Chapter 2: Law on Commercial Enterprise

Law of Commercial Enterprise within the Systematic of Turkish Commercial Law

Historical overview reflects that in addition to the reception of the Swiss Civil Code and Code of Obligations, the Turkish legislature enacted the first systematic Commercial Code, which had been prepared by the German-born Turkish-naturalized law professor Ernst E. Hirsch based on, mainly, Swiss law, and to some extent, German law. The adoption of the Commercial Code in 1956 as well as that of the Swiss Codes in 1926 deeply affected the life of every Turkish citizen and played a very significant role in the Westernization of the country. Following the first Commercial Law of the Turkish Republic enacted in 1926, with the Commercial Law enacted in 1956, Turkish legal institutions adopted not only Swiss and German rules, but also, progressively, the academic opinion on their interpretation in their own judgments and the academic knowledge and approach of these countries.

The TCC has introduced significant new issues to commercial business life some of which can be listed as corporate governance regarding good management and internal and independent audit that are to be applied to all capital stock companies; creation of web sites, information society services and access rights of information; and single shareholder (one-man) joint stock company and single member limited liability company.

TCC is divided into six chapters:

• Book 1: (Articles 1-123) on CommercialEnterprise
• Book 2: (Articles 124-644) on Commercial Companies
• Book 3: (Articles 645-849) on Valuable Papers (Negotiable Instruments)
• Book 4: (Articles 850-930) on Transport (Carriage) Operations
• Book 5: (Articles 931-1400) on Maritime Law
• Book 6: (Articles 1401-1520) on Insurance Law

Law on Commercial Enterprise

TCC regulates several aspects of commercial business life. TCC is relatively a new Law as it has been thoroughly revised and as stated in the Preamble of the TCC there has been several factors, which influenced the enactment of a new TCC. Recent developments in Turkish economic laws such as candidacy and negotiation process with the EU; technological developments and the Internet; international markets and global trade; new economic laws affecting commercial business; developments in transportation; developments related to corporate compliance and other company matters and the reforms in the commercial codes in several European states.

The first book of TCC regulates matters related to commercial business such as consequences and liabilities of a commercial enterprise; types of merchants and acting merchants; bankruptcy, trade registry, interest in commercial business; transfer of commercial enterprise; commercial litigation; consequences and liabilities of being a merchant; trademark and trade name, commercial books and unfair competition/trading.

The scope of the TCC is set forth in the first Article. Article 1 TCC reads as follows:

I-Commercial Provisions

Article 1- (1) Turkish Commercial Code is an inseparable part of Turkish Civil Code dated 22/11/2001 numbered 4721. The provisions in this Law, together with other specific legislation related to the acts and transactions regarding a commercial enterprise are commercial provisions.

(2) The Court, in cases where there is not a provision applicable to the dispute, shall decide in accordance with commercial customary rules and in cases where commercial custom does not exist shall decide in accordance with general provisions.

Pursuant to Article 3 of TCC all matters regulated in the law are considered as commercial business and all matters (businesses and acts) concerning a commercial enterprise are considered as commercial.

What is a Commercial Enterprise

Commercial Enterprise is simply defined in Article 11/1 of the TCC by way of a reference to a benchmark with the turnover threshold of a craftsman’s business. The definition provides three essential elements that should be required for a commercial enterprise. Accordingly, in the light of the definition of the law, the essential elements of a commercial enterprise can be listed as follows:

1. to generate an income that will be above the craftsman’s turnover to be announced:
2. continuity:
3. Independence

On the other hand, the term “undertaking” which is quite a close concept to enterprise is defined in Competition Law No.4054 (Article 3) as “ natural and legal persons who produce market and sell goods or services in the market, and units which can decide independently and do constitute an economic whole” . “Undertaking” a broader and comprising concept compared to a “commercial enterprise”. In other words, within the purposes of Competition Law, every commercial enterprise qualifies as an undertaking within the meaning Competition Law so long as it can take its decisions independently.

A commercial enterprise comprises of several different assets, such as human capital, tangible or intangible altogether, which form the elements that the enterprise is founded upon.

