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December 21, 2023

The Comparison Of Sports Joint Stock Companies To Be Established Under The Sports Club And Sports Federation Law No.7405 And Joint Stock Companies To Be Established Under The Turkish Commercial Law No. 6102

Introduction

The Sports Clubs and Sports Federations Law No. 7405 (the “Sports Law”), published in the Official Gazette dated 26.04.2022, and entered into force respectively. On the one hand, the Sports Law introduces a novel model regarding the way sports clubs and joint stock companies are structured, and on the other hand, it envisages remarkable changes compared to the existing legal regime in terms of sports clubs that have already been transformed into joint stock companies in the period prior to its enactment, their financial structures and the legal liability of the board of directors.

Article 24/3 of the Law No. 6871 on Youth and Sports Services was the only legal provision regulating incorporation in sports before the enforcement of the Sports Law. The provision elaborated that sports clubs could only be incorporated as a company if they had professional sport branch. However, the Sports Law allows all sports branches to be incorporated under the roof of corporation. Within the scope of the Sports Law, it is mandatory for sports companies to be organized as joint stock companies and other types of corporations are not permitted. Hence, the Sports Joint Stock Company (“SJSC”), introduced as a new type of corporation with the enactment of the Sports law. 

We will discuss the novel provisions introduced for the SJSC with the Sports Law and examine comparatively the provisions foreseen for the SJSC different from the joint stock companies established as per the relevant provisions of the Turkish Commercial Code Law No. 6102 (“TCC”) in the following paragraphs respectively.

Within this scope, since many provisions enacted with the Sports Law demonstrate that some conditions are aggravated for the operations of the SJSC; it is observed that the SJSC differs from the joint stock companies established under the TCC, especially in terms of registration, capital structure, share types and shareholding structure, and liability of managers. These differences are generally as follows; 

Establishment and the Status 

The first step of qualifying as a SJSC, is an establishment of a joint stock company must in accordance with the relevant provisions of the TCC and registered with the trade registry. Following the establishment of the joint stock company, the registration to the sports joint stock companies’ registry kept by the Ministry of Youth and Sports (the “Ministry”) is the second mandatory step for the acquisition of the SJSC status. Since, the registration with the trade registry alone is not efficacious for the acquisition of the status of a SJSC, it must also be registered with the sports joint stock companies’ registry.

Capital 

Pursuant to the relevant provisions of the TCC, while joint stock companies can be established with a minimum capital of TRY 50,000.00, according to Article 8/1 of the Communiqué on the Procedures and Principles Regarding the Minimum Content of the Articles of Association, Shareholding Structure, Shareholding, Capital and Organs of Sports Joint Stock Companies (“Communiqué”), the minimum capital of Spor AŞ cannot be less than TRY 1,000,000.00. 

It is important to distinguish that capital contributions which are an injection of cash or non-cash assets into the joint stock company (Article 342 of the TCC), can come in other forms in the SJSC. For instance, sports clubs may contribute their assets and liabilities related to a particular sport as a whole to a sports joint stock company as capital (Article 15/1 of the SKSFK). It should be noted that this principle does not seem to be in harmony with some of the basic principles regarding the formation of capital in joint stock company law. Indeed, some items among the assets and liabilities of a sports club cannot be contributed as a capital to a joint stock company. For instance, it is impossible to contribute an outstanding receivable from another sports club as a contract transfer fee to the joints stock company as a capital (bonservis bedeli).

Shares and Shareholding Structure 

SJSC may be established both as a subsidiary or affiliate of a sports club, and independently. On the other hand, sports clubs can purchase the shares of the SJSC which is established independently. In this respect, Article 15/1 of the Sports Law states that: “Sports clubs may contribute or transfer their assets and liabilities related to a specific sports branch as a whole to a sports joint stock company as a capital.” However, in both cases, the Sports Law requires a special bond regarding the shareholding structure of sports clubs in the SJSC. Accordingly, the second paragraph of Article 15/2 of the Sports Law states that: “A sports club which has a contractual, partnership, administrative or similar relationship with a sports joint stock company should directly or indirectly control the sports joint stock company with one of the types of domination defined in Article 195 of the TCC.” On the contrary, the TCC does not set forth such shareholding structure for joint stock companies.

Moreover, the shares of the SJSC affiliated with a sports club must be issued as registered shares pursuant to Article 15/3 of the Sports Law. Furthermore, in the event that sports clubs subsequently become shareholders of a SJSC within the scope of Article 15/1 of the Sports Law, the bearer shares previously issued in this SJSC must also be converted into registered shares.

External Borrowings

No borrowing limit is imposed on joint stock companies established pursuant to the relevant provisions of the TCC except for the prohibition of shareholders of joint stock companies from borrowing (Article 358 of the TCC) and the prohibition of board members from borrowing (Article 395 of the TCC).  On the contrary, sports clubs and SJSC may borrow up to a maximum of 10% of their previous year’s gross revenues in a budget year from the company (Article 20/5 of the Sports Law). Borrowings above this rate may be made with a supplementary budget to be approved with the affirmative vote of the majority of the capital in public SJSC and at least two-thirds of the capital in non-public SJSC. However, the borrowing made with an additional budget cannot exceed 50% of the gross revenues of the previous year.

Financial Benefits to be Provided from the Company Profit 

In joint stock companies, the founders of the company may be granted financial benefits in the context of “founder benefits” pursuant to a provision to be included in the articles of association of the company, as long as it does not result in a capital reduction. Article 339/2-f of the TCC which regulates the mandatory content of the articles of association of the company states that, “…financial benefits to be provided to the founders, board members and other persons from the profits of the company…” shall be included in the articles of association. 

However, Article 5-(h) of the Communiqué elaborates that “In sports joint stock companies affiliated with a sports club, no financial benefits may be provided to the founders, board members and other persons from the profits of the company, except for dividends to be distributed to shareholders and bonus capital increases to be made from dividends”. Therefore, unlike joint stock companies established pursuant to the relevant provisions of the TCC, if the sports club is a shareholder of SJSC, no financial benefits can be provided to the founders, board members and other persons from the profits of the company.

Conclusion

The regulation and encouragement of incorporation of the SJSC within the scope of the Sports Law is a positive step and will contribute to the formation of more sustainable structures for the sports club. The general characteristics of the SJSC, which include very special regulations in this respect, are explained and comparatively examined under this article.  

Authors

Gülenay Kavcar

Gülenay Kavcar