ESTABLISHING A COMPANY WITH FOREIGN CAPITAL
Turkey has a non-discrimination and equal treatment. Foreign investors have the same status with a local company. There are no rules requiring a Turkish participation in the capital or management of a company with foreign capital; a company may be established with 100% foreign capital. Almost all sectors are open to foreign capital.
The company establishment procedures have been simplified to a great extent through shifting from screening system to monitoring system for foreign investments and through eliminating the unnecessary procedures to set up a business for both the local and foreign investors.
The Principle Forms of Business Units in Turkey
Below are the main features of main forms of business units in Turkey.
– Joint Stock Companies
A joint stock company is established with the participation of a minimum of 5 real or legal persons as shareholders. The minimum capital requirement for the establishment of a joint stock company is TRY 50.000 (USD 37.0K).
A joint stock company may be defined as a type of company having a specific business title and a capital, which covers an amount that has been determined before, and which has been divided into shares. The structuring and organization of joint stock companies are subject to the regulations set forth in the Turkish Commercial Code. Joint stock companies having more than 250 shareholders, or who issue stocks and bonds that are quoted in the stock exchange, are subject to the provisions of the Capital Market Board
The capital of joint stock companies is divided into shares each having equal value. Share certificates having the nature of negotiable instruments can be issued for representing the capital of a joint stock company. Such share certificates may be bearer certificates or registered certificates. Unless a specific provision is incorporated in the articles of association prohibiting transfer of registered share certificates, such certificates are transferable upon the approval of the board of directors. Meanwhile, bearer share certificates may be transferred without any restrictions, subject to the provisions of the Turkish Commercial Code.
In joint stock companies, resolutions are passed with the majority affirmative vote. However, the Turkish Commercial Code contains certain provisions, which protect the rights of minority shareholders.
In joint stock companies, the Board of Directors has been granted the authority to represent and commit the company. Board of Directors consists of at least three members. However, dividend distribution, appointment of board of directors and auditors, capital increases, and other important issues to be determined by the articles of association require a General Assembly of Shareholders’ resolution.
Joint stock companies should have a statutory auditor but there are no specific functions of the auditor other than submitting some reports to the shareholders of the company in annual general meetings.
There are two types of legal reserves. The first legal reserve is 5% of the after tax profits. The first legal reserve is set-aside until the accumulated first legal reserve reaches 20% of the company’s paid-up capital. The second type of legal reserve is calculated only in case of dividend distribution. 10% of the amount distributed to shareholders is allocated to a second legal reserve. There is no maximum limit for this type of legal reserve.
– Limited Companies
Limited liability companies may be formed of real persons or legal entities and consist of minimum of two, maximum of 50 shareholders. The minimum capital must be TRY 5.000 (USD 3,704).
Limited companies are unable to do business in banking and insurance sectors.
Limited companies have two organs for management and representation of the company; board of shareholders and director(s). It is possible to delegate the responsibility of management and representation of the company to director(s)
The appointed director has the authority to run the company. The directors occupy a similar position like the members of the board of directors in joint-stock company.
Amendment of the articles of association, appointment and dismissal of directors and auditors (required only in case of having more than 20 shareholders), and profit distribution requires a board of shareholders decision.
Shares held in a limited liability company are non-negotiable and may be transfer of shares requires the approval of other shareholders of limited company. Transfers must be approved by at least a 75% of the shareholders, representing at least 75% of the capital.
– Branch office
Branch of a foreign organization is not a separate legal entity, but is an establishment of its parent body. The official business title must indicate that the entity is a branch. Special rules apply to branches of foreign banks and insurance companies.
A branch’s obligations are not limited to the branch’s capital, but it is limited to its parent company’s assets.
Branch offices are managed by a fully authorized commercial representative residing in Turkey.
Branches are not subject to the legal reserve requirements. There is no minimum amount of capital either.
– Liaison Offices
Liaison offices have a special status in Turkey. They are not allowed to carry on any commercial activity. Their activities in Turkey are limited mainly to accumulate information about investment opportunities in Turkey, and to conduct market research and feasibility studies. (See Chapter 2, page 3 for further information).
– Unlimited liability Companies (Partnerships)
There are ordinary partnerships (consortiums) and commercial partnerships (Komandit Sirket and Kollektif Sirket).
