Basic Requirements For Establishing A Holding Company In Turkiye

I. BASIC REQUIREMENTS FOR THE ESTABLISHMENT OF A HOLDING COMPANY IN TURKIYE

Although the repealed Turkish Commercial Code No. 6762 adopted the Swiss Code of Obligations as its source, it only took the provision No. 671/4 of this Law, but did not take the provision No. 711/2 of the same Law, which regulates holdings.?However, the Law we are talking about is one of the laws of developed countries where holding companies are addressed in the least comprehensive manner.?It is stated by almost all authors that a significant part of both the problems and advantages of holdings arise from these gaps in the law.?One of these problems is the type of company under which holdings can operate.

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There is no specific form of establishment of holdings in our country.?Because, in both the old and new Turkish Commercial Code, there is no provision regarding the type of company in which the holding company will be established.?Since there is no contrary provision in our laws, it is theoretically possible for the holding company to be established and operate under the status of any company with real or legal personality listed in the Turkish Commercial Code.?However, the fact that our laws regulate the structure and capital of joint stock companies in more detail than other types of companies, the fact that capital accumulation can be achieved more easily with this type of company, the pressure of economic reasons and finally the fact that the only provision regarding holdings is included in the joint stock companies chapter of the Turkish Commercial Code, makes the holding a joint stock company legal. This makes it necessary to structure it under the format.

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In practice, it is seen that holdings are established in the form of joint stock companies.?In this context, it is possible to state the basic issues regarding the establishment of the holding company as follows:

a) Minimum Number of Founders

While former TCC requires that there be at least five founders who are shareholders for the establishment of a joint stock company, TCC does not stipulate a minimum number for founders.?In this respect, the presence of one or more founders who are shareholders is sufficient to establish a holding company.?In other words, it is also possible for a holding company to be established by?a person?(real or legal).?However, if the holding company is established by a single person, the shareholder's name, place of residence and citizenship must be registered and announced together with the company.

b)Minimum Capital Amount

Although?former TCC only accepts?the capital system?for non-public joint stock companies ;?In the TCC, the registered capital system?is?included?along with the basic capital system.?Therefore, it is possible for non-public joint stock companies to switch?to the registered capital system?by obtaining permission from the Ministry of Customs and Trade .?Joint stock companies established to offer their shares to the public and joint stock companies established to offer their shares to the public by increasing capital?can adopt the registered capital system by obtaining permission from the Capital Markets Board.?Therefore, a holding joint stock company can be established subject to the registered capital system as well as the basic capital system.

The initial capital of the holding company that accepts the capital system must not be less?than 250,000 TL?, and the "initial capital" of the holding company that accepts the registered capital system but is not publicly traded?must not be less than?500,000 TL.

On the other hand, the TCC requires that, if all or part of the company's capital is committed in cash, at least?25%?of the nominal value of the shares committed in cash must be paid before registration, and the remaining?75%?must be paid within 24 months following the registration of the company?.?On the other hand, the TCC also allows the company's articles of association to record the payment of an amount higher than 25% and the collection of the remaining amount in less than 24 months?.?Therefore;?It may be stipulated that 50% of the capital committed in cash in the articles of association of the holding company will be paid before registration, and the remaining part will be paid within 12 months following registration.?However, provisions to the contrary, such as provisions requiring 20% of the capital committed in cash to be paid before registration and the remaining within 36 months following registration, cannot be included in the articles of association.

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If the holding company cannot gain legal personality within three months?from the date of notary approval or signing of the company contract in the presence of the trade registry director or his deputy?, the situation is communicated to the bank with a letter from the trade registry directorate and the deposited amounts are returned to the owners by the bank.

c) Obtaining Permission from the Ministry

Turkish Commercial Code adopts as a general rule that "?the establishment and articles of association of joint-stock companies cannot be subject to the permission of any authority?", but it requires permission from the Ministry of Customs and Trade for the establishment of some joint-stock companies that are of special importance in terms of their fields of activity.?For this purpose, in Article 333 of the Turkish Commercial Code, "?Joint-stock companies, whose areas of activity will be determined and announced by the communiqué to be published by the Ministry of Customs and Trade, shall be established with the permission of the Ministry of Customs and Trade."?Amendments to the articles of association of these companies are also subject to the permission of the same Ministry.?” provision is included.

