Business formation refers to the process of creating and establishing a new company or business entity. It involves legally registering a company and setting it up to operate in accordance with the laws and regulations of Turkey in which it will operate. The specific steps and requirements for company formation can vary depending on the location and type of company you wish to establish.

Determine the Type of Company

• Sole Proprietorship: This is the simplest form of business structure, where an individual owns and operates the business. The owner has unlimited liability and is personally responsible for all debts and obligations.

• Partnership: A partnership is a business structure where two or more individuals share ownership and responsibilities. There are several different types of partnerships, including general partnerships, limited partnerships, and limited liability partnerships.

According to Foreign Direct Investment Law No. 4875 and in line with the Turkish Commercial Code No. 6102, foreign investors are entitled to establish joint stock companies, limited liability companies as well as branches and liaison offices in Turkey.

Joint Stock Companies (A.Ş.) & Limited Liability Companies (Ltd.)

In Turkey, the most common legal structures for company formation are limited liability company (Ltd.) and joint-stock company (A.Ş.). The Ltd is suitable for small to medium-sized businesses, while A.Ş. is more suitable for larger businesses with publicly traded shares.

According to the Turkish Commercial Code No. 6102 (“TCC”), capital companies are basically defined as joint stock companies and limited liability companies, and unlike sole proprietorships, these companies are subject to limited liability in respect of their shareholders. A joint stock company is defined as “a company whose capital is definite and divided into shares, and which is liable for its debts only with its assets” as per Article 329 of the TCC. A limited liability company, on the other hand, is defined as “a company established by one or more real person or legal entity under a legal title” as per Article 573 of the TCC.

Shareholders are free to determine which type of company to establish according to the industry in which the company will operate based on their short-term and long-term investments and business strategies. In addition, there are some fundamental differences between the two types of companies in terms of the number of shareholders, capital, liability, field of activity and thus shareholders should take these into consideration when deciding on the type of company to be established. The main differences between the two types of companies are summarized as follows: 

Number and Type of Shareholders

A single real person or legal entity shareholder is sufficient for the establishment of both companies. However, the maximum number of shareholders in limited liability companies can be 50 (fifty). In joint stock companies, it is possible to have more than 500 (five hundred) shareholders and when this number is reached, the company might be considered as a public company as per the capital market regulations. Pursuant to Article 3 of the Foreign Direct Investment Law No. 4875, foreign investors have equal treatment with local investors. In this respect, foreign investors are able to establish these types of companies specified under the TCC or become shareholders of such companies through share transfer transactions.

Liability for Public Debts

In principle, shareholders of joint stock companies are not liable for the public debts of the company. However, pursuant to Repeating Article 35 of the Law No. 6183 on the Procedure for Collection of Public Receivables, the members of the board of directors of joint stock companies who also serve as “legal representative” are jointly liable for the full amount due in case such debts cannot be collected from the company itself. On the other hand, shareholders of the limited company are liable in proportion to their shares for public debts which are not collected from the company in whole or in part or appear to be uncollectible. If these shareholders also serve as managers of the limited liability company as envisaged under the TCC, they are responsible for the entire debt in contrary to their liability when they are solely shareholders and thus liable for public debts in proportion to their shares. 

Capital

The minimum capital amounts for the establishment of joint stock companies and limited liability companies have been have been changed with the Presidential Decision on Increasing the Minimum Capital Amount for Joint Stock and Limited Liability Companies numbered 7887 and dated 24 November 2023 (“Decision“). While the minimum capital amount of joint stock companies was TL 50,000 (fifty thousand), it is changed to TL 250,000 (two hundred and fifty thousand). For the establishment of limited liability companies, on the other hand, the minimum capital amount is raised from TL 10,000 (ten thousand) to TL 50,000 (fifty thousand). These amendments will enter into force on 1 January 2024. As per the announcement of Ministry of Trade, although there is no obligation at this stage to increase capital for existing companies whose capital is below than the newly determined amounts, it is suggested for the respective companies to increase their capital to at least the referred amounts to strengthen their equity positions. Both companies may be capitalized in cash or in kind. Each share must be worth at least TL 0,1 (one) or its multiples in joint stock companies, and each share must be worth at least TL 25 (twenty-five) or its multiples in limited liability companies. 

Registered Capital System

The registered capital system is a system that allows companies to increase their capital up to the amount determined by the articles of association and registered in the trade registry by the decision of the board of directors, without being subject to the capital increase obligations of the TCC (such as general assembly decision, article of association change etc.). With the Decision, for private joint stock companies, the minimum registered capital amount is changed to TL 500,000 (five hundred thousand) from TL 100,000 (one hundred thousand) which will enter into force on 1 January 2024. This system is not applicable to limited liability companies.

