Content · negotiable instruments, transportation operations, maritime law and insurance contracts, and which is based on the comprehensive scope and “unity principle of Commercial

Content

A Future Unique to a Civilized Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Competition in a World without Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

I. Common Concepts related to Corporate Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

B. Capital Stock Companies: Website, Information Society Services and Access Rights of Stakeholders . . 5

C. Single Shareholder Joint Stock Company and Single Member Partnership with Limited Liability . . . . . . . 6

D. Group of Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

E. Structural Changes in Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

F. Turkish Accounting Standards – Identical to IFRS, New Form of Commercial Books . . . . . . . . . . . . . . . 17

G. Audit in Capital Stock Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

II. Joint Stock Company (“AŞ”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

A. Incorporation of Afi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

B. Closely Held Joint Stock Company, Publicly Held Joint Stock Company and Publicly Traded Company 25

C. Capital and Shares in Afi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

D. The Afi’s Acquisition of Its Own Shares or Acceptance Thereof as Pledge . . . . . . . . . . . . . . . . . . . . . . . 28

E. Board of Directors of Afi (“the Board”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

F. General Assembly (GA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

G. Capital Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

H. Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

III. Partnership with Limited Liability (LŞ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

A. Striking Features of the New Partnership with Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

B. Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

C. Creditors and Economy have been Strengthened through Increase of the Financial Power of theCompany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Draft Turkish Commercial Code - A Blueprint for the Future • 1

Draft Turkish Commercial CodeA Blueprint for the Future

2 • Draft Turkish Commercial Code - A Blueprint for the Future

A Future Unique to a Civilized Society

This handbook, both, describes in a graphic manner, the important innovations, modernevolutions and reformist approaches of the Draft Turkish Commercial Code (“the Draft”);and it designates, within the context of the Draft, the future law by which Turkishcommercial, financial and capital markets will abide. The future is not unique and identicalfor everyone and every nation. Each country chooses and defines its own future. Thefuture, in which Turkey can survive and must survive, is the “future that is unique to acivilized society”. If we take part in that future, our country will gain respect, our nation willmove forward and we will be fulfilled. There is a cost for such a future. However, this costis much less than the cost that will be paid by a society that does not participate in thefuture of a civilized society.

This Draft containing laws regarding commercial enterprises, commercial companies,negotiable instruments, transportation operations, maritime law and insurance contracts,and which is based on the comprehensive scope and “unity principle of Commercial Law”that became the tradition upon 1926 and 1956 Turkish Commercial Codes, aims toradically change commercial law for the aforementioned future. Additionally, the Draftneither only integrates Turkish commercial law with EU law, nor only creates aninfrastructure of Basel II, transparency and information society, it also simultaneously putsinto effect generally accepted financial reporting and auditing principles and paves theway for democracy among shareholders and the use of information technology tools. Itsgoal is to establish and sustain an order of commerce, industry and services thatmaintains a high and an objective level of justice, protects the advanced society and theethical values and keeps the focus on modern traders and companies, minorityshareholders, transporters, the insured and KOB‹ (small and medium size enterprise),where competitive enterprises can shape our economic environment and within which thelanguage of international markets is spoken.

Corporate governance principles have moved beyond publicly traded companies andhave become a good management practice, which has begun to affect all private andpublic operations and is an effective codex for internal and external audit. Turkey is acountry that must face modern social trends. All of these are recognized by the Draft andhighlighted in this handbook.

Bige Tekinalp has prepared the book for publication with great care; in addition tocommenting on the Draft, she listened to the lectures and answers that I gave in 61seminars, panels and technical meetings and examined their texts. She has ensured thatthe book included all of the Draft’s underlying principles, critical points and new concepts,and that these were imparted to the reader in short and understandable sentences.

I would like to thank PricewaterhouseCoopers. By publishing the final status of the Draft’sarticles related to commercial enterprises and capital stock companies accepted by theTurkish Grand National Assembly (TBMM) Justice Commission in April 2007,PricewaterhouseCoopers has assisted in and contributed to the introduction of the currenttext. This publication has allowed for the goals and purposes of the Commission to beexplained to non-governmental organizations and relevant parties which have a directinterest in the Draft, and has ensured that the Commission’s message is able to reachthem. This publication has allowed us, once again, to reach the organizations andcorporations that we repeatedly discussed the Draft with and it has enabled us to bringthe Draft, which is the fruit of a pluralist preparation, to the target audience.

Prof. Dr. Ünal Tekinalp

ChairDraft Turkish Commercial Code Commission


We are living in a period where the greatest amount of information is made available topublic and in a world where a global economy is without borders and is apt to suddenchanges. In this new order, it is crucial for nations and companies to increase theircompetitive strength that the rules applied in business life are compatible with globalstandards. Along with increased competition, topics like the assessment of growth potentialand development of companies, corporate governance, public trust and transparency havebecome priorities in the changing agenda of the global business world.

It is of utmost importance for the Turkish business world, which is in a rapid process oftransformation and is pushing the boundaries of global competition, to work with moretransparent corporate governance principles in order to increase the global competitivestrength of Turkish enterprises. Upon the adoption of the new Draft Turkish CommercialCode (“the Draft”), constructed on the grounds of transparency and accountability, the abilityof all stakeholders in a society to access information and protect their interests will beensured, in the direction of integration with the world economy and the objective ofmaintaining a high and sustainable growth rate with continual economic stability.

The Draft, which has been prepared not only with the goal of increasing the competitivestrength of the Turkish business world but also to confirm with the European Union AcquisCommunautaire, has been presented to the TBMM as a result of a five-year long painstakingstudy by the Preparatory Commission for the Draft Turkish Commercial Code under thechairmanship of Prof. Dr. Ünal Tekinalp. In addition to the opinions and viewpoints ofacademics, professional organizations and non-governmental organizations received duringthe preparation period, opinions of the leading firms in Turkish business world have beenasked prior to presentation of the Draft to the TBMM. As PricewaterhouseCoopers Turkey,we have followed up the preparation stage of the Draft that contains comprehensive andfundamental reforms and that will affect the Turkish business environment and enterprises.We have tried to ensure that all criticisms, opinions and thoughts of our professional fieldand the business world regarding the Draft have been presented to the PreparationCommission for the Draft through conducting studies within the Independent AuditAssociation, TÜRMOB (The Union of Chambers of Independent Accountant FinancialAdvisers and Sworn Financial Advisers of Turkey) and TÜS‹AD (Turkish Association ofIndustry and Businessmen). We are of the opinion that this Draft, which has been preparedwith the consensus of the business world, professional associations and non-governmentalorganizations, has legitimate foundations.

PricewaterhouseCoopers Turkey, with the goal of giving you, the company executives,preliminary information regarding the Draft, which will soon become law, has prepared thissummary containing certain specific significant changes extracted from the section of theDraft related to commercial companies with the valuable contribution of the esteemed BigeTekinalp. With the belief that the Draft, which we know was prepared with meticulous andpainstaking work, will provide answers to many issues felt to be lacking under the currentstructure of the legal organization, we would also like to state that it is a great honor to sharethis significant positive development with you.

Respectfully,

Cansen Baflaran-SymesTerritory Senior Partner, PricewaterhouseCoopers Turkey

Competition in a World withoutBoundaries

I. Common Concepts related to Corporate Law

A. Corporate Governance

Corporate governance, a concept dominant in the Draft, in spite of still beingperceived as a system of rules applicable to publicly traded companies, is actually acodex that should be applied to all enterprises in order to inspire investors withconfidence and ensure sustainable development. That is the reason why the Draftintroduces material provisions to be applied to all capital stock companies regardinggood quality management and internal and independent audit. The purpose of thisDraft is to reflect in Turkish law the concept, which has become common in recentyears around the world but has created diversity and complexity due to thedifferences in the economic, financial, political and cultural structures of countries, ina simple way that will not cause confusion. The corporate governance codex thatestablishes the foundation of the Draft can be summarized as follows:

1. The corporate governance approach of the Draft has been based on four pillars.(1) Full transparency (2) Fairness (3) Accountability (4) Responsibility. These fourpillars have universal characteristics within the context of the corporategovernance doctrine.

2. Full transparency has been sought in (1) Financial statements (2) Boards ofDirectors’ (“the Board”) annual reports (3) Independent audits (4) Operationalauditors (5) All audit reports of individual companies and group of companies.

3. Fairness has been ensured by establishing a balance of interests and byobjective justice.

4. Accountability has been embodied in the Board’s reports, flow of information,right to information and to inspect.

5. Responsibility has been regulated in parallel with accountability.

6. The rights to sue, to information and to inspect granted to shareholders havebeen created along with smooth running legal mechanisms.

7. The minority rights list has been enriched.

8. Privileged shares have been restricted.

9. Shareholders’ groups in the Board and representation possibilities of minorityhave been increased.

10. Capital Markets Board ("CMB" - SEC) has been provided with exclusive authorityto regulate the corporate governance codex. This authorization will ensure thedynamism and up-to-datedness of the code.

11. The Board of publicly held company has been obligated to publish a corporategovernance report.

12. Professionalism and specialization in bodies have been emphasized.


B. Website, Information Society Services and AccessRights of Capital Stock Companies

In the Draft, every capital stock company has been obligated to create a website,and if the company already has a website, to allocate a part thereof forinformation society services.

The Draft defines the “information society” as a society that has access toinformation. This approach is currently effectual in terms of capital stockcompanies. The following and other similar information should be published onthe website:

1. a. All data that is relevant to the company and in which shareholders, minorities, creditors and stakeholders have interest

b. Documents and notices regarding General Assembly (“GA”) meetings

c. Year-end and interim financial statements and merger and division balance sheets

d. Audit reports (reports of auditor, operational auditor, special auditor etc.)

e. Valuation reports

f. Offers for exercising pre-emptive right

g. Announcements related to liquidation

h. Announcements related to action for cancellation

2. Access to the website shall be available to everyone and unrestricted, in orderto give rise to the possibility and the right to access.

3. The website shall provide the means for electronic GA and Board meetingsand for electronic voting.

4. The website is a complete, visual and electronic trade log.

5. The website has introduced the concept of stakeholder into Turkish law.


C. Single Shareholder Joint Stock Company and SingleMember Partnership with Limited Liability

In GeneralThe Draft introduces one other significant innovation that satisfies a major need:single shareholder Afi and single member Lfi. In the Draft, this one man companyhas been regulated by means of adapting 12th Directive of the EuropeanCommunity (“EC”) regarding companies to Turkish law.

• Single shareholder Afi and single member Lfi may either be incorporated orif shareholders/partners of an Afi or a Lfi incorporated by and amongmultiple shareholders/partners diminishes to a single partner or shareholder,the firm may legally continue its activities.

• If a company is incorporated with a single person, legal form of thecompany, name of the single person, trade name and address will beregistered at the trade registry and announced.

• If a company is incorporated by and among multiple shareholders orpartners and then if the number of shareholders/partners diminishes to onedue to the reasons such as share transfer, withdrawal or dismissal ofshareholders/partners, the company may continue to carry out its businessin the same manner and maintain its legal personality; on the contrary to theTurkish Commercial Code (hereinafter “TCC”) currently in force, in such casean action for dissolution may not be initiated. Additionally, this situation willbe immediately registered at the trade registry and announced, and theinformation regarding the identity of the person who has become the singleshareholder/partner will be registered.

• If this introductory and explanatory announcement that is the necessity ofthe principles of transparency and public disclosure is not made, both theBoard and the single shareholder/partner, even, according to aninterpretation, the other party to the transaction that put the company insuch situation may be held responsible.

• The single shareholder or partner may solely use all powers of the GA andmay adopt all resolutions; however all resolutions adopted in the name ofthe GA must be specified as GA resolutions and must be in writing.

• The single shareholder/partner may conduct transaction with himself only inwriting. The same rule is also applicable to the transactions between therepresentatives of a single partner or a single shareholder company, and thesingle shareholder/partner himself or the company. The said rule will notapply to the operations that are considered day to day transactions ofbusiness life.

Doesn’t a one man company contradict with the concept of“company”?

A one man company does not contradict with the concept of “company”.According to the new theory, a company is not a union of people with more thanone partner, but is an operational organization that manufactures and suppliesgoods and services. A company is the name given to an enterprise that functions


for the purpose of realization of its scope of activity. According to the new theory,the company may consist of a single shareholder or a single partner; however itmay also have Board of Directors consisting of 10 to 15 members, various auditcommittees and several commissions with regard to the principles of corporategovernance. The important thing is the order which is appropriate for the scopeof activity and is subject to best management and audit practices. The elementsthat define a company are the managerial organization to achieve its scope ofactivity, effective audit, the capability to compete and being part of national andinternational markets. The number of partners is a marginal and an indistinctiveelement. The number of partners is effective when describing a publicly heldcompany or a publicly traded company; however, it does not describe thecompany in a modern view. The number of shareholders is significant only whenthe shares of a company are being listed on the stock exchange. Thischaracteristic makes the company a publicly traded company. A singleshareholder Afi may easily be converted into a publicly traded company. It wouldbe an excessively formalist approach not to consider an organization with suchflexibility as a company, simply because it has a single shareholder or partner.

Legal systems that do not permit single shareholder Afi or single member Lfihave annulled the possibility for associations, foundations, unions and universitiesto incorporate companies related to their operations.


Single shareholder or partner companies respond to the followingneeds:

1. It provides the opportunity for the owner of an enterprise who wishesto convert its single proprietorship to a new legal type of limitedliability company i.e. an AŞ or a LŞ, to incorporate a company as asingle man company. Thus the owner would no longer be forced totake individuals as “straw man” into the company in order for itsincorporation.

2. When a foundation, association or university wants to incorporate acompany, they might naturally be the single partner or shareholder ofsuch a company. Taking fake shareholders or partners into thecompany along with the actual partner is not often well-suited withthese organizations’ purposes.

3. If an AŞ or a LŞ wants to establish a vendor (O.E.M.) related to itsown scope of operation, AŞ/LŞ may establish such vendor on its ownthrough a new company. For example, if a company thatmanufactures refrigerators wants to incorporate a company thatproduces plastic refrigerator shelves, it would no longer have to takea partner which it does not need.

4. As single shareholder or partner companies are very common inEuropean countries, companies that want to invest in Turkey maymake their investments directly as a single shareholder or partner bythemselves.

D. Group of Companies

In GeneralGroup of companies (“Group”), which is created for the specific purpose ofmanaging more than one capital stock company according to predetermined andconcrete policies within the context of controlling relationships, has been regulatedfor the first time in Turkish law by this Draft. Group of companies are known as“corporate group” in Anglo-American communities and in German law they arereferred to as “Konzern”.

A significant loophole in law has been closed and a significant need has beensatisfied through this new regulation. By means of these provisions:cevapverilmifltir. Bu hükümlerle:

• The concepts of a controlling (parent) company, which sustains control, and adependent company (subsidiary) which is under control have been clearlydefined and legal status of these companies and their relationships have beenspecified.

• The necessity for the transparency principle which forms the foundation ofmodern corporate law has been fulfilled by setting forth the requirement forcontrolling and dependent companies to disclose their legal position to public.

• The Draft has set forth that the Board of Directors of both controlling anddependent companies are required to report their inter-company relationsannually. Thus, it has been ensured that the management of such companieswill have detailed information regarding the results of the inter-companyrelations. In the light of this information, the boards of directors will be able toperceive the position of the dependent company more clearly. The boards ofdirectors will be able to clearly determine the losses and profits of eachcompany and make more conscious decisions through the said report. ThisDraft has set forth that these reports will not be disclosed to the public butonly their result section shall be included in the annual report, therefore hasmaintained confidentiality to the fullest extent.

• The Draft has, for the first time, introduced the phenomenon of cross-shareholding through the stipulation that is in conformity with European Unionregulations. Situations constitute by the abuse of cross-shareholding and inwhich the cross-shareholding may be used as a weapon by the Board ofDirectors to strengthen their management are prevented.

Abuse of ControlThe Draft has protected the shareholders of the dependent company, who are notincluded in the Group, by means of various rights of action and through othermechanisms. Among these, there are provisions providing the shareholders, whoare not included in the Group, with the opportunity to sell their shares to thecontrolling partner and to withdraw from the dependent company (sell-out). Therights of action, granted to the shareholders and the creditors, in order tocompensate losses of the dependent company within a certain period, are the newdevelopments.


The Draft has regulated the legal effects of abuse of control by the controllingcompany under two major categories.

The first category includes the use of control by the parent company,

• For the purpose of the transfer of a business part, funds, personnel,production instruments or profit of the dependent company to anotherdependent or controlling company included in the Group,

• For the purpose of closing the dependent company down; preventingrenovation of its production units, increase of its capacity, its participation intenders in favor of another dependent company in the Group,

• For the purpose of inducing the dependent company to be co-signer, toprovide guarantee, to undertake debt or to obtain a credit in favor of anothercompany or parent company in the Group,

The second category also includes the use of control by the parent company;

• To have the dependent company merged with another or several othercompanies within the Group,

• For the division of a Group company in favor of the Group,

• For the conversion of a Group company for the interest of the Group withoutjust cause,

• For the issuance of securities by a Group company for interest of the Groupbenefit,

• To amend its articles of association for the interest of the Group.


The instruments that may be used by a commercial company to gaincontrol (dominancy) over another commercial company:

• To hold the majority of voting rights,

• To have the right that ensures the election of a certain number ofboard members that will constitute the decision-making majority,

• To acquire the majority of voting rights either independently or withother shareholders or partners through a contract (poolagreements), besides its own voting rights,

• To manage and direct the company as required by a contractsubject to Law of Obligations (control contracts).

In companies, whose shares are traded on the stock exchange, in otherwords in publicly traded companies, the management of the companywithout having the majority is a presumption of control. That is, theopposite thereof may be proved.


Top management could be• a local/foreign commercial company,• a real person,• a legal entity other than the company such as foundation,

association or union,• a community that is not a legal entity (a community among heirs,

an ordinary partnership/consortium). The controlling company may be local/foreign. The headquarters maybe located in or outside Turkey. In all these cases the relevant provisions of the Draft TCC shall beapplied.

Hundred Percent (Full) Control StatusIf a commercial company owns hundred percent of a capital stockcompany (full control), this company may give instructions to thedependent company in line with the specified and concrete policies ofthe Group, save for three exceptions. These three exceptions are theinstructions:1. That exceed the solvency of the dependent company,2. That jeopardize the existence of the dependent company, or3. That may result in a loss of significant assets of the dependent

company. In short, in these three cases, even if full control exists, instruction maynot be given.

Responsibility Arising from Trust

If the Group has achieved a significant reputation within the communityand has thereby created trust and if that trust is used in connectionwith the Group, the Group becomes responsible.

E. Structural Changes in Companies

Common Principles Governing the Structural Changes

We can classify the Draft’s provisions related to mergers, divisions andconversions under the heading “structural changes” in commercial partnerships.The common principles applied to all three types of structural changes are asfollows:

• Nationality: In the Draft, structural changes are carried through in connectionwith the principle of nationality. Cross-border mergers and divisions do notexist in Turkish law.

• Corporate Mobility: The Draft allows the corporate headquarters to berelocated abroad under certain conditions, just as TCC. Relocation abroadhas been regulated in detail for the first time in Turkish law, in the Draft Lawfor the Application and Execution of the TCC. However, the relocation of anenterprise’s headquarters to Turkey is regulated in the Trade RegistryStatute.

• Protection: In every merger, division and conversion, protection andcontinuity of partnership shares and rights, rights arisen from redeemedshares, usufruct, rights in debenture and similar bonds related to thetransferred, divided or converted company is dominant principle in the newcompany. In this principle, the protection of all rights aside from the onesarisen from the partnership shares, are new.

• Structural changes are carried through by a merger balance sheet. Duringthe process of structural changes, if changes in assets and liabilities are somaterial that they affect the results, the valuations will be changed.

• The right to inspect has been provided for all stakeholders.

• It has been accepted that structural change transactions shall be audited byan operational auditor.

• Employees have been protected against the negative effects of thestructural changes.

• A special action for cancellation and responsibility relevant to structuralchanges has been stipulated.


The Draft has regulated the structural changes in the companies, in other wordsdivision, merger and conversion, under 60 articles. Most of these provisions relateto protecting the partners, the partnership creditors and the employees andsecuring their rights and credits. Some of the protective concepts, themechanisms and action rights have been subjected to common provisions for allstructural changes; though, the others are of parallel nature where the differenceshave been subjected to specific rules. Below, division will be explained in greatdetail; such detailed information will not be given in merger and conversionsection.

Division

In General

In current TCC, there is no provision regarding the division of a capital stockcompany, which plays a significant role in the reconstruction of companies. Thefirst and only legal regulation on this topic is the amendment made to articles 38and 39 of Corporate Tax Law (“CTL”) numbered 5422 and dated 2001. Articles 19and 20 of CTL numbered 5520, which took effect as of 21 June 2006, replacedthese first rules. Aside from defining split-ups and spin-offs in CTL, the divisionprocedure had not been indicated. Additionally, there were no provisions toprotect the parties of the division and the partners. As significant legal loopholeswere found in the first regulation, the division procedure has almost never beeninitiated in practice. Therefore, the Turkish Ministry of Finance and the TurkishMinistry of Industry and Commerce issued a joint communiqué published inOfficial Gazette on September 16, 2003, entitled “Communiqué regarding theProcedures and Principles related to the Spin-off of Joint Stock Companies andPartnerships with Limited Liability”. As this communiqué brought practicalsolutions, divisions of capital stock companies have been made possible.However, the Communiqué have provided the procedures and principles only forspin-off. There is no legal regulation regarding the method for the split-up of acompany.

The Draft, taking Directive 82/891/AET and the Swiss Merger Law as a model,has introduced the concepts of split-ups and spin-offs of capital stockcompanies and cooperatives into our law in a detailed manner. When the Draftenters into force, the implementations of spin-offs and split-ups of capital stockcompanies and cooperatives will be available.

Types of Division:

In the Draft, from one perspective, divisions may be carried out through

• Split-up and

• Spin-off


and from another perspective, it may be

• Symmetrical (ratios are preserved) or

• Asymmetrical (ratios are not preserved).

The form of division, from another perspective, may be

• Where partners become the partners of the divided company or

• Where a subsidiary is created.

Definitions

A split-up is a division where all of the assets of a commercial company are dividedinto sections and are transferred to an existing or a new company or companies,where the partners of the divided company acquire shares and rights in thetransferee companies, and where the divided company ceases to exist. A spin-offis a division where the assets of a commercial company are divided into sectionsand a part of the sections remain with the divided company and other part or partsare transferred to an existing or new company or companies, where the partners ofthe divided company acquire shares and rights in the transferee companies, andwhere the divided company continues to exist with the remaining part.

Although the divided company is dissolved without liquidation in a split-up (andalso losing its legal personality after dissolution), in a spin-off, the dividedcompany maintains its legal status and legal personality. The division will be validupon the registration at the trade registry.

A symmetric division is a division where the partners of the divided companyacquire shares in the transferee company at a ratio which is exactly the samewith the ratios in the divided company and thus where the share ratios arepreserved; an asymmetric division is a division where the share ratios are notpreserved and thus, where the share ratios in the transferee company are not inproportion to the ratios in the divided company.

A subsidiary will be constituted when the divided company becomes a partner inthe transferee company.

Protective Provisions and Mechanisms

Division law has fundamentally changed in the Draft through provisions protectingon the one hand the partners, on the other the creditors and the employees of thecompanies participating in the division, in accordance with the provisions ofDirective No: 6 of EU, regarding companies.

The protective provisions are as follows:

1. Continuity of Rights: The partnership rights of the partners of the transferorcompany will continue in the transferee company in terms of scope,characteristic and content in the same manner (continuity of rights principle).In the context of this principle:


• It is ensured that the partners of the transferor company acquire shares inthe transferee company in proportion to the shares in the transferorcompany.

• If there is a possibility of a privileged share, the privileged share is given.

• Right to continue having non-voting share in the transferee company, if notavailable, then right to acquire share with voting rights are granted.

• An equivalent right is granted to the owner of the redeemed share or thepurchase of such share is stipulated.

2. Cash Payment for Withdrawal: It has been made possible that if a divisioncontract is made, cash payment for withdrawal shall be paid to the partnerwho does not want to take part in the division.

3. Division Contract/Plan: It is mandatory that a detailed and transparent divisioncontract/plan is prepared by management bodies. The minimum requiredinformation that must be entered in this contract/plan is clearly specified in theDraft. The division contract and the division plan must be approved by theGAs of the partnerships participating in the division.

4. Division Report: It is mandatory that the management of the partnershipsparticipating in the division will prepare a transparent, informative and legallyreliable division report. If a new partnership is being incorporated, its articlesof association must be attached to the division plan.

5. Audit: It has been set forth that the partnerships participating in the divisionmust have the division contract or division report and the balance sheet thatunderlies the division audited by an independent auditor with divisionexpertise. If all partners approve, small-size companies may dispense withauditing.

6. Right to inspect: Partners participating in the division have the right to inspect:

• The division contract or plan

• The division report

• The audit report

• Financial statements of last three years, annual reports and

• Interim financial statements, if any.

7. Securing Credits or Payment of Credits: Creditors will be invited by thepartnerships participating in the division through an announcement to bepublished three times in Turkish Trade Registry Gazette and newspapersspecified in the articles of association and on their website to declare theirreceivables and to demand security. It is mandatory that the credits of thecreditors, who made a demand within two months as of the publishing of the


announcement, must either be secured or be paid. The payment of somecredits must not create a loss for other creditors.

8. If the partnership with primary liability, that has undertaken a debt through thedivision contract or the division plan, does not secure or pay the credits,provided that certain conditions are met, the other partnerships involved in thedivision (partnerships with secondary liability) will be severally liable.

9. Liability: The liabilities of the partners who are responsible for the debts of thedivided partnership prior to the division shall continue after the division,provided that those debts or the reasons thereof were incurred prior to thedeclaration of the resolution regarding the division of the company.

10. Statute of Limitations: The personal responsibility of the partners will bebarred by the statute of limitations after a period of three years from theannouncement of the division.

11. Service contracts made with employees, as well as any right and liabilityarising therefrom until the day of the division, shall be transferred to thetransferee company, in the event that the employees do not object. Theseservice contracts will terminate at the end of the legal termination period. Thetransferor and the transferee shall be severally liable to the employee forpayments which will become due before the termination date of the servicecontract. In the Draft, protection is more comprehensive and more securethan the one set forth in article 6 of the Labor Law.

12. Action for Cancellation: In the event that there is a violation of these topics,partners of the partnerships who did not cast an affirmative vote on thedivision resolution and had that duly recorded so in the minutes, may file anaction for cancellation within two months from the publication of the divisionresolution in the Trade Registry Gazette. In the event that an announcement isnot necessary, the period will begin as of the date of registration.

13. Action for Compensation: Individuals, who have participated in the division inany way, as well as those who have conducted audit, are responsible topartnerships, partners and creditors for any damages caused by their faults.

Valid and Invalid Divisions

Capital stock companies and cooperatives may be divided into capital stockcompanies and cooperatives.

Transparency in Division

1. Statutory content for contracts, plans, and reports has been legally specified.


2. Audits will be conducted by expert and independent auditors.

3. All division related documents will be posted on the company’s website.

MergersThe Draft defines both types of mergers. These types are:

• Merger by acquisition

• Merger by formation of a new company

These types are universal. There are no other recognized types of merger.

Valid and Invalid Mergers

The Draft has a provision including a list specifying which company orcooperative may merge with which company or cooperative.

The Merger of Commercial Enterprise

A commercial enterprise may merge with a company through acquisition.

Provisions and Mechanisms that Protect Shareholders, Creditorsand Employees

The protective provisions and mechanisms are primarily the same as those fordivisions except some differences. The differences in mergers from divisions areas follows:

1. In addition to the partners of the partnerships taking part in the merger, themerger contract or merger report, audit report and financial statements for thelast three years, including interim reports if necessary, shall be presented tothe owners of the redeemed share, bearers of securities and any otherstakeholders for their inspection.

2. Small sized partnerships may dispense with the right to inspect, if all partnersapprove.

3. Creditors of the partnerships participating in the merger must declare theirclaims within three months as of the date on which the merger became legallyvalid (publication in the Trade Registry Gazette).

Conversion

1. Conversion is regulated in a single article in the existing TCC. In the 1970s,the doctrine of Turkish Corporate Law made valuable contributions byclarifying every aspect of the concept and explained the classifications andspecified protective principles and regulations. The Supreme Court of Appealfollowed the doctrine explicitly and made principle decisions regardingconversions. By 1980, this concept was very well known throughout Turkey.


