The principles and procedures of issuance of shares at a premium are regulated under Turkish Commercial Code numbered 6102 ("TCC") and Capital Markets Law numbered 6362 ("CML"). Within this framework, the principles and procedures regarding premium capital increases in joint stock companies will be explained, below.
Issuance and Application of Premium Shares
Joint stock companies may issue shares at a premium, either at their establishment stage, or during their capital increase periods. Premium means the positive difference between the face value and the share price of the issued shares. Premiums arise only when shares of a joint stock company are committed at a price higher than their face value. Therefore, if the shareholders of a joint stock company sell their shares at a price higher than the face value of the shares, the difference cannot be considered as premium.
In practice, the issuance of shares at premium is important where the assets of a joint stock company are significantly higher than the company's share capital. In either event that the capital increase is made by external investors through mergers and acquisitions transactions, or it is made among the present shareholders of the company, the issuance of shares at premium helps to prevent significant changes in the company's shareholding structure, in accordance with the principles of good faith, while providing funding to the company1.
Accordingly, premium capital increases prevent dilution of the shareholders' share ratio, who are unable to participate in the capital increase, while providing funding that is required for the operation capital of the company at the same time. The legal doctrine and judicial decisions emphasize that if a capital increase is made without the issuance of shares at premium, while the current value of the joint stock company's shares is higher than the face value of the issued shares, the capital increase may be invalidated due to violation of the principle of equal treatment, principles of good faith, and due to the abuse of rights2. Consequently, it is claimed in the legal doctrine that issuance of shares at premium may be compulsory where the assets of the company exceed the share capital3.
Procedure of the Premium Capital Increase
Pursuant to the TCC and CML, either the joint stock companies that have adopted a principal capital system, or the ones which have adopted a registered capital system, are allowed to issue shares at premium on several conditions. The procedure that must be followed by joint stock companies in order to make a premium capital increase is as follows:
Premium Capital Increase in Joint Stock Companies that have adopted a Principal Capital System
In accordance with TCC Article 347, a joint stock company that has adopted a principal capital system may issue shares at premium only if the articles of association or a general assembly resolution of the relevant company allows the company to do so. There is no special meeting or decision quorum foreseen for the general assembly resolution regarding issuance of premium shares. Therefore, if the articles of association of the relevant company does not regulate a special quorum, the meeting and decision quorum set forth under Article 418 of the TCC will be applied to the general assembly resolutions regarding issuance of premium shares. If the relevant company prefers to amend its articles of association in order to issue premium shares, then the meeting and decision quorum set forth under Article 421 of the TCC will apply.
Pursuant to Article 459(2) of the TCC, if a capital increase with share premium is made, the participants must commit the premium during the share subscription, together with the increased capital. Further, by referring to Article 459(3), and pursuant to Article 344 of the TCC, the premium must be fully paid, together with the minimum quantity that must be paid prior to registration of the capital increase, and the bank receipt showing the payment must be submitted to the relevant trade registry, together with the other registration documents. As well, according to Article 461 of the TCC, the board of directors of the company must submit a report that sets forth the reasons to issue premium shares, as well as the calculation method of the premium, to the relevant trade registry.
Premium Capital Increase in Joint Stock Companies that have adopted the Registered Capital System
According to Article 480 of the TCC, as for the joint stock companies that have adopted a registered capital system, the company's board of directors may be entitled to issue premium shares through the relevant company's articles of association.
In parallel, according to Article 18 of the CML, the board of directors of a joint stock company may issue premium shares only if they are entitled to do so by the company's articles of association. Accordingly, if the board of directors is not entitled to issue premium shares through the articles of association, joint stock companies that have adopted a registered capital system may issue premium shares only through a general assembly resolution4.
Additionally, in accordance with Article 12 of the CML, in the event that the market price or book value of the issued shares are higher than their face value, the Capital Markets Board is entitled to order a particular capital increase where the shares must be issued at premium, or the pre-emption right must be used on the market price.
Pursuant to Article 460 of TCC, in order to make a premium capital increase, a joint stock company must declare the principles regarding the premium and the application of the procedure in accordance with its articles of association, and publish these principles and procedures on its web site, and it must provide all other necessary information according to the principles of public disclosure.
Furthermore, as for the publicly quoted joint stock companies that have adopted a registered capital system, the consideration of the shares to be issued within the scope of Article 12 of the CML must be paid fully, and in cash, together with the premium amount.
Premiums Obtained Through Capital Increase
Pursuant to Article 519 of the TCC, the premiums must be added to the company's legal reserve funds after deducting the issuance costs, redemptions, and charitable provisions. According to the same Article, unless the total amount of the legal reserve fund does not exceed one-half of the principle or registered share capital, the legal reserve funds may only be used in order to recover company losses, to continue the company's operations when it is experiencing financial distress, or to take the necessary measures to prevent unemployment. If the legal reserve funds exceed one-half of the company's share capital, the general assembly of the company is entitled to decide how to use this overage amount5. Even though there is no consensus between the scholars as to whether or not premiums that exceed one-half of the principle or registered share capital can be distributed to shareholders, according to the Ruling of the Revenue Administration dated 20.10.2015 and numbered 62030549-125[6-2014/105]-88462, any premiums that exceed the abovementioned legal threshold may be distributed to the shareholders.
1 Poroy,Reha/Tekinalp,Ünal/Çamoğlu,Ersin:Ortaklıklar Hukuku II,İstanbul 2017, p.211. (Poroy/Tekinalp/Çamoğlu).
2 Poroy/Tekinalp/Çamoğlu, p.210; Paslı, Ali: Anonim Ortaklıkta Kontrol Sahibini Özel Durumu, İÜHFM. C. LXVI, S.2, p.354; Türkmen, Emre: 6102 Sayılı Türk Ticaret Kanunu'na Göre Yeni Pay Alma Hakkına Genel Bir Bakış, D.E.Ü. Hukuk Fakültesi Dergisi, Prof. Dr. Şeref ERTAŞ'a Armağan, C. 19, Özel Sayı-2017, p.2327; Adıgüzel, Burak:Anonim Şirketlerde Rüçhan Hakkının Sınırlanması veya Kaldırılması, Gazi Üniversitesi Hukuk Fakültesi Dergisi C. XVIII, Y. 2014, Sa. 1, p.13-14.
3 Çelik, Feyzan Hayal Şehirali/ Kırca, İsmail/ Manavgat, Çağlar: Anonim Şirketler Hukuku, C.1, Ankara 2013, p. 329. (Çelik/Kırca/Manavgat)
4 Çelik/Kırca/Manavgat p.330.
5 Poroy/Tekinalp/Çamoğlu p.323.
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