Amendments Made in the New TCC with the Law No. 6335

July 2012

The New Turkish Commercial Code (“New TCC”) has entered into force on July 1st, 2012. The Law on the Amendment of the Turkish Commercial Code and Law on the Entry into Force and Application of the Turkish Commercial Code (“Law no. 6335) has been accepted by the Turkish Grand National Assembly on June 26, 2012 and published in the Official Gazette on June 30, 2012. In this article, we shall analyze the significant amendments made in the New TCC by Law no. 6335.
Requirement to Use a Trade Name
Article 39 of the New TCC, which regulates the requirement to use a trade name, is among the articles amended by Law no. 6335. Prior to the amendment, the second paragraph of the relevant article used to regulate that the registration number, trade name, registered office, the subscribed and paid-in capital for equity companies, the internet address and number of the merchant shall be indicated in all papers and documents related to the business of the merchant. Additionally, with regard to joint stock companies, limited liability companies and limited partnerships divided into shares, the names and surnames of the chairman and members of the board of directors, directors and managers shall be indicated. With the amendments made with Law no. 6335, the notion of “all papers and documents” has been clarified as “commercial correspondences drafted in relation to the business of the merchant and the documents on which the registrations to commercial records are based”. Additionally, the information that is required to be indicated in these documents has been limited to the registration number, trade name, registered office and the registered internet address in case the merchant is subject to the requirement to have an internet address. Consequently, problems which may be caused by the requirement to have all the said information in all documents related to the business of the merchant have been prevented.
Abolishment of the Operational Auditor
One of the new concepts adopted by the New TCC was the operational auditor. The operational auditor is the auditor responsible for the audit of qualified operations within the company such as incorporation, capital increase and decrease, merger, spin-off, conversion of type and issuance of securities. The operational auditor as been abolished with Law no. 6335 and the references made to the operational auditor have been excluded from the New TCC accordingly.
The operational auditor was a pertinent concept aiming at the audit of important transactions and safeguarder of the interests of relevant persons such as shareholders and creditors of the companies. As the operational auditor has been abolished, the said qualified transactions have been exempted from auditing. The ratio of exchange, breakaway fee and equalization payment used to be audited by the operational audit. Since the operational auditor has not been replaced by any other means of auditing, the said operations will be outside of the scope of auditing. Prohibition on Company Loans to its Shareholders Article 358 of the New TCC prohibits personal loans or credits to the directors or executive officers by the company in joint stock companies. Pursuant to the said article prior to amendment, the shareholders were prohibited to borrow from the company, except the debt with regard to subscription of capital. The exception to this rule is that the transaction has been made in relation to the bona fide business loans to the shareholder for the purpose of business expense. Pursuant to the said article, the shareholders may not be indebted towards the company except for this case. According to the Justification of the New TCC, this article aims to prevent that the shareholders use the company resources for all operations and transactions and make their personal expenses by this means, and that they withdraw money from the company. The borrowing money from the company for personal use is a common practice indeed, which causes many inconveniences for other shareholders. Pursuant to the amendments made in Article 358 with Law no. 6335, the shareholders may not borrow from the company unless they perform their due debts resulting from subscription of capital, and unless the dividends of the company along with independent reserve funds cover the previous loss of the company. As is seen, the conditions of being in relation to the business of the shareholder and being subject to the same or similar conditions with similar operations have been abolished. Accordingly, the performance of the debts resulting from subscription of capital, and the condition that dividends of the company along with independent reserve funds cover the previous loss of the company are satisfactory conditions. With this amendment, the prohibition on granting loans to shareholders of the company has been moderated. However, concerns may arise as per the relevance of the possibility of granting loans to shareholders by the company without any limitation opposed to the possibility to distribute advance dividend shares and the principle of preservation of capital Qualification of Directors Article 359 of the New TCC governs the number and qualifications of directors in joint stock companies. Pursuant to the relevant article prior to amendments, it was required that at least one director entitled to represent the company must have been Turkish citizen and resided in Turkey. Additionally, pursuant to third paragraph the said article, at least one fourth of directors shall hold a bachelor’s degree from a university. Law no. 6335 abolished the requirement of being a Turkish citizen and residing in Turkey for at least one director. We are of the opinion that the amendment of Article 359 which was in contradiction with the essence and facilities offered by the New TCC is positive. In parallel with the said amendment, Article 628, which provides the requirement of residing in Turkey for at least one director and that the said director is entitled to solely represent the company with regard to directors of limited liability companies has been abolished. Joint Stock Companies Subject to Auditing Article 397 of the New TCC regulates the auditing of joint stock companies. The said article, prior to amendments used to regulate that the financial statements of joint stock companies and holding companies shall be audited by an auditor, in accordance with Turkish Auditing Standards, which are compatible with international auditing standards. Law no. 6335 regulated that the said article would be applied with regard to joint stock companies which are subject to auditing. Joint stock companies which are subject to auditing shall be specified by the Council of Ministers, pursuant to Article 397/4 of the New TCC. With the amendments made in the New TCC with Law