COMPANY TYPES IN TURKEY: A GUIDE TO BUSINESS STRUCTURES
Before moving on to company types in Turkey and establish a company in Turkey, it is necessary to understand and learn the concept of a company according to Company Law in Turkey.
DEFINITION OF THE COMPANY
There is no general provision in the Turkish Commercial Code that sets out the definition and elements of the partnership or the company with its trade name. However, according to the general definition accepted in the doctrine, the company; It is a contract in which two or more people commit to pool their capital to achieve a common goal. For the establish a company in Turkey, the elements listed in the law must be present. The establish a company in Turkey procedure varies according to the type of company.
ELEMENTS OF THE COMPANY
According to company law in Turkey, there are four main elements of a company.
– Person element
Partners can be natural or legal entity, except for the limitations specified in the Turkish Commercial Code. In order to become a partner in a company, it is necessary to have the capacity to act.
– Contract Element
Since Article 520 of the Code of Obligations, which is considered a general definition valid for all companies, begins with the phrase “the company is a contract”, it is accepted that there is a contractual relationship on the basis of the partnership. However, despite the fact that there is a contract on the basis of it, it should be accepted that the partnership shows quite different characteristics from other contracts.
– Capital Asset
In companies, partners are required to put capital (share) in the company. Capital does not consist only of labor and goods. Although the values that can be capital are listed in article 139 of the Turkish Commercial Code, this count is not limited. As a rule, anything with economic value (money, movable and immovable property, rights, receivables, personal labor, commercial reputation, etc.) can be brought as capital.
However, there are exceptions to this situation arising from law or practice. For example, in a public joint stock company, the capital collected from the public must be cash. Or securities investment trust can only be established with cash capital.
– Element of common purpose
Companies are established for a purpose. Pursuant to Article 522 of the Code of Obligations, the purpose of an ordinary company is to share profits. Article 153 of the Turkish Commercial Code stipulates that a collective company, and Article 243 of a limited partnership company can only be established for the purpose of running a commercial enterprise.
On the other hand, joint stock companies and limited companies can be established for any purpose. In the establishing a company in Turkey, the type of partnership should be determined according to the purpose.
ESTABLISH A COMPANY IN TURKEY
Establish a company in Turkey involves submitting the necessary documents to the relevant Trade Registry Office. Foreign individuals and entities seeking to establish a company in Turkey are subject to the same rules as Turkish investors. However, special laws may contain provisions that restrict foreign investors or specifically regulate investment conditions.
To find the necessary documents for establish a company in Turkey, refer to the guide prepared by the Turkish Ministry of Commerce.
Steps to Establish a Company in Turkey
The process of establishing a company in Turkey involves several steps. These include:
- Choosing a company name: The first step to establish a company in Turkey is to choose a company name. The name must be unique and not already in use by another company.
- Choosing a one of company types in Turkey: Once a decision has been made regarding the company name, the type of company should be determined based on the company’s field of activity and capital structure.
- Obtaining a tax number: The next step is to obtain a tax number from the Turkish tax authorities. This can be done online or in person.
- Opening a bank account: The next step is to open a bank account in Turkey. This is required to deposit the share capital.
- Drafting the Articles of Association: The Articles of Association must be drafted and notarized by a Turkish notary public. This document contains the rules and regulations governing the company according to company law in Turkey.
- Obtaining a Trade Registry Certificate: The Trade Registry Certificate is obtained from the local Trade Registry Office to establish a company in Turkey. This certifies that the company has been registered.
- Obtaining a Work Permit: If the shareholders or directors are not Turkish citizens, they must obtain a work permit from the Ministry of Labor and Social Security.
- Registering with the Social Security Institution: The company must register with the Social Security Institution and obtain a social security number.
- Registering for Value Added Tax (VAT): The last step to establish a company in Turkey is if the company’s annual turnover exceeds a certain threshold, it must register for VAT.
COST OF ESTABLISHING A COMPANY IN TURKEY
The cost of establishing a company varies depending on the type of company and the region where the company is to be established. Obtaining the necessary documents for company formation, expenses incurred during the establishment phase, and annual taxes are the main components of the cost of establishing a company in Turkey.
