The analysts believe that new Commercial Code will be a milestone for Turkey’s development process, as it will promote the direct foreign investment. However, there are several new liabilities and responsibilities for investors as well as advantages.
We would like to announce that the new Turkish Commercial Code came into force on the 1st July, 2012 with several amendments and addendums to the previous Code.
New code replaces the former commercial code enacted more than half a century ago, in 1957. The new code, which is in line with the European Union legislations, introduces essential changes for the companies’ directors and shareholders.
Firstly, new regulation introduces some important liabilities which worry the local and foreign investors, such as the requirement for major companies to set up websites, prohibition for shareholders to owe any capital to the company in some occasions, the requirement to declare some information about the company publicly. According to the new Code, in some cases failing to have a website may cause the penalty of imprisonment for 6 months for its directors/shareholders.
Secondly, the new code consists of some clauses which have been awaited for a long time by the foreign investors in Turkey. According to the relevant article, the board members now can arrange meetings and adapt resolutions in electronic form. This allows the board members who are resident in different countries to make decisions more effectively. Previously it was proving difficult for foreign investors to pass board decisions and everything had to be done with a power of attorney in Turkey.
Another important clause affects the shareholders of the limited companies. In the former Code it was stated that the shareholders’ liability for the taxes was limited to the capital invested in the company. However, according to the new Code the government would require the shareholders to pay the whole tax debt, and capital ratio will determine the shareholders’ liability for the company tax debts. In other words, previously if shareholders only invested a basic amount, they would be liable up to their investment which ended up companies to liquidate with debts to government. Now, the shareholders will be liable for the whole government debt, in line with the percentage of their share. Shareholders are expected to be more present to the company tax debts with the new legislation.
The requirement of an independent audit for some companies is another new clause which can affect a significant number of investors. The necessity of the disclosure of any acquisition of more than 5% of the shareholding of a joint stock company would also be important for certain investors.The new Code introduces another important clause which could be frustrating for multinational companies in some occasions. According to the Code, if the Turkish subsidiary of an international company benefits the reputation of the parent company; the parent company would be jointly liable of the conducts of the Turkish subsidiary. The meaning of “to benefit” consists of using the same brand, same trade name and the relations provided via parent company. Additionally, it will be possible to file a lawsuit against the parent country in Turkey as the place of incorporation of the subsidiary. For instance, a UK company can be sued in Turkey due to the conducts of its Turkish subsidiary. This was not possible up to now.
As the new Code introduces over 200 new articles, we are aware of the fact that it can be confusing and hard to comply with all the clauses. We would be happy to provide you with a detailed consultancy regarding the new Code and its effects on your business in Turkey!
