Accurate corporate books and records
Article 64(1) of the Turkish Commercial Code No. 6,102 (Law No. 6,102) stipulates that every merchant has to keep commercial books, within which it would have to show explicitly as per Law No. 6,102, its commercial acts and the economic and fiscal status of its commercial business and its accounts receivable and accounts payable along with the results it obtains in each accounting period.
Books have to be kept so as to allow third-party experts to gain insight into the activities and financial status of the relevant commercial business, through an audit they would carry out in a reasonable period of time.
Except for the types of books mentioned explicitly under article 64 of Law No. 6,102 and Regulation on Commercial Books, additional books to be kept shall be determined as per the Turkish Tax Procedure Law No. 213, through reference to article 64(5) of Law No. 6,102.
Article 65(1) and (2) of Law No. 6,102 stipulates that commercial books and other relevant records shall be kept in the Turkish language and recordings shall be in full, accurate, of a regular manner and on time.
Furthermore, article 88(1) of Law No. 6,102 stipulates that real person and legal entity merchants, in preparing their individual and consolidated financial tables, should comply with and apply Turkish Accounting Standards (TAS), accounting principles found within the conceptual framework, and commentary, which is an integral part thereof.
Pursuant to article 88(2) of Law No. 6,102 and its reasoning, TAS are obliged to be identical with International Financial Reporting Standards.
Effective internal company controls and external auditing
Article 392 of the Law No. 6,102 stipulates that each board member is entitled to request information, ask questions and make examinations on all works and transactions of a limited liability company (LLC) or a joint-stock company.
As such, a company cannot reject requests by a board member to:
- provide any corporate book, record, agreement, correspondence and document to the board of directors;
- examine and discuss these documents by a board of directors or board members; and
- obtain information from an employee or executive of the company.
Each member of the board of directors is also entitled to request information on business and specific transactions of the company from the executives with the approval of the chairman of the board of directors, and to request from the chairman of the board of directors the corporate books and company files to be presented to his or her attention if it is necessary for fulfilment of his or her duties outside the board meetings.
If the foregoing requests are rejected, the matter that the information request relates to should be discussed at a board of directors’ meeting within two days. However, if the board cannot convene or also rejects the information request of the board member, the board member making the request may apply to court to receive the requested information.
During board meetings, individuals authorised for the company’s day-to-day management and if any, management committees, as well as all members of the board of directors, are obliged to provide information.
Unlike above (ie, a request of information outside board meetings), the request of any board member in this respect that is directed during a board meeting cannot be rejected nor left unanswered.
As per article 437 of the Law No. 6,102, financial statements, consolidated financial tables, activity reports of the board of directors, auditors’ reports (if any) and the board of directors’ suggestions as to profit distribution shall be available at headquarters and branches of the company for review by the shareholders, starting from at least 15 days in advance of the day of a general assembly meeting in joint-stock companies.
Among these documents, financial statements and consolidated financial tables shall be available at headquarters and branches of the company for review of the shareholders for one year.
Each shareholder has the right to request a copy of the income statement and balance sheet of the company. Also, each shareholder may request information from the board of directors regarding the company’s business and from the auditors (if any) regarding their audit methods and results during a general assembly meeting.
The information to be provided to the shareholders should be honest and accurate, in accordance with principles of accountability and good faith.
The request for information may only be rejected by the general assembly on the grounds that such an explanation will carry the risk of company trade secrets being disclosed, or company interests being jeopardised.
Clear consent of the general assembly or a specific board resolution is required, regarding the questions raised by a shareholder, for an evaluation of a certain part of the commercial books and the company’s correspondence to go ahead.
If a shareholder’s request for information and examination is not answered, unlawfully rejected or postponed, and such a shareholder does not obtain the information, the shareholder may apply to a court. The court reviews the file and may order the company to share the information with the shareholder.
The right to request information and examination may not be abolished or restricted by the articles of association of the company or by a resolution of the general assembly or the board of directors.
Pursuant to articles 438 and 439 of the Law No. 6,102, each shareholder has the right during a general assembly to request an audit to clarify certain issues, even though such an audit is not included in the general assembly’s agenda, provided that foregoing information rights have already been exercised by the shareholder requesting the audit. In other words, to ask a company to appoint a special auditor, the shareholder that requests the audit should have first exercised its right to request and examine information. If the general assembly approves this request, either the company or each shareholder may apply to a court for a special auditor to be appointed.
