New Turkish Commercial Code

1. New Turkish Commercial Code Cristina Gariglio

2. History of the Law • 2000 – Establishment of the commission • February 2005 – submission of the initial text for opinion • Grand National Assembly of Turkey (“GNAT”) Sub-Commission of Justice • GNAT Commission of Justice • April 2007 – Approval of the latest text in the Commission • November 2008 – Partial amendment • January 2011 – Commencement of discussions on Draft articles and approval at General Assembly • Promulgation in the Official Gazette dated14 February 2011

3. Index • General Provisions • Statutory Books(see slide 5) • Restructuring of Commercial Companies (see slide 17) • Parent and Subsidiary Companies(see slide 29) • Enterprises by Scale (see slide 40) • Electronic Transactions and Information Community Services (see slide 41) • New Regulations for Joint Stock Companies (see slide 45) • New Regulations for Limited Companies (see slide 81) • Penalties (see slide 89)

4. New Turkish Commercial Code GeneralProvisions

5. Statutory books • Obligation to keep books; • Real person merchants • Legal person merchants • Board of Directors (“BoD”) • Manager • The books should be kept in accordance with the Turkish Accounting Standards (“TAS”) prepared compatible with International Financial Reporting Standards (“IFRS”)

6. Statutory books • Under the Law, books not related with accounting operations such as; • Share register, • BoDs’ decision book, • General Assembly meeting and negotiation book are listed among commercial books. • It is stated that books not related with accounting are also in the nature of “commercial books”.

7. Statutory books • Books to be kept other than journal, general ledger, inventory book shall be determined under a communiqué by the Turkish Accounting Standards Commission (“TASC”) and the related authority is granted to TASC. • The term “other than journal, general ledger and inventory book” means that keeping these books is statutory.

8. Statutory books • Books and documents shall be kept • Physically or • Via data storage devices (CDs, magnets and electronic media)

9. Certification of Books Opening and closing certification of the books by the notary is required. Closing certification until the end of 6th month of the following period

10. Opening balance sheet and year-end financial statements • Merchants are obliged to draw up a financial statement (opening balance sheet and year-end balance sheet) indicating the relation of asset and liability amounts, • At the beginning of the business and • At the end of each operating period.

11. Opening balance sheet and year-end financial statements • Year-end financial statements • Balance sheet and • Income Statement

12. Opening balance sheet and year-end financial statements • Year-end financial statements; • should be drawn up in accordance with TAS, • should be clear and easy to understand, • should be drawn up within the timeframe required by a regular operational flow.

13. Opening balance sheet and year-end financial statements • Language and currency Year-end financial statements shall be drawn up in; • Turkish and • Turkish Lira.

14. Keeping Obligation • Keeping obligation (m.82) • Statutory books, • Inventories, • Opening balance sheets, • Interim balance sheets, • Financial statements, should be • Yearly operating reports, kept • Community financial statements, by all merchants • Other organizational documents, • Commercial letters received, • Copies of commercial letters sent, • Documents on which accounting entries are based

15. KeepingObligation • The period of keeping obligation is 10 years.

16. Turkish Accounting Standards Commission (TASC) Authority of TASC; • Declare principles in accordance with IFRS, • Ensure the implementation of declared principles, • Conduct works to ensure that the Turkish accounting system reaches globally accepted levels

17. New Turkish Commercial Code Restructuring of Commercial Companies

18. Company A Company A Merger through takeover Company B Company B Restructuring of Commercial CompaniesMerger • To merge different types of companies (art.137) • If the transferee is an equity company, it can merge with collective and commandite companies, • If the transferred is a partnership, it can merge with equity companies and cooperatives, • If the transferee is a cooperative, it can merge with partnerships. • For example, a joint stock company may merge with a limited company. However, a joint stock company can be merged with a collective company only if it is the transferee. Merger through a New Entity Company C

19. Restructuring of Commercial CompaniesMerger • A company in liquidation or technical bankruptcy may be involved in a merger. (art.138 and art.139) • The property should not have been distributed yet and the liquidated company must be the transferred company • The other company should possess equity which can be disposed of in an unrestricted manner and which can recover losses. • These issues must be verified with a report prepared by transaction auditor.

20. Restructuring of Commercial CompaniesMerger • Continuation of shareholding and preservation of rights (art.140) • Spontaneous shareholding according to change rate • Rights or remuneration equal to the shares of the transferred company • Equalization reserves (Maximum 10% of the share’s actual value) • There are not any formulas specified in the law regarding the amount of the capital to be increased as a result of merger and the change rate. • Equality is applicable not only in monetary terms, but also in terms of rights (e.g. Voting rights).