no. 6335, all joint stock companies would not be subject to auditing. However, the external auditing used to be one of the most significant innovations brought by the New TCC and used to replace the internal auditing which was not functional anymore. The fact that some of the joint stock companies are totally out of the scope of auditing may be an issue with regards to the principle of preservation of capital in joint stock companies, and the guarantee of the rights of shareholders and creditors. Another article amended by Law no. 6335 is Article 400 of the New TCC, which regulates the persons who may be qualified as auditors. Pursuant to the said article prior to amendments, the auditor may only be an independent audit company, whose shareholders are certified public accountants or independent accountants and financial advisors. The companies of medium and small scale may appoint one or more certified public accountants or independent accountants and financial advisors as auditor. With Law no. 6335, it has been regulated that auditors may be certified public accountants or independent accountants and financial advisors certified in accordance with Law on Independent Accountants and Financial Advisors and Certified Public Accountants dated 1/6/1989 and numbered 3568 and who have been authorized by Public Surveillance, Accounting and Auditing Standards Authority, and/or companies whose shareholders have the said qualifications. Preferred Shares With Law no. 6335, a fourth paragraph has been added to Article 478 of the New TCC, ―which regulates preferred shares and limitations with regard to preference rights― have been adopted. With the new provision, in joint stock companies with more than the half of capital held by the State, special provincial administration, municipality and other public legal persons, syndicates, associations, foundations, cooperatives and their upper management and their subsidiaries with the same capital percentage, except for the preference rights held by the said institutions, the other shares, other shareholders that form a group, groups of share and minorities may not be granted preference in accordance with the New TCC. Consequently, the amendments made in Article 401 of the Turkish Commercial Code numbered 6762 with Law no. 6215 have been included in the New TCC. Crimes and Punishments Important amendments have been made with Law. No. 6335 in Article 562 of the New TCC which governs crimes and punishments. The punishment of imprisonment pertaining to infringement of the first and fourth paragraphs of Article 199 of the New TCC has been abolished. Additionally, the punishment of imprisonment concerning the persons who refuse to give the books, registrations and documents which are required to be kept in accordance with the New TCC and the relevant information to persons who are authorized to audit, and the punishment of imprisonment concerning the persons who prevent the said persons to perform their duties has been abolished. Article 563 of the New TCC which regulates that the said crimes would be pursued ex officio has also been abolished. Therefore, the criminal provisions criticized by the public opinion have been moderated. Incorporation of Limited Liability Companies With the amendments made with Law no. 6335, the requirement of payment of the capital at once and in full concerning limited liability companies pursuant to Article 585 of the New TCC has been abolished. For limited liability companies, one fourth of the capital may be paid in incorporation, and the rest may be paid in twenty four months, similar to joint stock companies. Additionally, it has been regulated that the provisions related to joint stock companies with regard to the payment of capital shares, place of payment, obligation of performance, results of non-performance and transfer of shares whose value has not been totally paid shall be applied by analogy. We are of the opinion that this provision is positive. Internet Site Article 1524 of the New TCC regulates the internet site. While an internet site requirement was provided for all equity companies prior to amendments, with Law no. 6335, the internet site requirement shall be applied to equity companies which are subject to auditing pursuant to Article 397/4 of the New TCC. The said companies shall open their internet site in three months following their registration to trade registry. Additionally, pursuant to Provisional Article 8, adopted by Law no. 6335, equity corporations subject to auditing, which have been incorporated prior to the entry into force of Article 1524 shall open their internet site in three months and allocate a section of the site to the publication of the issues provided under the relevant article. Amendments Made in Law no. 6103 Important amendments have been made in Law on the Entry into Force and Application of the Turkish Commercial Code numbered 6103 (“Law no. 6103”) with Law no. 6335. Article 22 pertaining to amendments of articles of association has been amended, and it has been regulated that the said amendments shall be made within 12 months following the entry into force of the New TCC. Prior to amendments, the said article regulated that the amendments of articles of association shall be made in 18 months following the publication of the New TCC, which provided a shorter period of time, and this fact was widely criticized by the doctrine. Pursuant to amended article 26 of Law no. 6103, the references made to the Turkish Commercial Code numbered 6762 with regard to meeting and resolution quorums in the articles of association shall be reorganized by the amendment of articles of association in 12 months following the entry into force of the New TCC. In Article 28 pertaining to voting rights and transfer limitations as per registered shares and voting preference shares, it has been regulated that the provisions of the New TCC shall enter into force in 12 months following the entry into force of the New TCC. Conclusion Many important amendments were made to the New TCC with Law no. 6335 in a short period of time, and the New TCC were amended just before the date of entry into force. This case is not ordinary for a principal code such as the New TCC whose preparation took almost ten years. The fact that many new and principal concepts (such as operational auditor and external auditing) have been abolished or amended without making necessary debates is quite inconvenient as per the legislation technique. Additionally, may secondary legislation envisaged to be made have not been made yet, which causes many problems, especially before Trade Registries. It would be more convenient that these amendments would be made earlier and opened to debate. We hope that the inconveniences would be cleared up and that the practices pursuant to the New TCC would become clearer.