Managers in Limited Liability Companies Under The Turkish Commercial Code No. 6102
Introduction
The Turkish Commercial Code No. 6102[1] (“TCC”) includes general provisions on the trade registry and registration. Article 26 of the TCC, as promulgated, stipulates that the trade registry directorate, registry ledgers, realization of the registration and similar matters shall be regulated under by-laws. This provision, however, was amended by the Law on the Amendment of the Turkish Commercial Code and the Law on the Entry into Force and Application of the Turkish Commercial Code No. 6335[2] (“Law No. 6335”) which was promulgated prior to the entry into force of the TCC. Pursuant to the amended Article 26, the principles and procedures governing trade registries and registration shall be regulated by a regulation prepared by the Ministry of Customs and Trade (“Ministry”) and issued by the Council of Ministers.
Principles and procedures of the trade registry and registration compliant with the abrogated Turkish Commercial Code No. 6762 (“Abrogated TCC”) was regulated under the Trade Registry By-Laws (“By-Laws”). As per Article 42 of the Law regarding the Entry into Force and Implementation of the Turkish Commercial Code[3] (“Implementation Law”), until the secondary legislation to be issued pursuant to the TCC is effective, the provisions of the secondary legislation prepared in line with the Abrogated TCC, which do not contravene with the TCC, shall be applicable. The Trade Registry Regulation foreseen under both the TCC and the Implementation Law (“Regulation”) entered into force through publication in the Official Gazette dated 27 January 2013 and numbered 28541. From a methodological perspective, the abrogation of by-laws by a regulation, which ranks lower than by-laws in the hierarchy of norms, is unacceptable. Nonetheless, bearing Article 42 of the Implementation Law in mind, it should be accepted that the By-Laws were abrogated with the entry into force of the Regulation. This article assesses the significant provisions of the Regulation.
Trade Registry Directorate
Pursuant to Article 24 of the TCC, the trade registry shall be kept by the trade registry directorate under the supervision and inspection of the Ministry. The establishment, management and organization of trade registry directorate, qualifications of directors, vice directors and other directorate personnel, personnel affairs and legislation applicable to personnel are regulated in detail under the Regulation. The By-Laws stipulated that the officers, vice officers and other personnel of the trade registry would be sanctioned as state officers with respect to crimes related to their duties. The Regulation, however, specifically regulates the sanctions to be imposed upon personnel and actions and situations triggering such sanctions.
Liability
The provision regulating the responsibility of the state for all damages incurred resulting from the keeping of the trade registry, which was deleted from the Abrogated TCC with the Statutory Decree No. 559, was reintroduced with the TCC. The Regulation similarly foresees that the state and the relevant chamber shall be jointly responsible for all losses incurred from the keeping of the trade registry.
MERSIS and Electronic Transactions
The TCC stipulates that the trade registry records will be kept electronically. In compliance with this provision, the Regulation introduces the Central Registry Record System (Merkezi Sicil Kayıt Sistemi, “MERSIS”), established with the Ministry and the Union of Chambers and Commodity Exchanges of Turkey, where all registration actions will be carried out and the records, as well as the content of registration and publications will be stored. The detailed provisions of the By-Laws governing the registry ledgers to be kept in trade registry offices are not included under the Regulation. The Regulation states that all ledgers shall be kept under MERSIS. All commercial enterprises, equity companies and their branch offices shall be given a specific MERSIS number upon registration, which is not subject to change. All documentation and gazette extracts of announcements, which are required to be provided for registration, shall be kept for an undetermined term in the registry file to be opened under a MERSIS number and a file number.
The Regulation enables transactions to be conducted via electronic means with secure electronic signatures. The registry, and all bonds and documentation kept with the directorate, are accessible by everyone for examination both via electronic means and at the directorate. Thereby, a public information center is established with MERSIS.
Other matters, such as transactions made with electronic signatures, the time stamp and data protection, are regulated separately.
Registration
Pursuant to the Regulation, which has similar provisions to those of the By-Laws, in principle registration shall be made upon request. All records and documentation that require registration may be submitted via electronic means. The Regulation outlines in more detail the matters which may be registered and persons which may request registration, based on the type of the commercial enterprise, equity company or the matter to be registered, which were regulated under general provisions of the By-Laws.
The Regulation further stipulates that persons requesting the registration of any enterprise or trade name, and legal entities as well as their signatories, shall provide a letter of undertaking. The signatories of the undertaking which must include information such as the enterprise name, the capital and center of the enterprise, warrant that such information is true and that otherwise they shall be held liable.
The Regulation includes detailed provisions regarding all acts subject to registration, all necessary information and documentation related to such acts, the registry directorate which shall make the registration and the matters to be registered.
Informative (Positive) Function of the Registry
Both the TCC and the Regulation address the informative effects that registration and announcement shall have on third persons. Accordingly, the registry records shall bear effect on third persons as of the date of publication of the registration in the registry gazette. Third persons may not allege lack of knowledge of the registry records. However, the Regulation states that specific provisions are reserved under the law, such that certain matters registered shall commence bearing effect on third persons as of their registration, even prior to publication. It should be noted, however, that various articles of the TCC state that the registration and announcement of certain matters shall not suffice to prove the knowledge of third persons regarding the relevant matter.