Field of Business

Joint stock companies and limited liability companies can be established for any economic purpose which aren’t restricted by laws as per Articles 331 and 573 of the TCC, respectively. However, companies that will operate in areas such as banking, investment partnership, financial leasing, insurance, etc. should be established as joint stock companies. Therefore, the shareholders may need to consider the field of activity while determining the type of company to be established.

Mandatory Bodies

While the general assembly and board of directors are compulsory bodies for joint stock companies, general assembly and board of managers are compulsory bodies for limited liability companies. The powers of the mandatory bodies cannot be transferred due to the limitations set forth in TCC. In joint stock companies, it is not compulsory for shareholders to take part in the board of directors, but in limited liability companies, one of the shareholders of the company should take part in the board of managers.

Obligation to have a Company Lawyer

At the moment, in joint stock companies, if the capital of the company is over TL 250,000 (two hundred and fifty thousand), there is an obligation to have a lawyer, while there is no obligation to have a lawyer in limited liability companies. 

Voting Rights

Shareholders can vote in the general assembly in proportion to the total nominal value of their shares. However, each shareholder has at least one voting right even if they own only one share. Pursuant to Article 479 of the TCC, unless there is a situation required by corporate governance or a just cause, a maximum of 15 (fifteen) voting rights can be granted to one share in joint stock companies. On the other hand, there is no limitation on the voting rights of shareholders in limited liability companies.

General Assembly Meetings and Presence of Ministry Representative

Joint stock companies and limited liability companies are obliged to hold their general assembly meetings within 3 (three) months following the end of their annual activity years. Joint stock companies are also obliged to have a ministry representative at the meetings in the specific cases listed in Article 32 of the “Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Ministry Representatives to be Present at These Meetings”.

Public Offering

Pursuant to the Capital Markets Law (“CML”), a public offering is defined as “a general invitation for the purchase of capital market instruments through any mediums and the sale realized following such invitation”. Accordingly, public companies are benefiting from alternative financing generated through public offering by offering their shares fully or partially on the stock exchange. In addition to the obligations arising from the TCC, public companies must also comply with the principles and obligations set forth in the CML. Joint-stock companies which are incorporated for at least 2 (two) calendar years as of their establishment can apply for an initial public offering. It is not possible for limited liability companies to become public. A limited liability company wishing to become a public company can only become public by first changing its company type to a joint stock company along with satisfying any other requirements. In the event that a limited liability company changes its type to a joint stock company, the period spent as a limited liability company is also taken into consideration when calculating the initial establishment time as it is only possible for joint stock companies to go public if at least 2 (two) calendar years have elapsed since their establishment as also noted hereinabove. 

Delegation of the Representation and Management of the Company to a Third Party

In joint stock companies, the management authority of the company can be partially or completely delegated to several members of the board of directors or to a third party. All board members are deemed to have management authority unless there is a such delegation. However, the authority of representation can be delegated to third parties provided that at least 1 (one) member of the board of directors has the full representation authority in joint stock companies. If the representation authority is delegated to one or more members of the board of directors, these members are defined as “executive members (murahhas üye)”. If the representation authority is delegated to someone other than the members of the board of directors, these persons are defined as “executive manager (murahhas müdür)”. In limited liability companies, the management or representation of the company cannot be completely delegated to a third party. At least one (1) of the shareholders of a limited liability company should be appointed as a manager. 

Issuance of Bonds and Similar Debt Instruments

Bonds are debt securities issued by the government or companies to provide additional financing. The CML and its sub-regulations allow both public and non-public joint stock companies to issue bonds and similar debt instruments as long as certain requirements are met. On the other hand, limited liability companies cannot issue bonds and other similar debt instruments. 

Share Transfer

In joint stock companies, the transfer of shares is made more easily comparing to limited liability companies since it is not required for joint stock companies to transfer their shares through Notary Public in contrary to limited liability companies. Pursuant to Article 490 of the TCC, the transfer of registered share certificates is conducted by endorsement and transfer of possession to the transferee, whereas the transfer of bearer share certificates is conducted by transfer of possession to the transferee and notification to the Central Registry Agency. In practice, share transfer agreements and shareholders’ agreements are executed in order to determine the rights of the seller and buyer and the framework of the transfer including the sales price. These agreements are prepared within the principle of freedom of contract and thus are negotiated according to the free will of the parties. In limited liability companies, the transfer of shares is subject to a written form and the signatures of the parties should be approved by a Notary Public. In addition, unless otherwise stated in the articles of association of the limited liability company, the approval of the general assembly of shareholders must be obtained for the transfer of shares. The transfer should also be registered with the relevant Trade Registry and announced in the Turkish Trade Registry Gazette.