21. Restructuring of Commercial CompaniesMerger • Shareholders of the transferred company can be removed from the company through the • Separation reserves (art.141) • It does not have to be in cash. • It is possible to expel the shareholders of transferred company through the requirement of separation reserves. This decision must be taken with 90% of capital vote. • Detailed regulations on the execution of the merger transaction; • Written merger agreement (art.145 and art. 46) • Merger report of the BoD(art.147) • Merger report, merger agreement and balance sheets on which the merger is based are audited by an transaction auditor. (art.148) • Exemption; Report preparation and auditing may be cancelled upon the approval of all shareholders of small scale companies. (art.147/f.4 and art.148/f.4) • Right of inspection of shareholders, redeemed share owners and other related parties (art.149)

22. Restructuring of Commercial CompaniesMerger • Easier merger procedure for equity companies (art.155) • Take-over of an affiliate participated 100% • In case of take-over of an affiliate participated 90%, separation reserves for the minority shareholders • Benefits granted; (art.156) • Merger report is not prepared. • Transaction auditor is not assigned. • General Assembly approval for the merger agreement is not required. • No obligation to submit to shareholders for inspection. • Protection of the creditors and guarantee (art.157) • Creditors may demand guarantee in 3 months. • The guarantee obligation will remove if the transaction auditor’s report stating that receivables are safe.

23. Restructuring of Commercial CompaniesSpin-off • First regulation under the TCC • Full or partial spin-off • Full spin-off (art.159/1) • All property (assets-liabilities) are divided and allocated among at least two existing or new companies. • Shareholders of the company subject to spin-off receive shares from transferee companies. • The company that is subject to the full spin-off and transferred is terminated and is deleted from the trade register. BB C A Yy XX.

24. Restructuring of Commercial CompaniesSpin-off • Partial spin-off (art.159/1) • Through partial spin-off; • A part of the assets is separated and transferred. • Shareholders of the company subject to spin-off become shareholders of the new company. • Through the establishment of subsidiary; • The shares to be obtained in exchange of the transferred assets are kept in the company subjected to the spin-off. BBB C A y x A x y

25. Restructuring of Commercial CompaniesSpin-off • Spin-off by preserving the rate/ spin-off with change of rate • Where the rate is preserved; the share owned by shareholders in the company subject to spin-off is preserved . (art.161/2) • Where the rate is not preserved, shareholders of the company subject to spin-off may be allocated shares at different rates depending on their current shareholding rates. (art.161/2)

26. Restructuring of Commercial CompaniesSpin-off • Detailed regulations on the execution of the spin-off transaction • Written spin-off agreement/plan (art.166 and art.167) • Spin-off report of the BoD (art.169) • Spin-off agreement/plan, spin-off report and balance sheets are audited by a transaction auditor (art.170) • Exemption; Report preparation and auditing may be cancelled upon the approval of all shareholders of small scale companies. (art.171/2) • Right of inspection of shareholders (art.171) • Protection of the creditors and guarantee (art.175) • 3 announcements- interval 7 days • Creditors may demand guarantee in 3 months following announcements. • The guarantee obligation will remove if the transaction auditor’s report stating that receivables are safe.

27. Restructuring of Commercial CompaniesConversion • Restriction on conversion; (art.181) • Equity companies may be transformed into equity companies and cooperatives • Partnerships may be transformed into partnerships, equity companies and cooperatives • Cooperatives may be transformed into equity companies. • Continuity of the shareholding and preservation of shareholder rights; (art.183) • Preservation of shares and shareholding rights • Equal value

28. Restructuring of Commercial CompaniesConversion • Detailed regulations in conversion • Principle that the new company is continuation of the former (art.180) • Conversion plan and report shall be prepared by BoD. (art.185) • Conversion plan, conversion report and the balance sheet are audited by transaction auditor (art.187) Exception ; Report preparation and auditing may be cancelled upon the approval of all shareholders of small scale companies. (m.186/3 and m.187/4) • Inspection right of shareholders (art.191)

29. New Turkish Commercial Code Parent & Subsidiary Companies (ŞirketlerTopluluğu)

30. Parent - Subsidiary Companies • Two different statuses; • Parent company • Subsidiaries

31. Parent - Subsidiary Companies • An equity company is considered to control another equity company directly or indirectly in case; (art.195) • Possession of majority of voting rights, • Constituting majority in the board of directors, • Ability to use majority of voting rights based on an agreement, alone or with other shareholders, • Management of the company on the basis of an agreement or by other means the first company is considered as parent company and the other is subsidiary. • At least one of the companies must be headquartered in Turkey in order to apply these regulations.