Below is detailed information about the cost of establishing a company in Turkey:
- Taxes: The taxes and fees that must be paid to establishing a company in Turkey vary depending on the type and capital of the company. Expenses such as capital increase tax, incorporation fee, trade registry newspaper, tax plate, accounting services, and notary fees apply to limited liability companies, joint-stock companies, and cooperatives.
- Notary Fees: The fees for the contracts and other documents signed through notaries for company formation procedures in Turkey are a cost that must be deposited to the court of justice.
- Trade Registry: The trade registry is where the company’s records are kept. Registration fees are paid to trade registry offices for establishing a company in Turkey.
- Accounting Services: Companies require accounting services for the preparation of tax declarations, tax calculations, and other financial transactions. Fees paid for these services are included in the cost of establishing a company in Turkey.
- Office Rent: The rental costs that companies will pay for their offices also affect the establishment costs. Office rents vary depending on the location, size, and other factors of the company.
When all of these costs are taken into account, it can be said that the cost of establishing a company in Turkey can range from approximately 10,000-15,000 TL for the year 2023. However, these costs can increase or decrease depending on the type and size of the company.
WHICH COMPANY TYPE SHOULD I CHOOSE?
Selecting the appropriate company type during the company formation process is the most challenging and essential part. The company’s field of activity, activity volume, whether it will have a commercial enterprise, capital amount, growth target, number of partners, and many other criteria will influence the choice of company type.
It is vital to analyze these criteria well and choose the most suitable company type for the intended purpose. The company types in Turkey and their advantages and disadvantages stated in the Turkish Commercial Code are briefly mentioned below. However, it is important to seek professional and legal help when choosing the type of company.
Although not a type of partnership, private companies are commonly established in Turkey, so we wanted to briefly mention them. Sole proprietorships are the fastest type for establish a company in Turkey. Since no capital is required to establish a sole proprietorship according to Company Law in Turkey, it is established with much less expense. Sole proprietorships are easy to establish and have a non-procedural management style.
Professionals such as tradesmen, lawyers, doctors, dentists, and financial advisors, who are described as self-employed, generally prefer sole proprietorships. However, sole proprietorships have a gradual tax system, resulting in tax rates varying between 22% and 40%. In other words, as income increases in sole proprietorships, the tax paid also increases, unlike a joint-stock or limited liability company. Additionally, since sole proprietorships do not have legal personality, the owner of the sole proprietorship is responsible for all debts with their own assets.
As a type of partnership, an ordinary partnership can range from simple daily relationships to complex relationships in practice, including the relationship between people who operate a commercial taxi together or create ideas and works of art together, and up to consortia and multinational joint ventures.
Establishing an ordinary partnership is quite easy since it does not have a legal personality. If an ordinary partnership agreement is made, a partnership is established without the need for any further permission or registration. If the ordinary company operates a commercial enterprise, then the partners gain the title of merchants. Since an ordinary partnership does not have legal personality, the capital brought in belongs to all partners unde Company Law in Turkey. They are liable with their own assets, apart from the assets of the partnership due to debts.
Although not as common as before, it is still a type of company commonly used in practice. The establishment of a collective company, which is a typical example of a sole proprietorship, is relatively easy and inexpensive. According to the definition in Article 153 of the Turkish Commercial Code, it is a company established to operate a commercial enterprise under the trade name, and the partners are liable for the debts of the company without limitation. The establishment of a collective company involves the preparation of a partnership agreement, its signature, and then the registration and announcement stages.
Joint Stock Company
It is the most important and effective company type in terms of the economy and is the cornerstone of commercial life in all countries where the capitalist system is dominant. Joint stock companies are also of great importance from a legal point of view. Its importance brings together the advantages and disadvantages of this type of company. The main benefits can be listed as follows:
Advantages of a Joint Stock Company:
- It enables the consolidation of small savings to create large capital.
- It can be established with a minimum capital, offers limited liability for partners, and allows for easy transfer of shares compared to sole proprietorships.
- Joint stock companies can issue shares and bonds easily and raise capital through public offerings.
- Partners of a joint stock company have limited liability for debts, which means they are not responsible for their personal assets.
- Small savers can become partners of large businesses and investments by investing in joint stock companies.
- It is easy and inexpensive to enter and exit a joint stock company.