Income Tax on Share Transfer

In joint stock companies, if the share is sold and transferred within 2 (two) years after the acquisition of the share certificate, incomes gained in accordance with the Income Tax Law are subject to tax as “appreciation gains”. However, in limited liability companies, share certificates can only be issued for evidence purposes meaning that there is no obligation to issue share certificates and thus the time limitations pertaining to the share certificates is not applicable for limited liability companies. When shareholders in a limited liability company sell and transfer their shares, they will be subject to income tax arising from “appreciation gains” in any case.

Type of Share Certificate

Joint stock companies may issue bearer shares provided that the capital is fully paid, and the necessary decision is taken by the board of directors. Bearer shares must be registered with the Central Registry Agency and companies should make a notification in case of distribution and transfer of bearer shares as per the amendment in December 2020. On the other hand, it is not possible to issue bearer shares in limited liability companies. In limited liability companies, share certificates may be issued only for the purpose of proving share ownership or in connection with a registered certificate as per Article 593 of the TCC.

Independent Audit

As per TCC, companies which are subject to independent audit are determined in accordance with the Decision on the Determination of Companies Subject to Independent Audit announced by the President of Türkiye. Joint stock companies and limited liability companies that meet the criteria set forth in this decision will be subject to independent audit.

Change of Company Type

It should be noted that it is always possible for a capital company to transform into another capital company in accordance with the provisions of the TCC with respect to the change of type. Accordingly, it is possible to change company type from joint stock company to limited liability company in case initial conditions considered during the establishment of such company have changed or if there is a need for reorganization.

Due to the favorable position concerning the liabilities borne by shareholders, joint stock companies and limited liability companies are the business vehicles in Turkey most commonly chosen by foreign investors, along with the other business setup forms of branch offices and liaison offices. 

Branch

Foreign investors are also entitled to establish a branch in Turkey in order to engage in activities within Turkey, as per the Turkish Commercial Code and the Trade Registry Regulation.  Unlike joint stock companies and limited liability companies, branches may be incorporated only for the same purposes as the parent company; therefore, branches does not need to have a separate Articles of Association. There is no minimum capital requirement for branches but branches may have a separate capital, which may be allocated by the parent company. Turkish citizens and foreigners can be appointed as branch managers; however, it is required that they reside in Turkey.

Branches are liable for all taxes such as corporate income tax, value added tax, withholding tax and stamp duty once they are registered for tax purposes in Turkey. Branches are treated as non-resident limited liability companies for tax purposes and only profits generated in Turkey are subject to corporate tax at the rate of 23% for 2022 and, unless this legislation will be amended, the rate will be 20% for 2023 and following years. The branch profits transferred to headquarters are subject to dividend withholding tax at a rate of 10%, which might be reduced if there is an available DTT between Turkey and the country of which the principal is a resident for income tax purposes.

Liaison Office

A foreign entity may prefer to establish a liaison office in Turkey to represent its parent company’s business activities and to gather necessary information on the related sector and the country on behalf of the parent company. This is a practical way to enter the Turkish market.

The Ministry of Trade is authorized to permit foreign companies established under the laws of foreign countries to establish liaison offices to carry out the activities indicated under the Regulation of the Implementation of Foreign Direct Investment Law, provided that they do not engage in commercial activities in Turkey. The Ministry must be convinced with supporting documents that the operations of the prospective liaison office fall under the accepted categories.  These activities are as follows: market research, promotion of the goods and services of the parent company, representation and hosting, control of the suppliers in Turkey, technical support, communication and information transfer and regional management center etc.  In addition, there is no foreign capital requirement in establishing a liaison office.

Even if the Law and Communiqué prohibit liaison offices from engaging in any profit or expense-generating activities, tax liability of the liaison office will arise in the event that the liaison office performs commercial activities contrary to the permission.  In case of engaging in commercial activities, the liaison office will be taxed in accordance with legislation on the limited liability taxpayer.

Choose a Name

Select a unique and distinguishable name for your company. Check the availability of the chosen name with the appropriate government authorities, such as the business registrar or corporate filing office. Make sure the name complies with naming guidelines, which may include restrictions on the use of certain words or the requirement to include specific terms (e.g., “Ltd.” or “A.Ş.”) based on the company type.

