Capital Increase

Also known as: Share Capital Increase, Rights Issue, Bonus Issue, Authorised Capital, Sermaye Artırımı

In short

Increasing a company's share capital by issuing new shares or raising the par value of existing shares; the route by which a new investor enters the company in a funding round.

A capital increase is an increase in a company’s share capital. It is the legal route for new money to enter the company and for new investors to become shareholders. Every primary funding round is in fact a capital increase.

Types

Cash capital increase: New shares are paid for in cash. This is the method most used in funding rounds.
In-kind capital increase: Assets such as real estate, intellectual property rights or shares in another company are contributed in exchange for shares; their value is determined by an expert report.
Capitalising a receivable: A shareholder’s or investor’s cash receivable from the company is added to share capital; the existence and value of the receivable are confirmed by an accountant’s report. Conversion of a SAFE or convertible note is carried out this way.
Increase from internal resources: Reserves and funds are added to capital; shareholders receive bonus shares (TCC Art. 462).

Procedure in a Joint Stock Company

Fixed capital system: The general assembly resolves on the capital increase by amending the articles. At least 25% of the par value of shares subscribed in cash is paid before registration.
Authorised capital system: A board authorised by the articles may increase capital within the set ceiling and for a set period without a general assembly resolution (TCC Art. 460). This speeds things up for companies that raise frequent funding rounds.

In a limited liability company, the general assembly resolves on the capital increase (TCC Art. 590); shareholders also have the right to acquire new shares.

Points to Watch in Funding Rounds

Existing shareholders’ pre-emptive rights must not be exercised or must be duly restricted.
Shares cannot be issued below par value (TCC Art. 347); the valuation difference is share premium; see Pre-money Valuation.
Preferred shares granted to the investor are added to the articles at the same general assembly.
A Competition Authority contribution of 0.04% of the increased capital is paid.
The increase is registered with the trade registry and announced in the Turkish Trade Registry Gazette; the share register and cap table are updated.

Frequently Asked Questions

Does all the money paid by the investor become share capital?

No. Investors usually acquire shares above par value. The amount equal to the par value of the shares goes to share capital and the excess is added to the general legal reserve as share premium.

Must the capital increase amount be paid before registration?

In a joint stock company, at least 25% of the par value of shares subscribed in cash must be paid before registration; a period for the remainder may be set by the general assembly resolution. A Competition Authority contribution of 0.04% of the increased capital is also paid.

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