a. Overview

The main piece of legislation governing commercial companies in Turkey is the Turkish Commercial Code, which entered into force in 1 July 2012. The joint stock company is only one of the corporate structures foreseen by the Turkish Commercial Code, although it remains the most preferred by both local and foreign investors, mainly due to the ability to go public and the luidity with which share transfers can be realised.

A joint stock company is governed by its articles of association. Among other provisions, the articles of association fundamentally provide corporate information (such as title, registered oice, share capital etc.) and corporate governance rules (such as number of directors, manner of representation, and reserved matters, if any).

As a general rule, the establishment of a joint stock company is not subject to any regulatory or governmental consent, except for certain speciic sectors (i.e. banking, energy, holding companies etc.) where the investors are obliged to obtain the consents of the Ministry of Trade and/or the relevant regulatory authority. A joint stock company is formed upon registration with the relevant trade registry.

b. Shareholding

The Turkish Commercial Code allows the incorporation of single shareholder joint stock companies with no upper limit on the number of shareholders a company may have. It should be noted, however, that pursuant to the Capital Markets Law, a company is deemed to have become public if it has more than 500 shareholders. The shareholders of joint stock companies may be individuals or legal entities and there is no restriction on their nationality.

– Share Capital: As a general rule, joint stock companies must be incorporated with a minimum share capital of TRY 50,000 or TRY 100,000 if a registered share capital system is implemented. In certain regulated sectors (such as inancial services and energy), the minimum share capital is considerably higher and varies depending on the activity to be performed.

Share capital may be contributed in cash or in kind. Assets, including intellectual property rights and virtual media, which are not encumbered, are cash valuable and transferrable, may be contributed as share capital in kind. If cash is contributed as share capital, 25% of such amount must be deposited with a Turkish bank prior to the incorporation or registration of the share capital increase, with the remaining amount being paid within the 24-month period following the registration thereof with the relevant trade registry.

– Shares and Share Certiicates: The share capital of joint stock companies must be divided into shares with a nominal value of at least TRY 0.01 or its multiples. Consequently, the share capital may be divided into as many shares as desired, subject to the nominal value of any share not being less than TRY 0.01.

Although not mandatory, registered or bearer certiicates may be issued to represent the shares of joint stock companies. The diference in issuing or not issuing certiicates for the shares lies in the procedure of share transfers and does not afect shareholding rights.

– Dividends: The right to receive dividends is an essential shareholding right with their distribution being decided upon by the general assembly. Unless otherwise set forth under the articles of association, each shareholder is entitled to receive dividends pro rata to its shareholding rate in the company. However, in order to distribute dividends, legal reserves must first be set aside in order to provide for unforeseeable future losses.

In this respect, joint stock companies are required to set aside 5% of their net period proit every year as a irst legal reserve until 20% of the paid-in share capital is reached. Until such

legal reserves exceed 50% of the share capital of the joint stock company, these may only be used to cover losses, for the continuation of business during times of decline or the prevention of unemployment and minimisation of its efects. Upon these reserves exceeding 50% of the share capital, the excess amount shall become distributable.

It is possible to distribute “interim dividends” during the course of a inancial year upon the approval of the general assembly if the company has generated proits. Such “interim dividends” shall be set-of against the proits to be distributed at the end of the financial year, if any.

– Minority Rights: While most resolutions, whether of the board of directors or general assembly, are required to be taken with a simple majority vote, the Turkish Commercial Code grants certain privileges to minority shareholders in order to ensure that their rights are not infringed upon by the other shareholders. In this respect, shareholders holding at least 10% of the share capital of a joint stock company, or at least 5% if the company’s shares are publicly traded, constitute the minority.

Rights granted to minority shareholders under the Turkish Commercial Code are the rights to (i) request the board of directors to invite the general assembly to hold a meeting, (ii) request additional discussion items to be added to the agenda of a general assembly meeting, (iii) request the issuance of registered share certiicates, (iv) block the release of the company’s founders, directors or auditors from liability, (v) request that discussion of the inancial tables at the general assembly be delayed to another date, and (vi) ile a lawsuit with a commercial court to change the company’s auditor or to dissolve the company on the basis of justiiable reasons.

c. Mandatory Corporate Bodies

– Board of Directors: A joint stock company shall be managed and represented by a board of directors, appointed by the shareholders. The board of directors shall consist of at least one director, who may be an individual or a legal entity, although should a legal entity be appointed as a director, an individual must be appointed as the representative of that director. There is no restriction on the nationality of the directors, who also need not be shareholders of the company. However, if any director is a foreign national, a tax identiication number must be obtained for them in Turkey, which is a simple procedure.

Directors are appointed through the articles of association at incorporation and by the general assembly at later stages for a maximum term of three years, although it is possible for them to be re-elected for consecutive terms. It is also possible for a director to be temporarily elected through a board resolution, due to vacation of the position for any reason, on condition that such election is approved by the shareholders at the following general assembly meeting. The elected directors must then appoint one of the directors as the chairman. Although joint stock companies are managed and represented by the board of directors, it is possible for management and representation to be delegated to third parties pursuant to an internal regulation to be issued by the board of directors, except for certain reserved matters (such as high-level management of the company) as stipulated under the Turkish Commercial Code.

