Company Establishment and Deciding the Right Business Structure in Turkey

When entering the Turkish market, selecting the right legal structure is a critical first step. Most local and international investors opt for capital companies due to their flexibility and the protection they offer. Whether you are launching a new startup by a company establishment or acquiring shares in an existing business, understanding your options under the Turkish Commercial Code (TCC) is essential.

The Most Common Investment Vehicles

In Turkey, the two most popular company types are Joint Stock Companies (JSC) and Limited Liability Companies (LLC). Both structures offer a significant advantage: limited liability. This means that, generally, shareholders are only liable for the capital they have committed to the company, protecting their personal assets from business risks.

Joint Stock vs. Limited Company: Which is Correct for You?

While both structures are governed by their Articles of Association (AoA), they serve different business needs:

• Joint Stock Companies (Anonim Şirket): These are ideal for large-scale operations and complex corporate joint ventures. JSCs offer a more sophisticated governance framework and greater flexibility for future growth, such as going public or issuing different classes of shares.

• Limited Companies (Limited Şirket): Typically used for smaller projects or straightforward investments. Many investors choose this route for its simplicity, though the final decision usually depends on your projected capital and long-term business goals.

Key Features Under the Turkish Commercial Code

Modern Turkish law is designed to be investor friendly. Key highlights include:

• Single-Shareholder Entities: You can establish both JSCs and LLCs with just one shareholder that could be either an individual or a legal entity.

• Foreign Ownership: Foreign investors enjoy the same rights as local investors when setting up these structures.

Choosing between a JSC and an LLC is a strategic business decision. While the LLC offers simplicity, the JSC provides a robust framework for larger institutional investments.

Key Features of Joint Stock Companies (JSC) in Turkey

1. Capital and Shareholding Requirements

• Minimum Shareholders: A JSC can be established with just one shareholder (either an individual or a legal entity).
• Share Capital: The minimum capital required is TRY 250,000.
• Payment Terms: If the capital is paid in cash, minimum 25% must be paid before the company is registered. The remaining balance can be paid within 24 months following registration.

2. Management and the Board of Directors (BoD)

The Board of Directors is responsible for the management and legal representation of the company.

• Structure: The BoD can consist of a single member.
• Eligibility: Board members do not need to be shareholders. While a legal entity (another company) can be a board member, it must appoint a real person to act as its representative in the board meetings.
• Terms: Members are typically appointed for a term of maximum up to three years.
• Representation: Generally, the company is represented by the joint signatures of at least two board members. However, the BoD can delegate authority to executive directors or third parties, provided at least one board member retains unlimited signing authority.

3. Shareholder Liability and Protection

One of the primary advantages of a JSC is the protection it offers to its investors:

• Limited Liability: Shareholders are only liable for the amount of capital they have subscribed to.
• Public Debt Protection: Unlike in some other structures, shareholders who do not sit on the Board of Directors are not personally responsible for the company’s unpaid public debts (such as taxes or social security premiums).
• BoD Liability: It is important to note that Board Members may be held liable for unpaid public debts if the company’s own assets are insufficient to cover them.

4. Ease of Share Transfers

JSCs offer significant procedural advantages when it comes to transferring ownership:

• No Notary Requirements: Share transfers do not typically require a notary public’s involvement unless specified in the Articles of Association.
• Privacy and Speed: Transfers do not need to be registered or announced in the Trade Registry Office, making the process faster and more private than in a Limited Company.
• Flexible Share Types: Companies can issue either bearer or registered share certificates.

5. Governance and Decision Making

• General Assembly: Shareholders meet annually for an Ordinary General Meeting (within three months of the end of the fiscal year) to discuss the company’s performance.
• Voting and Quorum: Generally, a meeting can convene with shareholders representing at least 25% of the capital. Major decisions, such as amending the Articles of Association, usually require a majority representing at least 50% of the capital.
• Efficient Board Resolutions: Board members can pass resolutions without a physical meeting by providing written approval. This modern approach allows for rapid decision-making in a digital business environment.

Strategic Advantage for Establishing a JSC

A Joint Stock Company is the only structure in Turkey that can eventually go public and be listed on the stock exchange. Its sophisticated governance rules and ease of share transfer make it the “gold standard” for institutional and long-term investments.

