COMPANY FORMATION IN TURKEY
As per the Foreign Direct Investment Law numbered 4875, the foreign investors have the same rights as per Turkish citizens to form a company in Turkey. The foreign investor willing to form a company would also be subject to the same laws and regulations as a local investor such as Turkish Commercial Code, Turkish Code of Obligations and Labour Law as well as to certain specific laws and regulations like the Regulation on the Foreign Direct Investment Law and Law on Work Permits of Foreigners. Therefore, it is always important to work with a Turkish qualified lawyer not only in order to form a company but also be in compliance with the applicable laws and regulations while conducting business activities.
1. Company types and requirements:
Pursuant to the Turkish Commercial Code, there are four different types of commercial companies such as:
- joint stock companies (anonim şirket),
- limited liability companies (limited şirket),
- commandite companies,
- collective companies and
- cooperative companies.
The most frequently formed companies are joint stock companies and limited liability companies.
The joint stock company is usually formed by investors or large group of investors aiming to establish a large-scale business in Turkey. Only one shareholder is required in order to form such company and there is a minimum capital requirement of TRY 50.000 (and TRY 100.000 for the companies accepting the registered capital system). The general assembly and the board of directors are mandatory bodies of the company. Please also note that at least one quarter of the nominal value of the shares committed in cash must be paid before registration. The remaining amount shall be paid within 24 months following the registration of the company.
The limited liability company is frequently used by small and medium size enterprises and is essentially similar to joint stock company with some different features. The number of the partners may not exceed 50 and the minimum capital requirement is TRY 10.000. Even though the common principle of both joint stock companies and limited liability companies is that the shareholders/partners are only liable to pay the committed amount as the capital share towards the company, in joint stock companies the representatives or directors are also liable from public debts which could not have been collected from the company itself.
As for the commandite and collective companies (known as limited partnership in Europe), there is no minimum capital requirement. For the collective companies there are two possible types: simple commandit company (adi komandit şirket) where one partner’s liability is limited and commandite company whose capital is divided into shares (hisseli komandit şirket) which is similar to joint stock companies with the exception of the liability of unlimited partners. The collective company might only be formed by real persons which are responsible from the debts of the company with their personal assets.
The last type is the cooperative company which is frequently used by investors involved in agriculture in Turkey.
There are also other options such as establishment of branches and representation offices (especially for foreign banks wishing to set up a liasion office in Turkey).
2. The Company Establishment Procedure:
Initial Works:
This stage involves the determination of your trade name, application for licences and other intellectual property rights (if applicable), executing lease agreements in order to provide an address for the company, apply for a potential tax number and informing on the incentives provided for different types of companies etc. The shareholders should also check whether the approval of the Ministry of Commerce is required for the establishment of the company (for certain businesses such as banks and other financial institutions, holdings, insurance companies such approval is mandatory to obtain).
Articles of Association:
The first step is to draft an articles of association (AoA) of the Company. The AoA has mandatory provisions to include depending on the type of the company (such as the capital of the company, the number of the board of directors etc. for joint stock companies). Apart from the mandatory content, the AoA also sets outs the rights and obligations of the shareholders towards the company and by and between themselves and, if any, restrictions on the share transfer as well as any other provision relating to the operation of the company provided that such is not in contradiction with the mandatory provisions of the Turkish Commercial Code. Therefore, it is important to carefully draft the AoA according to each specific company since it will become the fundamental foundation document of the company.
Along with the AoA, a shareholders’ agreement might also be demanded from the prospective shareholders of the company. Such agreement provides the needed confidentiality and flexibility for the regulation of the relationship between the shareholders.
Application to the trade registry:
The company acquires its legal entity upon its registry to the relevant trade registry. Hence, the application and registration process to the trade registry is important to follow-up. The shareholders of the company or their proxies should apply to the relevant trade registry by submitting all the required documents (e.g. articles of association, signature specimens, bank receipts, founder’s declaration).
Other complementary transactions:
Once the company is established, there are also other formalities to complete such as preparation of the signature circular of the company, approval of the company’s ledgers, application to the competent tax office, obtaining a social security number from the relevant Social Security Administration, obtaining a work permit for foreigners fulfilling certain criteria (e.g. directors of a limited liability company or board members of the joint stock company (who are shareholders of the company and residing in Turkey)) and completion of other procedures such as application to the municipality or other relevant authorities.
Important points to note:
Please be informed that even though the company formation is considered more as a formal procedure there are many points to be considered and preparations to be made depending on the company structure and type. The careful drafting of your agreements and submission of your applications would prevent many possible legal issues that your company may be confronted in the future. Please also note that as per the Turkish Attorney’s Act, joint stock companies having a minimum capital amount of TRY 250.000 are obliged to engage a regular attorney at law. In case of violation of the relevant provision, an administrative fee calculated on a monthly basis is charged.
For further information please do not hesitate to contact us via e-mail: info@gkslegal.com, or contact any of our partners directly.
