Company Formation and Legal Obligations in KOSGEB Entrepreneurship Support

One of the most important aspects that entrepreneurs wishing to benefit from the KOSGEB Entrepreneur Support Program should pay attention to is the establishment phase of the business. While it is generally true that applications for KOSGEB support can be made after the company is established, establishing the company with an incorrect ownership structure, an incorrect NACE code, or inappropriate representation authorities may lead to the rejection of the support application.

In limited companies in particular, ownership ratios, the representation method of the company director, capital distribution, and the business activities stated in the company's articles of association should be planned before applying to KOSGEB (Small and Medium Enterprises Development Organization).

In the current Entrepreneurship Support Program, businesses applying for Business Establishment Support must operate in sectors supported by KOSGEB and between 0-1 years old . For Business Development Support, businesses must operate in specific sectors and between 0-3 years old . The business must also be registered in the KOSGEB database and possess an active and up-to-date Business Declaration. (KOSGEB)

Therefore, an entrepreneur aiming for KOSGEB support should evaluate company formation not only from the perspective of trade registry and tax legislation, but also in terms of the conditions of the KOSGEB program they plan to apply for.

What is the KOSGEB Entrepreneur Support Program?

The main objective of the Entrepreneurship Support Program is to ensure the sustainability of newly established businesses.

The current program has three main support structures:

Business Establishment Support,
Business Development Support , and
Business Development Interest/Profit Share Support.

Business Establishment Support covers establishment and personnel expenses. The current support amount is 10,000 TL for sole proprietorships and 20,000 TL for joint-stock companies. An additional 10,000 TL is added to the establishment support if the entrepreneur is young, female, disabled, a veteran, or a first-degree relative of a martyr. (KOSGEB)

Within the scope of Business Development Support, repayable support of up to 1,500,000 TL and a repayable rate of 80% is provided for personnel, machinery-equipment and mold, software and certain service procurement expenses. An additional 150,000 TL can be added to the upper limit for certain groups of entrepreneurs. (KOSGEB)

Therefore, it is important for entrepreneurs to determine what type of support they are targeting before establishing their company.

Is it mandatory to establish a company to receive KOSGEB support?

The KOSGEB Entrepreneur Support Program is primarily implemented through established businesses. The business's establishment date is one of the important criteria in determining eligibility for application.

In the current Business Establishment Support evaluation, it is checked whether the business was established within the last year as of the application date. (Webdosya KOSGEB)

Therefore, simply having the idea of ​​"I will start a company in the future" is not enough to receive Business Establishment Support. First, a business that meets the program's requirements must be established, and then the application must be submitted within the specified timeframe.

However, the important point here is not that the company is established haphazardly without researching KOSGEB's conditions.

Especially;

• company type,
• partnership ratio
• representation powers,
• field of activity,
• NACE code,
• founding date

This should be evaluated even before the company is established.

Is it possible to receive KOSGEB support with a sole proprietorship?

Yes. KOSGEB Business Establishment Support also includes sole proprietorships.

In the current program, establishment support is set at 10,000 TL for sole proprietorships and 20,000 TL for joint-stock companies. (KOSGEB)

Therefore, the idea that a limited or joint-stock company must be established in order to receive KOSGEB support is incorrect.

However, the amount of establishment support should not be the only factor considered when determining the type of company.

The entrepreneur;

• whether or not to take on a partner
• whether or not to accept investors
• whether it plans to transfer shares in the future,
• commercial risks,
• capital needs,
• field of activity

They should be evaluated together.

For example, while a sole proprietorship might suffice for an entrepreneur running a small-scale service business, a limited liability company or a joint-stock company might be more commercially viable for a technology startup planning to attract investors.

Is it possible to receive KOSGEB support by establishing a Limited Liability Company?

Yes. Limited companies can benefit from KOSGEB entrepreneurship support programs if they meet the program conditions.

However, when establishing a limited liability company with partners, particular attention should be paid to the 50% ownership requirement

According to KOSGEB's latest statement, the entrepreneur's ownership stake in the business they are applying to at least 50% . This percentage cannot fall below 50% throughout the support program. Furthermore, the entrepreneur authorized to represent the business individually . (KOSGEB)

This regulation has direct consequences in the company's incorporation.

For example, in a limited company with three partners, the shares;

• Entrepreneurs 40%,
• second partner 30%,
• third partner 30%

If this is determined, the entrepreneur will not be able to meet the minimum 50% ownership requirement sought by KOSGEB.

