On January 13, 2011, the New Turkish Commercial Code No. 6102 has been enacted by the Grand National Assembly of Turkey and entered in force on July 01, 2012. From large companies to small and medium sized enterprises, with the new Turkish Commercial Code, important changes and reforms regarding the companies have been initiated. The incorporation of joint stock companies with a single shareholder and single-member limited liability companies has been introduced for the first time. The new forms of rules with regards to the articles of association in joint stock and limited companies, structural changes in companies in terms of division, merger, conversion and acquisition and rules on prohibition on borrowing against the company have been highlighted in the Turkish Commercial Code. The facilitation of electronic general assembly and board of directors, capital stock companies’ obligation to open a website and publish information, changes in the audit of companies are also some other major points introduced with the Turkish Commercial Code.
In Turkey, the companies can be incorporated in accordance with various laws. The companies incorporated according to the Turkish Commercial Code are classified as sole proprietorships and equity companies. On the other hand, the cooperative companies can be specified according to the Cooperatives Law and the ordinary partnerships can be specified according to the Code of Obligations. The companies incorporated by special laws are for the realization of certain purposes of the state and for the provision of services.
1. Ordinary Partnerships
A partnership established to realize an economic purpose by merging labor and/or capital of two or more persons is called an ordinary partnership. These relevant companies do not have legal personalities. The ordinary companies are subject to the Code of Obligations, and the provisions of the Code of Obligations are applied in the relations between the partners. An ordinary partnership can be incorporated with a verbal or written contract. The notarization of the contract is optional. In an ordinary partnership, unless otherwise specified in the contract, though the capital amount is different, the profit and loss shares of the partners are equal. The decisions are taken unanimously by the partners and the partners are jointly liable for the debts of the company. In an ordinary partnership, the registration and announcement of the company in the Trade Registry is not mandatory. In the ordinary partnerships, no minimum capital is stipulated. The issue regarding the capital investment amount of each partner is optional. It does not have to use a commercial name. The ordinary partnerships can terminate their activities due to reasons such as the voluntary and ipso facto dismissal of the goal congruence, death of one of the partners, confiscation of the liquidation share of the partner, bankruptcy or restriction of the partner, expiration of the period specified in the contract. The termination can be at the discretion of the partners or by a court decision.
2. Trading Companies
In accordance with Article 124 of the Turkish Commercial Code, the trading companies are those incorporated in accordance with the provisions of the Turkish Commercial Code. The trading companies are classified in two ways:
Sole Proprietorships | Capital Stock Companies |
Collective Companies | Joint Stock Companies |
Limited Partnerships | Limited Liability Companies |
Limited Companies Divided into Shares |
Sole Proprietorships
These relevant companies are incorporated in accordance with the provisions of the Turkish Commercial Code and have legal personalities. However, the company gains its strength mostly from the reputation and assets of its partners. In addition to the capital of the company, the personal assets and reputations of the partners add strength to the company and instil confidence in third parties. In addition, the responsibility of the partners to third parties for the debts of the company with all their personal assets further increases the reputation of the company. These relevant companies can be divided into two as collective and limited partnerships.
Collective Partnerships
In accordance with Article 211 of the Turkish Commercial Code, a collective partnership is established in order to carry on a business under a trade name between the natural entities and the partners’ liabilities without any limitation to third parties, namely, the company creditors. The collective partnerships must have a trade name. Although there is no limitation regarding the maximum number of partners, it can be established by at least (2) two partners. The partners of collective partnership are natural persons. For the establishment of collective companies, no minimum capital is stipulated. The company is primarily responsible for the company’s debts and commitments. The partners are jointly and unlimitedly liable in the secondary degree. Each of the partners has the right and responsibility to manage the partnership separately. With the unanimous decision of the partners, the management of partnership can be given to one or more of the partners or a third party who is not a partner. The right to audit is available for all partners. The audit requirement cannot be delegated. As per Article 230 of the Turkish Commercial Code, the partners in collective partnership cannot be involved in commercial works in the same work field with the company on their own account or behalf of others and cannot engage directly or as a partner with unlimited liability in activities falling within the scope of the company’s business, either on their own or on account of a third party.
Limited Partnerships (Commandite Partnerships)
In line with Article 304 of the Turkish Commercial Code, a limited partnership is a form of company established for commercial purposes under a trade name in which the liability of one or more of the partners to the creditors of the company is not limited and liability of the other partner or partners is limited to a subscribed capital. There are two types of partners in the limited partnerships. The partners with unlimited liability regardless of the capital invested are called active partners (commandite). The partners with liability only limited to the subscribed capital are called silent partners (commanditer).
In the limited partnerships, the active partner shall be a natural person. The silent partner may be a legal person. For the establishment of limited partnerships, the establishment principles of collective company are applied. In line with Article 42 of the Turkish Commercial Code, the limited partnerships take a commercial name. The commercial name includes the name and surname of at least (1) one of the active partners. In the limited partnerships, only the partners are taxable and the limited partnership itself is not taxable as a legal entity. The partners report the profit or loss to the tax office with their annual income tax return.
Capital Stock Companies
In the capital stock companies, the company takes its power from the company capital rather than the assets of the partners. The power of the company stems from itself as well as its management. In the capital stock companies, the responsibilities of the partners are limited to the amount of capital committed for investment in the company. In such companies, the withdrawal of one of the partners does not dissolve the partnership. The partnership shares of partners in the company are not personal. The shares can be sold or transferred to a third party. One of the most important features of the capital stock companies is the separation between being a shareholder of the capital and carrying out the management of the company. Such partnerships are called capital stock companies because the partners are of secondary importance and the major thing is the capital invested to the company. In accordance with Article 124 of the Turkish Commercial Code, the capital stock companies are as follows:
- Joint-Stock Company
- Limited Liability Company and
- Partnership Limited by Shares
Joint-Stock Companies
The joint-stock companies are defined under Article 329 of the Turkish Commercial Code. Accordingly, the joint-stock company is a company which has certain amount of capital, is divided into shares, and is liable for the debts only with its assets. The shareholders have a limited liability only with the shares of capital committed. As per Article 322, the joint-stock companies can be established with at least TRY 50.000 capital (The starting capital in the non- public joint-stock companies, which have accepted the registered capital system, cannot be less than TRY 100.000). The shareholders of the joint-stock companies can be real persons and legal entities.
