Capital Increase Without External Borrowing: Financial Stability Strategy

In conditions of economic instability, Turkish joint-stock companies increasingly turn to capital increase through internal sources. This method strengthens financial stability without external investment and maintains full management control.

What Internal Capital Increase Represents

Internal capital increase is the process of converting accumulated profits and reserves into share cap‐ ital. According to Article 462 of Turkey’s Commercial Code, companies are required to use internal funds before attracting external financing.

Key Method Advantages

Avoiding high credit interest rates, no need to sell assets, preserving existing shareholding structure. Shareholders receive additional free shares proportional to their stake, increasing package value without control dilution.

Step-by-Step Implementation Procedure

The process includes company balance analysis, general shareholders’ meeting approval, trade re‐ gistry changes registration, and free share issuance. The company converts profit into share capital while fully preserving ownership structure.

Practical Success Example

ABC A.Ş. increased share capital from 50 to 70 million lira using accumulated profit. Shareholders re‐ ceived additional free shares, and the company achieved market value growth without external loans.

Important Limitations and Requirements

The method requires sufficient internal reserves and isn’t suitable for quick large-scale financing. Ac‐ cording to Court of Cassation decisions, companies may be obligated to increase capital under certain circumstances. Internal capital increase is an effective tool for strengthening financial stability, minimizing debt burden, and maintaining management control while complying with Commercial Code provisions.

Remember that each situation requires individual consideration. For personalized consultation, contact us.

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