Before starting the company formation process, it is essential to reserve a unique company name. The name reservation can be done online through the Central Registration System (MERSIS) or in person at the Trade Registry Office.

Registered Office and Address

Determine the registered office address for your company. This is the official address where legal notices and correspondence will be sent. In Turkey, you are required to have a physical address within the jurisdiction. You should also appoint a registered director or agent who will receive official communications on behalf of the company.

Articles of Incorporation or Formation

Prepare and file the necessary legal documents, such as articles of incorporation. These documents outline the basic structure and characteristics of the company. Include information such as the company name, registered office address, purpose of the company, details of shareholders/members, share/membership structure, and any other required information. The AoA must be notarized and filed with the Trade Registry Office.

Shareholders or Members

Identify and document the shareholders of your company. Specify the ownership percentages or units held by each shareholder/member and outline the rights and responsibilities associated with their ownership.

Register with Government Authorities

Register your company with the appropriate government authorities or regulatory bodies. This typically involves submitting the necessary incorporation documents, along with the required fees, to the relevant business registrar or corporate filing office.

The company formation process involves registering the company with the local Trade Registry Office, which is under the Ministry of Commerce. The required documents for registration include the AoA, company founders’ identification documents, and proof of share capital payment.

Obtain Business Permits and Licenses

Research and obtain the necessary permits, licenses, or certifications required to operate your business legally. The specific requirements vary depending on factors such as the nature of your business, industry, location, and applicable regulations.

If your business involves importing or exporting goods, you will need to comply with customs regulations and procedures. This includes obtaining necessary import/export licenses, understanding customs duties and tariffs, and complying with product standards and certifications.

Certain sectors, such as defense, energy, and finance, may have additional regulations and restrictions on foreign ownership. It is essential to research and understand the specific regulations that apply to your industry or sector.

Intellectual Property Protection

Protecting intellectual property (IP) rights is important for businesses in Turkey. Trademarks, patents, copyrights, and industrial designs can be registered with the Turkish Patent and Trademark Office to safeguard your company’s unique assets and innovations.

Tax Registration

Register your company for taxation purposes with the appropriate tax authorities. Obtain a tax identification number or any other required tax registrations based on the tax laws of your jurisdiction.

Companies in Turkey are subject to various taxes, including corporate income tax, value-added tax (VAT), and payroll taxes. It is crucial to understand the tax obligations, maintain proper accounting records, and file tax returns accurately and on time.

Social Security Registration

Companies must register their employees for social security with the Social Security Institution (SGK) and make regular contributions on their behalf.

Open Bank Accounts

Open a business bank account in the name of your company. This account should be separate from your personal accounts to maintain clear separation between personal and business finances.

Work Permits and Residence

If foreign shareholders or employees will be involved in the company, they may need to obtain work permits or residence permits, depending on their roles and duration of stay in Turkey. The necessary permits can be obtained from the relevant authorities.

Compliance and Ongoing Obligations

Understand and comply with the ongoing legal and regulatory obligations for your company. This may include filing annual reports, maintaining corporate records (e.g., minutes of shareholder/member meetings), fulfilling tax obligations, and adhering to employment laws and regulations, such as proper employee classification, payment of wages, and compliance with workplace health and safety standards.

When hiring employees in Turkey, it is important to comply with labor laws and regulations. This includes adhering to employment contracts, minimum wage requirements, working hours, employee benefits, termination procedures, and occupational health and safety standards.

Complying with any industry-specific regulations or licensing requirements that apply to your business. Depending on the nature of your business activities, you may need to obtain specific licenses or permits from industry-specific regulatory authorities. This can include sectors such as construction, healthcare, tourism, manufacturing, and transportation. Compliance with relevant regulations is crucial to operate legally and avoid fines.

Fulfilling tax obligations, including filing regular tax returns, making tax payments, and maintaining proper accounting records.

Complying with corporate governance requirements, such as holding shareholder or member meetings, maintaining company bylaws or operating agreements, and documenting major decisions or resolutions.

Renewing business permits, licenses, and registrations as required by the relevant authorities.

Staying informed about changes in laws, regulations, or compliance requirements that may affect your business and taking appropriate actions to remain compliant.

Ongoing compliance

After company formation, ongoing compliance requirements include filing annual tax returns, holding general assembly meetings, preparing financial statements, and meeting reporting obligations to the Trade Registry Office.

Due to the complexity of the company formation process in Turkey, it is advisable to seek assistance from legal professionals. Bicak Law provides guidance on the specific requirements, assist with document preparation and submission, and ensure compliance.