23.09.2019

The essential Corporate Law in Turkey

These are the highlights if you want to know more about Corporate Law in Turkey. This entry was drafted by Bag & Gunen Law Firm. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Bag & Gunen Law Firm is an excellent option in Turkey.

Turkey is a civil law country and the Turkish Commercial Code no. 6102 was enacted in 2012 for repealing the previous code to align with the related developments in the international legal scene including EU acquis communautaire. Within this scope, many important amendments were introduced particularly in the corporate governance area to increase transparency and ensure accountability, fairness and responsibility in corporations.

Pursuant to the Turkish Commercial Code (“TCC”), the corporations consist of collective company, commandite company, ordinary partnership, cooperative company[1], joint stock company and limited liability company under Turkish law. Within the scope of the TCC, collective and commandite company are deemed as partnerships whereas joint stock, limited liability and commandite company limited by the shares are deemed as corporations in which the liability is limited to the value of the share capital.

In practice, limited liability and joint stock companies are generally preferred by medium and large-sized companies and by foreign investors. Also, some sectors such as banking, energy require incorporation of a joint stock or limited liability company for obtaining the relevant licenses, permits, etc. On the other hand, many small business owners operate via partnership models.

The two tables below illustrate the most common entity types, and list the most relevant characteristics of each type. Table 1 describes types of corporations and Table 2 describes partnerships. Each type of entity is further described below the tables together with branch and liaison office.

Table 1	JSC (Joint Stock Company)	LLC (Limited Liability Company)	Comm LLC (Commandite Company Limited by the Shares)
Use	Middle-sized and large companies (may be listed on the stock exchange, though this is not mandatory)	Small and middle-sized companies	Small and middle-sized companies (at least five incorporators and one of the incorporators should be a real person as an unlimited partner) The difference between the general commandite company is that the Comm. LLC’s capital is divided by shares which can be transferred freely similar to a joint stock company.
Minimum capital requirement	TL 50,000 (only 25 % of the total capital should be deposited initially) TL 100,000 for non-public joint stock companies which accepted the registered capital system.	TL 10,000 (only 25 % of the total capital should be deposited initially)	No minimum requirement
Liability	Shareholder’s liability is limited to the value of the share capital.	Shareholder’s liability is limited to the value of the share capital.	The unlimited partners have an unlimited, joint and several (secondary) liability. The liability is limited to the value of the share capital for limited partners.
Management	A Board of Directors with one or more members which are appointed by the articles of association or the general meeting.	A General Manager which is appointed by the articles of association. At least one shareholder should be appointed as manager.	Management is regulated by the unlimited partner.
Change in articles of association	Depends on what is agreed in the articles of association. If nothing is agreed: in general majority of the submitted votes and at least 1/2 of the share capital represented on the general meeting is necessary. Some extensive changes require a higher share of votes.	Depends on what is agreed in the articles of association. If nothing is agreed: simple majority of the submitted votes and 2/3 of the share capital represented on the general meeting. Some extensive changes require a higher share of votes.	Depends on what is agreed in the articles of association. If nothing is agreed: in general majority of the submitted votes and at least 1/2 of the share capital represented on the general meeting. Some extensive changes require a higher share of votes.
Share classes	Different classes (A-, B-, C- etc.) can be created via articles of association or amendment of articles of association. In terms of privileged shares, one class can be given a higher voting right up to 15 votes for each share which cannot be used for certain resolutions.	Different classes (A-, B-, C- etc.) can be created via articles of association or amendment of articles of association. Privileged shares can be created with voting rights such as one vote for each share capital apart from its par value.	Different classes (A-, B-, C- etc.) can be created via articles of association or amendment of articles of association. In terms of privileged shares, one class can be given a higher voting right up to 15 votes for each share which cannot be used for certain resolutions.
Shareholders agreement	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties.	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties.	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties.
Accounting	Financial tables of the company and annual activity report of the Board is required to be audited as per the Turkish auditing standards which is compatible with the international standards. Commercial books should be kept as per the relevant articles of the TCC.	Financial tables of the company and annual activity report of the manager(s) is required to be audited as per the Turkish auditing standards which is compatible with the international standards. Commercial books should be kept as per the relevant articles of the TCC.	Financial tables of the company and annual activity report is required to be audited as per the Turkish auditing standards which is compatible with the international standards. Commercial books should be kept as per the relevant articles of the TCC.
Company tax	Corporate tax 20 %	Corporate tax 20 %	Corporate tax 20 %
Tax on capital gains	Capital gains derived by a company generally are taxable as ordinary income (15%). However, 75% of capital gains derived from the sale of domestic participations are exempt from corporation tax subject to certain conditions which include sale of properties and transfer of shares.	Capital gains derived by a company generally are taxable as ordinary income (15%). However, 75% of capital gains derived from the sale of domestic participations are exempt from corporation tax subject to certain conditions which include sale of properties and transfer of shares.	Capital gains derived by a company generally are taxable as ordinary income (15%). However, 75% of capital gains derived from the sale of domestic participations are exempt from corporation tax subject to certain conditions which include sale of properties and transfer of shares.
Registration	Must be registered with the relevant trade registry.	Must be registered with the relevant trade registry.	Must be registered with the relevant trade registry.
Legislation	TCC	TCC	TCC

