Under the Commercial Code 6102, shareholders must contribute capital to commercial companies incorporated by law (the so-called 'contribution obligation'). A contribution obligation mainly arises at the time of the incorporation of or the capital increase in a commercial company. Shareholders generally prefer fulfilling their contribution obligations in cash and their liability is limited to the amount that they subscribed for under a company's articles of association.
Following the entry into force of the Law Introducing Several Amendments in Different Laws to Improve the Investment Environment in August 2016, the Communique Regarding the Signing of the Articles of Association Before the Trade Registries has now taken effect. The communique sets out the procedures to be followed when incorporation documents are signed or executed before the trade registries.
Amendments were recently introduced to the Commercial Code with the aim of fostering investment in Turkey following recent political instability and the resulting uncertainty among investors. The amendments to the Commercial Code seek to expedite incorporation procedures for companies, reduce the relating notary public costs and foster transparency.
Under the Attorneyship Law, joint stock companies with a share capital of TRY250,000 or more must have an attorney; violation of this legal obligation will result in significant administrative fines imposed by public prosecutors. Compliance with the law is recommended not only to avoid administrative fines, but also to ensure that companies and their operations are built on legally supported and evaluated grounds.
Under the Law on the Mandatory Use of the Turkish Language by Commercial Enterprises, transactions, correspondence and agreements executed in Turkey must be in Turkish. While it is common practice to execute transaction documents in foreign languages, the law is still honoured by Turkish courts. Turkish and foreign companies should therefore be aware of the legal consequences of non-compliance.
A joint stock company incorporated under Turkish law is managed and represented by a mandatory body of the company, its board of directors. Members of the board of directors owe the duties foreseen by the relevant legislation and the company's articles of association and are liable for losses incurred by the company, its shareholders and creditors due to any breach of these duties.
The new Commercial Code includes a detailed process on the conversion of a company's legal form. This process was not regulated in detail under the previous code, although certain provisions dealt with the process and the effects of the conversion depending on the original legal form. Overall, the Commercial Code provides a comprehensive regime governing both the conversion process and the consequences of conversion for all shareholders.
It has been estimated that more than 70% of all companies globally are family owned. Family-owned companies differ from other companies in their policies and management. The owner (usually the founder) generally undertakes sole management of the company and attempts to carry out all business activities. It is common for company assets and resources to be used freely by family members.
The administration and representation of joint stock companies are carried out by a company's board of directors. While members of the board of directors of a joint stock company are liable for public debt, in a limited liability company all shareholders are liable for public debt unless they assign a legal representative to administrate and represent the company.
One of the most important safeguards that foreign investors seek is corporate governance practices that foster accountability and transparency. The changing attitude of family-owned firms in Turkey is especially important in this regard. The former generation of owners was much more prone to conducting businesses as it saw fit, without paying any heed to the principles envisaged for better corporate governance.
The new Commercial Code has introduced new rules regarding the corporate structure of limited liability companies and joint stock companies, allowing them to be established with only one shareholder (or to be transformed into a single-shareholder company) and to have only one board member. This form is preferred by foreign capital companies, public authorities, universities and foundations.
In 2011 Turkey introduced significant changes to corporate governance through the new Commercial Code. The new code intends to balance the power of majority shareholders against minority ones, in order to protect the rights of the minority. The rights and actions of minority shareholders against majority power have been extended and the provisions that made them non-effective eliminated.
With the rise of global cash transactions, multinational companies have been forced to consider more carefully the tax benefits and cost implications of investing in any given country. As an emerging market, Turkey offers a further option for those looking for tax efficiency before they penetrate the market or run Turkey-related businesses through their headquarters abroad – liaison offices in free trade zones.
Companies in Turkey, specifically those in the textile and retail industries, often put in place long-term trade relationships for running-account credit agreements. These enable the buyer to obtain goods on credit (up to a given credit limit). Payments are then made by the buyer and deducted after an agreed period. Certain principles apply to running accounts under Turkish law.
As the Turkish economy continues to grow and the country transforms itself into a regional economic hub, Turkish companies have already started to invest significant efforts in improving their management structures and strengthening corporate governance. The latter is nothing short of an imperative for companies, due to their increased need for access to foreign funds.
Until recently, under Turkish law interim dividends were allowed for public companies only. The new Commercial Code introduces the concept of interim dividends for both private joint stock corporations and limited liability partnerships. In principle, a company must post a profit in its quarterly interim financial statements (ie, at three, six or nine months) in order to distribute interim dividends.
Under Turkish law, liaison offices are governed by the Foreign Direct Investment Law and the Regulation on the Implementation of the Foreign Direct Investment Law. The regulation was recently amended, introducing major changes in relation to the incorporation, authorisation, extension and operations of liaison offices and clarifying the procedure for establishing such offices.
The Commercial Code (Law 6102) will enter into force next year. Unlike the existing code, the new code includes arrangements for the regulation of corporate groups, with discussion focused on regulation of illegal control within such groups. Illegal control is regulated in the first and second clauses of Article 202 of the code, which involve compensation for losses for both a subsidiary and its shareholders.
In order for a transaction that is carried out by a member of a company's board of directors to breach non-compete obligations, it must relate to the subject of the partnership. The subject of the partnership is interpreted literally to mean the business activities carried out by the partnership, rather than those specified in the partnership agreement.
The Law on Multi-corporate Enterprises aims to protect subsidiary companies and their shareholders in the event of a conflict of interest between the subsidiary company and the group of companies of which it is part. For this purpose, the subsidiary company's control over the management and resolution process has been restricted and certain rights have been granted to its shareholders in the event that control is used illegitimately.