Turkish Labor Law
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A foreign company may do business in Turkey in one of the following ways: Operate as a contractor, establish a branch or a subsidiary.
Establishment Procedures
The registration and foundation procedures relating to Turkish subsidiaries and branches have been simplified considering the permissions to be required for the establishment. Under the present regulations except for the liaison offices, there is no more any requirement to get the Turkish Foreign Investment Department permissions or approvals for the foundations and registrations.
Upon submission the requested documents such as articles of association of the entity to be formed and certificate of activity, the local Trade Registry may finalize foundation procedures less than a week. However, establishment and change in the articles of association of some of the joint stock corporations, considering their scope of activity, still require the approval of the Ministry of Industry and Commerce.
Corporations and Limited Liability Companies
The corporation (Anonim Sirket, AS) and the limited liability company (Limited Sirket, Ltd.) are the most common forms of incorporated companies under Turkish Commercial Law.
In the following businesses, the company structure is compulsory as a corporation (A.S.) by the related laws and decrees:
• Banking & Insurance,
• Reinsurance,
• Securities, Real Estate, and Venture Capital Investment Companies,
• Intermediary Institutions (Brokerage Houses),
• Financial Leasing, Factoring, Consumer Financing.
Limited Liability Company
Shareholders’ liability
Liability of shareholders is in principle limited to the capital contributed to the Ltd. Nevertheless, shareholders of a limited liability company is responsible for the tax and social security liabilities of the limited liability company in case it is in default and if the tax office can not collect outstanding taxes from the assets of the company each shareholder is responsible for the unpaid taxes for its shareholding ratio in the company capital.
Number of shareholders
A Limited Liability Company (Ltd) can be formed by at least 2 but no more than 50 persons. These shareholders may be individuals or corporate bodies, residents or non-residents.
Articles of association
The Ltd. type of company should have an Articles of Association which includes trade name, shareholders, seat and business purpose or object of the firm, the amount of the capital and the amount subscribed by each shareholder. The duration of the company and method of publications concerning the company are also mentioned in the articles of association.
Management
Shareholders’ Assembly is the supreme body of the Ltd. company which consists of the shareholders of the company. The company is represented and managed by the manager or managers appointed by the shareholders’ assembly. The managers can be either resident in Turkey or in abroad as well as they can be either foreigners or local persons. In the absence of any provisions to the contrary in the articles of a Ltd., the shareholders are authorized and obliged to administer the business of the company in the capacity of manager and to represent the company. The management and representation of the company may also be entrusted to non-shareholders, in accordance with the articles of association or the resolution of the general meeting.
Share Capital
The following assets may be treated as capital for foreign investors:
a) Cash,
b) Machinery, equipment, parts, tools and goods as capital in kind,
c) Intangible assets (patents, trade marks, etc.),
d) Profits obtained from foreign investment and principals of foreign loans and
interest thereon and other financial rights,
e) Natural resources exploration and manufacturing rights,
f) Shares in another company.
The capital of a Ltd. is not issued in the form of certificates. Any transfer of ownership must be entered in the register of shares, approved by minimum three fourth of the members and these members must be representing at least three fourth of the share capital. This transfer statement must be notarized and also conditional to any other restriction, if existing in the Articles of Association.
Annual Meetings
Shareholders meetings of a Ltd. are normally called by the managers or by the holders of at least 10 % of the share capital, once a year in the course of the three months following the closing of the financial year. For a Ltd. having more than 20 shareholders, the provisions regarding the general meetings of A.S. shall also apply to the general shareholders meetings. In Ltd. having 20 or fewer shareholders voting shall be cast in written form. The statutory rights of the general meeting include decisions on, amendment of the articles of association, approving the financial statements and determination of the destination of net profits.
Audit
In Ltd. companies, if the number of the shareholders exceeds 20, the appointment of a statutory auditor becomes a requirement.
Dissolution
A Ltd. company may be dissolved in the following cases.
1) The expiration of the term for which they have been constituted by the articles of association,
2) The decision of the shareholders’ assembly
3) The court decision based on the application of the shareholders
4) Other considerations stated in the related laws such as impossibility of the realization of the establishment, the loss of two thirds of the share capital, the reduction of the number of shareholders below two, the realization of any cause of dissolution provided for by the articles of association, bankruptcy of the company.
Liquidation
Except in the cases of merger with another company, conversion into another form of a company or transfer to a public law corporation, the company is dissolved through a formal liquidation process. In the absence of any liquidators having been designated by the articles of association or by a resolution of the shareholders’ assembly, the company manager shall carry out the liquidation formalities. The company managers shall have the names of the liquidators entered in the Trade Register and advertised three times at intervals not exceeding one week. The creditors of the company shall be called upon to apply within one year and present their documents.
The official liquidation formalities to be executed with the local authorities takes around 12-18 months and all the fiscal requirements should be met during the liquidation period.
Joint Stock Corporation
Shareholders’ liability
Liabilities of shareholders are limited to the capital injected into the AS, for both tax and legal purposes.
