S B U L L E T I N T U R K E Y N ew stock company, the corporate reality shows that it is not the only managing body. In this respect, the New TCC identifies the distinction between the board of directors and management and introduces the concept of organisational internal regulation. As board of directors are entitled to delegate its authorities to certain board members of third parties, these liability provisions are not exclusive to board members in a joint stock company, and the persons who are responsible for the management of a company may be subject to civil or criminal liability, as the case may be. (i) Civil liability The New TCC provides a list of instances which will trigger the civil liability of executives. These instances are as follows: - Unlawful documentations and declarations: The liability arises from inaccurate and misleading documentations and declarations with respect to incorporation of a company, capital increase and decrease, mergers, spinoffs, conversions and issuance of securities. TCC identifies the distinction between the board of directors and management and introduces the concept of organisational internal regulation - Misrepresentation on the share capital and being aware of incapability to satisfy capital commitment: The liability arises from false declarations with regard to subscription and payment of share capital. - Fraudulent valuation of capital in kind: The liability originates from irregularity in valuation of capital in kind. - Collection of capital from the public: Save for the Capital Markets Board legislation, the liability emerges from collecting money from the public for purposes of incorporation of a company or increasing share capital of a company or promising to do so. - Breach of duty arising from laws and articles of association and lack of diligence in delegation of authority: The liability originates from breach of obligations of board members and executives arising from the laws and articles of association as well as from lack of diligence in case of delegation of authority. The New TCC stipulates various penalties for the persons who are held liable for these actions. The penalties vary between monetary fines and 3-month to 3-year imprisonments. However, in order for persons to be held liable for these actions, they need to act in negligence (kusurlu). If the relevant person proves that they have not acted negligently, they will not be held liable. The New TCC further states that if the management function is partially or completely delegated (for example, to a third party), such board member delegating the management function will not be held liable unless proved that he/she/it did not act diligently while delegating his/her/its authority to such other person. Extent of liability. The New TCC makes a remarkable amendment with respect to the extent of liability. In this regard, the New TCC introduces the concept of differentiated solidarity (farklılaştırılmış teselsül). Differentiated solidarity means that if more than one party is obliged to indemnify the same damage, each one will be held liable based on the degree of their fault and the circumstances of such instance. In this regard, where more than one board member is liable for compensation of damages incurred by the company, each board member will be liable pro rata to the degree of their negligence. Accordingly, a board member may not be held liable if no fault can be attributed to him/her, and the ones who are negligent will be held liable in proportion to the degree of their negligence. Discharge of liability. The general assembly may discharge the relevant executive(s) for such actions by obtaining a resolution with respect to a certain act or instance giving rise to liability. The shareholders who discharge a board member with their affirmative votes cannot initiate a lawsuit against such board member. The remaining shareholders who did not give affirmative votes may initiate a lawsuit provided that it is filed within 6 months following the release of such board member. It should be noted that a discharge of liability granted by a general assembly resolution cannot be rescinded by another general assembly decision. The New TCC provides an exception to this rule with regard to liabilities arising from incorporation of a company or share capital increase. In this respect, the board members cannot be discharged from their liability arising from the foregoing, unless a term of 4 years pass from the date of registration of the relevant company. Statute of limitations. Both the company and shareholders are entitled to request compensation for the foregoing instances. However, the 2012/I 18