2. The Draft has legalized this concept. However, while the doctrine, in thecontext of the existing TCC, has accepted freedom of selecting the legal formwithout any restriction, the Draft has a provision listing the valid (legitimate)conversions.

3. The provisions in the Draft regarding protection of shareholders, creditors andemployees have closed a significant loophole that exists in the current TCC.These provisions and transparency mechanisms are the same as in division.

4. The stakeholders’ rights to inspect and rights of action as well as audit ofconversion which do not exist in the current TCC, has been regulated by theDraft through comprehensive and effective provisions.

F. Turkish Accounting Standards - i.e. IFRS-, TurkishAccounting Standards Board and New Form ofCommercial Books

In General

1. Significant changes have been made to the section of the Draft regardingcommercial books and the provisions thereof related to the financialstatements of capital stock companies and the Group and to the Board’sannual reports.

• The provisions related to bookkeeping obligation, inventory, openingbalance sheet, financial statements, balance sheet principles, prohibition ofcapitalization, provisions, prepaid expenses and deferred income, valuation,custody and disclosure are completely new.

• Additionally, the Draft does not have any provision on proof via commercialbooks which is a procedure no longer practiced in modern law.

2. The Draft accepts the Turkish Accounting Standards Board (“TMSK”) as a soleand exclusive authority to set Turkish Accounting Standards (“TMS”), andprovides TMSK with the appropriate exclusive powers. Objectives are:

• to obtain validity for the financial statements of our national companies, andthereby for Turkish enterprises in international markets,

• to have TMS which is in complete compliance with International FinancialReporting Standards (“IFRS”) published,

• to increase the sustainable competitive strength of Turkish enterprises byhaving them speak the same international markets’ language,

• to have Turkey attain economic policies with strategic depth.


Turkish Accounting Standards (“TMS”)

The Draft sets forth that the financial statements of all enterprises, regardless ofpublic or not, be prepared in accordance with TMS published by the TMSK. TMSis the Turkish translation of IFRS.

The Draft, by introducing a uniform implementation discipline and order toaccounting and reporting practices, aims to ensure that financial statementsprepared according to TMS may be comparable to financial statements preparedaccording to IFRS, and that financial information prepared according to TMS willbe accepted in international markets.

Concepts like materiality, comparability, substance over form and true and fairview that previously did not have a significant role will be included in theconceptual framework of TMS that is completely in conformity with IFRS.

Why IFRS?

As a natural result of the increasing cross-border investments and the transparentcapital markets during the last decade of the previous century, the need for acommon financial reporting standard with universal characteristics was felt aroundthe world. The most comprehensive response to this requirement came from theInternational Accounting Standards Board. The implementation of IFRS, aspublished by this committee, has become widespread. Today, countries such asthe member states of the European Union, Australia, Canada, Russia and SouthAfrica have adapted their own laws and regulations to IFRS. Countries with largeeconomies such as China, India and Japan are currently in the process ofadapting to IFRS. US GAAP (USA’s financial reporting standards) and IFRS arecurrently under a process to remove the differences between them and to achieveuniformity. In the light of all these developments, the way for Turkey to be a part ofworld economy and multinational investment and trade community is to make itsown local accounting legislation and regulations conform to those of IFRS.

G. Audit in Capital Stock Companies

Basics, Underlying Columns

The Draft offers a fundamental system change with a reformist understanding anda contemporary evolution in the auditing of capital stock companies, namely jointstock companies, partnerships with limited liability and partnerships limited byshares and group of companies. This change is of such a scope andcharacteristic that it will establish trust in national and international markets andcreate a new perspective for Turkey. The provisions related to audit with anadvanced understanding of audit law and characteristics will change the structureand organizational chart of joint stock companies and partnerships with limited


liability which will be subject to audit for the first time in Turkey, both at atheoretical and dogmatic level.

The underlying columns of these concepts, which conform entirely to thecontemporary approaches and to the new regulations adopted in the US and EUas a result of the widely publicized international accounting scandals are asfollows. The new audit will be:

1. conducted by an auditor who is an expert, professionally competent,technically equipped, attentive in a legal sense and aware of responsibility,

2. conducted by an independent auditor in compliance with InternationalAuditing Standards,

3. conducted in accordance with professional ethics,

4. conducted with skepticism required by the profession,

5. transparent.

Audit of Stand-alone and Consolidated Financial Statements

Audit in the Draft’s system, as opposed to the current TCC, is not limited to theaudit of a single capital stock company; it also includes the audit of group ofcompanies. From the perspective of auditing and standards, it is not significantwhether or not the capital stock company is publicly held, closely held, large,medium or small sized. Additionally, whether or not the companies that aresubject to consolidation are local or foreign makes no difference in thecharacteristic, subject or scope of audit or standards applied.

Unaudited Financial Statements or Qualified, Disclaimer, AdverseOpinions

An unaudited financial statement is legally null and void. No organization maytake a decision based on an audited financial statement with qualified or adverseopinion or disclaimer of opinion; otherwise such a decision shall be deemed to bevoid. A Board may not continue to operate if an unqualified opinion has not beenexpressed for its financial statement; hence, it has to resign.

Certain Significant Characteristics

In the Context of the Above Specification,

• Specialization of an auditor, whether or not it is a real person or an auditcompany, is defined by the possession of professional training anddeveloped and updated qualified information. In large size capital stockcompanies, auditors are the independent audit firms. In small and mediumsize capital stock companies, one or more sworn financial adviser and/orindependent accountant financial adviser (Yeminli Mali Müflavir, YMM and/orSerbest Muhasebeci Mali Müflavir, SMMM) are authorized to conduct an


audit. The law assigns the audit of transactions such as the incorporation ofa company, capital increase, capital decrease, mergers, divisions andconversions to expert operational auditors. Furthermore, if certain conditionsso require, a special audit may be performed.

• In addition to impartiality, the concept of independence implies that theauditor has no connection with the company.

• In order to integrate into international markets and to speak their languages,the audit is conducted in accordance with the Turkish Standards on Auditing(“TDS”) which are consistent with the International Standards on Auditing(“ISA”).

• The professional discipline and professional ethics are the assurances ofaudit.

• Transparent audit means that the results of the audit of a company or theGroup are uploaded to the website, that the statements may be accessedvia the website for a period of three years and that the audit report is writtenin a clear, simple and understandable language necessary for the type,scope and results of the audit. It further means that the report is prepared insuch a manner that it may be comparable to the previous year. Thetransparency of the report points to the fact that it will contain assessmentsof the Board’s review, together with the opinions of the auditor in thisregard. The fact that the opinion letter signifying the result of the report mustalso be transparent is beyond discussion.

Professional ethics

In an audit conducted in compliance with the professional ethics and inaccordance with the standards, the followings are fundamental:

• independence

• fairness and integrity

• objectivity.

Additionally,

• competence regarding professional knowledge and diligence

are requisites. Further to these,

• confidentiality,

• professional behavior and rules, and

• technical standards

are the key issues to be taken into account in audit.


The rules of professional ethics are on the one hand, the main support of themoral legitimacy of an audit and on the other hand, the source of legalresponsibility. If the basic principles mentioned above are approached with a lackof interest, superficial discourse, indifference and an abstract and impracticalperception of gravity; the ethical basis for the audit will collapse and the auditorwill be responsible for the consequences. As the audit standards must beconsidered as a whole, the auditor must adhere to these standards in all stagesof the audit.

Professional skepticism

Skepticism is one of the main prerequisites of an audit as specified in thestandards. The auditor conducts the planning for the audit and while putting itinto practice the auditor must display a certain amount of skepticism and mustalways consider the possibility that something may exist to obstruct the honestdisclosure of financial statements and the real financial status of the enterpriseand operational results. ISA defines skepticism as follows:

“Skepticism, in a professional sense, is the evaluation done by the auditor in aninterrogatory manner to see whether or not the explanations contradict with otherdata and documents.”

The assurance that the audit is free of material misstatement

The audit to be conducted in accordance with ISA should be designed in afashion to ensure that it is free of material misstatement in the methodology, thespecified scope or the results. This requires

• the use of tests,

• the performance of reviews regarding whether or not there are risks resultingfrom the accounting structure and internal control systems, and

• the evidence of audit.

The Auditor

The auditor is a person whose profession is audit and who has received auditingtraining or is an institution consisted of auditors. Law numbered 3568 specifiesthe conditions to become an auditor.

The Committee of Turkish Standards on Auditing

The Justice Commission, through temporary article 2 of the Draft, has resolvedthat an audit standards committee should be formed. The provision related to thisauthorized organization, referred to as the “Committee”, is as follows: “Until theformation of the Committee of Turkish Standards on Auditing, the TurkishStandards on Auditing determined in article 397 will be specified by a committeedefined by the Union of Chambers of Independent Accountant Financial Advisers and

Sworn Financial Advisers of Turkey (“TÜRMOB”) in accordance with ISA.


A regulation, regarding which institutions and organizations’ representatives willconstitute the committee and its work principles and procedures, will be preparedby TÜRMOB and published upon the approval of the Ministry of Finance.”

Characteristics of the Concept

1. All capital stock companies will be audited.

2. The audit will be conducted by an independent auditing firm. This is the rule.An audit by a YMM and/or a SMMM also refers to an independent audit. Thepurpose of the Draft is to ensure incorporation/ institutionalization.

3. Partners/shareholders of an independent audit firm may only be YMM and/orSMMM; individuals outside the profession may not be partners in theseinstitutions.

4. Independent audit firms will be organized by a new statute in accordance withthe Draft.

5. The auditor must be entirely independent. The Draft is intolerant in thisrespect: provisions a and k of paragraph 1 of article 400 and paragraphs 2and 4 of article 400 contain absolute prohibitions in this regard.

Right to Information

An auditor’s audit of the stand-alone or consolidated financial statements isbased on the accounting of the company, namely the books, records anddocuments. The auditor must receive information from the relevant individualsregarding this data. Therefore, in order to be able to completely and correctlyunderstand the data they are reviewing and will review, the Draft grants theauditor the right to comprehensive information. This right includes the authority torequest the relevant documents. The addressee for such a request is the Board.The party to be held responsible for the non-disclosure of information ordocuments is also the Board. In the event that information is not provided by arelevant individual in spite of a direct and express request of the Board, theBoard must provide the information and documentation, unless only the relevantindividual possesses the requested information. The liability and responsibility ofthe Board in this respect are limited to the company, relevant companyemployees and the company’s business and operations. As a principle, the Boardhas no responsibility for the behavior or attitude of the third parties. However,from the perspective of such responsibility, the term “relevant” has a widemeaning; it includes third parties who act in the capacity of an assistant andanybody who is under the control and influence of the Board. The liable person isnot just a member of the board, but as a principle it is the entire “Board”.However, the executive director and/or an authorized member are solely liableand responsible for the records, documents and information relevant to their areaof authority. The Board may assign a board member, a non-board member


executive or a representative to fulfill these responsibilities on its behalf.However, in order for the auditor to be able to request information especially fromany related person at any level of the company and to avoid any difficulties, it isadvisable that the Board takes a decision in this direction. The right to requestthe disclosure of the relevant material and right to information are closely relatedto the term “evasion” indicated in paragraph 4 of article 403. The refusal of theBoard may lead to the occurrence of “evasion” depending on the features of theconcrete event.

Subject and Scope of Audit

The subject of audit is numerus clausus.

• Audit of financial statements of a company or a Group [Draft art.398.(1)]

• Audit to determine whether or not the financial data held by accountingdepartment is consistent with the audited financial statements and whetheror not it reflects true and fair view

• Audit of the Board’s annual report, explanations related to financialstatements and their evaluations

• Audit to determine whether or not a proper early risk detection system(mechanism) exists to timely identify any threat to the company or possiblerisks and whether or not this mechanism functions.

The third bullet point above requires a separate report; however, the mentionedreport will be presented along with the audit report. The second and third bulletpoints above are included for the first time in the scope of an audit in Turkish law.

Supreme Auditing Board

The supreme auditing board shall inspect the auditor and audit the audit processin the name of law. The audit by the supreme board is performed to determinewhether or not the auditor’s audit is in conformity with the provisions of the law(Draft), the standards and the purpose of the audit, and it conducts this audit onsite and on the internet via accessing the auditors’ audit documents. It is the firsttime in Turkish law that the said board has been involved in the review of theauditor’s documents. In order to avoid a gap until the establishment of thesupreme board, this audit will be conducted by the Turkish Ministry of Industryand Commerce.


II. Joint Stock Company

A. Incorporation of an Afi

Innovations

We may focus the reforms and developments of the Draft related to theincorporation of an Afi on the following items:

• The gradual incorporation mechanism which is impractical and non-operational has been abolished, as it was done by the Germans andAustrians in 1965 and the Swiss in 1991.

• The Draft introduces a simple, plain, applicable and original system thatallows for public incorporation.

• The current normative system with few exceptions has been reinforced. Aprovision, abolishing the autonomous organizations’ authority whichintervenes the incorporation and capital increase of Afi and which is alsorejected by modern law, has been introduced.

• Self-control has been introduced into our law through the founders’declaration which is the basis of incorporation. The responsibility arisingfrom incorporation has also been regulated by effective provisions.

Audit of the Incorporation

The incorporation is audited by the operational auditor. The Draft has separatedthe auditor, who will examine the financial statements and the annual report ofthe Afi as well as the consolidated financial statements and the annual report ofthe Group, from the operational auditor.

The person who audits the certain transactions of the Afi such as incorporation,capital increase and decrease, merger, division, conversion and issuance ofsecurities is called an operational auditor. The operational auditor is an umbrellaconcept. For example, the auditor who audits the incorporation is the operationalauditor. This operational auditor may also be called the incorporation auditor. Thisauditor only audits the incorporation not the annual financial statements. Theoperational auditors may also be people practicing the profession i.e. peopleempowered according to Law numbered 3568. However, an incorporation auditoror an operational auditor dealing with a capital increase may not necessarily be aYMM/SMMM authorized in accordance with Law numbered 3568, rather, theymight be appointed from among law practitioner or engineers, as the mentionedtransactions may not necessarily require an audit within the meaning of the Lawnumbered 3568.


Philosophy Prevalent in the Incorporation

The philosophy prevalent in the incorporation is simplicity, plainness, self-control,transaction security and in this context, responsibility.

B. Closely Held Afi, Publicly Held Afi and Publicly Traded Afi

The Draft has not been designed for a specific class of Afi. In other words,whereas the existing TCC includes provisions that are more suitable for closelyheld Afis, the Draft has also introduced provisions for single shareholder Afi,publicly held Afi and fully publicly held Afi whose shares are listed on the stockexchange and which is referred to as publicly traded Afi in practice and doctrine.Therefore, an important discrepancy, which creates difficulties in practice, hasbeen removed and an attempt has been made to eliminate the organizational andsystemic differences between the current TCC and Capital Market Law (“CML”).

The main philosophy of the Draft is as follows: The Draft is the main code thatcontains all of the material rules for all joint stock companies.

The second approach of the Draft in this respect is as follows: A publicly held Afi,as emphasized by Cadbury’s first corporate governance report, is a categorywhich laws do not fully cover. What is essential is the publicly traded Afi whoseshares are listed on the stock exchange.


Incorporation of a public company

1. It will be sufficient for a real person or a legal entity, who subscribesto offer the shares to public, to make only a subscription, and theydo not have to deposit ? of the value of the shares.

2. The real person or the legal entity, who subscribes to offer theshares to public, has to offer these shares to public within onemonth from incorporation and to guarantee the payment of ? of theunsold shares.

3. The mentioned shares may be offered to public at the subscriptionprice or with a premium, the part of the proceeds obtained from thepublic that corresponds to the nominal value of the share is paid tothe company, the difference belongs to the subscriber.

4. Public offering is made according to the communiqués of the CapitalMarkets Board.

5. The unsold shares are entirely left to the subscriber; the subscriberhas to pay ? of such shares immediately.

C. Capital and Shares in an Afi

Capital Systems

The Draft has accepted two capital systems for all Afis regardless of whether ornot they are publicly held: Basic capital and authorized capital.

Hence, an important difference in our law between the closely held Afi andpublicly held Afi has been removed.

With regard to closely held Afi, the adoption of the authorized capital system, theacceptance in and dismissal from the system are left to the regulations of theTurkish Ministry of Industry and Commerce. The Ministry will issue the regulationsrequired by the dynamism of the subject.

Minimum Capital

In closely held Afis:

• Minimum basic capital is YTL 50,000

• Authorized capital is YTL 100,000

In publicly held Afis

• Minimum capital is YTL 50,000

This capital is determined in accordance with the communiqués of the CMB.

Capital in Cash and Capital In-kind

Assets which belong to both groups are determined in the Draft. The reformsrelated to contribution of capital in-kind are as follows:

• Virtual environment, domain rights

• Receivable without due date

may be contributed as capital.


Many of the Draft’s provisions, particularly those related to the CentralRegistry Agency, rules related to the restriction on the share transferand corporate governance principles have been written in line with theattributes of a publicly traded AŞ.

The followings have been regulated in a form which covers a publiclyheld AŞ, publicly traded AŞ and closely held AŞ:

1. Shareholders Democracy

2. Information Society Services

3. Corporate Governance Principles

• In order for non-monetary assets to be contributed as capital in kind, thereshould be no restrictive rights such as measure or pledge on such assets.

• The registration of the immovable capital in-kind at the land registry officeon behalf of the company is made directly (ex officio) by the registrar.

• Movable capital in-kind is not deemed capital in-kind if it is not entrusted toa reliable person.

Shares

• Shares may be in cash or in-kind.

• The prohibition that shares corresponding to capital in-kind may not betransferred for a period of two years does not exist in the Draft.

• A share without a nominal value is not recognized.

• The minimum nominal value is Ykr 1.

The benefits that authorized capital will provide in closely held Afis are the sameas in publicly held Afis, such as:

• The capital will be more easily increased.

• The provisions regarding the payment of outstanding subscribed capital willbe removed.

• The Board will be able to work in cooperation with the market andintermediary agencies, and it will not be necessary to hold a generalassembly meeting for each capital increase.

Privileged Shares

The regulation in the Draft regarding privileged shares may be summarized asfollows:

• The Draft recognizes privileged shares. However, contrary to the currentTCC, the privilege concept has been defined.

• Privileged voting right has been restricted.

• The possibility of the blocking a capital increase by a share with privilegedvoting right has been eliminated.

• The convocation, working and decision-making of the general assembly ofprivileged shareholders have been made subjected to express rules and itsauthorities have been restricted.

Conclusion: Thus, privileged shares may no longer have the effect to block thesystem and have become subjected to a justifiable process.


The limits of the privileged voting right are as follows:

• A single share may have a maximum of 15 voting rights.

• Another limit of the privileged voting right is that a privileged voting rightmay not be exercised in some decisions. These decisions are:

1. Amendments to the articles of association,

2. Election of operational auditors,

3. Filing actions for release and liability.

The maximum limit of 15 voting rights may be expanded by a court decision.However, in order to do this:

1. The expansion of the limit should be necessary for the institutionalization ofthe company and hence the Group.

2. There should be a just cause concerning a concrete event for the expansion ofthe limit. Reasons such as eliminating a concern that some other group maycontrol the company or averting the danger of deposing the currentmanagement are not considered just cause.

3. A project that supports and explains the reasons related to these twoexpansion requests has to be submitted to the court.

D. Afi’s Acquisition of its Own Shares or AcceptanceThereof as Pledge

System of the Draft

The Draft, to a great extent, has loosened the prohibition on an Afi’s acquisitionof its own shares or acceptance thereof as pledge in accordance with theSecond Directive of the EC, called the “Capital Directive”, under company law.

The system of the Draft is very different from article 329 of current TCC. In article329 of the existing TCC the prohibition is rigid; exceptions are very rare. Theregime that the Draft accepts is based on broad and functioning opportunitiesthat may bring ease to the business world. The Draft specifically has protectedcompanies whose shares are listed on the stock exchange against manipulation.Meanwhile, it has avoided putting pressure on closely held companies withunnecessary and useless concerns. The system should not be evaluated as apreservation of prohibition and just an introduction with some exceptions; on thecontrary, the system should be defined on the basis of softening the prohibitionwith useful acquisition possibilities while maintaining such prohibitions to avoidpotential risks and abuses. The prohibitions and the possibilities are also valid incases where the subsidiaries acquire the shares of the parent company. The


possibilities are limited to those listed in law. They may not be broadened byinterpretation.

Acquisition Possibilities

1. The company may acquire its own shares or accept thereof as pledge up to amaximum of 10% of company capital provided that an authorization from theGA is obtained by the Board and such authorization is exercised within amaximum of 18 months. The unused authority may be renewed.

The GA determines the ratio to be acquired, the price and the purpose of theacquisition, provided that the determination will be limited to 10%. The Boardmay not use its authority purely for business purposes; it may not carry outspeculative transactions. The authority is limited to the purposes related to theprotection of assets and benefits of the company, the prevention of theirabuse and the appropriateness thereof.

As the authority may be renewed, it means that the prohibition is for 90% ofthe capital. It is a great opportunity for an Afi to be allowed to acquire its ownshare certificates (shares), up to 10% of its capital. By using this opportunity,

• Publicly traded companies may play the role of a market-maker;

• Publicly traded companies may fight against manipulation;

• Closely held companies may set up the infrastructure for a sound initialpublic offering;

• The change of control of companies on the stock exchange may beprevented or a fait accompli may be avoided;

• The hostile takeovers may be eliminated.

However, only fully paid shares may be acquired in this fashion.

2. In case of existence of an imminent and serious danger for the company, thecompany may acquire its own shares regardless of the 10% limit and thenecessity of authorization rules. Manipulation is the best example for animminent and serious danger for a publicly traded company. Under thesecircumstances, the company undertakes the role of a market-maker.

• An imminent and serious danger may be defined as manipulations, hostiletake-overs or sanctions against the company;

• Imminent and serious danger also includes economic crisis and collapse ofthe stock exchange;

• Imminent and serious danger may also be related to the reality of a concreteevent.

3. The share certificates of a company may be purchased by its employees or bythe employees of its subsidiaries through advances, loans or guaranteesprovided by the company. This possibility is meaningful for the purpose ofparticipation of the employees in the company and purchase of companyshares by its employees


4. Acquisition without a consideration is permissible.

5. The company may acquire its own share certificates

a) during a capital decrease,

b) in cases where a universal or partial succession occurs (such as merger ordivision) and if a statutory liability to purchase them exists,

d) in the case that the share certificates are acquired through an executionprocess, provided that the total values of the shares are paid, or

e) in case its share certificates (shares) are acquired with the purpose ofcollecting its receivables.

6. The prohibition is not applied if the company is a securities and investmentbanking company.

The Use of Free Funds for the Acquisition of Shares

The share prices may be paid through free funds. Moreover, the remaining netcompany assets, after the payment of the share values, should be equal to atleast, the sum of the total capital amount and reserves, which are not allowed tobe distributed according to law and the articles of association.

Violation of the Prohibition

1. In case of a contradiction with the prohibition, the transfer agreement relatedto the law of obligations is null and void. The company has to dispose of theshares obtained through the void transaction within one year; the shares,which were not disposed of, should be eliminated through a capital decrease.

2. If the company grants loans, advances or guarantees to a third party for thepurpose of acquiring its own shares; such transaction shall be null and void.

Suspension of Rights

The company’s own shares it acquired and the parent company’s sharesacquired by the subsidiary are not taken into account in the calculation of theGA’s meeting quorum. Except for the acquisition of gratis shares, the company’sown shares it has acquired do not grant any shareholding right. The voting rightspertaining to the parent company’s shares acquired by the subsidiary and therights thereto will be suspended.



Single Member Board

A single member Board is both a reform and a development. Itsbenefits may be summarized as follows:

1. The compliance with the system has been ensured through forminga single member Board in a single shareholder/member AŞ and LŞ.For example, if a refrigerator company has founded an AŞ in whichit is the only shareholder, it may form a Board where it is the onlymember as a legal entity. Therefore, it may ensure centralizedmanagement.

2. In family AŞs, a single member Board is a proper body for themanagement of the company.

3. In companies established by foundations, associations, universities,academies and similar legal entities, it is possible that these legalentities act as Board members and avoid the involvement of thirdparties in the management.

E. Board of Directors of Afi (the Board)

Reforms and Developments

Some of the reforms of the Draft related to the Board are as follows:

• The possibility for a single member Board has been introduced into Turkishlaw.

• The requirement for a Board member to be a shareholder in order to startcarrying out his/her duties has been removed.

• The possibility for a legal entity to become a Board member has beenbrought.

• Professional Board concept has been introduced.

• The legal infrastructure that enables the representation of shareholdergroups in the Board has been established.

• A system that identifies the difference between the Board and themanagement concepts has been legally defined.


A Board Member should not necessarily be a Shareholder

One of the provisions of the current TCC that is not serving to theintended purpose, and causing difficulties, is that in order to become aBoard member a person needs to be a shareholder. This necessityresults in creation of fake shareholding, hence, evasion of law. Thementioned requirement is based on the idea that the Board membershould be aware of his/her responsibilities as a shareholder. However,this idea has become completely impractical in all AŞs, especiallypublicly traded and publicly held companies. In practice, theshareholding of most of the Board members does not exist in real life.

The benefits of the development in the Draft may be listed as follows:

1. Management will gain professionalism.

2. Evasion of law will be eliminated and respect to law will be ensured.

3. Disputes, threats and abuses arising from the fake shareholdings,upon dismissal/withdrawal of a Board, will also be eliminated.

The Legal Entity as a Board Member

• The existing TCC does not allow a legal entity to become a Boardmember. It specifies that a representative is to be appointed on itsbehalf instead. Legal description and position of this representativeare difficult to determine according to law. This representative doesnot actually represent the legal entity. It is assumed that he actsunder his own responsibility on the Board and takes decisionsindependently; hence, that his decisions may not necessarily be tiedto the legal entity. All these assumptions do not comply with law.

• Since the representative of the legal entity is himself a Boardmember in the system foreseen by the existing TCC, the legal entitymay not be held responsible for his actions and decisions. However,law point out that the representative acts upon the instructions of thelegal entity.

• In a way, the representative is in the position of a subcontractorwithout a real existence and is thus charged with responsibility. Thisresults in the occurrence of significant injustice; thus, major scandalsmay not be compensated.

• This provision of the Draft will base the responsibility mechanism onrules and practices that are in line with law.

Internal Audit

The main approach that the Draft adopts regarding management of an Afi as wellas the corporate governance is flow of information to the Board, the control ofthe quality of information received and assessment of such information andmaking all management decisions according to the results of this assessment.This approach requires the establishment of an internal audit mechanism in thecompany. Indeed, the business economics deems this approach appropriate forthe management of an Afi. Therefore, the Draft has aimed to modernize thefunctioning of the Board by reflecting the scientific results to its articles.Advanced management principles and techniques focus on three areas.

• Financial audit

• Financial planning

• Risk detection and management

Financial Audit

The Draft also mentions financial audit as one of the non-delegable duties of theBoard. According to the provision, the Board has to establish the necessarymechanism for financial audit. With regard to implementation of the mechanism,no distinction has been made between large or small size Afis; hence, it has beendeemed unnecessary to take the size criterion into consideration. The “need ofthe company” criterion is applicable in the internal structure of the companyrelated to financial audit. Financial audit is not just an auditing/monitoringmechanism only required by publicly traded companies. It is beyond doubt thatthe aforementioned audit is also valuable for medium and large size closely heldcompanies, as finance is a reality of modern business management and may notbe subjected to size criterion. Though internal audit is a broader concept,financial audit lies on its core.

The term “Financial Audit” has been expressly defined as an internal controlmechanism in the justification section of the Swiss Law of Obligations. Indeed,the mentioned term, on the one hand, expresses the audit of duties andauthorities related to finance management in a company; and on the other hand,it stresses the internal audit of a company within the context of the concept“finance”. Both meanings are directly related to internal audit.

The audit of financial management of a company includes how, from whichresources and at what costs financing is provided; keeping the liquidity, cash flowand the harmony among debt maturities and cash flow under control; andevaluation of the results in relation to taking measures to decrease the financingburden.

The internal audit systems provide cross control in the company within the


framework of financial audit and mean the follow-up of decisions during theimplementation process, the auditing of the results and the physical control ofassets and investments.

The Draft, while assigning this duty to the Board and defining the authority with anon-delegable characteristic, has, in a way, set forth a mandatory provision. TheBoard will be responsible if an internal audit mechanism that will conduct thefinancial audit is not established although the company requires it.

