ESTABLISHING COMPANIES
We give legal advices about establishing companies and ongoing process to our Turkish and non- Turkish clients as OZNUR & PARTNERS Law Firm. In this article, we give the essential informations about establishing a company in Türkiye. Remember that if you want to establish a company in Türkiye, you should take legal advices from a Professional attorney.
1) FORMS OF COMPANIES IN TURKISH LAW
1.1) STOCK COMPANIES
- a) JOINT- STOCK COMPANY
- b) LIMITED LIABILITY COMPANY
- c) LIMITED PARTNERSHIP DIVIDED INTO SHARES
1.2) PARTNERSHIP COMPANIES
- d) GENERAL PARTNERSHIP
- e) COLLECTİVE COMPANY
- f) LIMITED PARTNERSHIP
2) TASK DUTIES OF COMPANIES
1) FORMS OF COMPANIES IN TURKISH LAW
Under the Turkish Commercial Code, companies are divided into two categories: partnerships companies and stock companies. In the Commercial Code, a commercial enterprise is defined as follows: “A commercial enterprise is an enterprise where activities exceeding the income threshold prescribed for small tradesmen businesses are conducted on a continuous and independent basis with the aim of generating income. The boundary between a commercial enterprise and a small tradesman business is determined by a decision issued by the Council of Ministers.” During the establishment of a company, determining which type of company will be incorporated is of great importance.
1.1) STOCK COMPANIES
The most important aspect of stock companies is that their strength and reputation stem from their stock rather than the labor or commercial reputation of their partners. A certain minimum capital is required to establish a capital company; however, its economic purpose does not have to be significant. This minimum amount is regulated in the Turkish Commercial Code (TCC) for joint-stock companies and limited liability companies. In stock companies, voting rights are proportional to the stock share.
- a) JOINT- STOCK COMPANY
According to the general definition in the Turkish Commercial Code and legal doctrine, a joint-stock company is a type of stock company established by one or more persons through a written agreement for a specific economic purpose or purposes. Its stock is divided into shares, and it is liable for its debts solely with its assets.
In a joint-stock company, shares are represented by share certificates, and the transfer of these shares is relatively straightforward. Accordingly, if you become a shareholder in a joint-stock company, transferring your shares to exit the partnership is a hassle-free process.
As per the Presidential Decree dated November 23, 2023, the minimum capital requirements for capital companies established on or after January 1, 2024, have been increased. According to this decree, an initial stock of less than 250,000 TL will not be accepted for the establishment of a joint-stock company.
Shareholders in a joint-stock company can be legal or natural persons, and there is no restriction on the number of shareholders; one or more shareholders are sufficient. A joint-stock company can be established as a public or private company.
The establishment of a joint-stock company can follow either a simple or a qualified procedure. In the simple procedure, the company’s capital is in cash, and the establishment steps are briefly as follows: First, the articles of association are prepared. The articles must include mandatory elements listed in Article 339 of the TCC, such as the company’s name, headquarters, and principal business activity. The founders sign the agreement, and the signatures are notarized or signed in the presence of the trade registry director or deputy. The company is then registered with the Trade Registry where its headquarters is located, upon which the joint-stock company gains legal personality.
- b) LIMITED LIABILITY COMPANY
A limited liability company (LLC) can be defined as “a type of company established by one or more persons through a written agreement for specific economic purposes, where the company is liable with its assets, and the partners are liable for their subscribed capital shares and additional payments stipulated in the agreement. Its principal capital is fixed and consists of the total capital shares.”
The minimum capital requirement for an LLC is 50,000 TL, indicating that establishing an LLC requires less capital compared to a joint-stock company. However, the transfer of shares in an LLC differs from the transfer procedures in a joint-stock company. Share transfers in an LLC are highly restricted. Additionally, unlike joint-stock companies where there is no limit on the number of shareholders, the number of shareholders in an LLC is limited to 50.
In LLCs, a company agreement is prepared, which must include elements such as the company’s name, headquarters, and principal business activity as listed in Article 576 of the Turkish Commercial Code. The agreement must be in written form, and the founders must sign it in the presence of authorized personnel at the Trade Registry Office. An LLC gains legal personality upon registration with the Trade Registry.
- c) LIMITED PARTNERSHIP DIVIDED INTO SHARES
Limited partnership divided into shares is a type of limited partnership, where the stock is divided into shares and represented by stock certificates, as we will discuss below. In this type of company, the number of partners must be at least 5. In this regard, although they are similar to joint-stock companies, limited partnerships have capital divided into shares, making them a type of capital company subject to similar procedures.
1.2) PARTNERSHIP COMPANIES
Partnerships are easier to establish compared to the capital companies that we have discussed so far. Unlike stock companies, there is no minimum capital requirement for forming a partnership. A person wishing to establish a partnership, can do so with any amount of capital. In a partnership, the partners are jointly and unlimitedly liable for the company’s debts. For example, if we assume a partnership with two partners and a debt of 100,000 TL, both partners would be jointly responsible for the full 100,000 TL debt, not divided equally as 50,000 TL per partner or based on their stock contributions. To establish a partnership in Türkiye, at least one partner is required.
- d) GENERAL PARTNERSHIP
A general partnership is defined in the Turkish Code of Obligations under the term “general partnership.” According to this definition, a general partnership is formed when at least two people come together to combine their labor and assets for a common purpose (the goal of sharing profits) through a written agreement, which is referred to as a general partnership agreement.
In general partnerships, in accordance with the principle of Affectio societatis accepted in the Turkish Commercial Code (TCC), there must be a shared intention among the partners to “achieve economic gain collectively”.
