Dividend, profit distribution and reserve funds in stock companies

Kâr (profit) is derived from Persian. Denotation of profit is the earninggained from shopping. Profit, according to a definition made in education, representsan increase in existence of a commercial enterprise due to its economic activities in acertain period of time. In order for a stock company to distribute profit, first thecompany should make it. In other words, profit should appear on the commercialbalance of the company. Otherwise the company cannot distribute profit.According to the Communiqué Serial No. 4 27 which was issued by theCapital Markets Board, dividend represents the share of profit to be distributed toeach shareholder of the company and the other people participating into the profit.No natural and legal person differentiation is made for ownership of dividends. Theimportant point for the shareholder is to gain a material benefit in consideration ofhis participation into the company. While the material benefit can be in many variousforms, most important and permanent of them is the share of profit which the personwill gain from the company incomes.Advance payment for dividends is the payment to be distributed to theshareholders from the mid-term profit. Stock companies can distribute profitaccording to the balance to be issued at the end of the business year or based on theacceptance of the profit and loss accounts or its decision with regard to thedistribution of the profit. Even if any payment to be made to the shareholders apartfrom this stems from the net profit, it means ?return of the capital to theshareholders? which is prohibited by the prescriptive provisions (TurkishCommercial Code, Article 470, 473 etc.).Turkish Commercial Code provides no definition for reserve fund. Only itwas mentioned that reserve fund is part of the capital stock in Article 74/3 of TurkishCommercial Code. Reserve fund, according to a definition made in education,represents the net asset exceeding the capital stock. Reserve fund, according toanother definition, is the whole of the resources which are not distributed to theshareholders and other relevant persons from the net profit which are gained throughvarious resources of the company but retained within the company pursuant to thelaw, articles of incorporation and general meeting decision.Reserve fund has three functions in general. First of all is the preservationof the current status of the company, namely the capital. Second one is strengtheningthe capital with self-financing and the last one is adjusting a regular incomedistribution.