Unless otherwise set forth under the articles of association or legislation, the board of directors must convene with a majority and take resolutions with the majority of directors present in the meeting. The Turkish Commercial Code also allows board meetings to be held by (i) “way of circulation” (i.e. without a physical meeting), and (ii) electronic means, subject to

installation of a speciic IT system for this purpose. The former case would be possible only if all members of the board of directors consent to adopt a resolution by “way of circulation” and simple majority of the members approve such resolution.

– General Assembly: The general assembly is the means by which the shareholders to supervise the business and management of a company. There are certain reserved matters that only the general assembly can decide. Such matters include without limitation amendments to the articles of association, appointment of the members of the board of directors, distribution of proits or sale of a significant portion of the company’s assets.

The annual general assembly meeting must be convened within three months following the end of each inancial year. The general assembly may also convene extraordinarily as required. As with board meetings, general assembly meetings may also be held by electronic means subject to the installation of a specific system for this purpose. However, it is obligatory for companies whose shares are listed on the stock exchange to hold electronic general assembly meetings.

A notice must be posted at least two weeks (or three weeks for public companies) prior to the date of the general assembly meeting, but such requirement may be waived, except for public companies, if all shareholders or their proxies shall be present in the meeting. A general assembly shall be validly convened if shareholders representing at least ¼ of the company’s

share capital are present, and may take resolutions with the agreement of the majority of those present, although a higher quorum may be required for certain matters in accordance with the Turkish Commercial Code and/or the company’s articles of association. The presence of a representative of the Ministry of Trade may be necessary in speciic circumstances (such as share capital increases and decreases)

d. Liability

The Turkish Commercial Code does not distinguish among individual and corporate directors in terms of their duties and liabilities. The are subject to same principles and expected to comply with their fiduciary duties in the same manner.

Directors have a general obligation to act in compliance with their duty of care, duty of loyalty and the duty of supervision (in case of a delegation of power). The Turkish Commercial Code require directors to act as “cautious executive” and comply with their duty of care and duty of loyalty, while performing their duties. The level of care or diligence expected from a direct is a combination of objective and subjective criteria.

The objective test requires the director to perform his/her duties in a manner that would be expected from a “cautious executive”. The “cautious executive” must act diligently, prudently and in line with bona fide principles to protect the interest of the company.

The subjective test obliges the director to manage the company with professional skills, abilities and qualiications that are possessed (or should have been possessed) by that particular director.

Joint stock companies are primarily liable for public debts such as taxes and social security premiums. In the event of such debts not being paid by the company, these may be collected from the directors with such directors having the right of recourse to the company. However, the shareholders of joint stock companies will not be liable for the public debts of the company so long as they are not also directors.

Criminal liability of directors may arise from a number of pieces of legislation, including the Turkish Commercial Code and the Capital Markets Law, however, in each case, only to the extent that a director was given special power and responsibility for conducting or monitoring the particular transactions which resulted in any of the above laws being breached.

e. Share Transfers

There is no requirement to issue certiicates for the shares of the joint stock companies. The share transfer procedure will difer depending on whether or not share certiicates exist. Execution of a delivery protocol will suice if no share certiicates have been issued. If certiicates have been issued, mere delivery of bearer share certiicates will result in the transfer of those shares, while both endorsement and delivery are required for the transfer of registered share certiicates. Still, most investors tend to negotiate and sign share purchase agreements to govern and regulate the commercial relationship between the parties.

Save for a board resolution in order for share transfers to be registered in the share ledger of the company, approval by any corporate body of the company is not required for share transfers in joint stock companies unless the articles of association stipulate otherwise. Likewise, registration before and/or approval from any governmental authority is not required for the transfer of the shares of joint stock companies. However, there are exceptions for regulated sectors if certain thresholds of shareholding have been exceeded or where the share transfer results in the purchaser being the sole shareholder of the company.

f. Mergers

The Turkish Commercial Code permits two types of merger: one being the merger of a company into another and the other being the establishment of a new company by the merger of two or more companies. A merger shall only take place if it is approved by the general assembly meetings of the concerned companies. Upon the inalisation of the merger, the acquired company shall be automatically dissolved.

The Turkish Commercial Code sets forth compelling measures to protect the interests of the shareholders of the acquired company. One such measure is the requirement of the acquiring company, in the event of a merger through acquisition, to increase its share capital to an amount that will ensure the protection of the rights of the acquired company’s shareholders proportional to their shares and rights in the acquired company. An equalisation payment may also be made to such shareholders if the asset valuation of an acquired company has a fractional value and this results in the shareholders of the acquired company not getting completely proportional shares or rights in the acquired company, provided that such amount does not exceed 10% of the actual value of the shares allocated to them in the acquiring company.

A simpliied merger procedure is available in the event of (i) a wholly owned subsidiary being acquired by its parent company, (ii) the merger of ailiated companies where the acquiring company owns all of the shares granting voting rights of the acquired company, or (iii) the acquiring company owning at least 90% of the shares granting voting rights of the acquired company. But the latter case shall only be possible if the minority shareholders are ofered equivalent shares in the acquiring company as well as compensation, and if the merger will not result in additional payments or personal obligations for the minority shareholders.

The Turkish Commercial Code also ensures that the creditors of the merging companies are protected from the efects of the merger by requiring that they are notified both through three announcements

to be made seven days apart in the Turkish Trade Registry Gazette and on their websites. Once the merger is registered with the trade registry, the acquiring company must secure the creditors’ receivables if they make a request in this regard within three months of registration.