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Establishment of a capital company in Turkey

published on 19 April 2023 | reading time approx. 7 minutes

The Turkish Commercial Code recognizes three forms of capital companies. These are the incorporated company, the limited liability company and the partnership limited by shares. The following article takes a closer look at the incorporated company and the limited liability company. The partnership limited by shares is excluded here, as it is hardly preferred due to liability issues. It is possible to establish a one-man company by a foreign natural or legal person. The incorporation process can be divided into three phases: pre-establishment, establishment, and post-establishment.

Pre-establishment Phase »
Establishment Phase »
Post-establishment Phase »
Conclusion »

Pre-establishment Phase

Pre-establishment phase is the phase in which the appropriate legal form is determined.

Determination of the Appropriate Legal Form

The decision-making process for the appropriate legal form is based on various criteria. Depending on the business model, these have varying degrees of impact.

The criteria listed below are not exhaustive and serve to highlight the main differences between the two company forms. It should be stated in advance that both company forms are very similar due to the reform of the Turkish Commercial Code, which came into force on 1 July 2012. Many provisions that apply to the incorporated company are also applicable to the limited liability company.

Organs of a Capital Company

The mandatory organs of a Turkish limited liability company are the general assembly and the management board whereas the mandatory organs of a Turkish incorporated company are the general assembly and the board of directors. The Turkish Commercial Code does not recognize a supervisory board.

Shareholder Structure

Although it is possible to establish a company with a single natural person, it is advisable to establish a company with a foreign legal entity. This is because, in the light of Presidential Decree No. 32 on the Protection of the Value of the Turkish Lira, which generally prohibits contracts in foreign currency, companies with foreign legal shareholders generally fall within the scope of the exceptions. If the conditions are met, it is also possible to grant a shareholder loan in foreign currency. Furthermore, tax benefits may be claimed under the provisions of possible double taxation agreements.

Resolutions

Shareholders’ resolutions and resolutions of the management board of a limited liability company may, in principle, be passed by circulation. Depending on whether the company is a single-member or a multi-member company, the holding of the general assembly of an incorporated company is subject to special formal requirements. In the case of multi-person companies, a member of the board of directors and a ministry representative may have to attend the general assembly, e.g. if certain items on the agenda such as an increase or reduction in the share capital, a change in the purpose and object of the company, a merger or a spin-off are to be adopted by resolution. Compliance with the formality of inviting shareholders to the general assembly by the board of directors may become more important if the share capital is not 100 per cent represented at the general assembly. In principle, resolutions of the board of management can be passed by circulation.

Structure of the Management

A special feature of the Turkish Commercial Code is that, in the case of a limited liability company, at least one shareholder must be appointed as managing director of the Turkish company with unlimited power of representation. In its capacity as managing director, the shareholder must be represented by one natural person, if this shareholder is a legal person. The natural person can be any person with legal capacity. Turkish citizenship or permanent residence in Turkey are not required.

There is no such requirement for the incorporated company. Therefore, it is not mandatory that at least one shareholder be appointed to the board of directors of the company. In principle, the power of representation of the management board and the board of directors can’t be restricted.

If only a limited power of representation is to be granted to certain persons, i.e. if the power of representation is to be restricted, a directive, which is subject to registration and publication must be issued. Based on the powers specified in this directive, so-called authorized signatories with limited powers of representation are appointed. These authorized signatories shall be grouped, if necessary, e.g. authorized signatories of group A, authorized signatories of group B, etc. Legal transactions and actions not listed in this directive may not be exercised. Although the law defines these persons as authorized signatories with limited powers of representation, these persons may be designated differently in the relevant directive (e.g. as “General Manager”, “Finance Director” or “Office Manager”).

Liability

As a legal entity, the capital company is liable with its capital. In principle, the shareholders are not liable for the company's obligations. However, public debts of the company are an exception, e.g. tax debts and social security premiums. For these, the representative of the company (in the case of the limited liability company, this is the managing director; in the case of an incorporated company, this is the board member with authorization to represent the company) is liable with his own assets if this debt can’t be collected from the company. Thus, in the case of a limited liability company, the liability of the managing shareholder for public debts of the company comes into consideration if these can’t be collected from the company assets.

