Turkey Is Looking Forward to Welcoming the New Commercial Code

he Turkish Commercial Code (hereinafter to be referred to as the entered into force on January 1st, 1957, and for over 50 years since then, while most of the European countries have adopted new codes or amended their regulations in accordance with the latest developments taking place in the world, the has not been significantly amended.

Introduction
New structures were needed for newly-developing business transactions and relationships, especially in the area of corporate governance. Massive corporate scandals involving World.com, and , to name but a few, obliged legislators in the United States of America and the European countries to set stricter and more transparent corporate governance and auditing rules. Given the fact that Turkey, as a candidate for EU membership and as an emerging market, aims to attract foreign investment, Turkish corporate legislation needed to be brought into line with the rest of the world in order to continue the economic integration that started with. In 2006, the Turkish Ministry of Justice formed a commission composed of scholars, judges, and practitioners for the preparation of the draft Turkish Commercial Code (hereinafter to be referred to as the “Draft Code”). The Draft Code is waiting to be ratified by the Council of Ministers.

The Draft Code will be the fundamental code regulating all types of joint stock companies, both public and private (hereinafter to be referred to as .
This document aims to provide a brief outline of the reforms that will take place with the implementation of the Draft Code, particularly with respect to and limited liability companies (hereinafter to be referred to as

I. New Auditing System:

Pursuant to the, an internal audit committee is one of the corporate organs of a company. However, experience shows that in practice this committee loses its independence and cannot be impartial vis-à-vis the shareholders. Under the Draft Code, an audit committee is no longer considered an organ of a company. The Draft Code adopts a reformist and unifying approach that obliges all types of companies to retain external auditors and be audited by eligible, professional, and independent auditors complying with international accounting standards and acting with due care. According to the Draft Code, companies’ financial statements and reports will be prepared and audited in accordance with the Turkish Accounting Standards which is almost a complete translation of the International Financial Reporting Standards.
The Draft Code requires that independent auditors also be audited by the Higher Audit Institution.

II. Obligation to launch a web-site for the company:

With the Draft Code, each company will be required to maintain a company web-site. All information regarding general assembly meeting documents and invitations, financial statements, evaluation reports, nullity actions, invitations to use rights or any information pertaining to investors’ interests (excluding company secrets or confidential information) are required to be published on the web-site of a company.

III. Amendments Specifically Introduced for :

(a) A company can be established by a single shareholder :
Pursuant to the a must be formed by a minimum of 5 shareholders; however the Draft Code enables a to be formed by only one shareholder.

(b) Capital Issue :
The minimum capital required for a remains the same, viz., 50,000 (currently
The Draft Code expanded the capital in-kind which can be put into to include web sites or domain names and undue receivables. The Draft Code enables any instruments or property rights, including rights and domain names, to be used as capital by the if the property rights are not subject to any liens or injunctions.

(c) Privileged Shares :
Under the Draft Code, voting privileges are limited to 15 votes per share. However, this number can be increased by a court decision. The possibility of privileged shares’ blocking a capital increase has been renounced. In addition, privileged votes cannot be used in voting on resolutions regarding amendment of the articles of association (hereinafter to be referred to as the of a company, appointment of a transaction auditor, or filing of discharge or liability suits.

(d) General Assembly Meetings :
With the ratification of the Draft Code, it will be possible for the shareholders of a to hold general assembly meetings on-line.

(e) The Board of Directors may be composed of a single director :
With the Draft Code, the Board of Directors can now be composed of only one director who is not required to be a shareholder of the company. The Draft Code also enables legal entities to become board members.
The Draft Code enables the board of directors’ meetings to be held on-line, and this will provide the directors the opportunity to attend to the meeting without having to travel to the place where the meeting will take place.

(f) Liability :
Under the Draft Code, the liability of the board of directors has been regulated in detail. According to the Draft Code, members of board of directors are jointly liable for each and every transaction of the company unless a responsible person is assigned for a specific duty with a written resolution of the board of directors. In this respect, the assigned person or persons or, if there is no assignment of duty, the members of the Board of Directors will be liable if any documents or declarations regarding the company or its transactions are fraudulent, misleading or illegally prepared.

IV. Amendments Specifically Introduced for :

The Draft Code, like the , does not contain detailed provisions regarding . Provisions regarding re considered to be applicable to by way of reference in cases where the Draft Code remains silent on
The minimum capital required for the establishment of an is increased from 5,000 (currently $ 3,345) to 25,000 (currently 16,723) with the Draft Code. The capital in the form of cash must be fully paid up in one installment by the partners in order for be established.
The Draft Code enables partners to have more than one share, and also expedites and simplifies the transfers of shares. The bankruptcy of a partner will not lead to the bankruptcy of the company since the creditor will only be able to place an attachment on the share of the debtor-partner and cannot request the liquidation of the company.

The Draft Code enables the board of partners’ meetings and the board of managers’ meeting in to be held on-line.

Conclusion

Most of the reforms contemplated by the Commission are reflected in the Draft Code, and it is now awaiting ratification by the Council of Ministers. It should be noted that since the Draft Code has not yet been finalized, amendments may still take place before its ratification. Given the fact that the world is at the edge of an enormous financial crisis due to the current credit crunch, it is now even more vital for an emerging market like Turkey to be attractive for foreign investors. The only way to accomplish this is to create a transparent and secure business environment, which is also the aim of the Draft Code.