European Union: Setting Up A Company In Turkey

Last Updated: 30 October 2009
Article by Akdogan | Uslas Attorneys At Law

In accordance with the principle of equal treatment specified in the Foreign Direct Investment Law No. 4875 of 2003, foreign investors may freely set up companies in Turkey1. Apart from ordinary incorporation documents (e.g. Articles of Association, signature declarations) which are also requested from Turkish persons/entities, there is no additional approval, licensing or permission requirement for foreign investors while establishing a company in Turkey, except for the mere notification obligation to the Foreign Direct Investment Department of the Undersecretariat of Treasury for statistical purposes.

Under Turkish corporate practice, joint stock corporations2 (JSC) (anonim sirket) and limited liability partnerships (LLP) (limited sirket) are the most common types of capital companies foreign investors choose to establish in Turkey. Due to the hybrid characteristic of LLPs3, JSCs are more flexible and easy to administer and thus, more suitable for large scale transactions4. Below you may find a brief description of both company types.

I. Main Characteristics

1.1 Corporate Governance

(i) Articles of Association

The Articles of Association (the Articles) (ana sozlesme or esas sozlesme) of a JSC and/or an LLP is the main document governing the relationship between the shareholders/partners of such legal entity, its scope of activity and relevant corporate matters. The Articles of a company must include, among others, names and addresses of the incorporators; and the trade name, headquarter address, scope and objective, and the share capital of the company.

Turkish law is not explicit on shareholders' agreements, which have not yet been tested before Turkish courts. It is a possibility for the shareholders of a JSC or the partners of an LLP to execute a shareholders' agreement whose provisions cannot override those of the Articles of a JSC or an LLP. In other words, in the event of an eventual conflict between the Articles and the shareholders' agreement, the former would prevail.

(ii) Corporate Bodies

  • Day-to-day management

In JSCs, the Board of Directors (the Board) (yonetim kurulu), composed of at least three (3) natural persons elected and appointed by the General Assembly (genel kurul), has the power to conduct the business of and represent the JSC. In order to be a Board member, one must be a shareholder of the company irrespective of the number of shares he/she holds. Representation of Board members via proxy in Board meetings is prohibited.

LLPs do not have a Board similar to that of JSCs but managers (mudur) with the right to manage, represent and bind the company before third parties. Unless otherwise stipulated under the Articles, the partners of an LLP are automatically considered as managers.

  • Material Resolutions

In a JSC, material resolutions, such as amendment of the Articles, Board member appointments and company dissolution, can only be made by the General Assembly, which may hold ordinary or extraordinary meetings where the attendance of a Ministry of Industry and Trade representative, the commissar, is mandatory. In an LLP, such powers are vested in the Board of Partners, and the attendance of a commissar is not required.

The resolutions of General Assembly/Board of Partners meetings are binding upon all shareholders/partners. Unless otherwise provided under the Articles, applicable meeting and decision quorums are the ones set forth under the Turkish Commercial Code No. 6762 (the TCC).

  • Internal Audit

Under Turkish law, "statutory auditor" (murakip or denetci) is referred to as one of the mandatory bodies of all JSCs and LLPs having twenty (20) or more partners. Statutory auditors should be natural persons and thus legal entities cannot assume such role.

The General Assembly/Board of Partners appoint statutory auditors. In JSCs, a minimum of one (1) and a maximum of five (5) statutory auditors may be appointed. In case of the former, the auditor must be a Turkish citizen. If there are more than one (1) statutory auditor, half plus one of them must have Turkish nationality.

1.2 Shareholding and Share Capital

Number of shareholders/partners. A JSC can be established by a minimum of five (5) shareholders, whereas at least two (2) partners are required to incorporate an LLP. The shareholders or partners may either be natural person(s) or legal entity(ies). Nevertheless, an LLP cannot have more than fifty (50) partners.

Duration. A JSC may be established for an indefinite period of time, yet the term of an LLP is limited to a maximum of 99 years.

Share capital. The minimum share capital of a JSC is TL 50,000 (approximately EUR 25,000) and that of an LLP is TL 5,000 (approximately EUR 2,500). Issuing privileged shares granting additional rights to their owners, such as distribution of dividends or nomination of a Board member or statutory auditor, is allowed in JSCs provided that the Articles includes such privileges. Since an LLP is not entitled to issue share certificates (representing its share capital), privileged shares are not feasible in an LLP.

Minority shareholders. Shareholder(s) of a JSC holding shares representing 10% or more of the share capital (5% for publicly owned JSCs) enjoy minority shareholders' rights granted under the TCC. Some of these rights are as follows: (i) request for appointment by the General Assembly of a special auditor (ozel denetci) with regard to specific corporate matters; (ii) filing lawsuits against directors and/or statutory auditors for their misconduct; (iii) calling for extraordinary General Assembly meeting; etc.