Number of shareholders
A Turkish Joint Stock Corporation (AS company) can be formed by at least 5 persons. These shareholders may be individuals or corporate bodies, residents or non-residents.
Articles of association
An AS company should have an Articles of Association which includes trade name, shareholders, seat and business purpose or object of the firm, the amount of the capital and the amount subscribed by each shareholder. Further, the amount of share capital, the nominal value of each share, the mode and terms of payments, the mode of convening the general meetings, time of meetings and conditions concerning voting are also stated in the case of A.S. The duration, if it is limited, and method of publications concerning the company are also mentioned in the articles of association.
Management
There are two administrative bodies in the joint stock corporations as the Board of Directors and the General Assembly. The board of directors is composed of at least 3 persons, who are shareholders or representatives of the legal shareholders, designated by the articles of association or elected by the general meeting. The Board can also delegate its authorities in fully or partially to a board member (who is called as managing director) or to a general manager appointed from outside of the company.
General Assembly, consisting of its shareholders, convenes as ordinary or extraordinary. The details are explained below in the below section for the annual meetings.
Share Capital
The following assets may be treated as capital for foreign investors:
a) Cash,
b) Machinery, equipment, parts, tools and goods as capital in kind,
c) Intangible assets (patents, trade marks, etc.),
d) Profits obtained from foreign investment and principals of foreign loans and
interest thereon and other financial rights,
e) Natural resources exploration and manufacturing rights,
f) Shares in other companies.
The capital stock of an A.S. is divided into par value shares; the shares shall have a minimum nominal value of YKR 1. This value may be increased only by portions of YKR 1 each. Both common stock and preferred stock may be issued, either as bearer shares or registered shares. Each share shall carry at least one vote. The articles of association shall determine the number of votes given by the shares to their owners provided it is not contrary to this principle. If a share has several owners, they may exercise their right to vote only through a representative.
Annual Meetings
As mentioned above, General Assembly, consisting of shareholders, convenes as ordinary or extraordinary. The Board of Directors normally calls a general meeting of shareholders within 3 months following the end of accounting year. An extraordinary shareholders meeting can be called by the Board of Directors, Auditors or by the holders of at least 10 % (which can be diminished by the articles of association) of the share capital, if there are due reasons in doing so.
The general meeting is to be held at least once a year within three months following the end of the financial year. The meeting is held generally at place where the A.S. has its statutory seat, unless the articles of Association provide otherwise. If there is no restriction in the articles of association, voting right is computed on the participation rate. Each YKR 1 participation entitles the owner to one vote. Decisions are made by a simple majority of votes, which represents more than one half of the share capital.
The statutory rights of the general meeting include decisions on the appointment of Board Members, Directors and auditors, approval of the accounts and financial statements, distribution of profits and determine the remunerations to the auditors, amendments of articles of Association and liquidation of the company. Except certain important issues such as change of the scope of the activity, the decisions are made by a simple majority of existing votes.
Audit
The general shareholders’ meeting appoints one or more auditors, not exceeding five, pursuant to procedures established in the by-laws. The majority of auditors in a company must be Turkish citizens. The auditors shall be chosen among shareholders or outsiders. They may not be at the same time elected as board member and they may not be the employees of the company. No professional qualification is required. The duties of auditors consist of controlling the business and transactions of the company and seeing that the directors comply integrally with the provisions of laws and of the articles of association. The companies listed on Istanbul Stock Exchange, banks, insurance companies and other financial institutions are to be audited by the independent auditors qualified under the Law governing the accounting profession in Turkey.
Dissolution
A Turkish AS company may be dissolved in one of the following cases.
1) The expiration of the term for which they have been constituted by the articles of association,
2) The realization of the object of the company or the impossibility of its realization,
3) The loss of two thirds of the share capital or the requisition of creditors by this reason,
4) The reduction of the number of shareholders below five,
5) The realization of any cause of dissolution provided for by the articles of association,
6) Bankruptcy of the company.
If the dissolution results from a cause other than bankruptcy, the board of directors shall have it entered in the Trade Register and advertised three times at intervals not exceeding
one week. The creditors of the company shall be called upon to apply within one year and present their documents.
Liquidation
Except in the cases of merger with another company and conversion into a limited liability
company or transfer to a public law corporation, the dissolved company shall enter into liquidation.
In the absence of any liquidators having been designated by the articles of association or by a resolution of the general meeting, the board of directors shall carry on the winding up operations. The board of directors shall have the names of the liquidators entered in the Trade Register and advertised three times at intervals not exceeding one week. The creditors of the company shall be called upon to apply within one year and present their documents.
The official liquidation formalities to be executed with the local authorities takes around 12-18 months and all the fiscal requirements should be met during the liquidation period.
A foreign company may do business in Turkey in one of the following ways: Operate as a contractor, establish a branch or a subsidiary.The registration and foundation procedures relating to Turkish subsidiaries and branches have been simplified considering the permissions to be required for the establishment. Under the present regulations except for the liaison offices, there is no more any requirement to get the Turkish Foreign Investment Department permissions or approvals for the foundations and registrations.
