Capital Increase of Companies - Uzman Pay Senedi Basımı Danışmanı

Detailed Guide on Capital Increase (CI) of Companies in Turkey

Capital increase of companies in Turkey is a common process in which a company increases its share capital. This can be done for various reasons, such as raising funds for expansion, enhancing financial stability, or improving a company’s debt-to-equity ratio. The Turkish Commercial Code (TCC) provides the legal framework for CIs, and there are specific procedures and regulations that companies must follow to execute a CI.

Types of CIs in Turkey

1. Issuance of New Shares (Cash CI)

This involves the issuance of new shares to the existing or new shareholders, typically in exchange for cash contributions.
The CI may involve offering new shares to existing shareholders on a pro-rata basis (i.e., each shareholder is given the right to purchase additional shares in proportion to their current holdings).

2. Capitalization of Reserves (Non-Cash CI)

In this case, a company can increase its capital by capitalizing its reserves, retained earnings, or other equity sources, such as revaluation surplus.
This type of increase doesn’t require an inflow of new cash but instead transfers funds from the company’s internal accounts (e.g., retained earnings) into the share capital.

3. In-Kind CI

This involves an increase in capital by transferring assets (other than cash) to the company. Assets such as real estate, intellectual property, or machinery can be contributed as in-kind contributions. These assets need to be valued appropriately, usually by an independent expert.
The in-kind contributions are converted into shares, which are issued to the contributors.

Legal Framework for CI in Turkey

The Turkish Commercial Code (TCC), specifically Articles 388 to 398, governs the CI process. In addition, the Capital Markets Board (SPK) provides regulations for public companies.

Here’s a breakdown of the key provisions:

Article 388: Governs the general framework for CIs, allowing both cash and non-cash increases.
Article 389: Describes the conditions under which an increase in capital must be approved by the General Assembly (shareholder meeting).
Article 390-393: Address the procedural steps and the documentation required for CIs, including the shareholder resolution and trade registry filings.
Article 395-398: Discuss CI in public companies, which includes regulations about offering shares to the public and ensuring proper disclosure.

Steps for CI in Turkey

Step 1: Decision by the General Assembly

The CI must be approved by the General Assembly of the company. The decision must include:
The amount of the increase.
The method of CI (cash, non-cash, or in-kind).
The pricing of the new shares (if a cash increase) and the terms of the increase (such as any rights offering to existing shareholders).
The amendment to the Articles of Association if the CI exceeds the existing capital limit stated in the articles.

Step 2: Shareholder Rights to Subscribe

For a cash CI, existing shareholders typically have preemptive rights to subscribe to the new shares in proportion to their current holdings.
These rights should be offered to shareholders within a specific period (usually 30 days).
If the preemptive rights are not fully exercised by existing shareholders, the company may offer the remaining shares to third parties or other investors.

Step 3: Independent Expert Report (If Required)

For non-cash and in-kind CIs, an independent expert may need to prepare a valuation report. This report assesses the value of the in-kind contributions (assets being transferred to the company) and determines whether they align with the CI.
The independent expert report is submitted to the General Assembly for approval.

Step 4: Amend the Articles of Association

If the CI results in an increase in share capital beyond the limit in the company’s Articles of Association, these articles must be amended to reflect the new capital.
The amended Articles of Association must be submitted to the Trade Registry for approval.

Step 5: Payment for the CI (If Cash)

For cash CIs, the payment for the new shares must be made by shareholders within the time frame agreed upon by the General Assembly. Payment can be made in Turkish lira or in other currencies (with the company’s agreement).
The company may allow for installment payments, but the full CI amount must be paid before registration with the Trade Registry.

Step 6: Trade Registry Notification

Once the CI is approved and the payments (if cash) are received, the company must submit the CI documents to the Trade Registry. The required documents typically include:

The General Assembly resolution approving the CI.
The expert valuation report (for in-kind increases).
Updated Articles of Association reflecting the new share capital.
Proof of payment (if applicable) or the capital injection for non-cash increases.

Step 7: Publication in the Trade Registry Gazette

After the approval and registration with the Trade Registry, the CI will be published in the Trade Registry Gazette, which serves as official notice to the public and creditors.

Requirements for CI in Turkey

1. Minimum Capital for Certain Company Types

Limited Liability Companies (LLC) (Ltd. Şti.): The minimum capital for an LLC is 50,000 TRY. For CI, the total capital after the increase must comply with this requirement.
Joint Stock Companies (JSC) (A.Ş.): The minimum capital for a JSC is 250,000 TRY. The CI must ensure that the company retains at least this minimum amount of capital after the increase.
Public Companies: The rules for CI are governed by the Capital Markets Board (SPK), and public companies must follow specific regulations regarding share issuance, disclosures, and shareholder approvals.

2. Rights of Existing Shareholders

Preemptive Rights: Shareholders in Turkey have the right to subscribe to new shares in proportion to their current holdings during a CI. This ensures that existing shareholders can maintain their proportional ownership stake.
Shareholders must be given sufficient notice of the CI and the right to subscribe.

3. In-Kind Contributions

When assets (such as real estate or machinery) are being contributed to the company, an independent expert must evaluate the assets’ value.
The company may need to provide documentation proving that the assets being contributed are valid and in good standing.

Advantages of CI in Turkey

1. Access to Funding

A CI is a way for companies to raise funds without incurring additional debt, improving the company’s financial position.

2. Shareholder Control

Shareholders can maintain control over the company by exercising their preemptive rights to purchase additional shares before they are offered to third parties.

3. Debt Reduction

A CI can reduce a company’s reliance on debt financing by providing a stronger equity base.

4. Corporate Growth

Increased capital can be used for expansion, research and development, or other strategic purposes, helping the company grow and become more competitive.

Challenges of CI in Turkey

1. Shareholder Approval

The process requires approval from shareholders, which can be a challenging and time-consuming process, particularly if there is disagreement among shareholders.

2. Dilution of Ownership

For existing shareholders who choose not to exercise their preemptive rights, there is a risk of ownership dilution as new shares are issued to others.

3. Legal and Regulatory Compliance

CIs must comply with all regulatory requirements, including obtaining expert valuations and filing the necessary paperwork with the Trade Registry and the Capital Markets Board (SPK) (for public companies).

4. Cost

The process of increasing capital involves administrative costs, including legal, registration, and valuation fees.

Capital increase of companies in Turkey are a powerful tool for raising funds, strengthening balance sheets, and growing operations. However, the process is highly regulated and requires careful attention to legal, financial, and regulatory requirements. Companies should seek professional advice from legal advisors, accountants, and independent experts to ensure that the CI is carried out smoothly and in compliance with the Turkish Commercial Code and other relevant regulations. Please feel free to contact us for more information and further inquiries about our unique services. You can also subscribe to Tacirsoft Hukuk Bilgi Sistemi, that is Turkey’s only Corporate Law and Organized Industrial Zones Law database.