Analysis of the Company Laws in Turkey - ONGUR&PARTNERS

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Analysis of the Company Laws in Turkey


ANALYSIS OF THE COMPANY LAWS IN TURKEY[1]

 

[¶1] Company Types.  A Turkish Company is one that is registered under the Turkish Commercial Code[2] (dated 13/11/2011 and numbered 6102) . A Turkish Company must be registered in the commercial register for the place where its seat is located.

 

There are 5 types of company regulated under the Turkish Commercial Code[3].These are the general partnership, the limited partnership, the limited liability company, the joint stock company and cooperatives.

 

The general partnership: A general partnership is a partnership in which two or more natural persons join together without limiting their liability towards creditors of the partnership in order to operate a commercial enterprise under one business name[4].

 

The limited partnership: A limited partnership is a partnership in which two or more persons join together in order to operate a commercial enterprise under a single business name in such a manner that at least one person is a general partner with unlimited liability but one or more others are limited partners liable only up to the amount of their specific contributions. [5] Partners with unlimited liability must be natural persons, but limited partners may also be legal entities and commercial enterprises.

 

The limited liability company: The LLC is a partnership with limited liability which shall be incorporated by one or more real persons or legal entities under a trade name; its basic capital shall be definite and consist of the sum of basic capital shares[6].Number of partners may not exceed fifty [7].

 

A joint stock company: A joint stock company is a company whose capital is fixed and divided into shares and which is solely responsible with its assets due to its debts[8]. Shareholders are solely responsible to the company and their responsibility is limited with the shares they have subscribed[9]. A joint stock company can be publicly held companies or closely held companies. Publicly held company’s shares can be listed or not listed in the stock exchange.

 

The cooperative: A cooperative is a corporate entity consisting of an unlimited number of persons or commercial enterprises who join together for the primary purpose of promoting or safeguarding the specific economic interests of the society’s members by way of collective self-help.  Cooperatives with a predetermined nominal capital are not permitted[10].

 

The Turkish Commercial Code regulates in detail organization and functioning of these companies.

 

[¶2] Licensing of Corporate Agents. Turkish Companies must be registered before Commercial Registration Office[11] by the shareholders or their attorneys. The partners must submit articles of incorporation which approved by a Public Notary and relative documentations such as ID Cards, Passport Copies etc.

 

[¶3] Company Name. The company must register its name before Trade Register Office.[12]

 

Suffix. The company name for general partnership and the limited partnership must include at least one of the partner’s names and surname .Additionally the company name must end with the word “general partnership” or “limited partnership”.[13].

 

The company name for limited liability company, joint stock company and cooperatives must include the subject of the company and it must end with the type of the company. [14]

 

Restrictions on Company Name. The registrar cannot reserve a name if  the company name would be breach of an enactment; the name unrealistic and/or provide incorrect information to the third parties or consisting a context against “public order[15]”, the company name is the same or almost identical to a name that has already been reserved.[16] In addition to that usage of the following words are depend on decision of  President; “Türk”(Turk) , “Türkiye” (Turkey) , “Cumhuriyet”(republic) and “Milli”(National)[17].

 

Change of Name. To change a company’s name, the company must submit an application which (1) must be completed required form (2) must be accompanied by decision of board members of the company.

 

Name Reservation. Company names may be reserved before Trade Registry Office.

 

[¶5] Registered Office and Registered Agent. Every company is required to have a registered office. A company’s directors may change the addresses of the registered office in Turkey. When a company submits its article of registration to the Registrar the address of the registered company must be included. The Trade Registry Office keeps all information about companies and regularly publishes changes in the Turkish Trade Registry Journal[18].

 

[¶6] Registration. The Turkish Trade Registry Offices are responsible for registration of the companies in Turkey. In order to register a company in Turkey the partners must sign and submit articles of incorporation to the Trade Registry Office along with a Notary Approval indicates the signatures circles[19].

