Contribution in Kind to a Turkish Joint Stock Company: Eligible Assets, Court-Appointed Valuation, Transfer and Liability (TCC 342-343)

Can a foreign investor pay for shares in a Turkish joint stock company (anonim şirket) with an asset instead of cash? Yes. Under Article 342(1) of the Turkish Commercial CodeTTKTurkish Commercial Code No. 6102The statute that governs merchants, companies, commercial paper, insurance and carriage — the framework a foreign business actually operates inside.Glossary → (TCC, Law No. 6102), asset items that carry no limited real right, attachment or injunction, that can be valued in money and that can be transferred, including intellectual property rights and virtual environments, may be contributed as capital in kind (ayni sermaye); services, personal labour, commercial goodwill and receivables that have not fallen due cannot be capital. Under TCC 343, the contribution is valued by experts appointed by the commercial court of first instanceAsliye ticaret mahkemesiCommercial court of first instanceThe specialised first-instance court that hears commercial cases — and, unless the law says otherwise, it hears them whatever the amount in dispute.Glossary → at the place where the company's seat will be, and the expert decision approved by the court is final. Below: eligible assets, the expert report, the repealed founders' statement, registry steps, capital increases and liability for over-valuation, with a comparison table and a checklist.

1. What Assets Can Be Contributed in Kind to a Turkish Joint Stock Company? (TCC 127 and 342)

The direct answer. Under TCC 342(1), asset items that can be valued in money and transferred, and that carry no limited real right, attachment or injunction, may be contributed in kind to a joint stock company. The same sentence expressly includes intellectual property rights and virtual environments (sanal ortamlar). The second sentence of the same paragraph lists what cannot be capital: services (hizmet edimleri), personal labour, commercial goodwill (ticari itibar) and receivables that have not fallen due. TCC 342(2) reserves TCC 128.

The general list. TCC 127(1), which applies to commercial companies unless the law provides otherwise, lists what may be contributed as capital, among them money, receivables, negotiable instruments, shares in capital companies, intellectual property rights, movables and immovables, rights of use, commercial enterprises, mining licences and every kind of value that can be transferred and valued in money. TCC 127(2) reserves TCC 307(2), 342(1) and 581(1). Personal labour and commercial goodwill appear in TCC 127(1) but are excluded for a joint stock company by TCC 342(1).

Encumbrances first. Because TCC 342(1) requires the absence of any limited real right, attachment or injunction, an asset that carries a mortgageİpotekMortgage over real estateA security right registered on a property so that a debt can be recovered from it if it is not paid.Glossary →, a pledge or another limited real right, an attachment or an injunction does not meet this condition.

Receivables. Receivables are listed in TCC 127(1)(a); for a joint stock company, receivables that have not fallen due cannot be capital (TCC 342(1)). The expert report must establish the genuineness and validity of receivables contributed as capital, their conformity with TCC 342, their collectability and their full value (TCC 343(1)). Under the general rule in TCC 130(1), a partner who has assigned receivables to the company as capital is not released from the obligation to contribute capital unless the company has collected them.

Limited companies. TCC 581(1) contains the same rule for a limited liability company, with the words “virtual environments and names”.

2. How Is a Contribution in Kind Valued? The Court-Appointed Expert Report (TCC 343)

The direct answer. Under TCC 343(1), the contribution in kind is valued by experts appointed by the commercial court of first instance at the place where the company's seat will be. The same paragraph applies to enterprises and assets to be taken over during incorporation; the court is the asliye ticaret mahkemesi, and the expert decision approved by the court is final.

What the report must explain. TCC 343(1) requires the valuation report to explain, with satisfactory reasons and in line with the requirements of the principle of accountability:

• that the valuation method applied is the fairest and most appropriate choice for everyone, in view of the particular features of the case;
• for receivables contributed as capital, that their genuineness, validity and conformity with TCC 342 have been established, together with their collectability and full value;
• the number of shares to be allotted for each asset contributed in kind, and its Turkish lira equivalent.

Objection and finality. The founders and interested parties (menfaat sahipleri) may object to the report, and the expert decision approved by the court is final (TCC 343(1)). TCC 343 does not itself set a time limit for the objection. The words “transaction auditor” were removed from this article by Law No. 6335 in 2012, so the objection right now lies with the founders and interested parties.

Effect of the expert value. Under the general rule in TCC 131(1), the values set by the expert for assets contributed as capital are deemed accepted by those concerned.

Where the report goes. Valuation reports are incorporation documents (kuruluş belgeleri); they are placed in the registry file, and the company keeps a copy of each for five years (TCC 336(1)). The expert report given under TCC 343 is deposited with the trade registry directorate (TCC 354(3)).

