What it does is measure a single thing: whether control was exercised in a way that caused the subsidiary a loss, and whether that loss was compensated before the financial year closed.
Owning a Turkish subsidiary does not make a foreign parent liable for its debts. Turkish law keeps the two legal persons separate and then asks a narrower question: was control exercised in a way that caused the subsidiary a loss, and was that loss compensated before the financial year closed? Where the answer is yes and no respectively, Arts. 202 and 206 of the Turkish Commercial Code No. 6102 give the subsidiary’s shareholders and its creditors a direct action against the parent — and, in the case of a parent seated abroad, they give them a Turkish court to bring it in.
This guide works from the statutory text of the Commercial Code (full text), Arts. 195 to 209. Investors choosing between holding structures in the first place will find the comparison of vehicles in our guide to whether to use a liaison office, a branch or a subsidiary in Türkiye, and the entry-stage framework on our foreign investment page.
1. When the group of companies regime reaches a foreign parent company
Article 195(1) defines control in two ways. A commercial company is the controlling company if it holds, directly or indirectly, the majority of voting rights; or the right, under the articles, to appoint the number of members forming the majority able to take decisions in the management organ; or, together with its own votes and on the basis of an agreement, alone or with other shareholders, the majority of voting rights. Separately, control also exists where one company can keep another under its control “by virtue of an agreement or in another way” — a functional test that does not depend on share percentages at all.
Two further provisions decide whether a foreign parent is inside the regime. The closing sentence of Art. 195(1) applies the group provisions where at least one of those companies has its seat in Türkiye. Article 195(5) then extends Arts. 195 to 209 to a group whose controller is an undertaking with its seat or residence inside or outside Türkiye, and adds that the controlling undertaking is deemed a merchant. So a holding company in Amsterdam, a partnership in Dubai or an individual controlling through a chain of vehicles is not outside the Turkish rules by virtue of being outside Türkiye.
Article 195(2) adds a presumption rather than a rule: holding the majority of shares, or enough shares to take the decisions needed to manage the other company, is evidence of control. It is rebuttable, which matters for a financial investor holding a large stake without directing anything.
2. Notification and registration duties between parent and subsidiary
Article 198(1) requires an undertaking that reaches — or falls below — 5, 10, 20, 25, 33, 50, 67 or 100 per cent of a capital company’s capital, directly or indirectly, to notify the company and the competent authorities within ten days of completion of the transaction. The acquisition or disposal is disclosed under a separate heading in the annual activity and audit reports and announced on the company’s website; notifications are made in writing and registered and announced in the trade registry.
The sanction in Art. 198(2) is what gives the obligation force: for as long as the notification, registration and announcement duties are not performed, the rights attaching to the shares concerned — including the voting right — are frozen. A parent that closed an acquisition and never filed can therefore find that the votes it cast were not exercisable. Article 198(3) adds that a control agreement is valid only if registered and announced in the trade registry, and that invalidity of the agreement does not prevent the group liability provisions from applying.
| Trigger | Provision | Who must act | Deadline | Consequence of failure |
|---|---|---|---|---|
| Crossing 5, 10, 20, 25, 33, 50, 67 or 100 per cent of capital, upwards or downwards | TCC Art. 198(1) | The undertaking acquiring or disposing | 10 days from completion; then registry filing and website announcement | All rights in the shares concerned, voting rights included, are frozen until performed (Art. 198(2)) |
| Entering into a control agreement | TCC Art. 198(3) | The parties to the agreement | Registration and announcement are a condition of validity | The agreement is invalid; the group liability provisions still apply |
| Annual report on relations with the group | TCC Art. 199(1) | Board of the controlled company | Within the first three months of the financial year | Judicial fine of not less than 200 days (Art. 562(3)) |
| Concluding declaration on consideration, loss and compensation | TCC Art. 199(3) | Board of the controlled company | At the end of the report; only this part appears in the annual activity report | Feeds directly into the loss analysis under Art. 202 |
3. Which acts of a parent company count as abuse of control?
Article 202(1)(a) is the operative rule. The controlling company may not exercise its control so as to cause the controlled company a loss, and the article lists what that looks like in practice: directing it to transfer business, assets, funds, personnel, receivables or debts; to reduce or divert its profits; to encumber its assets with rights in rem or personal rights; to assume suretyships, guarantees or avals; to make payments; or, without just cause, to take decisions that adversely affect its productivity or activity — not renewing facilities, restricting or halting investment — or to refrain from measures that would secure its development.
