Company Formation Process and Legal Framework in Türkiye

Company Formation Process and Legal Framework in Türkiye

Entrance

Turkey is an attractive country for investors due to its geographical location and young population. The increasing interest of foreign investors, in particular, has made company formation processes even more crucial. However, establishing a company in Türkiye is not only an economic decision; it is also subject to a strict legal procedure. The Turkish Commercial Code (TTK), the Tax Procedure Law (VUK), the Turkish Code of Obligations (TBK), and related legislation govern the establishment process for each type of company. This article will examine the legal framework of the company formation process in Türkiye, detailing the points that need to be considered.

Legal Basis for Company Formation in Türkiye

The main law regulating company formation in Türkiye is the Turkish Commercial Code No. 6102 (TTK). This law defines the types of companies such as joint-stock companies, limited liability companies, collective companies, limited partnerships, and cooperatives, and regulates the establishment procedures for each in detail.

• For joint-stock companies (A.Ş.) , the provisions of Articles 329-563 of the Turkish Commercial Code apply

• Articles 573-644 of the Turkish Commercial Code apply to limited liability companies (Ltd. Şti.)

• collective companies , Turkish Commercial Code Articles 211 et seq.

• limited partnerships , Turkish Commercial Code articles 304 et seq. apply.

• The Cooperatives Law No. 1163 applies to cooperatives

In addition, the Tax Procedure Law, the Social Security and General Health Insurance Law, the Commercial Registry Regulation, and the regulations of the Ministry of Customs and Trade are also important in the company establishment process.

Selection of Company Types

The most preferred company types by investors are joint-stock companies and limited liability companies.

• Joint Stock Company (A.Ş.): Can be established with at least one shareholder, capital shares are freely transferable, and there is the possibility of a public offering. It is preferred for large-scale investments.

• Limited Liability Company (Ltd. Co.): Can be established with at least one partner; the number of partners is limited to 50. Suitable for smaller and medium-sized enterprises.

• Partnerships and limited partnerships are less preferred today and are generally found in family businesses.

• Cooperatives operate as production and consumption associations.

When choosing a company type, factors such as capital requirements, number of partners, level of responsibility of partners, and targeted growth strategy should be considered.

Company Formation Process in Türkiye

In Turkey, the company formation process is initiated electronically through MERSİS (Central Registry System) and completed by the Trade Registry Directorate. This process is carried out in accordance with the steps specified in the Turkish Commercial Code (TTK) , the Tax Procedure Law (VUK) , and related regulations. The steps to be followed for company formation are explained in detail below:

1. Preparation of the Articles of Association

The articles of association constitute the identity of the company. This document includes the company's trade name, registered office, capital, field of activity, share percentages of the partners, and its management structure.

• In joint-stock companies (Turkish Commercial Code, Article 339), the mandatory elements that must be included in the articles of association are clearly listed.

• When drafting the articles of association, the scope of activity must be clearly, understandably, and legally defined. Vague scopes of activity have been deemed invalid in Supreme Court precedents.

2. Determining the Capital and Ownership Structure

In Türkiye, the required capital for company formation varies depending on the type of company

• The minimum capital for joint-stock companies is 250,000 TL,

• In limited companies, the minimum capitalis 50,000 TL.

The capital committed by the partners is deposited into a temporary account opened at the bank, and the receipt is attached to the application file. In companies with foreign partners, additional documents may be required at this stage in terms of foreign currency transfer and banking regulations.

3. Application to the Commercial Registry

After the articles of association are prepared in MERSİS (Turkish Commercial Registry System), an application is made to the relevant Trade Registry Directorate. Registration in the trade registry is the most important step in enabling the company to acquire legal personality. The company's legal personality does not come into being until it is registered.

4. Notary Approvals and Documents

Company partners' signature declarations, identity documents, and in some cases, board of directors' decisions are notarized. Preparing these documents completely and accurately is critical for the swift completion of the process.

5. Tax Office and Social Security Institution Records

After registration, a tax identification number is obtained in the company's name. Additionally, if employees are to be hired, registration with the Social Security Institution is mandatory. The tax office verifies the company's actual address of operation through an inspection.

6. Announcement and Registration

Once the establishment is complete, the Turkish Trade Registry Gazette. With this announcement, the company officially begins operations.

Important Considerations When Establishing a Company

In Türkiye, the company formation process is not merely a formality; it is a critical stage for the healthy conduct of future business activities. The main points to consider are as follows:

• Scope of Business: The articles of association must clearly define the scope of business, avoiding vague expressions. Supreme Court rulings have shown that vague business scopes may be deemed invalid.

• Company Name Selection: According to Article 41 of the Turkish Commercial Code, the company name must be chosen in a way that does not cause confusion with other companies. Furthermore, it is important that the name reflects the company's field of activity.

• Tax Obligations: Establishment of a company incurs liabilities such as Value Added Tax (VAT), Corporate Tax, and Stamp Duty. These taxes must be declared on time and in full.

• Partners' Liability: In a joint-stock company, partners' liability is limited to the capital they have committed; however, in a limited liability company, partners may also be held liable for certain tax debts.