Key Features of Limited Liability Companies (LLC) in Turkey

1. Capital and Shareholder Requirements

• Minimum Shareholders: An LLC can be formed by one or more shareholders (individuals or legal entities).
• Minimum Capital: The legal minimum capital is TRY 50,000.
• Share Value: Each share must have a nominal value of at least TRY 25 or multiples thereof.
• Payment Terms: Unlike a Joint Stock Company, if the shareholder committed to pay the capital in cash, there is no need to upfront payment of 25% (1/4) before registration, capital can be paid within 24 months upon registration.

2. Management and Leadership

Management in an LLC is designed to be hands-on, often involving the shareholders directly.

• Direct Management: By default, all shareholders have the right to manage and represent the company.
• Appointing Managers (BoD member): The company can appoint one or more managers. These can be shareholders or third-party professionals. However, at least one shareholder must be appointed as a manager with unlimited signing authority.
• Foreign Managers: If a manager is a foreign national, a work permit may be required depending on their residency status and involvement.
• Board of Managers: If there is more than one manager, the General Assembly must appoint one as the Chairman.

3. Shareholder Liability for Public Debt

This is a critical legal distinction for investors to understand:

• General Liability: Shareholders are generally only liable for the amount of capital they have committed to the company.
• Public Debt Responsibility: In an LLC, if the company cannot pay its public debts (such as taxes or social security premiums), shareholders are personally liable in proportion to their shareholding percentage. This differs from a Joint Stock Company, where non-board members are generally protected from such debts.

4. Administrative Simplicity

The LLC is often preferred for its lower capital entry point and simpler internal governance compared to a JSC. It is an excellent vehicle for:

• Local subsidiaries of international firms.
• Family-owned businesses.
• Professional service providers.

Strategic Advantage for Establishing a LLC

While the Limited Company offers a lower barrier to entry, the personal liability for public debts is an important factor to weigh. If your business plans involve large-scale operations or you intend to bring in multiple rounds of investment, you may want to compare these features against the protections offered by a Joint Stock Company.

Liability of Directors and Managers in Turkey

While a company is generally responsible for its own commercial outcomes, directors of Joint Stock Companies (JSCs) and managers of Limited Liability Companies (LLCs) carry specific legal burdens.

1. The Business Judgment Rule and Negligence

Directors are not typically liable for bad business outcomes, provided they acted in good faith. However, they are responsible if:

• Fault or Negligence: They made or influenced a decision with a clear lack of care.
• Breach of Bylaws: They acted against the company’s Articles of Association.
• Tortious Acts: They committed wrongful acts that caused damage to the company, shareholders, or creditors.

2. Criminal and Statutory Liabilities

Executive leadership can face criminal charges or strict penalties in several specific scenarios:

• Record Keeping: Failing to submit official books or records to auditors.
• Transparency: Not complying with financial statement announcements or website disclosure requirements.
• False Documentation: Generating fake documents regarding capital increases, decreases, or company structural changes.
• Confidentiality: Breaching the duty to keep company secrets.

3. Responsibility for Public Debts

One of the most significant risks for directors is the liability for Public Debts (taxes and social security premiums):

• Secondary Liability: If the company’s assets cannot cover these debts, the authorities may pursue the personal assets of the board members.
• Social Security (SSI): Managers and directors with signing authority are “severally liable” (jointly responsible) for unpaid social security premiums.
• Succession Risks: New board members can be held responsible for debts incurred by their predecessors if those debts remain unpaid during their term.

4. Fiduciary Duties: Care and Loyalty

Directors are bound by two primary pillars of corporate governance:

• Duty of Care: They must act as “prudent person” and manage the company’s interests with professional diligence.
• Duty of Loyalty: Directors must place the company’s interests above their own. This includes:
• Non-Compete: Directors cannot engage in business that competes with the company’s field of activity.
• Conflicts of Interest: They must not participate in board meetings where their personal interests (or those of close relatives) conflict with the company’s.
• Transactions with the Company: Directors generally cannot do business with the company or borrow money from it unless specifically authorized by the General Assembly.

5. Mitigating Your Risk

To protect management from these liabilities, companies often:

• Appoint specific “non-shareholding managers” to handle certain administrative risks.
• Secure Directors and Officers (D&O) Liability Insurance.
• Ensure strict compliance with the TCC’s transparency and auditing rules.