Table 2	Coll (Collective Company)	Comm (Commandite Company)	Ordinary Partnership
Use	Small companies (at least two owners who are private persons)	Small and medium companies (at least two owners, one limited partner and one unlimited partner which can be a private or legal person)	Used generally for purposes such as joint venture projects, consortiums. (at least two owners who are legal and/or real persons)
Minimum capital requirement	No minimum requirement	No minimum requirement. (The limited partner may only invest capital as cash or goods or rights that can be converted to cash)	No minimum requirement (Unless agreed otherwise via articles of association share capital of owners should be equal)
Liability	The partners have an unlimited, joint and several (secondary) liability.	Liability is limited to the value of the share capital for the limited partner. Unlimited, joint and several liability for the unlimited partner.	The partnership has no legal personality. Therefore the owners have an unlimited, joint and several liability.
Management	Unless agreed otherwise in the articles of association or by a decision of the partners (absolute majority) each partner can legally enter into binding obligations on behalf of the collective company.	Management is regulated by the unlimited partner(s). The limited partners cannot object to the actions of the limited partners which are intra vires.	Each of the owners have management rights unless it is agreed otherwise in the articles of association or via a decision. The management rights may be assigned to one of the owners or a third party.
Change in articles of association	Changes should be approved unanimously by the partners.	Changes should be approved unanimously by the partners.	Changes to the partnership agreement should be approved unanimously by the partners.
Share classes	Each partner has one voting right which cannot be amended via articles of association.	Each partner has one voting right which cannot be amended via articles of association.	No share classes.
Shareholders agreement	Valid inter partes but cannot override mandatory provisions of law of obligations. Not valid against third parties.	Valid inter partes but cannot override provisions of law of obligations. Not valid against third parties. The relationship between the limited and unlimited partners are required to be regulated by the articles of association.	No shareholders agreement.
Accounting	Commercial books should be kept as per the relevant articles of the TCC. The financial statements shall be finalized upon majority approval by the board of partners.	Commercial books should be kept as per the relevant articles of the TCC. The financial statements shall be finalized upon majority approval by the board of partners.	Commercial books should be kept as per the relevant tax legislation.
Company tax	Collective company has no legal personality in terms of corporate income tax except for taxes such as VAT, Special Consumption Tax, withholding, etc. All other business income is taxed as personal income. Personal income tax rate differs between 15 %- 35%.	Commandite company has no legal personality in terms of corporate income tax except for taxes such as VAT, Special Consumption Tax, withholding, etc. All other business income is taxed as personal income for both limited and unlimited partners. Personal income tax rate differs between 15 %- 35%.	Ordinary partnership has no legal personality in terms of corporate tax except for taxes such as VAT, Special Consumption Tax, withholding, etc. All other business income is taxed as income for owners depending on their legal personality.
Tax on capital gains	Personal income tax 15%.	Personal income tax 15%.	Personal income tax rate differs between 15 %- 35%.
Registration	Must be registered with the relevant trade registry. The articles of association are also required to be submitted.	Must be registered with the relevant trade registry. The articles of association are also required to be submitted.	No requirements
Legislation	TCC	TCC	Turkish Code of Obligations