Disadvantages of a Joint Stock Company:
- Although there may be a large number of partners, most of them are generally indifferent to general assembly meetings. This indifference creates a huge power vacuum. Since joint stock companies are managed according to the majority principle, organized minorities can take over the management of the company and manipulate it in their own interests.
- Due to the great economic power that the company may have, this type of company tends to monopolize. Therefore, in order to prevent monopolization and protect competition, the public authority makes legal regulations to control the market.
- When the number of partners is large, it can be difficult to make decisions and reach a consensus on management issues, so the process can be more procedural and difficult compared to a limited company. The form of government is subject to stricter rules set by law.
- Closing and liquidating a joint stock company is a long and procedural process.
The limited company is the most commonly used company type in practice. It is defined as a trading company established under a trade name, operating in economic matters, with the liability of the partners limited to the capital shares they have committed, and whose main capital is determined and divided by the number of partners.
The most important aspect in establishing a limited company is the preparation of the master contract, which serves as the constitution of the company, and all commercial and administrative activities are carried out in accordance with it. Once the master contract is signed and notarized, the limited company is registered and announced in the trade registry, and officially established.
Advantages of Establishing a Limited Company:
- Limited companies pay taxes at a flat rate.
- In limited companies, the liability of partners for debts is limited to the amount committed as capital during the establishment of the company.
- The partners are not responsible for the debts of the company with their personal assets.
Disadvantages of the Limited Company:
- Limited companies can have a maximum of 50 partners.
- Partners are held responsible for public debts in proportion to their capital shares.
- Limited companies cannot issue bonds or bills of exchange.
ESTABLISH A COMPANY IN TURKEY FOR FOREIGNERS
Globalization has increased collaboration between countries, and it has become common for foreigners to set up companies in different countries worldwide. Turkey is among these countries, and it allows foreigners to establish a company in Turkey.
With its strategic geographic location, large market, advanced logistics infrastructure, and skilled workforce, Turkey has become an important business center for foreign investors. As a result, the number of foreigners establishing a company in Turkey has increased in recent years. Foreigners who wish to establish a company in Turkey should pay attention to complying with the country’s business and trade laws, conducting company activities in accordance with Company law in Turkey, complying with tax laws, and keeping accurate and regular accounting records.
There are certain conditions and procedures for foreigners to establish a company in Turkey under Comapny law in Turkey. Foreign investors can establish company types in Turkey such as a Limited Liability Company (Ltd. Şti.) or a Joint Stock Company (A.Ş.) in accordance with the Turkish Commercial Code.
Foreign investors must have a certain amount of capital to establish a company in Turkey. This amount may vary depending on the types of company in Turkey and the sector in which it operates. In addition, foreign investors must allocate a certain portion of their investments in Turkey to provide employment and investment opportunities for Turkish citizens and residents.
Furthermore, when foreign investors establish a company in Turkey, they may benefit from investment incentives. Investment incentives in Turkey may vary depending on the sector in which the investment is made, the region where the company operates, and the investment amount. To benefit from investment incentives, the company must meet certain criteria and complete the application process.
Foreign legal entities and individuals may not only set up companies in Turkey but also become partners in existing capital companies. There may be restrictions for foreign investors in some sectors, and there may also be sector-specific incentives unde Company law in Turkey. Therefore, foreign investors should seek legal and sectoral advice before establish a company in Turkey or investing in Turkey.
PROTECTION AND SECURITY OF LEGAL RIGHTS OF FOREIGN CORPORATIONS
The legal rights of foreign corporations and partnerships are protected by law through both the Turkish Code of Obligations No. 6098 and the Turkish Commercial Code No. 6102, as well as other regulations, announcements, etc. In case of a possible dispute related to companies, Commercial Courts of First Instance, which are specialized courts, are authorized, and it is also possible to resort to arbitration.
Moreover, from an administrative perspective, organizations such as Chambers of Commerce, Industry Chambers, Professional Associations, etc. aim to help companies reach certain standards, and thus increase the reliability and quality of commercial life and protect the legal rights of foreign corporations .
It is important to protect and secure the legal rights of foreign corporations while they are carrying out their activities. Therefore, it is necessary to take the right steps in legal processes to protect and secure the company’s rights.
