Pre-Establishment Company and Preliminary Company – Av. Lider Tanrıkulu

Concerning companies with more than one partner, the beginning of negotiations between the future partners, who have gathered with the intention of establishing a company, is defined as the preparation phase of the contract. If the intention of establishing the company is advanced by the partners by the promise of the payment of all of the principal capital, if the prime contract is signed in the presence of a notary public or the manager (or the vice manager) of the registry of commerce, then it can be said that the phase of signing of the contract is in motion. After the signing is concluded, the company will be established by the carrying out of the processes defined by the articles of the Turkish Trade Act No. 6102 and the registry of the company to the trade registry.

The continuity of this process, which consists of the three phases of preparation, signing of the contract and registry, has led to the need for regulations concerning the domestic and foreign interactions and relations of the partners who have come together with the intention of economic investment. Even though there are regulations which regulate the formation of the structure of a company as an incorporated or a limited company in detail after the registry of the prime contract, there are no regulations related to the Turkish Trade Act No. 6762 concerning the processes before the registry. The time which is required for the registry of the incorporated and limited companies, and the intense legal interactions which take place during this time before the registry, have led to a need for regulations concerning the applications related to these processes. The legislative body has introduced the preliminary company regulation with the article No. 335 of the Turkish Trade Act No. 6102 for the phase after the signing of the contract, keeping the above-mentioned need in mind. The legislator did not introduce any regulations concerning the preparation phase, expecting the supreme court decisions and academic circles to complete the voids in the regulation with their own initiative.

  1. PRE-ESTABLISHMENT COMPANY

As it was stated above, the pre-establishment phase is defined as the realisation of the intentions of the partners to form a company together. The future partners, as they outline the legal foundations of the company, they work on areas like determining the field and goal of the company. They take actions which have legal consequences and they can even make investments which can be allocated to the company that is to be completely formed.

It is debated in doctrine, whether the structure of the contract which establishes the company should be formed in accordance with the 29th article of the Turkish Law of Obligations No. 6098 or the 620th article of the same law. It is understood that the preliminary contract will be subject to the condition of the official form of the company contract in accordance with the type of the company if the preliminary contract is made a subject to the form of the contract which is to be formed with the 29th article of the Turkish Law of Obligations. If, in accordance with the 126th article of the Turkish Trade Law No. 6102, it is agreed that the verdicts concerning the ordinary companies, in case of a lack of verdict in the Turkish Trade Law, will be in effect, then it is required to accept that the contract will not be subject to the condition of form.

Verdict No. E. 1971/T-702, K. 1974/401 on 12.06.1974 of the Supreme Court Assembly of Civil Chambers dictates as follows: “As the formation of the limited company is not yet realised, the partners should be considered ordinary partners and the relations between the partners should be regulated in accordance with the regulations concerning ordinary companies…” With this verdict, the Supreme Court Assembly of Civil Chambers states that the phases before the actual establishment of incorporated and limited companies are subject to verdicts concerning the ordinary companies and that there is no space for the application of the 29th article of the Turkish Law of Obligations. Our personal opinion is that the Turkish Law of Obligations No. 6098 is not fit to be applied concerning the pre-establishment companies. The principle of temporal and spatial continuity dictates that an entity which turns into a legal entity differs from itself after the transformation. The verdict which refers to the Turkish Trade Act 194/2 and 184/4 shows that it functions on the principle of temporal and spatial continuity by dictating that the article No.180, which suggests that “a company may change its legal form and the company which was transformed is the continuation of the old company,” cannot be applied. Yet, the preliminary company is an exception in this case. Likewise, the legal entity which is formed with the birth of the company and the legal entity which is established afterwards are considered to be one and the partnership is also considered to be one, making the two companies continuation of one another. Ultimately, incorporated or the limited company are not the continuations of the pre-establishment company. In this case, there is no temporal and spatial continuation between the pre-establishment company and the legal entity that is to be established. There is no regulation in the law which would ensure this, like for the preliminary company. Also, in our opinion, the establishment of the pre-establishment company is not based on the condition of form, as the article 126 of the Turkish Trade Act, which dictates that the regulations for the ordinary companies are in effect if there are no rules about the matter at hand in the act, is to be considered an exception for the article No. 29 of the Turkish Law of Obligations.