Financial Planning

Financial planning is related to the budget and the business plan which is anotherdimension of the budget. Financial planning is set forth as a duty of the Board inthe Draft and it has been specified that this duty may not be delegated. Thebudget and the business plan are of indispensable importance for the company,regardless of whether it is small or large. When its relation with financial planningis considered, it is apparent that associating the financial audit only with largecompanies is not an accurate approach.

Risk Detection and Management

Both concepts have also appeared as provisions related to the Board in the Draft.Risk management is the duty of the Board. Risk management is not themanagement of an already occurred risk or a risk threat. This concept expressesthe determination and implementation of the measures and policies to beadopted to cope with the risks that an enterprise has encountered or mayencounter due to the economy, industry and trends within which it operates.Each company faces risks specific to itself. Risk management also covers them.

Professional Board

The Draft includes various provisions related to the professionalism of the Board.These include the provisions stating that a person does not need to be ashareholder to be a Board member and that certain members must have highereducation and that expansion of the limit regarding the privileges in voting rightsis a prerequisite for institutionalization. Furthermore, the financial audit, financialplanning and risk management refer to professionalism. The followings aresignificant in terms of professionalism:

• The Draft requires higher education for ? of the Board members.

• A management understanding that is knowledgeable, conscious andcapable of running internal audit mechanisms is a must for Turkey. That iswhy the corporate governance principles have introduced independent (non-executive) Board members and the Draft has also emphasized this feature.

• A professional Board does not mean a Board where various stakeholdersare represented. A professional Board is the that acts independently from


the capital, that may act according to market and business requirements,that can take decisions and that can run the internal audit mechanisms andthat is prepared for risk management.


Share and Shareholders Groups

The Draft has included shareholder groups in addition to the A, B, Cshare groups. For example, in a car manufacturing AŞ, theshareholders from the secondary industry, namely, thosemanufacturing the electrical equipment and some major parts of thecar, may constitute a shareholder group and the articles of associationmay set forth that these groups are represented on the Board. Theshareholder groups play an important role for AŞs that expand theircommercial scope of activity to industrial scope. The Draft introducesthis innovation.

Board and Management

The existing TCC does not strictly differentiate the Board, which is abody, from the management, which is a technical managementorganization. Furthermore, there is not even a semantically relatedword “management” in Turkish. The word “yönetim” in Turkish is farfrom reflecting the meanings in English and French of the words“management” and “administration”.

• As there is no such distinction, the Turkish system leaves all theresponsibility and burden to the Board.

• The Draft introduces this distinction and aims to establish the“management” in the system through the concept of“organizational internal regulation”.


F. General Assembly (GA)

In the Draft:

• The non-delegable and exclusive authorities of the GA are listed collectively.While indicating these authorities, exceptions such as the capital increaseand issuance of securities that are particularly related to publicly held Afisare mentioned.

• The parties who are authorized to call the GA to a meeting are re-defined.The auditor’s power to call a meeting has been excluded. Furthermore, theminority’s power to call a meeting has been subjected to specific periods toserve its own benefit. Additionally, provisions have been provided for theminority’s power to call a meeting which arises after no response is givenupon the minority’s request for a certain period of time.

• An obligation is included for the arrangement of an internal regulation by theAfi in relation to the management of the GA meetings by the meetingchairmanship. The meeting chairmanship or the chairman has to manage themeeting according to this internal regulation. This internal regulation shallalso include implementing provisions stating that an undersigned minute isattributed to the persons casting negative votes, so that they may notedown their annotations in this regards. The existing TCC does not governthe management of a GA meeting.

• Right to information of the shareholder at a GA meeting is re-arranged andlimits of this right are both expanded and strictly defined. Furthermore, incase of violation of this right, legal remedies, that may be resorted to by theshareholders are indicated. The right to information has been made subjectto a practical mechanism and an informative content has been provided forthe voting process.

• Special audit has been made subject to new principles, and a newshareholding and minority right has been created in accordance withshareholder democracy.

• Representation in the GA has been released from the rigid forms ofrepresentation context in the law of obligation. First steps related to themass organization of representation authority have been taken under theconcept of an institutional representative. The “Proxy” system of the US lawhas been partially reflected in our law. By this way, measures have beentaken to eliminate the lack of power in the GA arising from non-attendanceof the shareholders.


What is Institutional Representation? How will it function?

Institutional representation is not a profession, but a shareholders’ initiative. Suchkind of representation cannot be considered as a business enterprise with aprofessional understanding.

• An institutional representative shareholder is the person(s) who demandsfrom the other shareholders that representation authority is given to him/her.

• The institutional representative will demand representation authority with amemorandum.

• This memorandum is a program related to the management and audit of theAfi in line with management, internal audit, independent audit and corporategovernance principles. This program may also include the basics of thepolicies such as investment locations, investments to be waived, financing,profit distribution, investment and marketing policies.

• No special instruction may be given to the corporate representative. Thememorandum of the institutional representative is the list of instructions thathe has to comply with. The representative, as a rule, may not act in contrarywith the principles in the memorandum, especially while voting at the GA.

• Although it is applicable for all Afis, the institutional representative is part ofthe shareholders democracy as it is the initiative to organize the oppositionand prevent the subjectivity and arbitrariness of the management particularlyin publicly held companies and publicly traded companies.

• The institutional representative is, at the same time, a radical transparencytool ensuring that an Afi operates in accordance with the corporategovernance principles and information society services.

• Special audit starts with the request of any shareholder. If the GAaccepts this request, the special auditor is appointed by the court. If itis rejected and the minority repeats the request, the court will appoint aspecial auditor regardless of the decision of the GA.

• Therefore, the practice in the current law -which is the appointment ofthe special auditor by the majority controlling the AŞ - has beenremoved.

• The Draft has also set forth provisions that balance the benefits of thecompany and of the shareholders in the special auditor report and hasleft the power to the court to prevent and determine the disclosure ofinformation and documents that may harm the company .


G. Capital Increase

General Information

The Draft has improved the known methods through innovations in relation to thecapital increase in the Afi and also has enriched this transaction with new types.The improvements are the legalizations of capital increase in an authorized capitalsystem and capital increase through internal funds besides the known capitalincrease types as basic capital increase. On the other hand, conditional capitalincrease is a new concept.

Additionally, it is an improvement in achieving perfection that prohibition orrestriction of pre-emptive rights of the shareholders in some capital increases hasbeen made subject to fair principles.

Types

The Draft has set forth three types of capital increase.

Capital Increase through Subscription of New Capital

This type is also named as effective increase, as new capital in cash or in-kind iscontributed and thus the equity increases through new contributions ofshareholders and/or third parties.

Capital Increase through Internal Funds

In a capital increase through internal funds, the statutory reserves not allocatedfor a certain purpose, the part of the statutory reserves that may be freely utilizedand the legally permissible funds are converted to capital. No new capital iscontributed, the items most of which already exist in the equity are added to thecapital.

Conditional Capital Increase

In this type of capital increase, the capital is increased neither upon a Boarddecision nor through a GA resolution, and the capital increase may not besubscribed by particular people. The basis of the capital increase is a provision ofthe articles of association. This provision is not only a basis, but it also showshow, at what amounts and within which periods the capital increase will be made.

The capital may be increased under the condition that the right to receive newshares (conversion privileges or options) are granted to employees or holders ofnew bonds or similar debt instruments of the company or its subsidiaries.

The capital will increase ipso iure through the exercise of conversion privileges oroptions. The capital contribution is either made by deposit of funds or set off. Theconversion privileges’ owners have the right to acquire new shares at the


redemption values of the notes payable they hold, and the conversion options’owners have the right to pay for the share certificates of the company based ontheir said right.

The Board will remove the provision regarding the conditional capital increasefrom the articles of association where the conversion privileges and options areexpired.

Pre-emptive Right

Each shareholder has the right to acquire the newly issued shares based on theratio of his/her existing shares to the capital.

This right may be restricted,

• if there is just cause, and

• upon the affirmative votes of the shareholders who possess a minimum 60%of the capital.

Just Cause

The law has defined just causes. The just causes are;

• the acquisition of a business or a part thereof, a participation and

• the participation of the employees in the company.

Upon the prohibition or restriction of the pre-emptive right,

• no one may be provided with benefit in an unjustifiable way and

• no one may be subjected to losses.

Capital Decrease

The Draft has not brought any reform in capital decrease.


H. Responsibility

The Draft has regulated

• the legal (article 549) and

• the criminal responsibilities (article 562)

arising from various transactions, decisions, declarations or documents of Afis.

Apart from the sections related to liability that is regulated at the end of thechapter in relation to Afis, under a separate section through complementaryprovisions; there are some individual rules specified for certain special legalliability matters in the various parts of the Draft, such as the liability of theauditors arising from confidentiality obligation(article 404).

Legal Responsibility

The Draft has separated legal responsibility into six chapters. Additionally, theDraft includes common provisions (articles 555-561) that may be partly applied tothese six chapters of responsibility. Article 557 of the Draft governing solidaritystands out among these provisions. This provision may not be applied directly toall types of liability; but, it is applied if there are conditions for its implementationor if the joint and several liability has been set forth by an article.

1. Liability arising from the non-compliance of the documents andof declarations to law

Origin of the Liability

This liability arises when the documents and declarations required to be issuedlegally due to procedures, transactions and structural changes - such as theincorporation, the capital increase and decrease, merger, division, conversion ofthe Afi and issuance of securities - contradict with law or when they are false andfraudulent . For instance, if

* the public offering prospectus or a founders’ declaration,

* intermediary company’s guarantee and

* operational auditor’s report

are false or fraudulent and include false statements, this liability arises.

In case the conditions exist – that is, if more than one person jointly commits anaction that causes damage and contradicts the law or imposes obligation, and ifthe action is taken by a board such as the Board or executive committee -solidarity may occur.

Provisions

Liable Person: is the person who gives the declaration and submits the report,and undertakes and participates in these actions.

Fault is the condition for liability, the consequence of liability is theindemnification of the loss. Article 560 is applied to the statute of limitation.

2. False statements regarding capital and knowledge as toinsolvency


This liability originates from (1) fraud or performing similar fraudulent transactionsregarding the protective provisions of the capital, (2) the knowledge of thepersons’ insolvency and the approval to their subscription. For instance,

• to present the capital as subscribed or paid-up, although they were not;

• to provide a promissory note instead of payment in cash

• to endorse a bad cheque

• the subscription of a person in insolvency who is not authorized to dispose.

Provisions

Liable Person: (1) Persons performing misleading transactions and theiraccomplices and (2) persons already informed about the insolvency, yetapproving the transactions are severally liable for the damages. Such a liabilityoriginates from law. Article 557 is applied to joint and several liability.

Fault is the condition for the liability.

Article 560 is applied to the statute of limitations.

3. Liability Originating from Valuation


Liability arises when (1) the non-monetary assets to be contributed as capital orto be acquired are valued at a higher price compared to similar non-monetaryasset (2) their attributes are stated falsely (for instance, indicating a land ashaving a zoning status, although it does not) and (3) another type of corruption iscommitted (such as the valuation of non-existent bonds).

Under strict liability, the persons acting or participating in violation of law areassumed at fault and will compensate the damage. These persons may be thefounder, expert, the Board member or an attorney-at-law, etc. If necessaryconditions exist for instance, if the transaction causing the damage arises fromthe Board resolution, article 557 is applied.



4. Liability Originating from Collecting Money from the Public


This liability is originated when money is collected from the public in Turkey orabroad without the CMB’s permission, for the purpose of or with promise toestablish an Afi, to increase the capital of the existing company or with any othersimilar reason. The reasons for collecting money are not restricted to the oneslisted in law.

Provisions

(1) The persons collecting money (2) the (authorized) entities informed about thisaction and (3) the managers and entrepreneurs of the relevant company areseverally liable for these actions and have to deposit the collected money in abank determined by the CMB. The liability in question is a strict liability, Article557 is applied. The money is taken under protection through precautionarymeasure. An administrator is assigned when necessary. Ankara CommercialCourt of First Instance is also among the competent courts.

5. Liability of Founders, Board Members, Managers and Liquidators


This liability arises when founders, Board members, managers and liquidators failto fulfill their obligations originating from the

• law and

• articles of association.

Characteristics of the Liability

The liability is (1) a fault liability where the burden of proof is inverted. In otherwords, the above-mentioned persons are liable as long as they do not prove thatthey are not at fault. (2) The liability arises from the commitment of themanagement function. If the management function is partly or completelydelegated (for example, if an executive director is assigned), the Board isreleased from the liability to the extent of delegated function (the principle statesthat if there is no management function, there is no liability, TCC/final, Draft553.2). However, liability may arise when the assigned person is elected withoutdue care. (3) The liability originates from the functions that the liable person is incontrol of.

Liability to Whom?

The liability is to

• the company and the shareholders and the creditors depending on thecircumstances.


6. Liability of the Auditor

To which auditor is it applicable?

Provisions as to the Liability of the Auditor

These provisions are applied to

• the auditors who audit the year-end financial statements of the companyand who are included within the content of article 400 of the Draft,

• the operational auditor, and

• the special auditor included within the meaning of article 438 et seq. of theDraft.

Which Provisions are Applied?

The provisions to be applied are articles 554, 555, 556, 557, 558, 559 and 561 ofthe Draft.

Reason for the Liability

The auditor is liable for his failure to fulfill his statutory duties. The auditor shallnot be liable for the failure to fulfill the duties mentioned in the agreementbetween the auditor and the company, according to the provisions mentionedabove. In that case article 96 of the Law of Obligations is applied.

Damage

The damage caused by the persons mentioned above 1-6 is the pecuniarydamage.

Lawsuit

Plaintiff: Afi

The shareholder as a plaintiff: The shareholder may request that the indemnity ispaid to the company. Therefore the concept of damage is not mentioned.

The creditor as a plaintiff: The right of action of the creditors exists in case ofbankruptcy of the company and if the bankruptcy office has not brought it forth; itis hence secondary.

Solidarity and Recourse

Rule

If more than one person is obliged to indemnify the same damage, they are jointlyand severally liable.

If damage is done through a joint action, joint liability for the same damage willoccur.


Differentiated Solidarity

What is mentioned in the provision is not an absolute, but a differentiatedsolidarity. Differentiated solidarity means that if more than one person is obligedto indemnify the same damage, each one is held liable to the extent that thedamage can be charged to him/her based on his/her willful misconduct and therequirements of the condition.

Internal Relation

The recourse is determined by the judge according to the conditions.

Criminal Liability

The crimes and punishments are indicated in article 562 of the Draft. The crimesmentioned in article 562 are pursued ex officio.

III. Partnership with Limited Liability (Lfi)

A. Striking Features of the New Partnership with LimitedLiability

The partnership with limited liability (“new Lfi”) in the Draft is different from theone in the current TCC in many aspects.

Increased Similarities to Afi

The new Lfi has departed from general partnership, in contrary to the existingTCC and has almost resembled a small size Afi. The similarities are mostapparent in the following aspects:

• The new Lfi has a structure, management and decision mechanisms similarto Afi. It has been determined that this is a requirement of national andinternational markets.

• Its GA has been structured in a form similar to Afi regardless of the numberof the partners. The structure is the same also for the managers.

Dissimilar Aspects

As a rule, a shareholder has a single debt in an Afi: To pay the subscribedcapital. In a Lfi, other additional debts may be stipulated. These additional debtsare extra instruments which depend on the demands of the partners.

• Additional liabilities, such as to make up the balance sheet deficits.

• Secondary performance liabilities.

• Loyalty duty and non-compete obligation.


• In an Afi a share may easily be transferred while the approval of the otherpartners is required in a Lfi.

Capital

• The minimum capital is 25.000 (twenty-five thousand) YTL.

• Capital in-kind may be contributed.

• The capital contribution in cash is paid at once. The movables are registeredex officio at the land registry on behalf of Lfi. The power and duty to requestthe registration of the movables belong to the trade registry officer.

Possibility for a Partner to Have More Than One Capital Share

The principle that a partner may only have one capital share (one partner = onecapital share) has been removed, it has been accepted that a partner may havemore than one capital share.

• The requirement to divide the capital share for a partial transfer and toconduct numerous transactions for the division thereof has beenabandoned.

• Therefore, the transfer of the capital shares among the family, particularly tothe children, has been made easier.

• Simplicity has been ensured with regard to the transfer of the capital sharewithin the Group.

• It has been made easier to take a new partner.

Flexibility in Transfer of Capital Share and Proof Thereof

The new Lfi has a multi-purpose flexibility in the transfer of the capital share.

• The partners (founders) may organize the transfer of capital share as theywish. The transfer may be made easier by the articles of association. If thepartners aim to have a closely held company, the transfer of shares may bemade harder or prohibited.

• The proof of shareholdings has been made easier through issuance ofregistered negotiable instruments for capital shares and transparency hasbeen ensured by writing of the liabilities on the deed. Therefore, the entriesin the share register book will also be reflected partially to the promissorynote.

• The possibility of eliminating Lfi which is closely held or which does notallow share transfer has been introduced and the possibility of withdrawal ofa partner has been underlined.

The system in which the bankruptcy of a partner of Lfi causes the bankruptcy ofthe Lfi has been abandoned.


In the existing TCC, the bankruptcy of a partner results in bankruptcy of thecompany. In the mentioned destructive solution, it is clear that the idea that a Lfihas to carry the characteristics of a private company is explicit.

The approach that terminates the TCC system has introduced a solution suitablefor Lfi, which is a capital stock company.

The Lfi has been protected from the risk of dissolution by a personal creditor ofits partners.

The conflict in the approach of the current TCC, which accepts the Lfi (thecompany whose personal elements must have priority) as a capital stockcompany structured with these elements, has gone as far as the recognition ofthe right of a partner’s personal creditor to dissolve the company.

The system of the Draft is simple. The personal creditor of a partner may, withoutdissolving the Lfi, only have this partner’s capital share seized and may convert itinto money.

Redeemed Shares

The current TCC does not allow a Lfi to issue redeemed shares. The Draft hasbrought Lfi closer to Afi by permitting this possibility in the new Lfi.

Determination of Lfi Management through Election

According to the current TCC, if the partners and/or the third parties who willmanage the company are not determined by the articles of association or apartners’ resolution, all the partners will be authorized and obliged to manage thecompany with the title of manager. This is called a joint-management or internalmanagement. This type of management may result in chaos. The Draft hasintroduced the obligation that the directors have to be determined through anelection and has applied an Afi principle to Lfi.

B. Incorporation

• A single member Lfi has been allowed (See: Common Concepts I).

• Incorporation has been simplified.

• On the condition that it is set forth in the articles of association, thepossibilities for the purchase, right of first refusal and redemption of thecapital share have been brought.

• Additional and secondary payment obligations have been set forth.

• The road has been paved for the recognition of veto and privileged votingrights to some of the partners.

• Aggravated non-compete obligations may be imposed on the partners.

• In the calculation of voting rights and the distribution of profit share,regulations which are diverging from legal provisions may be adopted.

• The right to withdraw has been granted to a partner.

C. Creditors and the Economy have been Strengthenedthrough the Increase of the Financial Power of theCompany.

The financial structure of the new Lfi has been strengthened and

• It has been set forth that the capital share is paid at once, i.e. installmentshave been removed.

• Loans from partners that substitute for capital have been allowed.

• The partners have been given the possibility of covering balance sheetlosses with additional payment obligations.

Avoiding Default and Its Results

Since the system in which the total value of the capital shares is to be paid atonce has been introduced, default and its results have been eliminated.

Responsibility of the Predecessors have been Removed

Since the default has been eliminated, the concept of recourse to thepredecessors for the deficit originating from the sale of the capital share of thepartner, who has been dismissed due to his/her unpaid capital, has beeneliminated.

Simplification in Share Transfer

Share transfer has been simplified.

Improvements of the Rights to Information and to Inspect

The current TCC does not grant the partners the right to information and toinspect with a specific provision. It has been set forth only in article 548 that theAfi provisions related to auditors are applied to the companies with more than 20partners and that article 531 of the Law of Obligations is applied to the others.The mentioned provision, besides being insufficient and ineffective, also does notsuit the character of Lfi. The Draft grants the partners the right to comprehensiveinformation and the right to inspect based on modern and contemporaryprinciples.


Accounting and Auditing at a Serious and International Level

The strongest assurance that the new Lfi provides the partner with is the systemin which the financial statements of small size Lfis are prepared according tospecial standards and financial statements of other Lfis are prepared accordingto IFRS and in which these financial statements are audited according toInternational Standards on Auditing.

Pre-emptive Right

Although the existing TCC includes a provision (article 516) that recognizes pre-emptive rights, it has not protected it. The Draft has strengthened pre-emptiverights through provisions in parallel with the ones related to Afi.

Improved Status of Partner in case of Withdrawal or Dismissal

One of the aspects of the current TCC which may be criticized is that it has notprotected the partner in case of withdrawal or dismissal. The provisions of theDraft related to withdrawal or dismissal ensure the balance of benefits and are inconformity with the contemporary Lfi law.

• in the lawsuit for rightful withdrawal, the payment of the actual value of thecapital share to the partner has been secured, various measures have beenset forth for this,

• the provision for the suspension of some of the rights of the partner whennecessary has been brought for the purpose of protecting Lfi,

• the system, in which some rights of the partner who wants to withdraw orwho has opened a lawsuit for this purpose are suspended, has beenaccepted,

• the obligation to indicate the reasons for partner’s dismissal in the articles ofassociation, has been introduced,

• the possibility of dismissal of a partner from the Lfi upon a court decision incase of just cause has been provided.


Articles

F) Merger, Division and ConversionI – Scope of application and concepts

1. Scope of application

Article 134 - (1) Articles 134-194 shallbe applied to merger, division and conversion of commercial companies.

(2) The provisions in other acts whichare contrary to articles 135-194 of thisCode are reserved.

2. Concepts

Article 135 – (1) In the application ofarticles 134-194, “company” shall referto commercial companies; “partner”shall refer to the shareholders of jointstock companies, to the partners ofpartnerships with limited liability, ofpersonal companies and of cooperatives; “partnership share” shallrefer to the partnership share in personal companies, to the share injoint stock companies, to the basiccapital share in partnerships with limited liability, to the partnershipshares in partnerships limited byshares; “general assembly” shall referto the general assembly in joint stockcompanies, in partnerships with limitedliability, in partnerships limited byshares and in cooperatives, to the partners’ meeting in personal companies, and to all partners, whererequired; “managing body” shall referto the board of directors in joint stockcompanies and in cooperatives, to themanager or managers in partnershipswith limited liability, to the managingdirector in personal companies and inpartnerships limited by shares; “company agreement” shall refer to thearticles of association in joint stockcompanies, to the articles of association in personal companies andin partnerships with limited liability andto the articles of association in cooperatives.

(2) The criteria prescribed in article1522 shall be applied to personal companies and the criteria set forth inarticle 1523 shall be applied to capitalstock companies for the determinationof small and medium sized companies.

II - Merger1. General provisions

a) Principle

Article 136 – (1) Companies maymerge through;

a) Acquisition of one company byanother, in technical terms, “merger byacquisition”, or

b) Combination in a new company, intechnical terms, “merger by formationof a new company”.

(2) The company acquiring shall bereferred to as “transferee”, theacquired company shall be referred toas the “transferred”, in the applicationof articles 136-158.

(3) The merger shall take place inexchange for the transferred compa-ny’s assets, through the automaticacquisition of the transferee company’sshares by the shareholders of thetransferred company in accordancewith an exchange ratio. The mergercontract may also stipulate cash payment for withdrawals in the senseof paragraph two of article 140.

(4) Through the merger, the transfereecompany shall take over the assets ofthe transferred company as a whole.As the consequence of the merger, thetransferred company shall be dissolvedand shall be removed from the traderegistry.

b) Allowed mergers

Article 137 - (1) Capital stock companies may merge with

a) Capital stock companies

b) Cooperatives, and

c) General partnerships and limitedpartnerships, provided that they are thetransferee company.

(2) Personal companies may merge with

a) Personal companies

b) Capital stock companies, providedthat they are the transferred company,

c) Cooperatives, provided that they arethe transferred company.

(3) Cooperatives may merge with

a) Cooperatives,

b) Capital stock companies, and

c) Personal companies, provided thatthey are the transferee company.

c) Participation of a company in liquidation in a merger

Article 138 - (1) A company in liquidation, provided that it is the transferred company, may participatein a merger, if the distribution of itsassets has not been initiated.

(2) The existence of the requirementsin paragraph one shall be proventhrough the submission of an operational auditor’s report verifyingthe situation to the trade registry directorate at the location of the headoffice of the transferee company.

d) Participating in a merger in caseof capital loss or in case of excessof liabilities over assets

Article 139 - (1) A company which haslost half of the sum of its capital andstatutory reserves due to damages, orwhose liabilities exceed its assets maymerge with a company, provided thatthe latter is in possession of freely disposable equity adequate to coverthe capital loss or if necessary, to remedy the state of excess of liabilitiesover assets.

(2) The report prepared by an


operational auditor which proves thatthe condition in paragraph one hasbeen met must be submitted to thetrade registry directorate at the locationof the head office of the transfereecompany.

2. Partnership shares and rights

a) Protection of partnership sharesand rights

Article 140 - (1) The partners of thetransferred company shall have theright to make a claim on the sharesand rights in the transferee company ata value that corresponds their existingpartnership shares and rights. Thevalue of the assets of companies par-ticipating in the merger, the allotmentof the voting rights and other mattersof significance shall be taken intoaccount, while assessing the said rightto make a claim.

(2) An equalization payment may bestipulated, while determining theexchange ratio of partnership shares,provided that the partnership sharesassigned to the partners of the transferred company do not exceedone tenth of their actual value.

(3) The partners holding non-votingshares in the transferred company shallbe granted non-voting shares or shareswith voting rights of the same value.

(4) Equal rights at the transferee company or a reasonable provisionshall be given in exchange for the privilege rights connected to the existing shares in the transferred company.

(5) The transferee company shall beobliged to grant equal rights to holdersof the profit-sharing certificates in thetransferred company, or to purchasesuch profit-sharing certificates at theactual value on the date the mergercontract was signed.

b) Cash payment for withdrawals

Article 141 - (1) In the merger contract,companies participating in the mergermay provide partners with the option tochoose either to have shares and partnership rights in the transfereecompany or to receive a cash paymentfor withdrawal equal to the actual valueof the company shares to be acquired.

(2) Companies participating in themerger may set forth in the mergercontract that only the cash payment forwithdrawals shall be granted.

3. Capital increase, formation of anew company and interim balancesheet

a) Capital increase

Article 142 - (1) In merger by acquisition, the transferee companyshall be obliged to increase its capitalto the level necessary to protect therights of the partners of the transferredcompany.

(2)The provisions regarding public offerof new shares in publicly held jointstock companies and regulations concerning contribution of capital inkind shall not apply in the merger, savefor the provisions regarding the registration with the Capital MarketBoard.

b) Formation of a new company

Article 143 - (1) In the merger by formation of a new company, articlesof this Code and of Cooperatives Lawno. 1163, dated 24/4/1969, shall applyto the formation of the new company,excluding their provisions regardingcontribution of capital in kind and theminimum number of partners,.

c) Interim balance sheet

Article 144 - (1) If there are more than

six months between the date the merger contract was signed and thedate of the balance sheet or if significant changes have occurred inthe assets of companies participatingin the merger after the last balancesheet is prepared, the companies participating in the merger must prepare an interim balance sheet.

(2) Provided that the following provisions are reserved, the provisionsand principles relevant to the annualbalance sheet shall apply to the interimbalance sheet. With regard to the interim balance sheet;

a) Physical inventory shall not berequired to be taken;

b) Changes to the valuations predetermined in the last balance sheetshall be limited to the entries in thecommercial book; depreciation, valuation adjustments, provisions andvaluation changes significant for theenterprise incomprehensible from commercial books shall also be takeninto account.

