Authors: Corporate Law Department, Atty. Mustafa Şahin

Introduction

In joint stock companies, a capital increase should not be regarded merely as a technical transaction aimed at meeting the company’s financing needs. This transaction also constitutes a corporate mechanism that enables the restructuring of the shareholding structure, alters the economic and managerial positions of existing shareholders, and facilitates the entry of new investors into the company. In this respect, capital increase represents one of the fundamental areas of joint stock company law that directly affects both the financial structure of the company and shareholder relations.

The Turkish Commercial Code No. 6102 (“TCC”) regulates the capital increase regime in a systematic manner and provides for different methods, namely capital increase through capital subscription, capital increase from internal resources, and conditional capital increase. This study focuses on capital increase through capital subscription, which is the most commonly used method in practice, particularly in light of the trade registry and registration process.

Legal Nature of Capital Increase Through Capital Subscription

Capital increase through capital subscription is a type of capital increase carried out by amending the provision on capital in the articles of association of a joint stock company, whereby new assets are introduced into the company from external sources. In this respect, the transaction is not merely a disposition related to financing, but constitutes a corporate law transaction in the nature of an amendment to the articles of association.

Pursuant to Article 456 of the TCC, a capital increase is effected through the amendment of the articles of association. In the registered capital system, the decision regarding the capital increase is taken by the general assembly and results in the amendment of the capital clause of the articles of association.

However, the adoption of the capital increase resolution alone is not sufficient for the completion of the transaction. Pursuant to Article 456/3 of the TCC, a capital increase becomes effective upon its registration with the trade registry. Registration has a constitutive effect. If the capital increase resolution is not registered within three months from the date of the general assembly resolution, it becomes invalid. This period is of a forfeiture nature.

Capital Subscription and Subscription Undertaking

In capital increases through capital subscription, it is mandatory that all shares representing the increased capital be duly subscribed. The subscription may be included in the amendment text of the articles of association or may be made through a separate subscription undertaking.

In light of Articles 459 and 461 of the TCC, the subscription undertaking must be made in writing, must be unconditional and irrevocable, and must include the elements determining the economic content of the subscribed shares. Accordingly, the number, nominal value, class (if any), subscription price and payment terms of the shares must be clearly indicated.

The subscription undertaking constitutes a transaction of obligational nature. While the legal relationship arising from the subscription is established at the time of undertaking, shareholder status and the proprietary rights attached to the shares are acquired only upon the registration of the capital increase with the trade registry.

Cash Capital Subscription and Payment Regime

In cash capital subscriptions, the principles regarding the payment of the subscribed share capital are regulated by mandatory provisions under the TCC.

Accordingly, at least one-fourth of the nominal value of the subscribed shares must be paid prior to the registration of the capital increase. The remaining amount must be paid within twenty-four months at the latest.

Pursuant to Article 456/1 of the TCC, except for capital increases from internal resources, a new capital increase through capital subscription cannot be carried out unless the cash subscription obligations relating to the existing capital have been fully fulfilled.

Under Article 462/3 of the TCC, if there are funds in the balance sheet that are legally permitted to be added to capital, such funds must be converted into capital simultaneously with the capital increase. This requirement may only be waived in a general assembly where all shareholders are represented and the resolution is adopted unanimously. Limitations relating to internal resources and the simultaneous capital increase regime are beyond the scope of this study and will be examined in detail in the continuation of this series.

Bank Blocking and Post-Registration Regime

In capital increases through cash subscription, it is mandatory to evidence that the minimum portion of the subscribed share capital required by law has been actually paid. In practice, the amounts paid by the subscribing shareholders are deposited into a special bank account opened in the name of the company, and such amounts are blocked at the bank.

Although there is no explicit “blocking” regulation under the TCC regarding cash capital increases, in practice trade registry directorates require the establishment of a bank block in order to verify that the subscribed amount has been duly paid.

The bank letter issued in relation to the blocked amount must clearly indicate the amount deposited within the scope of the capital increase, the identities of the contributing shareholders, and the total deposited amount. This document is among the mandatory documents to be submitted in the registration application to the trade registry.

The blocking mechanism constitutes a temporary safeguard preventing the company from freely disposing of the subscribed amounts prior to the registration of the capital increase. Accordingly, the amounts subject to the capital increase cannot be used by the company until the registration is completed.