Share certificates. All JSCs have shares (hisse or pay), but only a portion of them have share certificates (hisse senedi). Share certificates are particularly issued when a share transfer is contemplated because they provide a significant tax (i.e. VAT) advantage5. In JSCs with issued share certificates, the said certificates (i.e. the shares that they represent) can be transferred through endorsement and/or delivery, depending on the certificate type (i.e., bearer share certificates or registered share certificates). However, in an LLP, shares may only be transferred by a written agreement executed before a notary public.

Going public. Finally, pursuant to the Turkish capital markets legislation, only JSCs can go public.

II. Liability of shareholder(s)/partner(s)

JSCs and LLPs are capital companies leading to the liability of their shareholders/partners to be limited to their shareholding/partnership stake.

In both JSCs and LLPs, each shareholder/partner is liable towards such JSC/LLP for the capital contribution that he/she promised to make when incorporating the company. Default in such payment may lead to the dismissal of the relevant shareholder/partner from the company.

In a JSC, shareholders cannot be held personally liable for JSC's public debts. However, in an LLP, a partner is liable up to the percentage of his/her partnership ratio in the total capital of such LLP for public debts including but not limited to corporate tax, social security premiums, etc.

III. Registration of companies with the Trade Registry and the Tax Authority

Once the necessary documents are duly submitted to the Trade Registry, the registration process will take approximately one (1) week, the delivery of the required documents to the relevant trade registry being the first day. The documents prepared (and signed if necessary) abroad, before being sent to Turkey, must be notarized and apostilled in accordance with the Hague Convention of 5 October 1961 Abolishing the Requirement of Legalization for Foreign Public Documents (Hague Apostille Convention) or, alternatively, certified by a Turkish Consulate in the country of origin. These formalities may prolong the process.

The incorporation of JSCs and LLPs are completed upon registry with the respective trade registries. Although such registration is proof for the valid existence of a corporation, in order to engage in tax generating transactions (e.g. opening of bank accounts), such corporation must obtain a tax registration number before the relevant tax authority. The company may be fined in case of failure to obtain a tax registration number within a month from incorporation. The whole incorporation process may be followed through a power of attorney issued by each of the incorporators.

IV. The Draft Turkish Commercial Code

The Draft Turkish Commercial Code (the Draft Code), which has been under discussion in the Turkish Parliament for four years, introduces significant changes in corporate structures of JSCs and LLPs. The Draft Code specifies new rules for both JSCs and LLPs in line with corporate governance principles. Below are some of the important provisions that will be applicable once the Draft Turkish Commercial Code is enacted:

  • JSCs and LLPs may be incorporated by one shareholder/partner.
  • The minimum capital requirement for LLPs is increased to TL 25,000 (approximately EUR 12,500).
  • The Articles of the JSCs and LLPs will be standardized for all companies and the shareholders' agreement will become the main document governing the relationship among shareholders and partners.
  • JSCs will be obliged to have a web site whose mandatory content is set under the Draft Code.
  • The Board of JSCs may be composed of one (1) director that is not required to be a shareholder. Thus, legal entity shareholders may straight away be a director, as opposed to the current representation via a natural person. At least one (1) of the directors with representation authority should be a Turkish citizen domiciled in Turkey.
  • The concept of a "stakeholder" is introduced.
  • Mergers and spin-offs are re-defined and the relationship among group companies is thoroughly regulated.
  • General Assembly meeting quorums for both JSCs and LLPs are revised. Online General Assembly meetings are made possible provided that appropriate information technology systems are put in place by the relevant JSCs.

Footnotes

1. There may be sector-specific cases and legislation where foreign persons/entities are not equally treated with their Turkish counterparts. For instance, a non-Turkish person/entity is legally banned from holding more than 25% of the share capital of a radio/television company in Turkey.

2. In Denmark aktiselskabet; in France and in Luxembourg la société anonyme; in Germany die Aktiengesellschaft; in Ireland the public company limited by shares; in Italy la societa par azioni; in the Netherlands de naamloze vennootschap (N.V.); and in the United Kingdom the public company limited by shares.

3. In LLPs, a number of resolutions can only be made by an overwhelming majority or unanimity of the partners. Therefore, although LLPs are called capital companies, personal relationships of their partners are also key to their due management.

4. Certain businesses including but not limited to banking, insurance and asset management can only be conducted through JSCs.

5. A more resorted option is issuing temporary share certificates (gecici ilmuhaber), which provide for the same function and tax advantage in share transfers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions