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one of the non-transferable duties and authorities of the board of
directors.
Precautions Regarding Protection of the Capital
As per TCC Art. 376/1
1
, if it has been ascertained from the latest
annual balance sheet that one-half of the total amount of legal reserve
funds has remained uncovered due to losses, the board of directors is
obliged to convene the general assembly, and provide the general
assembly with appropriate remedial measures.
This paragraph merely requires the board of directors to inform the
general assembly of the situation, and the general assembly to make a
decision thereof. On the other hand, such provision does not necessi-
tate a certain method to do so. The mentioned precautions may be
exemplified as capital increase, reduction of outgoings, or shutoff of an
ongoing investment, if the equity has not been fully paid, convocation
for encashment of the remaining capital receivables, sale of assets, and
other similar precautions
2
. The board of directors is responsible to
undertake such precautions.
In accordance with TCC Art. 376/2
3
, if it is determined from the
company’s balance sheet that two thirds of the total of the equity and
legal reserve funds have become uncovered due to losses, then the
board of directors is obliged to immediately convene the general
assembly, and the general assembly must decide whether to replenish
the capital or to continue operations with the remaining one thirds of
the capital. If the general assembly refrains from making such
decisions, then the company shall be deemed to be automatically
terminated.
In summary, solely the lawmaker enables companies to lose an
amount equal to, and at most, one-half of the sum of the capital and
legal reserve funds, and requires additional precautions for losses that
exceed half of such sum.
COMMERCIAL LAW
11
1
TCC Article 376/1: If it is detected from the last annual balance sheet that one-half of the total
amount of the capital and legal reserve funds remains uncovered due to losses, the board of
directors shall immediately convene the general assembly and provide them with appropriate
remedial measures.
2
Prof. Dr. TEKİNALP Unal
, Sermaye Ortaklıklarının Yeni Hukuku, Degistirilmis ve
Duzenlemelerle Guncellestirilmis 3. Basi, Vedat Kitapcilik 2013, p. 244.