Turkey Moves to Improve the Investment Environment

I.    Introduction

The Law on the
Amendment of Certain Laws for the Improvement of the Investment Environment No.
7099 ("Law") was published in the Official Gazette last month (March
10, 2018) and introduced significant amendments to various laws, including the
Turkish Commercial Code No. 6102 ("TCC"), the Tax Procedural Law, the Law
on Legal Fees and the Law on Movable Property Pledges in Commercial Actions.

This article addresses significant
amendments and new rules stipulated by the Law for the Turkish Commercial Code.

The Law aims to enhance
Turkey's investment environment by reducing the number of transactions required
to set up a company, by supporting investors, and by lowering the expenses associated
with the incorporation of joint stock and limited liability companies.

Save for certain
exceptions as explicitly stated in the Law, the Law entered into effect on
March 10, 2018.

II.       Explanations on amendments regarding the
Turkish Commercial Code

By amending Article
40/2 of the TCC, the Law requires every merchant to submit its trade name and
signature to be used under such trade name to the relevant Trade Registry. If
the merchant is a legal entity, the trade name and signature specimens of
persons authorized to sign documents on behalf of the legal entity must also be
submitted to the Trade Registry. Signature specimens may be given in the
presence of an authorized officer of any Trade Registry by submitting a written
statement. This amendment repealed the notarization requirement for trade names
and signature specimens before an authorized Notary Public prior to submission to
the relevant Trade Registry. On the other hand, prior to this amendment, individuals
residing outside of Turkey were permitted to have their signature specimens signed,
notarized and apostilled abroad. However, following this amendment, individuals
residing outside of Turkey will be required to sign their signature specimens
in the presence of an authorized officer of a Trade Registry in Turkey.

Pursuant to the changes
made to Article 64 of the TCC, opening approvals of company books of joint
stock companies and limited liability companies shall only be processed by the
Trade Registries. With this amendment, Notary Public officials are no longer
authorized to carry out opening approvals of company books. Therefore, investors
are released from the requirement to pay additional notary fees for opening
approvals of company books during the establishment of joint stock and limited
liability companies.

Prior to the changes
put into effect by the Law, if a company recommended a person affiliated with
the company to its shareholders to represent them during shareholders' meetings,
Article 428 of the TCC obliged such a company to recommend another person for
the same position, who should be completely independent and neutral, and to
announce both of these persons to their shareholders. In practice, this
obligation caused substantial problems and put significant additional burdens
on small-scale joint stock companies. In light of this, Articles 428, 430 and
431 of the TCC have been repealed in order to reduce the obligations imposed on
small-scale joint stock companies. The justification of the abolishment decision
also stipulates that representative appointments set forth under Article 428 were
introduced for joint stock companies listed on the stock exchange and for public
companies whose shares are distributed to numerous shareholders; however, due
to the text of Article 428, this rule also created additional burdens for small-scale
joint stock companies. It is also put forth in the justification that, since
Article 428 will not be applicable within the scope of the Capital Markets Law
No. 6362, as per Article 30 thereof, small-scale joint stock companies should
not face additional costs due to the representative appointment rules as foreseen
under Article 428.

In light of the
amendments to Articles 575, 585 and 587, Notaries Public are no longer
authorized to approve the signatures of founders and the articles of
association of limited liability companies. The articles of association must be
signed by the founders in the presence of authorized officers from the
directorates of the Trade Registry. This amendment has entered into effect as
of March 15, 2018. Thanks to these amendments, investors are no longer required
to pay additional notary fees for the approval of the signatures of the founders
and the articles of association of limited liability companies during the
establishment of such limited liability companies.

Article 585 of the TCC
has been amended and the requirement concerning the payment of at least one-fourth
of the subscribed capital prior to the establishment of a company has been abolished
for limited liability companies. This amendment has also entered into effect as
of March 15, 2018.

As per Article 68 of
the Law on the Amendment of Certain Laws for the Improvement of the Investment
Environment No. 6728, published in the Official Gazette on August 9, 2016, Article
543/2 titled "Distribution after Liquidation" has been amended and the prescribed
period for the distribution of a company's remaining assets to its shareholders
following the latest announcement to the company's creditors has been decreased
from one year to six months.

III.    Conclusion

These amendments to the Turkish Commercial Code aim
to improve the investment environment in Turkey, boost the national economy,
and reduce the costs of company incorporation and doing business in Turkey. The
Law also introduces significant amendments regarding the liquidation and incorporation
of companies and secondary legislation may be required in order to bring
uniformity to the practice of Notaries Public and Trade Registries in Turkey.

Authors: Gönenç
Gürkaynak, Esq., Nazlı Nil Yukaruç and Büşra Üstüntaş, ELIG, Attorneys-at-Law

(First published by
Mondaq on April 11, 2018)