An ordinary partnership is not a legal entity, but a group of entrepreneurs like a consortium. Two or more individuals may form an ordinary partnership by entering into an agreement. Ordinary partnerships may not have their own trade name, nor may they appear in the Register of Commerce or the Register of Title Deeds. All partners have equal rights and they are jointly and severally liable for all the debts and obligations. No statutory rules provide a detailed legal framework for the management or operation of ordinary partnerships.
A commercial partnership is a legal entity with a legal personality independent from its partners, and may be either a limited or general partnership. In a limited partnership (Komandit Sirket), the general partners are fully liable for the debts of partnership, but there are also one or more limited partners liable for the debts only up to the amount of the capital contributions they have made to the partnership. This type of business organization is rarely used
The registration and establishment procedures have been simplified to a very great extent, after the enactment of Foreign Direct Investment Law and revisions made in the Commercial Code and various other Laws. The complex and time consuming procedures have been eliminated for both local and foreign investors and the number of transactions have been minimized to the following steps.
Registration of a Company
Registration to the Trade Registry
Following documents are required to be submitted to the Trade Registry Office. (The documents required may vary depending on if the shareholders are legal entities or if they are real persons)
- Articles of Association certified by a Public Notary
- A receipt issued by the bank verifying the payment of capital contribution if the capital is contributed by the shareholders at establishment
- A bank receipt verifying the payment of Fund for Protection of Competition 4% in the 10.000 of the capital commitment
- Signature declarations and passport copies of the persons authorized to represent and bind the company (copies of the identity and residence certificates for Turkish citizens)
- Photos and passport copies of the real person shareholders
Registration to Tax Office
An application to the tax office is required wherein the company headquarters is located, on the same day or the day before the registration date. A tax registration number is received and legal books are certified by a Public Notary.
The rent contract certified by the Notary Public as well as the notarized Circular of Signatory should be submitted to the related Tax Office.
Following these registrations, the establishment procedures are completed and the company may start to operate. Expected period for finalizing the above registrations is 2-3 days.
Registration of a Branch
Application to the Ministry of Industry and Commerce
Resolution of the board of directors or the authorized organs of the parent company concerning the establishment of a branch office is required to be submitted to the Ministry of Industry and Commerce.
Registration to the Trade Registry and Announcement
Following documents are required to be submitted to the Trade Registry Office. (. Depending on the structure and the country at which the mother company is resident the documents required may vary considerably )
- Board Of Director’s or the authorized organ’s resolution concerning the establishment of a branch office in Turkey
- Signature declaration and passport copy of the person authorized to represent and bind the branch (copy of the identity and residence certificate for Turkish citizens)
- Proxy that will function as a signature circular granted to the authorized representative in Turkey.
- Document from the Chamber of Commerce of the Parent Company
Registration to Tax Office
Registration procedure for a branch is the same as for the companies.
Registration of a Liaison Office
Establishment procedure of a liaison of office is briefly as follows:
- Application to the General Directorate of Foreign Investment of the Undersecretariat of Treasury for a permission
- Application to the Tax Office
Within one month after obtaining the permission from the General Directorate of Foreign Investment an application must be made to the tax office. Although the liaison office itself is not subject to taxes and the employees are exempt from income tax, tax office registration is required for the withholding tax liabilities over the rental payments to be extended to real persons and for the stamp tax liabilities over the salary payments
Acquisition of an Existing Firm
A foreign investor may also buy the shares of an existing company wholly or partially, without a need for a prior permission or approval. There are no special arrangements or restrictions imposed on foreigners for the acquisition of an existing firm.
Foreigners may freely purchase shares on the Istanbul Stock Exchange as well.
Following are the general conditions for purchasing shares in a joint stock company:
- Endorsement and delivery of the share certificates to the buyer by the seller in case share certificates are printed
- Written agreement for transfer of shares in case share certificates are not printed
- Board of Directors resolution regarding registration of the shares in to the share ledger of the company
- Registration of the shares into the share ledger under the name of the new owner
- Notification to the General Directorate of Foreign Investment
Following are the general conditions for purchasing shares in a limited liability company:
- A written, notarized agreement between the seller and the buyer
- A written notification about the share transfer to the legal personality of the company
- The consent of at least 75% of the shareholders, representing at least 75% of the capital
- Announcement and Registration of the transfer at the Trade Registry.
- Registration in the share ledger book of the company
- Notification to the General Directorate of Foreign Investment