A controlling company may not use its power over a dependent company in a way that causes the latter a loss. Under the system provided in Article 202 of the Turkish Commercial Code (TTK), the loss must be actually equalized within the same financial year or, at the latest by the end of the year, the dependent company must be granted an equivalent claim whose manner and timing of performance are specified. If this is not done, the shareholders and creditors of the dependent company may bring an action, under the conditions set out by law, against the controlling company and the managers who caused the loss. However, payment of the company's damage to the company, compensation of a shareholder's personal damage and the purchase of shares are different claims.
A common logo, management by the same family or the financial strength of the parent company does not, on its own, make it possible to collect all of the company's debts from the parent company. First the group relationship and the relationship of control must be established, and then the specific direction given, the loss, the equalization and the appropriate type of action. Where control is one hundred percent, the special provisions of TTK 203–206 apply in addition.
How is the relationship between a controlling company and a dependent company determined?
Voting and management power matter as much as the share percentage
TTK 195 lists among the instruments of control a direct or indirect majority of votes, the right to elect members of the management body who secure a majority of decisions, and a majority secured through voting agreements. It also covers one company controlling another by contract or by other means. A majority of capital, on the other hand, is treated in the article separately as a presumption of control; the outcome should not be reached from the capital table alone without examining voting privileges and the management structure.
The dependent company's separate legal personality, assets and circle of creditors continue. An increase in the group's total profit does not automatically eliminate the loss of a particular dependent company. Likewise, the presence of common managers does not take the place of proving direction in every transaction and proving the loss. The existence of a control relationship and the harmful use of control in a particular transaction are separate subjects of examination.
Why are the number of companies and the identity of the controlling enterprise investigated?
A natural person or another enterprise may also hold the controlling position. Even so, the group criterion in Article 105 of the Trade Registry Regulation should not be overlooked: a controlling commercial company with at least two dependent commercial companies; and, where the controlling enterprise is not a commercial company, at least three dependent commercial companies. The Ministry of Trade’s explanation makes the same distinction. Although the relationship between the statute and the regulation is debated in the doctrine, current practice should be taken into account when preparing a lawsuit.
In its decision of 11.12.2024, 2024/602 E., 2024/8914 K., the 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) addressed the requirement of at least three dependent companies in respect of a TTK 202 claim directed against a natural person who held the majority shares of two companies. The dismissal of the action was affirmed. This decision shows that, particularly in structures set up through a common natural person, merely saying “group company” is not sufficient without stating the number of companies and the capacity of the defendant. No automatic conclusion should be drawn for every relationship between the two companies. Full text of the decision.
Which transactions can cause a loss to the dependent company?
The examples in TTK 202/1-a are not exhaustive. Leaving the company's sales opportunities to another group company, transferring its personnel without consideration, transferring assets at a low price, providing funds interest-free or on unfavorable terms, providing security for group debts and halting an investment without justifiable reason may all be subject to examination. The loss does not necessarily have to appear as a loss in the year-end balance sheet; the prevention of an increase in value or the loss of a concrete commercial opportunity is also significant.
Not every intra-group transaction is unlawful. For example, a cash management arrangement that is in line with market conditions, has consideration and meets the company's financing needs cannot be assessed in the same way as a transfer of resources without consideration that leaves the dependent company unable to make its own payments. The conditions on the date of the transaction, the alternatives, the price, the security, the maturity and the likelihood of repayment are examined together.
The loss and the amount of compensation that may ultimately be claimed at the end of the lawsuit are not the same item of calculation. First, the economic opportunity or value that was lost is identified; then legal liability, causation and the damage that has not been remedied are calculated. The parent company is not liable in every year in which the company makes a loss. The effect of a market contraction, an exchange-rate movement or an independent management choice must be separated from the effect of the controlling company’s direction.
In respect of a surety given in favor of the group as well, the existence of the contract alone is not looked at. The consideration for the risk, the security obtained, the payments actually made, enforcement proceedings and the effect on the company's financial position are investigated. The validity of the security obligation and the internal liability arising from the exercise of control are legal issues that do not replace one another.
Within what period and how is equalization carried out?
