One of the most preferred company types in Turkish law is limited liability companies. More limited liability company types are recommended especially for medium-sized enterprises. Limited companies offer advantages to their partners in various aspects. Since they are a capital company, they present an institutional structure. A limited liability company partner is in danger of losing only the amount of capital he/she initially brought in when establishing this company. Due to these and many other advantages that can be counted, limited liability companies continue to be preferred.
In this bulletin, we have included explanations that will shed light on domestic and foreign entrepreneurs who want to establish a limited liability company. In the content of our article, you can access details on the main topics of interest about limited liability companies, such as the establishment of a limited liability company, the appointment of a manager, registration with the trade registry, and registration with the chambers of commerce/industry.
STARTING THE OPERATIONS OF ESTABLISHMENT OF A LIMITED LIABILITY COMPANY THROUGH MERSIS
Domestic and foreign investors and entrepreneurs who want to establish a limited liability company in Turkey are subject to the same rules. Both must complete the procedure required to establish a limited liability company in the prescribed manner in Turkish law.
The first step of the limited liability company establishment process is carried out on-line through the Central Registry System (MERSİS).
The person who will establish a limited liability company or his/her authorized representative starts the establishment of the company by creating a free and online membership to MERSIS. Creating a MERSIS membership is a free and easy process.
For persons to be identified as authorized or partner over MERSIS, T.R. ID numbers of Turkish citizens and passport numbers of foreigners are sufficient. However, for the foreign investor to be identified in the system as a partner or authorized person, they must obtain a tax number from the tax office themselves or through their proxies and register themselves with MERSIS by applying to the trade registry directorate.
The potential tax number of the company is determined automatically by MERSIS.
PREPARATION OF THE ARTICLES OF ASSOCIATION
First, the articles of association should be prepared in Turkish. There are main elements that must be present in limited liability company articles. Who the founders are, the title of the company, the purpose, and field of activity of the company, the duration of the partnership in case of a limited-term company, the amount of capital to be added, the headquarters of the company, the persons (managers) authorized to represent and manage the company, the general assembly meeting and call procedures, the capital, nominal value of the shares and the number of shares of the partners must be included in the articles of association of the company.
There are also some issues that are left to the will of the founders to be included in the articles of association of the company. E.g.; These are the regulations regarding the transfer of the basic capital share, the right of veto and superior voting, the penal clause and the prohibition of competition, the regulations related to the voting right, the reasons for dissolution, and the regulations regarding exiting and expulsion from the partnership.
MATTERS TO BE CONSIDERED WHEN PREPARING THE COMPANY’S ARTICLES OF ASSOCIATION AND SITUATIONS WITH THE MOST DISPUTE IN IMPLEMENTATION
All the issues that should be determined in the articles of association of the company are vital elements for a company. Making these determinations regarding the articles of association in the beginning in accordance with the law and the interests of the founders will save the founders from possible disputes that may arise later and from transactions such as amendment and registration of the articles of association.
Disputes arising from articles of association are frequently encountered in company law. Corporation charters of the companies are almost the value of the Constitution for a company. The management and operation of the company, the rights of the shareholders, and the company meetings must be held in accordance with the company’s articles of association. Various actions in personam are on the agenda for the cancellation or nullity of the transactions made in violation of the articles of association, for the receivables of the partners and managers from each other or from the company. For this reason, the company’s articles of association are very important for the company’s shareholders and board members. In practice, we witness that there are conflicts especially on the following issues:
- Incorrect regulation of voting rights in the articles of association
- Incomplete regulation of the prohibition of competition
- No or incomplete regulation of the minority right
- Arranging meeting and decision majority in violation of the law
- The necessity of making changes in the articles of association later due to the issues that were forgotten to be regulated as a result of negligence or mistake in the articles of association of the company, or the regulations made on the issues that do not comply with the will of the founders.
To prevent the emergence of such disputes and to ensure the efficiency and continuity of the company, the company’s articles of association should be prepared by lawyers who are experts in the field of company law. As Solmaz Law and Consultancy team, we provide legal services to our domestic and foreign clients with our expert legal staff in the preparation of limited liability company establishment transactions and company articles of association in the most appropriate way to their commercial interests and Turkish Commercial Law.
