ARTICLE
29 December 2022

Establishment Of New Foundations

SO
Sakar Law Office

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The Turkish Civil Code Numbered 4721, the Law on Foundations Numbered 5737 ("Law"), the Regulation on Foundations published in the Official Gazette dated 27.09.2008 and numbered...
Turkey Wealth Management

The Turkish Civil Code Numbered 4721, the Law on Foundations Numbered 5737 ("Law"), the Regulation on Foundations published in the Official Gazette dated 27.09.2008 and numbered 27010 ("Regulation") and the By-law on the Registration and Announcement of Foundations issued by the Council of Ministers Decision 25.03.2013 dated and 2013/4513 numbered ("By-law") regulate the establishment of new foundations. New foundations are private law legal entities formed by one or more real or legal persons to create an independent legal entity to serve a specific and continuous purpose and to gain property for this legal entity through registration in a special registry.

ESTABLISHING PROCESSES

According to Article 102 of the Turkish Civil Code, foundations1 are established by a one-sided declaration of intention of the founder and may be established by an inter-legal transaction. The first step of the foundation establishment procedures is the preparation of the articles of foundation, all procedures are explained in detail below:

  1. Preparation of the Articles of Foundation: The first step in terms of foundation procedures is the preparation of the articles of foundation in accordance with the Law and the Regulation. The foundation is based on the intention of the founder(s) embodied on the articles of foundation, and according to the Law, the following issues should be included on the articles of foundation:
    1. Title of the Foundation: The title of the foundation shall be compliant with its purposes and shall not be misleading the third party. Furthermore, it is not possible to use the title of any public institution or organisation as the title of the foundation. Before the issuing of the articles of at the notary public, it is beneficial to search for similar foundation titles by questioning the title of the foundation. Otherwise, the articles of foundation prepared by the notary public may face the possibility of making correction statements, and it should be noted here that all revisions and corrections to be made should be carried out by the notary public who carried out the establishment procedures
    2. Purpose of the Foundation: The purpose of the foundation should be lawful, specific, understandable, and continuous. The court shall examine the purpose of the foundation and the issues stated in the articles of foundation in detail and shall make a final decision and approve the establishment of the foundation. Therefore, the purpose of the foundation and the activities to be carried out by the foundation should be stated in an appropriate, clear, and precise language that fully reflects the real purpose of the foundation.
    3. Property and Rights Dedicated to the Foundation: The assets to be dedicated to the foundation should belong to the founder and be sufficient to fulfil its purpose. According to Article 5 of the Law, the minimum assets to be allocated to foundations according to their purposes are determined by the Parliament every year. For the year of 2022, the minimum assets to be dedicated to the purposes of foundations at the time of their establishment was determined as TRY 90,000.00.
    4. Bodies of the Foundation: According to Law, it is mandatory to have a management body (board of directors) in a foundation. In accordance with the activities of the foundation, it is possible to assign a board of trustees, a management body and an auditing unit, as well as a board of honour, a research board and a working board. However, it should be noted that these organs should be in accordance with the purposes and activities of the foundation as defined in the articles of foundation. It is important that the number of members of the organs of the foundation, the number of meeting and resolution quorums, and the limits of the duties and powers of the organs are sufficiently specified in the articles of foundation in order to avoid problems in the operation of the foundation.
      In foundations those who have been convicted of theft, qualified theft, plunder, qualified plunder, fraud, qualified fraud, embezzlement, bribery, forgery, fraudulent bankruptcy, bid rigging, using fraud or trickery in the fulfilment of execution, breach of trust, smuggling offences, and offences against the security of the state cannot be directors. Moreover, pursuant to Article 9 of the Law, those who are convicted of the mentioned offences after being elected as foundation administrator shall no longer be administrators. It is important to note here that the General Directorate of Foundations applies the barriers to being a director in accordance with the legislation also to founders.
    5. Location of the Foundation: The location of the centre where the foundation shall carry out its activities should be specified in the articles of foundation.
  2. Issuing of Official Articles of Foundation by Notary Public: Pursuant to Article 102 of the Turkish Civil Code, in order to establish a foundation through an inter-provisional legal transaction, the natural person(s) with full capacity or the legal entity(ies) with full capacity to act and whose founding statute contains a provision stating that it may establish a foundation, allocate assets to the foundation, or who has taken an authorised body decision on the establishment of a foundation, or through their duly authorised attorneys, should be issued an official articles issued by the notary public.
  3. Obtaining the Tax Number: After notarisation of the articles of foundation, a potential tax number should be obtained by first applying to the tax office located at the centre of the foundation for the blocking of the cash assets to the bank. This is a very important procedure since this tax number shall be valid even after the foundation establishment procedures. If the foundation transactions are carried out by proxy, it would be beneficial to include this issue on the proxy.
  4. Blocking the Cash Assets to the Bank: After the notary procedures of the articles of foundation, all the money allocated to the assets of the foundation to one of the banks in Turkey shall be blocked and the official letter to be received from the bank shall be added to the court documents. It is necessary to send the cash assets from the bank account of the relevant founding member to the bank account.
  5. Application to the Civil Court: For the establishment of a foundation, the official articles to be issued at the notary public is not sufficient, and an application should be made to the civil court of first instance for the establishment of the foundation and it should be registered in the registry kept by the court. In this context, an application should be made to the court with the necessary documents, but it should be stated that the relevant court may request additional information and documents to the following documents.