Actual compensation and granting a claim are different
The first route is to provide the dependent company with an actually equivalent benefit within the financial year in which the loss occurred. A cash payment, the grant of a right whose economic value and usability are specified, or another suitable performance may serve this function. Moving the same amount between accounting records is not sufficient if there is no real economic counterpart.
The second route is the grant to the dependent company of a claim of equivalent value by the end of the same financial year at the latest. In this case actual performance may take place later; however, how and when the performance will be provided must be specified. A vague statement of intent such as “the group will provide support in the future” is not the same as an enforceable claim. The payment capacity of the debtor of the claim, the maturity and whether the right granted genuinely covers the loss are assessed.
Gürbüz Usluel’s study of equalization addresses the requirement that the benefit provided cover the loss and that the claim not be deferred so far into the future that it would defeat the expected benefit. In practice, this approach means not merely drawing up a commitment document but also demonstrating the economic adequacy of the performance. Gürbüz Usluel, pp. 303–305.
The end of the financial year does not mean one year from the transaction
In a company that uses the calendar year, for a loss arising in November the period does not, as a rule, extend to the following November. The end of the relevant financial year is the basis. In a company that uses a special accounting period, its own period-end closing is determined. A dependency report prepared in the first three months of the following year does not extend the equalization period for the past year.
For example, if the loss arising from a sale by the dependent company at a price below comparable prices has been determined at year-end, it must be shown separately whether group services provided earlier correspond to it. A service already paid for in advance should not be counted as equalization a second time; it must be possible to trace which loss the benefit corresponds to. If a claim granted within the period is not performed, the performance of that right and the continuation of liability are examined separately.
Which payment can a shareholder and a creditor demand, and for whom?
TTK 202/1: Compensation of the company's damage
If equalization does not take place or an equivalent claim is not granted in time, every shareholder of the dependent company may rely on TTK 202/1-b. Reaching a particular minority percentage is not required. The defendants are the controlling company and the members of the board of directors who caused the loss. In a limited liability company, the expression board of directors covers the managers pursuant to TTK 195/6. Merely holding a managerial title is not sufficient; the person's term of office, role in the specific decision and the conditions of liability are determined.
In this route, the focus of the claim is the damage of the dependent company. A shareholder cannot, of his or her own accord, multiply the fall in the company's value by his or her shareholding and demand that the same amount be paid directly to himself or herself. Upon request, or of its own motion, if consistent with equity, the court may decide that the claimant's shares be purchased by the controlling company, or on another acceptable solution, in place of compensation. This alternative is not a mandatory outcome in every case.
TTK 202/1-c also gives the creditor the right to demand that the company's damage be paid to the company; the company need not have gone bankrupt. This action should not be confused with an ordinary claim in which the creditor collects its contractual receivable directly from the parent company. If the dependent company has gone bankrupt, the position of the bankruptcy administration and the application by analogy of TTK 556 are assessed separately. The company's rights arising from its own contract or from an equalization claim that was granted are likewise distinct from this special right of action.
The payee and the specific damage in the Court of Cassation decision
The decision of the 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) of 11.09.2023, 2023/3867 E., 2023/4856 K. concerns a loss asserted on account of suretyship given for intra-group loans. The earlier reversal reported in the decision emphasizes that, in respect of indirect damage, the creditor must demand that payment be made to the company, and that it must be investigated in what way the suretyship caused damage to the company. After the enforcement proceedings, the payments and the effect on over-indebtedness were examined, the judgment ordering payment to the company was affirmed. The practical consequence of the decision is that the petition must state separately the asset that suffered damage, the amount claimed and the payee. The decision does not mean that all group suretyships are prohibited. Full text of the decision.
What is the shareholder’s personal right in structural decisions?
Which decisions does TTK 202/2 apply to?
There is special protection for transactions carried out through the exercise of control and for which the dependent company has no clearly understandable justifiable reason, such as a merger, demerger, change of type, dissolution, issuance of securities or a significant amendment of the articles of association. A shareholder who casts a negative vote on the general assembly resolution and has it entered in the minutes, or who objects in writing to the relevant board of directors resolution, may ask the court to order the controlling enterprise to compensate his or her own damage or to purchase his or her shares.
