Converting a Turkish Limited Company into a Joint Stock Company: The Conversion Plan and Report, the Partners' Vote, Registration and the Remedies of Dissenting Partners (TCC 180-193)

A foreign-owned business in Turkey may start life as a limited company (limited şirket): it is quick to set up and suits a small circle of partners. As the business grows, new investors arrive or the owners plan a sale, the question comes up whether the company should become a joint stock company (anonim şirket). Turkish law does not require the partners to liquidate the old company and found a new one. 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) allows a company to change its legal form (tür değiştirme), and the converted company is by law the continuation of the old one (TCC 180(1)). This guide explains which conversions the Code permits, the documents the managers must prepare (the conversion plan, the conversion report and, where needed, an interim balance sheet), the thirty-day inspection right, the majority the partners' general assembly must reach, the moment the conversion takes effect, how shareholdings and special rights are protected, and the two court actions available to a partner who considers the conversion unfair or unlawful. It focuses on a limited company becoming a joint stock company, and notes the rules that apply in the other direction.

1. What a Change of Legal Form Is and Why Companies Use It

A change of legal form is one of the three restructuring tools the Commercial Code regulates together, alongside mergers and demergers: the rules in TCC 134 to 194 apply to all three (TCC 134(1)). Unlike a merger, a conversion involves only one company. Its essential feature is continuity: under TCC 180(1) a company may change its legal form, and the company converted into the new type is the continuation of the old one. The company keeps its identity through the change; what changes is the legal form and the set of rules that govern its organs, its shares and its partners.

Owners consider a conversion for different reasons. A limited company and a joint stock company differ in how shares are held and transferred, how the company is managed (managers in a limited company, a board of directors in a joint stock company) and how new capital is brought in. An incoming investor may ask for a joint stock company as a condition of investing; a group reorganisation may call for the same corporate form across subsidiaries; or the owners may want the governance structure of a joint stock company before a sale. The reverse move, from joint stock company to limited company, is also possible and may suit the owners of a small closely held company. The decision is commercial; this guide deals with the legal route once the decision is taken.

For a foreign-owned company the practical point is that the conversion is a corporate procedure with fixed steps and fixed majorities. If the steps are skipped or the majority is not reached, partners may challenge the result in court (TCC 191-192), and the persons involved may be liable for damage caused by their fault (TCC 193).

2. Which Conversions Are Permitted (TCC 181-182)

The Code lists the permitted conversions in TCC 181(1). A capital company (joint stock company, limited company or partnership limited by shares) may become a capital company of another type or a cooperative. A general partnership (kollektif şirket) may become a capital company, a cooperative or a limited partnership; a limited partnership (komandit şirket) may become a capital company, a cooperative or a general partnership; and a cooperative may become a capital company.

The conversion between the two personal partnerships has its own simplified rules: a general partnership may become a limited partnership when a limited partner joins or a partner becomes a limited partner, and a limited partnership may become a general partnership when all limited partners leave or become general partners (TCC 182(1)-(2)). The detailed procedure in TCC 180-190 does not apply to these changes (TCC 182(4)).

For a foreign-owned business the relevant line is TCC 181(1)(a): a limited company may become a joint stock company, and a joint stock company may become a limited company. The rest of this guide concentrates on that route.

3. The Documents: Formation Rules, Interim Balance Sheet, Plan and Report (TCC 184-187)

The new form must meet its own formation rules. Under TCC 184(1), the provisions on the formation of the new type of company apply to the conversion. Three formation rules are expressly disapplied for capital companies: those on the minimum number of partners, on contributions in kind and on the founders signing the articles. Everything else in the formation rules of the new type must be satisfied. One consequence is the minimum capital: the Code sets a minimum share capital for joint stock companies in TCC 332(1) and for limited companies in TCC 580, and by Presidential Decision No. 7887 of 24 November 2023 the minimum was raised to 250,000 Turkish lira for a joint stock company (500,000 lira as starting capital for a non-public company in the registered capital system) and 50,000 lira for a limited company. A limited company converting into a joint stock company must therefore show a capital that meets the joint stock company minimum.

Interim balance sheet. If more than six months have passed between the balance sheet date and the date of the conversion report, or if the company's assets have changed significantly since the last balance sheet, an interim balance sheet must be drawn up (TCC 184(2)). The rules on the annual balance sheet apply to it, but a physical inventory is not required and valuations are changed only to the extent of movements in the books, taking into account depreciation, value adjustments, provisions and significant changes in value that the books do not show (TCC 184(3)).