Acquisition of a Commercial Enterprise

For the acquisition of a commercial enterprise, the rules applicable to such legal transactions would be either the relevant provisions of TCO or alternatively the TCC depending on what basis the commercial enterprise has been acquired. In principle, the acquisition of a commercial enterprise is subject to Article 202 TCO, and where appropriate Article 7 of Competition Law, unless the acquisition comprises of the company shares where relevant provisions of TCC and where appropriate Capital Markets Law will be applicable.

The following are some important points relevant to the acquisition process of a commercial enterprise:

1. A commercial enterprise is to be acquired with all its credits and debts (Article 202 TCO).
2. Pursuant to the TCC, it is possible to acquire a commercial enterprise with all the elements therein without a need to separately conclude agreements or registrations for each of the elements concerned.
3. The acquisition needs to be agreed with a written agreement.

In some cases, depending on the nature and turnover threshold of the acquisition, the agreement may need to be notified to the Competition Authority under Article 7 of the Law No.4054, for clearance.

Consequences of Acquisition of the Commercial Enterprise

Commercial enterprise is the core of the Turkish Commercial Code. Enterprises are categorized into two as commercial and craftsman enterprises in the scope of Commercial Law. The commercial enterprise means that it is the way of a reference to the craftsman’s activities in the Law. A commercial enterprise comprises of several different assessed, such as human capital, tangible or intangible altogether which form the elements that the enterprise is founded upon.

Commercial Business

All matters regulated in the TCC are defined to be commercial business (Art.3 TCC). Pursuant to Article 3, without any exception and regardless of any relevance to a commercial enterprise all matters regulated in the TCC are defined as commercial business.

In addition to the subjects regulated in the TCC, as to Article 3, any transaction or act, which is relevant to a commercial business, is also considered commercial business.

Despite the fact that this term is rather vague and broad, it has been accepted in literature that any act or transaction, which is directly or indirectly related to commercial business, is deemed commercial business.

Pursuant to Article 19/1 TCC, principally all the debts of a merchant are commercial. Nevertheless, there exists an exception to this rule for the individual merchants (nonlegal person merchants). If the individual merchant informs the other party that the transaction is not related to his/her commercial business or from the circumstances, it is not appropriate that there is commercial business, then the debt is considered not as commercial but ordinary. Unless otherwise provided in the law, agreements, which qualify to be commercial business for one of the parties, will also qualify as commercial business for all the parties concerned. Based on Article 19/2 TCC one can be subject to commercial rules although he/she is not a merchant.

Pursuant to Article 3 TCC, without any exception and regardless of any relevance to a commercial enterprise all matters regulated in the TCC are defined as commercial business.

Consequences of Being Defined as a Commercial Business

• Joint and several liabilities (presumption of joint and several liability): In cases where more than one person is liable for the debts, unless they agree otherwise on the mode of their liability or this is specifically regulated in the Law, everyone is liable from certain amount of the debt.
• Commercial Interest: In commercial business, there are different forms of interest:

Interest as to its Nature

Capital interest is the interest payable to the creditor for being deprived of the amount of money that she/he lent to the debtor.

Interest for delay is the interest payable where the debtor fails to pay debts back in time.

Interest as to its Calculation

Simple interest applies only for the capital and its is calculated for a certain period of time whereas compound interest is the interest calculated over the sum reached by the addition of a certain interest on the initial capital.

Interest as to its Source

Contractual interest is the interest that is based on an agreement between the parties whereas statutory interest is the interest rate, which applies where the parties have not agreed otherwise.

Commercial Interest-Ordinary Interest

If the debt arises from a legal relation, which falls within the scope of Article 3 TCC, or Article 19 TCC, then as this legal relation will qualify as commercial business, the interest to be applied would be commercial interest. However, if the debt cannot be qualified as commercial, then the interest to be applied will be ordinary interest.

Statute of Limitations (Article 6 TCC)

Unless otherwise provided in the law, the statute of limitations in commercial business cannot be changed by contracts. Therefore, the provisions related to statute of limitations are obligatory provisions, which the parties cannot agree otherwise.

Commercial Provisions

Law no. 1163 on Cooperatives, Law no.5411 on Banking, Law no: 6362 on Capital Markets, Law no.3905 on Statutory Interest and Interest for Delay can be stated as examples of such laws, which comprise of commercial provisions.