Upon the registration of the capital increase with the trade registry, the increased capital legally comes into existence. Following the registration, the block is lifted by the bank, and the deposited amounts become available for the free use of the company.

Therefore, in cash capital increases, there is a distinction between the fulfillment of the payment obligation and the company’s ability to dispose of such funds, which is contingent upon the moment of registration. While the payment is made prior to registration, the legal consequences of such payment and the company’s right of disposal arise only upon registration.

Board of Directors’ Statement (Article 457 TCC)

Pursuant to Article 457 of the TCC, the board of directors must prepare a statement regarding the capital increase.

This statement must indicate that the increased capital has been fully subscribed, that the payments required by law have been made, that any in-kind contributions comply with the provisions of the TCC, that internal resources used in the increase actually exist within the company, and, where applicable, the reasons for the restriction or removal of pre-emptive rights.

In the course of the trade registry examination, this statement is taken into account as a control mechanism demonstrating that the capital increase has been carried out in compliance with the legal requirements, particularly with respect to the fulfillment of subscription and payment conditions.

Pre-Emptive Rights and Board of Directors’ Report (Article 461 TCC)

Pursuant to Article 461 of the TCC, each shareholder has the right to acquire newly issued shares in proportion to their existing shareholding. This right is preserved unless restricted or removed by the articles of association.

The board of directors determines the procedures for the exercise of pre-emptive rights and grants shareholders a period of at least fifteen days to exercise such rights. This period commences upon the announcement of the relevant decision. The decision of the board of directors is subject to registration and announcement.

In the event that pre-emptive rights are restricted or removed, such action must be based on justifiable grounds. In such cases, the board of directors must prepare a report indicating the reasons for the restriction or removal, as well as the grounds for issuing the new shares with or without a premium and the method for calculating such premium.

This report is also submitted to the trade registry as part of the registration application.

Capital Clause and Shareholding Information in Registration

In capital increases through capital subscription, the capital clause of the articles of association is amended to reflect the new capital amount and the nominal structure of the shares. However, in trade registry practice, it is not accepted to include the identities of shareholders or the amount subscribed by each shareholder in the amendment text.

This approach is based on the principle that changes in shareholding structure in joint stock companies are not subject to registration. Indeed, share transfers and acquisitions in joint stock companies are not registered with the trade registry; instead, shareholding is tracked through the share ledger.

Within this framework, reflecting the identities of subscribers in the articles of association is considered contrary to the principle of anonymity and the function of the trade registry.

Accordingly, trade registry directorates consider it sufficient that the capital clause includes only the total capital amount, the nominal value of the shares, the share groups (if any), and the privileges attached to such groups. The inclusion of shareholder identities or capital distribution in the capital clause is not required, and amendment texts containing such information may be requested to be corrected.

The identities of the subscribers and the amounts subscribed are determined not from the articles of association but from the subscription undertakings and general assembly documents submitted to the trade registry.

Trade Registry Registration Process and Documents

For a capital increase to produce legal effects, it must be registered with the trade registry. The application process is initiated through MERSİS and completed before the relevant trade registry directorate. Although the documents to be submitted may vary depending on the type and characteristics of the capital increase, a standard practice has emerged for certain documents. These documents constitute both the formal and substantive elements of the registry examination.

The documents generally submitted in the registration application are as follows:

• Petition
• Notarized general assembly resolution
• Amendment text of the articles of association
• Attendance list (hazirun)
• Board of directors’ statement (Article 457 TCC)
• Board resolution and, if applicable, report regarding pre-emptive rights (Article 461 TCC)
• Bank blocking letter
• Subscription undertakings
• Certified public accountant or auditor report (where applicable)
• Ministry approval or representative letter (where applicable)
• Document evidencing payment of the Competition Authority fee

The Competition Authority fee is calculated as four ten-thousandths of the increased capital and must be paid prior to registration.

Conclusion

Capital increase through capital subscription in joint stock companies is not merely a technical transaction aimed at increasing capital, but a multi-layered legal process with consequences arising from its nature as an amendment to the articles of association, its impact on shareholder relations, and its constitutive effect upon registration with the trade registry.

Within this process, the stages of subscription, payment, and registration do not operate independently but function as interconnected components. In particular, the registration stage plays a decisive role in the legal existence of the transaction.