Conversion plan. The management body draws up a written conversion plan, which is subject to the approval of the general assembly (TCC 185(1)). The plan must contain the company's trade name, registered seat and the designation of the new type before and after the conversion; the articles of association of the new type; and the number, class and amount of shares the partners will hold after the conversion, or explanations concerning their shares (TCC 185(1)(a)-(c)).

Conversion report. The management body also prepares a written report explaining and justifying, in legal and economic terms, the purpose and consequences of the conversion; the fact that the formation rules of the new type have been met; the new articles; the exchange ratio for the partners' shares; any additional payment, personal performance obligations or personal liability arising for partners; and the obligations the new form creates for them (TCC 186(1)-(2)). Small and medium-sized companies may dispense with the report, but only if all partners approve (TCC 186(3)). A single partner's objection is enough to require the report.

No transaction auditor. The former TCC 187, which provided for an audit of the plan and report, was repealed by Law No. 6335 in 2012. The Code no longer requires an external audit of the conversion documents; the protection of partners rests on the inspection right, the voting majorities and the court actions described below.

4. The Thirty-Day Inspection Right and the Partners' Vote (TCC 188-189)

Inspection. Thirty days before the general assembly meeting that will decide on the conversion, the company must make available for the partners' inspection at its head office the conversion plan, the conversion report, the financial statements of the last three years and any interim balance sheet; in publicly held joint stock companies they must also be available at the places the Capital Markets BoardSPKThe Capital Markets Board — and the Capital Markets Law No. 6362In Turkish the same three letters are used for the regulator (Sermaye Piyasası Kurulu) and for the statute it administers (Sermaye Piyasası Kanunu No. 6362).Glossary → requires (TCC 188(1)). Partners who ask for copies receive them free of charge, and the company must inform the partners appropriately that they have this right (TCC 188(2)). For a foreign partner who is not involved in daily management, this is the moment to obtain the documents and take advice before the vote.

The vote. The management body submits the conversion plan and the articles of the new type to the general assembly (TCC 189(1)). The majorities differ by the type of company that converts:

• Limited company: the decision needs the votes of three quarters of the partners, provided they hold at least three quarters of the capital (TCC 189(1)(c)). Both conditions must be met: a single partner holding eighty percent of the capital cannot convert alone if there are several other partners, and a head-count majority cannot convert without the capital behind it.
• Joint stock company: the decision needs two thirds of the votes present at the general assembly, provided these cover two thirds of the share capital or of the issued capital, subject to the special rule for listed companies in TCC 421(5)(b); if the conversion into a limited company would create an obligation to make additional payments or other personal performance, all partners must approve (TCC 189(1)(a)).
• A capital company becoming a cooperative needs the approval of all partners (TCC 189(1)(b)); cooperatives and personal partnerships have their own majorities (TCC 189(1)(d)-(e)).

A partner who opposes the conversion should vote against it and make sure the vote is recorded in the minutes: under TCC 192(1) only partners who did not vote in favour and had this recorded may later bring an annulment action.

5. Registration, Continuity and the Protection of Shares, Creditors and Employees (TCC 183, 189(2), 190)

When the conversion takes effect. After the vote, the management body applies for registration of the conversion and of the new articles. The conversion acquires legal validity on registration, and the conversion resolution is announced in the Turkish Trade Registry Gazette (TCC 189(2)). The announcement date matters: the two-month periods for the court actions in TCC 191 and 192 run from it.

Protection of shareholdings. In a conversion the partners' shares and rights are preserved (TCC 183(1)). Holders of non-voting shares receive shares of equal value or shares carrying voting rights; holders of privileged shares receive shares of the same value or appropriate compensation (TCC 183(1)-(2)). Holders of profit-sharing certificates receive rights of the same value or are paid the real value as at the date of the conversion plan (TCC 183(3)). The exchange ratio in the plan and the explanation in the report (TCC 185(1)(c), 186(2)(d)) are the documents in which this protection becomes concrete, and they are the first thing a minority partner should check.