According to Article 1 TCC, in the absence of a commercial provision applicable to a commercial business, commercial customary rules shall be applied, and in the absence of a commercial customary rule, general provisions shall apply.

Within the context of the provision above, although it is not explicitly stated in the Law, the list of category of rules applicable should be understood as in the following:

1. Commercial provisions
   1. Compulsory (obligatory) provisions
   2. Provisions in the Contract
   3. Non-compulsory provisions (complimentary and interpretative rules)
2. Commercial customary rules
3. General provisions

Merchants

A merchant within the scope of the TCC can be either an individual or a legal entity with a legal personality.

(Individual) Merchants: According to Article 12 TCC, a person (individual), who even partially operates a commercial enterprise on his behalf, qualifies as a merchant. If a commercial business is owned by a person who is below the age of 18 (non-adult), but is operated either by the parent or by a guardian, then the parent or the guardian will not be considered a merchant (Article 13 TCC).

(Legal entity) Merchants: Article 16/1 TCC defines that merchants with a legal personality and accordingly commercial companies, foundations and associations, state, municipality, local authority and village authority and other public legal persons who operate a commercial enterprises regardless of their legal status under different branches of law will be considered as merchants .

Legal Consequences of Being a Merchant

There are certain legal consequences, which arise as a result of being a merchant. These are not optional or subject to any choice or preference of the merchant but they arise as a consequence of the fact that someone is or acting as a merchant. These legal consequences can be listed as follows :

• Obligation to have and use a trade name
• To be subject to bankruptcy for all kinds of debts:
• To be registered in the Trade Registry
• To keep books and documents
• To get registered with the Chambers of Commerce and Industry
• To act as a diligent businessman
• The right to request payment and interest
• Presumption of commercial business
• To issue an invoice
• Not to request the decrease in the payment and penalty:
• Right to object to the receipt and confirmation letter within 8 days
• Enforcement of commercial customary rules
• Notifications and warnings
• Procedural rules in sales and changing of the goods
• Easiness in benefiting from the right to lien

Auxiliaries (of Merchant)

The merchants work together with some other people, the status of whom can be different as to the legal relation that they have with the merchant. These people are not themselves merchants, but they either independently or dependently work with the merchant in the operation of the commercial business. Some of these people work under the directions and the supervision of the merchant, who in a way work with the merchant dependently. Dependent auxiliaries can be grouped as to their authority to represent the merchant where some of the auxiliaries have the authority to represent the merchant.

On the other hand, there can be many other people that the merchant is employing depending on the scope of the commercial business where those people do not have any authority to represent the merchant.

There are also independent auxiliaries who work with the merchant, but while doing so they can individually arrange his methods and time management and workload independently from the merchant. Those who work independently usually run their own business separate from the commercial business of the merchant. Some of the independent auxiliaries have the capacity to represent the merchant where some of those do not have such a representation capacity .

Commercial Courts

Commercial Courts are structured to have authority within the civil courts of first instance, and they are specifically authorized to hear commercial disputes. Commercial Courts are designed to be specific chambers within the organization of civil courts, and they are established where the density of commercial disputes require the organization of separate commercial courts; and otherwise the civil courts in that jurisdiction will have the authority to hear commercial disputes.

Commercial Cases are classified under three categories.

1. (Absolute) Commercial cases
2. Cases arising from transfer, reserve and intellectual and industrial property rights (Article4/1 TCC)
3. (Relative) Commercial cases arising from disputes regarding commercial enterprises of both parties (Article 4/1 TCC)

Trade Registry

Trade Registry is an official registry regulated in the TCC (Articles 24-38 TCC). Some aspects of business and transactions related to commercial enterprise are to be registered in the Trade Registry. Registered matters create legal consequences following the publication in the Trade Registry Journal of Turkey .

A registration in the Trade Registry can be made based on the following motives:

1. Upon request
2. Upon Registrar’s initiative or notification

If the matter to be registered becomes legally effective before the registration, and registration is only to declare that commercial act or transaction, then the effect of this registration is declaratory. Where, as if based on the explicit provision of the law, a registration is compulsory for the effectiveness of the legal transaction, then this registration is constitutive.