4. Merger contract, merger reportand audit

a) Merger contract

aa) Drawing up the merger contract

Article 145 - (1) The merger contractshall be in written form. The contractshall be signed by the managementbodies of companies participating inthe merger and shall be approved bytheir general assemblies.

bb) Contents of the merger contract

Article 146 - (1) The merger contractmust contain;

a) Trade names, legal types, headquarters of companies participating in the merger; in case ofmerger by formation of a new


company, type, trade name and headquarters of the new company;

b) Exchange ratios of company shares,if provided for, equalization amount;explanations regarding shares andrights of shareholders of the transferred company in the transfereecompany;

c) Rights granted to the holders of privileged shares, non-voting sharesand profit sharing certificates by thetransferee company;

d) Method for exchange of shares;

e) Date on which the shares acquiredthrough the merger has gained theright for the profit which is shown onthe balance sheet of the transfereecompany or of newly established company, and all aspects related tosuch entitlement;

f) Cash payment for withdrawals inaccordance with article 141, if necessary,

g) Date on which the transactions andactivities of the transferred companyshall be considered as performed onthe account of the transferee company;

h) Special benefits granted to management bodies and managingpartners;

i) Names of the partners with unlimitedliability, if necessary.

b) Merger report

Article 147 - (1) The managementbodies of the companies participatingin the merger shall individually or jointlyprepare a merger report.

(2) The report shall explain the legaland economic grounds of the followingand indicate the reasons:

a) Purpose and results of the merger;

b) Merger contract;

c) Exchange ratio of company shares,

and if stipulated, equalization payment;partnership rights granted to the partners of the transferred companiesin the transferee company;

d) If necessary, amount of cash payment for withdrawals and reasonsfor such payment instead of the company shares and partnershiprights;

e) Aspects regarding the valuation ofshares in terms of determining theexchange ratio;

f) If necessary, amount of increase thatwill be made by the transferee company,

g) If stipulated, information regardingthe additional payments and other personal performance liabilities andpersonal responsibilities to be imputedto the partners of the transferred company due to merger;

h) In the mergers of companies of different types, liabilities that areimposed on the partners due to newtype;

i) Impact of the merger on the employees of companies participatingin the merger, and if possible, contentsof a social plan;

j) Impact of the merger on the creditorsof companies participating in the merger;

k) If required, approvals obtained fromrelevant authorities,

(3) In a merger by formation of a newcompany, the articles of association ofthe new company must also beattached to the merger report.

(4) Small sized companies may dispense with preparing the mergerreport, if all partners approve.

c) Audit of the merger contract andof the merger report

Article 148 - (1) Companies participating in the merger shall berequired to have the merger contract,merger report and the balance sheetunderlying the merger audited by anoperational auditor expert in this area.

(2) Companies participating in themerger shall be obliged to provide theoperational auditor, who will be auditing the merger, with all kinds ofinformation and documents that willserve the purpose.

(3) The operational auditor shall beliable to inspect and state his/her opinion regarding the followings inhis/her report;

a) Whether or not the capital increasestipulated to be made by the transfereecompany is adequate to protect therights of the partners of the transferredcompany;

b) Whether or exchange ratio and cashpayment for withdrawals are just;

c) The calculation method of theexchange ratio, whether the methodapplied is just by comparing such calculation method with at least threedifferent generally accepted methods;

d) Which values may come out according to the other generallyaccepted methods;

e) If there is a compensation, whetheror not it is appropriate;

f) The properties taken into accountwhile evaluating the shares in terms ofthe calculation of the exchange ratio.

(4) Small sized companies may dispense with auditing, if all shareholders approve.

5. Right to inspect and changes inassets

a) Right to inspect

Article 149 - (1) Each of the companies participating in the merger


shall be liable for submitting the following to the inspection of the partners, holders of the profit sharingcertificate and bearers of securitiesissued by the company, to stakeholders and other concerned persons at their head offices, branchesand for publicly held joint stock companies, at locations determined byCapital Markets Board within thirtydays prior to the general assembly resolution:

a) Merger contract,

b) Merger report,

b) Audit report,

d) Year-end annual financial statements, annual reports and if necessary, interim balance sheets forthe last three years. These shall also beposted on the web sites of the relevantcapital stock companies.

(2) Partners and the persons mentioned in paragraph one mayrequest that they are provided with thecopies of the documents mentioned inthe same paragraph and with their hardcopies, if available. These must be pro-vided for free-of-charge.

(3) Each of the companies participatingin the merger shall indicate the right toinspect in the announcements published in Turkish Trade RegistryGazette and posted on their web sites.

(4) Each of the companies participatingin the merger shall announce in TurkishTrade Registry Gazette and in thenewspapers stated in the articles ofassociation and capital stock companies shall post on their websiteswhere the documents mentioned inparagraph one were consigned andwhere they are made available forexamination at least three businessdays prior to the submission.

(5) Small sized companies may

dispense with exercising the right toinspect, if all partners approve.

b) Information regarding changes inassets

Article 150 - (1) If a significant changetakes place in the assets or liabilities ofone of the companies participating inthe merger, between the date themerger contract is signed and the datethis contract is to be presented forapproval of the general assembly, themanaging body shall report this situation in writing, to its own generalassembly and to the management bodies of the other companies participating in the merger.

(2) In this case, the management bodies of all companies participating inthe merger shall review whether or notit is required to amend the merger contract or to dispense with the merger; in the event that they reachsuch the latter conclusion, the proposalto submit for approval shall be withdrawn. In the other case, the managing body shall declare at thegeneral assembly the reasons why theadaptation in the merger contract isnot required.

c) Merger Resolution

Article 151 - (1) The managing bodyshall present the merger contract to thegeneral assembly. The merger contractmust be approved at the generalassembly;

a) Of joint stock companies and partnerships limited by shares, withthree quarters of the votes present atthe general assembly, provided that itrepresents the majority of the basic orissued capital, without prejudice to thesub-paragraph (b) of paragraph five ofarticle 421 of this Code is reserved.

b) Of capital stock companies to beacquired by a cooperative, with threequarters of the votes present at thegeneral assembly, provided that it represents the majority of the capital;

c) Of partnerships with limited liability,with three quarters of the votes of allpartners, provided that they hold atleast three quarters of the shares representing the capital;

d) Of cooperatives, with the majority oftwo thirds of the votes; if the additionalpayment and other performance liabilities or unlimited liability has beenaccepted in the articles of association,or if these are existent and have beenextended, with the decision of threequarters of all partners registered in thecooperative.

(2) In general partnerships and limitedpartnerships, the merger contract shallneed to be approved unanimously.However, it may be set forth in the articles of association that the mergercontract shall be approved by the resolution of three quarters of all partners.

(3) In case that a partnership limited byshares acquires another company, inaddition to the quorum in sub-paragraph (a) of paragraph one, allunlimited partners must approve themerger in writing.

(4) If additional liability and personalperformance liabilities are also provided for through the acquisition, orif these are existent and are beingextended in a joint stock company anda partnership limited by sharesacquired by a partnership with limitedliability, the unanimity of all partnersshall be required.

(5) If the merger contract sets forth acash payment for withdrawals, thismust be approved by affirmative votesof ninety percent of the partners with


voting right if the transferred companyis a personal company, or of the existing voting rights in the company ifit is a capital stock company.

(6) If a change regarding the scope ofactivity of the transferred company hasbeen provided for in the merger contract, the merger contract mustalso be approved with the quorumrequired to amend the articles of association.

6. Provisions regarding implementation

a) Registration at the trade registry

Article 152 - (1) As soon as the mergerresolution has been adopted by thecompanies participating in the merger,management bodies shall apply to thetrade registry to have the merger registered.

(2) If the transferee company hasincreased its capital as a requirementof the merger, in addition, the amendments to the articles of association shall also be submitted tothe trade registry.

(3 ) The transferred company shall bedissolved upon the registration of themerger at the trade registry.

b) Legal effects

Article 153 - (1) The merger shall takeeffect upon the registration of themerger at the trade registry. At theinstance of registration, all assets andliabilities of the transferred companyshall automatically pass to the transferee company.

(2) The partners of the transferredcompany become partners of thetransferee company. However, thisresult shall not arise with regard totheshares held by the person acting in thename of the transferee company, but in

the account of this company, and forthe shares held by the person acting inthe name of the transferred company,but in the account of this company.

(3) The provisions of Law No. 4054 onthe Protection of Competition dated7/12/1994 are reserved.

c) Announcement

Article 154 - (1) The merger resolutionshall be announced in Turkish TradeRegistry Gazette.

7. Simplified merger of capital stockcompanies

a) Scope of application

Article 155 - (1) a) If the transfereecapital stock company holds all shareswith voting right of the transferred capital stock company, or

b) If a company or a real person orgroups of persons that are connecteddue to law or contract hold all shareswith voting right in capital stock companies participating in the merger,capital stock companies may merge inaccordance with the simplified condi-tions.

(2) If the transferee capital stock company holds at least ninety percentof shares with voting right but not allthe shares of the transferred capitalstock company, the merger may takeplace under simplified terms, providedthat the minority shareholders are proposed that;

a) There shall be an option to provide aprovision that is equal to the actualvalue of company shares in the trans-feree company in accordance with article 141 in addition to the companyshares, and

b) No additional payment, no personalperformance liability and no personalresponsibility shall arise due to merger.

b) Simplifications

Article 156 - (1) Capital stock companies participating in the mergerand complying with the terms set forthin paragraph one of article 155, shallmention the records indicated in sub-paragraphs (a) and (f) to (i) of paragraph one of article 146 in themerger contract. Such capital stockcompanies shall not be liable to drawup the merger report stipulated in article 147 and to provide the right toaudit the merger contract in article 148and the right to inspect regulatedunder article 149, they may not submitthe merger contract for the approval ofthe general assembly in accordancewith article 151 as well.

(2) Capital stock companies participating in the merger and complying with the conditions set forthin paragraph two of article 155, shallmention the records indicated only insub-paragraphs (a), (b) and (f) to (i) ofparagraph two of article 147 in themerger contract. These companiesshall be obliged neither to draw up themerger report indicated in article 147nor to submit the merger contract tothe general assembly in accordancewith article 151. The right to inspect,which is stipulated in article 149, mustbe provided thirty days prior to theapplication made to the trade registryfor registration of the merger.

8. Protection of creditors andemployees

a) Securing creditor’s receivables

Article 157 - (1) If creditors of thecompanies participating in the mergermake a claim within three months following the date on which the mergerbecomes legally effective, the transferee company shall secure theirreceivables.


(2) Companies participating in themerger shall notify the creditors of theirrights through an announcement inTurkish Trade Registry Gazette, inthree national newspapers, circulationof which are over fifty thousand, forthree times at intervals of seven daysand capital stock companies shall alsopublish the announcement on theirwebsites. If the operational auditorconfirms that there are no known orexpected claims which cannot be paidby the available assets of the companies participating in the merger,the liability of announcement shall beabolished.

(3) If the transferee company proves byan operational auditor report that thereceivable is not under risk due to themerger, its liability to provide securityshall be abolished.

(4) If it is obvious that the other creditors will not suffer a loss, the liablecompany may pay the debt instead ofproviding security.

b) Transfer of partners’ personalresponsibilities and business affairs

Article 158 - (1) The responsibilities ofthe partners who were liable for thedebts of the transferred companybefore the merger shall continue afterthe merger as well; under the conditionthat these debts must have beenincurred before the announcement ofthe merger resolution or the reasonscausing these debts must haveoccurred before this date.

(2) Claims, which have arisen from thedebts of the transferred company, relevant to the personal responsibilityof partners, shall be barred by thestatute of limitation after three yearsfrom the announcement date of themerger resolution. If the claim becomesdue after the announcement date, the

statute-bar period shall begin as of thedue date. This restriction shall not beapplied to the responsibilities of partners who are personally liable dueto the debts of the transferee company.

(3) The responsibility arising from thepublicly issued bonds and debenturesshall continue until the date of redemption; unless otherwise specifiedin the prospectus.

(4) The provision of article 178 shallapply to business affairs.

III - Division1. General provisions

a) Principle

Article 159 - (1) A company may bedivided through split-up or spin-offprocesses.

a) In a split-up, the company’s allassets shall be divided into parts andbe transferred to other companies. Thepartners of the divided company shallacquire the shares and rights of thetransferee companies. The transferredcompany, which is split-up, shall terminate and its trade name shall beremoved from the trade registry.

b) In a spin-off, one or more than onepart of the company’s assets shall betransferred to other companies. Thepartners of the divided company shallacquire the shares and rights of thetransferee companies or shall obtainthe shares and rights in the transfereecompanies in exchange for the assetparts acquired and shall establish itssubsidiary.

b) Allowed divisions

Article 160 - (1) Capital stock companies and cooperatives may bedivided into capital stock companiesand cooperatives.

c) Protection of company shares andrights

Article 161 - (1) In split-up and spin-offprocesses, the company shares andrights shall be protected in accordancewith article 140.

(2) The followings may be assigned tothe partners of the transferor company:

a) In all companies participating in division, company shares in ratio withtheir existing shares, or

b) In some or all companies participating in division, companyshares in different ratios according tothe ratio of their existing shares.

The division in sub-paragraph (a) is adivision in which the “ratios are protected”, and the division in sub-paragraph (b) is a division in whichthe “ratios are not protected”.

2. Provisions regarding applicationof division

a) Capital decrease

Article 162 - (1) In case the capital ofthe transferor company is decreaseddue to division articles 473, 474 and592; and in cooperatives based on article 98 of the Cooperatives Law articles 473 and 474 of this Code shallnot apply.

b) Capital increase

Article 163 - (1) The transferee company shall increase its capital at alevel necessary to protect the rights ofthe partners of the transferor company.

(2) In division, provisions relevant tocapital contribution in kind shall notapply. Capital may be increased due todivision without changing the cap, evenif it is not in conformity with authorizedcapital system.


c) Formation of a new company

Article 164 - (1) The provisions regarding incorporation of a new company of this Code and CooperativesLaw shall apply to incorporation of anew company within the framework ofdivision. The provisions relevant to theminimum number of founders and tocapital contribution in kind shall notapply to the incorporation of capitalstock companies.

d) Interim balance sheet

Article 165 - (1) If there are more thansix months between the balance sheetdate and the date on which the divisioncontract is signed or the preparationdate of the division plan, or if significant changes have occurred inthe assets of companies participatingin the division since the last balancesheet date, an interim balance sheetshall be prepared.

(2) Provided that the provisions setforth in sub-paragraphs (a) and (b) ofthis paragraph are reserved, the provisions and standards relevant tothe annual balance sheet shall apply tothe interim balance sheet. For the interim balance sheet;


b) Changes to the valuations predetermined in the last balance sheetshall be limited to the entries in thecommercial book; depreciation, valuation adjustments, provisions andvaluation changes significant for theenterprise incomprehensible from commercial books are also taken intoaccount.

3. Right to audit and to inspect division documents

a) Division contract and division plan

aa) In general

Article 166 - (1) If a company transfersparts of its assets to existing companies through division, a divisioncontract shall be made by the management bodies of companiesparticipating in the division.

(2) If a company transfers parts of itsassets, through division, to the companies to be newly incorporated,the management body shall prepare adivision plan.

(3) It is compulsory that both the division contract and the division planshall be in writing and they shall beapproved by the general assembly inaccordance with the provisions in article 173.

bb) Contents of the division contractand the division plan

Article 167 - (1) Division contract anddivision plan shall specifically include;

a) Trade names, headquarters andtypes of companies participating in thedivision;

b) Division into parts and allocation ofasset and liability items for transferpurposes; the inventories relevant tothese sections with clear descriptions;the list indicating one by one theimmoveables, negotiable instrumentsand intangible assets;

c) Exchange ratio of shares and if necessary, the equalization amount tobe paid and the declarations of thepartners of the transferor companywith regard to their partnership rights inthe transferee company;

d) Rights assigned to holders of profitsharing certificates, of non-votingshares and of special rights by thetransferee company;

e) The way of share exchange;

f) Date from which company shares willgain the right to balance sheet profit

and the properties of such right tomake a claim;

g) Date on which the transactions ofthe transferor company shall be considered as performed in theaccount of the transferee company;

h) Special benefits granted to membersof management bodies, managers, persons entitled to the managementright and auditors;

i) List of business affairs transferred tothe transferee company as a result ofthe division.

b) Assets excluded from division

Article 168 - (1) Asset items, whichhave not been allocated in the divisioncontract or in the division plan;

a) In case of a split-up, shall be ownedin co-ownership by all transferee companies, according to the rate of thenet assets transferred to all transfereecompanies in accordance with the division contract or plan,

b) In case of a spin-off, shall be left tothe transferor company.

(2) The provision in paragraph one shallapply by analogy to receivables andintangible asset rights as well.

(3) Companies participating in the split-up shall be severally liable fordebts that are not assigned to anycompany in accordance with the division contract or division plan.

c) Division report

aa) Contents

Article 169 - (1) The managementbodies of companies participating inthe division shall individually prepare areport regarding the division; a jointlyprepared report shall be valid as well.

(2) The report shall explain the followings in legal and economic


aspects and indicate their reasons;

a) Purpose and results of the division;

b) Division contract or division plan;

c) Exchange ratio of shares, and if necessary, the equalization amount tobe paid, and particularly the declarations of the partners of thetransferor company with regard to theirrights in the transferee company;

d) Particularities regarding the valuationof shares in terms of determining theexchange ratio;

e) If necessary, additional payment liabilities, other personal performanceliabilities and unlimited liability thatshall arise on the partners due to division;

f) If the types of the companies participating in the division are different, the liabilities of partners arisen due to new type;

g) Impact and contents of the divisionon the employees; and the contents ofsocial plan, if any;

h) Impact of the division on the creditors of the companies participating in the division.

(3) In the existence of the formation ofa new company, the articles of association of the new company mustalso be attached to the division plan.

(4) If all partners approve, small sizedcompanies may dispense with preparing the division report.

bb) Audit of the division contract orthe division plan and the divisionreport

Article 170 - (1) The provision in article148 shall apply to the audit of divisioncontract or division plan by analogy.

d) Right to inspect

Article 171 - (1) Each company

participating in the division shall submitthe followings for the inspection of thepartners of the companies participatingin the division at their head offices andfor publicly held joint stock companies,at the locations determined by CapitalMarket Board two months prior to thegeneral assembly resolution:

a) Division contract or division plan,

b) Division report,

c) Audit report,

d) Financial statements and annualreports for the last three years; andinterim balance sheets, if any.

(2) If all partners approve, small sizedcompanies may dispense with the rightto inspect set forth in paragraph one.

(3) Partners may request from companies participating in the divisionthat they are provided with the copiesof the documents mentioned in paragraph one. These must be provided free-of-charge.

(4) Each of the companies participatingin the division shall publish anannouncement indicating the rights toinspect in Turkish Trade RegistryGazette, and capital stock companiesshall publish it also on their web sites.

e) Information regarding changes inassets

Article 172 - (1) Article 150 shall applyto the changes that occur in the assetsof the companies participating in thedivision by analogy.

4. Division resolution

Article 173 - (1) After the security stipulated in article 175 is provided; themanagement bodies of the companiesparticipating in the division shall submitthe division contract or the divisionplan to the general assembly.

(2) The resolution to approve shall beadopted in compliance with the quorums set forth in paragraphs one,three, four and six of article 151.

(3) In a division where the ratio is notprotected, the resolution to approveshall be adopted by at least ninety percent of the partners, who are entitled to vote, in the transferor company.

5. Protection

a) Protection of creditors

aa) Notice

Article 174 - (1) The creditors of thecompanies participating in the divisionshall be invited to notify their receivables and to make a claim forsecurity with an announcement to bepublished in Turkish Trade RegistryGazette, in at least three nationalnewspapers with a circulation of overfifty thousand for three times at intervals of seven days and in case ofcapital stock companies, also with anannouncement to be posted on thewebsites.

bb) Securing creditors’ receivables

Article 175 - (1) Companies participating in the division shall beobliged to secure the receivables ofcreditors, who have made a claim,within three months from the date onwhich the announcements set forth inarticle 174 are published.

(2) In case it is proven by the operational auditor’s report that theclaims of the creditors are not underrisk due to division, the liability to provide security shall be abolished.

(3) If it is obvious that the other creditorswill not suffer a loss, the company maypay the debt instead of providing security.


b) Responsibility

aa) Secondary responsibility of thecompanies participating in division

Article 176 - (1) The other companiesparticipating in the division which aresecondarily liable shall be severallyliable for those claims which have notbeen paid by the company, which istherefore primarily liable company, towhich the claims were assigned by thedivision contract or the division plan.

(2) The secondarily liable companiesmay be subject to executive proceedings, only if a claim is notunder security and the company, primarily liable,

a) has gone into bankruptcy,

b) has obtained a period of composition with creditors,

c) has been subject to execution proceedings and the conditions toobtain final insolvency certificate hasbeen met,

d) has had its headquarters movedabroad and may no longer be prosecuted in Turkey, or

e) has had its headquarters’ locationabroad changed and therefore its prosecution has become legallyextremely difficult.

bb) Personal responsibility of partners

Article 177 - (1) The provision in article158 shall apply to the personal responsibilities of partners.

6. Transfer of business affairs

Article 178 - (1) In a split-up or spin-off, provided that the employeeconcerned does not object, the servicecontracts made with employees shallbe transferred to the transferee company with all rights and debts arisen thereby until the transfer day.

(2) If the employee objects, the servicecontract shall terminate at the end ofthe legal period of dismissal; the transferee company and the employeeshall be liable to fulfill the contract untilthat date.

(3) The former employer and transfereecompany shall be severally liable forthe employees’ receivables due beforethe division and for the employee’sreceivables which shall be due withinthe period that will pass until the datethe service contract is to expire underordinary circumstances or the date it isterminated due to the employee’sobjection.

(4) Unless otherwise decided or unlessit is evident from the circumstance, theemployer may not transfer the rightsarisen from the service contract to athird party.

(5) Employees may request that theirdue receivables and their receivableswhich shall be due as set forth in paragraph one be secured.

(6) The partners of the transferor company, who were liable for companydebts before the division, shall continue to be severally liable for thedebts arising from the service contractand that are due until the day of transfer and for the debts which shallbecome due if the service contract hadterminated under ordinary circumstances or for the debts thatshall arise until the instant that theservice contract is terminated due tothe employee’s objection.

7. Registration at trade registry andvalidity

Article 179 - (1) When the division isapproved, the management body shallrequest the registration of the division.

(2) If it is necessary that the capital ofthe transferor company is decreased

due to spin-off, the amendment to thearticles of association in this regardshall also be registered.

(3) In case of split-up, the transferorcompany shall be dissolved upon registration at the trade registry.

(4) The division shall become effectiveupon the registration at the trade registry. Upon registration all assetsand liabilities in the inventory shall betransferred to the transferee companyat the instant of registration.

IV – Conversion1. General provisions

a) Principle

Article 180 - (1) A company maychange its legal form. The companyconverted into a new legal form is thecontinuation of the former company.

b) Allowed conversion

Article 181 - (1) a) A capital stockcompany may be converted into;

1) A different legal form of capital stockcompany;

2) A cooperative;

b) A general partnership may convertedinto;

1) A capital stock company;

2) A cooperative;

3) A limited partnership;

c) A limited partnership may be converted into;

1) A capital stock company;

2) A cooperative;

3) A general partnership;

d) A cooperative company may beconverted into a capital stock company.

c) Special regulation regarding conversion of general partnershipsand limited partnerships


Article 182 - (1) A general partnershipmay be converted into a limited partnership, if;

a) A limited partner joins a general partnership;

b) A partner becomes a limited partner.

(2) A limited partnership may be converted into a general partnership if;

a) All limited partners withdraw fromthe company,

b) All limited partners become unlimited partners.

(3) The provision of article 257 in relation to a general or limited partnership that continues its activitiesas a commercial enterprise.

(4) The provisions of articles 180 to 190shall not apply to conversions to beimplemented in accordance with thisarticle.

2. Protection of company shares andrights

Article 183 - (1) In conversion, theshares and rights of partners are pro-tected. Holders of non-voting sharesshall be given equal value of shares orshares voting right.

(2) In exchange for privileged shares,shares of equal value shall be given oran appropriate indemnity shall be paid.

(3) In exchange for profit sharing certificates, rights of equal value aregiven or the actual value effectual onthe date that the conversion plan isdrawn up, shall be paid.

3. Incorporation and interim balancesheet

Article 184 - (1) In conversion, the provisions relevant to incorporation ofnew legal form shall apply; however,the provisions relevant to the minimumnumber of partners and capital

contribution in kind shall not apply tocapital stock companies.

(2) If there are more than six monthsbetween the balance sheet date andthe date on which the conversionreport was prepared or if significantchanges occurred in the assets of thecompany as of the date on which thelast balance sheet was prepared, aninterim balance sheet shall be prepared.

(3) Provided that the following provisions are reserved, the provisionsand principles relevant to the annualbalance sheet shall apply to interimbalance sheet. With regard to theinterim balance sheet;


b) Changes to valuations predetermined in the last balance sheetshall only be limited to the entries inthe commercial book; depreciations,valuation adjustments, provisions andvaluation changes significant for theenterprise incomprehensible from commercial books shall be also takeninto account.

4. Conversion plan

Article 185 - (1) The managementbody shall prepare a conversion plan.The plan shall be in written form andbe subject to the approval of the general assembly in accordance witharticle 189. The conversion plan shallcontain;

a) Company’s trade name and headquarters before and after conversion, and the indication regarding the new legal form,

b) Articles of association of the newlegal form,

c) Number, kind and amount of sharesthe partners will have after the

conversion or declarations regardingthe shares of partners after the conversion.

5. Conversion report

Article 186 - (1) The managementbody shall prepare a written reportregarding the conversion.

(2) The report shall explain the followings in legal and economicaspects and indicate their reasons:

a) Purpose and results of the conversion,

b) Fulfillment of the provisions of incorporation relevant to new legalform,

c) Articles of association of the newcompany,

d) Exchange ratio of shares that partners will hold after the conversion,

e) Additional payments and other personal performance liabilities andpersonal responsibilities in relation tothe partners arisen from the conversion,

f) Liabilities arisen from the new legalform for the partners.

(3) If all partners approve, small sizedcompanies may dispense withpreparation of the conversion report.

6. Audit of the conversion plan andthe conversion report

Article 187 - (1) The company shallhave the conversion plan, the conversion report, the balance sheetunderlying the conversion audited bythe operational auditor.

(2) The company shall be obliged toprovide the operational auditor with allkinds of information and documentsthat may serve the purpose of the auditto be carried out.

(3) The operational auditor shall be


obliged to inspect and evaluatewhether or not the conditions regardingconversion have been met, the balancesheet complies with the truth and thelegal status of the partners are protected after the conversion.

(4) If all partners approve, small sizedcompanies may dispense with auditing.

7. Right to inspect

Article 188 - (1) The company shallsubmit the followings for inspection ofthe partners at their head offices andfor publicly held joint stock companies,at locations determined by CapitalMarket Board thirty days prior to thegeneral assembly resolution;

a) Conversion plan,

b) Conversion report,

c) Audit report,

d) Financial statements for the lastthree years, and interim balance sheet,if any.

(2) Copies of the abovementioned documents shall be provided free-of-charge to partners who request them.The company shall properly notify thepartners that they have right to inspect.

8. Conversion resolution and registration

Article 189 - (1) The managementbody shall submit the conversion planto the general assembly. The conversion resolution shall be adoptedaccording to the following quorums:

a) In joint stock companies and partnerships limited by shares, withtwo thirds of the votes present at thegeneral assembly, provided that it represents the two thirds of the basicor issued capital, without prejudice tothe sub-paragraph (b) of paragraph fiveof article 421 of this Code; in case ofconversion into a partnership with

limited liability, with the approval of allpartners if additional payment or personal performance liability arises;

b) If a capital stock company convertsinto a cooperative, with the approval ofall partners;

c) In partnerships with limited liability,with three quarters of the votes of allpartners, provided that they own atleast three quarters of the capital;

d) In cooperatives;

1. Under the condition that at least twothirds of the partners are representedat the general assembly with a majorityof the existing votes,

2. If additional payments, other personal performance liabilities or personal responsibilities are introducedor these liabilities or responsibilities arebeing extended, with the positive votesof two thirds of the partners registeredin the cooperative,

e) In general and limited partnerships,the conversion plan shall be approvedunanimously by all partners. However,it may be set forth in the articles ofassociation that this resolution may beadopted with the positive votes ofthree quarters of all partners.

(2) The management body shall havethe conversion and the articles of association of the new company registered. The conversion shall takeeffect upon registration. The conversion resolution shall beannounced in Turkish Trade RegistryGazette.

9. Protection of creditors andemployees

Article 190 - (1) Article 158 shall apply tothe personal responsibilities of the partners and article 178 shall apply toobligations arising from service contracts.