Then comes the qualification that the whole regime turns on. The prohibition does not bite where the loss is actually compensated within that financial year, or where the controlled company is granted a claim right of equivalent value, stating how and when the loss will be compensated, by the end of that financial year at the latest. Turkish group law therefore does not ban intragroup transactions that disadvantage a subsidiary; it prices them and gives them a deadline.
If neither route is taken, Art. 202(1)(b) allows each shareholder of the controlled company to claim compensation of the company’s damage from the controlling company and from those of its directors who caused the loss. The court is not confined to damages: on application or of its own motion, where equitable on the facts, it may order the controlling company to purchase the claimant shareholders’ shares, or adopt another appropriate and acceptable solution. Under Art. 202(1)(c) creditors may bring the same claim for payment to the company even if the company has not gone bankrupt — an important difference from ordinary director liability, where Art. 556 routes creditor claims through the bankruptcy administration first.
The defence in Art. 202(1)(d) is real and is where these cases are usually fought. No damages may be awarded if it is proved that the transaction causing the loss could equally have been made — or refrained from — in the same or similar conditions by the directors of an independent company observing the interests of that company in accordance with the rule of good faith and acting with the diligence of a prudent manager. The comparator is a hypothetical stand-alone company, and the evidential burden sits with the defendant. The parallel standard applied to the subsidiary’s own board is set out in our guide to board liability and discharge in Turkish joint stock companies.
4. Structural transactions: the dissenting subsidiary shareholder’s exit
Article 202(2) covers a different fact pattern: not a value-shifting transaction, but a structural one. Where control is used to carry out a merger, division, conversion, dissolution, issue of securities or an important amendment to the articles — and the transaction has no clearly comprehensible just cause from the controlled company’s standpoint — a shareholder who voted against in the general assembly and had that recorded in the minutes, or who objected in writing to the board resolution, may claim from the controlling undertaking either damages or the purchase of his shares. Value is at least the stock exchange value where one exists; where none exists or it is inequitable, the real value or a value fixed by a generally accepted method, determined on data closest in date to the court’s judgment. The limitation period is two years from the general assembly resolution or from the announcement of the board resolution.
Article 202(3) then does something unusual. Once such an action is brought, the court orders an amount covering the claimants’ probable damage or the purchase value to be deposited as security with a bank designated by the court, in the court’s name; and until it is deposited, no step may be taken on the general assembly or board resolution. The provision has teeth in both directions: if the action was brought in bad faith, the defendant may claim joint and several compensation of its loss and require the claimants to post security. The overlapping deadlock remedies are treated separately in our guide to shareholder deadlock and exit remedies under TCC Art. 531, and the wider minority toolkit in our guide to corporate shareholder disputes and minority rights.
5. Full control: parent instructions, their limit, and the creditors’ action
Wholly owned subsidiaries sit under a distinct set of rules. Under Art. 203, where a commercial company holds directly or indirectly 100 per cent of both the shares and the voting rights of a capital company, the parent’s board may give instructions on the direction and management of the subsidiary even if they are capable of producing results that cause it loss — but only as a requirement of the group’s determined and concrete policies — and the subsidiary’s organs must comply.
Article 204 immediately sets the ceiling: no instruction may be given that clearly exceeds the subsidiary’s ability to pay, that could endanger its existence, or that could cause it to lose significant assets. Article 205 then relieves the subsidiary’s directors and managers of liability towards the company and its shareholders for complying with instructions falling within Arts. 203 and 204 — and stops there. Creditors are not covered, and Art. 206 gives them their own action: where a loss caused in the subsidiary by an Art. 203 instruction is not compensated within that accounting year, or no equivalent claim right specifying time and manner is granted, creditors who suffered damage may sue the parent and those of its directors responsible for the loss. Defendants may rely on the Art. 202(1)(d) independent-company defence. Article 206(2) adds a further escape for claims arising from credit and similar sources: the defendant is released by proving that the claimant entered into the relationship knowing that no compensation had been made or no claim right granted, or that he ought to have known it given the nature of the business.
