Increasing Capital in a Turkish Limited Company: TCC Article 590, Pre-Emption, Foreign Funding and Registration

1. Capital increase should solve a defined financing or balance-sheet need

Companies increase capital to fund expansion, meet regulatory or contractual capital requirements, repair a weak balance sheet, admit a new investor or convert shareholder financing into equity.

The legal form should match the economic goal. A short-term liquidity need may be better addressed by a lawful loan, while long-term solvency can favour equity.

Tax, thin-capital and transfer-pricing consequences should be considered before choosing debt or equity.

2. Article 590 connects capital increase to formation rules

The Commercial Code applies relevant formation provisions to increases. This ensures that new capital is validly committed and, where applicable, valued and paid.

The company cannot simply change the number on its letterhead or internal accounts.

A registered amendment is required.

3. The general assembly decides the capital increase

The increase requires a valid general assembly resolution under the Commercial Code and articles. Call, agenda, quorum and voting rules must be followed.

The resolution should identify old and new capital, nominal amount of new shares/interests, subscription allocation and payment terms.

Foreign shareholders should receive meeting materials early enough to exercise rights effectively.

4. Registered capital is part of the company agreement

Increasing capital requires amendment of the relevant articles provision. The amended text should be consistent with the resolution and registry documents.

Where other clauses refer to percentages or capital amounts, consequential amendments can be needed.

A shareholders’ agreement should also be checked for reserved-matter consent.

5. New capital must be subscribed by identified persons

The company should establish who undertakes the new capital and on what terms. Existing shareholders, a foreign parent or a new investor can subscribe subject to law and articles.

Subscription obligations should not be confused with a general promise to finance the company.

Payment deadlines and consequences of default should be documented.

6. Existing shareholders generally have proportional subscription protection

Pre-emption protects a shareholder from involuntary dilution by allowing participation in new capital proportionally to existing ownership.

The company should calculate each shareholder’s entitlement accurately.

Notices and exercise periods should be documented so later disputes can be avoided.

7. Dilution changes voting, dividend and control economics

A shareholder who does not subscribe can see a 40% holding fall to 20% or less depending on the size of the increase. That can eliminate veto or minority thresholds.

Capital increase should not be used abusively solely to squeeze out a minority or transfer control without legitimate financing purpose.

Minority shareholders should analyse the commercial need, pricing and subscription structure.

8. Pre-emption cannot be removed arbitrarily

Where the law permits limitation or removal, a justified reason and proper corporate decision are required. A selective increase benefiting the majority can create challenge risk.

The company should document why the chosen structure serves a legitimate company interest.

General assembly challenge and just-cause remedies can become relevant if dilution is abusive.

9. Cash capital requires a traceable payment structure

Capital should be paid through lawful channels and recorded clearly in company accounts. Bank records should identify subscriber and payment purpose.

Using unexplained third-party funds can create AML, accounting and ownership questions.

Payment evidence should be preserved for registry and audit.

10. Foreign shareholders should coordinate currency and banking issues

A foreign investor can fund capital from abroad. The transfer should state that it concerns capital subscription and reconcile with corporate resolutions.

Exchange-rate accounting and foreign direct investment statistical/reporting obligations should be reviewed where applicable.

A bank transfer alone does not complete the corporate increase.

11. Converting shareholder debt to equity requires careful documentation

A company can consider capitalising genuine shareholder receivables subject to legal and accounting conditions. The existence and amount of the debt should be verified.

Conversion can improve debt/equity ratios and reduce thin-capital exposure, but it changes creditor priority and shareholder economics.

Tax/accounting treatment should be confirmed before the resolution.

12. In-kind capital follows stricter valuation and eligibility rules

Assets contributed instead of cash must satisfy statutory requirements and valuation procedures. Not every claim, encumbered asset or uncertain right qualifies.

Expert valuation and registry steps can be required.

Foreign assets can create additional title, valuation and legalisation issues.

13. The increase becomes a public corporate fact through registration

The company must file the amendment, resolutions and required evidence with the competent trade registry. Registry review can identify formal defects.

Corporate records, share ledger and public information should be updated consistently.

Closing should not be treated as complete until registration requirements are satisfied.

14. Company bank and payment systems should reflect the new capital structure

After registration, banking KYC can require updated shareholding and beneficial-owner information.

New investors should be added to UBO and corporate documents where thresholds are met.

Large incoming capital transfers should have a clear source-of-funds file.

15. Capital contribution itself is different from taxable business revenue

Equity injected by shareholders is not ordinary sales income. Accounting should record it as capital, subject to corporate and tax rules.

Costs, issuance premiums or debt conversion can have separate tax treatment.

Legal and accounting documentation should use the same transaction characterization.

16. A capital increase can change beneficial ownership

If a new investor exceeds the applicable ownership/control threshold, Turkish UBO reporting should be updated.

Indirect foreign ownership chains should be recalculated after closing.

Our UBO reporting guide explains the hierarchy.

17. Capital increases are frequent sources of shareholder litigation

Common disputes concern inadequate notice, unlawful limitation of pre-emption, artificial valuation, undisclosed new investor arrangements and dilution designed to alter control.

Shareholders should preserve resolutions, notices, financial justification and subscription documents.

Where necessary, general assembly challenge and interim relief should be considered within statutory deadlines.

Conclusion

A Turkish limited-company capital increase should be treated as a financing transaction and a governance transaction at the same time. The company must validly amend registered capital, protect shareholder subscription rights, document funding and complete registry/UBO updates. Foreign investors should model dilution and control before money is transferred.