Choice of legal entity

Before starting a business the preferred type of legal entity must be considered. The choice can depend on many different factors but the most common factors are one or more of the following:

Liability
Taxation of the company and the owners
Sufficiency of establishing a branch (foreign companies only)
Start-up capital and running costs (share capital, registration costs etc.)
Overall reputation in the market
Company’s area of operation (whether incorporating a certain type of entity is required or not)

Types of companies

As earlier mentioned there are several different types of legal entities. The types most commonly chosen for medium-sized and large companies are either a joint stock company (JSC) or a limited liability company (LLC). These two types of company are regulated by similar provisions and their shareholders’ liability is both limited to the subscribed share capital but they differ in some aspects, as described below:

JSC (Joint Stock Company)

Most large companies in Turkey (and all stock-exchange listed companies) are established as a JSC, which is a well-reputed entity type. The total required share capital is minimum TL 50,000, at least 25 % of the total share capital shall be paid before the registration and the remaining amount is required to be paid within 24 months from the registration. A JSC may be incorporated with a single shareholder and there is no limit for maximum number of shareholders.

In terms of foreign shareholding, there are no restrictions apart from certain regulated sectors. On the other hand, a permit and/or license should be obtained from the relevant Ministry for starting commercial activities regardless of the shareholder’s nationality if the company will operate in some sectors such as banking, insurance, financial leasing.

A JSC must have a Board of Directors with one or more members which should be appointed by the articles of association or a resolution of the shareholders. A legal person may also be appointed as a member. The articles of association may include certain provisions for providing the right of representation in the Board for certain shareholder groups and the minority shareholders.

The Board may establish committees and commissions which may include a Board member for purposes such as monitoring the business, reporting and internal auditing. The management may be assigned partially or fully to one or more members or a third person by the Board of Directors via a provision in the articles of association.

The ordinary general meeting shall convene within three months as of the end of each activity period. Unless it is agreed otherwise within the articles of association or required by the TCC, the general meeting shall convene with shareholders representing at least ¼ of the share capital and simple majority voting will be enough. For amendments of articles of association different voting and quorum requirements will apply.

If there is a related provision within the articles of association, a shareholder may attend and vote in a general meeting via electronic mediums.

A JSC pays 20 % in corporate taxes based on the company’s yearly profit. The shareholders’ return on shares are exempt from corporate income tax if the shareholder is a legal person, it will be subject to a 15 % personal income tax for real person shareholders.

The company will be subject to independent auditing if certain criteria are met such as total number of employees, annual net sales revenue.

LLC (Limited Liability Company)

Many small and middle-sized companies choose to run their business as a LLC, which requires a share capital of TL 10,000, at least 25 % of the total share capital shall be paid before the registration and the remaining amount is required to be paid within 24 months from the registration. The shareholders’ liability is limited to their investment in shares. An LLC can be established by a single shareholder, the maximum number of shareholders for LLC is determined as 50.

An LLC must have one or more managers and they shall be appointed by the articles of association. At least one of the shareholders is required to be appointed as a manager. If there is more than one manager, a Board of Managers shall be convened.

The ordinary general meeting shall convene within three months as of the end of each activity period. Unless it is agreed otherwise within the articles of association all resolutions shall pass by a simple majority of the represented share capital. Some matters such as increasing the share capital require at least 2/3 of the represented votes and the simple majority of the share capital with voting right to be present.