V – Common Provisions1. Inspection of company shares and rights

Article 191 - (1) In a merger, divisionor conversion, if the right to continuebeing a partner, the company shares orrights are not provided for in accordance with the law or in case thecash payment for withdrawal is notadequate, each partner may demandfrom the court a compensation payment within two months as of theannouncement of the resolution tomerge, divide or convert. Paragraphtwo of article 140 shall not apply to thedetermination of the compensationpayment.

(2) The court order shall also be effectual regarding all partners of thecompanies participating in the merger,division or conversion, provided thatthey are in the same legal position withthe plaintiff.

(3) The legal expenses of the lawsuitshall be borne by the transfereecompany. In case special situationsjustify, court expenses may be partiallyor fully imputed to the plaintiff.

(4) The lawsuit relevant to inspectionregarding the protection of the right tobe a partner or of the partnership rightsshall not affect the validity of the resolution to merge, divide or convert.

2. Cancellation of merger, divisionand conversion and the results ofincompleteness

Article 192 - (1) In case articles 134 to190 are violated, the partners of companies participating in the merger, division or conversion who have notcast positive votes for the merger, division and conversion resolution, andwho have recorded this in the minutes,may file an action for cancellation within two months from the date of


announcement of this resolution inTurkish Trade Registry Gazette. Incases, where announcement is notrequired, the period shall start from thedate of registration.

(2) This action may also be filed, incase the resolution is adopted by amanagement body.

(3) In case of any incompleteness intransactions relevant to the merger,division and conversion, the courtgrants a period for parties to completethem. If the legal defect is not or cannot be made up for within the timegranted, the court shall cancel the resolution and take the necessarymeasures.

3. Responsibility

Article 193 - (1) All persons who havein some way participated in the merger, division or conversion transactions shall be responsible forthe damages they have caused duetheir fault to the companies, partnersand creditors. The responsibilities offounders are reserved.

(2) Persons who have audited themerger, division or conversion shall beresponsible for the damages they havecaused due their fault to the companies, individual partners andcreditors.

(3) The provisions of articles 202 to208, 755, 757 and 760 are reserved. In case a capital stock company or cooperative goes into bankruptcy, articles 565 and 756 and article 98 ofthe Cooperatives Law shall apply byanalogy.

VI – Merger and conversion of commercial enterprise

Article 194 - (1) A commercial enterprise may merge with a

commercial company through acquisition by the commercial company. In this case, in accordancewith the legal form of the transfereecommercial company, the provisions ofarticles 138 to 140, 142 to 158 andarticles 191 to 193 in relation to common provisions shall apply byanalogy.

(2) In case a commercial enterpriseconverts to a commercial company,articles 182 to 193 shall apply by analogy.

(3) In order for a commercial companyto convert to a commercial enterprise,all shares of the commercial companymust be acquired by the person or persons who will be operating thecommercial enterprise and the commercial enterprise must be registered in the name of this person orthese persons. In this case, if the commercial company, which has beenconverted into a commercial enterprise, is general or limited partnership, the former partners of thecommercial company shall also beresponsible for the debts of the commercial company according totheir titles as well as the person or persons to operate the commercialenterprise. Articles 264 to 266 of thisCode shall apply to the said conversion.

(4) Paragraph three of the provision ofarticle 182, is reserved.

G) Group of companiesI – Controlling Company anddependent company

Article 195 - (1) a) If a commercialcompany directly or indirectly;

1. Holds the majority of the votingrights of another commercial company,or

2. has the right to ensure the electionof members forming the majority whichis able to take resolution in the management body of another commercial company in accordancewith articles of association, or

3. has the majority of the voting right ofanother commercial company alone orwith other shareholders or partnersbased on a contract in addition to itsown votes;

b) if a commercial company is able tohold another commercial companyunder its control in accordance with acontract or through other means;

the former company is the controllingcompany and the latter is the dependent company. If the headquarters of at least one of thesecompanies is in Turkey, the provisionsrelevant to the group of companies inthis Code shall apply.

(2) Apart from the cases stipulated inparagraph one, if a commercial company holds the majority of theshares in another commercial companyor holds adequate shares to make thedecisions enabling it to manage thecompany, then a presumption for existence of a control by the first company shall occur.

(3) The control of a controlling company over another company viaone or more than one dependent companies is indirect control.

(4) Companies that are directly or indirectly affiliated with the controllingcompany shall constitute a group ofcompanies together with the controllingcompany. Controlling companies arethe parent companies, and thedependent companies are subsidiaries.

(5) If the controlling company of thegroup of companies is an enterprise,headquarters or domicile of which is inTurkey or abroad, articles 195 to 209


and the provisions in this Code relevant to the group of companiesshall apply. The controlling enterpriseis considered as merchant. The provisions regarding consolidatedfinancial statements are reserved.

(6) In the application of provisions relevant to the group of companies, theterm “board of directors” refers tomanagers in partnerships with limitedliability, to managing directors in partnerships limited by shares and inpersonal companies, the managementbody in other legal entities, and the realperson him/herself in real persons.

II – Calculation of shares and votingratios

Article 196 - (1) The percentage of acommercial company’s participation ina capital stock company shall be determined by ratio of the total nominalvalue of the share or shares it holds inthat capital stock company to the ratioof the capital of the company participated in. Shares in a capitalstock company that are held by itselfand the capital stock company’s ownshares that are held by third partiesacquired on its account shall bededucted from the basic or issuedcapital of that company when calculating.

(2) The percentage of voting right of acommercial company in a capital stockcompany shall be determined by ratioof the total exercisable voting rightsarising from the shares that the commercial company holds in thatcapital stock company to the ratio ofthe total of the entire exercisable votingrights in the capital stock company.Voting rights arising from the shares ina capital stock company that are heldby itself and from the capital stockcompany’s own shares that are held by

a third party acquired on its accountshall be deducted when calculating.

III – Cross-shareholding

Article 197 - (1) Capital stock companies holding at least one quarterof each other’s shares are in the stateof cross-shareholding. Article 196 shallapply to the calculation of the percent-ages of these shares. If one of the saidcompanies controls the other, the lattershall also be considered as dependentcompany. If each one of the companies in the state of cross-share-holding controls the other, both ofthem shall be considered as dependentand controlling company.

IV – Notification, registration, andannouncement liabilities

Article 198 - (1) In case that an enterprise directly or indirectly owns anamount of shares representing five,ten, twenty, twenty five, thirty three,fifty, sixty seven or one hundred percent of the capital of a capital stockcompany or if its shares fall underthese percentages; the enterprise shallnotify the capital stock company andthe competent authorities indicated inthis Code and other laws, of the situation within ten days following thecompletion of the said transactions.Acquisition or disposition of the sharesin the above-mentioned ratios shall bedeclared under a separate heading inthe annual and audit reports andannounced on the capital stock company’s website. Article 196 shallapply to the calculation of the percentages of the shares. The managing directors and board members of the enterprise and capitalstock company shall make a notification in relation to the shares inthat capital stock company owned by

themselves, their spouses, their children under their custody and acommercial company in which theyhold at least twenty percent of its capital. Notifications shall be made inwriting and registered at the trade registry, and announced.

(2) Unless the notification, registration,and announcement liabilities set forthin paragraph one are fulfilled, otherrights including the voting right pertaining to the relevant shares shallbe suspended. The provisions relatedto other legal consequences regardingthe breach of the notification liabilityare reserved.

(3) In order for the control agreementto be valid, the agreement must beregistered at the trade registry and beannounced. The invalidity of this agreement shall not prevent the application of the provisions in thisCode and other laws relevant to the liabilities and responsibilities pertainingto the group of companies.

V – Reports of dependent and controlling companies

Article 199 - (1) The board of directorsof the dependent company shall prepare a report regarding the company’s relations with controllingand dependent companies within thefirst quarter of the activity year. All legaltransactions which the company conducted in the previous activity yearwith the controlling company, with acompany dependent on the controllingcompany, through the direction of thecontrolling company that serves to itsadvantage or the advantage of itsdependent company and all othermeasures taken or refrained from beingtaken to the advantage of the controlling company or of its dependent company in the previous


activity year shall be explained in thereport. In legal proceedings, the performances and counter performances and with regard tomeasures, the grounds for the measurewith its advantages and disadvantagesto the company shall be specified.Where there is a provision for compensation for disadvantages, theway the compensation was actuallyobtained within the activity year or theadvantages gained by the companywhich provided a right to claim shallalso be declared.

(2) The report must comply with trueand fair accounting principle.

(3) At the end of the report the board ofdirectors shall explain whether or notthe company, in the circumstances andconditions known to the board at theinstant on which the company conducted the legal proceeding or tookor refrained from taking the measure,obtained appropriate counter performance in relation to each legalproceeding and whether or not thecompany incurred any damage due totaking or refraining from taking themeasure. If the company incurred damage, the board of directors shallalso specify whether or not the damage has been compensated. Thisexplanation shall only take place in theannual report.

(4) Each board member of the controlling company may request fromthe chairman of the board of directorsto have report carefully prepared inaccordance with true and fair accounting principle, about thedependent companies’ position regarding its finance and assets andtheir three months accounting results,the relations of controlling companywith dependent companies, of dependent companies with each other,

of controlling and dependent companies with their shareholders andtheir relatives; the proceedings theyhave conducted and results and effectsthereof and to submit the said report tothe board of directors, and have theconclusion section of this attached tothe annual and audit report. Dependentcompanies shall be liable to providethe information and documents necessary for preparing this report tothe experts of the controlling companyassigned for this duty, unless they areunable to prove the existence of arightful reason so clear that leaves noroom for comment for rejection. If aboard member who puts forward aclaim for the interest of a third party,he/she shall be responsible for theresults.

VI - Access to information aboutdependent companies

Article 200 - (1) Each shareholder ofthe controlling company may requestat the general assembly that careful,satisfactory information be provided inaccordance with true and fair accounting principles regardingdependent companies’ position regarding its finance and assets andthe accounting results, the relations ofthe controlling company with dependent companies, of dependentcompanies with each other, of controlling and dependent companieswith their shareholders, managingdirectors and their relatives, the transactions they have conducted andresults thereof.

VII -Suspension of rights

Article 201 - (1) A capital stock company, which acquires the shares ofanother capital stock company andwhich therefore knowingly enters into a

cross-shareholding position, may onlyexercise one quarter of the total votesarising from the shares which are thesubject of participation and one quarterof other shareholding rights; excludingthe right to acquire gratis shares, allother shareholding rights shall be suspended. The said shares shall notbe taken into account while calculatingthe quorum for meeting and resolution.The provisions in article 389 and 612are reserved.

(2) The restriction set forth in paragraph one shall not apply in casethe dependent company acquires theshares of the controlling company, orboth companies control each other.

VIII - Responsibility1. Unlawful exercise of control

Article 202 - (1) a) A controlling company may not exercise its controlin a way that would make the dependent company incur a loss.Particularly, it may not direct thedependent company to carry out legaltransactions such as the transfer ofbusiness, asset, fund, staff, receivableand debt; to decrease or transfer itsprofit; to restrict its assets with real orpersonal rights; to undertake liabilitiessuch as providing surety, guaranteeand bill guarantee; to make payments;to adopt decisions or take measureswhich negatively affect its efficiencyand activity such as not renovating itsfacilities, limiting, stopping its investments without any reasonablegrounds, to refrain from taking measures that will ensure its development; unless the loss is actually compensated within that activity year or a right to claim ofequivalent value is granted to thedependent company latest by the endof that activity year by specifying how


and when this loss will be compensated.

b) If compensation has not been madewithin the activity year or if a right ofequivalent claim has not been grantedwithin the due period, each shareholder of the dependent companymay claim that the loss incurred by thecompany is compensated by the controlling company and its boardmembers who caused the loss. If it isjustifiable; instead of compensation,judge may decide that shares of theplaintiff shareholders are acquired bythe controlling company or decide onanother solution, which is acceptableand appropriate to the situation, inaccordance with the provisions in paragraph two of this article

c) Creditors may also request that thecompany’s loss be paid to the company in accordance with sub-paragraph (b) even if the companyhas not gone into bankruptcy.

d) In case it is proven that under sameor similar conditions, the board members of an independent company,who take care of company’s interestsin good faith and act with the care of aprudent manager, would also have carried out the transaction causing theloss or refrained from undertaking theact, compensation may not be awarded.

e) Articles 553, 555 to 557, 560 and561 shall apply to the action to betaken by shareholders and creditors,by analogy. If the headquarters of thecontrolling enterprise is locatedabroad, the action for compensationshall be taken in the commercial courtof first instance at the location of theheadquarters of the dependent company.

(2) Shareholders who have cast negative votes against the general

assembly resolution and had themrecorded in the minute of this resolution in connection with transactions such as merger, division,conversion, termination, issuing securities and important amendment toarticles of association which are initiated through application of controland without any clear reasonablegrounds concerning the dependentcompany, or who have objected inwriting to the board resolution on thesame and similar subjects; mayrequest from the court that their damages be compensated by the controlling enterprise, or their sharesbe purchased at stock exchange valueat least if possible, if there is no suchvalue or if the stock exchange value isnot just, at actual values, or at a valueto be determined in accordance with amethod that is generally accepted.When determining the value, the dataavailable at the date nearest to thedate of the court order shall be thebasis of this determination. The actionfor claim of compensation or purchaseof shares shall become statute barredafter two years as of the date of theresolution of the general assembly orof the date on which the board resolution is announced.

(3) When the action set forth in paragraph two is taken, the amount ofmoney covering the possible loss ofplaintiffs or the purchase value of theshares shall be decided to be deposited in the name of the court assecurity to a bank, to be determined bythe court. Until the security has beendeposited, no proceeding may be conducted in relation to the resolutionof the general assembly or of the boardof directors. In case the actions stipulated in paragraphs one and twoof this article are taken in bad faith, thedefendant may put a claim against

plaintiffs that the loss incurred be compensated severally and that asecurity is deposited to the court.

(4) In case of merger, division and conversion, the other rights granted toshareholders and partners arereserved.

(5) Managers of dependent companymay request from the controlling enterprise to undertake through, a contract, all legal consequences ofresponsibilities that may be arisenagainst the shareholders and the creditors as a result of the provisionsof this article.

2. In case of full control

a) Instruction

Article 203 - (1) If a commercial company directly or indirectly holdsone hundred percent of the shares andvoting rights in a capital stock company, the board of directors of thecontrolling company may give instruction concerning the directionand management of the dependentcompany even if it has a nature whichmay cause results that could lead to aloss, provided that it is a requirementof the specified and concrete policiesof the group of companies. The bodiesof the dependent company are obligedto comply with the instruction.

b) Exception

Article 204 - (1) No instruction, whichhas a characteristic that clearlyexceeds the dependent company’ssolvency and that may endanger itsexistence or may cause significantassets loss, may be given.


c) Non-liability of dependent company’s bodies to the companyand its shareholders

Article 205 - (1) Members of the boardof directors of the dependent company, its managers and relatedpersons who may be held responsible,cannot be held liable to the companyand to its shareholders due to compliance with the instructions withinthe scope of articles 203 and 204.

d) Right of action of the company’screditors

Article 206 - (1) In case the lossincurred by the dependent companydue to instructions given by the controlling company and its managerswithin the context of article 203 is notcompensated within that financial yearor the company is not granted an equalright to make a claim, specifying itstime and form, the creditors who haveincurred a damage may take an actionfor compensation against the controlling company and its boardmembers responsible for the loss. Thedefendants may base their claims onsub-paragraph (d) of paragraph one ofarticle 202. Sub-paragraph (e) of paragraph one of article 202 shall applyto this action.

(2) The defendants may avoid responsibility for receivables resultingfrom credit and similar reasons byproving that the plaintiff entered intothe relationship leading to the saidreceivable with the knowledge that thecompensation was not made or theright to make a claim was not granted,or that they should have known this situation as a requirement of the natureof business.

IX – Miscellaneous1. Special audit

Article 207 - (1) If the auditor, operational auditor, special auditor,early risk detection and managementcommittee have delivered an opinionstating the existence of fraud and conspiracy in the dependent company’s relationship with the controlling company or with anotherdependent company, each shareholderof the dependent company mayrequest the assignment of a specialauditor from the commercial court offirst instance at the location of thecompany’s headquarters for the purpose of clarifying this matter.

2. Right to purchase

Article 208 - (1) If the controlling company, directly or indirectly, holds atleast ninety percent of shares and voting rights in a capital stock company and if the minority preventsthe company from running its business,does not act in good faith, createsobvious trouble or behaves in a reckless manner, the controlling company may purchase the shares ofthe minority at stock exchange value, ifany, or at the value determined inaccordance with the method set forthin paragraph two of article 202.

3. Responsibility arisen from trust

Article 209 - (1) In cases the controlling company reaches a levelwhere its group reputation inspiresconfidence to community or consumer,it shall be liable for the confidence created by the use of its reputation.

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PART FOURJOINT STOCK COMPANY

SECTION ONEGeneral Provisions, Incorporationand Fundamental Principles

A) General Provisions

I - Definition

Article 329 - (1) A joint stock companyis a company whose capital is fixedand divided into shares and which issolely responsible with its assets dueto its debts.

(2) Shareholders are solely responsibleto the company and their responsibilityis limited with the shares they havesubscribed.

II – Joint stock companies that aresubject to special laws

Article 330 - (1) The provisions in thisSection shall apply to joint stock companies that are subject to speciallaws, provided that the provisions inthe laws related to them are reserved.

III - Purpose and scope

Article 331 - (1) Joint stock companiesmay be incorporated for all kinds ofeconomic purposes and scopes thatare not legally prohibited.

IV –Minimum capital amount

Article 332 - (1) The basic capital representing the entire capital subscribed in the articles of associationmay not be less than fifty thousandTurkish Liras and in case of anincrease of the capital, the initial capitalmay not be less than one hundred


thousand Turkish liras in closely heldjoint stock companies which haveadopted the authorized capital systemdisclosing the authorization cap givento the board of directors. This minimum capital amount may beincreased by the Council of Ministers.

(2) Within the meaning of this Code,the initial capital in joint stock companies, which adopted the authorized capital system, is themandatory capital which must be possessed at stage of incorporationand when initially adopting the system;where as the issued capital is the capital which represents the total ofnominal values of the entire sharesissued.

(3) Closely held joint stock companiesmay withdraw from the authorized capital system by obtaining permissionfrom the Ministry of Industry andCommerce if they cease to be qualifiedfor the system; they shall also beremoved from the system by the saidMinistry even in the absence of theirclaim, if they lose the qualificationsrequired for entry to the system.

(4) The provision in article 12 of CapitalMarket Law No. 2499 dated 28/7/1981is reserved.

V - Government supervision

1. Permission

Article 333 - (1) Joint stock companieswhich are active in the areas to bedetermined and announced in thecommuniqué to be published by theMinistry of Industry and Commerceshall be incorporated with the permission of the Ministry of Industryand Commerce. The amendments tothe articles of association of thesecompanies shall also be subject to thepermission of the said Ministry. Theinspection of the Ministry may only be

carried out in terms of whether or notthere is any contradiction to themandatory provisions in the law. Apartfrom this, regardless of nature, scopeof activity and the legal position of thejoint stock company, its incorporationand amendments to its articles ofassociation may not be subjected tothe permission of any authority.

2. Representation of public legalentities on the board of directors

Article 334 - (1) A public legal entitysuch as the state, city and municipality,even if they are not shareholders, maybe granted the right to appoint a representative on the board of directors of joint stock companieswhose field of activity is public service,by a provision to be set forth in thearticles of association.

(2) The board representatives of publiclegal entities holding shares in thecompanies mentioned in paragraphone, may only be removed from officeby these public legal entities.

(3) The representatives of public legalentities on the board of directors shallhave the rights and duties of the members elected by the generalassembly. Public legal entities areresponsible to the company, its creditors and shareholders for theactions and transactions carried out bytheir representatives on the company’sboard of directors in this capacity. Thelegal entity’s right to recourse isreserved.

B) Incorporation

I - Incorporating act

Article 335 - (1) The company shall beincorporated upon the founders’ declaration stating their decision toincorporate a joint stock company inthe articles of association prepared in

accordance with law and in which thefounders unconditionally subscribed topay the entire capital and their signatures are notarized.

(2) The provision in paragraph one ofarticle 355 is reserved.

II – Incorporation documents

Article 336 - (1) The contracts relatedto the incorporation, signed by theincorporating company, the foundersand other people, including those thatare relevant to the transfer of businessand transfer in kind, the operationalauditor report, the articles of association, the declaration of foundersand valuation reports are the incorporation documents. All incorporation documents shall beplaced in the registration file and acopy of each shall be kept by the company for a period of five years.

III - Founders

1. Definition

Article 337 - (1) Real persons and legalentities who have subscribed a shareand signed the articles of associationare founders.

(2) If the founders conduct the transaction mentioned in paragraphone in the account of a third party, thisperson shall also be considered as afounder in terms of liability arisen fromincorporation. The third party in question may not assert that he/shewas not aware of the matter which isknown or is required to be known bythe person acting on his/her behalf.

2. Minimum number

Article 338 - (1) One or more share-holder founders are required for incorporation of a joint stock company.The provision in article 330 is reserved.


(2) If the number of shareholders dropsto one, the board of directors shall benotified of this situation in writing withinseven days as of the date of the transaction causing this result. Theboard of directors shall register andannounce that the company is a single-shareholder joint stock companywithin seven days as of the date ofreceipt of this notification. Furthermore,in case the company is incorporated bya single shareholder or the shares arecome to be held by a single person,name, domicile and nationality of thesingle shareholder shall be registeredand announced. Otherwise, the shareholder who fails to make theannouncement and the board of directors that fails to make the registration and the announcementshall be responsible for any damageincurred.

(3) The company may not acquire orhave acquired its own share if itbecomes a single shareholder.

IV – Articles of association

1. Contents

Article 339 - (1) The articles of association must be in writing and thesignatures of all founders must benotarized.

(2) The followings shall be mentionedin the articles of association:

a) Company’s trade name and locationof the headquarters.

b) Company’s scope of activity with itsfundamental points specified anddefined.

c) Company’s capital and the nominalvalue of each share, the method andterms of their payment.

d) Whether share certificates are registered or bearer; privileges provided for certain shares; transferrestrictions.

e) Rights and non-monetary assetscontributed as capital; their values;amount of shares to be given in returnfor such, in case of an acquisition of abusiness and acquisition in kind thevalue thereof, the price of goods andrights purchased by the founders in theaccount of the company for the incorporation of the company, andamount of the fee, the allowance or thebonus that needs to be paid to thosewho provided services during theincorporation of the company.

f) Benefits to be provided from thecompany profit to the founders, members of the board of directors, andother persons.

g) Number of members of the board ofdirectors, those members who areauthorized to affix their signature in thename of the company.

h) The form of convocation for generalassemblies; voting rights.

›) If duration of the company is limitedto a period, such period.

i) The form of announcements pertaining to the company.

j) Types and amounts of capital sharessubscribed by shareholders.

k) Accounting period of the company.

(3) The members of the first board ofdirectors shall be assigned with thearticles of association.

2. Mandatory provisions

Article 340 - (1) The articles of association may diverge from the provisions in this Code relevant to jointstock companies only if expresslyallowed in this Code. The supplementary provisions of articles ofassociation allowed to be stipulated byother laws shall be effectual specificallyfor that law.

V – Approval of subscription

Article 341 - (1) The subscription ofthe entire shares constituting the basiccapital which was made by thefounders in the articles of associationshall be approved by a notary annotation to be affixed to the articlesof association.

VI – Capital in kind

1. Asset items that may be contributed as capital in kind

Article 342 - (1) Asset items with norestricted real right, attachment andmeasure on them, which may beappraisable and transferable, includingintellectual property rights and virtualenvironments may be contributed ascapital in kind. Service performances,personal effort, commercial reputationand non-due receivables may not becontributed as capital.

(2) The provision in article 128 isreserved.

2. Appraisal

Article 343 - (1) Enterprises and non-monetary assets to be acquiredduring incorporation with capital in kindshall be appraised by experts assignedby the commercial court of firstinstance at the location of the company’s headquarters. The appraisalreport must explain in detail and withjustifications, the existence of receivables, the possibility to collectand the value of the receivables andthat the selected appraisal method isthe most just and appropriate methodfor all in the concrete event. Thefounders, the operational auditor andstakeholders may object to this report,which is of official nature, at court.


VII – Payment of share prices

1. Capital in cash

Article 344 - (1) At least twenty fivepercent of the nominal value of theshares subscribed in cash must bepaid before registration and theremaining shall be paid within twentyfour months following registration. Theentire issuance premium of shares shallbe paid before registration.

(2) The provisions in the Capital MarketLaw relevant to the payment of shareprices are reserved.

2. Place of payment

Article 345 - (1) Cash payments shallbe made into a special account to beopened in the name of the companybeing incorporated, at a bank which issubject to the Banking Law no. 5411,dated 19/10/2005, in a way that it mayonly be disposed by the company. Thefact that the amount set forth in law orarticles of association for subscribedshares has been paid and that a higheramount than the one stipulated in lawhas been paid for subscribed shares ,shall be proven with a bank letter to beaddressed to the trade registry. Uponthe submission of a letter prepared bythe registration office informing that thecompany has acquired legal personality, the bank shall pay theamount concerned only to the company.

(2) If the company is unable to acquirelegal personality within three months asof the date of notarization set forth inparagraph one of article 335, theamounts shall be returned by the bankto their owners, upon the submissionof a letter prepared by the registrationoffice confirming this matter.

3. Shares to be offered to public

Article 346 - (1) The price of sharessubscribed in cash which are subscribed in the articles of association, and are mentioned andalso guaranteed in the articles of association by the subscribers to beoffered to public at latest within twomonths as of the registration of thecompany shall be paid from theincome earned from the sale. The public offering of share certificatesshall be initiated in accordance withthe capital market legislation. At theend of the sale period, the equivalentvalue of the issuance premium if anyand of the nominal values of sharesshall be paid to the company, and theamount that will remain after theexpenses are deducted shall be paid toshareholders who are offering theirshare certificates to the public.

(2) The full price of shares offered topublic but not sold within the prescribed period, and twenty five percent of the price of shares notoffered to public within the prescribedperiod shall be paid within three daysfollowing the two month period.

VIII - Shares

Article 347 - (1) A share may not beissued at a price less than its nominalvalue. For the issuance of shares at aprice exceeding the nominal value, i.e.at a premium, there must be a provision in this regard in the articles ofassociation or in the general assemblyresolution.

IX – Founder benefits

Article 348 - (1) Provisions in the articles of association relevant to grantingbenefit, that will result in a decrease ofthe company’s capital, such as payingmoney and giving gratis shares to

founders in return for their efforts duringthe incorporation of the company, shallbe invalid. However, after legal reservesstipulated in paragraph one of article 519and a dividend of five percent for theshareholders are allocated from the dis-tributable profit, one tenth of the remaining amount shall be paid tofounders according to the available capital.

(2) Holders of founders’ benefit certificates shall receive the dividendset forth in the articles of association,even if the profit is not distributed.

X –Founders declaration

Article 349 - (1) A declaration regarding incorporation shall be signedby the founders. The declaration shallbe prepared accurately and completelyin accordance with the principle of providing information in a true and fairmanner. If a capital in kind is beingcontributed or if an enterprise or a non-monetary asset is being acquired,The declaration must contain documented explanations with justifications and definite expressionsregarding the appropriateness of theamount to be given in return for them,the necessity of such a capital andacquisition and the benefit of these tothe company. In addition, securitiesacquired by the company, their acquisition prices, information regarding the valuation and analysis offinancial or if necessary consolidatedfinancial statements for the last threeyears of those who have issued thesaid securities, significant commitments undertaken by the company, connections, prices, commissions regarding the purchase ofmachinery and similar goods and ofany asset value, and all kinds of debtsshall be explained and be exemplified.


(2) Furthermore, the benefits with justification provided for the foundersshall take place in the declaration.Those who have subscribed shares forthe purpose of public offering and thenumber of shares subscribed, the relationship of those who have subscribed shares with one another; ifthese are included in a group of companies, their relationship with thegroup, the fees paid to the operationalauditor inspecting the corporation andto others providing services shall beexplained and exemplified in the declaration.

XI - Commitment for public offering

Article 350 - (1) In accordance with article 346, in case a share is subscribed to be offered to public, thepublic offering shall be considered tohave been approved by the founders,board of directors or by any authorizedbody.

