• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren

DIVIDEND DISTRIBUTION OF NON-PUBLIC COMPANIES UNDER THE COMMERCIAL CODE

The new Turkish Commercial Code no. 6102 was published in the Official Gazette dated 14.02.2011 and numbered 27846 (hereinafter the “TCC”) and has entered in force on 01.07.2012.

Under Turkish law, the distribution of profits and the payment of an annual dividend with respect to the preceding fiscal year are recommended by the board of directors for approval by the company’s shareholders at the annual ordinary general assembly meeting, which must be held within three months following the end of the company’s preceding fiscal year. Unless higher quorums are required by the company’s articles of association, the decision quorum for the distribution of dividends is simple majority of those present at the meeting. Unless otherwise specified in the articles of association, each shareholder is entitled to receive the declared dividends, pro rata to the payment made to the company in respect of their shares.

a)Distributable Profit

In calculating the profit, losses from the previous year, corporation tax, general expenditures, depreciation and other legal obligations are deducted from the income of the company. Only profits and distributable legal reserves may be distributed as dividends.

b)Net Profit

First Statutory Legal Reserve Fund

5% of the annual profit shall be set aside as a first statutory legal reserve fund, until the amount of such reserve fund reaches 1/5th of the company’s paid-in capital.

c)First Dividend

Net Distributable Profit is calculated as follows:

A first dividend in the amount of 5% of the net distributable profit of a non-public company can be distributed only after the statutory legal reserves and the second statutory reserves have been set aside.

d) Second Dividend

Second Statutory Legal Reserves

10% of the part to be distributed to shareholders and other persons entitled to the profit, after the distribution of the first dividend, is required to be set aside and added to the statutory reserves. Furthermore, the amount of emission premium for newly issued shares minus the expenses related to the issuance and the amount of the cancelled shares due to the expulsion of a shareholder and the expenses related to the cancellation, are added to such second statutory legal reserves.

Only after the setting aside of the first and second statutory legal reserves may a second dividend be distributed to the shareholders. Furthermore, legal reserves can only be distributed as dividends after they reach 50% of the company’s paid-in capital or issued share capital.

The general assembly is always entitled to set aside further legal reserves for predictable dividend distribution in the future, keeping the assets at the required levels or for maintaining the continuous expansion and development of the company.

The company is also required to set aside sufficient amount of legal reserves to be able to acquire its own shares, if need be, in accordance with the Turkish Commercial Code No: 6102 under the circumstances allowed in Articles 379 - 389. Such legal reserves will be locked and can only be used for other purposes subsequent to the divestment or cancellation of the referred shares. With respect to reserves recorded under the re-evaluation fund, such funds can only be freely used if added to the share capital or in case of re-evaluation of assets, when such assets are either amortized or divested.

Other Persons Entitled to Distribution

The members of the board of directors may receive part of the dividend as dividend share only after the distribution of first dividend and setting aside of the statutory legal reserves.

The company’s articles of association of the company may provide that a voluntary legal reserve shall be set aside for the benefit of the directors, employees and staff and such amounts shall be used for the formation of a cooperative or a foundation for the benefit of such persons.

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