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



With the Turkish Commercial Code dated 13 January 2011 and numbered 6102 which was published in the Official Gazette dated 14 February 2011 and numbered 27846 and which has entered into force as of 01.07.2012, the mechanism on the share capital increase has been amended together with a legislation change in the capital movements circular of the Turkish Central Bank.

The amendment on the capital increase mechanism had an impact on the “capital advance” procedure that is usually implemented during the incorporation of companies or equity injection. Accordingly, the Central Bank of the Republic of Turkey has amended its Circular on Capital Movements (the “Circular”) by issuing a circular numbered 2013/YB-7 and removed the concept of “capital advance” from the Circular 2002/YB-1.

The previous circular numbered 2002/YB-1 used to allow Turkish banks to transfer payments classified as “capital advance” into Turkish companies by the foreign shareholders.


As per the new structure imposed by the amendments in the Turkish Commercial Code, during a share capital increase, the shareholders are required to deposit at least 25% of their share capital subscriptions into the bank account of the company before the registration of the share capital increase resolution with the relevant trade registry. The deposited amount is blocked and may be used only by the recipient company, only after a petition is submitted to the relevant bank proving that the share capital increase decision is registered with the relevant trade registry. Furthermore, the shareholders of the company are also required to deposit the rest of the share capital to the bank account of the company within two years from the date of the registration of the share capital increase decision.

Together with the new structure under Turkish Commercial Code, according to the amendment on the Circular, the payments made by shareholders to their Turkish subsidiaries are now required to be recorded either as “capital increase payment” or “capital payment” with the implication that the funds transferred by the shareholders shall not be released by the bank until they are actually registered as capital. Accordingly, certain structures (i.e. the capital advance structure) which were commonly used to by the investors may no longer be available. A good example is the case of acquisition of target companies in Turkey through the use of special purpose vehicle (“SPV”) company incorporated for that purpose. The funds to be used during the Closing for the acquisition (which may also partly be obtained by project financing) will be blocked in the SPV’s account until the registration of the relevant capital increase resolution with the trade registry. This inevitably forces the shareholders / investors to provide such capital contributions well ahead of the closing date for the transaction and thus, increases the risks with respect to non-occurrence of the closing (due to the fact, once registered, the repatriation of such funds back to the contributing shareholder would require the convening of another general assembly meeting of shareholders to decrease the share capital).


Since the capital advance is no longer an option for funding the companies for their immediate necessities, if the purpose for funding a subsidiary is to use such funds, the relevant parties are forced to consider the use of a loan arrangement between the shareholder and the relevant subsidiary instead of injecting a capital. However, in such a case, tax consequences (i.e. the stamp tax, the Resource Utilization Support Fund, etc.) will need to be factored in, as additional consequences.

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