Things to understand before you set up a company in Turkey
A limited company is a legal structure which has two key components. It has what is known as ‘legal personality’ and it offers ‘limited liability’.
Legal personality means that it is an entity distinct from the people who created it. It can, for example, enter into contracts in its own name and be responsible for its own actions. If it does something wrong, it is the company that will be punished, not the directors or shareholders – unless, of course, they have wilfully engineered the company doing something wrong or been negligent when carrying out their duties as a director of the company.
Limited liability means that, if the company goes bankrupt, its shareholders – unless (again) they have done something that the law sees as being wrong – will not have to pay its debts if they paid their agreed capital contribution to the company. Their liability is limited to the capital share that they own in the company.
This does not mean that people running companies in Turkey have no responsibilities or liabilities. The directors of those companies have obligations. These vary a bit depending upon whether the company is a private limited company or a public limited company but, in the case of a private limited company, they include:
- They should act prudently
- Information and documentation for the company shall be accurate
- The actions of the director should not cause loss for the company
- They cannot be involved with fraudulent actions
- They should keep money transactions transparent and legal
In this respect, Turkey is like most countries in the world.
These advantages are the reasons why many new businesses are set up as limited companies rather than in the form of alternatives such as partnerships or sole traders, neither of which enjoy these benefits.
Types of limited liability company in Turkey
There are two types of company in Turkey:
- LTD (Limited Company)
- AS (Joint Stock Company), with limited liability
See our Guide to Starting a Business in Turkey for more information on business structures.
The process of setting up a limited company in Turkey
This is pretty simple but, of course, it’s all going to be done in Turkish. For most foreigners, therefore, this will all be done by their professional advisers: typically their accountant or their lawyer.
Check that the name you want is available
Companies are registered nationally, so only one company with a particular name can operate anywhere in Turkey.
Certain words can’t be used in a company name in Turkey. For example, Türkiye, certain Turkish regional names and anything offensive or that would cause confusion. Your accountant will be able to advise.
Hardly surprisingly, after hundreds of years, many names are not available – particularly names that include common Turkish surnames or which are short and catchy. Once a name has been used, it cannot be reused.
Checking the availability of a name can be done by your accountant online in about three minutes, using the Mersis central information system.
If your chosen name is not available, you may be able to set up a company with a different name and operate the business through that company ‘trading as’ (say) Fantasy Fashions. That is permitted provided that people are not likely to confuse your new business with any existing business.
You may have noticed that many Turkish companies have startlingly long names. This is because, until recently, the name of a company had to include its main trading activities (e.g. John Smith Construction, Property Maintenance, Property Development & Property Letting Ltd).
Because of this regulation, and because people were often not quite sure about how the activities of their company might develop, they listed anything that the company might conceivably want to do in the future.
This requirement has now been removed.
Reserve the name
This is also done online. It is a free service. Reserving the name means that it will not be allocated to anybody else within the next four days.
Produce the company’s Articles of Association (Ana Sözleşme)
This is the set of rules that govern the conduct of the company: in essence, its constitution. The document sets out the aims of the company and what its powers are. For example, it might say that the purpose of the company is to be a builder of houses and that its powers include the power to employ people, the power to buy and own land, the power to operate bank accounts etc. It’s an important document.
Unlike in some countries, where you can also produce a standard constitution online, in Turkey the constitution needs to be produced by and signed in front of a Notary. Of course, the Notary will use a computer-based bank of precedents or templates to produce the constitution but at least he will have to make sure that it contains the powers that you require.
These standard forms often have optional sections covering some commonly requested additional powers. The Notary (or your accountant, if he is taking charge of this process) will ask whether you want to include these.
Constitutions tend to be lengthy and contain all sorts of powers that you are unlikely ever to use, but putting them in at the outset is a lot cheaper than adding them later.
If you only want to set up a simple company, you can go directly to a Notary, who will prepare the Articles of Association on your behalf. If the company is more complex or (as is often the case) you’re not quite sure what powers you need to include, you should go to a lawyer or your accountant.
Sign the Articles of Association
The constitution can be signed by someone who has a Power of Attorney on your behalf. This could well be your lawyer or accountant.
File the articles of association at the Trade Registry
They will put the details into the Mersis system and publish its existence in the official trade registry publication (the gazete).
That’s it. Job done!
In March 2018, the system will change. The process will be started online and completed at the office of the Trade Registry. This should make it even faster.
At the same time as you file your constitution you must file a statement listing who the shareholders of the company will be. The initial shareholders will also be named in the constitution.
Except in the case of a unipersonal company (where, as the name suggests, only one shareholder is needed or, indeed, possible) Turkish law requires that there should be at least two shareholders in a company.
Shareholders can be either individuals or other companies.
If they are individuals, they must be over 18. They can be of any nationality. They do not need to live in Turkey. They may be (and, in small companies, commonly are) the same people as the directors.
The list of shareholders must show their full names, addresses and identity document numbers.
The directors of a limited company in Turkey
At the same time as you file your articles of association you will have to file a statement saying who are to be the directors of the company. The initial directors will usually be named in the Articles of Association.
Except in the case of a unipersonal company (see above) Turkish law requires that there should be two directors of a limited company.
They must be over 18. They can be of any nationality. At least one must live in Turkey.
The list of directors must show their full names, addresses and identity document numbers. If the directors are not resident in Turkey, they must nominate a contact address in Turkey and a responsible person in Turkey to receive documentation on their behalf. This will, typically, be their lawyer or accountant.
The duty of the directors is to manage the company prudently on behalf of its shareholders. If they do this, they will not have any personal liability if the company goes bust; but if they are reckless in the way in which they control the company or if they do not comply with certain aspects of Turkish law they can be held personally responsible for their actions and for the debts of the company.
The ongoing obligations of a company in Turkey
A limited company in Turkey must:
- Every year, file a taxreturn with the Turkish Tax Department
- Every month, file a VATreturn and pay the taxes due
- Every month, pay the interim assessment of taxesdue – based on its previous tax return
- Generally comply with Turkish law
Closing a company in Turkey
A company can be closed in two ways.
Companies that are solvent
A company that is solvent (has enough money to meet all its obligations) can be closed by a Trade Registry officer filing a statement at the Mercantile Registry to the effect that the company is solvent and that it wishes to cease to trade. This statement is made by the company’s shareholders. At the same time, the company must file an up-to-date tax return and proof that any taxes due have been paid.
Companies that are insolvent
These must be closed by way of an application to the High Court of Turkey Insolvency Division. This process is beyond the scope of this guide. Seek professional advice (see below).
Effect of closing a company
Once a company has been closed it is as if a person had died. It can no longer own any assets and it can no longer enter any agreements or sign any documents. It no longer has any tax or other liabilities.
As already indicated, setting up a company in Turkey is straightforward but it is almost certainly something about which you will need to take professional advice.
Both accountants and lawyers are accustomed to dealing with this type of work. Which to choose will be, as much as anything else, a matter of personal convenience. If you are going to need the ongoing services of an accountant, it could be a good idea to get them to set up the company. If you are already using the services of a lawyer (for example, in connection with an application for immigration) it might make sense to have the lawyer set up the company.
Whoever you choose to do the work, it’s important that they should not only go through the technical process of setting up the company but also advise you about whether a limited company best suits your needs (or whether you might be better off trading in some other way) and – if a company is your best choice – the best type of company for you and how best to structure it. This broader advice will involve an additional fee.