3. Is a Founders' Statement Still Required? Articles of Association and Incorporation Documents (TCC 335-339, 349, 351)

The direct answer. No. The TCC no longer provides for a founders' statement. TCC 349, headed “Founders' statement” (kurucular beyanı), was repealed by Article 73 of Law No. 6728 of 15 July 2016, and the same law removed the words “founders' statement” from the list of incorporation documents in TCC 336(1). TCC 351, headed “Transaction auditor's report”, had already been repealed by Law No. 6335 of 26 June 2012. For the contribution in kind, the statute refers to the expert report given under TCC 343, which is deposited with the trade registry directorate (TCC 354(3)).

What the articles of association must say. Under TCC 339(2)(e), the articles of association state the rights and assets contributed as capital other than money, their values and the number of shares to be given in return; where an enterprise or asset is taken over, its price; the prices of goods and rights bought by the founders on the company's account for its incorporation; and the amount of fees, allowances or rewards to be given to those who provided services in its incorporation.

Founders and their undertaking. The natural and legal persons who subscribe for shares and sign the articles of association are founders (TCC 337(1)); if they act on account of a third person, that person is also deemed a founder for liability arising from the incorporation (TCC 337(2)). The company is incorporated when the founders declare their intention to form a joint stock company in articles of association drawn up in accordance with the law, in which they unconditionally undertake to pay the whole capital and whose signatures are notarised or which they sign before the trade registry director or deputy director (TCC 335(1)); TCC 355(1) is reserved (TCC 335(2)). The transfer of a share subscription before the company's registration is invalid against the company (TCC 352(1)), and the company acquires legal personality on registration in the trade registry (TCC 355(1)).

4. How Does the Asset Pass to the Company? Registry Steps and Ownership (TCC 128 and 131)

When the asset counts as capital in kind. Under TCC 128(2), immovables that appear in the articles of association with the values set by the expert are accepted as capital in kind when they are annotated (şerhŞerhAnnotation on the title deedA note entered on the land-registry record that warns third parties of a right or restriction affecting the property.Glossary →) in the land registry; intellectual property rights and other values are accepted when they are recorded, under this provision, in their special registries, if any; and movables are accepted when they are deposited with a trustworthy person. A record in a special registry removes good faith (TCC 128(2)).

Form. Provisions of the articles of association that contain an obligation to contribute ownership of an immovable, or a real right existing or to be created on an immovable, are valid without any requirement of official form (TCC 128(3)).

From legal personality onwards. Where the obligation is to contribute an economic value other than money, or a movable, the company can dispose of it directly as owner from the moment it acquires legal personality (TCC 128(4)). Where ownership of an immovable or another real right is contributed, the company needs registration in the land registry before it can dispose of it (TCC 128(5)). The request for registration in the land registry and the notifications to other registries are made by the trade registry director, ex officio and immediately, and the company's right to make a unilateral request is reserved (TCC 128(6)).

Ownership by default. Unless the articles of association provide otherwise, ownership of the assets contributed as capital belongs to the company and the rights are transferred to the company (TCC 131(2)).

If the contributor does not perform. Each partner owes the company the capital they undertook to contribute in the duly drawn up and signed articles (TCC 128(1)). The company may demand performance, sue for it and claim compensation for damage caused by delay; a notice is required for the compensation claim (TCC 128(7)). To protect the rights undertaken as capital, the founders may request an interim injunction against the partners (TCC 128(8)).

5. Contribution in Kind at a Capital Increase (TCC 456-460)

Same valuation rules, by analogy. In a capital increase by subscription under the basic capital system (esas sermaye sistemi), TCC 342 and 343 apply by analogy to the contribution in kind (TCC 459(3)). In the registered capital system (kayıtlı sermaye sistemi), which TCC 460(1) provides for a joint stock company that is not publicly held, TCC 459 applies by analogy to the subscription of new shares, the minimum cash amount to be paid, the contribution in kind and other matters (TCC 460(3)). The court-appointed expert valuation of TCC 343 therefore applies by analogy when an asset is contributed in kind at a capital increase.

Who decides. In the basic capital system the general assembly decides on the increase under TCC 459, and in the registered capital system the board of directors decides under TCC 460 (TCC 456(2)). All shares representing the increased capital are subscribed either in the amended articles of association or in subscription undertakings (TCC 459(1)), and a subscription undertaking is made within the framework of TCC 461 on the right to acquire new shares, without reservation, unconditionally and in writing (TCC 459(2)).

A precondition. Except for an increase from internal resources, the capital cannot be increased as long as the cash prices of the shares have not been paid in full; non-payment of amounts that are not significant in relation to the capital does not prevent the increase (TCC 456(1)).

The board's declaration. The board signs a declaration according to the type of capital increase, prepared on the principle of giving information clearly, completely, accurately and honestly (TCC 457(1)). Where capital is contributed in kind or an asset is taken over, the declaration contains documented and reasoned explanations that the consideration to be given is appropriate, and on the contribution in kind taken over, the type of the asset, and the method, accuracy and fairness of the valuation (TCC 457(2)(a)). TCC 458, headed “Audit report”, was repealed by Law No. 6335.

Registration. If the increase cannot be registered within three months from the date of the general assembly or board resolution, the resolution and any permission obtained become invalid, and TCC 345(2) applies (TCC 456(3)). TCC 353, 354 and 355(1) apply by analogy to all types of capital increase (TCC 456(4)).

6. Who Is Liable If a Contribution in Kind Is Over-Valued? (TCC 549-553 and 562)

The direct answer. Under TCC 551, those who set a price higher than its equivalents (emsaline oranla yüksek fiyat biçenler) when valuing a contribution in kind or an enterprise or asset to be taken over, those who show the nature or condition of the enterprise or asset differently, and those who commit any other irregularity are liable for the damage arising from it. TCC 551 describes the persons it makes liable by their conduct.

Documents and statements. Under TCC 549, those who draw up documents or make statements on transactions such as the incorporation of the company or an increase of its capital, and, where at fault, those who take part in them, are liable for damage arising from those documents being wrong, fraudulent, forged or untrue, from concealment of the truth and from other breaches of the law.

Capital shown as paid. Under TCC 550(1), those who show capital as subscribed or paid when it has not been fully subscribed or its consideration has not been paid in accordance with the law or the articles, and the company officers provided that they are at fault, are deemed to have taken over those shares and pay the share consideration and the damage with interest, jointly and severally.

Founders and directors. Founders, board members, managers and liquidators who breach their obligations under the law and the articles of association through their fault are liable to the company, the shareholders and the company's creditors for the damage they cause (TCC 553(1)).

Criminal sanctions. TCC 562 attaches sanctions to the same provisions: a breach of TCC 551 is punished with a judicial fine (TCC 562(10)); a breach of TCC 550 is punished with imprisonment or a judicial fine (TCC 562(9)); and those who draw up the documents referred to in TCC 549 as forgeries are punished with imprisonment (TCC 562(8)).

7. Taking Over Assets After Incorporation: The Two-Year Rule (TCC 356)

Why it matters. TCC 356 sits under the heading “Circumvention of the law” (kanuna karşı hile). Under TCC 356(1), contracts for the company to take over or lease an enterprise or an asset for a price exceeding one tenth of the capital within two years from the company's registration are not valid unless approved by the general assembly and registered in the trade registry. Before approval and registration, every disposition, including payments made to perform such contracts, is invalid.

Valuation again by a court-appointed expert. Before the general assembly decides, an expert appointed by the commercial court of first instance where the company is located, at the board's request, values the enterprise and assets to be taken over or leased, and the report has official character (TCC 356(2)). The meeting and resolution quorums are those of TCC 421(3) and (4) (TCC 356(3)), and the contract is registered and announced together with the general assembly's approval (TCC 356(4)).

Exceptions. The article does not apply to assets and enterprises that form the company's field of activity or are acquired through compulsory enforcement (TCC 356(5)).

8. Cash or Kind? A Comparison and a Checklist for Investors

The table below sets the statutory rules for the two forms of capital side by side.

Checklist before signing:

1. Confirm that the asset fits TCC 342(1): it can be valued in money, can be transferred and is not a service, personal labour, commercial goodwill or a receivable not yet due.
2. Search the land registry or the special registry for limited real rights, attachments and injunctions, and plan their removal before the contribution (TCC 342(1)).
3. Plan for the valuation by experts appointed by the commercial court of first instance at the company's future seat; founders and interested parties may object to the report, and the expert decision approved by the court is final (TCC 343(1)).
4. Prepare the registry steps in TCC 128(2): land registry annotation, special registry record or deposit of movables with a trustworthy person.
5. At a capital increase, align the board's declaration under TCC 457(2)(a) with the expert report and register the increase within the three-month period in TCC 456(3).
6. If the company will buy or lease an enterprise or asset within two years of registration for more than one tenth of its capital, plan for general assembly approval, a court-appointed valuation and registration (TCC 356), unless the exceptions in TCC 356(5) apply.

Frequently asked questions