The capital of the limited company is a value determined in the company’s articles of association and registered and announced in the trade registry. The capital refers to the total of the capital shares subscribed to be invested in the company by the partner or partners. The capital refers to a specific and fixed amount. According to the Turkish Commercial Code, the capital of a limited company shall be at least 10 000 TL (TCC m.580/p. 1).
It is possible to make changes in the capital amount set in the company’s Articles of Association subsequently. In this bulletin, how to increase the capital in limited companies and the legal regulations on this subject are explained.
1) Reasons for Capital Increase in Limited Companies
Limited company capital can be changed on a compulsory or voluntary basis. The usual justification for capital increase is the company’s desire to create new capital, growth and new investments planned to be made. Although it is possible to increase the capital voluntarily, in some cases the amount in the limited company’s Articles of Association must be increased by necessity. This situation emerges when the company’s capital falls below the minimum 10,000 TL stipulated in the Law.
2) Capital Increase Procedure
In limited companies, the Articles of Association must be amended for the capital increase. As with every Articles of Association amendment, a General Board resolution is obligatory for the capital increase. It is also obligatory to register and announce the resolution in the trade registry. These stages will be discussed separately below.
2.1) Taking a General Board Resolution on Capital Increase
At the General Board, at least two-thirds of the votes represented and an absolute majority of the entire capital that has the right to vote must be present in order to take a resolution on capital increase (TCC Art. 621). Since the legislator attaches importance to the amendments to the Articles of Association and to the protection of capital in stock corporations, it has foreseen higher quorums than the general assembly resolutions. The quorum required for amendments to the Articles of Association can be set to be higher than those stipulated in the law, by adding a provision to the Articles of Association of the company.
2.2) Registration and Announcement of Capital Increase
Within 30 days from the General Board resolution on the capital increase, the capital increase resolution must be registered by applying to the trade registry directorate where the company headquarters is located. The resolution must also be announced in the Turkish Trade Registry Gazette. The following documents must be submitted to the trade registry directorate in the application to be made to the trade registry for the capital increase registration; (TRR Art. 94/1)
- Notarized copy of the General Board resolution on the capital increase.
- Amended Articles of Association.
- If a certain part of the share prices constituting the increased capital stipulated in the Articles of Association is envisaged to be paid before the capital increase registration, a bank letter showing that this amount has been duly deposited in the bank.
- Valuation reports prepared by the appointed expert by the court regarding the determination of the value of the in-kind assets and businesses to be taken over with the capital in kind.
- A letter from the relevant registry stating that there is no restriction on the capital in kind.
- A document showing that the real estate, intellectual property rights and other values set out as capital in kind are annotated to their trade registries.
- A document showing that the payment to be made pursuant to the Law on the Protection of Competition (article 39) has been made.
- If the capital increase is made only from internal resources or through Capital Commitment or from internal resources together along with Capital Commitment, Sworn-in certified public accountant or public accountant’s report on whether the entire capital is paid, whether it is non-responded and the determination of company’s net assets, the amount met from internal resources actually exists within the company, or, in companies subject to audit, the auditor’s report on these determinations.
- In case the capital increase is made only from internal resources, a clear and written statement of the Board of Directors confirming that the company’s capital is protected in assets and that the amount met from internal resources actually exists within the company and annual balance sheet approved by the General Board, if more than six months have passed following the issuing date of the balance sheet, in the case of the interim balance sheet approved by the Board of Directors is submitted to the directorate, reports indicating that the entire capital has been paid, whether it is non-responded or not, and the determination of the company’s assets, and whether the amount met from internal resources actually exist within the company, are not sought.
In capital increase procedure, the followings shall be registered in the trade registry;
- The new text of the provision of the Articles of Association regulating the capital after the capital increase and the amount of the capital after the increase.
- General Board resolution on capital increase.
- The case of capital increase made from internal resources that the company can save freely.
- Limitations on the transfer of shares, if any.
3) Capital Increase Procedure
In limited companies, the capital increase shall be made in two ways. These are;
- Increasing the company capital through Capital Commitment,
- Increasing the company’s capital from internal resources.
3.1) Increasing through Capital Commitment
Just as the entire capital must be committed at the establishment of a limited company, all of its shares representing the shares in the increased capital must also be committed in the amended contract.
In capital increase, in the case of investing capital in cash in the company, at least 25% of the nominal values of the increased capital shares must be paid before the registration of the capital increase and the remainder must be paid within 24 months following the registration. The equivalent of the capitals committed in cash must be deposited into the account to be opened in the name of the company. Capital share commitments in kind other than cash must be paid in accordance with the provisions regarding the payment of capital in kind at the establishment. The monetary value of the in-kind capital must be set out. This valuation is made by the expert appointed by the commercial court where the company headquarters is located.
In capital increases, the shareholders of the company have the pre-emption (priority purchase) right. Accordingly, unless otherwise stated in the Articles of Association or the resolution to increase, each partner has the right to participate in the capital increase at the rate of the capital share. In order for the pre-emption right to be exercised, partners must be granted a period of at least fifteen days.
3.2) Capital Increase from Internal Sources
The increase from internal resources refers to the type of increase in which the company increases its capital by using its own internal resources without requesting an additional resource from its partners. Here, no new and additional financing can be provided to the company. The limited company’s capital can be increased from internal resources by including the freely usable parts of the capital reserves and legal reserves, which are set aside by the company agreement or the General Board resolution and are not dedicatedly allocated, or the funds allowed by the legislation to be included in the balance sheet and added to the capital. There is no limitation here on which internal resources the capital should be made from.
Conclusion
It is possible to increase capital in limited companies for various reasons. In order to recitfy the capital value set in the Articles of Association, the Articles of Association of the company must be rectified. For this act, which is subject to a special procedure, it is necessary to take a resolution with a qualified majority and complete the necessary registration and announcement procedures. You can contact the Solmaz Law and Consultancy team for more information about capital changes.
References
YAVUZ, Mustafa, “Anonim ve Limited Şirketlere Ayni Ve Nakdi Sermaye Olarak Konulabilecek Malvarlığı Unsurları”, Mali Çözüm, Eylül Ekim 2015.
ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık, Ankara.
Turkish Code of Commerce
Trade Registry Regulation.