How to Amend the Articles of Association of a Limited Company?

As in every Article of Association, Articles of Association of limited companies regulates important issues such as the basic structure and functioning of the company, its capital, rights, obligations and management of the partnership. For a company, the Articles of Association is almost like its constitution. For this reason, the Articles of Association of the company must be prepared in accordance with a certain procedure, and it is required by law that it contains certain records. Following the Articles of Association of the company is prepared and signed by the founders and their signatures are approved, the processes of registration and announcement of the Article in the trade registry must be completed. Just like the procedure for the preparation of the Articles of Association, the amendment of the Articles of Association is subject to certain rules regarding its form and decisions and transactions made compulsory by the company.

In this bulletin, the situations that require the amendment to the Articles of Association in limited companies, the legal procedure to be applied in amending the Articles of Association, the internal decision-making process, and finally the registration and announcement processes of the amendments to the Articles of Association are explained.

1)    What is the amendment to the Company’s Articles of Association?

 

Amending the Articles of Association of the company shall mean annulation one or more of the existing clauses in the contract, adding new clauses stipulating new regulations instead of them, changing the content of the clause or the words and expressions used in the clause, or adding a new clause to the contract on a subject that did not exist before. Updating only the parts that do not constitute a change in terms of meaning and scope and that do not respect the spelling rules, are not within the scope of the amendment to Articles of Association.

2)    What are the Matters Requiring Amendment to the Company’s Articles of Association?

 

According to the Turkish Commercial Code, it is necessary to amend the Articles of Association of the company, especially regarding the changes to be made concerning the capital of the company. For example,

• Amendments to the Articles of Association are required to regulate the following issues:
• Increasing or decreasing of the company’s capital,
• Establishment of privileged capital shares in the voting,
• Limitation or annulation of the right of preference,
• Prohibiting, limiting or facilitating the transfer of capital shares,
• Changing the company’s field of operation,

Changing the company’s headquarters or trade title,

 

3)    Law System in Changes to the Company’s Articles of Association

 

In the Turkish Commercial Code, the amendments to be made in the Articles of Association of a limited company are arranged in a way that will be examined with dual distinction. A distinction regarding the quorum for meetings and resolutions to be sought in the General Board according to the subject of the amendment to be made in the articles of association of the company necessitates such a distinction. Accordingly, the amendments to the Articles of Association of the company will be examined in two groups as general and specific changes.

3.1) Amendments to the General Characteristics of the Company’s Articles of Association

 

According to TCC article 589, “Unless otherwise envisaged in the Articles of Association, the Articles of Association can be amended by the decision of the partners representing two-thirds of the capital.” The provision determines in general the quorum to be sought in amendments to the Articles of Association of the company. The phrase “Provisions of Article 621 are reserved” in the rest of the article regulates contract amendments where special quorums are sought. Accordingly, it is appropriate to amend the Articles of Association in accordance with this general provision, except in cases where another quorum is sought in Article 621 or the Law.

To explain a little, first of all, a General Board resolution is required to make amendments to the company’s Articles of Association in limited companies. However, the General Board cannot make amendments to the Articles of Association with an absolute majority. Because the legislator considers the amendment of the company contract to be important for a company, the vote of more partners is required to take this decision. Although a meeting quorum is not sought as a rule in the amendments to be made in the company’s Articles of Association, an aggravated decision quorum has been introduced. Pursuant hereto, if it is not specified in the articles of association that a higher number of quorum will be required, amendments can be made in the articles of association with the votes of the partners representing 2/3 of the capital. It is clear that a higher proportion than this one can be determined by a provision to be added in the company’s Articles of Association. If there is such a determination, the amendment to the Article is possible if the quorum in the Article is met.

3.2) Amendments of a Special Character to the Company’s Articles of Association

 

The Law stipulates more severe quorums for some amendments to be made in the company’s Articles of Association.

 

3.2.1) Amendments to the Articles of Association that Require At Least Two-thirds of the Votes Represented in the General Board

 

According to Article 621 of the TCC,  if the Articles of Association is to be amended regarding the following matters, at least two-thirds of the votes represented in the General Board and the absolute majority of the entire capital having the right to vote must be present;

• Changing the business’ field of operation.
• Envisagement of privileged capital shares in voting.
• Limiting, prohibiting or facilitating the transfer of capital shares.
• Increasing the capital.
• Limitation or annulation of the right of preference.
• Changing the company’s headquarters.
• Approval by the General Board for the directors and partners to act contrary to the duty of loyalty or the prohibition of competition.
• Applying to the court for the expulsion of a partner from the company for justifiable reasons and expulsion of a partner from the company for the reason envisaged in the Articles of Association.
• Dissolution of the company.

