Capital Reduction Within The Scope Of The Turkish Commercial Code
GeneralCapital reduction is regulated under articles 473-475 of the Turkish Commercial Code No. 6102 (“TCC”). The capital of a joint stock company can be reduced in order to (i) return some of the capital to the shareholders, and (ii) recover the company’s loss.
A capital reduction may also be made concurrently with the capital increase where fully paid new shares will be issued in the amount of the reduced capital.
Capital reduction requires an amendment to the Articles of Association. Board of directors shall prepare an amendment text concerning the reduction.
Decision regarding capital reduction is reserved to the competence of the general assembly. Pursuant to Article 408/1,a TCC, the general assembly cannot delegate said power to another body.
The Board of directors shall prepare and submit to the general assembly a report stating the purpose, scope and procedure of the capital reduction. This report shall be registered and announced together with the resolution for capital reduction.
There are certain limitations regarding the amount of the capital which can be reduced. According to Article 332 TCC, basic capital representing the entire capital subscribed in the articles of association may not be less than fifty thousand Turkish Liras and the initial capital may not be less than one hundred thousand Turkish liras in joint stock companies which have adopted the authorized capital system and not open to the public. Capital shall not be reduced under the amounts stated in the above written article. Capital will be reduced either by annulling some share certificates of the shareholders or reducing the nominal value of the shares provided by the General Assembly. In either procedure the issued share certificates shall be returned to the company.
Pursuant to Article 475 the required documents shall be submitted for registration with the trade registry.
Capital Reduction in order to Return the Reduced Amount to the Shareholders
If the capital is more than the company requires, or if a certain part of the capital is not used, the general assembly may decide to reduce the capital and return the reduced amount to its shareholders.
The board of directors shall prepare a detailed report stating the purpose, scope and procedure of the capital reduction. The company auditor shall also prepare a report, which states that there are enough assets to cover the rights and receivables of the creditors. Both reports shall be submitted by the board of directors to the general assembly for approval. Following the approval of the resolution for capital reduction, the report stating the purpose and the procedure of the reduction shall be registered and announced.
Following the general assembly resolution for capital reduction, the creditors shall be invited three times at intervals of seven days by the board of directors. An announcement shall be made pursuant to the relevant article of the Articles of Association. If a joint stock company is audited in accordance with Article 397/4 TCC, the announcement shall also be published on the company’s website. The creditors shall be invited to notify their receivables and to make a security claim with said announcement within two months following the third announcement published in the Turkish Trade Registry Gazette.
In order to execute the resolution for capital reduction, the receivables that are due and payable have to be paid or secured. It should be noted that since the board of directors submitted a report stating that there are enough assets to cover the debts or claims, a creditors request to secure the receivable should be evidenced and justified.
If the claims of the creditors are not paid or secured, the creditors can claim the cancellation of the general assembly resolution for the capital reduction within two years following the publication of the resolution.
Capital Reduction to Recover a Company’s Loss
Capital reduction may be exercised to remedy losses or the balance sheet. In order to reduce the capital for such purposes, the following conditions shall be fulfilled: the loss of the company must be an actual loss and the company must have lost 2/3 of its capital, in other terms, the company should be insolvent. The company should be able to cover its debts with its assets after the reduction and this shall be determined by a board of directors’ resolution. The capital should be reduced equal to the amount of the adverse balance or the loss; said amount should not be exceeded.
Pursuant to Article 474/2 TCC, in the case of a capital reduction to recover the company’s losses, the board of directors can renounce to notify the creditors, to secure or to pay their claims. Therefore, the invitation procedure is not applicable herein. The general procedure explained above is also applicable to this type of reduction.
Quorums under TCC for Capital Reduction
Pursuant to Article 421/3 TCC, the resolution for capital reduction shall be adopted by the affirmative votes of shareholders, or their representatives, holding at least seventy five percent of the share capital. In the event that the quorums regulated under Article 421/3 cannot be reached in the first meeting, the same quorums shall apply to the following meetings.
