Recent Development
Pursuant to Law No. 7511 on Amending the Turkish Commercial Code and Certain Other Laws ("Law No. 7511"), published in the Official Gazette dated May 29, 2024 and numbered 32560, certain articles of the Turkish Commercial Code No. 6102 ("Commercial Code") have been amended. The amendment entered into force on May 29, 2024.
The amendments to the Commercial Code include changes to the board of directors' obligation to elect the chair and vice chair among its members annually by way of distribution of duties, the removal of the authority to appoint and dismiss branch managers and authorized signatories from the scope of the powers of the board of directors that cannot be transferred or delegated, the introduction of new procedures to convene the meetings of the board of directors in cases where its members request a meeting, the prohibition on the award of judicial expenses and attorney fees against the relevant trade registry directorate in reinstatement lawsuits filed due to the debts of the companies de-registered from the trade registry within the scope of Provisional Article 7 of the Commercial Code and the obligation to increase the share capital of joint-stock and limited liability companies whose capital is below the minimum capital amounts set forth by the Presidential Decision on Increasing the Minimum Capital Amount for Joint-Stock and Limited Liability Companies numbered 7887 and dated 24 November 2023.
What's New?
- The obligation of the board of directors to elect a chair and vice chair among its members annually by way of distribution of duties has been abolished.
In line with the amendment of the first paragraph of Article 366 of the Commercial Code, which regulates the distribution of duties of the board of directors, the chair and vice chair of the board of directors may be elected in accordance with the term of office of the board of directors. Accordingly, the board of directors, which may be elected for a maximum of three years as per the current regulation, will not be obliged to resolve on the distribution of duties every year. The board of directors will be able to elect the chair and vice chair for the entire term of the board of directors.
- The authority to appoint and dismiss branch managers and authorized signatories has been removed from the scope of the duties and powers of the board of directors that cannot be transferred or delegated.
As stated in the preamble of the proposed bill of Law No. 7511, taking into consideration that the inability of the board of directors to delegate the authority to appoint and dismiss employees at all levels in companies with an extensive branch network and a large number of employees authorized to represent the company complicates business processes: in order to facilitate the operations of companies, appointment and dismissal of persons other than senior executives and managers of the company have been removed from the duties and powers of the board of directors that cannot be transferred or delegated.
- If the chair fails to call a meeting of the board of directors at the written request of the majority of the members, or if the chair or the vice chair cannot be reached, the meeting may be called directly by the members of the board of directors making the request.
Article 392 of the Commercial Code regulates the right of each member of the board of directors to request the chair to call the board of directors for a meeting. However, in practice, there was a need to introduce a mechanism to prevent the interruption of the board of directors' decision-making process by the chair's failure to respond to requests for a meeting in cases where the need for a meeting of the board of directors arises. With Article 392 of the Commercial Code amended, the chair is under the obligation to call the board of directors for a meeting at the written request of the majority of the members. If the chair fails to call for the meeting within 30 days from the date of receipt of the request, or in cases where the chair or vice chair cannot be reached, the meeting may be called directly by the members of the board of directors making the request. It is also possible to set forth a different procedure for convening the meetings of the board of directors in companies' articles of association.
The meeting and decision quorums stipulated under Article 390 paragraph 1 of the Commercial Code will apply to the meetings of the board of directors to be held upon call.
- It is prohibited to award judicial expenses and attorney fees against the relevant trade registry directorates in reinstatement lawsuits filed due to the debts of the companies de-registered from the trade registry within the scope of Provisional Article 7 of the Commercial Code.
As of the effective date of the amendment, it will not be possible to award judicial expenses and attorney fees against the trade registry directorates obliged to participate in reinstatement lawsuits filed by the creditors and those who have legal interests due to the debts of the companies de-registered from the trade registry pursuant to Provisional Article 7 of the Commercial Code.
- Joint-stock and limited liability companies whose capital is below the minimum capital amounts are under the obligation to increase their share capital by December 31, 2026.
The minimum capital amounts of joint-stock and limited liability companies set forth in Articles 332 and 580 of the Commercial Code have been amended as follows by the Presidential Decision dated November 24, 2023 and numbered 7887 on the Presidential Decision on Increasing the Minimum Capital Amount for Joint-Stock and Limited Liability Companies:
- For joint-stock companies, the minimum capital amount has increased to 250,000 Turkish liras.
- For nonpublic joint-stock companies that adopt the registered capital system, the minimum initial capital amount has increased to 500,000 Turkish liras.
- For limited liability companies, the minimum capital amount has increased to 50,000 Turkish liras.
Pursuant to the Presidential Decision, the increased minimum capital amounts were initially introduced only for joint-stock and limited liability companies to be established after January 1, 2024. Now, with the new amendment, all joint-stock companies with a capital below 250,000 Turkish liras and all limited liability companies with a capital below 50,000 Turkish liras are under the obligation to increase their capital to the minimum capital amounts by December 31, 2026. Joint-stock and limited liability companies that do not fulfill the capital increase obligation by December 31, 2026, will be deemed to have dissolved.
Nonpublic joint-stock companies that have adopted the registered capital system with an issued capital of at least 250,000 Turkish liras will not be deemed to have dissolved but to have exited the registered capital system unless they increase their initial capital and issued capital to 500,000 Turkish liras by December 31, 2026.
Provisional Article 15 also sets forth that no meeting quorum will be required for the general assembly meetings to be held with the agenda of increasing the capital of the companies to the minimum capital amounts stipulated by law, that the relevant capital increase resolution will be adopted by the majority of the votes present at the meeting and that privileges may not be exercised against such resolutions.
Companies are required to comply with the relevant minimum capital amounts in the capital increases to be carried out before December 31, 2026. Therefore, it is important that the minimum capital amount is taken into account in determining the amount of the capital increase.
The Ministry of Trade may extended the December 31, 2026 deadline for a maximum of two one-year extensions.
Conclusion
The amendments to the Commercial Code aim to solve the problems encountered in practice regarding the distribution of duties of the board of directors, its powers that cannot be transferred or delegated and the call procedures of its meetings; as well as to enable the board of directors to carry out decision-making mechanisms efficiently. The amendment also introduces an obligation for all joint-stock and limited liability companies to increase their capital to the current minimum capital amounts. Companies are required to increase their capital to the current minimum capital amounts by December 31, 2026. It is also crucial to consider the minimum capital amounts in upcoming corporate transactions, particularly in capital increase and decrease processes.
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.