XII - Operational auditor report

Article 351 - (1) The report regardingthe audit of the incorporation shall beprepared by an operational auditor. Asworn financial adviser or an independent accountant financialadviser (Yeminli Mali Müflavir, YMM orSerbest Muhasebeci Mali Müflavir,SMMM) is also authorized to preparethis report for small and medium sizedjoint stock companies and closely heldjoint stock companies. The operationalauditor shall declare that all shareshave been subscribed in the incorporation report; that the minimumamount of the share prices, set forth inlaw or in the articles of association,have been deposited to the bank inaccordance with law and that the bankletter in this regard have been madeavailable; that there is no express

indication that this liability has beenevaded; that a valuation has beenmade for contribution and acquisitionin kind by experts appointed by thecourt and that the report which hasbeen certified by the court has beenpresented in the file; that the interestsof the founders comply with law; thatthere is no express non-conformityregarding the declaration of founders,and that there is no excessive priceand no obvious corruption in the transactions, that all other incorpora-tion documents have been made available and that the required notaryapprovals and permissions have beenobtained.

XIII – Assignment of share subscription before incorporation

Article 352 - (1) Assignment of sharesubscription before the company’s registration shall be invalid as regardsthe company.

XIV – Action for termination

Article 353 - (1) A joint stock companymay not be declared null and void.However, if the interests of creditors,shareholders or of public are significantly put under risk or violatedthrough actions contrary to the provisions in law during the incorporation of the company; uponthe claim of the board of directors, theMinistry of Industry and Commerce,the related creditor or shareholder; thecommercial court of first instance atthe location of the company’s headquarters shall rule for the termination of the company. The courtshall take the required measures on thedate the action is filed.

(2) The court may grant time to makeup for incompleteness and to correctthe matters in conflict with the articlesof association or with law.

(3) The evidences and all requiredinformation shall be included in thepetition. No evidence may be presented during the trial stage and thecourt may also not be requested towait for another court case and toinvoke information into court. However,in case a concrete event proves that itis just, the court may determine a definite period and accept the plaintiff’s request to present evidenceand invoke information. The action issubject to the method relevant topressing matters.

(4) The action must be filed within the threemonth forfeit period as from the registrationand announcement of the company.

(5) Upon the notification of the court,the fact that the action has been filedand the court order has been finalizedshall be, forthwith and ex-officio, registered at the trade registry andannounced in Turkish Trade RegistryGazette. In addition, the board of directors shall declare the registeredand announced matter in at least onenational newspaper with a circulationof at least fifty thousand and publish iton its website.

XV –Registration and announcementof the company

Article 354 - (1) The full version of thearticles of association of the companyshall be registered at the trade registryat the location of the company’s headquarters and announced inTurkish Trade Registry Gazette withinthirty days as of obtaining permissionin case of joint stock companies to beincorporated with permission of theMinistry of Industry and Commerce,and as of incorporation in accordancewith clause one of article 335 in caseof other companies . Apart from thosewhich are listed below, the provision in


paragraph one of article 36 shall notapply to the registered and announcedarticles of association. These pointsare as follows:

a) Date of articles of association.

b) Company’s trade name and headquarters.

c) Duration of the company, if any.

d) Company’s capital, the method andterms of its payment and the nominalvalues of shares, privileges, if any.

e) Types of shares, whether they arebearer or registered shares.

f) Representation of the company;extend and restrictions.

g) Members of the board of directors,names and surnames, titles, domicilesand nationalities of those who areauthorized to represent the company.

h) Form of announcements to be madeby the company; the way the decisionof the board of directors shall be notified to share holders in case thereis a provision relevant to this in the articles of association.

(2) Branches shall be registered at thetrade registry at their location by reference to the trade registry record ofthe headquarters.

XVI –Acquiring legal personality

Article 355 - (1) The company shallacquire legal personality upon registration at the trade registry.

(2) Those who conduct transactionsand enter into commitments in thename of the company before registration shall be personally andseverally responsible for these transactions and commitments.However, if it is expressly declared thattransactions and commitments havebeen carried out in the name of thecompany to be incorporated in thefuture and if such commitments have

been accepted by the company withinthe three month period following theregistration of the company at thetrade registry, the company shall beexclusively responsible.

(3) Unless accepted by the company,the incorporation costs shall be borneby the founders. They shall not haveany right to recourse to shareholders.

C) Evasion of law

Article 356 - (1) Contracts regardingacquisition or lease of an enterprise orof non-monetary assets in return for anamount exceeding one tenth of thecapital made within two years as of theregistration of the company shall notbe valid unless they are approved bythe general assembly and registered atthe trade registry. All kinds of disposition which were made prior tothe approval and registration of suchcontracts, including payments thathave been made for the purpose ofexecution thereof, shall be invalid.

(2)An expert to be assigned by thecommercial court of first instance atthe location of the company upon therequest of the board of directors shallevaluate the enterprise and non-monetary assets to be acquired orleased by the company, prior to thegeneral assembly’s resolution. Thereport shall have an official nature.

(3) Paragraphs three and four of article421 shall apply to the meeting and resolution quorums.

(4) The contract shall be registered andannounced together with the generalassembly resolution regardingapproval.

(5) The provision in this article may notbe applied in regards to enterprises andnon-monetary assets which are acquiredthrough execution or which constitutethe company’s scope of activity.

D) Basic principlesI – Equal treatment principle

Article 357 - (1) Shareholders shall besubject to equal treatment under equalterms.

II – Prohibition of shareholdersbecoming indebted to the company

Article 358 - (1) Shareholders may notbecome indebted to the companyexcluding the debt arising from subscription, unless the debt is arisenfrom a transaction conducted with thecompany, as a requirement of the company’s scope of activity and thebusiness of a shareholder’s enterpriseand unless such debt is subject to identical and similar terms applicable insimilar cases.

SECTION TWOBOARD OF DIRECTORS

A) In generalI – Appointment and election

1. Number and qualifications ofmembers

Article 359 - (1) The joint stock company shall have a board of directors which consists of one ormore persons assigned by the articlesof association or elected by the generalassembly. At least one member who isauthorized for representation musthave his/her domicile in Turkey andmust be a Turkish citizen.

(2) In case a legal entity is elected as amember of the board of directors, onlyone real person who is determined bythe legal entity in the name of suchlegal entity shall also be registered andannounced along with the legal entity;in addition, the fact that the registrationand announcement was made shall beimmediately posted on the company’s


website. Only this registered personmay participate in and vote on behalfof the legal entity at the meetings.

(3) The members of the board of directors and the real person to be registered in the name of the legal entity must be capable to act in fullcapacity. At least one quarter of themembers of the board of directorsmust have higher education. Suchrequirement shall not be applicable incase of board which consists of a single member.

(4) Reasons for cessation of membership shall also prevent beingelected.

2. Representation of certain groupson the board of directors

Article 360 - (1) Provided that it is setforth in the articles of association, certain share groups, shareholderscomposing a certain group accordingto their qualities and properties, andminorities may be granted the right tobe represented on the board of directors. For this purpose, the articlesof association may stipulate that boardmembers shall be elected from amongthe shareholders composing a certaingroup, certain share groups andminorities or that the right to nominatea candidate for the board of directorsmay also be granted to them in thearticles of association. It is mandatorythat the candidate, who is nominatedby the general assembly as a boardmember or who is a member of thegroup and the minority to whom theright to nominate is granted, shall beelected unless there is any reasonablegrounds. The number of board members empowered to represent inthis way may not exceed half the number of the members of the board ofdirectors in publicly held joint stock

companies. The regulations regardingindependent board members arereserved.

(2) According to this article, the sharesentitled to be represented on the boardof directors shall be considered asprivileged shares.

3. Insurance

Article 361 - (1) If the damage thatmay be incurred by the company duethe faults of board members committed while performing theirduties, is insured with a price exceeding twenty five percent of thecompany capital and if thus the company is secured; in case of publiclyheld companies; this matter shall beannounced in the bulletin of the CapitalMarket Board, if the shares are listed inthe stock exchange market and alsoannounced in the bulletin of stockexchange and such matter shall betaken into account in the assessmentof compliance with the principles ofcorporate governance.

4. Term of office

Article 362 - (1) Board members shallbe elected to hold office for a maximum of three years. Unless otherwise specified in the articles ofassociation, the same person may bere-elected.

(2) The provision in article 334 isreserved.

II – Vacancy on the board

Article 363 - (1) Without prejudice tothe provision in article 334, in case of avacancy on the board due to any reason whatsoever, the board of directors shall elect a person, whomeets the legal requirements, as aboard member on temporary basis and

submit him/her to the approval of thefirst general assembly. The memberwho is elected in this way shall perform his/her duties until the generalassembly meeting at which he/she issubmitted for approval and in casehis/her membership is approved,he/she shall complete the office termof his/her predecessor.

(2) Should one of the board membersbe adjudicated bankrupt or under interdiction, or if he/she loses the legalconditions or the qualifications requiredto be a member set forth in the articlesof association, this person’s membership shall automatically terminate without requiring any proceeding.

III – Dismissal from office

Article 364 - (1) Even if the boardmembers have been assigned throughthe articles of association, in case ofreasonable grounds, despite the existence or non-existence of a relevant item on the agenda, they may,at all times, be dismissed from officeby the resolution of the generalassembly. The legal entity who is aboard member may, at any time,replace the person registered in his/hername.

(2) The provision in article 334 and theright to indemnity of the memberremoved from office are reserved.

B) Management and representationI – In general

1. Principle

Article 365 - (1) The joint stock company shall be managed and represented by the board of directors.The exceptional provisions in law arereserved.


2. Division of duties

Article 366 - (1) Every year the boardof directors shall elect a chairman andat least one vice chairman from amongits members to replace him/her in caseof his/her absence. It may be set forthin the articles of association that thechairman and the vice chairman or oneof them be elected by the generalassembly.

(2) The board of directors may establishcommittees and commissions whichmay also have board members for thepurpose of monitoring the course ofbusiness, having reports preparedregarding matters to be presented tothe board, having its decisionsenforced, or for internal audit purposes.

3. Delegation of management

Article 367 - (1) In accordance with aninternal regulation to be drawn up bythe board based on a provision to beinserted into the articles of association,the board of directors may be authorized partially or fully to delegatemanagement to one or more boardmembers or to a third party. This regulation shall organize the management of the company; it shalldefine the duties required for management, indicate their positions,and particularly specify who is subordinated to whom and who isobliged to provide information. Theboard of directors shall, upon request,inform in writing the shareholders andthe creditors who convincingly bring uptheir interests which are worthwhile toprotect of this regulation.

(2) In case the management is not delegated, the company shall be managed by all board members.

4. Commercial representatives andcommercial agents

Article 368 - (1) The board of directorsmay appoint commercial representatives and commercialagents.

5. Duty of care and duty of loyalty

Article 369 - (1) Board members andthird parties in charge of managementshall be under liability to perform theirduties with care of a precautious manager and to protect the company’sinterests in good faith.

(2) The provisions in articles 203 to 205are reserved.

II. Authority to represent

1. In general

Article 370 - (1) Unless otherwise stipulated in the articles of association,the authority to represent shall be exercised by the board of directors byaffixing two signatures.

(2) The board of directors may delegate its authority to represent toone or more executive directors or tothird parties as manager. At least oneboard member must have the authorityto represent.

2. Scope and limits

Article 371 - (1) Those who are authorized to represent may carry out,on behalf of the company, all kinds ofbusiness and legal transactions withinthe purpose and scope of activity ofthe company and may use the tradename of the company for this purpose.The company’s right to recourse aris-ing from transactions contrary to lawand the articles of association isreserved.

(2) The transactions, which are conducted with third parties outside

the scope of activity by those who areauthorized to represent, shall bind thecompany; provided it is proven that thethird party was aware that the transaction is outside the scope ofactivity or they were capable of beingaware as a requirement of the situation. The announcement of thecompany’s articles of association shallnot be solely sufficient evidence toprove this matter.

(3) The restriction on the authority torepresent shall not be effectual againstthird parties in good-faith; however, therestrictions which are registered andannounced in relation to limiting theauthority to represent solely to thebusiness of the headquarters or abranch, or to exercising thereof jointlyare valid.

(4) The fact that the transaction carriedout by persons authorized to representcontradicts with the articles of association or the general assemblyresolution shall not prevent third parties in good-faith from makingclaims arising from that transactionagainst the company.

(5) The company shall be responsiblefor torts committed by those, who areauthorized to represent or manage,while performing their duties. The company’s right of recourse isreserved.

(6) Regardless of whether or not thecompany is represented by a singleshareholder during the conclusion of acontract, in single-shareholder jointstock companies, the validity of suchcontract between this shareholder andthe company depends on the conditionthat the contract is in written form. Thisrequirement shall not apply to contracts regarding daily, insignificantand ordinary transactions according tomarket conditions.


3. Form of signature

Article 372 - (1) Persons entitled tosign on behalf of the company shallaffix their signatures under the tradename of the company. The provision inparagraph two of article 40 is reserved.

(2) The headquarters of the company,the location where it is registered andthe registration number shall be indicated in the documents to be prepared by the company.

4. Registration and announcement

Article 373 - (1) The board of directorsshall submit the notarized copy of theresolution indicating the personsauthorized to represent and the formsof representation, to the trade registryfor registration and announcement.

(2) Following the registration of theauthority to represent at the trade registry, any legal defect regarding theelection or appointment of the concerned persons may be put forwardby the company against third partiesprovided that it is proven that the legaldefect is known by these persons.

III - Duties and powers

1. In general

Article 374 - (1) The board of directorsand the management, to the extentdelegated to it, shall be authorized tomake decision with regard to all kindsof business and transactions requiredto perform the company’s scope ofactivity, excluding those which are subject to the authority of the generalassembly according to law and articlesof association.

2. Non-delegable duties and powers

Article 375 - (1) The board of directors’ non-delegable and indispensable duties and powers areas follows:

a) Top level management of the company and giving instructions in thisregard.

b) Determination of the company’smanagement organization.

c) Establishment of the necessary system for financial planning to theextent required for the management ofthe company, and for accounting andfinance audit.

d) Appointment and dismissal of managers and persons performing thesame function and authorized signatories.

e) High level supervision of whether ornot the persons in charge of management, act in accordance particularly with law, articles of association, internal regulations andwritten instructions of the board ofdirectors.

f) Keeping share book, resolution bookof the board and book of generalassembly meeting and discussion, thepreparation of the annual report andcorporate governance disclosure andsubmission thereof to the generalassembly, the organization of generalassembly meetings and enforcement ofgeneral assembly resolutions.

g) Notifying the court regarding thecompany’s state of excess of liabilitiesover assets.

3. Capital loss, excess of liabilitiesover assets

a) Liability to convoke and notify

Article 376 - (1) If it is clear in the lastannual balance sheet that half of thesum of the capital and statutoryreserves remains without counterpartdue to loss, the board of directors shallimmediately convoke the generalassembly and submit the remedialmeasures it considers appropriate.

(2) According to the last annual balance sheet, if it is clear that twothirds of the sum of the capital andstatutory reserves remains withoutcounterpart due to loss, unless thegeneral assembly which is immediatelyconvoked does not decide to fully supplement the capital or to be satisfied with one third of the capital,the company shall automatically terminate.

(3) If there are indications raising suspicions that the company’s liabilities exceed its assets, the boardof directors shall have an interim balance sheet prepared based ongoing concern value and based on liquidation value of the assets and shallgive it to the auditor. The auditor shallinspect this interim balance sheet within maximum seven business days,and shall present his/her evaluationand proposals to the board of directorsin the form of a report. The proposalsof the early detection committee regulated in article 378 must also betaken into account in the proposals ofthe auditor. If it is clear in the reportthat the assets are not sufficient tocover the receivables of creditors ofthe company, the board of directorsshall notify the commercial court of firstinstance at the location of the company’s headquarters of this situation and shall claim for bankruptcyof the company; provided that beforethe adjudication of bankruptcy, thecreditors of the company’s debts,which sums up to the amount enoughto cover the company’s deficit and toeliminate the state of excess of liabilities over assets, shall accept inwriting to be ranked after all othercreditors and that the legitimacy,authenticity and validity of this declaration or contract is verified byexperts assigned by the court whichshall be notified of the request for


bankruptcy by the board of directors.Otherwise, the application made to thecourt for an expert inspection shall beconsidered as notification for bankruptcy.

b) Postponement of bankruptcy

Article 377 - (1) The board of directorsor any creditor may request the postponement of bankruptcy by presenting to the court an improvement project pointing out theobjective and actual sources andmeasures including the new capitalcontribution in cash. In such case, articles 179 to 179/b of the Executionand Bankruptcy Law shall be applied.

4. Early risk detection and management

Article 378 - (1) For companies whoseshares are listed in the stock-exchange, the board of directors shallbe liable to set up an expert committee, to run and to develop thesystem for the purpose of early detection of the causes putting theexistence of the company, its development and continuity of thebusiness unit in danger, of applying thenecessary measures and remedies inthis regard and of managing the risk. Inother companies, this committee, ifdeemed necessary and the board ofdirectors is notified in writing, by theauditor, shall immediately be constituted and shall submit its firstreport at the end of the month following its constitution.

(2) In the report to submitted to theboard of directors bimonthly, the committee shall evaluate the situationand indicate the dangers if any, andpoint out remedies. The report shallalso be sent to the auditor.

5. Company’s acquisition of its ownshares or acceptance thereof aspledge

a) In general

Article 379 - (1) A company may notacquire and accept as pledge its ownshares in return for consideration, at anamount which exceeds or will exceedas a result of a transaction, one tenthof its basic or issued capital. This provision shall also be applicable to theshares which a third party acquires oraccepts as pledge in his/her name, butin the account of the company.

(2) In order for the shares to beacquired or accepted as pledge inaccordance with the provision in paragraph one, the general assemblymust have authorized the board ofdirectors regarding this matter. Thisauthorization which may be granted fora maximum period of eighteen monthsmust show the lower limit and upperlimit of the price which may be paid forshares to be acquired and the totalnominal values of the shares to beacquired or accepted as pledge. Theboard of directors must state in eachof its proposal for permission that thelegal requirements have been met.

(3) In addition to the requirements setout in paragraphs one and two, afterthe prices of the shares to be acquiredare deducted, the company’s remaining net assets must be at leastequal to the sum of the reserves, thatare not allowed to be distributedaccording to law and articles of association, and basic or issued capital.

(4) In accordance with the above mentioned provisions, only the shares,the prices of which have been fullypaid, may be acquired.

(5) The provisions in the paragraphsabove shall also be applied in case thatthe parent company’s shares are

acquired by its subsidiary. CapitalMarket Board shall make the necessaryregulation in terms of the rules relevantto the principles of transparency and tothe price regarding the companieswhose shares are listed in the stockexchange.

b) Evasion of law

Article 380 - (1) Legal transactionswhich the company performs with aperson for the acquisition of its sharesin regards to granting an advance, aloan or security, shall be null and void.This nullity provision shall not beapplied to transactions within thescope of activity of credit and financeorganizations and to legal transactionsin regards to granting an advance, aloan or security to the employees ofthe company or of its dependent companies for the purpose of acquiringthe company’s shares. However, theseexceptional transactions shall beinvalid if they are reducing the reserveswhich the company is obliged to allocate according to law and the articles of association, or if they violatethe rules in article 519 regarding theexpenditure of legal reserves and ifthey make it impossible for the company to allocate the legal reservesstipulated in article 520.

(2) Furthermore, a regulation betweenthe company and a third party andwhich grants this person the right toacquire the company’s own shares inthe account of the company, of itsdependent company or of a companythe majority shares of which are pos-sessed by the company, or which stipulates such a liability for this personin this regard, shall be null and void, ifthe transaction would be consideredconflicting with article 379 in casethese shares were acquired by thecompany.


c) Prevention of an imminent andserious loss

Article 381 - (1) In case it is necessaryin order to avoid an imminent and serious loss, a company may acquireits own shares in accordance with article 379, in the absence of a generalassembly resolution regarding authorization.

(2) In case the shares are acquired inthe way above, the board of directorsshall provide the first general assemblywith written information regarding,

a) Reason and purpose of the acquisition,

b) Number of acquired shares, sum oftheir nominal values and percentage ofthe capital they represent.

c) Price and terms of payment.

d) Exceptions

Article 382 - (1) A company mayacquire its own shares without beingsubject to the provisions in article 379in the following cases:

a) If it is applying the provisions of articles 473 to 475 relevant to decreasing its basic or issued capital,

b) If it is a requirement of the universalsuccession rule,

c) If such acquisition is arising from astatutory purchase liability,

d) Provided that the full price is paidand if it is aimed at the purpose of collecting a company receivablethrough execution proceedings,

e) If the company is a securities andinvestment banking company.

e) Gratuitous acquisition

Article 383 - (1) A company mayacquire its own shares gratuitously,provided that their prices are fully paid.

(2) The provision in paragraph one shall

apply by analogy also in case a subsidiary acquires shares in the parent company gratuitously.

f) Disposal

Article 384 - (1) According to the sub-paragraphs (b) to (d) of article 382and to the provisions in article 383, theacquired shares shall be disposed assoon as their transfer is possible without causing any loss to the company and in any case within threeyears as of their acquisition; unless thesum of these shares owned by thecompany and by the subsidiaryexceeds ten percent of the company’sbasic or issued capital.

g) Disposal in case of an acquisitioncontrary to law

Article 385 - (1) Shares, which areacquired or accepted as pledge in away that is contrary to articles 379 to381, shall be disposed or the pledgeon them shall be released within maximum six months from the date oftheir acquisition or acceptance aspledge.

h) Capital decrease

Article 386 - (1) Shares, that cannot bedisposed in accordance with articles384 and 385, shall be redeemed immediately through a decrease ofcapital.

ı) Provisions reserved

Article 387 - (1) Provisions in otherlaws regarding the company’s acquisition of its own shares arereserved.

i) Prohibition of subscription of itsown shares

Article 388 - (1) A company may not

subscribe its own shares.

(2) Subscription of the company’sshares by a third party or a subsidiaryin their own name but in the account ofthe company shall be considered asthe company subscribing its ownshares.

(3) In case of an act contrary to paragraphs one and two, the shares inquestion shall be considered as subscribed by the founders whileincorporating the company and by theboard members while increasing thecapital, and they shall be responsiblefor the share prices. Founders andwhile increasing the capital, the boardmembers, who have proved that theyhave no fault in the subscription whichis contrary to law, shall be exoneratedfrom responsibility.

(4) The provisions in paragraph oneand three shall be applied to the subsidiaries subscribing the shares ofthe parent company by analogy. Theshares in question shall be consideredas subscribed by the board membersof the subsidiary. Members are responsible for the share prices.

j) Exercise of rights

Article 389 - (1) The company’s ownshares acquired by the company andthe shares of the parent companyacquired by the subsidiary shall not betaken into account while calculating theparent company’s general assemblymeeting quorum. Excluding the acquisition of gratis shares, the company’s own shares taken over bythe company shall not grant any shareholding rights.

The voting right, pertaining to the parent company shares acquired bythe subsidiary, and affiliated rights shallbe suspended.


IV – Board meetings

1. Resolution

Article 390 - (1) Save as provided otherwise by an aggravating provisionin the articles of association, the boardof directors shall convene with themajority of all members and make itsdecisions with the majority of the members present at the meeting. Thisrule shall apply also in case the boardof directors convenes in an electronicenvironment.

(2) The board members may neithervote as representative of each othersnor be allowed to participate in themeeting by proxy.

(3) In case the votes are tied, that matter shall be left to the next meeting.If the votes are tied in the secondmeeting as well, the matter in questionshall be deemed to be rejected.

(4) In case one of the board membersdoes not request for an oral discussion, the board resolutions on aproposal regarding a certain mattermade by one of the members may alsobe taken by obtaining the writtenapproval of at least the majority of allmembers. Submission of the sameproposal to all members of the boardof directors is the condition for thevalidity of the resolution. Approvals arenot required to be on the same paper;however, all papers containing the signatures for approval must beattached to the board resolution bookin terms of the validity of the resolution.

(5) The resolutions shall be valid only ifthey are in written form and signed.

2. Null and void resolutions

Article 391 - (1) The court may berequested to determine that the boardresolution is null and void. Particularlyresolutions that;

a) Contradict with the principle of equaltreatment,

b) Do not comply with the basic structure of the joint stock company ordo not maintain the principle of protecting the capital,

c) Violate particularly the indispensablerights of shareholders, or restrict ormake these rights difficult to exercise,

d) Are within the non-delegable authorities of other bodies, and relevant to the transfer of these authorities are null and void.

3. Right to information and toinspect

Article 392 - (1) Each board membermay request information, ask questions, and conduct an inspectionregarding all business and transactionsof the company. Request of a boardmember for any book, record, contract,correspondence, or document to bebrought to the board meeting, inspection or discussion thereof by theboard or members, or request for information from a manager or employee concerned with any mattermay not be rejected. If rejected, theprovision in paragraph four shall apply.

(2) Persons and committees in chargeof company management, as well as allboard members, are also liable to provide information at board meetings.A member’s claim regarding this mattermay not also be rejected; his/her questions may not be left unanswered.

(3) Every board member may obtaininformation, outside of board meetings,from people in charge of managing thecompany regarding the course of busi-ness, and certain individual tasks uponpermission of the chairman of theboard, and if required to performhis/her duty, he/she may request fromthe chairman of the board the

company books and files to be submitted for his/her inspection.

(4) If the chairman rejects a member’sclaim to obtain information, to askquestions and to conduct an inspection as set forth in paragraphthree, the matter shall be brought tothe board within two days. If the boarddoes not convene or rejects this claim,the member may apply to the commercial court of first instance atthe location of the company’s headquarters. The court may reviewthe claim without hearing and deliveran order, the court’s order shall befinal.

(5) The chairman of the board may notobtain information and inspect company books and files outside of theboard meetings without permission ofthe board. In case such request of thechairman is rejected, the chairman mayapply to the court in accordance withparagraph four.

(6) The board member’s rights arisingfrom this article cannot be restricted orabolished. The articles of associationand the board of directors may extendthe members’ rights to information andto inspect.

(7) Each member of the board mayrequest from the chairman in writing toconvoke the board of directors.

4. Prohibition to participate in thediscussion

Article 393 - (1) A board member maynot participate in discussions regardingmatters which lead to a conflictbetween interests of the company andpersonal interests irrelevant with thecompany, of the member concernedand of a person of his/her lineal consanguinity or his/her spouse or oneof his/her blood and in-law relatives upto third degree, including the third


degree. This prohibition shall also beapplied in cases where acting in goodfaith requires the non-participation of aboard member in the discussion. Incases raising doubt, the decision shallbe made by the board of directors. Themember concerned may not participatein this voting either. Even if the conflictof interest is unknown to the board ofdirectors, the concerned member shallbe obliged to declare it and abide bythe prohibition.

(2) The board member who acts contrary to these provisions, memberswho do not object to the participationof the concerned member in the meeting while the conflict of interestobjectively exists and is known andboard members who decide in favor ofthe participation of the said member inthe meeting shall be liable to compensate the damages incurred bythe company for this reason.

(3) The reason for non-participation inthe discussion due to prohibition andrelated transactions shall be written inthe resolution of the board of directors.

V – Pecuniary rights of board members

Article 394 - (1) Provided that theamount is determined by the articles ofassociation or the general assemblyresolution, board members may bepaid honorarium, salary, bonus, premium and a portion of the annualprofit.

VI –Prohibition to conduct transaction with the company, tobecome indebted to the company

Article 395 - (1) The board membermay not conduct any transaction withthe company in his/her or any otherperson’s name without obtaining permission from the general assembly;

otherwise, the company may claim thatthe transaction conducted is null andvoid. The counter party may not makesuch a claim.

(2) The board member, his/her relativesspecified in article 393, the personalcompanies of which the said memberand his/her relatives in question arepartners, and capital stock companiesin which they have at least twenty percent shareholding may not becomeindebted in cash or in kind to the company. The company may not provide surety, guarantee or securityfor these persons, undertake liability,and take over their debts. Otherwise,for the amount owed to the company,the creditors of the company may startexecution proceedings directly againstthese people for the debt of the company at an amount for which thecompany is rendered liable.

(3) Provided that the provision in article202 is reserved, companies included inthe group of companies may providesurety and guarantee for each other.

(4) Special provisions of Banking Laware reserved.

VII –Non-compete obligation

Article 396 - (1) Any board membermay not conduct any transaction of acommercial nature falling under thescope of activity of the company inhis/her account or any other person’saccount without obtaining permissionof the general assembly and he/shemay not participate in a companyinvolved in the same kind of commercial business as a partner withunlimited liability as well. The companyshall be free to claim for compensationfrom the board members acting contrary to this provision, or instead ofcompensation, be free to consider thetransaction conducted as made in the

name of the company and to file a lawsuit and claim that benefits arisingfrom contracts made in the account ofthird parties belong to the company.