As it was mentioned above, as commonly promoted by the doctrine and the verdicts, the law which is to be applied in this phase is the law concerning rulings about ordinary partnership. In accordance with this, the pre-establishment company shall cease to exist, with the existence of the causes which are referred to with the 639th article of the Turkish Law of Obligations No. 6098. The pre-establishment company shall cease to exist in cases like the signing of the prime contract of the incorporated or the limited company, the decision of the partners to end it or with the desire to terminate under rightful conditions.

Culpa in contrahendo (the liability which exists because of the errors during the contract negotiations) liability can be referred to during the pre-establishment company phase. Culpa in contrahendo is not clearly regulated in the Turkish Law of Obligations No. 6098. The concept of misconduct during the negotiations has been introduce to the Turkish legal application by the Swiss and German legal resources. It is seen that the supreme court has been referring to culpa in contrahendo quite frequently in recent years. As it was stated above, the pre-establishment company ceases to exist with the end of preparation phase and the signing of the company contract.

  1. PRELIMINARY COMPANY

There is no concept of preliminary company in the Turkish Trade Act No. 6762. The legislative body has witnessed the problems which occur in application during the establishment process and has included the institution of preliminary company to the Turkish Trade Act No. 6762. Even though the preliminary company is not referred to in a direct manner in the text of the Turkish Trade Act article No.335, it is clear in the law’s preamble that the preliminary company is being referred to with the regulation of the article No.335 of the Turkish Trade Act.

There is a consensus on the matter of applications for incorporated and limited companies being applied to preliminary companies. Yet, the matter becomes controversial when other types of companies than these two are being discussed. Some defend the applications of preliminary companies for all commercial companies, while others defend such applications for all stock corporations. If it is accepted that the applications concerning the preliminary company will be in effect only with the incorporated and limited companies, there will be no application for the institute of a preliminary company in accordance with the Turkish Trade Act No. 335 for the limited partnerships and unlimited partnerships which were formed as private companies. In this case, rules about ordinary companies will be applied for these two private companies which can be considered out of reach (Turkish Trade Act, Article No. 214; Turkish Law of Obligations Article No. 620/2). In German Law, the deciding factor about the application of preliminary company rulings is the existence of the cooperative structure of the company which is to be formed, with the condition that it will become a legal entity in the future. This means that the rulings about preliminary companies will be applied to this company if the elements like the structure, the authorities of departments, the administration and representation of the company are regulated by the partners in the prime contract and if the company will eventually become a legal entity.

The preliminary company is established when the founders sign the prime contract in the presence of a notary public, trade registry manager or registry deputy manager. Even though preliminary company was accepted as an ordinary company with previous supreme court verdicts before the Act No. 6102, the new regulation clearly dictates that a preliminary company is definitely not an ordinary partnership and preliminary company has been defined as joint ownership by the prevailing opinion. From this perspective, the preliminary company is a joint ownership which derives from legal processes.

As it was stated that the preliminary company is a joint ownership according to the preamble of the article No. 335 of the Turkish Trade Act, it can be assumed that the preliminary company will be regulated according to the article No. 701 of Civil Law No. 4721 and its continuous rulings. As the clause 702/1 of the Civil Law dictates that “the rights and responsibilities of the partners are determined with the conditions of the contract which forms the partnership,” the partners will be able to shape their interactions and relations between each other with the founding contract. A different point from the German legal system is that the preliminary companies do not have an active or a passive capacity to sue. Yet, the partners will be able to sue and will be considered compulsory participants of the case in the court with cases against the company, in accordance with the principles of joint ownership and on the condition that the right provided by the 702/last clause of the Turkish Civil code, which dictates that “each of the partners can ensure that their shared rights will be protected and all the partners will benefit from this protection,” will be reserved. They will govern the company by unanimous vote, unless it is stated otherwise with the conditions of the contract, and they will also be able to benefit from the partnership properties which are part of the joint ownership through unanimous vote. It is not possible for the partners to make direct use of the real property in the name of the preliminary company. Real property which is subject to joint ownership must be registered for all the partners. This means that the reason for the joint ownership will be recorded after the names of the property owners have been stated in accordance with the clause No.28/5 of the Land Registry Regulation. Yet, the real property which has been acquired in the name of the ownership should not be mixed with the capital in kind promised by the partners as capital. In accordance with this, the real property which has been promised with the prime contract will be annotated to the land registry with the value that is to be determined by an expert as regulated by the article No.128 of the Turkish Trade Act and the real property will be delivered to a reliable person.