DIRECTOR APPOINTMENT PROCEDURES
According to Article 623 of the Turkish Commercial Code, the management and representation of the Company are regulated by the articles of association. With the articles of association of the company, management and representation may be given to one or more partners holding the title of manager, or to all partners or third parties. However, at least one of the company partners must have the authority to manage and represent the company. If a company manager is to be appointed from outside the partners, a statement stating that he/she has been appointed from outside the partners should be included in the authorization decision and the signature statement. If one of the directors of the company is a legal person, this person appoints a real person who will perform this duty on behalf of the legal person. Managers are authorized to take decisions and execute these decisions on all matters related to the management that is not left to the general assembly by law or by the articles of association.
Again, if more than one manager has been appointed in accordance with Article 624 of the Turkish Commercial Code, one of them must be designated as the Chairman of the Board of Managers.
SIGNING THE ARTICLES OF ASSOCIATION AND CERTIFICATION OF SIGNATURES
Following the preparation of the company’s articles of association, the articles of association are signed by the company’s founders. Then, whether the founder’s signatures really belong to them or not must be approved (certified) by a competent authority. For this transaction, the founders or their authorized representatives must go to the trade registry office where the company’s headquarters is located.
PREPARATION OF SIGNATURE STATEMENTS OF COMPANY AUTHORITIES (SIGNATURE CIRCULAR)
The signatures of the persons authorized to represent the company under the company title must be approved and signatures must be prepared. In practice, this is also called obtaining a signature circular. The competent authority in carrying out these transactions is the trade registry directorates.
PAYMENT OF CAPITAL
Limited companies can be established with a minimum capital of 10.000 TL and at least 1 partner. The capital to be put in by the partners must be at least 25 TL or its multiples. However, it is a conundrum when this capital should be paid.
In the old system, when the company was established, at least ¼ of the capital amount specified in the company’s basic capital had to be deposited into a bank account opened in the name of the company and the relevant receipt had to be submitted. As of 2018, this obligation has been abolished for limited liability companies. When establishing a limited liability company, it is no longer necessary to open a bank account on behalf of the company and to block ¼ of the capital in this account. Within 24 months from the establishment of the company, it is sufficient to make capital payments in the name of capital payment to the bank account of the company, including the names of the partners. (However, in terms of joint-stock companies, it is still required to document that at least ¼ of the capital shares committed in cash is deposited in a bank account opened in the name of the company to register the company.)
PAYMENT OF COMPETITION AUTHORITY SHARE
0.04% of the company’s capital, called “Competition Authority Share”, must be deposited into the Competition Authority’s bank account and the transaction receipt must be obtained. This process is also carried out at the trade registry offices.
REQUIRED DOCUMENTS AT THE ESTABLISHMENT OF A LIMITED LIABILITY COMPANY
- The printout of the application made through MERSIS and the company formation application form
- Photocopy of identity card and residence certificate of the partners of the company
- If the founding partners will not come to the trade registry in person, the power of attorney given to the person or persons they have authorized for the formation of the company
- If there are real person partners of foreign nationality, their translated notarized passport copies, the tax number to be obtained from the tax office or the document showing the identification numbers for foreigners, and a notarized residence permit if residing in Turkey
- Articles of association with the signatures of the founders certified and the founding partners’ information form
- Written statements of non-shareholder board members that they accept this duty
- Signature statements of company directors
- Document showing that the Competition Authority’s share has been paid
- If there is a legal person on the board of directors, the name and surname of a real person appointed by the legal person on behalf of the legal person and a notarized copy of the decision of the authorized body regarding the appointment
- Valuation reports of businesses and months to be taken over during the establishment of the company, and official documents to be taken from the relevant registry showing that there is no limitation (such as a mortgage) on these months (valuation reports are prepared by experts appointed by the courts).
- Documents showing that values such as real estate and intellectual property rights brought to the company as capital in kind, if any, are annotated to the registries where they are registered
- Other agreements made with the company to be established, the founders, and other persons related to the organization (for example, if there is an acquired business in the organization, the transfer agreement of this business).