• Permits for Foreign Investors: Companies operating in strategic sectors such as banking, energy, and media require special permits and licenses. Therefore, sector regulations must be examined separately during the establishment phase.

Tax and Financial Obligations

After completing company registration in Türkiye, investors face various tax and financial obligations. While these obligations may vary depending on the type of company and its field of activity, they can generally be grouped under the following headings:

1. Corporate Tax

Joint-stock and limited liability companies pay Corporate Tax at a rate of 25% on their annual earnings . The tax rate is determined by the Ministry of Treasury and Finance and may vary periodically. The Corporate Tax return must be prepared at the end of the relevant fiscal year and submitted electronically to the tax office.

2. Value Added Tax (VAT)

Most commercial activities in Turkey are subject to VAT. Different rates apply depending on the type of goods or services.

• 1% (e.g., some basic food products and housing sales),

• 10% (e.g., tourism, food and beverage, some services in the health sector),

• 20% (overall rate).

Companies are required to declare this tax regularly by submitting monthly VAT returns.

3. Stamp Duty

Contracts, undertakings, lease agreements, and similar documents Stamp Duty . Companies are obligated to pay this tax on every official transaction they conduct from the time of their establishment.

4. Withholding Tax (Income Tax Deduction)

Companies are obligated to withhold tax from employee salary payments, rent payments, or freelance payments . These deductions are paid regularly to the relevant tax office.

5. Social Security Contributions

Companies employing workers to the Social Security Institution (SGK) . These premiums are calculated as both employer and employee contributions and are paid regularly every month. Failure to fulfill SGK obligations can lead to serious administrative fines.

6. Independent Audit and Financial Reporting

Companies exceeding certain size criteria subject to independent audits . These companies are required to prepare their financial statements International Financial Reporting Standards (IFRS) . Independent audits both increase transparency and build investor confidence.

Problems Encountered in Practice and Proposed Solutions

Although the company formation process in Türkiye is meticulously regulated by legislation, entrepreneurs and investors may encounter various problems in practice. These problems vary in severity for both domestic entrepreneurs and companies with foreign partners, and can prolong the establishment process.

1. Delays Experienced at the Trade Registry Directorate

One of the most critical steps in company formation is registration with the trade registry. However, due to high volumes, Trade Registry Offices are sometimes unable to process applications quickly. This means significant time loss, especially for companies that want to start operations quickly. Furthermore, missing documents or legal irregularities in the articles of association can further prolong the process. Therefore, all documents must be prepared completely and undergo legal checks before submitting the registration application.

2. Apostille and Translation Challenges in Companies with Foreign Partners

One of the most common problems in companies with foreign partners apostille and notarized translations. Foreign documents must have an apostille to be valid in Turkey. Furthermore, these documents must be translated into Turkish by a sworn translator and notarized. This process can prevent investors from completing company formation on schedule. Obtaining professional consulting support ensures these processes are completed quickly and accurately.

3. Incorrectly Defining the Business Activity

Failure to clearly state or incorrectly classify the company's business activity in the articles of association can create problems both the trade registry registration process and in future dealings with tax authorities. For example, a company whose field of activity is manufacturing but operates solely for commercial purposes may face disputes regarding licenses, permits, and tax obligations in the future. Therefore, it is crucial to correctly define the business activity from both a legal and sectoral perspective when preparing the articles of association.

4. Bureaucratic Obstacles with Tax Offices and Municipalities

After the company is registered, the tax office inspection and municipal licensing processes begin. Especially in large cities, delays in inspection procedures can postpone the start of company operations. Furthermore, the varying requirements of municipalities when obtaining business opening and operating licenses complicate bureaucratic processes. At this point, guidance from tax consultants and lawyers can help expedite the process.

5. The Importance of Professional Legal Advice

To prevent all these problems, it is crucial to seek support from an experienced lawyer or law firm during the establishment phase. Legal advice allows for pre-checking of documents, expedited registration processes, and coordination of apostille and translation processes for companies with foreign partners. This ensures that company formation is completed much more quickly and smoothly.

Conclusion

Establishing a company in Türkiye is a serious legal process. This process, governed by the Turkish Commercial Code, the Tax Procedure Law, and related legislation, offers investors a solid starting point if the right steps are taken. However, delays in registration with the trade registry, apostille and translation procedures for companies with foreign partners, incorrect definition of the business activity, and bureaucratic obstacles encountered with tax offices and municipalities can hinder entrepreneurs.

At this point, instead of viewing company formation as merely a formality, it is necessary to evaluate it with a holistic approach, considering both its legal and financial dimensions. Obtaining professional legal advice will both expedite the process and prevent potential disputes in the future. For foreign investors in particular, choosing the right company type, ensuring the articles of association are prepared in accordance with regulations, and fulfilling all tax obligations are of critical importance.

In short, the safest way for entrepreneurs who want to establish a company in Türkiye is to proceed step by step with legal support, combining their business vision with a sound legal framework. This ensures both investor security and the most efficient use of the opportunities offered by Türkiye.

If you are considering establishing a limited liability company, "WHAT DOCUMENTS ARE REQUIRED FOR ESTABLISHING A LIMITED LIABILITY COMPANY?"  .