Article 621 of the Turkish Code of Obligations (TCO):
“Each partner is obligated to contribute a share to the partnership, whether in the form of money, receivables, other goods, or labor.”
This article regulates the contribution of shares by the partners in the establishment of the company. The partnership cannot be established unless the partners commit to bringing a share in one of the forms listed in this article. This commitment is one of the essential elements of the agreement. However, the fulfillment of this commitment is not a condition for the establishment of the partnership.
The key difference that distinguishes a general partnership from others is the absence of legal personality. In a general partnership, the partners are jointly entitled to any assets acquired by the partnership, including immovable properties brought as capital. This means that the partners collectively own the immovable property without having individual shares in it. Moreover, the partners are jointly and unlimitedly responsible for the debts of the partnership. This lack of legal personality is a direct result of the general partnership’s structure.
There is no specific formality required for the establishment of a general partnership. However, signing the agreement in the presence of a notary would help in resolving any future disputes. Additionally, there is no requirement for registration with the Trade Registry or publication in the Trade Registry Gazette. However, when establishing a general partnership, it is mandatory to apply to the Tax Office. For this application, the following documents are required: (if there is one) the general partnership agreement, copies of the partners’ identification cards, lease agreement if the workplace is rented, property title deed if the property is owned by the partners, a tax office application form (which can be obtained from the Revenue Administration’s website), and a signature circular for the partners.
- e) COLLECTİVE COMPANY
A collective company is defined in Article 211 of the Turkish Commercial Code (TCC) as: “A general partnership is a company established between real persons with the purpose of operating a commercial enterprise under a trade name, where none of the partners’ liabilities towards the company’s creditors are limited.”
The partnership agreement must specify the partners’ full names, residences, nationalities, and Turkish ID numbers (or tax numbers for foreign nationals or foreign identity numbers), the fact that the company is a collective company , the trade name and headquarters of the company, its business activity, the type and amount of capital each partner commits to contribute, the individuals authorized to represent the company, and the method of representation.
A collective company can be established with at least two partners, and the partners must be natural persons. The partners are unlimitedly liable for the company’s debts. There is no capital requirement for its establishment.
The partnership agreement containing the above elements must be certified by the Trade Registry Office or a Notary Public. The chosen company representatives must submit a signature declaration to the Trade Registry Office, and 0.04% of the capital is paid to the Competition Authority. This payment can be made either to the Trade Registry Office or directly to the institution’s bank account. After submitting the relevant documents to the Trade Registry Office, the company is established after the registration procedure carried out by the Registry Office.
- f) LIMITED PARTNERSHIP
A limited partnership can be established by at least two people, one being a general partner (unlimited liability) and the other being a limited partner (limited liability). General partners must be natural persons, while limited partners can be either natural or legal persons. The rights and duties of both the general and limited partners should be outlined in writing. To prevent potential disputes, these duties must be clearly expressed. Additionally, the company’s capital structure and the capital contributions of the partners should be carefully planned. The trade name and company name must be selected in accordance with the rule in the Turkish Commercial Code (TCC) that requires the name of one of the partners has to be included in the company’s trade name.
While the liability of limited partners is restricted to the amount of capital they contribute, general partners are unlimitedly liable, similar to the partners in a collective partnership. Since limited partners have limited liability, they do not have the authority to manage the company. Only general partners can manage the company.
To establish a limited partnership, the following documents must be submitted to the Trade Registry Office: a petition signed by the partners, a notarized partnership agreement, copies of the partners’ identification cards, and a letter of commitment obtained from the Trade Registry Office. A notarized and signed registration declaration, as well as a copy of the capital deposited in the Central Bank, must also be submitted. The legally required books must be certified by a notary. These books include the journal, share ledger, inventory book, general ledger, general assembly meeting and minutes book, and board of directors’ decision book.
An application form, signature circular of the partners, a copy of the agreement, and copies of the partners’ identification cards and residence information must be submitted to the Tax Office.
2) TASK DUTIES OF COMPANIES
Corporation Income Tax: Corporation Income Tax is levied on the profits and other income earned by companies. A tax statement is filed for the annual profit distribution, and corporate tax is collected from the company. Only stock companies have to pay the Corporation Income Tax.
Income Tax: Income tax is levied on the income earned by the taxpayer. Income tax applies to partnership companies and natural persons. Also, while collective and limited partnership founders have separate legal personalities (legal entities), their profits are taxed through the income tax liabilities of the partners themselves.
Value Added Tax (VAT): VAT is a tax levied on the added value a product or service gains throughout the production and consumption process. VAT is paid by the consumer but collected by the companies involved in the production and marketing processes. For both stock and partnership companies, VAT is calculated and paid based on the company’s status and the value of the product/service sold.
Stamp Duty: Stamp duty is a tax that the government levies on all kinds of contracts prepared. Both stock and partnership companies must pay this tax on any invoices and contracts they prepare.
In a limited partnership, general partners are unlimitedly liable to creditors, while limited partners are liable only up to the capital they have committed. Tax debts are primarily the responsibility of the company, and if the company is unable to pay, the general partners are liable.
In a collective company, the liability of partners for tax debts begins if the enforcement proceedings against the company is not enough or if the company terminates.
In a limited company, if the company’s assets cannot cover the unpaid tax debts, the partners are responsible for paying them based on their share in the partnership.
In a joint-stock company, the responsibility for unpaid tax debts from the company’s assets lies with the members of the board of directors. Other partners are not liable for the tax debts.