With the Communiqué on Increasing the Capital of Joint Stock and Limited Companies to New Minimum Amounts and Determining Joint Stock Companies Subject to Permission for Establishment and Articles of Association Amendment, ?companies whose establishment is subject to Ministry permission have been determined.?According to the aforementioned Communiqué, the establishment of holdings established as joint stock companies and amendments to their articles of association are subject to the permission of the Ministry of Customs and Trade (General Directorate of Domestic Trade).

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Therefore, before applying for registration in the trade registry for the establishment of the holding company, it is necessary to apply to the General Directorate of Domestic Trade of the Ministry of Customs and Trade and obtain permission.?The establishment of the holding company cannot be registered with the trade registry office without obtaining permission from the ministry?.

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As a matter of fact, according to the old Turkish Commercial Code No. 6762, holding companies were established with the permission given by the repealed Ministry of Industry and Trade.?The establishment of a holding company was only allowed?by the repealed Ministry of Industry and Trade, General Directorate of Domestic Trade, in the form of?a pure holding?company and in the status of a joint stock company ?.

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This practice is currently ongoing.?Therefore, in our country, it is possible to establish a pure holding company only as a joint stock company.?The type of holding company that does not itself engage in industrial or commercial activity and whose aim is essentially to participate in other companies is called pure holding?.

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II. FORMATION OF THE HOLDING COMPANY SYSTEM

There are no special legal formalities for the establishment of holding companies, which are considered as joint stock companies in our country.?For this reason, the provisions that must be included in the articles of association of joint stock companies are also included in the articles of association of holding companies.?However, the main issue to focus on here is not the establishment of the holding company, but how the holding system was created.?Especially when we look at the practices in our country, the formation of the holding system appears in three forms?, and these are stated below.

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a) Turning Pre-Existing Companies into Subsidiaries;

In this type of formations, first a holding company is established in the status of a joint stock company.?This established company then purchases the shares of the companies it wants to control, at a rate that allows management and control, and turns them into affiliated companies, thus creating a holding system??.

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b) Parent Company Establishing Subsidiary Companies Itself

It is known that many large holdings in our country establish their own subsidiaries and thus grow.?In this method, which is considered plain and simple and the most applied in establishing the holding system, first a holding company is established in the status of a joint stock company, and then this holding company establishes its subsidiaries by participating in proportions or conditions that ensure its dominance?.

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c) Converting the Business Line of an Existing Company to a Holding

Another way to follow in the formation of the holding system is to transform the partnership into a holding company by making changes to the articles of association of existing companies, instead of establishing a holding company.?This method can be implemented in two ways.

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According to the first figure, the holding system is formed as follows: In the articles of association of some joint-stock companies, the subject of business (purpose and subject) clause states, in addition to other fields of activity, that they either explicitly participate in other companies and engage in transactions specific to holdings?(implicit holding)?or only participate in other companies. There are issues to do.?In order to operate as a holding company in veiled holdings that include participation in other companies among their aims or in joint stock companies that make such subsidiaries to achieve their goals, since the Ministry of Customs and Trade only allows pure holding, business issues other than the issue of participating in other companies in the articles of association are eliminated. Transformation into a holding company can be achieved with a small contract change limited to the business subject and the company's trade name.

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According to the second form, the old company can be turned into a holding company by making an amendment to its articles of association.?The change to be made in the company's articles of association occurs in two ways: One of these is that the old company continues its field of activity and adds the purposes specific to the holding, in which case a?mixed holding?occurs.?In the other case, the old purposes are completely abandoned and the company can only be given purposes specific to the holding, in which case?a pure holding company?emerges.?Although the establishment of mixed holdings was allowed in previous years, it is worth reiterating that the relevant Ministry currently only allows the establishment of pure holdings, and the establishment of mixed holdings is not allowed.

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III. EXCEPTIONS GRANTED TO HOLDING COMPANIES IN THE TURKISH COMMERCIAL LAW

While we have discussed holding companies, it would be useful to briefly touch upon the exceptions granted to holding companies by the Turkish Commercial Code.?In accordance with Article 519 of the Turkish Commercial Code No. 6102, holding companies;?They are required to allocate five percent of their profits as general legal reserves until they reach twenty percent of their paid capital.?Whether or not the profit is distributed has no effect on this distinction.?After this ceiling is exceeded, the emission premium and loss gain, if any, are added to the general legal reserve fund.?However, there is no obligation to allocate a second legal reserve fund for holding companies.?For this reason, even if holding companies distribute profits exceeding 5% of the annual profit, II.?They do not allocate regular legal reserves.?On the other hand, since there is no exception for holding companies in the innovative article 520 of the TCC, holding companies that acquire their own shares, like every joint stock company, allocate a legal reserve fund in the amount that covers the acquisition value of the shares.

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In the third paragraph of Article 519 of the Turkish Commercial Code, the spending limits and purposes of legal reserve funds are shown and "if the general legal reserve fund does not exceed half of the capital or issued capital, it will only be used to cover losses, to continue the business when things are not going well, or to prevent unemployment and alleviate its consequences." It is stipulated that "it can be used to take appropriate measures".?However, holding companies are also exempt from the said provision.?Therefore, holding companies can freely use their legal reserves below half of their basic or issued capital.?In other words, holding companies can use their legal reserves for profit distribution or capital increase, even if they are below half of the company's basic capital, unless they are allocated for another purpose by the articles of association.?However, if the legal reserve funds fall below the legal ceiling due to this use, it becomes necessary to continue the separation of the first legal reserve funds?.

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IV. EXEMPTIONS AND EXCEPTIONS GRANTED TO HOLDING COMPANIES BY LAW NUMBER 86

In our Company Law, the number of legal regulations regarding holding companies is almost non-existent.?Even in the Turkish Commercial Code, which constitutes the legal basis for the establishment of holding companies, the phrase holding company is only indirectly mentioned in one article.?As a matter of fact, at the time when the Turkish Commercial Code was enacted, there was no holding company in our country.?In order to eliminate this deficiency and encourage the establishment of holding companies, the Law No. 86 on Granting Certain Exceptions and Exemptions to Investments (Holding) Joint Stock Companies?was adopted, four years after the enactment of the old Turkish Commercial Code No. 6762, and our country's first holding company was established. It was reunited in late 1963.?We should note that at the time when Law No. 86 was enacted, there was no holding company in our country, and the title of the first holding company of our country belonged to Ko? Holding, which was established on 20 November 1963 and announced in the Official Gazette dated 12 December 1963.?Although the said Law provides some exemptions and exceptions for the establishment of a holding company and has been in force for nearly half a century, in practice, very few people are aware of the existence of such a law.

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“Law No. 86 on Granting Certain Exceptions and Exemptions to Investments (Holding) Joint Stock Companies”, adopted on 20 September 1960 and published in the Official Gazette No. 10610 dated 22/9/1960, consists of five articles.?Considering that the last two articles are related to enforcement, it is possible to say that the said Law consists of three main articles.?During the half-century period in which it was in effect, only the 3rd article of the said law was amended by Law No. 93 dated 4/10/1960, and no other changes were made.?According to the said law;?The establishment of the holding company is exempt from the provisions of the Turkish Commercial Code regarding sudden and gradual establishment.?Again, holding joint stock companies can issue bonds in any amount they wish, regardless of the amount of their core capital that is paid and understood to exist according to the last certified balance sheet.?In Law No. 86, some incentives are foreseen for foreign investors who will become partners of the holding company, and in addition, the issuance, approval, registration and announcement of the articles of association and the participation commitments to be given after the company is established, and the issuance of shares and bonds are exempt from fees and stamp duty.?Law No. 86 also exempts holding joint stock companies from the registration fee to be paid during registration with the chambers of commerce and industry.

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However, when evaluating this exemption, it is necessary to take into account that Law No. 86 is a law enacted to encourage the establishment of holding companies in our country and that there were no holding companies in our country as of the period it was enacted.?As a matter of fact, our country had its first holding company in 1963, three years after the aforementioned law was passed, and the holding company practice in our country has reached a tremendous level over the period of half a century.?For this reason, it would not be wrong to say that the exemptions granted to holding companies by Law No. 86 have achieved their purpose, but are out of date as of today.?Therefore, we believe that the said Law should be reconsidered or even repealed.

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