Commercial Books

It is required that all the accounting systems of Turkish enterprises shall be arranged in accordance with Turkish accounting standards, which have been and will be further enforced according to internationally accepted financial standards (IFRS). In addition to that, commercial enterprises shall document and file all of the commercial transactions, if necessary electronically.

Unfair Competition (Unfair Trade Practices)

Unfair trade practices include misrepresentation, false advertising and acquiring and declaring other’s business secrets and all other acts that are declared unlawful by the law. The core of unfair competition law is based on the protection of all the market participants.

In Article 5 of the Constitution, titled Fundamental aims and duties of the State welfare of the individual and the society, removal of economic obstacles and principle of social state which are all relevant to the philosophy of protection of consumer welfare are explicitly referred among the fundamental aims and duties of the State.

In the broadest sense, the following can be listed as the legislation related to competition, and thus, each of the following set of rules regulate protection of competition relations in the markets from different perspectives.

1. Unfair Trade Rules (TCC and Code of Obligations)
2. Non-Compete Agreements/Restrictive Covenants (TCC and Code of Obligations)
3. Law No. 4054 on the Protection of Competition
4. Law No.3577 amended with Law No.4412 on the Prevention of Unfair Competition in Imports
5. Law No.6015 on the Surveillance and Control of State Incentives

Unfair competition rules aim to protect not only the competitors but also the buyers, consumers, the public, the economic order and the competitive environment.

Unfair Competition/Trade Rules in Turkish Commercial Law

Unfair competition in trade relations is mainly regulated in the TCC. There are also further general and specific provisions in some other legislation. These are regulated in Turkish Code of Obligations and in some specific laws such as intellectual and industrial property laws and in consumer protection law.

• Unfair Competition in Code of Obligations
• Unfair Competition in Turkish Commercial Code
• Unfair Competition in Intellectual Property Law (Copyright Law No.5846 amended by Laws No. 5101 and No. 4630)
• Unfair Competition in Industrial Property Law No. 6769
• Unfair Competition in Consumer Protection Law No. 6502.

Article 57 of TCO regulates unfair competition as a special type of tortious activity for non-commercial relations. It is based on the idea and general principle of protection of freedom to act in the economic area in order to protect the economic personality stated in Article 24 of the Turkish Civil Code .

Unfair competition among merchants is regulated under a separate section in the Turkish Commercial Code in Articles 54-63. Article 54 TCC sets forth an objective and broad criterion.

There are also specific provisions dealing with unfair competition regarding intellectual property law such as unfair trading in trademarks, trade names and other intellectual properties usages. Yet the criteria given in Article 54 TCC are rather vague, if public interest is damaged due to misleading acts, this also constitutes unfair competition. In Article 55 TCC, some types of acts are listed as a non-exhaustive list of acts which might be considered as acts contrary to good faith.

These include passing off one’s products as though they were made by someone else, using a trade name confusingly similar to that of another, stealing trade secrets, and various forms of misrepresentation.

Under the wording of Article 54 of the TCC, any misuse of economic competition by acts contrary to principle of honesty/good faith is deemed unfair competition. Both goods and services are considered within the scope of this provision. (For the detailed examples of unfair competition study pages 30- 31).

Examples of acts, which may constitute unfair competition

• Advertisement and sales methods and other illegal acts, which violate the rule of good faith,
• Inducement breach or termination of contract,
• Unauthorized utilization of others’ business products.
• discrediting others or their merchandise, products, works, activities or business transactions by wrong, misleading, unnecessarily offending statements,’’
• Revealing production and business secrets unlawfully,
• Not complying with general business conditions,
• Using general business terms and conditions, which violate the rule of good faith,
• acts or statements aiming to distort a competitor’s commercial reputation,
• lodging an unjustified lawsuit only to offend,
• predatory exploitation of another’s services or achievements

Article 55 TCC provides examples, which constitute trade practices considered unfair either to competitors or to consumers. The examples provided in Article 55 TCC do not constitute an exhaustive list, therefore other acts, which mislead the competitors or violate the principle of honesty (good faith) between the competitors, may also be considered as unfair competition.

