The first step of setting up a business in Turkey, is deciding about the type of company. There are five different company types set out in the Turkish Commercial Code. To clarify, these are Joint Stock Company, Limited Liability, Cooperative, Collective and Commandite Companies. But don’t worry, you do not have to learn the entire details about all types, just to start a business in Turkey. Focusing on Limited Liability Company (“LLC”) and Joint Stock Company (“JSC”) would be enough for a foreign investor. Hence, in this article we have explained and compared these two types.
Firstly, both the LLC and JSC provides a legal personality for the company. Which means that your company can have its own debts and bank accounts separate from your real personality. Moreover, apart from some special occasions shareholders are not liable for a company’s debts. In other words, it is possible to secure yourself from the company’s actions, when doing a business in Turkey.
What are the differences between LLC and Joint-Stock Company? How to decide the company type when starting a business in Turkey?
Before jumping into the details of Turkish corporate market, let’s discuss the differences of LLC and JSC.
1- Number of Shareholders
While there is no maximum shareholder limitation for a Joint-stock Company in Turkey, a LLC can only contain 50 shareholders at most. Which means that, you need to decide whether you would like to take your company public, before starting business in Turkey. That is to say, someone who wishes to go for a public offering in the future, must choose Joint-stock Company. After all, it is impossible to go public with an LLC. On the other hand, it is possible to change the type of company later. But deciding beforehand is sure to save you a lot of time and paperwork.
2- Executive Authority
Executive organ of a joint-stock company is “Board of Directors” while an LLC’s executive organ is a manager or managers. Practically, execution of corporate orders is way faster when it comes to an LLC.
3- Debt Liability
Before further explanation, it would be better to explain public debt and private debt in Turkish law. Public debt is the money you owe to government. For instance, tax or social security contribution fee debts are public debts. Private debt is the money you owe to third private parties, such as other people or companies. Shareholders of joint-stock companies and LLCs are NOT liable for the private debts of the company. But, when it comes to public debt, there is a significant difference.
In a joint-stock company, some shareholders are liable for public debts in person. To clarify, shareholders who are also on the Board of Directors are liable for public debts. In other words, shareholders who are NOT members of the board are NOT liable for the company’s debts in any way.
On the other hand, in a Limited Liability Company, all shareholders are liable for public debts. Furthermore, shareholders are liable from the company’s public debts in person, according to their share ratio.
4- Paid Capital Limits
For a joint-stock company, paid capital is at least 50,000-Turkish Liras. To clarify, you have to pay 1/4 of the promised capital during the registration. Moreover, the rest of it must be paid in 24 months as of the registration. In short, to start a business in Turkey if you choose JSC, you have to pay at least 12,500-TRY to begin with. Afterwards, you have 2 years to complete the rest.
While for a LLC, paid capital must be at least 10,000-Turkish Liras. But unlike the JSC, there is no capital payment requirement during the registration. Yet, the whole capital must be paid within 24 months.
Aside from all, minimum paid capital limit requirements change if the foreign shareholder wants to take active role in the company. Such active role may be as a manager or a member of the board of directors. In that case, there are additional requirements as well as the change in the paid capital limit. We will be explaining all the details below.
5- Transfer of Shares
Imagine that you started a business in Turkey. But, it’s time to get some new shareholders on board, or time to kick the current ones out. In both ways, you have to know how to transfer shares. It is a lot easier to transfer shares in a Joint Stock Company. Because the only thing necessary is a decision of the board of directors.
On the other hand, it is quite harder to do that in an LLC. Because you will need notarization, registration and publication at Trade Registry Gazette.
6- Annual Burden of Bureaucracy
Registration and publication of the annual meetings are mandatory for JSC. While it is not mandatory for a LLC. Which means less red tape, every year.
7- Choosing the Members of the Executive Authority
In a joint-stock company, shareholders do not have to be involved in the management. In other words, all of the board members can be selected from outside. Yet, for a LLC, at least one of the shareholders MUST registered as the manager.
What if I want to be the manager or a board member in my business in Turkey as a foreign investor?
According to the International Workforce Law, a foreigner shareholder wishes to actively work at a business in Turkey there are some requirements. We have gathered these necessities under five titles as follows. Therefore, if you want to be the manager or a member of the board of directors, read this part carefully.
1- Change of the Paid Capital Limit
Forget about the before mentioned minimum capital limits. The new minimum limit is 100,000-Turkish Liras. If you will be the manager or a board member as a foreigner, you must deposit 100,000-Turkish Liras as paid capital.
2- Providing Employment is a Must
You must hire at least 5 Turkish citizens within the second half of the first year of your business. In other words, after 6 months of running a business in Turkey, you have to employ 5 Turkish citizens.
In addition, if you ever want to hire a foreigner, you have to employ 5 Turkish citizens per a foreign employee.
3- Acquiring a Work Permit
If you are a board member at a joint-stock company who lives abroad, you do not have to get a work permit. Likewise, if you are only a shareholder (not the manager) in a LLC, you do not have to get a work permit, regardless of your residency. However, board members of JSC who are residing in Turkey, have to acquire work permit.
This requirement is a bit more complex for LLCs. To clarify, in LLCs at least one of the shareholders must be registered as Manager. Therefore, if you want to operate a LLC business in Turkey as the manager, you have to get work permit. To avoid this, you can team up with a Turkish shareholder, who is willing to become the Manager. Otherwise, you will be the manager and will need work permit.
4- Keeping a Clear Background
To be able to apply for work permit extension after the first year; the company’s background must be clear. Which means that there shouldn’t be and tax or social security contribution debts.
5- Share Ratio Requirement
Foreign shareholder, who will acquire work permit must own at least 20% of the shares in general. Moreover, such shares must worth at least 40,000-Turkish Liras.
Conclusion and Final Notes Regarding Starting a Business in Turkey
Now you know the differences and requirements of establishing a business in Turkey. Since, it is easier to manage, most of our clients prefer LLC for the beginning. But keep in mind that switching to JSC is always possible.
The requirements may seem a lot at the first read. But, if you do not want to deal with such requirements, you can find a Turkish citizen to be entitled as an active company executive. Certainly, you can always apply for Turkish citizenship by investment for yourself.
In this article we have briefly explained the establishment part of the company. Please note that every company also needs a diligent accountant which will start by registering your company to the tax office. Which means that you need to carefully choose an accountant.
Last but not least, you must get a “business license” from the municipality of the city that you wish to operate in. Otherwise, you will be fined and eventually closed down in the worst case scenario for not having your license.
Finally, please note that every business in Turkey have a special regulation. You should learn the law, before facing the bitter circumstances during business. Because there might always be additional requirements for your field of business.
To watch our video about starting a buiness in Turkey as a foregin investor, you can click here.
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