A joint stock company with a single share can be established. The joint-stock companies have legal personality and can carry out all types of legal commercial and industrial activities. In the joint- stock companies, the area of activity of the company is specified in the trade name and the company itself is the corporate taxpayer. The joint-stock companies can issue registered or bearer share certificates and bonds. The shares of the joint-stock companies can be offered to public and can be traded on the stock exchange. It is possible to withdraw from partnership with the transfer of shares. The shareholders can freely transfer their shares to others.
In line with Article 333 of the Turkish Commercial code, the “Communiqué on Increase of the Share Capital of Joint Stock Companies and Limited Liability Companies to the New Minimum Values and on the Determination of the Joint Stock Companies whose Incorporation and the Amendment of the Articles of Association of which are Subject to Permission” published in the Official Gazette dated November 15, 2012 and numbered 28468. Pursuant to Article 5 of the Communiqué, the establishment and amendments to the articles of association of the following joint stock companies requires permission of the Directorate General of Domestic Trade, banks, financial leasing companies, factoring companies, consumer finance and card services companies, asset management companies, insurance companies, holding companies established as joint stock companies, companies operating foreign exchange buffets, companies engaged in public retailing, agricultural products licensed warehousing companies, product specialized stock exchange companies, independent auditing companies, observing companies, technology development zone management companies, companies subject to the Capital Markets Law No. 6362 and founder and operator companies of the free zone. Apart from this, regardless of the legal position, qualification and field of operation, the establishment and amendments of the articles of association of the joint-stock companies are not subject to the permission of any authority.
Limited Liability Companies
The limited liability companies are defined under Article 573 of the Turkish Commercial Code. Accordingly, the limited liability company is established under a trade name by one or more real persons or legal entities. The principal capital is certain and this relevant capital consists of the total shares of principal capital. The shareholders are liable for the corporate debts and are liable to pay the shares of principal capital committed and fulfill the additional payment and additional performance liabilities stipulated in the articles of association. The limited liability company can be established with all types of economic purposes and subjects not legally prohibited.
As indicated in Article 574, the number of shareholders in the limited liability company cannot exceed (50) fifty. In case the number of shareholders decreases to (1) one, the relevant situation is notified in writing to the managers within (7) seven days as of the date of transaction causing the aforementioned consequence. The managers, until the end of seventh day as of the date of delivery of the notification, register and announce that the relevant company is single shareholder and name, residence address and citizenship of the relevant shareholder. Otherwise, they are liable for the damages caused. The same liability is valid in case of the establishment of the company with single shareholder. The company cannot acquire the share of principal capital as to lead to the transition of the company to a single shareholder company.
The limited liability company is an equity company, a corporate taxpayer and can be established with at least £10.000 capital. The service performances, personal labor, commercial reputation and undue receivables cannot be invested as capital. Just like the real persons, the legal entities can be a share- holder of the limited liability company.
The trade name of the limited liability company consists of the field of operation and expressions indicating that it is a limited liability company.
The shares of capital of the shareholders shall be at least (25) twenty five and multiples. It is not obligatory for the shares of capital of the shareholders to be equal. They can have different shares of capital. While the share of capital is represented by share certificate in the joint-stock companies, since there is no share certificate in the limited liability companies, there is partnership share.
According to Article 581 of the Turkish Commercial Code, the assets, including the intellectual property rights and virtual environments and names, regarding which no limited real right, lien and cautionary judgement has been imposed and which can be appraised and transferred in cash, can be invested as capital in kind.
The limited liability companies cannot carry out activities in relation to banking and insurance, factoring, brokerage activity with respect to the securities, asset management, financial leasing, and individual pension savings and investment.
Partnership Limited by Shares
As explained under Article 564, the partnership limited by shares is a company, the capital of which is divided into shares and one or more of the partners of which is liable like the shareholder of a general partnership against the company creditors and the others are liable like the shareholder of a joint-stock company. In case the capital is divided into parts only in order to indicate the capital participation ratios of numerous silent partners without being divided into shares, the provisions for limited partnership are applied.
For the establishment of partnership limited by shares, the articles of association is regulated in writing and signed by the founders and active partners. The relevant signatures shall be approved by the notary.
The partnership limited by shares is established by at least (5) five partners. The partners are divided as active partners and silent partners. One of the partners shall be an active partner. The shares of each silent partner, who has the title of founder, shall be specified in the articles of association.
For the establishment of partnership limited by shares, the provisions with respect to the establishment of joint-stock companies are applied. In the business life, it is not common to encounter with the partnership limited by shares.
COOPERATIVES
In line with Article 11 of the Cooperatives Law No. 1163223, the enterprises with different shareholders and different capitals, established by the real and public legal entities and special administrations, municipalities, villages, communities, and associations, with legal personality in order to ensure and protect certain economic interests of the shareholders and particularly their needs concerning their professions and livelihoods through mutual aid, solidarity and surety are called cooperative. The cooperatives have legal personality, and they can be established with at least seven (7) people. With respect to the situations regarding which there is no provision within the framework of the Cooperatives Law No. 1163, the provisions of the Turkish Commercial Code are taken into consideration.
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