Koca & Ersöz Hukuk Bürosu / Anwaltskanzlei

Establishing a Company in Turkey: Differences Between Joint Stock and Limited Liability Companies and Your Guide to Choosing

If you’re considering setting up a company in Turkey, the first important question to ask is what legal form your company should take.

Apart from the option of opening a liaison office, a general distinction can be made between a joint stock company (Anonim Şirket) and a limited liability company (Limited Şirket), as these are the two legal forms most favoured by foreign investors.

The legal regulations for companies in Turkey have significant similarities with the provisions of German commercial and company law.

I. Public Limited Company (Anonim Şirket).

The law that came into effect on 1 July 2012 introduced a number of innovations that make the joint stock company increasingly attractive.

The regulations concerning the joint-stock company are set out in Articles 329-563 of the amended Turkish Commercial Code.

1. Establishment of a Joint Stock Company

The new law has simplified the establishment of a joint stock company (AŞ) and also provided tax benefits. This situation contributes to the transformation of existing Turkish private limited companies into public limited companies. However, an AŞ can only be established with a tax inspection report.

In Turkey, a joint stock company can now be established by a single shareholder. The founders of a joint-stock company can be natural persons or legal entities.

The first step is to draw up the articles of association. Only when the signatures on the articles of association are authenticated by a commercial registry officer or a notary public is the establishment of the joint-stock company complete. A Turkish joint-stock company acquires legal capacity upon registration in the Commercial Registry. The establishment procedure is completed upon publication in the Official Gazette of the Commercial Registry.

2. Minimum Capital for a Joint Stock Company.

The minimum capital for a joint-stock company is TL 50,000. However, a distinction must be made between the registered and unregistered capital systems. In the unregistered capital system, a “simple” joint-stock company can be formed with the minimum capital of 50,000 TL. In the “registered system”, a minimum capital of 100,000 TL is required.

In the case of cash incorporation, 25% of the capital must be paid before incorporation. The balance can be paid within 24 months.

3. Articles of Association of a Joint Stock Company.

The purpose of the company, its registered office, capital, shareholders and share ratios, rules for the payment of capital, the board of directors and representation, auditors (not to be confused with the German auditing board!) and the distribution of profits should be set out in the articles of association.

The articles can be amended by a simple majority, with certain exceptions.

4. Liability of shareholders in a public limited company.

A joint-stock company is subject to legal liability, criminal liability and liability for public debts. Depending on the situation, members of the board of directors, incorporators or third parties are liable.

Shareholders are liable only with the company’s assets. Members of the board of directors may be criminally liable if they breach certain duties and may be fined or imprisoned. A public limited company is generally liable for public debts such as taxes, tax penalties, legal costs, fees, etc.

5. Organs of a joint-stock company.

According to the law, a Turkish joint-stock company has two organs:

General Assembly, as amended by Article 407 and following:

The general assembly consists of a meeting in which the shareholders exercise their rights with respect to the joint-stock company. A distinction must be made between ordinary and extraordinary general meetings. The general meeting should be held within three months of the end of each financial year.

Resolutions are passed by a simple majority of the votes present. Decisions are mainly taken on amendments to the Articles of Association. The Annual General Meeting also appoints the Executive Board, makes important decisions on company policy and approves the balance sheet and profit and loss account.

The board of directors of a public limited company as amended by Article 359 ff.

The board of directors may consist of one or more natural or legal persons. The only condition is that at least one member of the board of directors must be a Turkish citizen and a permanent resident of Turkey.

According to the new version, third party management is also possible. This means that persons who are not shareholders can be elected to the board of directors.

The maximum term of office for a director is three years. Unless the articles of association provide otherwise, directors are eligible for re-election after this period.

It is debatable whether the supervisory board is to be interpreted as an institutional body under Article 397 et seq. Although listed, it can also be an independent person from outside the company (e.g. an auditor). In any case, its main function is to supervise the activities of the board of directors and to control the company’s accounting and finance.

6. Dissolution of a joint-stock company

A company limited by shares is dissolved by a unanimous resolution of the shareholders, by a court order or by bankruptcy.

II. Limited Company.
1. Establishment of a Limited Company

The requirements for a Turkish private limited company are set out in Articles 573 et seq. of the Turkish Commercial Code.

To form a limited company in Turkey, at least one (up to 50) natural or legal persons must be shareholders. These persons may be Turkish or foreign citizens.

2. Articles of Association / Memorandum of Association for a Limited Company.

In order to establish a Turkish limited liability company, the articles of association must be in writing and certified by a notary public (as of 2018, no longer by a notary public!), Article 575 new version. The articles of association should contain specific information about the company’s purpose; information about the capital; registered office; duration of the company (limited or unlimited); shareholders and share ratios; rules on payment of capital; management and representation relationships; distribution of profits.

A two-thirds majority of the capital represented is required to amend the articles of association.

Shareholders’ resolutions must be notarised.

3. Minimum capital for a private limited company in Turkey.

The capital must be at least TL 10,000, either in cash or in kind. The capital can be paid up within 24 months of the company’s incorporation. There is no obligation to make a payment when a limited company is formed. Non-cash capital must be approved by a court and submitted to the Commercial Registry.

4. Liability of Shareholders in a Turkish Limited Company.

Like a German GmbH, a Turkish private limited company is liable with its capital. Individual shareholders are only liable to the company for the capital they have contributed, but are personally liable for the company’s public debts and expenses.

5. Organs of a Limited Company.

According to the law, a Turkish limited liability company has at least two organs: the general meeting of shareholders and the board of directors.

The shareholders can exercise their rights in relation to the company at the general meeting of shareholders. As in a joint stock company, a distinction is made between ordinary and extraordinary general meetings. Except for important decisions such as capital increases or the relocation of the company’s registered office, decisions are usually taken by a simple majority of the votes present at the meeting.

Like a German GmbH, a Turkish limited liability company is represented by its director. At least one director must be appointed. Directors may be domestic or foreign natural persons or legal entities. It is not necessary for the director to be a shareholder of the limited liability company or to be resident in Turkey.

If there are several directors, the general meeting must appoint a “chairman”. Legal persons can also be directors, but in this case a real person must be appointed to act on behalf of the legal person.

Decisions are taken by a simple majority. In the event of a tie, the chairman has the casting vote, unless the articles of association provide otherwise.

6. Termination of a Limited Company.

The company terminates by operation of time (if the duration of the company is limited), by a unanimous resolution of the shareholders, by a court order or by bankruptcy. Except in the case of bankruptcy, the director may be the liquidator.

III Public and private limited companies – Conclusion.

When establishing a company in Turkey, the choice between a joint stock company (AŞ) and a limited liability company (Ltd. Şti.) has a significant impact on the legal structure and operation of the company. Joint stock companies can be established with a single shareholder and shareholders are liable only for the capital they invest, while limited companies have a limited number of shareholders and shareholders may bear more personal responsibility. In addition, the transfer of shares is more flexible in a joint stock company, but requires notarisation in a limited company, which means additional costs. Investors need to consider factors such as capital adequacy, business structure and overall costs when choosing a company type. Therefore, those wishing to establish a business in Turkey should carefully consider the advantages and disadvantages of both types of company.

At Koca & Ersöz Law Partnership, we have been providing in-depth corporate law assistance to both domestic and foreign clients for over 15 years. Whether it’s the formation of a public company or a private limited company, we offer expert advice on choosing the most suitable legal structure for you. We are here to provide solutions tailored to your needs.

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