If this situation is discovered after the company is established, it may necessitate correction through share transfers or capital transactions.

The safest method is to determine the partnership ratios in accordance with KOSGEB (Small and Medium Enterprises Development Organization) conditions before the company is established.

How is the 50% Partnership Condition Applied?

The entrepreneur must hold at least a 50% existing share in the business for which they are applying for support. This is clearly stated as a control criterion in the current Business Establishment Support evaluation form. (Webdosya KOSGEB)

For example, in a limited company where two people own 50% each, the entrepreneur applying to KOSGEB meets the requirements in terms of partnership ratio.

However, simply distributing the shares is not enough.

The entrepreneur must also be able to represent the company individually .

Therefore, a problem may arise if a 50% partner can only represent the company with a joint signature with the other partner.

The KOSGEB evaluation form also checks whether the entrepreneur is authorized to represent the business individually. (Webdosya KOSGEB)

Why is Individual Representation Authority Important?

In the establishment of limited or joint-stock companies, how the partners will represent the company is recorded in the commercial registry.

Representation;

• individually,
• jointly

arrangeable.

Individual representation means that an entrepreneur can perform legal transactions on behalf of the company alone.

Joint representation, for example, might require the signatures of two directors together.

KOSGEB's current Entrepreneur Support Program requires applicants to be authorized to represent the business individually. (KOSGEB)

Therefore, when drafting the company's articles of association, it should not be considered sufficient for the entrepreneur to be appointed merely as a director; the form of representation should also be examined.

For example, in the articles of association;

"The company is represented by the joint signature of two directors."

If there are any regulations in place, a problem may arise in terms of KOSGEB (Small and Medium Enterprises Development Organization) requirements.

While it is possible to change the form of representation after the company is established, this matter should be resolved during the establishment phase due to potential trade registry procedures and additional costs.

Could the fact that an entrepreneur already owns a company be an obstacle to receiving KOSGEB support?

This issue is extremely important.

According to the current Business Establishment Support evaluation criteria, the entrepreneur must have established a business other than the one for which they applied, within three years prior to the establishment date of the business they founded, up to the application date ;

• not having a company registered as a sole proprietorship,
• not having a 25% or greater stake or ownership in another company with legal entity status

It is being checked. (Web file KOSGEB)

Therefore, partnerships that have existed or currently exist in other businesses must be thoroughly reviewed before applying to KOSGEB.

For example, if an entrepreneur has founded a new technology company but became a 30% partner in another limited liability company two years prior, they may encounter eligibility problems when applying for Business Establishment Support through their new business.

This issue is often only discovered by entrepreneurs after the company is established, which can lead to significant loss of rights.

Therefore, it is important to examine the entrepreneur's business registration and tax history for the past three years before the company is established.

When should entrepreneurship training be completed?

In the current Business Establishment Support evaluation form, one of the requirements checked is that the entrepreneur has completed the relevant Entrepreneurship Training and then had their application approved . ( Webdosya KOSGEB )

KOSGEB states that entrepreneurship training courses can be accessed online free of charge. (KOSGEB)

Therefore, entrepreneurs should also consider the training process when planning company formation and KOSGEB application.

The process of an application being in draft form in the system differs from its official approval. Specifically for Business Development Support, applications must be completed via the "Approve Application" process in the system before the final application deadline; projects not approved on time will not be considered. (KOSGEB)

How should a company's field of activity be determined?

To receive KOSGEB support, it is not enough for a company to simply be established. Its field of activity must be supported by the relevant program.

To qualify for Business Establishment Support, the business must operate in sectors supported by KOSGEB (Small and Medium Enterprises Development Organization of Turkey).

In Business Development Support, the current program specifically focuses on:

• manufacturing,
• telecommunication,
• computer programming and related activities,
• information infrastructure, data processing and information services,
• scientific research and development

It covers businesses aged 0-3 years in this field. (KOSGEB)

Therefore, the company's business activity as stated in its articles of association and its NACE code in its tax records must be compatible with the support application.

What happens if the wrong NACE code is chosen?

The NACE code is a basic classification that determines which sector a business's economic activity falls into.