32. Parent - Subsidiary Companies Controlling company • Mutual participation (art.197) • Possessing at least ¼ of each other’s shares • If one controls the other, the controlled company is the subsidiary • If each company controls the other, both are subsidiary and controlling companies • Declaration obligation (art.198) • Declaration should be made in 10 days when certain shares are reached or fallen below • %5, 10, 20, 25, 33, 50, 67 and 100 • The concerned parties are the company and other related institutions; • Registry and declaration at the trade registry, • Sanction on failure to declare is the suspension of voting rights and all rights related with shares Affiliate

33. Parent - Subsidiary Companies • Reporting obligation of the subsidiary (art.199) • BoD of the subsidiary should prepare a report in the first three months of the operating year. The report includes information about: • Relations with the controlling company and subsidiaries • All legal procedures, • Other measures taken or avoided for the benefit of the controlling company or its subsidiary in the previous operating year • Actions and counter actions in legal processes, reasons behind the measures and their advantages and disadvantages (loss) for the company, • If the loss is equalized, how this was realized within the operating year. • The report must comply with principles for accurate and true reporting.

34. Parent - Subsidiary Companies • Right to obtain information by the controlling company’s shareholders (art. 200) • Subsidiaries’ financial and assets situation, • Relations of the controlling company and subsidiaries with shareholders, managers and their affinities, transactions conducted among them and results of these transactions • The controlling company may not compel the subsidiary to transactions that could generate loss. (art.202) • Legal procedures such as transfer of business, assets, funds, personnel, debts and receivables, • Reduction or transfer of its profit, • Restricting its property to non-cash or personal rights, • Assigning responsibilities such as guarantee, bailment, etc. • Making payments; compelling to take decisions that negatively affect efficiency such as not renewing its facilities, restricting its investments without a justifiable cause, • Exception: Equalization payment, full control • If equalization is not realized within the operating year, indemnity demand from the controlling company and BoD members (art.202/1) • The court may decide on the acquisition of shares or another solution instead of indemnity.

35. Parent - Subsidiary Companies • Indemnity demand from the controlling company (art.202/2) • In the merger, spin-off, conversion, termination, security issue and important amendments to the articles of association, • Which are implemented through application of control, • And for which the subsidiary does not have reasonable cause, • Shareholders of the subsidiary who voted against the General Assembly decision and have objection against the BoD decision, • May demand from the Court that their losses are compensated or shares are acquired. • Statute of limitations is 2 years as of the date when the GA or BD decision is declared

36. Parent - Subsidiary Companies • In case of full control (100% directly or indirectly) • Instruction (art.203) • Limit: Exceeding payment capabilities, existence under threat or loss of significant assets (art.204) • BD members, directors and concerned individuals in the subsidiary cannot be held responsible for their compliance with instructions. (art.205) • Creditors’ litigation right (art.206) • If the loss arising in the subsidiary is not equalized in that fiscal year, • Creditors who incur loss can file an indemnity lawsuit against the controlling company and its responsible BoD members.

37. Parent - Subsidiary Companies • Special audit (art.207) • In case, the auditor, transaction auditor and risk committee detects the presence of fraudulent acts in relations with the controlling company and subsidiary, • Each shareholder of subsidiary may request the assignment of special auditors from the Court. • Acquisition right of the controlling company(art.208) • If a controlling company directly or indirectly owns 90% of an equity company’s shares and voting rights, • If the minority prevents the company’s operation, acts against the integrity principle, creates noticeable difficulty or acts carelessly • The controlling company may acquire the shares of the minority

38. New Turkish Commercial Code Regulations on Commercial Companies

39. Regulations on Commercial Companies • Communiqués of the Ministry of Trade and Industry (“MTI”) • By-laws to be issued by the Council of Ministers and will be examined by the State Council and signed by the President (process, principle and procedure) • Inspectors of the MTI

40. Enterprises by Scale • Criteria for small and medium scale companies shall be determined under a regulation to be published by; (art.1522) • The MTI based on the views of • The Union of Chambers and Commodity Exchanges of Turkey and • Turkish Accounting Standards Commission • Equity companies by scale; (art.1523) • Small scale equity companies • Medium scale equity companies • Large equity companies • Criteria for small and medium scale companies are applicable to equity companies as well. • The following are considered large equity companies under all circumstances. • Companies listed or planned to be listed on a stock exchange, • Banks, investment banks, insurance companies, retirement companies, etc.