Conclusion
The TCC regulates capital reduction, in cases where the company aims to return the reduced capital to its shareholders and to recover the company’s loss. A joint stock company can also reduce its capital concurrently with the capital increase. In both types of capital reduction, the board of directors prepares a report stating the aim, purpose and the procedure for the reduction and submits it to the general assembly. It’s important that an auditor’s report put forth that there are enough assets to cover the debts and claims of the creditors. There is a significant difference between various types of capital reduction; in cases where the company aims to recover the loss, the board of directors may refrain to invite the creditors and to pay or to secure their claims and rights.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Turkish automobile and light commercial vehicle market left the 2000s behind with steadily rising sales figures and the 2010s with high and stable sales figures as well. In this period, the growth of the market was driven not only by high purchase power but also by easy access to credit and product diversity...
Turkish Commercial Code No. 6102 ("TCC") provides the right to exit from the company to the shareholders of limited liability companies and the right to squeeze out the shareholder from the company, unlike the structure of joint stock companies, with the exit and squeeze out institutions specially regulated for...
Turkish Commercial Code No. 6102 (“TCC”) preserves the rule that the board of directors shall manage and represent joint stock companies. The TCC regulates how the power of representation shall be exercised, the registration and announcement of the persons authorized to represent, the transfer of the...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
Merger and acquisition processes are one of the legal processes that most seriously affect the identities and legal status of companies. After the completion of legal, tax, financial and operational due diligence reports, the parties initiate the negotiation process in case they reach an agreement on proceeding with the...
A popular business model for expanding market reach and brand recognition worldwide is franchising. Despite being less common than distribution agreements in the form of mono-brand store agreements, franchising is another significant method for extending luxury brands' distribution networks. Luxury brands use...
In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement...
The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in...
Transfer of shares is arguably the first legal transaction that comes to mind among the legal transactions regarding the shares of a capital company, and the most common transaction in practice. However, the shares of a capital company may also be subject to various transactions, other than share purchase...
Law No. 6563 on the Regulation of Electronic Commerce (E-commerce Law or Law) has recently undergone a radical change in order to regulate the behavior of the players in the rapidly growing and developing e-commerce sector. The new regulations that came into force as of January 1, 2023 envisage important...
On 11 June 2021, the German Federal Parliament approved the German Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz) (“Act”) which affects not only German entities but also their suppliers in foreign countries (including Turkish entities). The main focus of the Act, which entered into force on...
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the...
The Turkish Commercial Code No. 6102 ("TCC") regulates maritime trade contracts under the fourth part of the fifth book of the Code. Among the types of contracts regulated in this section, the most frequently used contract in international maritime transport practice is the freight contract regulated under...
Prohibition on hidden income shifting is one of the most important issues that is broadly regulated under Capital Markets Law No. 6362 (“CML”). In conjunction with CML Article 21, which has a broader context than Article 15 of the abrogated Capital Markets Law No. 2499, another significant step has been taken...
As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency...
The Turkish Commercial Code (“TCC” or “Law”) has enabled companies to apply different structural models and to implement new legal formations by including spin-off provisions to its Article 159 et seq. In accordance with the provisions of the law, companies may transfer a certain element, or elements, of their...
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is...
Incoterms are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of Incoterms rules is to facilitate and expedite international trade in a safe and secure manner...
The regulation applicable to all Turkish ports prepared by the Ministry of Transport, Maritime Affairs and Communications that entered into force after being published in the official gazette on October 31, 2012 (˝the Regulation˝), consolidates all the bylaws, regulations and instructions in a single Regulation...
As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an...
The rules of e-commerce, which grow and develop with the digitalizing world, are changing. E-commerce has become the driving force of the digital economy. However, considering the growth rate of e-commerce and the transformation it has undergone in a short time, it is obvious that some...
The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...
Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...
Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...
Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...
Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase...
The electronic signature, which has the same legal consequences as wet signatures if it meets certain conditions, has taken its place in many legal systems and has enhanced commercial life. Although there are various types and applications in different legal systems...
INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade...