On 1 July 2012 the New Turkish Commercial Code (TCCN) will replace the current one, which has been in force for more than 50 years. In particular the corporate law is going to face many structural changes. Even if a transition period of about one and a half years is foreseen, companies should familiarise themselves with the TCCN and start to prepare themselves for the changes to come.
After lengthy work on the TCCN by a commission of academics, lawyers, judges, accountants, politicians, members of non-governmental organisations, and other experts, the Grand National Assembly of Turkey adopted the TCCN on 14 January 2011. The TCCN comprises structural amendments, in particular with respect to corporate law. The following is a brief overview of important amendments to the corporate law.
The TCCN will abolish the ultra vires principle, according to which companies are only allowed to perform transactions within their scope of activity. Thus, the scope of activity stated in the company’s Articles of Association (AoA) will not limit the capacity of the company, so it will also be bound by and liable for transactions outside its scope of activity.
While the current legislation requires joint stock companies (JSC) to have at least five shareholders and limited liability companies (LLC) at least two, the TCCN sets forth that a JSC or LLC may have a sole shareholder. With this important amendment the TCCN meets the needs of the commercial practice. It enables shareholders to buy other shareholders’ shares and turn the corporation into a company with a sole shareholder without compulsorily dissolving the company.
Board of Directors
The TCCN sets forth that the Board of Directors (BoD) of a JSC may consist of one person instead of three, as is currently the case. Further, BoD members need not be a shareholder of the JSC and can even be a legal entity.
Another practical change is that BoD meetings may be held via the internet and BoD resolutions may be signed with electronical signatures, so BoD members can attend meetings regardless of their location. Further, the clear differentiation between executive and non-executive BoD members enables a JSC to establish a single- or dual-structured management organisation.
According to the TCCN, the BoD must prepare by-laws about the mechanisms and conduct of general assembly meetings and register the by-laws with the trade registry. The by-laws are in addition to the AoA and establish a transparent and efficient corporate organisation.
The current TCC frequently leads to confusions about the allocation of powers between the general assembly (GA) and the BoD. The TCCN clearly enumerates inalienable powers of the GA and the BoD respectively and sets the relative position of each. The BoD is responsible for matters not expressly allocated by the TCCN or the AoA.
With the TCCN, also GA meetings may be held online. For listed JSC, online GA meetings are compulsory.
For transparency, the TCCN requires that all companies have a website. The company website must contain certain mandatory information, such as meeting minutes, invitations to meetings, annual reports, financial statements, and more.
The current legal framework lack provisions on local restructurings of companies. The TCCN, on the other hand, contains detailed rules on national mergers, spinoffs, and conversions of companies. Cross-border mergers are still not possible, however.
Turkish financial reporting standards and auditing
To ensure that the financial statements of Turkish companies are comparable to those prepared according to IFRS, the TCCN requires that the financial statements of all Turkish companies be prepared in accordance with the Turkish Accounting Standards (TAS). The TAS are the Turkish translation of the IFRS and completely in line with them. Hence, concepts like materiality, comparability, substance over form, and true and fair view that had no significant role in Turkey will be implemented.
The TCCN foresees a more transparent and effective auditing system. The auditing will be performed by independent auditing companies instead of internal auditors, who will be removed.
Another practical change is that BoD meetings may be held via the internet and BoD resolutions may be signed with electronical signatures, so BoD members can attend meetings regardless of their location.