June 2024 – On 3 May 2024, the Draft Law on Amendments to the Turkish Commercial Code and Certain Codes ("TCC Amendments") was submitted to the Presidency of the Grand National Assembly of Turkey, was subsequently adopted, and entered into force after publication in the Official Gazette on 29 May 2024. The TCC Amendments provide for the following amendments to certain articles of the Turkish Commercial Code ("TCC") in order to (i) facilitate company operations and (ii) clarify ambiguities in practice by:
- allowing joint-stock companies to elect the president and vice-president of the board of directors, parallel with the term of the board of directors;
- revising the non-derogatory duties of the board of directors to allow the executives, without a board decision, to appoint and dismiss employees with signature authority other than the senior management of the company;
- obliging the president to call the board of directors to a meeting when addressing requests made by the majority of the members of the board of directors, in order to foster an environment of negotiation within the management body; and
- providing the compliance provisions of joint-stock companies and limited liability companies that are below the minimum capital amounts.
The foregoing points are addressed in more detail below.
Term of the president and vice-president of the board of directors
Under the applicable articles of the TCC, the members of the board of directors can be elected for a maximum term of three years, and the board of directors is required to elect a president and a vice-president each year. The TCC Amendments aim to repeal the necessity to elect the president and vice-president each year, thereby harmonising the terms of the president and vice-president with the term of the board of directors.
The rationale of the amendment is to clarify the previous uncertainty regarding who will exercise the powers and duties ascribed to the president and vice-president under the TCC in cases where the president and vice-president are not elected in the following year.
Delegation of the powers of the board of directors regarding certain persons
The applicable articles of the TCC define the non-delegable duties and powers of the board of directors, which include the appointment and dismissal of managers and persons with the same duties and signature authority. Therefore, a resolution of the board of directors is required to appoint and dismiss any manager, even authorised with limited signature or management power. The TCC Amendments exempt the appointment and dismissal of branch managers and authorised signatories from the non-derogatory powers of the board of directors. Thus, the necessity of a board of directors' resolution to appoint a branch manager or authorised signatory is repealed.
As the rationale for the amendment, the necessities of today's commercial life in terms of the institutionalisation of companies and increasing their competitiveness is emphasised. It is underlined that there are many companies whose activities reach across Turkey and that it is important to complete the procedures regarding the existing and new branches quickly. Therefore, the phrase "managers and persons with the same duties" should be understood as the senior management of the company, not all branch managers or any person with limited signature power.
Accordingly, assessing that the inability of the board of directors to delegate the powers regarding the appointment and dismissal of employees at all levels in companies with a wide branch network and a high number of employees renders business operations difficult, it is stated that the aim is to exclude the appointment and dismissal of persons other than the senior management of the company from the non-delegable duties and powers of the board of directors in order to ease the operations of the company and to eliminate the ambiguities experienced in practice.
Calling the board of directors to a meeting
While the applicable TCC regulates that each member of the board of directors may request the president to call the board of directors for a meeting, it does not regulate what the consequences of such request are and whether the president is obliged to act in line with the request. The TCC Amendments provides that upon the written request of the majority of the members of the board of directors, the president shall be obliged to call a meeting of the board of directors to be held within thirty days at the latest from the date of receipt of the request, and in cases where the board of directors is not called for a meeting within this period or the president or vice-president of the board of directors cannot be reached, such call may be made directly by the requesting members of the board of directors.
In the meetings to be held upon such a call, the meeting quorum shall be the majority of the total number of members of the board of directors, and the resolution quorum shall be the majority of those present at the meeting, in parallel with the applicable TCC regulation. In addition, it is also stipulated that the articles of association of the company may include a different procedure for calling a board of directors’ meeting.
As the rationale of the amendment, it is emphasised that the aim is to prevent (i) the president from remaining silent in some cases where there is a need to convene a meeting of the board of directors and to hold a discussion, (ii) the decision-making processes of the board of directors, which has the power and duty to manage the company, from being hindered, and (iii) any obstacle against reflecting the will of the majority of the board of directors in practice.
Compliance with the minimum capital amounts for joint-stock and limited liability companies
As per the Presidential Decree published in the Official Gazette on 25 November 2023, effective from 1 January 2024, the minimum capital amount for (i) the establishment of a joint-stock company increased from TRY 50,000 (approx. USD 1,550) to TRY 250,000 (approx. USD 7,750), (ii) the establishment of a limited liability company increased from TRY 10,000 (approx. USD 310) to TRY 50,000 (approx. USD 1,550), and (iii) the initial capital for non-public joint-stock companies that have adopted the registered capital system, which indicates the ceiling of authority granted to the board of directors to increase the capital, increased from TRY 100,000 (approx. USD 3,100) to TRY 500,000 (approx. USD 15,500).
The TCC Amendments requires joint-stock companies and limited liability companies with capital amounts below the mentioned amounts to increase their capital to the specified amounts until 31 December 2026, otherwise they will be deemed to have dissolved.
In addition, it is also regulated that (i) the meeting quorum will not be required in the general assemblies to be held for the increase of the share capital of the company to the required amounts, (ii) the resolutions will be adopted by the majority of the votes present at the meeting, (iii) and privileges against such resolutions shall not be exercised, whereas the Ministry of Trade may extend the deadline of 31 December 2026 a maximum of two times for one year each.
By applying the minimum capital requirement to existing joint-stock and limited liability companies, it is aimed to ensure that these companies do not face the quorum requirement and that privileged shareholders do not prevent the capital increase to be made in order to comply with the TCC provision by using their privileges, and to facilitate the completion of the compliance process in a quicker and smoother way. In addition, it is emphasised that the quorum and privilege exemptions are only limited to the resolutions to be adopted in order to comply with the new capital requirements set forth in the TCC.
Conclusion
The amendments introduced by the TCC Amendments are expected to bring certain changes on (i) the structure, functions and meetings of the board of directors, and (ii) the compliance with the minimum capital amounts for companies, in order to facilitate company operations and clarify ambiguities in practice on certain topics.