What is Emission Premium?

Trade is an indispensable part of human life and is renewing and changing every day. As a result of these changes, many regulations are being made, and new concepts are emerging. The Commercial Code, which is responsible for making these regulations, has been in effect for more than 10 years and prepares the necessary regulations for companies. These regulations also include economic provisions that affect the shares of companies. To explain, thanks to these provisions, companies and their shares gain value, new openings occur in the stock market, and companies' capital strengthens. In this case, encountering the concept of emission premium is inevitable.

The emission premium is also known as "Agio." The emission premium can actually be referred to as the capital placed into the company. The only difference is that its name is emission premium. The emission premium is the difference between the value at which the share certificate is issued and the sale price when the stock is issued at a price higher than the value stated on it during incorporation or capital increase.

The emission premium does not have a profit characteristic from the perspective of the company, and this money is not obtained through donation. The emission premium was first regulated in Article 282 of the Old Commercial Code. Later, the expressions were slightly modified and reorganized under the name of premium shares in Article 347 of the new Turkish Commercial Code numbered 6102. According to the new regulation, this money must be included directly in the legal reserves (reserve funds), and the placement and collection should not be subject to tax.

The emission premium is a frequently preferred transaction because it does not significantly change the partnership structure when the company meets its financial needs. It provides advantages to existing shareholders during the application process. In this case, when the company receives investment, existing shareholders do not become a minority and do not suffer a material loss.

According to Article 5 of the Corporate Tax Law regarding exemptions, the emission premium that will enter the company is exempt from tax; therefore, this method becomes quite advantageous for companies. Accordingly, when a share with an emission premium is issued, the value of the shares is added to the company's capital, and the amount determined as a premium is added to the company's assets exempt from tax. Thus, there is no financial burden for the company.

What is the Function of Emission Premium?

The emission premium is formed by the profit obtained after the company share is issued or transferred in amounts higher than the expected amount. This is quite beneficial for companies. This excess money is kept directly as legal money (reserve funds) and used in necessary situations according to certain provisions. For example, in cases of growth or capital increase within the company, this reserve money can be utilized. Thus, no extra money is used within the company, and no financial burden arises.

Furthermore, the emission premium is beneficial not only for companies but also for shareholders in the company. Thanks to the emission premium, shareholders do not suffer material losses in cases of potential issuance or transfer.

What is the Purpose of the Emission Premium?

The emission premium serves a significant purpose while providing substantial benefits for companies and shareholders. As it is known, companies need financial resources to sustain their assets. These resources can be obtained from various places, but there are also returns such as taxes. However, increasing financial resources through the emission premium is much easier. Especially when capital increase is not feasible, companies obtain the needed financial source from the emission premium. Thus, they will not have to bear a substantial financial burden or face bankruptcy.

How is Emission Premium Calculated?

The calculation of the emission premium varies depending on factors such as the amount per share and the number of shares. However, to explain simply, the example provided below can be examined:
● For example, if a company with a total amount of 1 TL per share and a total of 50,000 shares receives an investment of 200,000 TL in exchange for 20% of the shares, in this case, the number of shares will increase to 62,500 with the addition of the new 12,500 shares. The remaining money of "200,000-12,500=187,500 TL" is recorded as emission premium in the company records.

What is Emission Premium Capital Increase?

Companies can resort to various financing methods to protect, strengthen, maintain, and increase their financial structure. Financingmethods can be bank loans, factoring, public offerings of shares, financing bonds, etc., or capital increases within the company and financing can be obtained from existing shareholders or new investors in exchange for new shares. Due to various financial, economic, legal, and practical reasons, the method of financing through capital increase has become one of the most preferred methods.

In the regulations of the Turkish Commercial Code, additional conditions regarding capital increases in the issuance of shares with an emission premium have been defined. According to these conditions, the shares can be issued at a price higher than the nominal value only if it is regulated in the articles of association or a general assembly decision is made on the matter. The legislator has not specified a specific quorum for the general assembly decision; unless a heavier quorum is provided in the company's articles of association, the decision is subject to the quorum specified in Articles 418 or 421 of the Turkish Commercial Code, depending on its nature. Since shares with an emission premium are issued, the registration fee payable is calculated based on the increase in share value, not on the premium price, and the financial burdens regarding the fee are greatly reduced.

Additionally, a report must be prepared by the board of directors in accordance with paragraph 2 of Article 461 of the Turkish Commercial Code and the reasons for issuing premiums must be explained, and this report must be registered and published.

According to Article 480 of the Turkish Commercial Code, the articles of association must grant the board of directors the authority to issue shares with a premium in joint-stock companies that adopt the registered capital system. In case of a capital increase in the registered capital system, the board of directors must declare these matters as stipulated in the articles of association and publish them on the company's website in accordance with paragraph 2 of Article 460 of the Turkish Commercial Code.

Another important aspect to consider regarding the issuance of premium shares is regulated in Article 344 of the Turkish Commercial Code. According to this, the legislator has allowed a period of 24 months following registration for the payment of the committed capital, but it has ruled that the reduction premiums of the shares must be paid before registration.

Finally, there are some special provisions regulated for companies subject to the Capital Markets Law (CML) in the Capital Markets Board. Accordingly, according to paragraph 1 of Article 12 of the CML, it is mandatory that all issued shares are paid. Additionally, the Capital Markets Board may request that the shares to be issued be sold at a premium price and, if the shares are above the market price or book value, the right to acquire new shares must be exercised at the premium price.

What are Examples of Emission Premium?

To better understand the emission premium, the following example can be examined:
For instance, a joint-stock company operating in the construction sector, established in 2015 with a sole partner and a capital of 1,000,000 TL, had its market value rise to 5,000,000 TL in a short period. The company decided to make an agreement with another new partner to make new investments and meet its cash needs. An agreement was reached among the partners, and a decision was made for both parties to have fifty percent ownership. However, since the company's existing capital is 1,000,000 TL, if the entire 2,500,000 TL brought by the new partner (which is half the market-determined price) is added to the capital, the share of the old partner is calculated as (1,000,000/3,500,000)= 28.57%. To avoid this situation, the company, in fact, specifies the external cash inflow (actual capital increase) as 2,500,000 TL, but states the capital increase as 1,000,000 TL in order to prevent the dilution of the existing partner's share, making the total capital owned by the company 2,000,000 TL. Here, "2,500,000 - 1,000,000= 1,500,000 TL" is referred to as emission premium income. This amount will be evaluated as "Emission Premium Income" exemption in the corporate tax return. The amount that will benefit from the capital increase discount in the corporate tax law is accordingly 1,000,000 TL.