Establishing a Limited Liability Company in Turkey

LIMITED LIABILITY COMPANY

Limited liability company (LLC) is a commercial partnership established by one or more natural or legal persons under a trade name with a certain amount of capital consisting of the total of share capitals. Limited liability companies can be established for any economic purpose or activity, which is not prohibited by the law. However, LLCs cannot conduct insurance and banking activities. There are certain procedures for establishing  limited liability company in Turkey.

LLCs are a sole proprietorship in part and a stock corporation in part and widely preferred in Turkey. It is regulated in 573-644 articles of the Turkish Commercial Code. LLCs are a stock corporation.

The common characteristics of LLCs with sole proprietorships can be summarized as follows:

1. Shares are subject to the capacity of being partner
2. The transfer of shares is difficult
3. They can go public
4. Partners are liable for the public debts of the company proportional to their shares
5. The articles of association may provide additional payment obligation and obligation of additional fulfillment

The common characteristics of LLCs with stock corporations can be summarized as follows;

1. Legal persons can be also a partner
2. The liability of partners for the company’s debts is limited to the share capital that they commit
3. The existence of mandatory provisions
4. The management and representation of company
5. The cancelation and invalidation of general assembly decisions
6. Balance sheet and contingency reserve
7. The consequences of capital loss
8. Issues such as being deep in depth, the postponement of bankruptcy and liquidation

1) Partners

With Article 573/1 of the Turkish Commercial Code, it is possible to establish a single-member LLC. This person can be natural person or legal person. Thus, if the partner number decreases to one person later, it will not be necessary to terminate the company. At the same time, provisions applicable for multi-member companies can be also applied to single-member companies.

Both natural persons and legal persons can be the partner of LLCs. Articles of Association may stipulate certain requirements for being a partner of a LLC. The partnership of legal persons is executed through their legal representatives.

2) Business Name

In Turkish law, LLCs should choose and use a business name. This obligation arises out of being merchant. Within the business name, there should be the activity of the company, the expression of ‘”limited company” or  “limited partnership”. Even if there exists the name of a natural person within the business name, the expression limited company should be written without abbreviation.

3) The Activity and Purpose

LLCs can be established for any economic purpose or activity, which is not prohibited by the law. This issue is regulated by the provision of the Turkish Commercial Code, which is provided for joint stock companies. In addition, LLCs can be operated as a small business. The activity of the LLC has to be shown in the records that has to be kept necessarily

4) Legal Personality 

Limited Liability Companies are companies with a legal personality. Legal personality is acquired with the registration to the trade registry and continues until the trade registry is deleted as a result of liquidation. The quality of having a legal personality of LLCs  will be of of special importance in establishing single-member company. When it is the case, the property of the company can be separated from the property of the sole partner.

5) Company Capital and Share

In Turkish law, basic capital system  has  been adopted as the capital system in LLCs. Company capital consists of basic share capitals. The minimum share capital is 10,000 TRY. The Council of Ministers can increase this capital up to ten folds. The minimum book value per share is 25 TRY. Personal labor, commercial reputation and undue receivables cannot be company capital. Because, these values cannot be booked and transferred to third parties.

Share capital can be committed as cash or in kind. The components of property or intellectual property rights, which are cashable,  with no restricted real rights, confiscation or cautionary judgment can be committed as capital in kind. The value of shares committed as capital in kind and how they will be used are determined by the provisions for joint stock companies. When capital in kind is committed, if it is a real property, an annotation should be put onto the title deed.

As in joint stock companies, the one-forth of the company capital should be paid  at the establishment. The remaining amount can be paid within 24 months. In LLCs, the premiums, voting rights, rights of preference and residual liquidation amounts of partners are determined according their share capitals.

6) Limited Liability

The partners of LLCs are only liable for the company’s debts with the share capital they commit. The company is liable for its debts with its all property. The partners are not responsible for covering the company’s loss or deficit. The partners performs their obligation to the company when they pay the share capital they commit. They are only liable with all their property as limited to this amount. However, the exception to this is additional payment obligation and obligation of additional fulfillment. Attorney Ozan Soylu Law Office works with an expert team on disputes and cases that may arise regarding company law and commercial law in the establishment and maintenance of limited liability companies and other types of companies. We offer our clients legal counseling services in these fields.

For more help or consultation on this topic, please contact us.