(2) The board members other than theone who has acted in contrary to theprovision in paragraph one shall havethe right to choose one of such rights.

(3) These rights shall become statutebarred after three months from thedate on which the other board members learned that the said commercial transactions have beenconducted or that the board memberhas participated in another company,and in any case one year after theywere conducted.

(4) The provisions relevant to theresponsibilities of board members arereserved.

SECTION THREEAudit

A) In general

Article 397 - (1) The financial statements of the joint stock companyand group of companies shall be audited by an auditor in accordancewith Turkish Auditing Standards whichis in compliance with internationalauditing standards. Whether the financial information included in theboard of directors’ annual report isconsistent with the audited financialstatements and whether they have atrue and fair view, fall within the scopeof auditing.

(2) The financial statements and theboard of directors’ annual report whichhave not been audited by the auditorshall be considered as not prepared.

(3) If the company’s and group of companies’ financial statements andthe board of directors’ annual report


have been revised after the submissionof the audit report, and if the revision isof a nature that may effect the auditreports; the financial statements andwithin the context of paragraph one theboard of directors’ annual report shallbe re-audited. Re-audit and its resultshall particularly be explained in thereport. Appropriate annexes reflectingthe re-audit shall also be included inthe auditor’s opinion (letter).

B) Subject and scope

Article 398 - (1) The audit of the company’s or group of companies’financial statements, of the annualreports of their boards of directors;including inventories, shall cover theaudit of the internal accounting auditsof financial statements within thescope of Turkish Auditing Standards,of the reports submitted in accordancewith article 378 within the framework ofthis Section Three and of the board ofdirectors’ annual report in terms ofparagraph one of article 397. The auditof the company’s and group of companies’ financial statements andthe annual reports of their boards ofdirectors shall also include the inspection of whether or not they are incompliance with Turkish AccountingStandards, law and the provisions ofthe articles of association. Auditingshall be conducted with care and inaccordance with the requirements ofthe auditing profession, the professional ethics and TurkishAuditing Standards. Auditing shall becarried out in a way that expressly putsforward whether or not the position ofthe company or group of companies isreflected in accordance with the “trueand fair view” principle; if not, its reasons; the contradictions and errorsin terms of the second sentence ofparagraph one, and shall fairly indicatethe truth.

(2) Audit shall be conducted in a waythat will specify and declare whether ornot

a) The company’s financial statementsand the board of directors’ annualreport within the framework of paragraph one of article 397 and paragraph two of article 402;

b) The group of companies’ consolidated financial statements andthe board of directors’ annual reportwithin the framework of paragraph oneof article 397 and paragraph two ofarticle 402

are in accordance with the informationthe auditor obtained during auditing.

(3) The auditor who is responsible forthe audit of the group of companies’financial statements shall inspect thefinancial statements of the companiesincluded in the group of companies’consolidated financial statements, andparticularly the adjustments and thedeductions arising from consolidationin terms of paragraph one; providedthat the company included in the consolidation, is audited in accordancewith the provisions of this Section, as arequirement of law or without suchrequirement. This exception shall alsobe applicable in case that a company,having its headquarters abroad, hasbeen subject to an audit which isequivalent to the audit set forth by thisCode.

(4) The auditor shall prepare a separatereport explaining whether or not, inaccordance with article 378, a system,which is appropriate to determine therisks on time that threaten or maythreaten the company owing to thereason that the financial statements donot fairly reflect the actual view, hasbeen established by the board of directors, and if installed the structureand applications of the system, and

shall submit it to the board of directorswith the audit report.

C) The auditor

I - Election, dismissal and termination of the contract

Article 399 - (1) The auditor shall beelected by the company’s generalassembly; the auditor of the group ofcompanies shall be elected by the parent company’s general assembly.The auditor must be elected for everyactivity period and in any case beforethe end of the activity period in whichhe/she will perform his/her duty. Afterthe election, the auditor who has beengiven the duty to audit by the board ofdirectors shall be registered at thetrade registry without delay and beannounced in Turkish Trade RegistryGazette and on its website by theboard of directors.

(2) The auditor shall be dismissed fromhis/her duty to audit only in the mannerset forth in paragraph four and provided that another auditor has beenappointed.

(3) The auditor who is elected to auditthe financial statements of the parentcompany included in the consolidationshall also be considered as the auditorof the financial statements of the groupof companies unless another auditor iselected.

(4) Upon the claim of

a) The board of directors,

b) The shareholders representing tenpercent of the capital; in public companies, shareholders representingfive percent of the basic or issued capital;

in case that a fair cause pertaining tothe personality of the elected auditorrequires and particularly in case of asuspicion that he/she is acting subjectively, the commercial court of


first instance at the location of thecompany’s headquarters may appointanother auditor by hearing the concerned parties and the electedauditor.

(5) The action regarding dismissal andappointment of a new auditor shall befiled within three weeks from the dateon which the auditor election has beenannounced in Turkish Trade RegistryGazette. In order for the minority shareholders to file this action, it isrequired that they have voted againstthe election of the auditor at the general assembly, that they had theiropposing votes recorded in the minutes and that they have been in theposition of the company’s shareholderfor at least three months prior to thedate of the general assembly at whichthe election was made.

(6) If an auditor has not been electedwithin the first four months of the activity period, an auditor shall beappointed by the court specified inparagraph four, upon the request of theboard of directors, of each member ofthe board or of any shareholder. Thesame provision shall also apply incases that the elected auditor rejectsthe position or terminates the contract,that the resolution for his/her appointment is cancelled, declared nulland void, or that the auditor fails toperform his/her duty due to legal reasons or any other reason, or thathe/she is prevented from performinghis/her duty. The order of the courtshall be final.

(7) In the event that the auditor isappointed by the court, the advancepayment required to be paid to thecourt treasurer for his/her fee and possible expenses shall be determinedby the court by taking similar casesinto consideration. An objection to thefee and the expenses may be made

within three business days. The orderof the court shall be final.

(8) The auditor may terminate theauditing contract only in case of existence of a just cause or only if anaction for his/her dismissal has beenfiled. The conflict regarding the contentof letter of opinion, a qualified opinionand a disclaimer of opinion letter maynot be deemed as just cause. The termination of the contract by the auditor must be justified and in writing.The auditor shall be liable to submit theresults, he/she obtained until the dateof termination, to the general assemblyand these results shall be presented tothe general assembly in form of areport complying with article 402.

(9) In case the auditor gives a notice oftermination in accordance with the provision in paragraph six, the board ofdirectors shall immediately elect a temporary auditor, and shall inform thegeneral assembly of the terminationnotice and present the auditor electedby the board for the approval of thegeneral assembly.

II – Persons who may be auditors

Article 400 - (1) The auditor may onlybe an independent auditing firm whoseshareholders hold the title of swornfinancial adviser or independent accountant financial adviser (YMM orSMMM). Small and medium sized jointstock companies may elect one ormore sworn financial adviser or independent accountant financialadviser as auditor. The incorporationand performance rudiments of independent auditing firms and thequalifications of auditing personnelshall be arranged by a regulation thatshall be drawn up by the Ministry ofIndustry and Commerce and put intoeffect by the Council of Ministers. Incase one of the following situations

exists, sworn financial adviser (YMM),independent accountant financialadviser (SMMM), the independentauditing firm and one of its shareholders, and persons workingwith its shareholders or person(s) withwhom the persons mentioned in thissentence are working together may notbe an auditor in the concerned company. Such that, if one of thosementioned in the previous sentence;

a) Is a share holder in the company tobe audited;

b) Is a managing director or an employee of the company to be audited, or have held this title withinthe last three years before appointedas auditor;

c) Is the statutory representative orrepresentative, board member, managing director or owner or shareholder owns more than twentypercent of the shares of a legal entity,of a commercial company or of a commercial enterprise having a connection with the company to beaudited; or if he/she is a lineal consanguinity or is spouse or one ofblood and in-law relatives up to thirddegree, including the third degree of aboard member or a managing directorof the company to be audited;

d) Is working in an enterprise which isin connection with the company to beaudited or which has more than twentypercent of the shares in such a company, or is working for a real person holding more than twenty percent of the shares in the companyof which he/she is to be the auditor.

e) has been active in or contributed tobookkeeping or organizing the financialstatements of the company to beaudited, without carrying out the dutyto audit;


f) Is the statutory representative, representative, employee, board member, partner, owner of the legalentity or real person, or of one of itsshareholders, who may not be theauditor in accordance with paragraph(e) or is personally him/herself as thereal person due to being active in orcontributed to bookkeeping or organizing the financial statements ofthe company to be audited, withoutcarrying out the duty to audit;

g) Works for an auditor who may notbe an auditor because of meeting theconditions in paragraphs (a) to (f);

h) Has earned more than thirty percentof his/her total income, which is arisingfrom his/her occupational activitiesrelated to auditing within the last fiveyears, from his/her auditing and consulting activities provided for thecompany to be audited, or to companies who have participated insuch company through a shareholdingcorresponding more than twenty percent of the capital and if it isexpecting to earn the same in the current year;

may not be an auditor; however, if anintolerable situation occurs, the Unionof Chambers of IndependentAccountant Financial Advisers andSworn Financial Advisers of Turkeymay give an approval to repeal the prohibition in paragraph (h) for a definite limited time.

(2) If an auditor appointed by an independent auditing firm to audit acompany has given auditing reports forthat company for seven consecutiveyears, that auditor shall be replaced forat least two years.

(3) The auditor may not provide consultancy or other services otherthan tax consultancy and tax auditingfor the company he/she audits and

he/she may not provide such servicesthrough one of its subsidiaries.

(4) The provisions in this article shallalso apply to operational auditors setforth in article 554. Unless otherwiseset forth in law or in the articles ofassociation, the operational auditorshall be appointed and removed fromoffice by the general assembly.

D) Liability of presentation and rightto information

Article 401 – (1) The company’s boardof directors shall have the financialstatements and the annual report ofboard of directors prepared and shallapprove and submit it to the auditorwithout delay. The board of directorsshall provide the auditor with necessary conditions for auditing viainspection of books, correspondences,documents, assets, debts, safe, negotiable instruments and inventory ofthe company.

(2) The auditor and within the framework of the auditing scope theoperational auditor shall request theboard of directors to provide all information necessary for a lawful andmeticulous auditing and to presentdocuments that could be underpinning.The auditor shall have the authorizations set forth in second sentence of paragraph one and firstsentence of this paragraph before thefinancial statements are prepared ifnecessary for the planning of year-endaudit. In case it is necessary for ameticulous auditing, the auditor mayalso use the authorities in first and second sentences of this paragraph forsubsidiaries or parent companies.

(3) The board of directors of the company which is responsible for having the consolidated financial statements prepared, shall be obliged

to provide the auditor that will audit theconsolidated financial statements withgroup of companies’ financial statements, group of companies’ annual report, individual company’sfinancial statements, board of directors’ annual reports of the companies; if an auditing has beenconducted, the auditing reports of parent company and subsidiaries. Theauditor may use the authorities setforth in first and second sentences ofparagraph one for parent companiesand subsidiaries.

E) Audit report

Article 402 – (1) The auditor will prepare a report in necessary clarityand written in an understandable andsimple language, regarding the financial statements and the type,scope, characteristic and results of theaudit, in comparison with the previousyear.

(2) In a separate report other than theone above, the examinations includedin the annual report of board of directors regarding the company’s orgroup of companies’ condition shall beevaluated by the auditor in terms ofconsistency with the financial statements and its coherence withtruth.

(3) The auditor shall base his evaluation on the company’s financialstatements while his audit is based onthe parent company’s and group ofcompanies’ financial statements. Theauditor shall evaluate the board ofdirectors’ examinations regarding theconditions for the continuity of thecompany’s and the group of companies’ existence, and development thereof within the framework indicated by the relevantworking and reporting standards set


forth in Turkish Auditing Standards andto the extend that the audited documents render it possible. In thereport, the followings shall also beexplained during the audit:

a) Whether or not there are errorsregarding the application of TurkishAccounting Standards,

b) Uncertainties determined within theframework of the necessities set forthin the standards with regard to goingconcern principle of enterprise, whichis mentioned in Turkish AuditingStandards, and the facts that risk thecontinuity of enterprise.

(4) In the main section of the auditreport, the followings shall clearly bestated:

a) Whether or not the bookkeepingmethod, the financial statements andgroup of companies’ financial statements are consistent with the provisions of law and of the articles ofassociation with regard to financialreporting,

b) Whether or not the board of directors provided the explanationsand the documents requested by theauditor within the context of audit.

(5) Additionally, whether or not thefinancial statements and the books onwhich such statements are based:

a) were kept in accordance with stipulated chart of accounts,

b) reflect the company’s assets, financial and profitability position inaccordance with true and fair viewprinciple.

(6) If an evaluation has been made inaccordance with paragraph four of article 398 within the framework of theaudit, its result shall be declared in aseparate report.

(7) The auditor shall sign his/her reportand submit it to the board of directors.

F) Opinion letter

Article 403 – (1) The auditor shall indicate the result of the audit by anopinion letter. This letter shall includethe auditor’s evaluation concerning theresult as well as the subject, type,characteristic and scope of the audit. Ifthe auditor gives a clean/unqualifiedopinion, in his letter he/she shall statethat no conflicts were determined; thataccording to the information obtainedduring audit and to the evaluation hehas conducted in accordance withTurkish Accounting Standards, thefinancial statements of the company orgroup of companies are correct andthat gives a true and fair view of thecompany’s and group of companies’assets, financial and profitability position in the audit in accordance witharticle 398.

(2) In the opinion letter, it shall be additionally stated that the board ofdirectors is not in a position whichrequires it to be held responsible andthe problems shall also be indicated ifany. The wording of the opinion mustbe understandable to everyone.

(3) If the auditor has reservations, hecan put restrictions on a clean opinionletter (a qualified opinion) or express anadverse opinion letter. Qualified opinion shall be expressed wherefinancial statements can be correctedby authorized committees and in presence of conflicts that have limitedeffect on the result explained in thefinancial statements. The subject andscope of restriction and the way of correction must be clearly stated in theletter.

(4) The auditor may refrain fromexpressing an opinion, without havingto provide any proof but only byexplaining the reasons, if there areuncertainties to the extend that not

allowing the auditing to be conductedin accordance with the provisions inthis Section and to achieve results, or ifthere are major restrictions applied bythe company during auditing.Disclaimer of opinion shall result in theconsequences of adverse opinion.

(5) In cases where qualified andadverse opinion letters have beenexpressed or in case of disclaimer ofopinion, the general assembly, basedon the said financial statements, maynot adopt any resolution directly orindirectly with regard to the reportedprofit and loss. In such cases, board ofdirectors shall convoke the generalassembly within two business daysfrom the date of the opinion and shallresign to be effective on the date of themeeting. General assembly shall electa new board of directors. This boardshall have the financial statements prepared in accordance with law, thearticles of association and standardswithin six months and shall submit it tothe general assembly together with theauditing report.

G) Auditor’s responsibility regardingconfidentiality

Article 404 – (1) Auditors, operationalauditors and special auditors, theirassistants and their representativeswho assist the independent auditingfirm in conducting the audit, are underobligation to conduct the audit in ahonest and unbiased way and not todisclose the company’s secrets. Thepersons in question may not, withoutpermission, use business and operation secrets related to the auditwhich they learn while performing theirduties. Those who breach their obligations deliberately or by negligence, shall be responsible to thecompany and if they cause damage to


the dependent companies. If there ismore than one person who caused thedamage, they shall be severallyresponsible.

(2) Compensation for the damages, upto one hundred thousand Turkish Lirasfor each audit, and up to three hundredthousand Turkish Liras for the jointstock companies share certificates ofwhich are listed in the stock exchange,may be awarded against the personswho are negligent while performingtheir obligations set forth in paragraphone. This limitation which is related tothe persons who caused damage bynegligence shall be applied in case thatmore than one person is involved inaudit or that more than one action giving rise to the responsibility havebeen performed and such limitationshall also be applicable if some of theinvolved persons have acted intentionally.

(3) If the auditor is an independentauditing firm, the confidentiality obligation shall be applicable to theboard of directors, board members andemployees of such firm.

(4) The obligation to compensate arising from this provision may neitherbe cancelled nor limited by a contract.

(5) Claims related to the auditor’sresponsibilities arising from this article,shall be barred by the statute of limitation after 5 years starting from thereporting date. However, if the act is acrime, and if according to TurkishPenal Law it is subject to longer statueof limitation, this statute of limitationshall apply to the action for compensation.

(6) The provisions in penal legislationwith regard to crime reporting arereserved.

H) Divergence of opinions betweenthe company and the auditor

Article 405 – (1) The commercial courtof first instance at the location of theheadquarters of the company, uponthe request of the board of directors orthe auditor, shall award a judgmentwithout hearing regarding the divergence of opinions between thecompany and the auditor concerningthe year-end accounts, financial statements of the company and thegroup of companies and annual reportof the board of directors and concerning interpretation or implementation of administrative actsor provisions in the articles of association. The judgment shall befinal.

(2) Legal costs shall be borne by thecompany.

I) Audit by special auditor for relations of group of companies

Article 406 – (1) Upon request of anyshareholder, the commercial court offirst instance at the location of theheadquarters of the company mayappoint a special auditor to inspect thecompany’s relations with the controlling company or with one of thecompanies dependent to the controlling company if;

a) The auditor has expressed a qualified opinion or disclaimer of opinion letter about the relations of thecompany with the controlling companyor with the group companies,

b) The board of directors has disclosedthat the company has suffered lossesby the group of companies due to certain legal transactions or appliedmeasures and that compensation hasnot been made as the consequence.

PART SIXPARTNERSHIP WITH LIMITED LIABILITY

SECTION ONEDefinition and Incorporation

A) Concept

Article 573 – (1) A partnership with limited liability shall be incorporated byone or more real persons or legal entities under a trade name; its basiccapital shall be definite and consist ofthe sum of basic capital shares.

(2) Partners shall not be responsible fordebt of partnership, they shall only beresponsible for paying the basic capitalshares they subscribed, and for fulfilling their obligations to make additional payments and for secondaryperformances set forth in the articles ofassociation.

(3) Partnership with limited liability maybe incorporated for all kinds of economic purposes and scopes thatare not prohibited by law.

B) Number of partners

Article 574 – (1) Number of partnersmay not exceed fifty.

(2) If the number of partners is down toone, the situation shall be reported tomanagers within seven days as of thedate of the transaction that caused thisresult. The managers shall, withinseven days as of being notified, register and announce that the partnership is a single-member partnership with limited liability, andname, surname, nationality and domicile of the single partner; otherwise the managers shall beresponsible for damages to beincurred. The managers shall fulfill thesame obligation where the partnershipis incorporated with a single partner.


(3) The partnership may not acquire itsown basic capital shares if it willbecome a single member partnership.

C) Articles of association

I – Form

Article 575 – (1) The articles of association must be drawn up in written form and the signatures of thefounders must be approved by notarypublic.

II – Content

1. Mandatory entries

Article 576 – (1) The following entriesmust be clearly stated in the articles ofassociation;

a) Partnership’s trade name and location of the headquarters.

b) Scope of activity of the partnership,with main points expressed anddefined.

c) Nominal value of basic capital, number of basic capital shares, theirnominal values, privileges if any,groups of basic capital shares.

d) Names, surnames, titles and nationalities of the managers.

e) Form of announcements to be madeby the partnership.

2. Provisions binding on the condition that they are stipulated inarticles of association

Article 577 – (1) The following entriesare binding provisions if they are setforth in the articles of association;

a) Regulations diverging from statutoryprovisions regarding the restriction oftransfer of basic capital shares.

b) Granting the right of being the firstto be offered for subscription, of firstrefusal, redemption and acquisition,

regarding basic capital shares, to thepartners or the partnership.

c) Imposing additional payment obligations, the form and scope thereof.

d) Imposing secondary performance liabilities, the form and scope of thereof.

e) Provisions granting veto right to designated partners or partners thatcould be designated, or superior votingright to certain shareholders in case oftie vote as consequence of voting on ageneral assembly resolution.

f) Penalty provisions that can beapplied when liabilities set forth in lawor in the articles of association are notfulfilled at all or in time.

g) Provisions with regard to non-compete obligation, diverging fromstatutory regulation.

h) Provisions granting privileged rightswith regard to convoking generalassembly.

›) Provisions, diverging from statutoryregulation, with regard to making decisions at general assembly, votingright and calculation of voting right.

i) Authorization provisions with regardto assignment of partnership management to a third party.

j) Provisions diverging from law, withregard to using balance sheet profit.

k) Granting the right to withdraw andits exercise conditions, the type andthe amount of cash payment for withdrawal to be made in such cases.

l) Provisions indicating special reasonswith regard to dismissal of a partnerfrom the partnership.

m) Provisions regarding termination reasons other than those defined in law.

3. Capital in kind, acquisitions inkind and special benefits

Article 578 – (1) Provisions concerningjoint stock companies shall apply tocapital in kind, acquisition of enterprises and of non-monetaryassets, and special benefits.

4. Mandatory provisions

Article 579 – (1) The articles of association may diverge from the provisions of this Code related to partnership with limited liability, only ifit is clearly permitted by law. The articles of association’s provisions,which are complementary in nature andare allowed by other laws to be stipulated, shall be effectual specificallyfor that law.

D) Capital

I – Minimum amount

Article 580 – (1) Basic capital of part-nership with limited liability shall be atleast twenty five thousand TurkishLiras.

(2) The minimum amount stated in thisarticle may be increased to as high asten times by the Council of Ministers.

II – Capital in kind

Article 581 – (1) Assets, including intellectual property rights and virtualenvironments and also names, whichcan be appraised and be transferredand on which there is not any restricted real right, attachment ormeasures, may be contributed as capital in kind. Service performances,personal labor, commercial reputationand undue receivables may not becontributed as capital.

(2) Provision in article 127 is reserved.


III – Value of assets and founderbenefits

Article 582 – (1) Cost of assets purchased by the founders for the partnership with regard to incorporation of the partnership andthe benefits granted to those whoserved for incorporation of the partnership shall be indicated in thearticles of association.

(2) Provision in article 128 is reserved.

E) Basic capital shares

Article 583 – (1) Nominal values of thebasic capital shares may be determined in the articles of association as at least twenty fiveTurkish Liras. It may be set below thisvalue in order to improve the partnership’s status.

(2) Nominal values of the basic capitalshares may be different. However, thevalue of basic capital shares must betwenty five Turkish Liras or its multiples. Calculation of a vote, granted by a basic capital share, as pernominal value pursuant to article 618does not mean division of basic capitalshares. The same provision shall bealso valid for situations where a right orliability is defined according to nominalvalue.

(3) A partner may own more than onebasic capital share.

(4) Basic capital shares may be issuedat nominal value or at a value exceeding it.

(5) The value of basic capital sharesshall be paid as set forth in articles ofassociation, in cash or in kind, or byexchanging a receivable or, as in capital increase, by conversion of freelyutilized equity into basic capital.

F) Redeemed shares

Article 584 – (1) Issuance of redeemedshares may be stipulated in the articlesof association; provisions with regardto joint stock companies shall apply byanalogy.

G) Incorporation

I – Establishment of the company

Article 585 – (1) The partnership shallbe established when the founders disclosed their will to incorporate apartnership with limited liability in thearticles of association drawn up inaccordance with law, subscribed thewhole capital unconditionally, and paidthe amount to be contributed in cashfully and immediately. Paragraph oneof article 588 is reserved.

II – Registration

1. Request

Article 586 – (1) After preparation ofarticles of association as set forth inarticle 575, application for registrationshall be filed with the trade registrywhere the headquarters is located.

(2) The application shall be signed byall managers. The following documentsshall be enclosed to the application:

a) A certified copy of the articles ofassociation.

b) Founder’s declaration drawn up inaccordance with article 349 with itsannexes, and operational auditor’sreport prepared in accordance witharticle 351.

c) The document indicating the persons authorized to represent thepartnership, together with their domiciles and the elected auditor.

(3) The following entries shall be inserted into the application:

a) Names, surnames, or titles,

domiciles, nationalities of all partners.

b) Basic capital share committed byeach partner and total amount theypaid.

c) Names, surnames and titles of themanagers whether he/she is a shareholder or a third party.

d) Representation method of the partnership.

2. Registration and announcement

Article 587 – (1) The whole articles ofassociation shall be registered at thetrade registry, where the headquartersof the partnership is located, and beannounced in Turkish Trade RegisterGazette within thirty days from the certification of the founder’s signaturesby notary public. Paragraph one of article 36 shall not be applied to theregistered and announced articles ofassociation except the following;

a) Date of the articles of association.

b) Trade name and headquarters of thepartnership

c) Scope of activity of the partnership,with its fundamental points specifiedand defined; duration of the partnership if there is such a provisionin the articles of association.

d) Nominal value of basic capital.

e) Name, surname and domicile of realperson partner and trade name, head-quarters of the legal entity partner andbasic capital shares that each partnercommitted.

f) Capital in kind items and basic capital shares to be given in return forsuch capital; in case of acquisition inkind, the subject and counter party ofthe relevant contract, counter performance undertaken by the partnership; content and value of special benefits.


g) If stipulated, number of redeemedshares and content of rights granted tothem.

h) Names, surnames or titles and domiciles of managers and other persons authorized to represent thepartnership.

›) The way of exercising the authority torepresent.

i) Auditor’s domicile, headquarters,branch registered at the trade registry,if any; if the auditor is a sworn financialadviser or independent accountantfinancial adviser (YMM or SMMM),his/her name, surname, domicile, tradeassociation number.

j) Privileges, additional liabilities or secondary performance liabilities,being the first to be offered for subscription regarding basic capitalshares, right of first refusal, redemptionand purchase set forth in the articles ofassociation.

k) Form and type of announcements tobe made by the partnership, and theform of notification to be made to thepartners by the managers, if there issuch a provision in the articles of association.

III – Legal personality

Article 588 – (1) The partnership shallacquire a legal personality upon registration at the trade registry.

(2) If not accepted by the partnership,incorporation expenses shall be covered by the founders. They shall nothave the right to recourse to the partners.

(3) Persons, who have conductedtransactions on behalf of the partnership before the registration,shall be responsible for these transactions personally and severally.

(4) If it is clearly stated that such kindsof commitments have been made onbehalf of the partnership to be incorporated and if those are acceptedby the partnership within three monthsfrom the registration of the partnershipat the trade registry, only the partnership shall be responsible forthem.

SECTION TWOAmendment to the Articles ofAssociationA) In general

Article 589 – (1) Unless otherwise provided in the articles of association,the articles of association may beamended by the resolution of the partners representing two thirds ofbasic capital. The provision in article621 is reserved.

(2) Any amendment made to articles ofassociation shall be registered andannounced.

B) Special amendmentsI – Increase of basic capital

1. Principle

Article 590 – (1) Basic capital may beincreased provided that the increase ismade in accordance with the provisions regarding incorporation ofthe partnership and especially with therules regarding contribution of capitalin kind and acquisition of an enterpriseand non-monetary assets.

2. Pre-emptive right

Article 591 – (1)Unless provided otherwise in the articles of associationor resolution of capital increase, everypartner shall have the right to participate in the increase of basiccapital at the ratio of their basic capitalshares.

(2) The pre-emptive right of the partners in relation with the acquirement of new shares may berestricted or cancelled by the generalassembly resolution regarding capitalincrease, only in case of just cause andby the quorum set forth in sentence (e)of paragraph one of article 621.Especially, acquisition of a businesses,parts thereof, subsidiaries and participation of employees in the partnership may be accepted as a justcause. Any person may not be unfairlyconferred benefit on or incurred lossdue to the restriction or the cancellation of preemptive rights.

(3) Pre-emptive rights shall be exercised within at least fifteen days.

II – Decrease of basic capital

Article 592 – (1) The provisions withregard to the decrease of basic capitalof joint stock companies shall apply topartnerships with limited liability byanalogy. Basic capital may only bedecreased in order to rehabilitate thebalance-sheet insolvency and in casethe additional payment obligations setforth in articles of association are fullymet.

SECTION THREE

Rights and Duties of PartnersA) Basic capital share as a subject oftransactionsI – In general

Article 593 – (1) Excluding the situations set forth in paragraph 2 ofarticle 612 regarding acquisition ofbasic capital share by the partnership;including the transfers between thepartners, the basic capital share mayonly be transferred or inherited, inaccordance with the provisions below.