 

The required documents are depending on the type of the company. In order to register a limited liability company/joint stock company the required documents are in principle as follows:[20]

 

    (1)    Notarized articles of organizations signed by the founders,

    (2)    Establishment notification form;

    (3)    Letter that is signed by non-founder company manager(s)

    (4)    Value assessment reports regarding the assets and companies which declared as capital,

    (5)    List of authorized signatures signed under the title (certified by Notary Public)

    (6)    Bank Statement or EFT receipt indicating that four per-myriad of the capital is deposited to account of Competition Board’s account

    (7)    Photographed copies of ID cards/passports of the partners (approved by the quarter-headman or notary public)

    (8)    If real capital is provided, the related court order and a letter from the official authority stating that there is no restrictions on the real capital

    (9)    If the foreign nationality partner is a legal person, the original operation document and its notary public certified translation,

    (10)    If the foreign nationality partner is a real person notary public certified copy of his/her passport,

    (11)    If there is a cash paid portion of the capital, the bank statement reflecting such payment,

    (12)    Original registry fee receipts.

 

Redomiciliation /Transfer. Companies are allowed to transfer their registration from Turkey in order to become incorporated in a different country. All partners of the company must decide unanimously to the transfer.[21]

 

Time Requirement. Registration of a company takes approximately 15 days to complete.

 

Foreign Company Registration. Turkey allows foreign companies to transfer their incorporation to Turkey. The registration process for foreign companies is the same as the process to register a company by Turkish Companies.

 

Confidentiality. Turkish jurisdiction does not maintain the confidentiality of corporate information. Every company is required to keep its company records which include the names and addresses of the directors of the company, available for public inspection by any person “who serves written notice of intention to inspect the company”.[22]

 

[¶7] Reporting and Recordkeeping.

 

Annual Filing. Companies are requested to fill regularly the books of the company and provide approval from Public Notary annually. Companies should provide monthly based financial activity sheets to the Tax Office as well. Even though the company doesn’t carry out commercial activities actively the monthly based forms must be provided to the Tax Office. Otherwise there are administrative sanctions applicable to the company. Furthermore the company must prepare annual activity report and financial balance sheet and submit these to the administrative authorities. The annual activity report should include the financial situation of the company, activities completed during the year, the profit of the shares and the amount of contingency reserves.

 

Company Seal. Turkish companies are permitted to have a common seal.

 

[¶8] Formative Documents. The essential requirements needed to form a Turkish company are as follows:

(1) A company name ,

(2) Indication of  shares,

(3) At least one founder, 

(4) The minimum capital requirements,

(5) One or more directors,

(6) In some exceptional cases a special permission might me requested.[23]

 

Companies’ formation must be published in the Trade Registry Journal[24]. One the registration process has been completed, Trade Register Office issues the company a certificate of incorporation.

 

Articles of Incorporation: Any limited liability company or joint stock company is required to have articles of incorporation. A company’s article of incorporation is binding between the company and every share holder of the company. The articles of incorporation for a company must include the following information:

 

(1) The name and registered office of the company

(2) The subject and affiliation fields of the company

(3) The capital amount and deposited  amount of the capital

(4) The classes of the shares , along with the highest number of the shares

(5) The director(s) of the company and principles concerning administration of the company,

(6) Business restrictions, if any that must be followed by the company.

 

Alteration of Articles of Incorporation: A company can adopt, alter or revoke its article of incorporation via special resolution by its members. Any amendment in the articles of incorporation must be published in the Trade Registry Journal[25].

 

[¶9] Powers.

 

Every company is treated as a separate legal entity from its shareholders, thus allowing companies to continue in existence until they are removed from Trade Registry Office.

 

[¶10] Shareholders/Members.

 

Registration and Reporting.   Companies are required to keep a decision registration book, day book, book of financial entity and stock book[26].The companies must also keep a register of directors and register of secretaries.

 

Members and Nominees.  If a person is a nominee for another body, then any shares held or any power exercised by that nominee are treated as being held or exercised by the other body.

 

[¶11] Single Member Companies.  Single member companies are permitted in the Turkish Commercial Code[27].

 

[¶12] Share Capital.

 

Shares.  Shares in Turkish companies are treated as personal property.

 

Minimum Authorized Capital. Turkish Limited Liability Companies must have 5.000,00 TL minimum authorized capitals and Turkish Joint Stock Companies must have 50.000,00 TL minimum authorized capital. Other type of companies does not have minimum capital requirements.[28] 

 

Transfer of Shares. Shares in a Turkish Company are transferable. The transfer procedure of the share depends on type of the company.

 

Bearer Shares.  The Joint Stock Companies are permitted to issue bearer shares[29].

 

Par/No-Par Value.  Par/No-Par value shares are not permitted[30].

 

Redeemable shares. Redeemable shares are not permitted. 

