In addition to the more prevalent joint-stock company and limited liability company, the Turkish Commercial Code also allows for the establishment of general partnerships (kollektif şirket), limited partnerships (komandit şirket) and partnerships limited by shares (sermayesi paylara bölünmüş komandit şirket).
(a) General partnerships
General partnerships are companies established, and maintained, by at least two individuals for the purpose of operating a commercial undertaking and where the shareholders are liable without limitation towards company creditors. Each shareholder of a general partnership has management rights, however, the articles of association may bestow management upon one shareholder or multiple or all shareholders. In the event of a shareholder being granted management rights through the articles of association, he/she may only be removed from such position through a court judgment based on justifiable reasons. However, shareholders who have been granted management rights through a decision of the shareholders may be removed from their positions upon a majority vote of the shareholders. Although a manager may perform all acts and transactions required for the company to achieve its purpose of establishment, all actions and transactions which are outside the ordinary scope of business require the unanimous vote of the shareholders.
(b) Limited partnerships
Limited partnerships are companies established for the purpose of operating a commercial undertaking and where certain shareholders have limited liability and certain shareholders have unlimited liability towards creditors. As such, limited partnerships must have at least two shareholders. It is worth noting that if a limited liability or joint-stock company were to become a shareholder in a limited partnership, such company may only assume limited liability towards creditors. The shareholders with unlimited liability may stipulate all types of assets and rights as share capital, including cash, real estate and commercial good-standing, whereas the shareholders with limited liability may only stipulate assets and rights which are cash-convertible. Limited partnerships may only be managed and represented by the shareholders with unlimited liability.
Furthermore, shareholders with limited liability may not hinder the acts or actions of the shareholders who have unlimited liability and management rights. In this regard, shareholders with limited liability only have voting rights with respect to actions and transactions which are not in the ordinary course of business and affect relations between the shareholders, such as mergers and changes to the articles of association.
(c) Partnerships limited by shares
In contrast to general partnerships and limited partnerships, whose share capital are not divided into shares, the share capital of partnerships limited by shares, as the name suggests, is divided into shares, which are transferrable. Partnerships limited by shares must be established and maintained by at least five shareholders, at least one of whom must have unlimited liability towards creditors. Only shareholders with unlimited liability may have management rights in partnerships limited by shares and, although such companies have no board of directors, the shareholder(s) with management rights have the duties and responsibilities of the board of directors of a joint-stock company.
Joint ventures between Turkish and non-Turkish companies have become very popular in Turkey in recent years, mainly owing to the emphasis placed by the government on urban transformation projects and developing infrastructure. There are no restrictions on the nationality of shareholders and those holding management rights except for specific sectors such as TV broadcasting, maritime and civil aviation. A joint venture is generally considered an ordinary partnership (adi ortaklık), which is not a legal entity under Turkish law, but shareholders usually choose to establish a commercial company. The preferred option is joint-stock companies due to the ability to establish groups of shares and the limited aspect of shareholder liability in comparison to those of limited liability companies (for further information please see 3.1.2(d) (Limited Liability Company, Liability)).
There is no specific legislation governing joint ventures in Turkey which are governed by the laws applicable to the type of company established. It is a common practice to enter into a shareholders’ agreement to govern the relationship between the joint venture parties and the maintenance of the joint venture. The provisions of such joint venture agreements may be incorporated into the articles of association of the established company, subject to such provisions not conflicting with any applicable legislation. For example, the inclusion of put option and call option rights are also available to remedy deadlock events should the need arise, as with most jurisdictions.
All companies may establish branches in Turkey, however, it is not possible to conduct activities in certain sectors (such as energy) through branches. Except for regulated markets, the establishment does not require consent from a governmental authority, hence a simple resolution by the management body of the company (i.e. the board of directors for joint-stock companies) is sufficient. Such resolution shall then be registered with the relevant trade registry. At least one branch manager must also be appointed for each branch, which is generally done via a power of attorney from the parent company. There is no restriction on the nationality of such representative, although a tax identification number would have to be obtained for any foreign national representative.
Companies established abroad may establish liaison offices in Turkey for the purpose of conducting market research and feasibility studies. As such, liaison offices are not allowed to conduct any commercial activities. A liaison office may also be an effective vessel for following investment opportunities in Turkey. In order to establish a liaison office in Turkey, an application must be made to the Ministry of Industry and Technology. If approved, permits are granted for a period of three years and may then be extended for another three years. Liaison offices must complete a form regarding their activities within the past year and submit it to the Ministry of Industry and Technology by the end of May each year.
ACCOUNTING AND AUDIT REQUIREMENTS
The board of directors of joint-stock companies and the board of managers of limited liability companies are tasked with preparing the annual activity report and financial tables of the relevant company. As a general principle, companies, alone or together with their subsidiaries and affiliates, meeting any two out of the following criteria shall be subject to independent auditing: (i) total assets valued at TRY 35 million or more, (ii) annual net sales revenue of TRY 70 million or more, and/or (iii) 175employees or more. Also, certain companies including (a) publicly-listed companies and other companies licensed by the Capital Markets Board, (b) financial services companies subject to the audit of the Banking Regulation and Supervision Board, (c) insurance, reinsurance and pension companies, and (d) media service providers, among others, shall be independently audited regardless of whether they fulfill any two of the above criteria. Finally, the Council of Ministers have listed certain companies in specific sectors (such as telecommunication and energy) to be subject to independent auditing if they meet criteria lower or higher than above, as the case may be. Where a company is subject to independent auditing, independent auditors are appointed by the general assembly on an annual basis.