When evaluating eligibility for KOSGEB applications, the business's activity code is taken into consideration. The current Business Establishment Support evaluation form also checks whether the business activity stated in the application falls within a sector supported by KOSGEB. (Webdosya KOSGEB)

For example, even if an entrepreneur's primary goal is software development, registering the main activity code as "general consulting" during company formation may create problems in certain support applications.

While it is possible to change the NACE code later, whether the necessary conditions were met at the time of application can also be examined.

Therefore, the NACE code should not be seen as merely a technical code left to the accountant. If KOSGEB support is planned, the compatibility of the activity code with the program should be checked before the company is established.

When Should a Company Be Established?

In the KOSGEB Entrepreneurship Support Program, the age of the business is a direct application requirement.

In the current practice:

Business Establishment Support: Businesses aged 0-1 years,

Business Development Support: Businesses aged 0-3 years

It is implemented for this purpose. (KOSGEB)

Therefore, establishing a company too early and leaving it inactive for a long time could result in exceeding the age limit when applying for support later.

For example, if an entrepreneur establishes a company in January 2024 but decides to launch the project by the end of 2026, they may have missed the deadline for receiving Business Establishment Support.

According to KOSGEB's latest announcement, applications for Business Establishment Support can be made within one year of the establishment date, and applications for Business Development Support can be made within three years. (KOSGEB)

Therefore, the company's establishment date and the investment and support application schedule should be planned together.

Can Business Establishment and Business Development Support be Received Together?

According to KOSGEB's latest statement, if a business is between 0-1 years old, it can benefit from both Business Establishment Support and, if it meets the conditions, Business Development Support.

Businesses that are between 1-3 years old can only apply for Business Development Support (KOSGEB)

However, the sector scope of Business Development Support is narrower than that of Business Establishment Support.

Therefore, even before the company was established;

• field of activity,
• NACE code,
• company establishment date,
• investment plan

When considered together, the possibility of benefiting from both types of support can be planned more accurately.

How to Register with KOSGEB After Establishing a Company?

After the business is established, it is necessary to complete the registration process in the KOSGEB system.

According to KOSGEB's statement, the process generally involves registering the business with KOSGEB, a Business Declaration , and then applying to the appropriate support program. (Webdosya KOSGEB)

In the current Entrepreneur Support Program, being registered and active in the KOSGEB database and having an up-to-date Business Declaration are among the application requirements. (KOSGEB)

Included in the Business Declaration;

• partnership,
• financial size,
• worker,
• activity

The information must be consistent with official records.

Does applying guarantee that the support will be granted?

No.

In particular, applications for Business Development Support are first checked for formal and administrative aspects, and then scored by a committee and jury.

According to KOSGEB's latest statement, eligible applications are evaluated out of 100, and the projects to be supported are determined based on the ranking results. For projects that qualify for support, the committee decides which expenses will be supported, in what amounts, and under what technical conditions. (KOSGEB)

Therefore, the fact that a company has met all the incorporation requirements does not necessarily mean that Business Development Support will be granted.

The suitability of the company structure is a prerequisite for the application; the success of the project will be evaluated separately.

Is it possible to transfer shares during the support period?

Share transfer is a critical issue, especially for startups seeking investment.

According to KOSGEB's current rules, the entrepreneur's share in the business they are applying to cannot fall below 50%. (KOSGEB)

For example, if an entrepreneur initially owns 60% of the company and then transfers a 20% stake to an investor, their share decreases to 40%.

This share transfer may be valid under company law. However, it may constitute a violation of the KOSGEB program conditions.

A similar risk exists when securing investment through a capital increase.

Even if the entrepreneur doesn't directly sell shares, the existing entrepreneur's stake may fall below 50% as a result of giving shares to a new investor through a capital increase.

Therefore, in companies that continue to receive KOSGEB support;

The impact of KOSGEB (Small and Medium Enterprises Development Organization of Turkey) must be calculated before any share transfer, investment agreement, or capital increase takes place.

What happens if a company merges with another business?

If the business is transferred or merged with another business during the support period, this does not automatically mean that the support will continue.

According to KOSGEB's latest statement, in the case of a transfer or merger, the matter is evaluated by the board, and a decision is made regarding the continuation or termination of the support. (KOSGEB)

Therefore, if a company merger is planned, the legal status of ongoing KOSGEB support programs must be evaluated before the transaction is completed in the commercial registry.

In company acquisitions, it is also important for the buyer to examine the target company's obligations to KOSGEB (Small and Medium Enterprises Development Organization).

