Introduction

In Turkish Law, company types are a concept created according to the needs of commercial life. The Turkish Commercial Code ("TCC") lists a limited number of company types, and companies cannot be established in any type other than those listed. Although it is obligatory to choose the type of company when establishing a company, the Law allows companies to change the type of company later.

Reasons for Change of Type

There is no definition for the concept of change in type in the legislation. In the doctrine, change of type is defined as the transformation of commercial companies from one type to another type specified in the law without liquidation, provided that the economic integrity and legal personality are preserved.1

In the Turkish legal system, certain types of companies are authorised by law or administrative regulations to operate in certain fields. Companies may have to change their types to operate in these areas. Sometimes, shareholders may request a change of type in order to reduce their responsibilities or to facilitate the transfer of shares. In general, companies change their types in accordance with their own advantages.

The Concept of Change of Type

The transformation of companies without liquidation, while maintaining their economic continuity, is called a change of type. As stated in Article 180 of the TCC, a change of type is a change in the legal form of a company. The company transformed into a new type does not cease to exist and is a continuation of the old company. It is important to note that in order to be able to speak of a change of type, the old type of company must not have ceased to exist, and it must have transformed into the new type with all its identity. Otherwise, a change of type cannot be mentioned.

There are two types of change of type. One of these is the transferor type change and the other is the form-changing type change. In a transferor change of type, a new company of the desired type is established, and the old type of company is transferred to the new type without liquidation. All of the assets and other values of the old type company are transferred to the new type company and after the transfer is completed, the dissolution of the old type company is registered and the trade name is deleted from the registry. In the form-changing type change, a change of type occurs without any change in the legal entity. The old type of company is transformed into a new type of company as a result of some transactions and the old company is not liquidated or its assets are not transferred.

Types of Companies that can be Changed

The types of companies are listed in Article 124 of the TCC. According to the relevant article, commercial companies may be established as collective, limited partnership, joint stock, limited liability and cooperative. Collective and limited partnership companies are classified as sole proprietorships, while joint stock companies, limited liability companies and companies with capital divided into shares are classified as capital companies. Article 181 of the TCC lists the changes that will be valid. Accordingly:

  • A capital company may be converted into another type of capital company or a co-operative.
  • A collective company may be converted into a capital company, a co-operative, or a limited liability company.
  • A limited liability company may convert into a capital company, a co-operative, or a collective company.
  • A co-operative may convert into a capital company.

The cases of change of type are listed in a limited number in the TCC and changes other than these types of changes shall not be valid.

The Procedure of Change of Type

In order for a company to change its type, the management body must prepare a change of type plan and this plan must be approved by the general assembly. According to Article 189 of the TCC, the plan to be prepared by the management body of the company wishing to change its type must include the following points:

  • The trade name of the company before and after the change of type, its head office and the phrase related to the new type
  • The articles of association of the new type
  • The number, type and number of shares to be held by the shareholders after the change of type or explanations regarding the shares of the shareholders after the change of type

After the plan is prepared, a written report on the change of type should also be prepared. In this report, the purpose, and consequences of the change of type pursuant to Article 186 of the TCC, the provisions fulfilled in relation to the new type, the new articles of association, the rate of change in the shares of the shareholders after the change, and the legal and economic obligations arising from the new type should be stated. The preparation of this report is not mandatory, and small or medium-sized companies may waive the preparation of the conversion report if all shareholders agree.

As mentioned above, the legalisation of the change of type is subject to the approval of the general assembly. According to Article 189 of the TCC, the management body of each company wishing to change its type shall submit the change of type plan to the general assembly. The quorums by which the general assembly need to take decisions are listed in detail in the same article.

After the general assembly approves the change of type and take a decision, some procedures shal be carried out through the Trade Registry in order to complete this process. First, for each type of company requesting a change, a request number must be obtained by applying from Mersis and an application must be made to the regional representative office without an appointment.

Some documents regarding the change shall also be submitted to the regional representative office. These documents vary according to the type of company and are listed on the website of the Istanbul Chamber of Commerce. In general terms, the petition containing the request, documents regarding the capital of the company, the change of type plan and report prepared by the management body, the notarised copy of the general assembly decision regarding the change of type in joint stock companies, and other documents not listed here but specified on the website are requested.

Summarise

Companies may wish to change their company types for their own purposes and benefits. Articles 180 to 194 of the Turkish Commercial Code regulate the process of this change. The general procedure to be followed by a company wishing to change its type can be summarised as follows:

  • Type of change plan and report shall be prepared by the management body of the company,
  • Mentioned plan and report shall be submitted to the approval of the general assembly of the company and a decision shall be made,
  • Some documents shall be submitted to the Trade Registry Directorate and the type of change procedure shall be completed.

Footnote

1. Bahtiyar, Partnership Law p.70 Poroy/Tekinalp/Çamoglu Partnership Law, Vedat Bookstore, 2019 p.167

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.