Corporate Governance and Directors Duties in Turkey Overview - 3
Disclosure of Information
31. Do directors have to disclose information about the company to shareholders, the public or regulatory bodies?
Companies that are subject to independent audit (see Question 39) must:
- Have a website.
- Dedicate a part of their website for information society services.
- Announce certain issues on their website.(Article 1524, CC.)
If a company fails to do so, the resolutions will be void and the relevant directors are subject to judicial fines for delays of between 100 and 300 days at TRY20 to TRY100 per day.Article 2.1 of the CG Principles also requires certain issues to be disclosed on the website of the company.In addition, certain documents such as annual reports and financial statements must also be disclosed in the Public Disclosure Platform, which is founded by the Communiqué of Public Disclosure Platform.The Capital Markets Board also requires companies quoted on the stock exchange to disclose their financial reports, special conditions and other certain issues on the Istanbul Stock Exchange and Central Securities Depository.
32. Does a company have to hold an annual shareholders' meeting? If so, when? What issues must be discussed and approved?
The general assembly of shareholders can hold ordinary or extraordinary meetings (Article 409, CC). The ordinary GaMs must be held within three months following of the end of each fiscal year. Extraordinary GaMs can be convened when required.
The person who calls the general assembly of the shareholders for a meeting decides on the agenda. Issues that are not included in the agenda cannot be discussed (Article 413, CC). The minimum agenda of the ordinary meeting must include:
- Appointment of company's bodies.
- Discussion and approval of financial reports.
- Annual report of the BoD.
- Use of profits.
- Determination of the amounts of dividend and profit shares.
- Releasing the directors.
- Other issues concerning operation of the company.(Article 409, CC.)
The GaMs can also be held electronically. The right holders who have the right to attend the GaMs can also attend these meetings electronically (Article 1527, CC). The company can either:
- Establish the general assembly system that will enable the right holders to attend the GaMs in electronically, express their opinions, make suggestions and vote.
- Buy a service from the systems that are created for this purpose under the Regulation on the General Assemblies of Joint Stock Companies in Electronic Environments. For the GaMs, the right holders must be able to use the rights stated under the relevant legislation or the relevant system for which a support service is provided under the company's articles of association, and within the framework of the regulation.
The application of the system of electronic participation and voting in GaMs is mandatory for companies with shares traded on the stock exchange.
33. What are the notice, quorum and voting requirements for holding meetings and passing resolutions?
Under the CC, shareholders must be invited to the meeting as set out under the articles of association, through an announcement published on the company's website (if the company is required to have a website) and in the Turkish Trade Registry Gazette. This announcement must be made two weeks before the GaM (Article 414, CC). The CG Principles require the notice to be made on the company website and on the Public Disclosure Platform at least three weeks in advance of the meetings (Article 1.3.1, CG Principles).A notice must be sent by registered letter with return receipt to the shareholders who are recorded in the share ledger or who have proved their shareholding with share certificates or other documents in advance.If all shareholders or their representatives are present in the meeting and no objection is raised, the GaM can be conducted without notice. If a meeting is convened without notice, an item can be added to agenda with the unanimous votes of the shareholders (Article 416, CC).Participation via teleconference is not possible.The meeting and voting quorum requirements are regulated under the CC. In principle, the GaM can be convened with at least one-quarter of the shareholders or their representatives, and a majority of the votes present is needed for a resolution (Article 418, CC). If this meeting quorum is not reached during the first meeting, no meeting quorum is provided for the second meeting.However, there are aggravated quorum requirements for certain issues:
- Unless otherwise provided in the law or in the articles of association, the meeting quorum for amendments to the articles of association (for example, capital increase or decrease) requires the shareholders representing at least half of the company's capital to be present. The amendment is approved with the majority of the votes of the shareholders present at the meeting.
- If the meeting quorum cannot be reached during the first meeting, the second meeting's quorum is one-third of the shareholders.
- Resolutions to create obligations and secondary obligations for compensation of balance sheet losses, and to transfer of the company's registered office abroad require unanimous shareholder approval.
- Amendments to the company's scope of activity, creation of privileged shares, and restriction of registered shares' transfer require both a meeting and resolution quorum of at least 75% of the shareholders.(Article 421, CC.)
34. Are specific voting majorities required by statute for certain corporate actions?
There are aggravated quorum requirements for certain resolutions (see Question 33).
35. Can shareholders call a meeting or propose a specific resolution for a meeting? If so, what level of shareholding is required to do this?
Generally, the BoD can call a meeting. If the BoD cannot be gathered to call the general assembly for a meeting, a shareholder can also call the general assembly for a meeting with a court order (Article 410, CC). In addition to this general right for all shareholders, minority shareholders (shareholders holding at least 10% of the company's share capital for non-public companies, or at least 5% for public companies) can request the BoD to call the general assembly for a meeting. If the general assembly is called for a meeting, minority shareholders have a right to request certain issues to be included in the meeting agenda.If the BoD refuses a minority shareholder's request for a meeting or an issue to be included in agenda or does not provide a positive response to this request within seven days, minority shareholders can apply to the commercial court for enforcement of their request.
Minority Shareholder Action
36. What action, if any, can a minority shareholder take if it believes the company is being mismanaged and what level of shareholding is required to do this?
Minority shareholders have a right to receive information and to investigate certain financial documents of the company (Article 437, CC) (see Question 12). If this right for information and investigation is exhausted, shareholders can request a special audit from the general assembly even it is not covered in the agenda of the GaM (Article 438, CC).