(2) Basic capital share shall be issuedas a proof instrument or as registeredshare certificates. Additional paymentor secondary performance liabilities,non-compete obligation which isaggravated or formulated as to coverall partners, rights of being the first tobe offered for subscription, first refusal,redemption and purchasing set forth inthe articles of association must beclearly indicated on these bonds.

II – Share register book

Article 594 – (1) The partnership shallkeep a share register book whichincludes basic capital shares. Names,addresses and number of basic capitalshares of each partner, transfers andtransitions, nominal value, groups ofbasic capital shares, and usufruct andpledge rights on basic capital shares,names and addresses of the holder ofsuch rights shall be recorded in thisbook.

(2) Partners may inspect the share register book.

III –Transition circumstances ofbasic capital shares

1. Transfer

Article 595 – (1) Transfer of basic capital share and the transactions giving rise to transfer obligations shallbe made in written form and parties’signatures shall be certified by publicnotary. Additionally, additional paymentor secondary performance liabilities; ifnon-compete obligation is aggravatedor extended as to cover all partners,this issue and rights of being the firstto be offered for subscription, firstrefusal, redemption and purchasing,and conditions of contractual penaltiesshall be stated in the transfer contract.

(2) Unless provided otherwise in thearticles of association, the approval of

general assembly shall be required fortransfer of basic capital share. Transfershall be valid upon this approval.

(3) Unless a provision to the contrary isprovided in the articles of association,general assembly may reject toapprove the transfer without disclosingany reason.

(4) Transfer of capital shares may beprohibited through the articles of association.

(5) If the articles of association hasprohibited the transfer of shares orgeneral assembly has rejected toapprove such transfer, the partner’sright to withdraw from the partnershipby providing a just cause, shall bereserved.

(6) Provided that additional payment orsecondary performance liabilities areset forth in the articles of associationand if the security, which has beenrequested from the transferor becausehis/her ability to pay seems questionable, has not been provided,the general assembly may reject toapprove the transfer even if a provisionin this regard has not been stipulatedin the articles of association.

(7) The approval shall be considered asgiven if the general assembly has notrejected within three months from theapplication.

2. Inheritance, marital property andexecution Article 596 – (1) In case ofbasic capital share being transferredthrough inheritance, provisions regarding marital property, or executionproceedings, all rights and debts shall,without any need for general assemblyapproval, be transferred to the personwho acquires the basic capital share.

(2) The partnership may reject toapprove the person to whom the basic

capital shares have been transferred,within three months as of being awareof the acquisition. Therefore, the partnership must offer to the person,who obtained the shares, to acquirethe shares at its actual value in theaccount of him/herself or his/her partner or a third party indicated byhim/her.

(3) Resolution regarding rejection shallbe retroactively effective from the dateon which the transfer was made.Rejection shall not affect the validity ofgeneral assembly resolutions adoptedwithin the period elapsed until the resolution in this regard was made.

(4) The transition of basic capital shareshall be considered as approved, if thepartnership has not clearly rejected thetransition in writing within threemonths.

3. Determination of the actual value

Article 597 – (1) In cases where actualvalue is set forth for basic capital shareprice in law or the articles of association and if the parties have notbeen able to agree, such value, uponrequest of one of the parties, shall bedetermined by the commercial court offirst instance where the headquarters islocated.

(2) The court shall divide the expensesregarding the trial and the valueassessment, at its own discretion. Thecourt order shall be final.

4. Registration

Article 598 – (1) The partnership managers shall apply to the trade registry for registration of transition ofbasic capital shares,

(2) In case that the application has notbeen made within thirty days, the outgoing partner may apply to the


trade registry to erase his/her namewith regard to these shares.Thereupon, the registry manager shallgrant a period to the partnership fornotification of the acquiring person’sname.

(3) The trust of the person in good-faithwho confided in the trade registryrecords shall be protected.

IV – Basic capital share owned bymore than one partner, variousrights on this share

1. Co-ownership

Article 599 – (1) In case that a basiccapital share is owned by more thanone partner, co-owners shall be severally liable to the partnership foradditional payment or secondary performance liabilities set forth in thearticles of association.

(2) Co-owners may exercise their rightsarising from basic capital share onlythrough a common representative thatthey will appoint.

2. Usufruct and pledge rights

Article 600 – (1) The provisions regarding the transition of basic capitalshare shall be applied to the establishment of usufruct right on abasic capital share.

(2) Establishment of pledge right onbasic capital share may be subjectedto the approval of the general assembly via articles of association. Insuch case, transition provisions shallapply. The general assembly may, onlyin the presence of just cause, refrainfrom approving the establishment ofpledge right.

(3) In case of existence of a usufructright on a basic capital share, the shareshall be represented by usufruct rightowner; in such case, if the owner of

usufruct right does not protect the benefits of basic capital share ownerin a just manner, he/she shall be liablefor compensation.

B) Prohibition to refund

Article 601 – (1) Except for thedecrease of basic capital, neither basiccapital share price can be refunded,nor can the partners be released of thisdebt.

C) Responsibility of the partnership

Article 602 – (1) The partnership shallbe responsible for its debts only withits assets.

D) Additional payment and secondary performance liabilities

I – Additional payment liability

1. Principle

Article 603 – (1) Partners may also beheld liable for additional payment otherthan the basic capital share price, viaarticles of association. Partners mayonly be requested to fulfill this liabilityin cases that;

a) Sum of basic capital and statutoryreserves do not cover the partnership’slosses;

b) It is not possible for the partnershipto carry out its business properly without such additional instruments,

c) A situation which is defined in thearticles of association and whichresults in a need for equity.

(2) In case of adjudication of bankruptcy, additional payment liabilityshall become due.

(3) Additional payment liability may beset forth in the articles of associationonly as a certain amount, based on thebasic capital share. This amount maynot exceed two times the basic capitalshare’s nominal value.

(4) Each partner shall be only liable topay their part of the additional paymentapplicable to their basic capital share.

(5) If conditions have been met, additional payments shall be requestedby the managers.

(6) Additional payment liability mayonly be mitigated or cancelled, if thesum of the basic capital and statutoryreserves fully cover the losses. Theprovisions regarding the decrease ofbasic capital shall apply to mitigationor cancellation of additional paymentliability, by analogy.

2. Continuity of liability

Article 604 – (1) If the partnership hasgone into bankruptcy within two yearsafter the registration of the outgoingpartner, the partnership may requestfulfillment of the additional payment liability also from that outgoing partner.

(2) If the additional payment liabilityhas not been fulfilled by the successor,the liability of the partner shall continueto the extent that he/she could havebeen held liable at the date on whichsuch liability occurred.

3. Refund

Article 605 – (1) In order that additionalpayment liability which has been fulfilled is to be refunded fully or partially, freely utilized reserves andfunds must be enough for the amountof additional payment and such circumstance must be confirmed bythe operational auditor.

II – Secondary performance liability

Article 606 – (1) Secondary performance liabilities that can servethe partnership’s scope of activitybeing realized may be set forth by thearticles of association.


(2) The subject, scope, conditions andother important points of secondaryperformance liabilities attached to abasic capital share shall be indicated inthe articles of association. Items thatrequire detailed explanations may beleft to be formulated by the generalassembly’.

(3) Cash and non-monetary performance liability that serves to satisfy the need for equity and doesnot have any or appropriate provisionclearly stated in the articles of association, shall be subject to the provisions regarding additional payment liability.

III –Liability: by means of amendmentto Articles of Association

Article 607 – (1) The general assemblyresolutions which amend the articles ofassociation and set forth additional orsecondary performance liabilities orraise the current liabilities, may only beadopted by all relevant partners’approval.

E) Dividend and other relevant provisionsI – Dividend and reserves

Article 608 – (1) Dividend may only bedistributed from the net profit for theperiod and reserves allocated in thisregard. Distribution of dividend mayonly be decided if statutory reservesthat must be allocated in accordancewith law and the articles of associationand reserves set forth in the articles ofassociation are allocated.

(2) Unless provided otherwise by thearticles of association, dividend shallbe calculated in accordance with theratio of basic capital share to nominalvalue; additionally, the amount of theadditional payment liabilities that havebeen fulfilled shall be added to the

nominal value while calculating dividend.

(3) The general assembly of the partnership may only decide to allocatereserves, which are not set forth by lawor the articles of association, or exceedthe one stipulated, in the followingconditions;

a) If it is necessary to make up losses,

b) If any investment need for the development of the partnership wasseriously expressed, if benefit of allpartners justifies allocating suchreserves, and if these issues have beenclearly stated in the articles of association.

II – Interest prohibition and preparatory period interest

Article 609 – (1) Interest shall not beaccrued to basic capital and additionalpayments. Payment of preparatoryperiod interest may be set forth by thearticles of association. In this case,provisions regarding joint stock companies shall apply.

III – Financial statements andreserves

Article 610 – (1) The provisions in articles 514 to 527 regarding jointstock companies shall also be appliedto partnerships with limited liability.

IV – Refund of unfairly received dividend

Article 611 – (1) Partner and managershall be liable to refund dividend thatwas unfairly received.

(2) If they are bona fide, the liability ofthe partner or the manager to refundthe unfairly received dividend may notexceed the amount necessary to settlethe claims of the creditors of the partnership.

(3) The partnership’s right to refund theunfairly received dividend shall bebarred by the statute of limitations afterfive years, and in case of good-faith,after two years as of the date on whichthe money was collected.

F) The partnership’s acquisition of its own basic capital shares

Article 612 – (1) The partnership mayacquire its own basic capital sharesonly if it has the necessary equity, thatcan be freely used, to purchase themand the nominal value of shares to bepurchased does not exceed ten percent of the total basic capital.

(2) In case of acquisition of basic capital shares, due to withdrawal ordismissal from the partnership set forthin the articles of association or awarded by the court decision, themaximum limit in paragraph one shallapply as twenty per cent. The basiccapital shares acquired over ten percent of the basic capital of the partnership shall be disposed of orredeemed through capital reduction intwo years.

(3) The partnership shall allocatereserves at an amount that it paid forits own basic capital shares.

(4) The voting rights arising from itsown basic capital shares that the partnership acquired and other rightsattached to them shall be suspendedas long as the shares are in the possession of the partnership.

(5) The additional and secondary payment liabilities regarding its ownbasic capital shares acquired by thepartnership may not be claimed aslong as they are in possession of thepartnership.

(6) The provisions regarding limitationson the partnership’s acquisition of its


own shares shall also be applicablewhere the basic capital shares areacquired by a subsidiary in which themajority of the shares are owned bythe partnership.

G) Loyalty duty and non-competeobligation

Article 613 – (1) Partners shall be liablenot to disclose the partnership’ssecrets. . This liability may not berescinded by the articles of associationor general assembly resolution.

(2) Partners may not act in a way thatmay impair the interests of the partnership. Particularly, they may notcarry out transactions that will providespecial benefits to them and damagethe partnership’s purpose. It can bestipulated by the articles of associationthat partners refrain from transactionsand acts of competitive nature againstthe partnership.

(3) Provisions in article 626 that setforth non-compete obligations for managers are reserved.

(4) Provided that all remaining partnersgive written consent, partners mayengage in activities contrary to loyaltyduty and non-compete obligation. Thearticles of association may require resolution of general assembly, insteadof the consent mentioned in the firstsentence.

H) Right to information and toinspect

Article 614 – (1) Each partner mayrequest information about all partnership business and accountsfrom managers and may conductinspection on certain matters.

(2) If there is a risk that a partner whoobtained information, may use it in away that will damage the partnership,

the managers may prevent accessingto information and inspection to theextend that it is necessary; generalassembly may adopt a resolution inthis regard upon the request of thepartner.

(3) If general assembly preventsaccessing to information and inspection without a just cause, thecourt shall deliver an order on thisissue upon the request of the partner.Court decision shall be final.

I) Loans that substitute for equity

Article 615 – (1) Loans, that substitutefor equity and which are given to thepartnership by the partners or personsclose to them, shall rank after all otherreceivables including those that are atthe bottom of the list due to a contractor a declaration.

(2) The following shall be consideredas loans substituting for equity;

a) Loans given when basic capital andstatutory reserves are not covered byassets.

b) Loans given by partners or personsclose to them in substitute for equity,at a time when it is necessary to pro-vide equity due to the partnership’sfinancial position, .

(3) Payments made for the purpose ofrefunding the loans substituting forequity within one year before adjudication of bankruptcy shall berepaid by the receiver of such payments.

SECTION FOURPartnership Bodies

A) General assemblyI – Authorities

Article 616 – (1) The general assembly’s non-delegable authoritiesare as follows;

a) To amend the articles of association.

b) To appoint and to dismiss managers.

c) To appoint and to dismiss auditors,including group of companies’ auditorsand operational auditors.

d) To approve year-end financial statements and annual report of groupof companies.

e) To approve year-end financial statements and annual report; todecide on distribution of dividend; todetermine profit sharing for boardmembers.

f) To determine the salaries of managers and to release them.

g) To approve the transfer of basiccapital shares.

h) To request from the court to dismissa partner from the partnership.

›) To authorize a manager regarding theacquisition of the partnership’s ownshares, or to approve such an acquisition.

i) To terminate the partnership.

j) To adopt resolutions regardingissues, on which the general assemblyis authorized by law or the articles ofassociation or on matters presented tothe general assembly by the managers.

(2) The followings are the generalassembly’s non-delegable authoritiesprovided that they are set forth in thearticles of association;

a) To approve activities of the


managers and conditions in whichapproval of the general assembly isrequired according to the articles ofassociation.

b) To adopt resolution on exercisingthe rights of the right of being the firstto be offered for subscription, firstrefusal, redemption and purchase.

c) To approve the establishment ofpledge right on basic capital shares.

d) To issue internal regulation regardingsecondary performance liabilities.

e) To give the permission necessary formanagers and partners to take part inactivities incompatible with loyalty dutyto the company or non-compete obligation, in case the partners’approval is not adequate according tothe articles of association in line withparagraph 4 of article 613.

f) To dismiss a partner from the partnership due to reasons set forth inthe articles of association.

(3) In single-member partnerships withlimited liability, this member shall haveall authorities of the general assembly.In order for the validity of the resolutions, which are adopted by thesingle member in his/her capacity asgeneral assembly, they must be in written form.

II – Convening general assembly

1. Convocation

Article 617 – (1) General assemblyshall be convoked by the managers.Ordinary general assembly shall convene annually within three monthsas of the closing of accounting period.In accordance with the articles of association and when necessary, general assembly shall be called to anextraordinary meeting.

(2) General assembly shall be con-voked at least fifteen days prior to the

date of the meeting. The articles ofassociation may extend this period, orshorten it as much as to ten days.

(3) Provisions regarding joint stockcompanies on convocation, minorities’right to convoke and propose, agenda,proposals, general assembly meetingwithout convocation, preparatorymeasures, minutes and unauthorizedattendance excluding those regardingthe Ministry delegate; shall be appliedby analogy. Each partner may havehimself/herself represented by a personwho is or not a partner at the generalassembly.

(4) Unless a partner makes a requestfor an oral deliberation, general assembly resolutions may be adoptedby the written consent of other partners to the proposal of one of thepartners regarding an agenda item. It ismandatory for the validity of the resolution that the same proposal ispresented for approval of all partners.

2. Voting right and its calculation

Article 618 – (1) The voting right ofpartners shall be calculated accordingto the nominal value of their basic capital shares. Unless a higher amounthas been set forth in the articles ofassociation, every twenty five TurkishLiras shall grant one voting right.However, the voting rights of partnerswho have more than one share may berestricted by the articles of association.A partner shall have at least one votingright. If it is clearly stated in the articlesof association, voting can be done inwriting.

(2) The articles of association may alsospecify the voting right as each basiccapital share corresponding to one voting right, independent of its nominalvalue. In this case, the nominal value ofthe minimum basic capital share may

not be less than one tenth of the totalof nominal values of other basic capitalshares.

(3) The provision in the articles of association regarding determination ofthe voting right according to the number of basic capital shares shallnot be applied in the following circumstances;

a) Election of auditors.

b) Election of special auditor for theaudit of partnership management orsome of its departments.

c) Decision regarding filing a law suit ofresponsibility.

3. -Exclusion of voting right

Article 619 – (1) Those, who have inany way participated in the partnership’smanagement, may not vote on resolutions regarding release of managers.

(2) The partner, who has transferredhis/her basic capital shares, may notvote on resolutions regarding the partnership’s acquisition of its ownbasic capital shares.

(3) A partner may not vote on the resolutions regarding approval ofhis/her activities conducted contrary toloyalty duty or non-compete obligation.

III – Adoption of resolution

1. Adoption of ordinary resolution

Article 620 – (1) Unless provided otherwise by law or articles of association, all general assembly resolutions, including resolutions onelection, shall be adopted with the simple majority of votes represented inthe meeting.


2. Important resolutions

Article 621 – (1) The following generalassembly resolutions may be adoptedwith at least two thirds of representedvotes together with the absolute majority of the total of basic capitalshares with voting right;

a) To change partnership’s scope ofactivity.

b) To introduce basic capital shareswith privileged voting rights.

c) To restrict, prohibit or facilitate thetransfer of basic capital shares.

d) To increase basic capital.

e) To restrict or cancel pre-emptiverights.

f) To change location of the headquarters.

g) To approve the performance ofactivities of managers and partnerscontrary to loyalty duty and non-compete obligation.

h) To start legal proceedings for dismissal of a partner due to just causeand to dismiss a partner due to a reason set forth in the articles of association.

i) To terminate the partnership.

(2) If aggravated quorum is required forcertain resolutions by law, the provisions in the articles of associationthat further aggravate such quorummay only be accepted by majority tobe set forth in the articles of association.

IV –Nullity and cancellation of general assembly resolutions

Article 622 – (1) The provisions regarding the nullity and cancellation ofjoint stock companies’ general assembly resolutions in this Code shallapply to partnerships with limited liability by analogy.

B) Management and representationI – Managers

1. In general

Article 623 – (1) Partnership’s management and representation shallbe laid down by the articles of association. Management and representation of the partnership maybe delegated to one or more partnerstitled as “manager” or to all partners orto third parties. At least one partnermust have the authority to manage andrepresent the partnership.

(2) If one of the managers of the partnership is a legal entity, it shallappoint a real person to perform thisduty on behalf of such legal entity.

(3) The managers shall be authorizedto adopt and to execute resolutions onall management issues which are notreserved to the authority of the generalassembly by law or the articles ofassociation.

2. More than one manager on duty

Article 624 – (1) If there is more thanone manager at the partnership, one ofthem, regardless of whether he/she is apartner or not, shall be appointed bythe general assembly as chairman ofboard of managers.

(2) The chairman manager or in casethere is only one manager, such manager shall be authorized to convoke and conduct the generalassembly and to make all declarationsand announcements as well, unlessgeneral assembly decides otherwise orthe articles of association stipulates adifferent provision.

(3) If there is more than one manager,they will make decisions with majority.In case of tie votes, the chairman shallhave the casting vote. The articles ofassociation may set forth a differentarrangement regarding adoption of resolution by managers.

II – Duties, authorities and liabilities

1. Non-delegable and indispensableduties

Article 625 – (1) The managers shall beappointed and authorized for all issueswhich are not reserved to the duty andauthority of general assembly by lawand the articles of association. Themanagers may not delegate and dispense with the following duties andauthorities.

a) To execute ultimate direction andmanagement; to give necessaryinstructions.

b) To determine the partnership management organization in accordance with law and the articles ofassociation.

c) To develop accounting, financialauditing and financial planning if it isnecessary for the management of thepartnership.

d) To supervise whether or not the persons to whom one or more divisionsof partnership management have beenentrusted, are acting in accordancewith law, articles of association, internal regulations and instructions.

e) To establish a committee for earlyrisk detection and management,except for small sized partnershipswith limited liabilities.

f) To prepare the partnership’s financialstatements, annual report, and wherenecessary, the group of companies’financial statements and annual report.

g) To organize general assembly meeting and to execute generalassembly resolutions.

h) To notify the court that the partnership’s liabilities exceed itsassets.

(2) Manager or managers may berequired by the articles of association,to present;


a) Certain decisions taken and

b) Specific problems

to the general assembly for approval.The approval of the general assemblyshall not eliminate or limit the managers’ responsibility. Provisions inarticles 43 and 44 of Law ofObligations are reserved.

2. Care and loyalty duty, non-compete obligation

Article 626 – (1) Managers and persons in charge of management shallbe liable to perform their duties withdue care, and to safeguard the interestof the partnership in good faith. Theprovisions in article 202 and 205 arereserved.

(2) Managers may not perform anyactivity which is competitive againstthe partnership, unless provided otherwise by the articles of associationand all other partners have given written consent. The articles of association may require the approval ofgeneral assembly rather than approvalsof the partners.

(3) Managers shall also be subject toloyalty duty required for the partners.

3. Equal treatment

Article 627 – (1) Managers shall provide partners with equal treatmentunder similar conditions.

III – Domicile of managers

Article 628 – (1) At least one of themanagers of the partnership must bedomiciled in Turkey and must be solelyauthorized to represent the partnership.

(2) When a contradiction to paragraphone is determined, the trade registrymanager shall fix a time limit for thepartnership to establish compliancewith law. If requirements are not met

within such time limit, the trade registrymanager shall request from court thedissolution of the partnership.

IV – Scope of and restrictions onauthority to represent

Article 629 – (1) The related provisionsin this Code regarding joint stock companies shall apply to the scope ofmanager’s authority to represent, therestriction on authority, determinationof the signatories, the form of signature, registration and announcement of all mentioned in thisparagraph by analogy.

(2) Regardless of whether or not thepartnership is represented by singlepartner during the signing of a contract, in single-member partnershipwith limited liability, the validity of suchcontract between this partner and partnership shall depend on the condition that the contract is in writtenform. This requirement shall not applyto contracts regarding transactionswhich are daily, insignificant and ordinary according to market conditions.

V – Removal from office, revocationof and restriction on managementand authority to represent

Article 630 – (1) General assemblymay remove the manager or managersfrom office; or restrict their manage-ment rights and authorities to repre-sent.

(2) Each partner may, in the presenceof just cause, request from the court torevoke or restrict the managers’ management rights and authorities torepresent.

(3) Material breach of care and loyaltyduties and of obligations arising fromother laws and the articles of associa-tion or loss of qualifications necessary

to manage the partnership in a propermanner may be accepted as a justcause.

(4) The indemnity rights of the managerremoved from office are reserved.

VI – Commercial representatives andcommercial agents

Article 631 – (1) Unless provided otherwise by the articles of association,commercial representatives and commercial agents may only beappointed by a general assembly resolution; their authorities may berestricted by the general assembly.

(2) Commercial representatives andcommercial agents, who do not fallunder the scope of article 623, may, atany time, be suspended in their functions by manager or majority ofmanagers. If this individual has beenappointed by the resolution of the general assembly, the general assembly shall be immediately convoked for removal of this personfrom office or restriction on his/herauthorities.

VII – Tort liability

Article 632 – (1) The partnership shallbe liable for torts committed by theperson authorized to manage and represent the partnership while performing his/her duty regarding partnership business.

C) Capital loss and excess of liabilities over assetsI – Duty to notify

Article 633 – (1) Provisions regardingjoint stock companies shall apply incase of capital loss and excess of liabilities over assets by analogy.Provisions regarding additional payment liability are reserved.


II – Notification and postponement ofbankruptcy

Article 634 – (1) Provisions regardingjoint stock companies shall apply tonotification and postponement of bankruptcy.

D) Auditor

Article 635 – (1) Provisions regardingjoint stock companies on auditor, operational auditors, audit and specialaudit shall also be applied to partnerships with limited liability.

SECTION FIVEDissolution and withdrawal

A) Grounds for and consequences ofdissolution

Article 636 – (1) Partnership with limited liability shall be dissolved in thefollowing circumstances;

a) In accordance with one of thegrounds for dissolution set forth in thearticles of association.

b) Upon general assembly resolution.

c) Upon adjudication of bankruptcy.

d) In accordance with other groundsfor dissolution stipulated by law.

(2) If the partnership fails to have oneof the bodies required by law for a longtime or if the general assembly isunable to convene; upon a partner’s ora creditor’s request for dissolution ofthe partnership, the commercial courtof first instance where the partnershiphead office is located shall hear themanagers and shall grant a period forthe partnership to restore its position incompliance with law and if the positionis still not restored, shall decide for dissolution of the partnership.

(3) In case of just cause, each partnermay request the dissolution of the

partnership from the court. The court,rather than ruling in favor of therequest, may decide that the plaintiffpartner is to be paid the actual value ofhis/her shares and is dismissed fromthe partnership or another solution thatis suitable and acceptable.

(4) The court may take necessarymeasures upon request of one of theparties, when the action for dissolutionis filed.

(5) The provisions regarding joint stockcompanies shall apply to the consequences of dissolution.

B) Registration and announcement

Article 637 – (1) If the partnership hasbeen dissolved due to a reason otherthan bankruptcy or court judgment, themanager or at least two managers ifthere is more than one manager, shallregister the dissolution at the traderegistry and announce it.

C) Withdrawal and dismissalI – In general

Article 638 – (1) The right to withdrawfrom the partnership may be granted tothe partners, exercise of such rightmay be subjected to certain conditionsby the articles of association.

(2) Each partner, in the presence of ajust cause, may file a law suit to obtaina judgment for his/her withdrawal fromthe partnership. The court, uponrequest, may order suspension ofsome or all of the rights and debts ofthe plaintiff arising from his/her partnership, or other measures tosecure the plaintiff partner’s position.

II – Participation in the withdrawal

Article 639 – (1) In case that one of thepartners requests to withdraw based

on the provision in the articles of association or files a law suit to withdraw from the partnership due to ajust cause, the manager or managersshall inform other partners withoutdelay.

(2) Each of the other partners shall,within one month as of being aware ofsuch information, have the right;

a) To inform the managers that he/sheshall also participate in the withdrawal,if the just cause set forth in the articlesof association is also valid forhimself/herself,

b) To participate in the law suit forwithdrawal based on a just causethrough filing a law suit.

(3) All outgoing partners shall be treated equally pro rata their basic capital shares.

(4) This provision shall not be appliedin case of dismissal of a partner fromthe partnership due to a provision inthe articles of association or a justcause.

III – Dismissal

Article 640 – (1) Grounds for dismissalof a partner from the partnershipthrough a general assembly resolutionmay be set forth in the articles of association.

(2) The partner may file an action tocancel the resolution regarding dismissal, within three months as ofbeing notified by public notary.

(3) Dismissal from partnership by acourt judgment based on a just causeupon the request of the partnership isreserved.

IV – Cash payment for withdrawal

1. Request and amount

Article 641 – (1) In case that a partner


withdraws from the partnership, he/sheshall be entitled to request cash payment for withdrawal correspondingto the actual value of his/her basiccapital share.

(2) Due to the right to withdraw setforth in the articles of association, cashpayment for withdrawal may be regulated in a different way in the articles of association.

2. Payment

Article 642 – (1) Cash payment forwithdrawal shall become due afterwithdrawal;

a) If the company is disposing of utilized equity,

b) If the outgoing partner’s basic capital shares are transferable,

c) If basic capital has been decreasedby relevant provisions.

(2) Operational auditor shall determinethe utilized equity amount. If thisamount is not sufficient to make thecash payment for withdrawal, the operational auditor shall also indicatethe necessary amount to be decreasedfrom the basic capital.

(3) The unpaid amount of the cashpayment for withdrawal of the outgoingpartner shall constitute a debt againstthe company, which ranks after allcreditors. This issue shall become dueupon the determination of utilized equity in the annual report.

D) Liquidation

Article 643 – (1) Provisions regardingjoint stock companies shall apply forliquidation method and authorities ofpartnership bodies during liquidation.

E) Provisions to be applied

Article 644 – (1) The following provisions regarding joint stock companies shall also be applied topartnerships with limited liability.

a) Articles, 549 regarding documentsand declarations being in contradictionwith law; 550 regarding false declarations concerning capital andawareness of payment deficiency; 551regarding corruption in valuation; 553defining the responsibility of founders,board members, managers and liquidation officer; 554 to 561 regardingthe responsibility of auditors and operational auditors.

b) Articles, 353 regarding dissolution,358 regarding prohibition on borrowingagainst the company.

c) Articles, 391 regarding nullity ofboard resolutions and 447 to 451regarding nullity of general assemblyresolutions.

d) Those who act contrary to articles549 to 551, which are also applicableto partnerships with limited liability,shall be penalized according to paragraphs 8 to 10 of article 562.