 

Buy-Backs. In principle, it is not permitted to the companies to acquire their own shares by the law. However the following exceptions are provided: (1) The shares are acquired by the company as a result of capital reduction (2) in return of a debt by shareholders except from debts stemmed from the committed share capital (3) if the company acquires an asset which contains the shares of its own company shares as well (4) if the subject of the company is defined as stock broker in the articles of incorporation (5) The board member of the company transfer their shares as a guarantee for their responsibilities to the company(6) if the acquisition is a result of a donation.

 

Share capital reductions.  The share capital reduction is permitted for the Joint Stock Companies and Limited Liability Companies.

 

The general assembly of the company decides on share capital reduction and provides requested amendment in the articles of incorporation. In order to take such a decision the company must have financial capacity to be able to fulfill its debts after the capital reduction. This condition must be approved by the experts who are assigned by the authorized court. The capital of the company cannot be reduced under the amount of minimum capital requirements by the law[31]. The creditors of the company can request financial guarantee or fulfillment of their credits in case of capital reduction. However this rule cannot be applicable due to share capital reduction for adverse balance offset.

 

Dividends.  The shares holders receive dividends in comply with their share percentage[32]. However the total profit of the company cannot be made subject of the dividend. The company must allocate the capital reserves and obligatory expenses such as taxes before payment of dividends[33].

 

[¶13] Directors and Officers. 

 

Every company is  required to appoint at least one director.

 

Appointment/Resignation.

 

The director of the company can be assign by the articles of incorporations or by the decision of the general assembly. Any natural person may be appointed as a director of a company, with the following exceptions:  (1) persons who are under 18 years of age (2) persons who have not power of judgment (3) persons who have undercharged bankruptcies (4) persons who don’t have capacity to act (5) persons who are in charged by a court sentence from following crimes; counterfeiting, breach of confidence, robbery and ramp. [34]

 

The representatives of the company must be registered by the directors before Trade Registry Office. The decision as regards representatives of the company must be submitted to the Trade Registry Office[35].

 

The directors can be removed from his office by the decision of General Assembly[36]. The director of a company may resign from office. The board members of accompany may resign from office as well. If the directors lose the qualifications which are necessary for the appointment, his duty became invalid per se[37].

 

Duties and Powers. The directors must perform their duties with all due diligence and safeguard the interest of the company in good faith[38]. The directors must surveillance the facility of the company too. The directors can not carry out activities which may create conflict of interest with the company.[39] The directors cannot carry out commercial activities which may create competition with the company without prior consent of the general assembly.[40].

 

Committees. If it is permitted by the articles of incorporation the directors of a company may delegate any of their powers to the committees or persons. However, at least one director must be assigned as the representative of the company.[41]

 

Liability and Indemnification of Directors and Officers. Companies are permitted to indemnify the directors and officers for liability resulting from their position with the company. The general assembly can also decide not to indemnify the director or the officer of the company.

 

 [¶14] Meetings

 

Annual General Meeting. Every company is required to have an annual meeting of shareholders following 3 months of each financial year.[42].

 

Directors’ Meetings. Unless otherwise stated in the articles of incorporation, one more of half of the directors must be present at the meeting. The decision must be taken by the majority of the present directors. The minutes’ of the directors meetings must be recorded and signed by the directors.[43]

 

Special Meetings.   The directors can invite the shareholders to the special meetings[44]. The shareholders who own at least 10% of the company shares[45]  can invite all shareholders to the special meetings. In this case they must explain necessary reasons to this invitation.[46] The shareholders who own at least 10% of the company shares can apply to the court with the request of invitation for an urgent general assembly as well.[47].

 

[¶15] Resolutions.

 

Ordinary Resolution. The general assembly of the company must hold a meeting with attendance of at least ¼ of the owner of the shares. However if ¼ of the owner of the shares does not attend to the meeting, a new invitation must be send to the all shareholders. In such a situation the attendant shareholders can take decision in the second meeting, even though percentage of the attendants are less than ¼ of the owner of the shares.[48] In principle, the general assembly can take a decision with the majority of the votes.[49]An ordinary resolution is a resolution that is approved by a simple majority of the votes.

 

Special Resolutions. In order to change articles of organization each shareholders have right of one vote for the decision.[50]

 

In order to change type of the company or commitment of the shareholders unanimous decision is requested.