Capital

The share capital of a limited liability company must be at least 10,000 TRY whereas the share capital of an incorporated company must be at least 50,000 TRY. In any case, the capital should be proportionate to the business project. Otherwise, there is a risk of undercapitalization and financing possibilities (e.g. capital increase, shareholder loans) must be sought. If a work permit is to be applied for, the paid-in capital of the company must be at least 100,000 TRY.

Mandatory Representation by a Lawyer

There is no obligation for the limited liability company to prove the relationship of legal services. On the other hand, incorporated companies with a share capital of at least 250,000 TRY are obliged to prove the relationship of legal services. This requires the conclusion of a service contract with a lawyer licensed in Turkey.

Audit Requirement

Under current regulations, companies are subject to an audit requirement if two of the maximum limits listed below are exceeded in two consecutive fiscal years:

the company employs 150 employees or more
the balance sheet total is 75,000,000 TRY or more
the sales total is 150,000,000 TRY or more

The thresholds are revised annually by resolution of the President of the Turkish Republic. The voluntary appointment of an independent auditor is also possible.

Establishment Phase

Once the decision on the legal form has been made, it is necessary to start with the preparations for the establishment. In this phase, all the documents required for the establishment, including a resolution of the founder, the activity certificate of the founder, the specimen signature and declaration of acceptance of office of the managing director, etc. are prepared and, if the founder is a foreign national, these documents must be notarized and apostilled abroad. This is also the phase in which the articles of association or the statutes, which may later be signed by proxy before the competent Trade Registry Office, are drawn up. The address of the registered office of the company to be established must already be determined at this stage.

The preparation of the establishment documents in conformity with the requirements of the Turkish Commercial Code and the competent Trade Registry Office becomes of particular importance here, because any non-conformity, e.g. invalid company name, non-fulfillment of the minimum requirements for the articles of association or the statutes, will lead to the rejection of the application for establishment.

If all the required establishment documents, including the notarized and apostilled documents, are available, they must be translated in Turkey by a sworn interpreter and locally notarized. Consequently, the electronic pre-registration of the company is carried out via MERSIS, the Turkish central data recording system. Finally, an appointment is reserved with the competent trade registry authority. At this appointment, the required establishment documents must be submitted in full, and articles of association or the statutes must be signed before the clerk, if necessary, by proxy. The presence of the founder is not required for the execution of the establishment if a person on site acts on behalf of the founder based on an appropriate power of attorney for the establishment.

Upon registration of the incorporation in the Trade Register, the Turkish company acquires its own legal personality. The announcement of the establishment in the Turkish Trade Register Newspaper usually takes place on the same day of the registration.

Post-establishment Phase

After the company has been established, it must be registered with the tax office and the social security office in due time. It is also necessary to ensure that the unannounced inspection of the office premises by the tax authorities is carried out and that the inspection report is signed in this connection, if necessary, by proxy. Consequently, the tax office issues a tax registration certificate for the established company.

The post-establishment phase is also the phase in which a so-called signature circular, which reflects the representative powers of this person according to the trade register entries and is usually claimed by the other party when legal transactions are concluded, is prepared for the managing persons.

Once these steps have been taken, a bank account must be opened for the established company, if necessary, by proxy. The correspondence with the bank and the provision of the requested establishment documents, which include the trade register newspaper, the tax registration certificate, the signature circular and, if necessary, a corresponding bank proxy, requires a certain amount of practical knowledge to handle these matters quickly.

Once the bank account is opened, the share capital of the company can be paid in. In the case of a limited liability company, the share capital must be paid in within 24 months of the company's establishment. In the case of an incorporated company, on the other hand, at least a quarter of the share capital must be paid in before the company is established, which at the very least requires a capital contribution account to be opened before the company is established.

Finally, other permits and licenses required for carrying on the business must be applied for (e.g. business license).

If the founder complies with his duties to cooperate (these mainly include providing the information required for the establishment, obtaining the notarial certification and apostille abroad), the establishment of a capital company in Turkey is usually completed in total within 4 weeks.

Conclusion

A seamless transition between the establishment phase and the post-establishment phase is essential to ensure the completion of a smooth establishment process.