Incorrect or misleading statements made in favor of oneself or of third persons to put them in a more favorable position with regard to their competitors are also considered unfair competition.

To misuse free economic competition by trying to create an impression of having exceptional capabilities, as by acting as if in possession of a degree, certificate or prize, is unfair competition.

Trade names, trademarks are protected under unfair competition law when copyrights are violated or those names and marks are imitated and so caused confusion. Within the meaning of this provision, imitating someone else’s trademark or trade name or packaging style may constitute unfair competition.

Where certain products can only be produced under a patent, only those enterprises who have the patent or the patent license can produce and sell those products. Therefore, if someone produces or sells a patented product without a patent license, such an activity also constitutes unfair competition.

It is also considered unfair competition to misuse economic competition by causing persons to divulge trade or production secrets. If confidential lists of addresses, agents, customers, suppliers, credit risks and similar lists are deemed “trade secrets’’, it is unfair competition to obtain these lists in a manner contrary to good faith and to benefit unjustly from them or to divulge them.

To issue incorrect or untrue certificates, which may deceive persons with good faith, constitutes unfair competition.

Further, it would constitute unfair competition if a merchant does not comply with commercial standards found in laws, regulations, and contractual terms or by established professional or local customs, which are also applicable to all other competitors.

Who may Bring a Legal Action in the Case of Unfair Trading

Article 56 explicitly lists those who are entitled to bring a court action in cases of unfair competition. Accordingly, the following can take the following legal actions:

1. Persons whose economic interests are damaged or infringed
2. Customers whose economic interests are infringed
3. Professional or economic associations

Types of Legal Actions

In cases where there arises an unfair trading, the legal remedies that can be exhausted by the sufferers can be classified as civil law and criminal law remedies.

Civil Law Claims

The civil law actions that can be taken in the case of unfair competition are as follows:

• Legal action for a declaratory relief (TCC Article 56/1(a))
• Legal action on the termination of the practices constituting unfair competition (Injunction) (TCC Article 56/1(b))
• Legal action for restitution of the unlawful situation (TCC Article 56/1(c))
• Legal action to claim damages (TCC Article 56/1(e))
• There are also criminal law actions in addition to the civil law actions listed above.

Criminal Law Actions

Those acts of unfair competition to which a criminal law sanction is attached are listed in Article 62/1 TCC.

Publication of the Judgement

The plaintiff has the right to request from the court to publish the judgement at the expense of the defendant irrespective of the existence of fault.

Precautionary Measures (TCC Article 61) and Civil Procedural Law Article 389-399

If delay might be harmful or if such remedies are just necessary to prevent serious damages to occur, precautionary measures may be requested and granted before or after lodging a case, the grounds for seeking a  precautionary remedies include the preservation of the status quo, prohibition of unfair competition, restitution of  the claimed unlawful situation and correction of an incorrect or misleading declaration.

Liability of Employers and Legal Entities

Legal Entities (merchants with a legal personality) are liable for the unlawful acts of their organs committed in the course of their business.

If unfair competition is committed by workers or employees in the course of their employed term, actions for declaratory relief, removal of the unlawful situation and a prohibiting action can be brought against the employee or against the perpetrator. If there is no dependency between the principal and the agent or if damages are not caused in the course of employment, the principal with fault is jointly liable together with the agent.

Statute of Limitations in Unfair Competition Cases

In unfair competition cases, the claimant must bring a cause of action within three years from the date of the existence of the right to take an action and one year from the date when he/she learns about the damages. In cases of criminal offences arising out of unfair competition, statute of limitations is five years .

Liability of the Press

Pursuant to Article 58 TCC, if unfair competition is committed by means of the press, an action may be brought, in principle against the author of the article or the editor. However, actions of unfair competition against press are allowed only where the article or advertisement has been published without the consent or contrary to the will of the author or the editor or for some reason it is not possible to reveal the author or to sue her/him in the Turkish courts. Liability of the press includes the responsible editor or the head of the advertisement department (where unfair competition is committed through advertisement). If either of these persons is not known, then the publisher is liable; and if the publisher is unknown, then the printing company/person is liable.