The logic of waiting for equalization at year-end does not apply here. That the decision was taken through the effect of control, the lack of a justifiable reason from the standpoint of the dependent company and the shareholder’s proper opposition are examined together. Mere dissatisfaction with the decision is not enough. A claim for the purchase of shares and an action to annul the general assembly resolution are also directed at different outcomes; filing one does not automatically protect the time limit of the other. TTK 202/4 reserves the other rights granted in structural transactions.
Share price and the special security arrangement
If the shares have a stock exchange value, at least the stock exchange value is used as the basis; if there is no such value or it does not accord with equity, the real value or the value determined by a generally accepted method is taken into account. The data closest in time to the court’s decision are used. The nominal amount of a share is not equal to its current economic value. In an expert examination, in addition to the financial statements, the company’s operating capacity, debts and applicable valuation assumptions should be explained.
Under TTK 202/3, when an action under the second paragraph is filed, it is ordered that the money covering the probable damage or the purchase price be deposited as security in the name of the court at a bank determined by the court. Until the security is deposited, no transaction may be carried out in respect of the relevant decision. This does not mean that the decision is definitively annulled. In addition, where actions under the first and second paragraphs are filed in bad faith, the defendant may be able to claim compensation for its damage and demand security from the claimants.
How are creditors protected under one hundred percent control?
Full control under TTK 203 requires that a commercial company own, directly or indirectly, one hundred percent of both the shares and the voting rights of another capital company. Ninety-nine percent or “nearly all” ownership is not the same as this threshold. The controlling company may give the dependent company an instruction that may cause it a loss, as required by a specific and defined group policy.
The limit of this is TTK 204: an instruction may not be given that clearly exceeds the company’s ability to pay, that may endanger the company's existence or that may cause it to lose its significant assets. The protection from liability toward the company and shareholders that TTK 205 provides for managers of the dependent company relates to instructions within these limits. The defense that “the parent company ordered it” does not legitimize a prohibited instruction without limit.
TTK 206 gives injured creditors the possibility of seeking compensation from the controlling company and from the managers responsible for the loss if a loss arising from permitted instructions is not remedied within the accounting year or an equivalent claim whose timing and form are specified is not granted. However, to whom payment is to be made under full control, and whether bankruptcy is required, are debated in the doctrine. The provision does not contain the clarity of 202/1-c; through 202/1-e it refers to the general liability provisions. Yalçın Sarıkaya sets out the differences of opinion and takes the view that payment should be made to the company and that, under the current regulation, bankruptcy is a condition. This view should not be presented as an undisputed sentence of the statute; the claim should be built according to the type of damage and the legal basis adopted. Study, pp. 375–378.
In credit and similar relationships, TTK 206/2 is also important. The defendants may be relieved of liability by proving that the creditor entered into the relationship knowing that equalization had not been made or that no claim had been granted, or that it should have known this by the nature of the transaction. Knowing of the group relationship and knowing that equalization is incomplete are not the same fact.
The dependency report and which documents support the action
Under TTK 199, the management of the dependent company prepares, in the first three months of the financial year, a report on the group relationships of the past year. The transactions, the counter-performances, the measures taken or not taken, the loss and the equalization are explained. The statement of results that the statute requires to be included in the annual report should not be confused with the whole of the detailed dependency report. It cannot be said that every shareholder will receive the entire report without any conditions; the routes of information and inspection are assessed according to the type of company.
| Subject to be proved | Principal documents to examine | Question the document must answer |
|---|---|---|
| Group and control | Registry records, share and voting table, articles of association | Who controls, by what instrument and in what period? |
| Specific direction | Management decisions, group instructions, correspondence | Which intervention changed the dependent company’s choice? |
| Loss and causation | Contract, bank movement, comparable price, financial record | Which value or opportunity would have been preserved had there been no intervention? |
| Equalization | Payment document, claim undertaking, counter-performance record | Which loss was covered on which date and at what value? |
| Claimant and claim | Proof of shareholding or receivable, dissent minutes | Which person is demanding whose damage, to be paid to whom? |
The statement in the report that there was no loss does not prevent the court from investigating the contrary. Where the relevant documents are in the hands of the other party, the production mechanism under HMK 219–220 and, where necessary, an expert examination may be used. The document, transaction and period requested must be specified; all of the group's records should not be requested indefinitely. Electronic correspondence should be preserved with the original files and date information, and evidence should not be collected through unlawful access.