Duty of Examination
Similar to the provisions of the By-Laws, pursuant to the Regulation the directors and vice directors are obliged to examine whether statutory requirements for registration are fulfilled. The scope of this duty is regulated in detail. Contrary to the provisions of the By-Laws, pursuant to the Regulation the directorate may grant a maximum thirty day cure period in the event a discrepancy is noticed, and may extend this period twice at most.
Trade Name
Provisions governing trade names are similar to the conditions stipulated under the TCC regarding trade names. The provision of the Abrogated TCC and the By-Laws specifying that the trade names of real persons shall only be protected within the same registry office has been abandoned. In compliance with the relevant provision introduced under the TCC, the Regulation states that a registered trade name, regardless of the registry office, shall be protected all across Turkey. In the event a trade name needs to be distinguished from a previously registered trade name, affixes will be added to the trade name to be registered.
Provisions on Group Companies
The TCC regulates in detail group companies for the first time, as well as the term “dominance”, which is the main determining factor in provisions related to group companies. The Regulation readdresses the definitions of control and group companies. Moreover, the definition of the dominance agreement is made for the first time with the Regulation. The TCC only regulates the validity conditions of dominance agreements without providing any definition. The Regulation introduces specific provisions on whether loan or shareholder agreements constitute dominance agreements or not, issues much debated among scholars. A dominance agreement is an agreement which grants a party the authority to unconditionally control the managing organ of an equity company, also party to the agreement. For a dominance agreement to be valid, it must be registered with the trade registry in the region where the controlled company is headquartered.
Article 198 of the TCC lays down the obligation to notify to the registry all share acquisitions exceeding certain thresholds in equity companies. The Regulation stipulates how this notification shall be made. However, the Regulation narrows the scope of this obligation as put forth under the TCC. Pursuant to the Regulation, the relevant notification need only be made if the purchaser or the seller of the relevant shares is a member of a group company.
The Regulation further includes provisions governing the calculation methods for voting and shareholder equity, and cross shareholding. The term “undertaking” is not defined under the Regulation.
Merger, Spin-off and Conversion
The By-Laws only regulated mergers with regards to company restructuring transactions. In parallel with the new provisions introduced by the TCC, the Regulation includes more detailed provisions on mergers and regulates spin-off and conversion transactions. All necessary documentation, the duties of the parties involved in the relevant transaction and the consequences of the transaction for each party is specifically regulated.
Other Material Novelties for Equity Companies
The TCC introduces novelties for equity companies not regulated under the Abrogated TCC. Consequently, the Regulation covers new transactions to be registered, which were not regulated under the By-Laws. The Regulation provides detailed provisions on the possibilities of joint stock and limited liability companies to consist of a unique shareholder, conditional capital increases, a registered capital system, additional liquidation and renouncing liquidation. Similarly, the election of the auditor and the election of the auditor by the parent company for group companies are subject to detailed regulations.
The Regulation clarifies certain matters whose practical application under the Abrogated TCC caused confusion. For instance, simultaneous capital decrease and increase is regulated for the first time.
Similar to the new provisions of the TCC, the documentation necessary for registration requests to be made to the registry directorates is increased. For instance, new documents for company incorporation such as the founders’ declaration and agreements related to incorporation are required. Similarly, the persons applying for registration are required to submit a document specifying that assets allocated as capital in rem in a company are duly annotated at their relevant registries. The Regulation also provides that the directorate shall notify the relevant registries simultaneously with the registration to the trade registry so that the goods and rights subscribed as capital to a company are registered in the name of the company.
Significant Novelties for Commercial Enterprises
The TCC introduces important novelties regarding commercial enterprises. Most significantly, the TCC regulates the possibility of the transfer of a commercial enterprise as a whole with a unique transaction, the merger and conversion of commercial enterprises and the conversion of a commercial company into a commercial enterprise. The Regulation introduces detailed provisions regulating these innovations. The Regulation expressly lays down that the transfer of a commercial enterprise shall bear effect as of its registration.
Assessment and Conclusion
The Regulation clarifies the registry transactions required under the TCC and the structure and organization of registry directorates. The positive aspects of the Regulation include: clear provisions regarding matters which were unclearly regulated under various provisions of the By-Laws, and which therefore resulted in problems in practice; and determination of how the novelties introduced by the TCC shall be applied.
The Regulation includes detailed provisions to serve its purpose. However, it should be noted that certain matters whose registration is requested under the TCC are overlooked in the detailed provisions. For example, while the representatives of a joint stock company shall be registered pursuant to Article 373 of the TCC, Article 22 of the Regulation, which lists the persons who may request registration and matters to be registered, do not comprise of the said obligation.
Furthermore, certain provisions of the Regulation include repetitive regulations and definitions that are already present under the TCC. This approach results in conflicts between the Regulation and the TCC, and at times provisions of the Regulation are not compliant with the statutory provisions.
From a legal methodology perspective, the lack of an explicit provision stating that the provisions of the By-Laws are abrogated and accepting that the entry into force of the Regulation automatically abrogates the By-Laws, despite ranking lower in the hierarchy of norms, is inconvenient.
[1] Official Gazette (“OG”), 14 February 2011, no. 27846. The TCC entered into force on 1 July 2012.
[2] OG, 30 June 2012, no. 28339.
[3] OG, 14 February 2011, no. 27846.
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...