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Assets (Accounting)

Strengthening Capital in Limited Liability Companies in Türkiye: Understanding Internal Capital Increases

Strategic Insights

— 1 min read

In Türkiye, Limited Liability Companies can bolster their capital through internal resource reallocation, a practice outlined in the Turkish Commercial Code. This process enhances equity without requiring external cash contributions, offering several benefits for companies seeking sustainable growth. By reallocating internal resources, such as legal and voluntary reserves, revaluation funds, and retained earnings, companies can strengthen their financial foundation and improve their debt-to-equity ratio. An internal capital increase is an accounting-based transaction that allows companies to increase their registered capital without introducing new assets, instead issuing bonus shares to existing shareholders.

Key Takeaways:

  • Internal capital increases are a viable option for Limited Liability Companies in Türkiye to strengthen their capital, as regulated by the Turkish Commercial Code, with no legal prohibition for their application.
  • Recognized internal sources for capital increases include legal and voluntary reserves, revaluation funds, cost increase funds, profits from immovable or participation share sales, retained earnings, and undecided profits from the most recent fiscal year.
  • The process involves submitting required documents, including a petition, general assembly resolution, amended articles of association, attendance list (unless unanimous), and a financial advisor report, to the Trade Registry Directorate via MERSİS.
  • An internal capital increase allows shareholders to receive bonus shares without additional contributions, ensuring equal treatment and is legally protected.
  • The advantages of this method include strengthening equity without requiring cash contributions, improving debt-to-equity and capital adequacy ratios, preventing unnecessary reserve distributions, enabling tax-exempt share allocations, and capitalizing unrealized gains.

Statistics:

  • The Turkish Commercial Code regulates internal capital increases for both joint-stock companies and Limited Liability Companies.
  • The list of recognized internal sources for capital increases is not exhaustive, as stated in the Turkish Commercial Code, Article 462.
  • Internal capital increases are typically accounting-based transactions that do not introduce new assets into the company.

Sources:

  • Derya Vural, [Ticari İşletme ve Şirketler/ Vol. 2, 3rd ed.](2023) (Only in Turkish)
  • Huseyin Pulasli, [Şirketler Hukuku Genel Esaslar, 9th ed.](2024) (Only in Turkish)
  • Eris, G. (2017). [Ticari İşletme ve Şirketler/ Vol. 2](https://www.mondaq.com/articleActivityResult_2024.09 – Legal basis 9.02), 3rd ed., (Only in Turkish)
  • Gou Associated with the M.V (2024), Capital of Shares. 34335 TURKEY Only in Turkish)

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