Capital Increase From Internal Resources In Joint Stock Companies 11 November 2019

The legislator directs the companies more particularly to internal resources in order to increase their capital, aiming to protect  the shareholders. Hereby, it is aimed to restrain the companies from increase their capital by directing to external sources with the idea that the capital to be increased from internal resources will be insufficient.

Capital increase from internal resources in joint stock companies is regulated in Article 462 of Commercial Law. Capital increase from internal resources allows the reserve funds and the freely available parts of reserve funds included in the balance sheet and the funds to be added to capital to be converted into capital.

The capital increase from internal sources does not actually provide an increase in company assets. Although company assets remain constant, company capital increases.

The rules to be applied to all types of capital increase will also apply to capital increase from internal resources. According to Article 421, the decision to increase the capital from internal resources shall be taken by the majority of the votes present at the general assembly, where at least half of the company capital is represented. If the meeting quorum cannot be obtained at the first meeting, a second meeting may be held within one month at the latest. The quorum for the second meeting is stipulated at least one third of the company capital.

1. Internal Resources:

Internal resources are the funds and other resources existing within the company. The internal resources that can be used in capital increase can be listed as; reserve funds, profit transferred from the previous year and retained earnings, revaluation funds, participation stocks and earnings from the sale of real estates.

Pursuant to Article 462/1, reserves funds which are non-dedicated for a specific purpose and reserved by the Articles of Association or the General Assembly decision, freely available parts of reserve funds and the funds that the legislation allows to be included in the balance sheet and added to the capital can be converted into capital and hereby capital can be increased from internal resources.

The internal resources listed in the Article are not “numerus clausus”. Generally, the reserve funds and the debts taken from the shareholders for capital increase are converted into capital.

2. The Conditions Of Capital Increase From Internal Resources:

The conditions of capital increase from internal resources are regulated in Article 462/2. In order for such capital increase, the existence of an approved annual balance sheet and a clear and written statement of the Board of Directors is required.

Thus, the amount where the increased portion of the capital is met from internal sources actually exists within the company will be verified by the approved annual balance sheet and the declaration of the Board of Directors.

In case of more than six months have passed since the balance sheet date, a new balance sheet must be issued and approved by the Board of Directors. It is assumed that the internal resources has been used if this six-month period is exceeded, In this case, the internal resource should be verified with a new dated balance sheet.

3. Content of the Statement to be Prepared by the Board of Directors

In joint stock companies, the statement concerned the capital increase will be covered from the source of the internal resources to be decreased and increases the principal capital shall be prepared by the Board of Directors. The statement includes information on the sources of capital increase from internal sources, the reality of these sources and their existence in the company assets.

Documented and reasoned explanations are made about the free disposability of the fund or reserve fund converted to capital, the approval of the necessary organs and institutions, the legal and administrative requirements that are fulfilled, the reasons of classification or abolishment of preferential rights, the amount and proportion of the rights and who is given this right, in what purpose and at what price.

In addition, according to Article 73 of the Trade Registry Regulation, necessary reports prepared by a certified public accountant or an independent accountant and financial advisor should be obtained, related to whether the capital remains unrequited, the determination of the company's equity and the amount of internal resources that actually exist within the company.

4. Procedure of the Capital Increase

There is no change in the number of shareholders or their personalities in the capital increase from internal resources. For this reason, capital increase from internal resources is realized either by creating new shares and distributing them to the existing shareholders in proportion to their shares or by increasing the nominal value of the existing shares without issuing new ones (Ar.456/1). This provision is foreseen in order to prevent the increase of new capital without directing the company's internal resources and to collect the capital commitments which have not been paid before.

The procedural rules to be followed are stipulated in Article 462/3. These rules are mandatory with no exceptions and otherwise cannot be decided by the parties. The result of the violation is nullity. It should be stated that, this prohibition applies only to funds that are allowed to be added to capital. It does not impose any limitation on reserve funds that are not designated for a specific purpose and reserved by the Article of Association or the decision of the General Assembly.

Pursuant to Article 462/3, in case there are funds in the balance sheet allowed by the legislation to be added to the capital, the capital cannot be increased by undertaking capital before these funds are converted to capital. Capital can be increased both by converting these funds into capital and by undertaking capital at the same time and at the same rate.

In capital increase, registration has a founder effect. The capital increase from internal resources is finalized with the registration of the decision of General Assembly. With the registration, the shareholders acquire the portion of the increased capital according to the ratio of the shares automatically and free of charge (Ar. 462/3).

This issue cannot be considered as a preferential right related to the free share and attached to the old share therefore, there shall be no restrictions related to preferential right : With the registration, current shareholders automatically acquire free shares according to the ratio of their current shares to capital. Rights on free shares cannot be removed or limited. This right is indispensable.

Türkçe Versiyonu İçin: http://www.kasaroglu.av.tr/tr/40230/Anonim-Sirketlerde-Ic-Kaynaklardan-Sermaye-Artirimi