ESTABLISHMENT PROCEDURES FOR JOINT-STOCK AND LIMITED LIABILITY COMPANIES
While the documents required to establish a joint-stock or limited liability company in Turkey are quite few in number, their bulk and the time required to obtain them is ultimately determined by the number and location of the shareholders and directors. As the establishment of a company must be registered with the relevant trade registry in the location of the company’s registered office and the documents requested by each trade registry may slightly vary. The most important aspect in establishing a company in Turkey by a foreign shareholder is that all documents which are not executed in Turkey must be notarised in their country of origin and either apostilled or alternatively ratified by the relevant Turkish consulate, depending on whether the country of origin is a party to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents. These documents must then be translated into Turkish by a notary sworn translator and notarised in Turkey.
One of the material documents required for establishing a company in Turkey if the legal entity shareholder is not a Turkish company is an extract from the relevant authority where that legal entity is resident, detailing its incorporation date, share capital and areas of activity, among other things. Other documents generally required by all trade registries are a bank letter evidencing deposit of at least 25% of the subscribed share capital by each shareholder according to their shareholding ratio, a receipt evidencing payment of 0.04% of the share capital to the Competition Authority and notarised copies of the articles of association of the new company.
STEPS OF ESTABLISHMENT
The process of establishing a joint-stock or limited liability company is fairly simple and straightforward, especially once the notarisation and apostille certification or ratification formalities are completed in respect of the documents to be submitted with the application. In order to begin the process of establishing a company in Turkey, certain information must be entered on MERSIS. This step requires, among others, a tax identification number to be obtained for non-Turkish individuals and/or legal entities who will be shareholders and/or directors of the company. Once the tax identification numbers have been obtained from the relevant tax authority and provided to MERSIS, a MERSIS number will be generated for such foreign nationals. Following this, the requisite information on the new company, which includes without limitation the type of company to be incorporated, its trade name and the number of shareholders and directors must be entered into the system. The fundamental item to be submitted into MERSIS is the articles of association, which must be written on and saved into the system. Once all of the required information is provided, this is saved on the system, following which a MERSIS number is generated for the company to be incorporated. Upon submission of the articles of association through MERSIS, such articles of association shall be certified by a public notary or the relevant trade registry in Turkey. Upon the certification of the articles of association, the certified articles of association and all other supporting establishment documents (e.g. declarations of signatures by the members of the board of directors and other signatories, letter of blockage from a bank in Turkey certifying that at least 25% of the share capital of the entity has been deposited and blocked in a bank account, etc.), as requested by the relevant trade registry, must be physically submitted for registration. Once the relevant trade registry certifies all documentation as complete and suitable, a registration certificate is provided which evidences the incorporation of the
new company. Trade registry will also provide the mandatory legal and financial books of the newly incorporated company together with the registration certificate.
JOINT-STOCK COMPANIES AND LIMITED LIABILITY COMPANIES
A joint-stock or limited liability company may be dissolved based on the grounds for dissolution set forth under its articles of association, by a general assembly resolution, or upon the declaration of bankruptcy by competent court. They may also be dissolved by a competent court’s verdict upon the application of either of the shareholders, creditors or the Ministry of Trade if a board of directors cannot be formed or due to the inability of the general assembly to convene. Minority shareholders are entitled to request the dissolution of the company from a competent court on the basis of valid grounds. Although there is no legislation governing what would be considered valid grounds within the context of the termination of a company, court precedents indicate that the continuous breach of the shareholding rights of minority shareholders by the majority shareholders, or the majority shareholders placing a higher emphasis on their personal interests rather than the interests of the company, would be considered examples of valid grounds.
Joint-stock companies may also be dissolved upon the fulfillment of their term where a term has been set forth under the articles of association, or upon the realisation of their area of activity or the same becoming impossible.
Dissolution results in the commencement of the liquidation process. During the liquidation phase, all debts of the company shall be paid through the collection of its receivables and the sale of its assets. If there are assets remaining, those assets shall be distributed to the shareholders pro rata to their shareholding and the completion of the liquidation process shall be registered with the relevant trade registry.
The parent company may close a branch at any time through the adoption of a resolution by its management body (i.e. the board of directors for joint stock companies). Such resolution shall be registered with the relevant trade registry and announced in the Turkish Trade Registry Gazette.
The Ministry of Industry and Technology may revoke activity permits of liaison offices due to conducting commercial activities or not submitting the annual form on their activities within the prescribed time period (please see 3.4 (Liaison Offices) for further information). The parent company may also close a liaison office upon notification to the Ministry of Industry and Technology.