Overview of Limited Companies and Their Legal Environment
According to Article 573 of the Turkish Commercial Code, a limited company is a business that is formed by one or more natural or legal persons under a trade name. It is distinguished by a fixed principal capital consisting of all of the partners' shares.
A organized procedure that results in the development of the firm's legal personality is part of the legal framework for forming a limited company. The compilation of the articles of organization, signature validation, and registration with the appropriate authorities are some of the crucial elements in this procedure. None of these stages can be skipped; all are required.
Limited companies are particularly popular in Turkey. Founders are generally only liable for the company's debts to the extent of their committed capital shares and any additional obligations specified in the partnership agreement. This means that the company's assets are primarily responsible for settling its debts, providing a level of security for the founders' personal finances.
Share Structure in a Limited Company
Limited company's share structure is one of the most important aspect that tends to define ownership and capital contributions among the partners. In 2024, establishing a limited company in Turkey will require at least a minimum capital of TL 50,000. Each partner shall take up shares of principal capital corresponding to this minimum capital requirement, either through a commitment of a single share or multiple shares complementing or exceeding this minimum threshold.
Although shares in a limited company can be represented through stock certificates or registered certificates, the partnership is not obliged to issue such certificates. Partners in a limited company will not have the right to demand that their shares be specified in a certificate, unlike joint-stock companies. This makes ownership of shares more flexible, without the need for any form of certification.
Share transfer is subject to certain legal requirements. All share transfers must have a written document, with all the parties' signatures affixed to it. This facilitated a full and complete transfer of money rights on the shares to the new holder. It can also be availed of in transfer, mortgaging, or encumbering shares as this form of ownership may have attendant profits or restrictions. This flexibility is distinguishing of limited partnerships from joint-stock partnerships, as the latter may be much more restricted.
Organs and Management Structure
1. General Assembly: It constitutes all shareholders of the company and serves as its decision-making organ. It decides on important things related to the company's operation. Such things would include approval of financial statements, profit distribution as well as alterations in the articles of association.
2. Managers: The overall management and representation of the company are conducted by the board of managers. In the day-to-day operations and decision-making processes of the company, this board looks after all actions. In general, such representation requires dual signatures from the managers unless otherwise specified by the articles. Such dual signature requirements apply to ensure that no one manager acts alone in taking drastic decisions about the company.
Further, while general assembly and managers are compulsory, the company can form optional additional organs as spelled out in its articles of association. Such flexibility naturally enables a tailor-made management configuration to cater for the peculiarities of the company-org.
Laying down an official headquarters address is the requirement of the law that has to be written in the articles of association. This requirement is complemented by the fact that virtual offices can as well be used unless a representative of the company is present in the address declared at the time of tax inspections, which is required by law.
Founders of a Limited Company
The founders of a limited company are responsible for forming and running the company. They may be both individual persons (natural) and legal entities such as corporations or organizations. As per the Turkish Commercial Code, a minimum of one of the shareholders has to be a founder if the company has to be legally formed.
Responsibilities of Founders:
1. Accurate Document submission: Correct and adequate documentation by the founders that includes the company's articles of association and any other necessary documentation for the establishment process.
2. Capital Commitments: The Founders shall comply in fulfilling capital shares committed by them to the enterprise. This means that the required minimum capital of 50,000 TL must be contributed by them.
3. Liabilities for Damages: The founders can be held liable for any damages incurred by the company, its shareholders, or creditors by breaching the legal obligations imposed on them or defined in the articles of association. It could involve the submitting of faulty or non-existent documents or the failure to pay the principal capital.
4. Public Debt Liability: Founders may also be directly liable for public debts if the company is unable to fulfill its obligations. According to Article 35 of the Law on the Collection Procedure of Public Receivables, partners are liable in proportion to their capital shares for any public receivables that cannot be collected from the company.
Establishment by Foreign Nationals and Companies:
There are no legal restrictions preventing foreign nationals or companies from establishing a limited company in Turkey. Under Law No. 4875 on Direct Foreign Investments, foreigners are treated equally to Turkish citizens in terms of company formation, which encourages foreign investment in the country. However, foreign companies must follow a more detailed procedure, requiring notarized and apostilled documents from their home country.
Stages of Establishing a Limited Company
The stages of establishing a limited company in Turkey involve a series of structured steps that must be followed to ensure compliance with legal requirements. Here's a brief overview of the key stages:
1. Formation of Intention: The process begins with the partners forming an intention to establish a limited company. This involves discussions and agreements on the business model, objectives, and structure of the company.
