BUSINESS STRUCTURES FOR CONDUCTING BUSINESS IN TÜRKİYE

Foreign investors are subject to the same laws and procedures as Turkish investors. A foreign investor can have different options for conducting business in Türkiye.

Investors can establish liaison offices, branch offices, joint ventures or capital companies in accordance with the Turkish Commercial Code (“TCC”).

Liaison Offices

Companies established abroad may establish liaison offices in Türkiye for the purpose of conducting market research and feasibility studies. Liaison offices are not allowed to conduct any commercial activities. But, a liaison office may also be an effective vessel for following investment opportunities in Türkiye.

In order to establish a liaison office in Türkiye, an application must be made to the Ministry of Industry and Technology. If the application is 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.

Liaison offices cannot benefit from state incentives. No registration to trade registry is required. Therefore liaison offices are not subject to taxation.

Branches

Foreign companies may establish branches in Türkiye, however it is not possible to conduct activities in regulated sectors (such as energy) through branches. Foreign companies can conduct commercial activities in Türkiye via their branches.

Branches must use the name of the parent company. Business activities of branches must be limited with and exactly same with the activities of parent company in abroad.

A simple resolution by the management body of the parent company (i.e. the board of directors for joint stock companies) is sufficient. Such resolution shall then be registered with the relevant trade registry (if in Istanbul, then Istanbul Trade Registry). Branches are subject to taxation (VAT, corporate tax).

There is no minimum capital for incorporation. 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.

Joint Ventures

Joint ventures between Turkish and non-Turkish companies have become very popular in Türkiye in recent years, mainly preferred for urban transformation and infrastructure projects.

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. Ordinary partnerships can benefit from state incentives too.

All parties/shareholders put capital into the joint venture, but shareholders do not have sole or exclusive authority to use the capital alone.

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.

Joint ventures also must get a tax number from tax authorities and are subject to taxation.

Capital Companies

Under TCC, there are different corporate structures that Turkish or foreign investors can incorporate: joint stock company (“JSC”), limited liability company (“LLC”), other forms (such as general partnerships, limited partnerships and partnerships by shares). JSCs and LLCs are the most common types of capital companies in Türkiye. There are various advantages and disadvantages of establishing an LLC and a JSC in terms of business sector, shareholder structure, minimum capital, articles of association, decision-making, management, representation, share transfers, tax obligations, liability etc.

Business Sector: LLCs can be incorporated for any kinds of sectors except regulated areas (such as banking, finance, energy). JSCs can be incorporated for all kinds of sectors. Companies conducting business in regulated areas must be incorporated as JSCs. Also, investors must obtain permission of incorporation from relevant authorities for these regulated sectors. For example, investors get licences and permissions from Energy Market Regulatory Authority (EPDK) for their activities concerning energy manufacturing, transportation or storage.

Minimum Capital: The minimum capital for LLCs is TL 50.000. The minimum capital for JSCs is TL 250.000. For JSCs, at least 25% of the whole capital must be paid in the beginning of incorporation and deposited and blocked in a bank account. There is no such requirement for LLCs.

The bank letter of blockage shall be submitted to trade registry. Also 0.04% of the share capital must be paid to the Competition Authority and bank receipt proving the payment must be submitted to trade registry for incorporation. For regulated sectors, the minimum capital amount is considerably higher. For example, minimum capital for oil storage company is TL 3.000.000.

Also it is significant to note that although the minimum capital for JSC is TL 250.000, it is sometimes more logical to incorporate the JSC with capital of TL 500.000. Because, if the investors aim to hire non-Turkish citizens in future, then the company (JSC) will make application to the Ministry of Labour and Social Security. In practice, the Ministry require the JSC applying for work permits of non-Turkish citizens/employees to have capital minimum TL 500.000. As a business strategy, we advise foreign companies to take this practice into consideration if it plans to hire non-Turkish citizens in future.

Shareholders: LLC can be founded with a single (real person or legal entity) shareholder, however there is an upper limit for number of shareholders. There cannot be more than 50 shareholders in LLCs. TCC allows the incorporation of single shareholder JSC with no upper limit on the number of shareholders a company may have. It should be noted, however, that pursuant to the Capital Markets Law, a company is deemed to have become public if it has more than 500 shareholders. The shareholders of JSC may be individuals or legal entities and there is no restriction on their nationality.

Share Transfers: The share transfer agreement for LLCs must be executed before public notaries and registered to trade registries. The income accrued from a share transfer in LLC will be subject to taxation. However, there is no such requirement for JSCs; share transfer agreement in writing would suffice. Also, the income accrued from a share transfer in JSCs, provided that the transferor has been holding the shares for at least two years, will not be subject to taxation.

Management: JSC is managed and represented by “board of directors” appointed by shareholders for maximum term of three years; but same members can be re-elected for consecutive years. The “general assembly” consists of shareholders to supervise the business and management of a JSC. There are certain reserved matters that only the general assembly can decide. Such matters include without limitation amendments to the articles of association, appointment of the members of the board of directors, distribution of profits or sale of a significant portion of the company’s assets. LLC shall be managed and represented by one or more managers appointed by the shareholders. If there is more than one manager, then there is a board of managers as per the TCC. Unlike JSCs, at least one of the managers must also be a shareholder. Managers can be appointed for unlimited terms. The “general assembly” consists of shareholders to supervise the business and management of LLC. There are certain reserved matters that only the general assembly can decide. Such matters include, among others, approval of any share transfer and squeeze-out of existing shareholder through a court order.

Liability: The shareholders of LLC are held liable with their own personal property for the public debts of the company (such as taxes) pro rata by their shares. Creditors cannot reach to personal property of shareholders for public debts of the JSC, but members of the board of directors are liable for public debts of the JSC. Directors have the right of recourse to the JSC.

Specific matters: If the capital of JSC is higher than TL 1.250.000, JSC must obtain legal services from a lawyer. Also a representative from the Ministry of Trade shall join general assembly meetings of JSCs for specific agendas like capital increase, changing type of the company, merge or acquisitions etc. There are no such requirements for LLCs.

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. In principle, audit period starts in January and ends in December in Türkiye.

These are the main differences between JSC and LLC. It depends on the business strategy to decide which type of the company is best suited for the business operations of the your company in Türkiye.

If you would like to get more information and work with N&H Law Firm legal team, please contact us via [email protected] and get an appointment.