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1. INTRODUCTION

Dear Clients and Business Partners;

As it is known, companies may apply to various financing methods in order to protect, strengthen, continue and increase their financial structures. Financial funding methods may be bank credit, factoring, public offering of shares, financing bonds etc. and may be capital increase within the company and financing from existing shareholders or new investors in return for new shares within the scope of this capital increase. For financial, economic and legal and practical reasons, financing with the capital increase method has become one of the most preferred methods. With this article, the legal definition and legal obligations regarding the share issue with emission premium as one of the capital increase types are handled.

2. WHAT IS SHARE WITH EMISSION PREMIUM?

The fact that the newly issued shares can be issued with a value higher than their nominal value as a way of capital increase specific to joint stock companies is defined as -emission- premium shares in the Turkish Commercial Code (“TCC”). It should be noted that when the share with emission premium is issued, the amount of increased or added capital becomes part of the company capital, but the emission premium is added to the company assets, not to the company capital. Premium share issuance can be established through capital increase in joint stock companies that adopt both the basic capital system and the registered capital system.

In accordance with the provisions of article 347 titled “Premium Shares” of the TCC; “A share cannot be issued at a price lower than its nominal value. In order for the shares to be issued at a price higher than their reputable value, a provision or general assembly decision must be found in the articles of association.

When the rationale of the judgment is examined; provision separates the share’s reputable value and subtraction (export, emission) premium (agio). The minimum deduction price is equal to the nominal value. If the price falls below the nominal value, the first sentence of the judgment, namely the ban, is violated. General assembly decision contrary to article 347 is invalid in capital increases pursuant to article 447 (c). In the same way, commitments must be void. Thus, a difference arises between the establishment and the capital increase, and this difference arises from the subparagraph (b) of article 447. Since the subtraction premium enriches the assets, it strengthens the company. According to paragraph (a) of paragraph 2 of Article 519, the premium is a legal reserve fund.

This opportunity granted to joint-stock companies ensures that the current shareholding structure of the company is not spoiled regardless of the price to be added to the company as capital and that the existing shareholders are protected from becoming a minority.

3.  CAPITAL INCREASE THROUGH SHARE ISSUE WITH EMISSION PREMIUM

For the issuance of premium shares, TCC has set up additional conditions for the capital increase procedure. Accordingly, it should first be stipulated in the articles of association that shares can be issued at a price higher than their nominal value, or there should be a general assembly decision on this matter. The legislator has not set a special quorum for the general assembly decision, unless a heavier quorum is stipulated in the company’s articles of association, the decision is subject to the quorums laid down in Articles 418 or 421 of the TCC, depending on the nature of the decision. As the emission premium share is issued, the registration fee to be paid is calculated not based on the premium price, but on the basis of the increase in the share value, the material burdens related to the fee are also greatly reduced.

In addition, a report should be prepared by the board of directors in accordance with paragraph 2 of article 461 of the TCC, and should explain the reasons for the premium issuance due to the reasons for the issue of new shares; this report should then be registered and announced[1].

According to the 480th article of the TCC, in joint stock companies that adopt the registered capital system, the board of directors should be granted the right to issue premium shares with the articles of association. In case of a capital increase in the registered capital system, the board of directors should declare these issues as stipulated in the articles of association and publish them on the company’s website in accordance with paragraph 2 of article 460 of the TCC.

Another important issue to be considered regarding the issuance of premium shares is regulated in article 344 of the TCC. Accordingly, although the legislator has granted a period of 24 months following the registration for the payment of the subscribed capital, it has stipulated that the subtraction premiums of the shares must be paid before registration.

Finally, some special provisions have been regulated in the Capital Market Board for companies subject to the Capital Markets Law (“CML“). According to this, it is obligatory to pay the entire amount of the shares issued in accordance with paragraph 1 of Article 12 of the CML. In addition, the Capital Markets Board may request that the shares to be issued be sold at a premium price and that the rights to purchase new shares be used at a premium price if the shares are above the market price or the nominal value of the book.

[1] The board of directors explains the following with a report: reasons for limiting or abolishing the right of priority; reasons for the issue of new shares with and without premium; how premium is calculated. This report is also registered and announced.

4.  STATUS OF EMISSION PREMIUM SHARES

The portion of the capital put into the company in return for the premium shares bought by the investor is more than the nominal value of the shares, and it is recorded in the capital reserve account in accordance with the article 519 of the TCC (which is not used for deduction expenses, redemption provisions and charitable payments). Therefore, the part over the nominal value of the shares does not affect the voting right or dividend. However, if the premium provided from the shares issued pursuant to Article 519 of the TCC does not exceed half of the capital, it can only be used to take measures that are suitable to close the losses, to continue the business when the work is not going well, or to prevent unemployment and mitigate the consequences, and it is not possible to save freely. The limit to be considered here is whether the general legal reserves of the company exceed half of its capital. Reserve funds exceeding half of the capital is freely subject to savings.

5.  CONCLUSION

Issuance of share with emission premium is a well-known opportunity especially for the correction or improvement of the financial status of the companies. As a result of this opportunity, the right to vote and take a profit share in the company is independent of the capital set in premium share. In this way, even if the existing shareholders of the company have made much less capital commitment, they will be protected from becoming a minority shareholder. However, when exporting premium shares, as stated above, additional obligations arising from the legislation must be carefully completed and a request for registration.

[1] The board of directors explains the following with a report: reasons for limiting or abolishing the right of priority; reasons for the issue of new shares with and without premium; how premium is calculated. This report is also registered and announced.

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