TTK 207 gives every shareholder the possibility of requesting a special auditor from the commercial court of first instance at the company’s registered office, where an auditor, a special auditor or the committee for early detection and management of risk has expressed an opinion indicating fraud or deceit in the group relationship. Mere suspicion does not meet all the conditions of this special provision. The conditions of the general routes of information and of special audit are preserved separately.
Where is the action filed, and which time limits apply?
Jurisdiction, venue and mediation
Liability disputes of this kind arising from the TTK are commercial actions; the commercial court of first instance has jurisdiction. Article 561, to which TTK 202/1-e refers, allows an action to be filed at the company’s registered office. If the controlling enterprise has its registered office abroad, 202/1-e ties the compensation action to the commercial court of first instance at the place where the dependent company has its registered office. The correct legal entity, representative, address and international service of process for a foreign defendant must be determined separately.
In commercial compensation claims whose subject is money, mediation before filing the action is required under TTK 5/A. Where there is a claim for the purchase of shares, an alternative claim, annulment of a decision and the bringing of different claims together, the condition of action is assessed separately according to the legal nature of the claim’s outcome; a single answer cannot be given for all group disputes. In mandatory mediation, the period from the application to the office until the final minutes is not taken into account in calculating the statute of limitations and the preclusive period, pursuant to Article 18/A of Law No. 6325.
The two-year periods do not start at the same time
In liability based on TTK 202/1, TTK 560 applies through 202/1-e: two years from learning of the damage and of the person liable, and in any event five years from the act that caused the damage. If the act constitutes a crime subject to a longer criminal limitation period, that period is assessed separately. When the equalization fell short, and when the damage and the person liable were learned, must be shown together in the file’s chronology.
Under TTK 202/2, by contrast, the special two-year limitation period starts on the date on which the general assembly resolution was passed or the board of directors resolution was announced. This period must not be confused with the period for the annulment action or with the date on which the shareholder later became aware. It should not be assumed that the periods are protected by sending an ordinary notice letter.
If there is a danger that assets will be disposed of or evidence lost before the dispute is concluded, the HMK provisions on interim injunctions and preservation of evidence are considered. The conditions for a precautionary attachment to secure a monetary claim are examined separately. Instead of a general measure that halts all of the company’s activities, protection suited to the specific danger and the nature of the right claimed should be explained. The special security mechanism in TTK 202/3 is addressed separately.
The controlling company’s defenses and the limit of liability based on trust
Under TTK 202/1-d, no compensation is awarded if it is proved that a diligent management protecting the interests of an independent company, in the same or similar circumstances, could also have carried out or refrained from carrying out the same transaction. What matters is the data at the time of the decision, the alternative offers and the risk assessments, rather than a general “group interest” statement prepared afterwards. Timely and sufficient equalization, the absence of causation and the absence of the manager’s specific role are also separate subjects of defense.
TTK 202/5 allows the managers of the dependent company to require that the legal consequences of their liability arising under this article be assumed by the controlling enterprise by contract. Such a contract does not, of its own accord, eliminate the statutory right of the injured shareholder or creditor; the scope of the contract and its consequences in the internal relationship are examined.
The liability based on trust under TTK 209 rests on a different foundation. The trust-inspiring reputation of the group must have been used in such a way as to create a particular expectation on the counterparty in the specific transaction. In the decision of the 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) of 19.10.2020, 2019/4830 E., 2020/4201 K., the training of the affiliated bank’s personnel by the parent company, the appointment of managers and the statements on participations in the annual reports were not considered sufficient; because it could not be proved that assurance was given in respect of the specific transaction, the dismissal in respect of the parent company was affirmed. Accordingly, mere group membership is not a guarantee of collection. Full text of the decision.
For publicly held companies, the prohibition on disguised profit transfer in Article 21 of the Capital Markets Law and other special regulations must additionally be examined. The possibility of equalization in the TTK cannot be regarded as a tool that automatically remedies all violations under capital markets or tax law. This article addresses the private-law liability of a group of companies; tax, criminal and capital markets sanctions are subject to their own conditions.
Conclusion
What is decisive in the liability of the controlling company is less the existence of the group than which control was used in which transaction, which company suffered the loss, and whether that loss was covered in time. A successful legal assessment considers together the group structure, the dates of the transactions, the equalization records and the payee of the claim. Separating TTK 202/1, 202/2, full control and liability based on trust from one another ensures that the right claim is directed at the right parties.
