Capital Loss

Capital loss occurs when a company’s losses erode its share capital and legal reserves to a certain extent. Art. 376 of the Turkish Commercial Code requires the management body to act in cases of capital loss and over-indebtedness. In practice it is also called “technical insolvency”.

Half Loss

If, according to the latest annual balance sheet, half of the total of share capital and legal reserves is uncovered due to losses, the board immediately calls the general assembly and submits the remedial measures it considers appropriate.

Two-thirds Loss

If two thirds of the total of share capital and legal reserves is uncovered, the general assembly, called immediately, must decide on one of two options:

• To continue with one third of the capital, that is, make a capital reduction,
• To replenish the capital.

If the general assembly does not decide on either, the company is automatically dissolved.

Remedial Measures

• Shareholders transferring funds to the company without consideration (to cover losses),
• Capital increase or simultaneous reduction and increase,
• Cost reduction and restructuring plan,
• Revaluation of assets (to the extent permitted by law).

Exchange Rate Loss Exemption

Under the Ministry of Trade’s communiqué on the application of TCC Art. 376, all exchange rate losses on unpaid foreign currency liabilities, and half of the total of rent expenses, depreciation and personnel expenses accrued in 2020 and 2021, may be disregarded in capital loss and over-indebtedness calculations made until 1 January 2028. This date was extended by one year by an amendment published in October 2026.

Management Liability

The board’s failure to monitor capital loss and call the general assembly on time may give rise to directors’ liability. The same rules apply to limited liability companies.