If the general assembly does not approve this request, shareholders representing at least 10 per cent of the share capital may apply to court for appointment of a special auditor. In order for the court to accept it, the request addressed to court should convince the court that founders or corporate bodies of the company have explicitly violated the articles of association and relevant legislation, and caused damage to company and shareholders.
Article 614 of the Law No. 6,102 stipulates that each shareholder is entitled to request information from directors on all works and accounts of the company and make examination on certain matters in LLCs. If there is a risk that the shareholder may use the information obtained in a manner to damage the company, the directors may prevent providing information and examination to the extent necessary, and the general assembly shall decide on the matter upon the request of the shareholder. If the general assembly unduly prevents providing information and examination, the court decides on the matter upon the request of the shareholder.
As for external auditing, article 397 of the Law No. 6,102 rules that the companies that will be determined by the Turkish Council of Ministers are subject to independent audit. Accordingly, the Decree on Determination of Companies Subject to Independent Audit was published in the Official Gazette on 23 January 2013 (as amended from time to time) and determined companies and certain criteria as to being subject to independent audit.
Joint-stock companies that do not fall within scope of the Decree on the Determination of the Companies Subject to Independent Audit - thus, ones that are not obliged to appoint an independent auditor - are required to appoint ‘statutory auditors’ under article 397(5) of the Law No. 6,102. This said, secondary legislation that will determine the details of statutory audit and auditors has not been published yet. Therefore, requirements regarding the appointment of statutory auditors are not yet applicable as of the date this chapter was written.
In addition to and along with the auditing mechanism explained above, a provision specific to groups of companies, article 207 of the Law No. 6,102, stipulates that each of the shareholders of a subsidiary company might apply to the commercial courts of first instance, requesting the appointment of a private auditor, in cases where the need to protect the subsidiary company against the parent company arises, as stipulated by the same article. Article 210 of the Law No. 6,102 and the regulation issued in accordance with the relevant article stipulate that the Ministry of Customs and Commerce might audit companies on its own accord, or upon request, notice or complaint of shareholders or third parties.
Finally, as per article 1,524 of the Law No. 6,102, and the Regulation on Opening Website by the Companies, companies subject to independent auditing, as explained above, will be required to set up and maintain a company website, and must allocate a part of the website to the required announcements.
Periodic financial statements
In accordance with article 514 of the Law No. 6,102, boards of directors have to prepare financial statements and activity reports within three months as of the end of the previous financial year. Pursuant to Article 515 of the Law No. 6,102, financial statements have to be prepared in accordance with the TAS to reflect the company’s assets, liabilities and obligations, equities and results of business activities in a realistic, honest, full, clear and comparable way, and in a transparent and reliable manner to address the requirements and nature of business.
As per article 516 of the Law No. 6,102, the activity report shall reflect the company’s flow of activities and financial status in an accurate, full, straightforward, true and fair manner. This report shall address the financial status of the company based on the financial statements. The report shall also point out potential risks to be faced by the company. The contents of activity reports have been determined by the Regulation on Minimum Contents of the Annual Activity Reports of Companies.
Publicly held companies should also comply with the rules and regulations, as set out by the Capital Markets Board. Article 14 of the Capital Markets Law No. 6,362 stipulates that issuers have to prepare and present financial tables and reports, which are to be disclosed to the public or could be requested by the Capital Markets Board, when need be; on time, fully and correctly; and in compliance with the requirements set out by the board, within scope of the TAS, with respect to content and form. Issuers, as per the Capital Markets Law No. 6,362, are legal entities who issue capital markets instruments, who apply to the Capital Markets Board to issue such instruments or whose capital markets instruments are offered to the public, and the investment funds, who are subject to the Capital Markets Law No. 6,362.
Additionally, issuers and capital markets entities, except the investment funds and funds of housing financing and asset financing (collectively ‘enterprises’), are also subject to the provisions set out in Communiqué on Financial Reporting in Capital Markets (Communiqué Series No. II, 14.1). According to article 6 of the Communiqué Series No. II, 14.1, enterprises are obliged to keep financial reports annually. According to article 7 of the Communiqué Series No. II, 14.1, companies that issue capital markets instruments, which are traded in the exchange or some other standardised market, investment companies, investment funds, asset management companies, mortgage financing companies and asset leasing companies are obliged to keep interim financial reports on a quarterly basis. Article 4 of the Communiqué Series No. II, 14.1 stipulates that the financial reports consist of financial statements, board of directors’ activity reports and responsibility statements. As per article 14 of the Communiqué Series No. II, 14.1, enterprises are also obliged to publish their annual and interim financial reports on their websites, once these are publicly announced.
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