The Draft Law on Amendments to the Turkish Commercial Code No. 6102 (“Law” or “TCC”) and Certain Laws (“Draft”) has been submitted to the Grand National Assembly of Turkey (“GNAT”). While the Draft proposes various changes in many areas and legislations, in our view, one of the most striking parts of the Draft is the regulations in the field of company law under the TCC. In this article, we have summarized the main proposed amendments in this area mentioned in the Draft and planned to be implemented:
I. Terms of Office of the Chairman and Vice-Chairman of the Board of Directors
Pursuant to Article 366 of the Law; the board of directors is obliged to elect from among its members a chairman and, in the absence of the chairman, a vice-chairman to act on his behalf each year. In the reasoning of the Draft, it is stated that this provision imposes an obligation on companies to re-determine the management organization every year, and that in cases where the chairman and vice-chairman cannot be elected, difficulties arise in practice regarding who will exercise these powers and duties. With the amendment, the annual re-election obligation has been eliminated, and it has been made possible for the chairman and vice-chairman of the board of directors to be elected in parallel with their terms of office.
II. Scope of the Non-Transferable Powers of the Board of Directors
Article 375 of the Law sets out the non-transferable duties and powers of the members of the board of directors. Subparagraph (d) of paragraph 1 of the relevant article counts the appointment and dismissal of managers and persons with similar functions as well as those authorized to sign as non-transferable powers.
In the reasoning of the Draft, it is stated that the expression “managers and persons with similar functions” in the said subparagraph is intended to regulate “senior management” as stipulated in subparagraph (a) of the same paragraph, and that senior managers are those at the head of the management organization who will implement the strategy, policies, and macro plans determined by the board of directors. Considering the wording of subparagraph (d), it has been emphasized that the appointment and dismissal of all managers of the company and signatories are among the non-transferable duties and powers of the board of directors, and therefore, various problems have arisen in the application of Article 375. In the same reasoning, it has also been emphasized that today it has become common in commercial life for companies to open branches outside the central administration in order to carry out their activities properly and that these processes need to be carried out quickly.
In line with these assessments, it has been envisaged that the “appointment and dismissal of persons other than the senior executives of the company” will be regulated as a transferable power of the board of directors in order to facilitate company operations. In particular, as stated in the reasoning of the Draft, this regulation aims to allow the appointment and dismissal of branch managers without requiring a board resolution, thereby enabling companies to act more quickly and effectively in commercial life.
III. Convening the Board of Directors
Pursuant to Article 392 of the Law, the authority to convene the board of directors is granted to the chairman of the board of directors, while under general provisions, this authority is granted to the vice-chairman if the chairman is not available. In the reasoning of the Draft, it is emphasized that in some cases, the silence of the chairman would not be in line with the majority will of the board members and would complicate the decision-making processes of the board. Although judicial procedures are available in such situations, it is of great importance for companies in commercial life to make decisions quickly.
Within the framework of the aforementioned reasoning, the Draft plans to impose an obligation on the chairman of the board of directors to convene the board if requested by the majority of the members of the board, and if the chairman still does not convene the board or if the chairman/vice-chairman cannot be reached, the requesting members will be granted the right to directly request a meeting. In this way, it is aimed to create a negotiation environment within companies more easily.
IV. Transition to Minimum Capital Regulations
As may be recalled, by the Presidential Decree published in the Official Gazette dated November 25, 2023 and numbered 32380, the minimum capital amounts required at the establishment stage of companies were increased. The minimum capital of joint-stock companies was increased from TRY 50,000 to TRY 250,000; the minimum initial capital of non-public joint-stock companies adopting the registered capital system was increased from TRY 100,000 to TRY 500,000; and the minimum capital for limited liability companies was increased from TRY 10,000 to TRY 50,000, and this amendment entered into force as of January 1, 2024. With this amendment, a question mark remained as to how companies with capital below the specified amounts would proceed, and no clear regulation was made on this matter.
According to the Draft, a transitional provision is planned regarding this situation. Accordingly; joint-stock and limited liability companies with capital below the minimum amounts specified in the amendment that entered into force on January 1, 2024 are required to adapt to the new capital regime by December 31, 2026. Otherwise, companies that do not comply by this date will be deemed dissolved, and their trade registry records will be cancelled. In order to facilitate the implementation of this regulation, it has been stipulated that no quorum will be sought in general assembly meetings held to bring the capital into compliance with the new regulation, decisions will be taken by majority vote of the members attending the meeting, and no adverse privileges may be exercised regarding these decisions.
In the same article, there is also a provision regarding the adaptation of the capital of non-public joint-stock companies that have adopted the registered capital system to the new minimum capital amount. These companies are required to complete the transition regarding their initial capital and issued capital by December 31, 2026. Again, in order to ensure that the transition process is easy and fast, an additional regulation has been included and explained with an example. The example provided in the Draft is as follows:
“(…) a company that has adopted the registered capital system with an initial capital of TRY 300,000 and an issued capital of TRY 1,000,000 will not face dissolution since its initial capital is not less than TRY 500,000. However, companies in such a situation will be deemed to have exited the registered capital system if they do not adapt, provided that their issued capital is at least TRY 250,000. If the issued capital is less than TRY 250,000, these companies will also be deemed dissolved.”
In general, while it is aimed for companies to adapt their capital to the new regulation by December 31, 2026, the Draft also grants the Ministry of Trade the authority to extend this deadline up to two times, for one year each.
V. Conclusion
Considering the fact that commercial life is developing and changing rapidly today, it is important for companies to make decisions within their organization in a shorter time and to implement these decisions. For this reason, we share the view that the proposed amendments in the Draft regarding the delegation of the powers of the board of directors will enable certain mechanisms within companies to function more effectively and efficiently, as stated in the reasoning of the Draft. We also consider it an appropriate regulation that the obligation to distribute board duties every year will be extended up to three years, preventing the administrative and legal gap created by the current obligation, which is often overlooked by many companies for reasonable grounds. Finally, there is currently no clarity regarding the fate of companies with capital below the minimum amounts under the new regulation. Following the amendment that entered into force at the beginning of this year, it was also stated in the commentaries that the legislator intends for the increased capital amounts to apply to existing companies as well. In this respect, with the inclusion of a transitional provision in the Draft to clarify this matter and eliminate the legal uncertainty, a step has been taken to enable companies to make healthier future plans in commercial life.