Even though the establishment of the preliminary company is defined clearly, its end is not defined in a neat manner. Articles 354/1 and 345 of the Turkish Trade Act must be considered for the end of the preliminary company.  In accordance with the article No. 354/1 (585/1 for the limited corporations) of the Turkish Trade Act, the registry and the announcement will be completed within the 30 days of the conclusion of the contract, the application of the founders to the trade registry and the acquirement of a permit from the Ministry of Industry and Commerce for companies for which such a permit is required. Even though 30 days has been determined for the establishment of the company, there are no determined enforcements if the company is not established within this time. Yet, the enforcement is later regulated in the clause No. 345/2 of the law. In accordance with this, “the costs are delivered back to the founders by the bank if there is a trade registry document conforming that the company is not transformed into a legal entity within three months of the signing of the company contract, as regulated by the first clause of the article No. 335, in the presence of a notary public, trade registry manager or a trade registry deputy manager. As article 703 of the Turkish Civil Law, which regulates the rules concerning the end of the joint ownership, dictates that “the joint ownership ends when the property is transferred, when the partnership is dissolved or if the ownership is turned into a condominium-principled ownership. The distribution will be carried out based on the rulings of condominium-based ownership unless there is a ruling stating otherwise,” it can be said that there is a harmony, which completes the dissolution, between article No. 703 of the Turkish Civil Law and article 345/2 of the Turkish Trade Act. There is a regulation in the Turkish Trade Act No.345/2 concerning the restitution of the capital, in accordance with the writ of the trade registry and the bank, but there are references to the joint ownership for cases concerning dissolution aside from this. Prof. Doctor Hasan PULAŞLI criticized the dissolution of the company before registry by stating that “the dissolution of a preliminary company, before it becomes a legal entity, is against its own principles (Company Law Annotation page 625)

As it can be understood from article No. 335 of the Turkish Trade Act, the partners of the preliminary company are not considered to be tradespersons and the company is considered to be the private property of the founder if the company has only one partner. The partners are unlimitedly liable for their properties in their dealings with third parties.

  1. CONCLUSION

Even though preliminary companies are rarely witnessed in application, they are subject to great theoretical interest concerning the incorporated and limited companies. Due to the demand of the entrepreneurs for safe processes and many affairs concerning the business life, we believe that preliminary companies will be mentioned more often in the future, especially by the lawyers.

It is proper that the change brought with the law No. 6102, even though it is in an article’s preamble, refers to the preliminary company. Yet, we think that it is not right, especially when we consider the pace at which the business life is developing, to lay down the legal foundations of the concept of a preliminary company through a slowly developing institution like the joint ownership. The partners tendency to establish a company will be strengthened if the rulings concerning the preliminary companies are regulated in accordance with the requirements of the era and if the bureaucratic requirements are lightened.

Lawyer
Lider TANRIKULU

This article is translated by Kaan KABALAK

Bibliography

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3.ŞENER, Oruç Hami, 2017, Yargıtay Kararları Işığında Limited Ortaklıklar Hukuku (Limited Corporations Law in the Light of Supreme Court Verdicts), Ankara, Seçkin Yayınları

  1. GÜMAN, Nihat, 2006, Elbirliği Mülkiyeti ile Kollektif ve Komandit Şirket Hisselerinin Haczi ve Paraya Çevrilmesi (The Impoundment of the Unlimited and Limited Companies and their Transformation into Capital with Join Ownership) İstanbul, İstanbul Üniversitesi Sosyal Bilimler Enstitüsü Özel Hukuk Anabilim Dalı (University of Istanbul, Institute of Social Sciences, Department of Private Law)

5.PABUÇCU, Furkan,2007, Anonim Ortaklığa Sermaye Olarak Taşınmazların Konulması (The Protection of the Real Property as Contribution to the Incorporated Partnership), İstanbul, İstanbul Üniversitesi Sosyal Bilimler Enstitüsü Özel Hukuk Anabilim Dalı Yüksek Lisans Tezi (University of Istanbul, Institute of Social Sciences, Department of Private Law Postgraduate Thesis)

6.BİLGE, Kerem, 2016, Pay Sahipleri Sözleşmesi Kapsamında Anonim Şirketlerde Pay Devrinin Kısıtlanması (The Limitation of Assignment of Share in Incorporated Companies in Relation to the Shareholders Contract), İstanbul Bilgi Üniversitesi Sosyal Bilimler Enstitüsü Hukuk Yüksek Lisans Programı Ekonomi Hukuku, Yüksek Lisans Tezi

(University of Istanbul, Institute of Social Sciences, Department of Law, Economic Law Postgraduate Program Postgraduate Thesis)

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