Article 462 of the Turkish Commercial Code (TCC) regulates the method of increasing capital from internal resources, a vital tool in the capital increase processes of joint stock companies. This method allows companies to use existing resources to boost their capital. However, this process requires a detailed evaluation of legal regulations and careful consideration of practical challenges. Below are the key steps companies should follow and the critical points they need to consider when increasing capital from internal resources.

Key Steps in the Process of Increasing Capital from Internal Resources

1. Balance Sheet Analysis and Identification of Resources

• Identifying Suitable Resources: Companies must determine the available free reserves, distributable portions of statutory reserves, and other eligible funds in the balance sheet.

• Assessing Financial Impact: An analysis should be conducted on the adequacy of these resources for conversion into capital and their potential impact on the company’s financial structure.

2. Adopting a Board Resolution

• Legal Compliance: The board of directors must adopt the necessary resolutions in full compliance with Article 462 of the TCC and related regulations.

• Protection of Shareholder Rights: The resolution should prioritize protecting shareholders' rights to receive bonus shares.

3. Preparing Necessary Documentation for Capital Increase

• Ministry Approval and Application Process: Applications to the Ministry of Trade must include comprehensive documentation, such as the balance sheet, reports on the use of reserves, and the board resolution.

• Transparency in Share Allocation: The documentation must reflect transparency and adherence to proportionality in the distribution of increased capital to shareholders.

4. General Assembly Approval and Registration

• General Assembly Meeting: The decision to increase capital must be approved at the general assembly, ensuring shareholders are well-informed.

• Registration with the Trade Registry: The increased capital must be registered with the relevant Trade Registry Office to gain legal validity.

Critical Considerations for Companies

1. Legal Ambiguities and Conflicts

   • Contradictions in Article 462, such as those between its first and third paragraphs, can lead to varying interpretations regarding resources eligible for conversion into capital. Expert legal advice is essential for resolving these ambiguities.

2. Ministry Circulars

   • Discrepancies between Ministry of Trade circulars and TCC provisions can create additional complications. Companies should carefully evaluate these circulars to mitigate risks.

3. Compliance with the Capital Markets Law

   • Public companies must ensure compliance with both the TCC and Article 12 of the Capital Markets Law (Law No. 6362).

4. Risk of Nullity or Annulment

   • Any violations in the capital increase process may lead to nullity or annulment. Meticulous adherence to legal processes is crucial to avoid such outcomes.

Recommendations for Businesses

• Seek Legal Counsel: Professional legal support is essential at every stage of the process to minimize potential risks.

• Develop Financial Plans: Effective financial planning ensures that the increased capital is utilized efficiently.

• Communicate with Shareholders: Companies should maintain regular and transparent communication with shareholders regarding the process.

• Prepare for Ministry and Registry Processes: Ensure that all necessary documents are meticulously prepared and submitted on time.

Conclusion

Increasing capital from internal resources is an effective financial management tool for joint stock companies. However, it requires careful planning due to legal regulations and uncertainties in the process. By complying with Article 462 of the TCC and related provisions, companies can protect shareholder rights while establishing a sustainable financial structure.