TRADE REGISTRY REGISTRATION PROCEDURES
After the necessary documents are sent via MERSIS and the documents are approved without any deficiencies, it is necessary to apply to the trade registry directorate with the necessary organization and application documents on the appointment day obtained online from the trade registry directorate. The founders can register at the trade registry directorate in person or through their lawyers authorized by a power of attorney.
In Turkish law, commercial companies gain legal personality upon registration in the trade registry. Therefore, before this step is completed, there is no legally limited company yet. Disputes that may arise between the partners or between third parties during the preparation phase are resolved within the framework of the pre-company provisions.
CERTIFICATION OF COMMERCIAL BOOKS
After the registration of the company in the trade registry in limited liability companies, the commercial books that the company is obliged to keep must be certified by the trade registry directorate. Following the transaction, the general ledger, journal book, inventory book, board of directors’ resolution book, and shareholders’ share book are delivered to the person concerned.
REGISTRATION AND REQUIRED NOTIFICATIONS AT TAX OFFICE
After the completion of the registration of the company in the trade registry, the tax office procedures must be carried out. The company’s tax registration and business start notifications are completed through physical or internet tax offices.
After the company registration, the following documents should be applied to the tax offices:
- Company opening notification (employment notification)
- The original of the company registration letter and registration certificate
- Identity originals or certified copies of the founders
- Signature Circulars
- Rental agreement of the workplace or real estate deed
- Domiciles of company partners
As Solmaz Law and Consultancy team, we continue to provide the financial consultancy and tax expert services that our clients need at this stage, together with our business partners who are experts in their fields, in the most qualified way.
REGISTRATION WITH CHAMBERS OF COMMERCE AND INDUSTRY
In Turkish law, it is obligatory for all traders to register with the chamber of commerce where they are located. Trading companies are merchants with legal personalities. Limited liability companies are also legally a kind of trading company and have the title of a merchant. Therefore, after a newly established limited liability company is registered in the trade registry and gains legal personality, it must be registered with the chamber of commerce or industry where it is located as a person with the title of a merchant. Registration is done through MERSIS.
LIMITED LIABILITY COMPANY FOUNDATION PERIOD AND EXPENSES
The minimum capital amount for limited liability companies is 10.000 TL, and the establishment costs of a limited company established as a single partner are approximately 2.600 TL for 2021. The foundation of a limited liability company is completed within 1-5 working days. In case the necessary documents are sent completely through MERSIS and approved by the competent authority, the foundation of a limited liability company can be completed even within 1 day at the trade registry directorates on the appointment day.
CONCLUSION
In Turkey, limited liability company foundation procedures are initiated online and then completed in person or through persons authorized by power of attorney. The process of founding a limited liability company is a technical process that requires the fulfillment of a number of legal formalities, since it is a capital company, carries the title of a merchant, and presents an institutional structure. Thanks to the professional legal service to be received from a lawyer who is an expert in knowing the necessary procedures and preparing the documents, your limited liability company establishment transactions will be completed in a very short time without any problems.
As Solmaz Law and Consultancy team, our journey that starts with the foundation of limited companies to be established in Turkey with our domestic and foreign clients continues in the growth and development stages of their companies. We are always beside our clients with our professional legal staff and business partners who are experts in their fields, such as the audits of companies, tax issues, employment of domestic and foreign workers, registration of transactions that need to be registered in the trade registry, disputes regarding general assembly meetings and general assembly resolutions. You can contact our team for legal support services.
Sincerely.
Solmaz Law and Consultancy Team
REFERENCES
Turkish Commercial Code.
BİLGİLİ, Fatih/DEMİRKAPI, Ertan, Şirketler Hukuku Dersleri, Dora Yayıncılık, 2013, Bursa, p.358-364.
<https://www.ito.org.tr/documents/Ticaret-Sicil/ltd_kurulus_surec/teknoktadalimitedsirketkurulususurecmaliyettr.pdf>.
<https://ticaret.gov.tr/data/5d3e935313b87607d8feeffc/rehber_Tr.pdf>