Here, one can say that the law determines both a meeting quorum and a decision quorum. Because the absolute majority of the entire capital share to be present at the meeting is necessary for the quorum for the meeting, and 2/3 of the votes represented for the decision is required.

The Article 10 of the Articles of Association of the plaintiff company, indicates that “The company’s capital can be increased with the common decision of the company shareholders representing 72.5% of the company’s capital for the capital increase. 

The existing capital cannot be increased unless the shareholders representing 72.5% of the company’s capital make a common decision.”

Although it is mentioned in the justification of the decision that there is no higher number of a quorum for the amendment of the Articles of Association in the Articles of Association of the company, within the scope of Article 10 of the Articles of Association, a qualified majority is limited to capital increase as a special case, and the decisions taken without complying with the said proportion is not valid. Because, if the provision of the mentioned article can be exceeded with the amendment to the Articles of Association, it will make the higher number of quorum in the capital increase ineffective. 

In this case, in the dispute subject of the suit, although the court should have decided to reject the case considering that …. the higher number of quorum is included within the scope of the plaintiff company’s Articles of Association and the said quorum cannot be exceeded by the general article regarding the amendment to the Articles of Association, In this case, although the court should have decided to reject the case, it disapproved its adoption with a written statement of reason, and the provision was reversed.[1]”

 

3.2.2) Amendments to the Articles of Association Requiring Unanimity

 

It is stated in the Law that the approval of all partners is required in order to amend the Articles of Association in some issues. These are the cases of additional or ancillary performance obligations to the shareholders of the company, apart from the capital investment debt.

In the Law, there are a limited number of situations in which additional performance obligations may be imposed on the shareholders of the company. Accordingly, it is possible to impose an additional performance obligation on the partners only in cases where

• the total of the Company’s capital and legal reserves cannot cover the loss of the company, 
• The Company cannot continue its business as it should without these additional instruments,
• and there is another situation defined in the Articles of Association that creates the need for equity ( TCC art.603).

Pursuant to Article 607 of the TCC, General Board resolutions can only be taken with the approval of all relevant partners in the amendments to the Articles of Association that impose additional payment obligations on the partners or increase the existing obligations.

Just like in additional payment obligations, General Board resolutions envisaging new ancillary performance obligations or increasing existing ancillary performance obligations can only be taken with the approval of all relevant partners.

4)    Registration and Announcement of the Amendment to the Articles of Association

The company contract must be registered with the Trade Registry at the establishment. The amendments to the Articles of Association to be made after the first registration must also be registered in the trade registry and announced in the trade registry gazette. The provision of Article 589/2 of the TCC is as follows;

“Every amendment made to the Articles of Association is registered and announced.”

The General Board resolution regarding the amendment to the Articles of Association must be registered by the directors in the registry of the head office (TSY m.92/2). It is especially important in terms of relations with third parties outside the company that the General Board resolution on the amendment to the Articles of Association is registered and announced by the managers in the trade registry of the company headquarters and branches within fifteen days from the date of the decision. Because the amendments made to the Articles will only be put forward after the registration, on the assumption that the third parties will be aware after the registration.

The following documents must be submitted to the directorate in the application for the registration of the amendment to the Articles of Association of the company.

• Notarized copy of the General Board resolution on the amendment to the Articles of Association.
• The new text of the amended articles of the Articles of Association.

Conclusion

In limited companies, it may be necessary to change the company’s Articles of Association, which regulates the most important issues in terms of the company’s legal personality, partners and managers. It cannot be expected that the Articles of Association will always remain the same since its establishment, but also since it is not desired to change the contract frequently, Articles amendments are subject to certain conditions and procedural rules. You can contact our team for more information about the amendments to the Articles of Association.

Best Regards.

Solmaz Law and Consultancy Team.

References

ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık, Ankara, p.405-410.

YAVUZ, Mustafa, “Limited Şirketlerde Şirket Sözleşmesinin Değiştirilme Usulü”, Vergi Raporu, issue: 190, July 2015, p.211-217.

11th Civil Chamber of the Supreme Court, 2013/15219 E., 2014/5024 K.

Turkish Code of Commerce

Trade Registry Regulation.

[1]11th Civil Chamber of the Supreme Court, 2013/15219 E., 2014/5024 K.