Two further provisions complete the picture. Under Art. 208, a parent holding at least 90 per cent of the shares and voting rights may buy out the minority — but only where the minority also obstructs the company’s operation, acts contrary to the rule of good faith, creates noticeable trouble or behaves recklessly; the 90 per cent threshold alone is not enough. And Art. 209 imposes reliance liability: where the group’s reputation has reached a level that inspires confidence in the public or in consumers, the parent is liable for the trust generated by the use of that reputation. Art. 202(5) adds a point that is easy to overlook on the subsidiary’s side: its managers may ask the controlling undertaking to assume, by contract, all the legal consequences of the liabilities they may incur towards shareholders and creditors under that article.
6. Where a parent company liability claim is brought, and by when
Article 202(1)(e) applies Arts. 553, 555 to 557, 560 and 561 by analogy and adds the venue rule that matters most to a foreign group: where the controlling undertaking has its seat abroad, the damages action is brought before the commercial court of first instance at the seat of the controlled company. Under Art. 40 of the Code on Private International Law and International Civil Procedure No. 5718 (full text), the international jurisdiction of the Turkish courts is determined by the domestic rules on territorial competence — so that sentence in Art. 202(1)(e) is also the jurisdictional hook. A choice-of-forum clause in favour of a foreign court is possible under Art. 47 of the same Code where jurisdiction is not exclusive, but only if proved by written evidence, and the Turkish court hears the case anyway if the foreign court declines or if no jurisdictional objection is raised.
Limitation comes from Art. 560: two years from the date the claimant learned of the damage and of the person liable, and in any event five years from the day the act occurred — followed by a qualification that is easy to miss, namely that where the act constitutes a criminal offence subject to a longer prescription period under the Turkish Criminal Code, that longer period applies to the damages action too. For monetary claims, recourse to a mediator is a condition of the action under TCC Art. 5/A, the mediator concluding within six weeks, extendable by the mediator by a maximum of two weeks in compulsory cases.
Finally, the same intragroup transaction is measured by two other yardsticks at once, and they do not use the Commercial Code’s arithmetic:
| Regime | Provision | Test applied to the intragroup transaction | Consequence |
|---|---|---|---|
| Company law | TCC Art. 202(1) | Did control cause a loss, and was it compensated within the financial year? | Damages to the company; share purchase; creditor action without bankruptcy |
| Corporate tax | Corporate Tax Law No. 5520 Art. 13 | Was the price between related persons at arm's length? Related status through shareholding requires at least 10 per cent of shares, votes or profit rights | Profit deemed distributed in a disguised manner; for non-resident taxpayers, treated as an amount transferred to the head office (Art. 13(6)) |
| Capital markets, listed subsidiary | Capital Markets Law No. 6362 Art. 21 | Were related-party terms contrary to arm's length, market practice and the principles of prudence and honesty - including by NOT doing what was expected (Art. 21(2))? | Return of the transferred amount with statutory interest at the Board's determination; documents kept at least eight years |
| Competition | Law No. 4054 Art. 3 | Defines the undertaking as units forming an ECONOMIC whole capable of deciding independently - a different unit of account from separate legal personality | Group members may be treated as one undertaking for the purposes of that Law |
Article 13(6) of Law No. 5520 (full text) carries its own trap: the corresponding adjustment at the other party is available only where the tax assessed on the company that made the disguised distribution has become final and has been paid. A transaction that was properly compensated for Art. 202 purposes can still be a transfer-pricing adjustment, and a transaction priced at arm’s length for tax can still be a loss under Art. 202 if what was taken from the subsidiary was an opportunity rather than a margin. The two questions are asked separately, and the affiliation report under Art. 199 is where the answers to both are first written down. The corporate structuring context for these questions sits with our corporate law work.