2. Application through MERSIS: Once the intention is established, an application is made through the Central Registry System (MERSIS). This step includes obtaining an application number and scheduling an appointment for further proceedings.
3. Determining the Company Title: The next step is to determine a unique trade name for the company. The chosen name must include the phrase "Limited Company" and must not be similar to any existing registered names to avoid confusion.
4. Preparation of the Articles of Association: The articles of association must be drafted, containing essential elements such as:
- The trade name and headquarters location.
- The business subject of the partnership.
- The nominal amount of the principal capital and share structure.
- Names and nationalities of the managers.
- The form of announcements to be made by the partnership.
5. Submission of Required Documents to the Trade Registry: The following documents must be submitted to the trade registry:
- The partnership agreement with authenticated signatures.
- Written declarations from non-partner members of the board of managers accepting their roles.
- If applicable, valuation reports for any non-monetary capital contributions.
- Documentation confirming the absence of restrictions on contributed non-monetary capital.
- Signature declarations from company managers.
6. Registration and Announcement: After submitting the necessary documents, the company is registered in the trade registry, and an official announcement is made.
7. Tax Office Registration: Following the establishment, the company must register with the tax office. Required documents for this registration include:
- Opening notification.
- Tax office password request.
- Notarized copies of the articles of association and signature circular.
- Lease agreements and other relevant documents.
8. Completion of Additional Procedures: Additional steps may include obtaining a tax identification number, registering with the Social Security Institution (SGK) for employees, and ensuring compliance with other regulatory requirements.
Costs Involved in Establishing a Limited Company
Establishing a limited company in Turkey involves various costs beyond the minimum capital requirement.
1. Minimum Capital Requirement: As of 2024, the minimum capital required for establishing a limited company is 50,000 TL. Notably, this amount can be paid within twenty-four months following the company's registration, eliminating the previous requirement to pay at least 25% upfront.
2. Establishment Costs: There are several fees associated with the establishment process, including:
- Chamber of Commerce Registration and Announcement Fees
- Notary Fees
- Accounting Service Fees
- Company Stamp and Stamp Tax
3. Operational Costs: After establishment, companies may incur additional expenses, such as:
- Office Costs: Rent and utilities for the company premises.
- Equipment Expenses: Costs for purchasing necessary equipment and supplies.
- Personnel Salaries: Wages for employees, which can vary depending on the size of the company and the number of staff.
- Licensing Fees: Depending on the business type, there may be additional licensing or registration fees.
4. Tax Liabilities: Companies are also subject to corporate tax on profits and must comply with value-added tax (VAT) regulations when selling products or services in Turkey.
Considerations for Establishing a Limited Company
When establishing a limited company in Turkiye, several critical considerations must be taken into account to ensure compliance with legal requirements and to facilitate smooth operations. Here are the key points:
1. Preparation of the Articles of Association: The articles of association serve as the foundational document of the company, outlining the rights and responsibilities of the partners, the company's purpose, and operational guidelines. It is essential that this document is thorough and includes all mandatory elements as stipulated by law to avoid any legal issues later on.
2. Documentation Submission: All required documents must be meticulously prepared and submitted to the relevant authorities. This includes not only the articles of association but also various forms and identification documents. Incomplete or incorrect submissions can lead to delays or rejections of the registration process.
3. Tax Identification Number: Obtaining a tax identification number is a prerequisite for conducting official transactions. This number is essential for tax compliance and must be secured promptly following the establishment of the company.
4. Registration in the Trade Registry: The firm should be registered in the trade registry. This is an important step through which the company acquires legal personality for functioning as a recognized legal entity.
5. Clear Trade Name: The trade name of the business must be clear and unencumbered for registration, otherwise, it may cause confusion among businesses. This also implies that the name must meet the appropriate legal requirements such as including the phrase "Limited Company," where appropriate.
6. Social Security Compliance: Companies employing workers need to fulfill the entire procedures with the Social Security Institution (SGK) to ensure proper registration of employees in contribution and benefits.
7. Management of accounting: New businesses are required to keep proper accounting books for the expected revenues that they will generate after being operational, in addition to the start-up costs. The main reason for maintaining this kind of financial activity is to enable management assess that company at that point, and observe possible compliance with tax burdens.
If you are considering establishing a limited company in Turkey and need professional guidance, CCS Law is here to help. Our expert legal team offers comprehensive support throughout every stage of the process, from preparing the articles of association to completing registration and ensuring compliance with all legal requirements. Contact us today to schedule a consultation and take the first step towards successfully setting up your business in Turkey. Reach out via email, phone, or through our contact form—your journey to business success starts with CCS Law.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice.
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