There are relatively few capital restrictions imposed upon businesses in Turkey, and although the formation procedures can be quite complex, foreigners are allowed to freely invest in businesses and are even allowed to have full/sole ownership of a capital company. Since it is fairly easy for foreigners to invest in Turkey, choosing the right type of company is extremely important, as different types of companies have different rights and liabilities bestowed upon the shareholders and are subject to different formation procedures.
II. COMPANY TYPES
Although the Law does allow for the incorporation of “personal companies” (where company owners are fully liable with their personal assets for any and all company debts), capital companies are the most common form of business entities in Turkey utilized by both local and foreign investors. Investors may either choose to incorporate a new company or participate into an already existing capital company (either via merger or acquisition). It should be noted here again that full ownership (100%) of Turkish corporate entities by foreign (non-resident) companies and/or foreigner individuals is permitted. Under Turkish law, the two types of capital companies are noted as joint stock companies (‘Anonim Şirket’ – AS in Turkey) and limited liability companies (‘Limited Şirket’ – LTD in Turkey).
a) Limited Liability Companies
According to Article 573 of the Turkish Commercial Code No. 6102 (the TCC), a limited liability company can be incorporated by a only one (1) shareholder. It is also possible to convert a limited liability company previously established by more than one shareholder, into a LTD with a sole shareholder, however this conversion shall be notified to the relevant trade registry for registration and announcement. The minimum capital requirement for LTD companies is TRL 10.000.-, and this capital amount will need to be paid in full within 24 months as from the date of incorporation (no upfront payment of company capital is required at the incorporation and registration stage).
It should be noted that in LTD companies, the liabilities of shareholders differ from those in Joint Stock Companies. Accordingly, the liabilities of the shareholders of an LTD are limited with the capital commitment amount for commercial liabilities. However, the shareholders and the management are also liable for amounts owed by the company to government authorities (public debts) with their personal assets for taxes, duties and charges that cannot be collected from the Company (the liabilities are assigned depending on the ratio of the shares of each shareholder).
b) Joint Stock Companies
According to the provisions of the TCC, the minimum capital requirement for Joint Stock Companies (JSC) is TRL 50.000 and at least ¼ of the total company capital is required to paid (deposited) upfront during the incorporation stage (unlike the LTD’s where the shareholders are not required to pay any company capital during incorporation). Whereas the remaining ¾ of the company capital shall need to be paid in full within 24 months from the date of incorporation.
JSCs can also be incorporated by one (1) shareholder. Shareholders could be non-resident companies or foreigner individuals. Foreign investors are permitted to own 100% of the company (similar to LTDs). However, unlike an LTD company, the liabilities of the shareholders of a JSC shall be limited only with their respective capital commitment amounts and therefore shall have no personal liability (even for public debts).
III. FORMATION PROCEDURES
Although it may vary due to the type of entity and other specifications with respect to the investors; the procedures for incorporation are generally quite complex, involving many steps and required documents. Accordingly, these steps can be briefly summarized as below (these procedures may differ depending on the company type, for example, LTD’s no longer require a capital advance blockade account prior to the incorporation):
- Obtaining and legalizing shareholder identity documentation (for foreign individuals);
- Obtaining an investment decision from the foreign company (if a foreign corporation will become a shareholder of the Turkish company) along with an apostille certificate dully issued by the relevant authority (this apostilled document will need to be translated into Turkish and the Turkish translation will also need to be notarized);
- Opening a temporary capital advance blockade account at a bank (for JSCs), which can be tricky as most banks in Turkey have adopted the Know Your Client principles and will therefore require the shareholders/representatives to be present at the bank during account opening;
- Getting a draft office lease contract for proving company address;
- Drafting of certificate of incorporation (Article of Association) and the submission of all the relevant information and documents via the online registry system;
- Registration to Chamber of Commerce Trade Registry;
- Appointment of company management;
- Notarizing of company books (legal and accounting);
- Registration to tax office (following on-site visit by tax officials).
As noted above, the requirements and procedures for company incorporation in Turkey can be quite complex, especially for foreign individuals and corporations. The procedure involves the submission of numerous different documents, of which some needs to be obtained from abroad with apostille verifications. There are also certain notarization requirements for certain documents. Furthermore, the trade registry online system can be quite confusing to inexperienced applicants, especially if they are foreigners. Therefore, it is highly recommended to consult professionals before incorporating a company as any mistake made during the incorporation stage can prove to be much more difficult to rectify once the incorporation is finalized, which may cause the company to suffer certain losses and damages (including government fines, extra tax duties, extra fees for amendments to be registered and published at the registry etc.) For further information and assistance regarding the matter, please do not hesitate to contact us here.