Personal liability and employment debts. TCC 190 applies two rules borrowed from the merger and demerger provisions to conversions. For partners' personal liability it refers to TCC 158, under which partners who were liable for the company's debts before the change remain liable for debts that arose, or whose cause arose, before the announcement, and claims based on that personal liability become time-barred three years after the announcement, or, where the claim falls due after the announcement, three years after it falls due (TCC 158(1)-(2)). This matters mainly when a partnership with personally liable partners becomes a capital company. For debts arising from employment contracts TCC 190 refers to TCC 178, the rule on employment relationships in demergers. Because the converted company is the continuation of the old one (TCC 180(1)), the employer remains the same legal person; the reference in TCC 190 is the Code's safeguard for employees' claims.

Company size. Whether the converted company counts as a small or medium-sized company for the purposes of the Code is determined on the first balance sheet date after the conversion (TCC 1523(4)).

6. Remedies for Partners: Compensation, Annulment and Liability (TCC 191-193)

Compensation payment. If, in a conversion, the partners' shares and rights were not properly preserved, every partner may, within two months of the announcement of the conversion resolution in the Turkish Trade Registry Gazette, ask 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 → (asliye ticaret mahkemesi) at the company's seat to determine an appropriate compensation payment (denkleştirme akçesi) (TCC 191(1)). The judgment also has effect for all partners in the same legal situation as the claimant (TCC 191(2)). The costs of the action are borne by the company, although the court may put them partly or wholly on the claimant where special circumstances justify it (TCC 191(3)). This action does not affect the validity of the conversion (TCC 191(4)): it corrects the economic outcome, it does not undo the change of form.

Annulment action. Where TCC 134 to 190 have been breached, partners who did not vote in favour of the conversion and had this entered in the minutes may bring an action for annulment within two months of the announcement; if no announcement is required, the period starts on registration (TCC 192(1)). The action is also available where the decision was taken by a management body (TCC 192(2)). If a defect is found, the court first gives the parties time to remedy it; if the legal defect cannot be or is not remedied within that time, the court annuls the decision and orders the necessary measures (TCC 192(3)). The Code uses the word iptal and fixes a two-month period for bringing the action; a partner should treat the date of announcement as the start of the clock.

Liability. All persons who took part in the conversion in any way are liable to the company, the partners and the creditors for damage they caused by their fault (TCC 193(1)). Separately, those who prepared documents or made statements in connection with a conversion are liable for damage caused by documents or statements that are false, fraudulent or untrue (TCC 549). Within a group of companies, TCC 202(2) gives shareholders of a controlled company further rights where the parent uses its control to push through a conversion without a clearly understandable justification for the subsidiary; TCC 202(4) adds that the other rights given to shareholders and partners in mergers, demergers and conversions remain unaffected.

7. Comparison: Limited Company to Joint Stock Company and the Reverse

The table summarises the main legal points for the two conversions between the capital company types discussed here.

8. Practical Steps for Foreign Owners and Minority Partners

1. Check the capital first. Confirm that the capital of the company, in the new form, meets the minimum capital for that form (TCC 184(1), 332, 580) and plan any capital increase before the conversion resolution.
2. Fix the timetable. Work back from the general assembly date: the plan, the report, the last three years' financial statements and any interim balance sheet must be available at the head office thirty days before the meeting (TCC 188). If the balance sheet date is more than six months before the report, prepare an interim balance sheet (TCC 184(2)).
3. Decide on the report early. If the company is small or medium-sized and the partners want to dispense with the report, collect the approval of all partners in writing; one refusal means the report must be prepared (TCC 186(3)).
4. Draft the new articles with care. The articles of the new type are part of the plan (TCC 185(1)(b)). Share classes, transfer restrictions and management rules that the partners relied on in the old company must be carried over deliberately, and privileged or non-voting shares must be matched as TCC 183 requires.
5. Count the votes before the meeting. In a limited company both conditions of TCC 189(1)(c) must be met: three quarters of the partners and three quarters of the capital.
6. Minority partner: ask for free copies of the documents (TCC 188(2)), check the exchange ratio, vote against and have it recorded if you disagree (TCC 192(1)), and diarise two months from the Gazette announcement for the compensation action and the annulment action (TCC 191-192).
7. After registration: the conversion is valid from registration (TCC 189(2)); update the company's contracts, bank records and correspondence to the new trade name and form.

Lexin Legal advises foreign shareholders and companies on the planning of a change of legal form, the preparation of the plan, report and articles, the general assembly, registration, and on partners' claims under TCC 191-193.

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