    According to Article 3(4) of the By-law, the court shall conduct an examination on the documents and, if necessary, by hearing the foundation owner and other relevant persons. Within the scope of the examination, the court also has the opportunity to take the opinion of the Directorate General of Foundations, to listen to the foundation owner and to have an expert examination, if it is necessary. The court notifies its decision to the Directorate General of Foundations ex officio. Therefore, pursuant to Article 7(3) of the Regulation, the foundation that acquires legal personality shall be registered in the registry book kept before the court of the place of settlement, where the name of the founder and the foundation, the place of settlement, the bodies, the purpose and the property and rights dedicated to this purpose are shown.

    In case the court rejects the registration request of the founation, the applicant or the General Directorate of Foundations may appeal against this decision within 1 month starting from the date of notification. It should be noted that, pursuant to the Regulation, if the purpose of the foundation and the property and rights dedicated to this purpose are sufficiently specified in the articles of foundation, other incompletions do not require the rejection of the application for the foundation to gain legal personality.  Such incompletions may be completed by the court before the registration decision is issued or may be completed by the court upon the application of the supervisory authority after the establishment.

    However, in practise the courts do not reject the registration request due to the assets since the property and rights dedicated to the purpose are not sufficient in the recent period, since it is possible to increase them afterwards. As stated in the Regulation, for instance, the court may request a change in the name, purpose and subject matter, in which case the articles of foundation should be revised at the notary public. Since the revisions should be made by the founders (or proxies) and the notary public who issued the articles of foundation, it will be helpful to carry out the establishment transaction by a proxy.


    In Summary, for establishing a foundation there are two main phases:
    • Issuing the articles of foundation through notary public

     

    Issuing a court decision by the civil court regarding the registration of the foundation.



  6. Transfer of the Dedicated Assets and Rights to the Foundation: Following the registration of the court decision, the foundation shall gain legal personality, while at the same time, in accordance with Article 11 of the Regulation, the ownership of the assets and rights dedicated to the foundation shall be acquired without delivery, registration and assignment.
  7. Announcement: The foundation registered in the central registry is announced in the Official Gazette. According to Article 7 of the By-Law, the information required to be stated in the Official Gazette announcement is explained in detail and it shall be useful to check whether this information is included after the announcement. The expenses made for the announcement are paid by the General Directorate of Foundations to be collected from the foundation.

Footnote

1. In this article, all terms referred to as foundations refer to new foundations in accordance with the Law on Foundations.

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.

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