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Under Turkish law, the amount of share capital in joint stock and limited companies are regulated under several pieces of legislation. The most important of these is the minimum amount of share capital required for incorporation, which generally applies to all joint stock and limited companies. Pursuant to Article 332 of the Turkish Commercial Code No. 6102 ("TCC"), the minimum share capital amount required to incorporate a joint stock company was 50,000 Turkish Lira ("TRY"), and for non-public joint stock companies with a registered share capital system it was at least TRY 100,000. For limited companies, this minimum was set as TRY 10,000, according to Article 580 of the TCC.
The abovementioned amounts have been amended as follows by the Presidential Decree numbered 7887, published in the Official Gazette of 25 November 2023 and numbered 32380 ("Decree"), effective from 1 January 2024[1]:
|
|
Current Minimum Capital Amount |
New Capital Amount |
|
Limited companies |
TRY 10,000 |
TRY 50,000 |
|
Joint-stock companies |
TRY 50,000 |
TRY 250,000 |
|
Non-public joint stock companies with registered share capital |
TRY 100,000 |
TRY 500,000 |
These updated amounts will only be applied to joint stock and limited companies incorporated after 1 January 2024, meaning that existing companies whose current share capital is below the updated share capital amounts do not have to make mandatory share capital increases. However, the Ministry of Trade published an announcement on 26 November 2023, where it reminded that it would be beneficial for current companies to increase their share capital to the prescribed minimum amount in order to strengthen their equity structures.
The above being said, it is worth mentioning that companies operating in regulated areas, such as banking and insurance, are subject to special regulations regarding their minimum share capital amounts. Following the recent increase operated with the abovementioned Decree, the insurance legislation was also updated through the Circular No. 2023/27 issued by the Insurance and Private Pension Regulation and Supervision Agency on 27 November 2023. Accordingly, the minimum share capital requirements for insurance/reinsurance companies were amended as follows:
|
|
Current Minimum Capital Amount |
New Capital Amount |
|
Life insurance companies |
||
|
Base capital |
TRY 40,000,000 |
TRY 100,000,000 |
|
Required capital for all branches |
TRY 285,000,000 |
TRY 725,000,000 |
|
Non-life insurance companies |
||
|
Base capital |
TRY 40,000,000 |
TRY 100,000,000 |
|
Required capital for all branches |
TRY 395,000,000 |
TRY 1,500,000,000 |
|
Reinsurance companies |
||
|
Base capital |
TRY 40,000,000 |
TRY 100,000,000 |
|
Total capital required for both life and non-life |
TRY 200,000,000 |
TRY 700,000,000 |
In addition, special laws may impose several additional share capital-related obligations, for example, Article 35/3 of the Attorneyship Law No. 1136 stipulates that joint stock companies whose share capital equals or exceeds five times the minimum share capital amount required for incorporation are obliged to have a contract lawyer. To that end, and since the Decree sets the minimum share capital amount as TRY 250,000 for newly incorporated companies, any newly incorporated companies whose share capital exceeds TRY 1,250,000 will be required to have a contracted lawyer.
In order to meet the conditions stipulated in the relevant legislation regarding share capital, companies must either pay the minimum amount of share capital upon incorporation, or reach the relevant amount of share capital through capital increases following incorporation. In capital companies such as joint stock companies and limited companies, the share capital can be contributed in cash or in kind. For joint stock companies, at least one quarter of the nominal value of the shares committed in cash must be paid before registration. The remaining amount must be paid within 24 months following the registration of the company. On the other hand, for limited companies, all cash contributions to the share capital must be paid within 24 months after the registration of the company.
As a matter of principle, a resolution of the general assembly is required for capital increases. However, for joint stock companies with a registered capital system, the board of directors may increase the share capital on the basis of an authorisation granted by the general assembly, limited to a certain amount and in a specified period of time.
As mentioned above, capital increases may be performed through capital commitments in kind or in cash, as well as from internal resources. For an increase to be made through a capital commitment, the existing share capital must have been fully paid-in. This is to prevent the dilution of shareholders who are financially incapable of participating in the capital increase, by increasing the share capital through external resources, even though the company has internal resources.
A share capital increase through internal resources, on the other hand, is a way of increasing the share capital of the company by converting (i) reserves (which are allocated by the articles of association or the general assembly decision and not dedicated to a specific purpose), (ii) the freely usable parts of the legal reserves and (iii) any funds permitted to be converted, into share capital. For such an increase, the existence of the internal resources to be allocated to the capital increase must, among others, be confirmed by the approved annual balance sheet and must be verified by a clear and written declaration of the board of directors. Furthermore, if there are funds in the balance sheet that can be converted into the share capital, then it is prohibited to increase the share capital through a cash capital commitment without first converting these funds into share capital.
[1] According to the Revision Decree dated 26 November 2023 and numbered 32381, the effective date stated in the Decree has been revised as 1 January 2024.