Related articles: Information and Inspection Rights in Limited Liability and Joint-Stock Companies: Access to Company Books and Filing Routes; Liability of the Company Manager and Board of Directors: Compensation for Company Loss and Rights of Action; Appointment of a Special Auditor in a Company: Shareholders’ Right to Apply, Conditions and the Court Process; Annulment of a Company General Meeting Resolution: Deadlines, Nullity and Stay of Execution; Shareholder Rights in Company Mergers and Demergers: Inspection, Exit Payment, Equalization and Annulment; A Company Acquiring Its Own Shares: Conditions and Limits in Joint-Stock and Limited Companies.
Frequently Asked Questions
Is the parent company liable for all debts of the dependent company?
No. There must be an unlawful use of control, liability based on trust, a guarantee that was given, or another specific basis. Group membership alone does not place all debts on the parent company.
Can a small shareholder bring a TTK 202 action?
TTK 202/1-b gives every shareholder a right of action; no particular minority percentage is required. The other conditions, such as the group relationship, the loss and the failure to equalize, are still examined.
Can a creditor bring an action before the dependent company goes bankrupt?
Yes, under TTK 202/1-c; the claim is for the company’s damage to be paid to the company. The special and debated conditions of TTK 206 under one hundred percent control are assessed separately.
Is equalization made only by cash payment?
No. Other economic benefits that genuinely cover the loss, or an equivalent claim granted in time, may be used. The value, enforceability, time of performance and connection with the loss must be shown.
Does preparing the dependency report extend the equalization period?
No. The report explains the relationships of the previous year. Reporting in the first three months of the following year does not provide additional time for the equalization period of the past financial year.
Can I demand that my shares be purchased by the parent company?
Such a claim may be asserted if the conditions of TTK 202/2 are met. In addition, in an action under 202/1-b, the court may decide on a purchase as an alternative solution consistent with equity. Not every dispute creates an automatic right of exit.
Which documents take priority in an action against the controlling company?
Records showing the control structure, direction decisions, transaction and payment documents, the dependency report, the equalization undertaking and documents showing the claimant’s standing should be prepared together. In an action concerning a structural decision, the record of the negative vote or the written objection is also important.
Sources
- Turkish Commercial Code No. 6102, especially Arts. 4, 5, 5/A, 195–209, 553, 555–557, 560–561.
- Ministry of Trade, Frequently Asked Questions on Companies, explanation of groups of companies and Article 105 of the Trade Registry Regulation.
- Code of Civil Procedure No. 6100, especially Arts. 190, 219–220, 266, 389 et seq., 400 et seq.
- Law No. 6325 on Mediation in Legal Disputes, Art. 18/A.
- Capital Markets Law No. 6362, Art. 21.
- Enforcement and Bankruptcy Law No. 2004, Arts. 257 et seq. on precautionary attachment.
- Court of Cassation 11th Civil Chamber, 11.12.2024, 2024/602 E., 2024/8914 K., group of companies and the conditions of a controlling enterprise. Full text: De Jure, login may be required for access.
- Court of Cassation 11th Civil Chamber, 11.09.2023, 2023/3867 E., 2023/4856 K., intra-group suretyship and payment of the company's damage to the company. Full text: De Jure, login may be required for access.
- Court of Cassation 11th Civil Chamber, 19.10.2020, 2019/4830 E., 2020/4201 K., creation of trust in a specific transaction and TTK 209. Full text: De Jure, login may be required for access.
- Aslı E. Gürbüz Usluel, Equalization in a Group of Companies (Şirketler Topluluğunda Denkleştirme), Marmara University Faculty of Law Journal of Legal Research, 2012, Vol. 18, No. 2, pp. 281–308; especially pp. 303–305.
- Elif Yalçın Sarıkaya, Creditors’ Right of Action in Case of Full Control in a Group of Companies (Şirketler Topluluğu’nda Tam Hâkimiyet Halinde Alacaklıların Dava Açma Hakkı), Journal of the Turkish Justice Academy, No. 42, pp. 363–386; especially pp. 375–378. The PDF copy bears the date April 2020, while the DergiPark publication record gives April 1, 2021.