A LLC pays 20 % in corporate taxes based on the company’s yearly profit. The shareholders’ return on shares are exempt from corporate income tax if the shareholder is a legal person, it will be subject to a 15 % personal income tax for real person shareholders.

The company will be subject to independent auditing if certain criteria are met such as total number of employees, annual net sales revenue.

The lower amount of required share capital makes this entity type very attractive to founders who either cannot or will not tie up more capital than necessary, but still wish to limit their liability risks.

JSC (Joint Stock Company) vs. LLC ( Limited Liability Company):

A JSC and a LLC are subject to similar provisions but differs mainly concerning the following conditions:

Minimum share capital
- JSC: TL 50,000 (only 25 % has to be deposited)
- LLC: TL 10,000 (only 25 % has to be deposited)
Shares for public subscription (e.g. on a stock exchange)
- JSC: Yes
- LLC: No
Management
- JSC: Board of Directors + Managers
- LLC: General Manager
Liability for Public Debts

JSC: No
LLC: Yes

Share Transfer

JSC: Easily made
LLC: Must be approved by a general meeting

Comm. LLC (Commandite Company Limited by the Shares)

A Comm. LLC is a hybrid between a Joint Stock Company and a Commandite Company. There is no minimum capital requirement for incorporation. As at least five incorporators are required and the unlimited partner (shareholder) has an unlimited, joint and several (secondary) liability it is not generally preferred.

The provisions of the TCC for regulating commandite companies are applied in terms of relationship between the limited partners, unlimited partners and third parties, the unlimited partners’ management and representation rights. The liability of the limited partners is limited to the value of their share capital.

The unlimited partners are responsible for management and representation of the company.

A Comm. LLC pays 20 % in corporate taxes based on the company’s yearly profit. The shareholders’ return on shares are exempt from corporate income tax if the shareholder is a legal person, it will be subject to a 15 % personal income tax for real person shareholders.

The company will be subject to independent auditing if certain criteria are met such as total number of employees, annual net sales revenue.

Collective Company

Collective companies are preferred by real persons that know and trust each other since the partners have an unlimited, joint and several (secondary) liability. The liability of the partners shall arise in case debt enforcement proceedings are unsuccessful against the company or the company ceased to exist for any reason.

At least two real persons are required for incorporating a collective company.

Each partner shall have a right to manage the company however the management may be assigned to one or more or all the partners by a simple majority decision.

Each partner has a single right to vote which cannot be amended by articles of association or another contract.

The collective company has no corporate tax liability and therefore the company’s yearly profit shall be subject to personal income tax after division among the partners as per their share rates. The personal income tax differs between 15%-35%.

Commandite Company

Commandite companies are generally incorporated by legal entities intending to partner with a real person for a certain business or a project whilst still benefitting from limited shareholder liability.

There are two types of partners in a commandite company, the unlimited (komandite) and limited partner (komandit) and for incorporation at least one limited and one unlimited partner is required. The unlimited partner may only be a legal person and the limited partner may only be a real person.

The articles of association are reviewed primarily for determining whether the company satisfies the conditions for being a commandite company or not. If not the company will be deemed as a collective company.

Each partner has a single right to vote which cannot be amended by a contract. The commandite company is managed by the unlimited partner. The limited partners can vote for certain matters such as extraordinary proceedings and business, amendment of the articles of association, for structural changes like changing the type of entity and transfer of shares, etc.

The liability of the limited partner is limited with the share capital deposited or undertaken by itself except for certain exceptions determined by the TCC.

If the company’s assets will not be sufficient for its debt, the unlimited partners shall have an unlimited, joint and several (secondary) liability.

The commandite company has no corporate tax liability and therefore the company’s yearly profit shall be subject to personal income tax after division among the partners as per their share rates. The personal income tax differs between 15%-35% for unlimited partners and will be 15% for limited partners.