41. Electronic Transactions and Information Society Services - Website • Obligation to create websites has been introduced for equity companies. (art.1524) • Obligatory content titles; • Declarations that must be made by the Company, • Documents required for the shareholders and stakeholders to protect their rights, • Decisions taken by the BoD on rights such as privileges, change, acquisition, etc., • Assessment reports, founders’ declaration, public offering commitments, text of decisions on the deferment of bankruptcy, BoD and GA decisions on the company’s acquisition of its own shares, • Documents on merger, spin-off, conversion, • Documents pertaining to amendments to the articles of association, • Documents, reports and BoD explanations on all kinds of calls, • Information that must be disclosed as per the transparency principle and for the sake of information society, • Financial statements, interim statements, balance sheets drawn up for specific purposes, • BoD annual report, money paid to directors, travelling expenses, indemnities, • Reports prepared by auditors, special auditors and transaction auditors • Information demanded by related authorities (E.g.: Capital Market Board)

42. Electronic Transactions and Information Society Services - Website • Failure to provide the obligatory content constitutes grounds for cancellation of the related decision. • The website must be open to everybody’s access. • A content put on the website remains there for at least 6 months. (This period is 5 years for financial statements) • It is obligatory to retain the printed versions of data on the website. • Such data must be written and attached to a notarized book.

43. Electronic Transactions and Information Society Services – Electronic Signature & Declarations, Documents • Can be used for all transactions required under the Turkish Commercial Code.(art.1526) • Cannot be used in transactions related with valuable documents. • Used by authorized signatories of the company. • Principles and procedures shall be set forth under a Regulation. • Declarations, documents, deeds effective in electronic media; (m.1525) • Notices, warnings, appeals and similar declarations • Invoice, letter of confirmation, participation commitment, meeting summons, • Electronic sending and storing agreement • Details regarding the registered electronic mail system will be publishedby the Information Technologies and Communication Institution in 5 months after the Law is promulgated

44. Electronic Transactions and Information Society Services – Electronic BD & GA • BoD and Board of Managers can be held in electronic media. (art.1527) • This must be regulated in the company’s articles of association. • Provisions on meeting and decisions are applicable in exactly the same way. (Law, agreement) • Conditions to vote; (art.1527) • Website • Shareholder’s request • Availability report (should be registered and declared) • In joint stock companies, the principles and procedures for GA attendance, declaring opinions and voting in electronic media shall be regulated under by-laws • When the by-laws become effective, it becomes mandatory for companies listed on stock exchange to participate in GA and vote in electronic media.

45. Companies Law New Regulations for Joint Stock Companies

46. Joint Stock Companies Capital • Capital / Registered capital (art.332) • The capital shall not be less than TL 50.000. • Initial capital shall not be less than TL 100.000 in the registered capital system. • With decision of BoD, capital increase up to maximum registered capital amount specified under the articles of association • This authority can be granted to BoD for maximum 5 years. • The minimum capital amount may be increased by the Council of Ministers. • Transition to registered capital system can be realized upon permission of the MTI for companies not publicly listed. • Capital in kind may be contributed. (art.342) • Items that cannot be contributed as capital; (art.342) • Service, • Personal efforts, • Commercial reputation and receivables which have not reached maturity

47. Joint Stock Companies Capital • Experts are assigned by the commercial court of first instance shall designate the value of businesses and non-cash property to be transferred and capital in kind to be contributed to the company. (art.343) • Founders, transaction auditor and beneficiaries may appeal against the expert witness report. • At least 25% of the nominal value of shares committed in cash is paid before registry of the company; the remaining amount is paid within 24 months following registry. (art.344) • All issue premiums of shares are paid before registry. (art.344) • Capital cannot be increased unless the cash values of shares are wholly paid (except increases made through internal resources)

48. Joint Stock Companies Establishment • The Company is established upon the declaration of establishment purposes by the founders. (art. 335) • Articles of association where the purposes are declared; (art.339) • Should be arranged in accordance with the Law, • Founders should commit to pay the whole capital unconditionally, • Signatures must be certified by notary public. • The Company may be established by one or multiple founders. (art.338) • Establishment is not subject to permission. • Except companies specified in the Communiqué to be published by the MTI

49. Joint Stock Companies Establishment • Establishment is audited and by a transaction auditor a report is prepared. • Transaction auditor is an expert who audits; • Mergers, spin-off, conversion transactions, • In joint stock and limited companies; • Establishment • Capital loss or extreme indebtedness • Capital increase • Capital decrease • Security issue • Refund of additional payments. • Those who can be transaction auditors • Independent audit companies or Sworn Fiscal Advisors or Independent Accountant and Fiscal Advisors in small and medium scale companies

50. Joint Stock Companies Relations of Shareholders with the Company • Shareholders are prohibited from being indebted to the company, which subject to penalty (administrative penalty of at least 300 days) (art.358) • Exceptions: • Debts arising from participation commitment, • Debts which arise from an operation performed as a requirement of the company’s business field and shareholder’s business and which are subject to same or similar conditions with their comparables.