Here are some measures that companies can take to protect and secure their legal rights within the scope of company law in Turkey:
- Preparation of the Articles of Association: The articles of association is a document that contains all the details about the company’s functioning and legal status from the establishment of the company onwards. The articles of association are a fundamental document that determines the rights and responsibilities of the company. Therefore, the articles of association must be prepared correctly and must meet the necessary legal standards within the scope of company law.
- Legal Consultancy Services: Companies can receive legal consultancy services by working with a lawyer or law firm specialized in legal matters. Legal consultancy services can assist the company in protecting its legal rights by ensuring that the company takes the correct steps in legal processes.
- Trademark Registration: The trademarks of companies are an important asset that increases the company’s recognition and reflects its image. Therefore, companies should register their trademarks and monitor their use. Trademark registration protects the company’s right to use its trademark and secures its legal rights. For detailed information about trademark registration, you can visit our IP law page.
- Preparation of Contracts: Companies make contracts in commercial transactions. Contracts are documents that determine the rights and responsibilities of the parties and serve as a reference for the resolution of disputes. Therefore, companies must prepare their contracts correctly and meet the necessary legal standards.
- Taking the Correct Steps in Legal Processes: Companies can successfully protect their legal rights by taking the correct steps in legal processes. In legal processes, it is important to take the correct steps by receiving legal consultancy services.
Protection and assurance of legal rights of foreign corporations are important for companies to successfully operate. The measures mentioned above are some steps that companies can take to protect and secure their legal rights. However, the needs of each company may differ, so it is important for companies to prepare legal protection plans that are tailored to their specific needs.
Furthermore, due to the complexity and variability of legal processes, it is recommended that companies seek legal advisory services to take the right steps and obtain expert support in protecting their legal rights. This way, companies can protect their rights and secure their business by successfully navigating legal processes.
Lastly, the protection and assurance of legal rights of companies are important not only for the companies themselves, but also for other parties associated with the companies. Therefore, it is necessary for companies to properly manage their legal processes and protect their rights within the scope of corporate law, for the safety and legal protection of both the company and other associated parties.
THE IMPORTANCE OF LEGAL SUPPORT FOR COMPANIES
Establishing a company in Turkey can be a complex process, but the Turkish government has taken many steps to simplify the process and make it more attractive for foreign investors. With a growing economy and a favorable business environment, Turkey offers several opportunities for entrepreneurs and investors who want to expand their businesses.
Whether they are Turkish citizens or foreigners, individuals or legal entities, it is advisable for those who want to engage in commercial activities in Turkey to seek legal support. Choosing the right company types in Turkey according to the company’s business purpose, investment objective, capital amount and company law in Turkey, and future goals is the most important issue. A mistake made during company types in Turkey or a missed detail in the articles of association could cause harm to the company and its shareholders, or even result in the company being inactive. For detailed information on the importance of companies having a proper corporate structure in accordance with corporate law, you can refer to our corporate law article.
It should be noted that, except for Joint Stock Companies whose paid-in capital is 250,000 TL or more in 2023, there is no obligation to hire a lawyer for other types of companies.
However, obtaining professional legal assistance in selecting the company types in Turkey, drafting the articles of association, and managing the company will protect the shareholders from potential damages and prevent future disputes under company law in Turkey. Conducting business in violation of the provisions of the relevant commercial law, particularly the Turkish Commercial Code, may not only create legal risks but may also result in tax and administrative penalties for the company shareholders.
Examples of legal services for companies and their shareholders are:
- Establishing and managing a company;
- Selecting the most advantageous commercial enterprise and company type;
- Drafting the articles of association, organization and incorporation documents, including shareholder, partnership, and investment agreements;
- Structuring, negotiating, and documenting complex commercial transactions, joint ventures, and strategic partnerships;
- Developing and reviewing employment policies and procedures; drafting employment contracts and independent contractor agreements; advising on workplace policies and compliance with laws; representing employers in administrative and judicial proceedings alleging violations of employment laws;
- Mergers, acquisitions, restructurings, and sales of companies;
- Providing opinion letters on specific practices or policies;
- Pursuing corporate and commercial litigation;
- Protecting intellectual property, including patents, trademarks, software and technology licenses, and software development;
- Taxation and strategic planning;
- Insolvency, restructuring, and liquidation procedures.
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