 

In order to change subject or the type of the company the 2/3 of the shareholders must attend to the general assembly. If this majority cannot be obtained in the first meeting of the general assembly, minimum ½ of the shareholders must attend to the second general assembly meeting. The general assembly can take a decision with the majority of the attendant shareholders.[51]

 

 [¶16] General Accounting Practices.

 

Daybook. A company is required to keep a daybook which correctly records the activities of the company, procedure, date and order of the businesses etc.[52]

 

Ledger Balances. The issues which are recorded in the daybook must be indicated and distributed to the accounts of the company systematically with the ledger balances book.[53]

 

Stock Book.  A company must keep a stock book from date of issue to end of each financial year due to record balances and stocks of the company.[54] It can be seen from a stock book all credits, debts and damages of this company.

 

The books of a company must be kept in writing that is in Turkish language. All financial values which are indicated in the books of the company must be converted to the Turkish Lira from exchange rate of Turkish Central Bank.[55]

 

Audit.  Turkish Joint Stock Companies are required to auditor(s) in general assembly of the company.[56]. Turkish limited liability companies are not required to appoint auditors unless number of the shareholders is less than twenty. A company must inform Trade Registry Office concerning appointment and resignation of the auditor’s etc.[57]

 

Auditors’ Powers and Duties. The auditor of a company has following powers and duties: [58].

 

    (1)    definition of balance sheet of the company in cooperation with directors

    (2)    to audit company’s books and accounts

    (3)    to audit company’s treasury

    (4)    to review books of the company

    (5)    to control if the shareholders are invited to the general assembly

    (6)    to audit budget and balance sheet of the company

    (7)    to control procedure of the liquidation in case

    (8)    invite shareholders to the general assembly in case of  board members infringements of their duties

    (9)    to attend general assembly meetings

    (10)    to audit directors and boards,

 

Furthermore, the auditors must prepare a financial report to the general assembly to inform them concerning financial situation of the company. This report must be read during the general assembly meeting of the company.[59]

 

[¶17] Mergers  & Acquisitions.

 

According to Turkish Law, a merger is the transfer of the assets of one or more commercial partnerships to one of the partnerships or to a newly incorporated partnership, without liquidation, either automatically or through full subrogation, and thereby merging their assets and automatic obtainment of partnership shares as the consideration of the assets past by the partners of the dissolved partnership in accordance with a calculated exchange rate.” There are two types of mergers by using the definition of merger. The first type is merger by way of new establishment and the second type is merger by way of transfer. [60] It is permitted by law that only same type of companies can be merged. [61] The merging companies must take 2 separate decisions concerning this transaction and publish these decisions in the Trade Registry Journal. [62]

 

The creditors of merging companies can object to this transaction before Trade Registry Office in 3 months from the publication of the decision of the companies.[63] The merger will be valid after 3 months of the publication of decisions in the Trade Journal.

 

 [¶18] Liquidation/Dissolution.

 

Termination and liquidation are regulated differently according to company types. The reasons of dissolution for the joint stock company are as follows:

(1) Expiration of the certain duration specified in the articles of association;

(2) The realization of the purpose of the Company or discovering that the realization of the achievement is impossible;

(3) Realization of a cause of dissolution as foreseen in the articles of association,

(4) Adoption of a General Assembly resolution regarding dissolution;

(5) the bankruptcy of the Company; [64]

(6) With a decision of court in cases the company's statutory bodies has been absent for a long period or the general assembly has not been able to convene, the court shall, upon request,[65]

 

Dissolution without liquidation. In case of merger with another company, conversion to a limited liability company or acquisition by a public legal entity, the joint-stock company terminates without liquidation.

 

Bankruptcy. In case of dissolution of the company due to bankruptcy, liquidation is made by the bankruptcy administration in accordance with the provisions of the Execution and Bankruptcy Law.