19 action for compensation shall be brought within two years after becoming aware of the damages and the person to be held liable, and in any case within five years following the date of action that has given rise to damages. (ii) Criminal liability A major change brought under the New TCC is the criminal liability of the executives. The New TCC sets forth a list of penalties for breach of certain obligations stipulated under the laws. Below is a list of actions which trigger criminal liability of the executive. Please note that these crimes are subject to ex officio prosecution. The persons liable for the following actions will be imposed administrative fine of TL 4.000: - Board members and other executives failing to comply with the duty to keep books; - Board members and other executives to preserve copies of all kinds of documentation; - Board members and other executives failing to notarise the books at the opening and closing; - Board members and other executives failing to keep commercial books; - Those issuing fraudulent inventories; - Those failing to submit the documentation kept in electronic media; The persons liable for the following actions will be sentenced to judicial fine which shall not be less than 200 days: - Board members of an affiliate failing to comply with the reporting obligation with regard to relation with the parent company and affiliates; - Board members of an affiliate failing to submit the necessary information for the preparation of the report by the board of directors of the parent company. The persons liable for the following actions will be imposed a judicial fine which shall not be less than 300 days: - Relatives of the Board members up to certain degree breaching the prohibition to become indebted to the company in cash. - The Board members for whom the company grants surety, guaranty or any kind of security. - The persons who fail to provide (in part or in whole) the books, records, documents and information regarding thereto despite being requested by the authorized persons. - The persons who fail to keep the commercial books in line with the New TCC. The persons liable for the following actions will be imposed an administrative fine varying from 100 days to 300 days: - Board members and managers in a limited liability company failing to comply with their obligation to disclose information on the internet. The persons who breach the confidentiality obligation will be sentenced to imprisonment from one year to three years and also imposed a judicial fine up to five thousand days. Conclusion The New TCC sets forth the liabilities of executives thoroughly and systematically. Introduction of new corporate governance rules will enable companies to be represented and administered in a more professional manner. Enforcement of the New TCC will lead to transparency in management function, which will play a significant role in the protection of shareholders. Accordingly, the number of investors becoming shareholders in companies will increase in due course. 2012/I 19

20 L E G A L N E W S B U L L E T I N T U R K E Y Capital Increase under Registered Capital System under the New Turkish Commercial Code Ayşegül SOLMAZ As is known, the New Turkish Commercial Code ( New TCC ) will be effective from 1 July 2012 with the introduction of fundamental changes regulating the Turkish company rules and regulations. Within the framework of the New TCC, one of the sections subject to fundamental changes is, without any doubt, commercial companies. Changes in current provisions and principles of the Turkish Commercial Code ( TCC ) concerning commercial companies are enabling joint stock companies to adopt the registered capital system. (New TCC Article 332 paragraph 1) Please note that, the amended provisions do not make any change in the application of capital markets legislation and Capital Markets Board ( CMB ) regulations with respect to share capital increase. Capital markets legislation will continue to be applied to companies to launch IPOs or public companies, in addition to the New TCC provisions. As per the amended provisions, non-public joint stock companies are also able to benefit from the opportunity of flexible capital increase introduced by the registered capital system. This possibility would have a positive effect, considering the fact that the allocation of the registered capital system to publicly held joint stock companies does not have any theoretical base and the efforts of reducing the differences between publicly held and non-public joint stock companies. Opportunity to privately held companies for adopting registered capital system. According to Article 332 which enables joint stock companies to adopt the registered capital system, the basic capital representing the entire capital subscribed in the articles of association ( AoA ) may not be less than TL 50,000 and in case of an increase of the capital, the initial capital may not be less than TL 100,000 in privately held joint stock companies which have adopted the registered capital system disclosing the authorisation cap given to the board of directors. This minimum capital amount may be increased by the Council of Ministers. As a restrictive precondition to the increase in share capital, the essential principle in the TCC has been preserved by the New TCC where no new share could be issued unless the issued shares are sold in full and their amounts are paid except internal source transfers. Pursuant to the said article, paragraph 2, the initial capital in joint stock companies, which adopted the registered capital system, is the mandatory capital which must be possessed at stage of incorporation and when initially adopting the system; whereas the issued capital is the capital which represents the total of nominal values of the entire shares issued. Increasing the company s capital without convening a general assembly Another flexibility which is presented in the New TCC is increasing the company s capital without convening a general assembly. Pursuant to Article 460 of the New TCC, in the event 2012/I 20