A venture-backed company is designed to lose money for years. Turkish company law was not designed with that in mind. Article 376 of the Turkish Commercial Code No. 6102 (TCC) obliges the board to act at three thresholds: when accumulated losses have consumed half of the sum of share capital and legal reserves, the board must call the general assembly and present remedial measures; when they have consumed two thirds, the general assembly must either continue with the remaining third of the capital or complete the capital, failing which the company is dissolved by operation of law; and when there are signs that the company’s assets no longer cover its debts, the board must draw up interim balance sheets and, if over-indebtedness is confirmed, apply to the court for bankruptcy, unless creditors subordinate enough debt to close the gap. A startup with TRY 250,000 of capital, TRY 20 million of investor money booked as share premium and TRY 15 million of accumulated losses can sit inside these thresholds without anyone noticing, because the tests are run on balance-sheet equity accounts, not on cash in the bank. This article explains how the arithmetic works, why share premium is your friend, what the 2018 Communiqué and its transitional rule change, what each option costs, and what the board’s personal exposure is. It is the corporate-law counterpart to our note on the zone of insolvency.
The arithmetic: what is measured against what
The first two thresholds compare accumulated losses with “the sum of share capital and legal reserves” as shown in the last annual balance sheet (Article 376(1)–(2)). Legal reserves include the general legal reserve under Article 519, into which share premium is credited net of issue costs (Article 519(2)(a)). For a startup this is the decisive detail: the money investors paid above nominal value is not lost to the test, it is part of the base. A company with TRY 250,000 capital and TRY 20 million of premium has a base of about TRY 20.25 million; half of it is consumed only when accumulated losses pass roughly TRY 10.1 million, two thirds at roughly TRY 13.5 million. A company that booked the same TRY 20 million as capital rather than premium has the same base but a very different Article 376 outcome at the two-thirds point, because “continuing with one third of the capital” then means reducing a TRY 20 million capital rather than a TRY 250,000 one. Structure the round as premium; our companion piece on share premium explains the rest.
The Ministry of Trade’s Communiqué on the application of Article 376 (Official Gazette 15 September 2018, No. 30536, as amended) sets out how the loss ratio is computed, from the balance sheet prepared under the applicable financial reporting framework, and adds a transitional rule that has been extended each year: foreign-exchange losses on unperformed foreign-currency obligations, and half of the rental, depreciation and personnel expenses for 2020 and 2021, may be left out of the capital-loss and over-indebtedness calculations. The latest extension (Official Gazette 10 December 2025, No. 33103) runs to 1 January 2027; a company with dollar-denominated cloud and salary costs booked as FX losses should use it while it lasts and model the calculation without it for 2027.
Threshold one: half the base is gone
The board must convene the general assembly “immediately” and present the remedial measures it considers appropriate (Article 376(1)). The law does not prescribe the measures; the Communiqué lists examples such as capital increase, closing loss-making lines, disposing of assets and cost reduction. For a startup, the honest measure is usually “the next round”, and the resolution can say so. What matters legally is that the meeting is held and minuted: the board’s exposure under Article 553 for failing to act begins here, and a diligence team reading the minute book will look for the resolution. The meeting requires a Ministry representative only if the agenda includes one of the items in the General Assembly Regulation, such as a capital increase.
Threshold two: two thirds are gone
At two thirds, the general assembly must decide between two statutory options or the company dissolves automatically (Article 376(2)). The first is to “continue with one third of the capital”: a capital reduction to the amount that remains covered, under Articles 473 to 475, and Article 8(1) of the Communiqué allows the capital to be reduced down to the statutory minimum provided that at least half of the sum of capital and legal reserves remains covered by equity; under Article 8(2) the board may dispense with the creditor call for such a reduction. The second is “completing the capital”: shareholders pay in, without receiving new shares, enough to cover the deficit; the Communiqué treats these contributions as a completion fund that can be used only to absorb losses, and because it imposes an obligation on shareholders beyond the share price, it requires the unanimous vote of all shareholders under Article 421(2)(a). The Communiqué also recognises a third route in practice: a capital increase, provided that either the increased portion is paid to a level that restores the half-coverage before registration, or a simultaneous reduction and increase is resolved at the same meeting. For a company with an investor ready to fund, the capital increase with premium is almost always the answer, and the general assembly that resolves it doubles as the Article 376(2) meeting.