Collective Company vs. Commandite Company:

A collective company and a commandite company are subject to similar or same provisions but differs mainly concerning the following conditions:

Management
- Coll: Each partner
- Comm: Unlimited partner
Liability

Coll: Partners have an unlimited, joint and several liability
Comm: Unlimited partner’s liability is limited

Owner

Coll: Two real person
Comm: One real and one legal person

Ordinary Partnership

In general, ordinary partnership is generally used for projects, investments in order create joint ventures, consortiums. Unlike the corporations, ordinary partnerships are regulated by the Turkish Code of Obligations numbered 6098.

An ordinary partnership is created via a partnership agreement by two or more real and/or legal persons. Each partner must provide a contribution which may be cash, goods, know-how, skills, etc., and the contribution of each partner shall be equal unless it is stated otherwise within the contract. Similarly each partner has equal shares in the profit of the partnership.

The decisions of the partnership shall be taken unanimously unless it is determined otherwise within the partnership agreement.

Each partner has a right to manage the partnership, on the other hand the management may be assigned to one or more partner or a third party via the partnership contract or a decision.

Under Turkish corporate law the partnership has no legal personality. Therefore, the owners have an unlimited, joint and several liability.

The ordinary partnership has no corporate tax liability and therefore all revenues shall be taxed as per the legal personality of the owners. Under certain conditions the ordinary partnership may be accepted as a joint venture as per the relevant provisions of the Corporate Tax Law and thereby will be taxable in terms of corporate tax legislation.

Branch

A foreign company can establish a branch in Turkey by registering to the relevant trade registry by submitting the necessary documentation. In addition to registration, a fully authorized commercial representative should be appointed.

The branch is taxed in terms of corporate tax legislation which is 15%. If it is a branch of a foreign company, the commercial name should indicate the registered office of the company and the place(s) of branch and that it is a branch.

Liaison Office

Liaison offices are generally preferred by foreign companies wishing to enter the market to gather information, undertake research and establish connections since liaison offices are prohibited from undertaking commercial activities.

Liaison offices are regulated by the Foreign Direct Investment Law no. 4875. As per the Regulation on the Implementation of the Law, a liaison office may be incorporated by foreign companies in Turkey via obtaining an establishment permit from the Ministry of Economy provided that the necessary documents are submitted duly.

The initial establishment permit may be up to three years which may be extended upon expiration up to three years.

A liaison office may conduct the following activities in general, representation and hosting; control, ınspection and provision of local suppliers; technical support; communication and transfer of ınformation; regional management headquarter.

The Ministry evaluates the liaison office establishment permit applications of newly established foreign companies within the context of some elements such as the field of activity, the capital and the number of personnel employed and may stipulate the condition for the company to have been operational for at least one year in order to grant the permit.

Liaison offices, are required to send a copy of the tax office registration and the rental contract to the relevant General Directorate within one month upon obtaining the establishment permit.

Since the liaison office is prohibited from entering commercial activities, it shall have no tax liability. Within this scope, any and all office expenses have to be covered by the foreign exchange imported from abroad.

The Trade Registry and Incorporation Procedures

The Trade Registries are responsible for registration of companies and keeping the related records. They are set up in various cities of Turkey and registration application is made to the relevant registry as per the intended address of the company.

All companies are required to make a registration application to the Trade Registry as per the related provisions of the TCC.

The records of the registry are public and thereby they can be reviewed upon application or via the related registry’s website.

All necessary documents including the articles of association are required to be submitted for incorporation application. Apart from the articles of association, incorporation documentation that will be issued and executed outside Turkey must be notarized and apostilled or alternatively ratified by the Turkish consulate where they are issued. The original executed, notarized, and apostilled documents must be officially translated and notarized by a Turkish notary.

[1] Pursuant to the TCC, cooperative companies are deemed as a business corporation, however they are regulated by the Law on Cooperatives no. 1163. They are established by at least 7 shareholders which can be real or legal persons. A permit is required to be obtained from the Ministry of Customs and Trade for incorporation.