What happens if the company closes or goes into liquidation?

According to KOSGEB's current program, if the business begins liquidation or closes during the support period, the support is terminated. (KOSGEB)

However, how previously provided repayable support will be recovered when support ends may vary depending on the fault of the business.

If KOSGEB determines that the business has ceased operations due to death, serious accident, serious illness, fire, earthquake, flood, theft, financial insufficiency, or similar reasons deemed appropriate by the board, without any intent or gross negligence on the part of the business owner, repayments may continue in the normal process.

Otherwise, repayable grants may become due and payable on the date of termination decision and may be collected with legal interest accruing from the payment date. (KOSGEB)

Therefore, instead of directly shutting down the company if it experiences economic difficulties, its ongoing support obligations should be examined first.

Does the machine purchased with KOSGEB support belong to the company?

Yes. The supported machinery, equipment, molds, and software are the property of the company.

However, the company is not entirely free to make these decisions.

According to KOSGEB's current statement, the supported machinery, equipment, molds, and software cannot be transferred to other individuals or organizations during the three-year support period;

• not for sale,
• cannot be rented,
• non-transferable
• As a rule, it cannot be used as collateral.

If a seizure or precautionary measure is imposed, the situation must be reported to KOSGEB within seven days. Otherwise, the support amount may be collected with legal interest. (KOSGEB)

This is especially important in company sales, mergers, and investment transactions.

Is it permissible to purchase goods or services from a relative of a business partner?

In the current Entrepreneurship Support Program, the owners and partners of the business, and their;

• wife,
• mother,
• his father,
• brother,
• child

It is prohibited to purchase goods or services under the support program from businesses owned or co-owned by these individuals. If such a situation is detected, no support payment will be made. (KOSGEB)

Therefore, the choice of partners during company formation can also affect subsequent supply relationships.

For example, if the entrepreneur's sibling is a major machinery supplier and the machinery is planned to be purchased from this company, the partnership and supply structure should be examined beforehand in terms of KOSGEB (Small and Medium Enterprises Development Organization) conditions.

Are tax or social security debts an obstacle to company formation?

Having outstanding tax or social security debts does not, under any circumstances, prevent an applicant from applying for support under the current Entrepreneur Support Program.

According to KOSGEB's statement, if there are tax or social security debts exceeding the specified limits, these can be deducted from the support amount and paid to the relevant institutions, with the remaining amount transferred to the business.

However, in order for direct payment to be made to the supplier, the business must not have any outstanding social security or tax debts exceeding the specified limits. (KOSGEB)

Therefore, regularly monitoring the company's financial obligations is crucial for the support payment process.

The Most Common Mistakes Made When Establishing a Company to Eligible for KOSGEB Support

The most common mistakes made by companies targeting entrepreneurship support are as follows:

• Establishing a company without reviewing KOSGEB's requirements,
• Giving the entrepreneur less than 50% stake,
• To appoint the entrepreneur solely as a joint representative,
• Choosing the wrong NACE code,
• Failing to check the entrepreneur's past company partnerships,
• Failure to complete entrepreneurship training before application approval,
• Missing the age limit for the business,
• Reducing the share to below 50% during the support period,
• Ignoring KOSGEB conditions when receiving investment,
• Transferring or closing the business without notifying KOSGEB (Small and Medium Enterprises Development Organization of Turkey).

A significant number of these mistakes could be avoided with a brief legal review before company formation.

Legal Checklist for Company Formation for KOSGEB (Small and Medium Enterprises Development Organization)

Before establishing a company, it would be particularly useful to check the following points:

Company type: Sole proprietorship, limited liability company, or joint-stock company?

Partnership: Is the entrepreneur's share at least 50%?

Representation: Is the entrepreneur authorized to represent the company individually?

Past companies: In the last three years, has the entrepreneur owned any other sole proprietorship or held a 25% or greater stake in any company?

Activity: Is the activity in a sector supported by KOSGEB?

NACE: Is the activity code in the tax and registration records appropriate?

Company age: Has a timeframe been planned for Business Establishment or Business Development Support?

Education: Was entrepreneurship training completed prior to application approval?

Investment plan: Will any future share transfer or capital increase reduce the entrepreneur's stake below 50%?

These checks should be carried out preferably before the incorporation documents are prepared, not after the company is registered.