Threshold three: over-indebtedness
Article 376(3) is triggered not by the annual balance sheet but by “signs raising the suspicion” that the company is over-indebted, which in a startup means the cash runway model shows the company cannot meet its liabilities. The board must then prepare two interim balance sheets, one on a going-concern basis and one at probable sale values. If the assets do not cover the creditors’ claims on both bases, the board must notify the commercial court at the company’s seat and apply for bankruptcy. The escape route is subordination: if creditors holding enough debt to close the gap agree in writing that their claims rank behind all other creditors, and a court-appointed expert confirms the agreement’s appropriateness and validity, the filing is not required. Investors who have lent to the company on convertible notes are the natural candidates for subordination, and a subordination clause drafted into the note at signing saves a scramble later. Since 2018, the board or any creditor may combine the bankruptcy application with a request for concordat under the Enforcement and Bankruptcy Law (Article 377). Failure to file when required exposes directors to liability towards creditors under Article 553 and, where the delay aggravates the loss, to claims that the company was traded while insolvent.
What each option costs
A capital increase with premium costs the round’s legal and registry fees and a Ministry representative, and it resets the base. A completion payment costs the shareholders cash without shares and requires unanimity, which makes it rare outside family companies. A capital reduction costs a creditor call period, security for objecting creditors and a court-free but registry-heavy process, and it leaves the company with a smaller nominal capital that may fall below the TRY 250,000 minimum unless combined with an increase. Doing nothing costs the most: automatic dissolution at the two-thirds point is a status the trade registry can record, and once recorded the company is in liquidation. The liquidation of a startup with employees and customer contracts is an outcome no investor signed up for.
A quarterly routine for the CFO
Run the Article 376 ratio every quarter, not once a year, using the Communiqué’s method with and without the transitional exclusions. Report it to the board with the runway model. Diarise the general-assembly obligation for the quarter in which the half threshold is projected to fall, and pair it with the financing timetable so that the meeting that presents remedial measures is the meeting that approves the round. Keep the interim balance sheets prepared under Article 376(3) in the board file even when they show solvency: they are the record that the board looked. And when a bridge is needed, draft the notes with a subordination clause that meets Article 376(3), so that the runway conversation never becomes a bankruptcy conversation.
Do convertible notes count as debt in the over-indebtedness test?
Yes, until conversion, unless subordinated in the form Article 376(3) requires. A SAFE-style instrument structured under Turkish law as an advance against a future capital increase may be treated differently depending on its drafting; ask before you rely on it.
Is the two-thirds dissolution automatic even if no one notices?
The law says the company “terminates by operation of law” if the general assembly does not resolve one of the options. In practice the consequence is recorded when the registry or a court is confronted with it, but the exposure of the board for the period in between is real.
We are a limited company. Does Article 376 apply?
Yes, by reference: Article 633 of the TCC applies the capital-loss and over-indebtedness rules of Article 376 to limited companies as well.
Related: zone of insolvency · liquidation · bridge financing and convertible notes.
Sources. Turkish Commercial Code No. 6102 (Articles 376, 377, 421, 473–475, 519, 553, 633); Communiqué on the Procedures and Principles for the Application of Article 376 of the Turkish Commercial Code No. 6102 (Official Gazette 15 September 2018, No. 30536; latest amendment Official Gazette 10 December 2025, No. 33103); Enforcement and Bankruptcy Law No. 2004 (Articles 285 et seq.). Statute links open the official Turkish texts on mevzuat.gov.tr.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
