Values ​​That Can Be Contributed as Capital to Commercial Companies

Entrance

Capital companies are the most advanced corporate organizations that drive the wheels of modern economics and commerce, pooling vast financial resources and distributing risks under a common legal entity. For joint-stock, limited liability, collective, limited partnership, and cooperative companies to be established, to continue their economic activities, and to build trust in commercial life, it is essential that they possess capital. The concept of "capital," which forms the cornerstone of company law, is not merely a numerical figure that emerges during the company's establishment phase; it is a dynamic legal value representing the security of the company's assets, the protection of creditors, and the company's ability to continue its commercial activities.

The Turkish Commercial Code (TTK) strictly regulates what assets can be contributed by partners to a company during its establishment or capital increase, what qualities these assets must possess, and how they can be legally valued. The scope of elements that can be considered capital varies depending on the type of company; while the nature of capital is subject to stricter rules in joint-stock and limited liability companies, a more flexible approach is taken in sole proprietorships regarding elements such as labor and commercial reputation. This study aims to examine the assets that can be contributed as capital to commercial companies within the framework of the provisions of the Turkish Commercial Code, the distinctions between company types, valuation principles, and the principles of creditor protection, with academic depth but in a legal language understandable to everyone.

The Legal Nature and Functions of the Concept of Capital

In commercial law, capital is the sum of economic assets allocated to the company by its partners and forming the core of the company's assets. Capital has three fundamental legal functions:

1. Operational Function (Resource Procurement): This function provides the economic resources necessary for the company to begin its commercial activities, acquire raw materials, establish facilities, employ workers, and gain market share.

2. Security Function (Protection of Creditors): A company's legal entity is liable for its debts only with its assets. As a rule, the personal assets of the partners cannot be seized for company debts. This makes the company's assets the sole security for third-party creditors. Capital acts as a risk buffer, ensuring creditors' confidence in the company.

3. Measurement and Distribution Function: This is a mathematical and legal measure that determines the proportion of shareholders' rights in the company (voting rights, dividend rights, liquidation rights, etc.). Dividend distribution or the allocation of liquidation balances is calculated based on share capital.

The flawless fulfillment of these functions depends on the assets contributed to the company as capital being real, convertible into cash, having economic value, and being legally permissible. The legislator has strictly prohibited the presentation of fictitious, valueless, or non-executable assets as capital.

Assets that can be contributed as capital according to the Turkish Commercial Code

The Turkish Commercial Code No. 6102 (TTK) regulates in detail the assets that can be contributed as capital, particularly for joint-stock and limited liability companies, in Articles 127 and subsequent articles. Within the legal framework, the elements that can constitute capital are limited both in terms of their general characteristics and their types.

According to Article 127 of the Turkish Commercial Code, unless otherwise stipulated in the law, the following values ​​may be contributed as capital to commercial companies:

• Money,

• Receivables,

• Negotiable instruments and shares belonging to a capital company,

• Intellectual property rights,

• Movable and immovable property,

• Rights to use movable and immovable property,

• Services rendered, labor, and commercial reputation (with terms varying depending on the type of company),

• Commercial businesses,

• Other assets that can be legally assessed.

Each of these values ​​deserves a separate examination in terms of its inherent legal characteristics, the ways in which it is introduced, and its control mechanisms. Let us now examine these values ​​in depth, one by one.

1. Cash (Money) Capital

The most classic, practical, and unquestionable form of capital that can be brought in is cash. This cash can be pledged in either the national currency (Turkish Lira) or, subject to legal compliance, in a convertible foreign currency.

• Minimum Capital Requirements: In joint-stock companies and limited liability companies, it is mandatory to commit a certain portion of the minimum capital amounts stipulated by law in cash during the establishment phase and to deposit it in a bank account before or after registration in specified periods.

• Ease of Payment: A partner committing cash capital fulfills their obligation by depositing the committed amount into the company's bank account. The biggest advantage of cash is that it does not lead to valuation problems, it immediately becomes a liquid asset of the company, and it constitutes the most concrete guarantee for creditors.