Sample Partnership Structure When Establishing a Limited Liability Company for KOSGEB Applications

For example, Ahmet and Mehmet want to start a technology company together, and Ahmet will apply for KOSGEB entrepreneurship support.

Company;

Ahmet 60% – Mehmet 40%

It can be structured in this way, and Ahmet can be appointed as the director authorized to represent the company individually.

This structure may be suitable for KOSGEB in terms of partnership and representation requirements, provided other conditions are also met.

However, if Ahmet later transfers a 20% stake to the investor, reducing his share to 40%, the 50% requirement in the support program may be lost.

Therefore, not only the company's current ownership structure but also its investment plan for the next three years must be taken into account.

Why is legal support important in KOSGEB Entrepreneurship Support?

Company formations are often carried out through financial advisors and trade registry processes. However, if KOSGEB support is targeted, the legal consequences of company formation are broader.

By the lawyer;

• the main contract,
• partnership structure,
• representation powers,
• investment contracts,
• share transfers,
• capital increases,
• company merger or sale

It can be evaluated in conjunction with KOSGEB (Small and Medium Enterprises Development Organization) requirements.

Especially in technology startups, where the likelihood of securing investment is high, investor expectations should be balanced during the establishment phase with KOSGEB's 50% ownership requirement.

Realizing that KOSGEB support has been lost after the company has been established and investment has been secured can have much more costly consequences for the company.

Frequently Asked Questions

Should I establish a sole proprietorship or a limited liability company to apply to KOSGEB?

Both types of businesses can benefit from the support according to the relevant program conditions. The current Business Establishment Support program provides 10,000 TL in establishment support for sole proprietorships and 20,000 TL for corporations. The type of company should be determined not only by the amount of support but also by the business's long-term commercial plan. (KOSGEB)

Can two partners form a company with a 50%-50% ownership stake?

Yes. The entrepreneur applying must have a share of at least 50%. However, the entrepreneur must also be authorized to represent the business individually. (KOSGEB)

Can a 49% stake holder apply for KOSGEB Entrepreneurship Support?

This condition is not met due to the minimum 50% ownership requirement in the current program (KOSGEB)

Can I apply for Business Establishment Support two years after the company is established?

No. Business Establishment Support is for businesses aged 0-1 years. However, if the sector of activity and other conditions are suitable, businesses aged 0-3 years can consider Business Development Support (KOSGEB)

Would having previously owned a company be an obstacle?

In the current evaluation of the Business Establishment Support, it is checked whether the entrepreneur has not had another sole proprietorship in the three years prior to the establishment of the business and whether they have a 25% or greater partnership/ownership in another legal entity. (Webdosya KOSGEB)

Can I transfer my shares after the company is established?

In terms of company law, share transfers may be possible. However, for KOSGEB support purposes, the entrepreneur's share must not fall below 50% during the program period. (KOSGEB)

If the company merges with another company, will the support continue?

It does not continue automatically. The KOSGEB board evaluates the merger or acquisition and decides whether to continue or terminate the support. (KOSGEB)

Conclusion

For entrepreneurs planning to benefit from the KOSGEB Entrepreneur Support Program, company formation is not limited to tax office and trade registry procedures alone.

In the current KOSGEB program, for Business Establishment Support, the business must be 0-1 years old, and for Business Development Support, it must be 0-3 years old in the specified sectors. The business must also be active in the KOSGEB database and its Business Declaration must be up-to-date. (KOSGEB)

In joint ventures, the entrepreneur's current share must be at least 50%, and this percentage must not fall below 50% throughout the support program. Furthermore, the entrepreneur must be authorized to represent the business individually. (KOSGEB)

In the current evaluation criteria for Business Establishment Support, the entrepreneur's commercial activities over the past three years are also important. The entrepreneur's ownership of another sole proprietorship or their stake of 25% or more in another legal entity may affect eligibility for the application. (Webdosya KOSGEB)

Therefore, entrepreneurs aiming for KOSGEB support to plan the company type, ownership ratios, representation authority, past partnerships, NACE code, and company establishment date together .

Especially in limited or joint-stock companies, if there are plans to receive investment, increase capital, or transfer shares later, it should be determined during the establishment phase whether the entrepreneur's 50% ownership requirement can be maintained.

While a correctly structured company doesn't guarantee eligibility for KOSGEB support, an incorrect company structure significantly reduces the risk of the application being rejected even before the project evaluation stage.