 

Liquidation. In the event that the company is dissolved for reasons other than bankruptcy or court judgement, the company shall enter into a liquidation process. The company, which has been liquidated, shall register and announce this situation in the Trade Registry. The company's license continues to be limited to the purpose of liquidation and the term “in liquidation” shall be added to the trade name of the company. [66]

 

Liquidators. If the liquidator is not appointed by the Company's articles of association or the decision of the General Assembly, the liquidation shall be made by the Board of Directors. [67]. Liquidators can always be dismissed by the general assembly and new liquidators may be appointed. [68]

 

The liquidators shall firstly a balance sheet and inventory showing the assets and financial situation of the company by evaluating the position of the company themselves or by appointing experts if necessary.[69]

 

Creditors who are identified from the documents of the company shall be informed about the dissolution process and called to notify their claims via registered mail. Other creditors shall be notified via an announcement published in the Trade Registry Gazette, and on the website of the Company, or by other ways foreseen in the articles of association. If the identified creditors do not notify their claims the amount of the debt to them shall be deposited in a bank to be determined by the Ministry of Customs and Trade. Similarly, an amount corresponding the undue and disputed debts of the company shall be deposited in a notary.[70]

 

Liquidators shall complete the ongoing operations of the company collect the unpaid capital commitments, realize the assets of the company, [71] and pay the debts of the company unless it is understood from the initial balance sheet that the debts do not exceed the value of the company.[72] Otherwise liquidators shall apply to the relevant commercial court and the court shall order the bankruptcy.[73]

 

Unless otherwise stipulated in the articles of association, after paying the debts of the company and prices of shares; the remaining assets of the company shall be distributed to shareholders in accordance with their respective paid capital and privileged rights. [74] The distribution of the remaining assets shall not be made sooner than six months from the day on which the third call was made for the creditors. However in cases the payments to the creditors are not at risk, the court may permit the distribution to be made before six months. [75] Unless otherwise stipulated in the article of association or by the general assembly, the assets shall be distributed in cash.[76]

 

Upon the completion of the liquidation process, the liquidators shall apply to the Trade Registry for the removal of the trade name of the company. Upon such application, the removal shall be registered and announced.[77]

 

 

[1] Research completed by  Attorney Arzu ONGUR L.LM  and Hülya COŞTAN PhD

[2] Hereinafter “TCC”

[3]  TCC art. 124

[4]  TCC art. 211

[5]  TCC art. 304

[6] TCC art. 573/2

[7]  TCC art. 574

[8]  TCC art. 329

[9]  TCC art. 329/2

[10] The Cooperatives Code art. 1

[11]  TCC art. 40

[12]  TCC art. 40

[13]  TCC art. 42

[14]  TCC art. 43

[15]  TCC art. 46

[16]  TCC art. 45

[17]  TCC art. 46

[19]  TCC art. 28, Trade Registry Regulation art. 23

[20] Trade Registry Regulation art. 69,90

[21] TCC art. 421

[22]  TCC art. 35

[23]  TCC art. 213, 305, 329 ff.

[24]  TCC art. 354

[25]  TCC art. 455

[26] TCC art. 64,65

[27]  TCC art. 338

[28] TCC art. 332

[29] TCC art. 484

[30] A minimum nominal par is obligatory in TCC art. 476

[31]  TCC art. 473, 592

[32]  TCC art. 507

[33]  TCC art. 519 ff.

[34]  TCC art. 363/2

[35]  TCC art. 373

[36]  TCC art. 364

[37]  TCC art. 363

[38]  TCC art. 369

[39]  TCC art. 395

[40]  TCC art. 396

[41]  TCC art. 367, 370

[42]  TCC art. 409

[43]  TCC art. 390

[44]  TCC art. 410

[45]  This amount can be decreased by noting it in the articles of association.

[46]  TCC art. 411

[47]  TCC art. 412

[48]  TCC art. 418

[49]  TCC art. 418

[50]  TCC art. 421

[51]  TCC art. 421

[52]  TCC art. 64

[53]  TCC art. 64

[54]  TCC art. 64

[55]  TCC art. 70

[56]  TCC art. 399 ff

[57]  TCC art. 399

[58]  TCC art. 399-401

[59]  TCC art. 402

[60]  TCC art. 134-136

[61]  TCC art. 137-141

[62]  TCC art. 154

[63]  TCC art. 157

[64] TCC art. 529

[65] TCC art. 530

[66] TCC art. 532, 533

[67]  TCC art. 536

[68]  TCC art. 537

[69]  TCC art. 540

[70]  TCC art. 541

[71] Unless otherwise decided by the General Assembly, the liquidators may also sell the assets of the company through bargaining. The decision of the general assembly is required for the wholesale of the substantial amount of assets. (TCC art.538).

[72] TCC art. 542

[73] TCC art. 542

[74]  TCC art. 543

[75]  TCC art. 543

[76]  TCC art. 543

[77]  TCC art. 545