Corporate Law - Turkey
- Turkey
- 02/28/2008
- Nedim Karako & Partners
Regulations and Rules
Commercial activities and subjects are governed by the Turkish Commercial Code (1956) and the Act of Debts (1926). The Act of Debts regulates the contracts in general and every fundamental aspect such as formation, abolition, annulment and invalidity etc. The Turkish Commercial Code is constituted of 5 parts and regulates Traders, Companies, Legal Instruments, Insurance, Land Transport, Sea Transport etc. Law on Capital Market No. 2499 regulates all the transaction regarding the capital market and the Stock Exchange, how companies may be quoted to the Stock Exchange, the transfer of shares, etc.
Types of Companies
According the Turkish commercial Code and Code of Obligations there is 6 types of Companies which are ; Collective Company, Commandite Company, Joint Stock Company, Limited Company, Ordinary Partnership and Joint Venture.
In Collective Company and Ordinary Partnership, the partners are fully responsible from the debts of the Company with all their personal belongings and those companies are manages by the partners.
In the Commandite Company some partners are fully responsible from the debts of the Company with all their belongings and some partner only with their capital investment. This type of company is managed by the fully responsible partners.
Joint Ventures are special union of companies coming together for a special project.
Joint Stock Company (Société Anonyme) and Limited Companies (S.A.R.L.) are most essential type of companies used in Turkey. Previously it was obligatory to have permission or approval of Ministry of Commerce to establish such accompany or to modify the By-Laws of those two companies. In the scope of the harmonization of the legislation with the EU legal system this necessity has been abolished.
The Liabilities of Shareholders in the Company
As said above in Ordinary Partnership and Collective Company the partners are fully responsible with all their belongings from the debts of the company.
In Joint Stock Companies and Limited Companies the liability of the shareholders is limited with their participation to their share capital and except the public debts like tax debts or social security premium debts, the shareholders have no any responsibility from the debts of the company provided they have not givenan individual guaranty. Once the capital share is paid shareholders have no any liability for the debts of the company.
Share Capital
A Limited Company must have minimum 2, maximum 50 partners. The minimum share capital of the company must be of 5.000 YTL. (≈ 2.500Euro) Under the Commercial Code it’s forbidden for the Limited Companies to issue share certificate.
Minimum 5 shareholders are required to set up or maintain in good standing a Joint Stock Company. There is no upper limit for capital. The minimum amount of the share capital is 50.000 YTL. (≈ 25.000Euro) The capital can be in cash or in kind and it may contain all the measurable values like money, bonds, legal instruments, properties, intellectual property rights, real estate property, chattels etc.
The shares which represent the capital in kind cannot be assigned for two years from the establishment of the Company. All the banks and insurance companies must have the capital in cash.
The shares may be registered to the nominee or may be to the bearer. Normally the shares are “Ordinary Shares” but in some cases “Preferred Shares” may be issued giving some special rights to the owner.
Corporate Governance
In order to set up a company it’s a necessary to draft the “Articles of Association” (By-Laws) which regulates the targets, trading title, work area, corporate purpose, shares, capital, rules and decision making organs of the company.
This By-Law has to be legalized by the public notary. All the companies must be registered to the Commercial Register.
Shareholders Meetings
1. - General Assembly of a Joint Stock Company, is the main organ of a Joint Stock Company, is formed by the participation of all the shareholders and is the main Board of the company.
To approve the budget and the yearly accounts, the modifications on the Company By-Laws, to elect and to dismiss the board directors, to decide about the policy of the company and how to distribute the dividends, to increase the share capital are among the duties of the general assembly whose meeting has a specific procedure and a representative from the Ministry of Industry and trade must be present
The meetings take place ordinary once a year or extraordinary when ever needed for particular decisions.
The minority which represents minimum 10% of the shares has a special Minority Rights which gives the power to ask for special auditor or to postpone the General Assembly in order to study the account reports or to ask for the annulations of these decisions taken in the general Assembly . The Minority rights in Companies registered to the Stock Market is 5%
2.- In Limited Companies the Shareholders Board also must meet once a year as ordinary meeting . Extraordinary meetings may be held when ever needed.
To approve the budget and the yearly accounts, the modifications on the Company By-Laws, to elect and to dismiss the Manager or Managers, to decide about the policy of the company and how to distribute the dividends, to increase the share capital are among the duties of the Shareholders Board. The presence of the representative from the Ministry of Industry and trade is not required
Minimum numbers of Board meetings/year :
The General assembly of shareholders in the Joint Stock Companies and the Shareholders Board of the Limited Companies must meet at least once a year within 3 months from the closing of the yearly accounts for the approval of those accounts and decide for the distribution or not of the dividends.
Changing the By-Laws
The company By-Laws. should be modified in order to increase or reduce the share capital and change the corporate purpose or any other item of the By-Laws. In Joint Stock Companies the General Assembly or in Limited Companies the Shareholders Board must meet in this respect and take the necessary decision if the necessary meeting and decision quorums are met. Those decisions have to be registered with the Trade Registrar and published in the Trade Registration gazette.
Under the Act on Capital Markets provided other necessary formalities have been fulfilled by the decision of the Board of Directors capital increase can done up to the amount of the registered capital in companies which are under the system of registered share capital system.
Assignment of Interest :
The transfer of shares of a Limited Company must be done before Public Notary, approved by the Board of Shareholders and registered with the Trade Registrar and published in the Trade Registration Gazette.