2. Receivables

It is legally possible for a partner to transfer receivables from third parties to the company in order to fulfill their capital contribution obligations to the company. For a receivable to be considered a capital contribution, it must meet the following conditions:

• Due or Overdue: The receivable must be legally claimable, valid, and enforceable.

• Transferability: There should be no legal impediment to the transfer (assignment) of the receivable.

• Valuation and Assignment: For a receivable to be contributed as capital, it must be transferred to the company through a written assignment agreement and notified to the debtor. Since there is a risk of non-collection of the receivable, determining the true value of the receivable by a court or expert appraisers is of great importance in such capital commitments.

3. Negotiable Instruments and Shares in Capital Companies

A partner may contribute securities such as bonds, bills of exchange, or checks, or shares/stocks belonging to another company, as capital to the company.

• Whether these securities or shares are traded on the stock exchange and whether they have a fair market value is important.

• The contribution of negotiable instruments as capital is carried out through proper endorsement and delivery procedures. It is understood that if the instrument is not paid on time, the partner will be deemed to have failed to pay their capital contribution, and default provisions will apply.

4. Intellectual Property Rights and Patents

With the development of technology and the information society, intangible assets such as patents, copyrights, trademarks, industrial designs, know-how (technical knowledge), and licenses are frequently used as capital in commercial companies.

• For these rights to be contributed as capital, they must be completely free from use by third parties, not subject to liens, pledges or transfer restrictions, and must be of a nature that can be valued in cash and transferred.

• Intellectual property rights must be registered (for example, a trademark or patent registered with the Turkish Patent and Trademark Office) and it must be proven with official documents that these rights can be transferred to the company.

5. Movable and Immovable Assets (In-Kind Capital)

Land, buildings, factories, machinery, vehicles, raw materials, and all other similar tangible assets (in-kind capital) can be contributed to companies as capital.

• Registration and Transfer of In-Kind Capital: For immovable properties (real estate) to be contributed as capital, a commitment must be made to register them in the land registry in the name of the relevant company, and the necessary title deed procedures must be completed. Movable properties, on the other hand, must be transferred to the company's possession in accordance with the proper procedures.

• Valuation Obligation: The most critical aspect of in-kind capital is its valuation. Overvaluing a building or machinery contributed by a partner harms both other partners and creditors. Therefore, according to the provisions of the Turkish Commercial Code, it is mandatory for the value of in-kind capital and all assets contributed as capital to be inspected by expert appraisers appointed by the court and for their true value to be reported.

6. Rights to Use Movable and Immovable Property

to a company by donating only the rights to use the assets (usufruct, lease, etc.) . For example, a partner could allow the company to use their factory or machinery for 10 years without transferring ownership.

• However, this poses a significant risk in terms of capital. Because the duration of the usage rights is limited and these rights cannot be seized or become permanent assets of the company, the contribution of usage rights as capital in joint-stock and limited liability companies is subject to very strict legal restrictions and controls.

7. Commercial Enterprises

The entirety of an operating commercial enterprise, including all its assets and liabilities, can be contributed as capital to a commercial company. In this transaction, carried out in accordance with the rules for the transfer of a commercial enterprise (Turkish Commercial Code, Article 11), the fixed assets, receivables, customer base (goodwill), and debts of the business are transferred to the company as a whole.

Distinction in Capital Elements According to Company Types

There are very clear distinctions regarding the values ​​that can be contributed as capital, depending on the legal structure of the companies (whether they are sole proprietorships or corporations). While the legislator is flexible in sole proprietorships, taking into account the principle of protecting creditors, it has adopted strict rules for corporations.

1. Capital in Partnerships (Collective and Limited Partnerships)

In partnerships and limited partnerships, the personal liability of partners is unlimited (partners are liable for company debts with their personal assets), therefore the issue of protecting creditors is less risky compared to capital companies.

• Therefore, in sole proprietorships , services rendered, labor, and commercial reputation can clearly be contributed as capital.

• Even if a partner does not contribute money or assets to the company, they may still pledge their expertise, professional labor, business network, and reputation as capital. This must be explicitly stipulated in the contract.

2. Capital in Capital Companies (Joint Stock and Limited Liability Companies)

The situation is completely different in joint-stock and limited liability companies. In these types of companies, the liability of the partners is limited to the capital share they have committed (limited liability behind the corporate veil). Since the only guarantee for creditors is the company's assets, the legislator has strictly restricted the nature of capital in these companies.

• Prohibition of Labor and Commercial Reputation: According to Article 127/2 of the Turkish Commercial Code, services rendered, labor, commercial reputation, and receivables not yet due cannot be contributed as capital to joint-stock and limited liability companies.

• If someone wants to become a shareholder in a limited liability company solely by contributing their labor or expertise, this is legally impossible. They must contribute a tangible capital contribution (cash, real estate, patents, machinery, etc.) that is measurable in monetary terms, has tangible value, and is capable of execution. Labor can only be valued indirectly through arrangements such as hidden partnerships, service contracts, or preferred shares; it cannot be a direct capital contribution.

Valuation of In-Kind Capital and the Importance of Expert Reports

In cases where the assets contributed as capital are not in the form of money (i.e., in-kind capital), the biggest legal dispute and area of ​​scrutiny the valuation stage. Injecting assets into a company at inflated values ​​leads to the company's financial statements not reflecting reality and deceiving creditors.

The Turkish Commercial Code provides for the following mechanisms regarding the valuation of in-kind capital:

1. Appointment of Expert Appraisal: When in-kind capital contributions are to be made during the establishment or capital increase of joint-stock and limited liability companies, the value of these assets is determined by experts (expert auditors) appointed by the Commercial Court of First Instance in the location of the company's headquarters.

2. Report Binding Nature: Transactions are conducted based on the value determined in the expert report. Partners cannot create capital shares at a price higher than the value assessed by the expert. The value must be accurate, impartial, and based on market rates.

3. Liability of Founders and Partners: If the in-kind capital contribution has been knowingly or negligently inflated and this has caused damage to the company, the founders and related partners will face liability for damages to both the company and its creditors.

Assets That Cannot Be Brought Into Capital

In light of legal regulations and case law, are absolutely prohibited from being contributed :

• Labor and Services for Joint Stock and Limited Liability Companies: As stated above, in capital companies, the physical or mental labor of shareholders cannot be considered capital.

• Commercial Reputation and Network: A company's reputation in the market, personal connections, or network cannot be included as a capital item on the balance sheet in joint-stock companies.

• Receivables Not Yet Due and Not Yet Matured: Receivables that are unenforceable, doubtful of collection, or whose maturity date extends for many years are not accepted as capital.

• Property Belonging to Another or Claimed Rights: Property whose ownership is disputed, subject to mortgages, liens, or other ownership rights, and which cannot be freely disposed of, cannot be contributed as in-kind capital.

Conclusion

The assets that can be contributed as capital to commercial companies constitute one of the most strategic and sensitive mechanisms of company law, aimed at protecting creditors. Capital not only provides the lifeblood for a company to conduct its operations, but it also serves as the sole safeguard for third-party creditors in companies subject to limited liability.

Within the systematic framework stipulated by the Turkish Commercial Code, money, receivables, securities, intellectual property rights, movable and immovable assets, and their usage rights can be contributed as capital to commercial companies; however, the nature of these assets is sharply differentiated according to the type of company. In partnerships such as collective and limited partnerships, labor and commercial reputation are accepted as capital; however, in joint-stock and limited liability companies, labor, services, and commercial reputation are strictly prohibited. Only tangible or intangible assets that can be measured in monetary terms, constitute an asset item on the balance sheet, and are executable are permitted as capital. Furthermore, the requirement for expert appraisers to value in-kind capital through court proceedings constitutes a vital deterrent against market manipulation and false balance sheet declarations.

In conclusion, determining which assets can be contributed as capital during the establishment or capital increase of commercial companies is a legal process that must be conducted with utmost care in terms of legal validity, financial security, and criminal liability. Failure to comply with legal limitations and valuation rules will lead to both the invalidation of company agreements and the personal liability of partners and managers; therefore, the complete application of these rules is essential for the security of commercial life.