 Limited Liability Companies (LLC) and Joint Stock Companies (JSC) are the common choices for setting up a business in Turkey. The new Turkish Commercial Code (NTCC) is expected to come into force on 1st July 2012, bringing with it sweeping changes to the way these companies are governed. We set out some of the headline changes for both company types below with the
benefit of exclusive Of Counsel from Prof. Dr. Veliye Yanli, who headed the
parliamentary commission during enactment of this NTCC. One Shareholder in LLCs The number of shareholders in LLCs can be decreased to one. In the event that
the number of shareholders is decreased to one, this must be notified in writing
to the manager(s) of the company. Within 7 days from receipt of such
notification, the manager(s) must apply to the trade registry for the
registration and announcement of the company's new structure, indicating the
name, residence and nationality of the single shareholder. The company
management will be liable for non-compliance with this application
requirement. With the NTCC, minimum share capital of LLCs is increased from 5,000TL to
10,000TL. If the share capital of the LLC is below this threshold, the share
capital must be increased to at least 10,000TL within 3 years of the publication
of the NTCC (published 14th February 2011). Share capital must fully be paid in to the LLC. The shareholders of an LLC in principle are not allowed to be debtors of the same company. However, this prohibition shall not apply where the debt arises from a transaction which falls within the scope of the company's and the shareholder's scope of activity, provided that such debt carries identical or similar terms applicable to similar transactions (i.e. market conditions). If such prohibited indebtedness has already occurred, the indebted
shareholder(s) must pay such debts in cash funds within 3 years of the effective
date of the NTCC, which is due to be 1st July 2012. The LLC must ensure the articles of association in compliance with the
requirements of the NTCC within 18 months of the date of publication thereof
(being 14th February 2011). The LLC must establish a committee for early detection and management of
risks. This committee shall be assembled from the manager(s) of the company. If,
however, the company is determined to be a small limited company, as per the
calculation criteria determined by the Ministry of Industry and Trade, then such
a committee will not be compulsory. At time of writing these calculation
criteria are still being formulated by the Ministry. At least one of the managers of the LLC must be domiciled in Turkey and that
manager must have the sole authority to represent the company. If the LLC has more than one manager, one of them must be appointed chairman
of its board of managers by the general assembly. The chairman will no longer
need to be a shareholder in the company. The LLC must keep a share ledger. The share ledger shall reflect the
following; names/titles and addresses of the shareholders, number of shares held
by each shareholder, share transfer details, nominal value of shares, class of
shares, encumbrances over the shares and the names/titles and addresses of
beneficiaries of such encumbrances created over the shares. The LLC is obliged to keep the commercial books indicating the commercial
transactions and asset structure of the company. The LLC shall observe and apply
Turkish Accounting Standards as announced by the Turkish Accounting Standards
Board, including the conceptual framework of accounting principles and
interpretations while keeping its commercial books. An important change however,
is that the compulsory accounting standards will adopt International Financial
Reporting Standards (IFRS). The opening and closing of the books must be
certified by a notary public. The manager(s) of an LLC must prepare and submit to the attention of the general assembly the financial charts, appendices and the activity report of the company for the preceding accounting period. This must be done in accordance with the Turkish Accounting Standards and within the first three months of the relevant accounting period (fiscal year) following the balance sheet date. The relevant Turkish Accounting Standards will be applicable from
1st January 2013. The auditor should be an independent auditing firm whose auditors are either chartered or certified public accountants.
LLC Web-Site Limited companies must have and maintain a web-site. If there is already a web-site in place, it must be brought into conformity with the content required by the new code. The minimum required content of the web-site is stated in the regulations, including various documents, financial statements and resolutions, but it does not limit addition of other information that the company may wish to convey. Turkish Joint Stock Companies (JSC) One shareholder will be sufficient for the establishment of a joint stock company, replacing the current need for a minimum of five, with no limit to the maximum number of shareholders. Minimum Amount of Share Capital The required amount of share capital of JSCs with principal share capital remains the same and shall not be less than 50,000TL. Where there is a deviation however, is that under the new code joint stock companies will have the right to incorporate registered share capital, but then it shall be a minimum of 100,000TL initial share capital whether or not publicly traded. Payment of Share Capital If the shares are subscribed in cash, at least 25% of the share capital must
be paid up before registration and the remaining share capital shall be paid
within 24 months following the registration. Full payment of share premium will
also be regulated; when shares are subscribed via share premium, such share
premium must be fully paid in during the subscription. The shareholders cannot owe to the JSC except for the obligation to pay the
share capital. However, this prohibition shall not apply where the debt is
arisen from a transaction which falls within the company and the shareholder's
scope of activity provided that such debt carries identical or similar terms
applicable to comparable transactions. The board members, their relatives up to a certain degree and some companies
in which they are the shareholders are prohibited to owe to the JSC. In this
essence, the possibility of the JSC to grant securities, assume obligations for
such persons and/or to take over the debts of such persons is abolished. The NTCC stipulates that JSCs whose share certificates are traded on the
stock exchange shall establish a risk committee. This committee shall identify
potential factors that could endanger the existence, progress and continuation
of the company and shall endeavor to take necessary precautions and ensure the
risks are effectively managed. It is sufficient for the board of directors to consist of just one member. Irrespective of the total number, at least one member must reside in Turkey and must be a Turkish citizen. A legal entity can also be a board member; however in this case, a real person must be designated to represent the legal entity. It should also be noted that it is not possible to place more than one real person on the board of directors on behalf of a single legal entity. Board members are no longer required to be a shareholder in the JSC. Representation Authority of the Board of Directors The NTCC abolishes the rule restricting the rights and obligations of a JSC
to within context of the field of activity stipulated in its articles of
association (ultra vires); the board of directors may also execute
transactions outside the scoped field of activity of the company. The NTCC clearly dictates that certain duties and authority levels of the board of directors cannot be assigned and shall only be affected by the board of directors. Financial Statements The financial tables of a JSC are to be prepared in accordance with the financial reporting standards determined by the Turkish Accounting Standards Board. These standards will be amended to comply with International Financial Reporting Standards (IFRS). JSC Website Within the scope of the NTCC, companies are obliged to have a website online
and to allocate a part of this website to publish certain issues, documents,
financial statements and resolutions whether publicly traded or not. The NTCC enables the board members to attend and to vote in meetings via transfer of image and voice according to the provisions of the articles of association of the company. The provisions regarding the meeting and decision quorum of the board of
directors shall also be applicable if the meetings of the board of directors are
held in an electronic environment. The NTCC stipulates the rights of shareholders to attend, give proposals, declare opinions and vote at the general assembly of JSCs via electronic means; and sets out the obligation to apply such a system within those companies whose shares are floated on the stock exchange. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. |
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