Internal Controls, Accounts and Audit
37. Are there any formal requirements or guidelines relating to the internal control of business risks?
The BoD of companies with shares traded on a stock exchange must set up a committee for early detection of risks related to the existence, development and continuance of company, and for applying required measures and remedies in this regard (Article 378, CC). In other companies, this committee is set up if it is deemed necessary by the auditor. In addition, Article 4.5.12 of the CG Principles also requires a committee to be formed for early detection of such risks.
38. What are the responsibilities and potential liabilities of directors in relation to the company's accounts?
The BoD is responsible for the preparation of balance sheets and financial reports, and their submission to the general assembly for approval. Unless otherwise provided in the general assembly resolution, approval results in release of directors, managers and auditors from any associated liability (Article 424, CC) (see Question 25). However, if there are missing issues in the balance sheet, or the balance sheet deliberately includes issues which conceal the real situation of the company, the approval does not result in release and the directors can be subjected to criminal liability.
39. Do a company's accounts have to be audited?
The conditions for determining the companies subject to independent audit are set out by the Decision of Council of Ministers (Article 397, CC). According to the Decision on the Determination of Companies Subject to Independent Audit, the companies in List (I) in the annex for the decision are subject to independent auditing.From 1 January 2023, the companies whose capital market instruments are not traded on a stock exchange or other organised markets but are deemed publicly listed under the Capital Markets Board are subject to an independent audit if they have at least two of the following (either itself or together with its affiliates) in two subsequent fiscal years:
- A total assets value of at least TRY30 million.
- A net sales revenue of at least TRY40 million.
- At least 50 employees.
The companies specified in List (II) are subject to independent audit if they have at least two of the following (either itself or together with its affiliates) in two subsequent fiscal years:
- A total assets value of at least TRY60 million.
- A net sales revenue of at least TRY80 million.
- At least 100 employees.
Companies that do not meet at least two of the criteria set out in List (I) and List (II) must retain independent auditors if they have at least two of following (either itself or together with its affiliates) in two subsequent fiscal years:
- A total assets value of at least TRY75 million.
- A net sales revenue of at least TRY150 million.
- At least 150 employees.
The audit must be made according to Turkey Auditing Standards, which are established by the Public Oversight Accounting and Auditing Standards Authority.
40. How are the company's auditors appointed? Is there a limit on the length of their appointment?
The company's auditor must be appointed by the general assembly. In a company group, the group auditor must be appointed by the general assembly of the controlling company.The auditor must be appointed in every fiscal year and before the end of the fiscal year. After the appointment, the BoD must register the relevant general assembly resolution with the Trade Registry and announce it on the Trade Registry Gazette and company's website immediately.If there is a justified reason, especially in case of a doubt concerning auditor's impartiality, the court can assign another auditor at the request of BoD or minority shareholders. For a minority shareholder to request the assignment of an auditor:
- The shareholder must have opposed the appointment of that auditor during the GaM.
- That opposition must have been recorded in the appointment resolution of general assembly.
- The shareholder must have become a shareholder of the company at least three months before the auditor's appointment.
If the auditor is not appointed within the first four months of the fiscal year the BoD, directors and every shareholder can request the court to appoint an auditor.If an auditor cannot be appointed until the fourth month of the activity period of a company for which the Savings Deposit Insurance Fund has been appointed as a guardian, the auditor will be appointed by the Minister to which the Savings Deposit Insurance Fund relates to. The Minister can delegate this authority to Fund Board.An auditor can terminate the auditing contract only if there is a justified reason or a court action is filed for removal of the auditor (Article 399, CC).
41. Are there restrictions on who can be the company's auditors?
Company auditors must be either:
- Persons who are certified or independent public accountants that are licensed by Public Oversight Accounting and Auditing Standards Authority.
- Corporations whose shareholders are persons who are certified or independent public accountants that are licensed by Public Oversight Accounting and Auditing Standards Authority.(Article 400, CC.)
A person cannot be appointed as an auditor if they:
- Were a director or employee of the company to be audited three years before the appointment as an auditor.
- a shareholder, director or an employee of the company to be audited;
- a representative or legal representative, or member of the BoD of a company that is linked to the company subject to audit;
- a director or owner of a company that has a connection with the company to be audited;
- a shareholder holding more than 20% shares of that company;
- a spouse, or someone with lineal kinship with a director or manager of the company to be audited, including third degree relatives by blood or marriage;
- working in a company with a connection to the company to be audited, or in an enterprise that has more than 20% shares of the company, or that provides services to a real person who has more than 20% shares of the company to be audited;
- involved in or contributing to the keeping of commercial books and preparation of the financial statements of the company to be audited (other than providing audit services);
- a representative, legal representative, employee, director, shareholder or owner of a natural or legal person who cannot be an auditor under the above paragraph;
- working for a person who cannot be an auditor as above;
- a person who has received at least 30% of their income within the last five years by providing auditing and consultancy services to the company, or to companies which have more than 20% of the shares of the company to be audited.
In addition, an auditor who has been appointed as an auditor for seven years in a ten-year period, cannot be appointed again for at least three years (Article 400, CC).
42. Are there restrictions on non-audit work that auditors can do for the company that they audit accounts for?
The company's auditor or its affiliates cannot provide consultancy services to the company other than the tax consultancy and tax audit services (Article 400/3, CC).
43. What is the potential liability of auditors to the company, its shareholders, and third parties if the audited accounts are inaccurate? Can their liability be limited or excluded?
If the auditors who audit the company's year-end and consolidated financial statements, reports and accounts act with fault while performing their legal duties, they are responsible to the shareholders and the company's creditors for damages caused by them (Article 554, CC).There is no provision related to limitation or exclusion of liability.
44. What is the role of the company secretary (or equivalent) in corporate governance?
There are no provisions relating to company secretaries under Turkish law.
First published by GTDT in 31.01.2023.
Tagged with: Gün + Partners, Görkem Bilgin, Commercial & Corporate