Liability of Managers in Turkish Limited Companies

In a Limited Liability Company (Limited Şirket), managers are held to a high standard of professional and financial accountability. Understanding these risks is essential for protecting your personal assets.

1. Core Fiduciary Duties

Managers are the legal “captains” of the company and must adhere to strict ethical standards:

• Duty of Care: Managers must conduct business with the diligence of a “prudent merchant,” acting in good faith to protect the company’s interests.
• Duty of Loyalty: Both managers and shareholders have a duty of loyalty to the company. This means prioritizing the company’s success over personal gain and maintaining strict confidentiality.
• Non-Compete Restrictions: By default, managers are prohibited from engaging in any business that competes with the company. This can only be waived if the Articles of Association explicitly allow it or if all shareholders give their consent.

2. Corporate vs. Personal Liability

Generally, the company itself is responsible for the actions of its managers. If a manager commits a “tortious act” (a wrongful act causing harm) while performing company business, the company is liable for the damages. However, there is one major exception: Public Debt.

3. The “Public Debt” Risk (Taxes & Social Security)

This is the most critical area of liability for LLC managers in Turkey. If the company fails to pay its taxes or social security premiums (SSI), the government follows a specific “collection hierarchy”:

1. Company Assets: The authorities first attempt to collect from the company’s bank accounts and properties.
2. Manager’s Personal Assets: If the company cannot pay, the Manager(s) become unlimitedly liable. The government can seek the full amount from the manager’s personal assets.
3. Shareholder Assets: If the debt still isn’t settled, the shareholders become liable—but only in proportion to their share in the company.

4. The “Shareholder-Manager” Trap

Under the Turkish Commercial Code, if no specific manager is appointed in the Articles of Association, all shareholders are considered managers by default.

Important Note: While a shareholder’s liability is usually limited to their share percentage, a shareholder who is also a manager loses this protection regarding public debts. In this case, they become unlimitedly liable with their personal assets for the company’s unpaid taxes and social security.

Strategic Recommendation

To minimize personal exposure, we recommend explicitly appointing a specific management structure in your Articles of Association. This helps clearly define who carries the primary responsibility for the company’s public obligations.

II. Post-Incorporation Steps: Getting Your Business Running

After the official registration in the Trade Registry, the following steps are mandatory for all new businesses:

1. The Signature Circular (İmza Sirküleri)

This is one of the most important documents for your company. It is an official document notarized by a Notary Public that displays the specimen signatures of the individuals authorized to represent and bind the company.

Why you need it: You cannot sign contracts, open bank accounts, or represent the company before public authorities without a valid signature circular.

2. Tax Office Activation and Inspection

Once the Trade Registry notifies the tax authorities of your incorporation, a tax officer will conduct a “verification visit” to your registered business address.

The Process: Usually occurring within 3 business days of registration, an inspector will visit your office to verify that the business is legitimate and operational.

Requirement: A General Manager or an authorized signatory must be present during this inspection. The inspector will review your rental agreement and signature circular before issuing your formal Tax Certificate.

3. Opening a Corporate Bank Account

Opening a bank account in Turkey is a customized process as each bank has its own internal compliance rules.

Standard Documents: Most banks will require your Certificate of Registry, notarized Articles of Association, Tax Certificate, and the Signature Circular.

Investor Tip: For foreign-owned companies, some banks may request additional due diligence documents for international shareholders.

4. Social Security (SGK) Registration

If your company plans to hire employees in Turkey, you must register with the Social Security Directorate. Your company accountant typically handles this notification to ensure all payroll and insurance requirements are met from day one.

III. Understanding the MERSIS System

Turkey uses a central digital database called MERSIS (Central Registry System) for all trade registry transactions. While this system streamlines the registration process, it is important to navigate it carefully:

• Digital Compliance: All incorporation filings, amendments, and updates are initiated through MERSIS.
• Registration Representative: To complete these filings, at least one authorized signatory must be registered in the system as a “registration representative.”
• Accuracy is Key: Because the system is strictly monitored, any discrepancy in the digital data can lead to requests for additional documentation or amendments. Our firm typically manages this digital process on behalf of our clients to ensure a seamless experience.