Regarding the transfer of shares in the joint Stock Company, the barer shares are acquired by the delivery of the share certificate but for the registered shares enrollment and registration to the Shareholders Log after Board of Director decision is required. No registration with the trade Registrar or publication is required.
Decision Making Bodies
Appointment of Directors :
1.- Limited Company is managed and represented by all the shareholders. A board of directors does not exist in a limited company. By the decision of the Shareholders Board a Manager or Managers may be appoint among the shareholder or among non-shareholder for the management of the Company.
2.- The Board of Directors which is the main managing body of the Joint Stock Company, may be elected by the General assembly for 3 years at the most.
The Board may appoint a Manager or managers and decide for their duties and responsibilities.
Power of Directors :
The Directors and Managers have the right and duty to manage and represent the Company, in the best way.
They are responsible for the good standing and management of the Company, to keep the bookkeeping according the laws, to invite the General Assembly for meetings and decide for the agenda, the execution of the decisions of the General Assembly, preparing of the budget are among the duties of the board.
Minimum number of Independent Directors :
In a Limited Company there is no any minimum limit for Manager even one is enough.
In a Joint Stock Company the minimum number of Directors required by the Law is 3 Directors elected among the shareholders. Non-shareholders can be elected to the Board of Directors provided they are elected on behalf of a Legal entity shareholder. There’s no any restriction about the number of independent directors but it has to be defined in the By-Laws of the Company.
Term of Appointment :
The members of the Board may be elected for maximum three years period.
Range of Directors Liabilities:
The managers of a Limited Company and the members of the Board in a Joint Stock Company are liable for their negligence and willful misconducts and of all the damages they cause to the company.
They are not allowed to compete with the company or have an activity in a competitive company, provided special permission is given by the General. Assembly in this respect
Annual Accounts- Financial and Operating results : Duties and Liabilities :
With the exceptions of having obtained a special permission from the Ministry of Commerce as per the Tax Laws, the annual fiscal period is a calendar year, starting from the 1st of January and ending 31st of December.
Specially in companies with foreign investment and in order to consolidate the accounts of the Turkish company with the foreign main company accounts different fiscal years may be accepted provided a permission in that respect has been obtein from the Ministry of Finance.
Necessary Documents Time limits :
A Balance Sheet and Loss and Profit Account must be prepare and submit to the General Assembly in Joint Stock Companies or to the Board of Shareholders in a limited Company, within 3 months from the closing date.
Within 3 months from the end of the fiscal year, the financial statements has to be approved by the General Assembly and related Corporate Tax Return must be submitted to the Tax Authority within 4 months from closing.
Authentication :
Balance Sheet and Loss and Profit Account must be authenticate by sword Fiscal Councels.
Publishing in the Legal Gazette :
Provided the Company is not registered to the Stock Exchange there is no necessity to publish the financial reports in the gazettes.
Statutory Audit
Scope
Statutory auditors, which forms the 3rd organ of a Joint Stock Company, and are responsible to the General Assembly. The Auditors have the right and duty to supervise the Board Members and all the activities of the Company. Any irregularity has to be informed to the General Assembly.
There must be minimum 1 auditor and, maximum 5. The majority of the auditors must have the Turkish citizenship. Board members and close relatives are not allowed to be auditors at the same time.
No any Auditor is needed in a Limited Company, provided the number of shareholders is not over 20.
Competence :
No any special competence is required by law for being elected as Statutory Auditor. However most of the foreign investment companies in addition to the Statutory Auditor, they have External Auditors chosen among the best known international audit companies.
Procedure :
The Statutory Auditor or Auditors are elected by the General Assembly of the Joint Stock Company or by the Board of Shareholders of a Limited Company having more than 20 shareholders..
Quoted Companies
Companies quoted to the Stock Exchange are regulated by The Law on Capital Markets (CML) which was enacted in 1981. The Capital Market Board which is empowered by this Act has the right and duty of regulating and supervising the securities markets in Turkey. It has the target to develop the capital market instruments and organize the markets.
The Board is authorized to publish the necessary regulations regarding the Capital Market, to initiate lawsuits against the Board of Directors decisions of quoted companies or request the bankruptcy of the companies or personal bankruptcies of the shareholders which hold more than 10% of the share capital. Pursuant to the CML, the Board can take all the measure in order to audit these companies.
3 Stock Exchanges are operating in Turkey. Istanbul Stock Exchange and Istanbul Gold Exchange are the two exchanges in Istanbul. In addition, an Option Stock Exchange is operating in Izmir
The companies which have more than 250 share holders are subject to CML. Minimum 25 % of the share capital must be quoted in companies with a share capital up to 10.000.000 NTL (≈ 5.000.000 Euro) This percentage diminishes to 15 in companies with share capital between 10.000.000 NTL (≈ 5.000.000 Euro) and 50.000.000 NTL (≈ 25.000.000 Euro) For the companies with share capital of more than 50.000.000 NTL (≈ 25.000.000 Euro) minimum 5% is sufficient for the quotation.
According the Law, the shares of the quoted companies must be registered by the Board of the Capital Market Institution and all other relevant formalities must be fulfilled.
The minority which is defined by the Turkish Commercial Code as 10% of the share holders and had special power to supervise the majority is described as a representation of 5% of the share holders under the CML.
Renewal of the Articles of Association can be done with approval of the Board of the Capital Market Institution. Only the Board of Directors’ decisions is sufficient to reduce or increase the capital in companies who operates with a registered share capital system. Issuing shares without voting rights is allowed.
Furthermore, the Board of the Capital Market institution may audit the companies against the insider trading which is subject to imprisonment and substantial monetary fines.
