What is the main source of law authorising this entity form?

Turkish Commercial Code numbered 6102 (“TCC”).

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The Limited Şirket has legal personality.

(Maximum) period of existence

There is no maximum period of existence. The Limited Şirket may be incorporated for a definite or an indefinite period.

Governing document(s)

The Limited Şirket is governed by its articles of incorporation (“Esas Sözleşme”), which is registered with the relevant Commercial Registry (“Ticaret Sicil Müdürlüğü”) and announced in the Turkish Commercial Registry Gazette (“Türkiye Ticaret Sicili Gazetesi”) along with any amendments made thereto.

Liability of incorporators / shareholders

The liability of the shareholders is limited to their contributions in share capital, with the exception of public debts whereby the shareholders are liable with their personal assets for the unpaid public debts pro rata to their shareholding ratio (such as taxes and social security premiums).

(Governing) bodies

The Board of Managers (the “BoM”, “Müdürler Kurulu”) and the General Meeting of Shareholders (“Genel Kurul”) are the governing bodies.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Under Turkish law and subject to the proceedings and restrictions stipulated under the TCC, it is possible for a Limited Şirket to enter into legal mergers (whereby the acquired company ceases to exist and shall be de-registered and its assets are acquired under universal succession of title) and demergers of all or a portion of its assets (with universal succession of title to the relevant assets), and conversions (changing into another form of legal entity which is deemed the universal successor of the former entity).

Can this type of entity be publicly listed or held?

No.

Can this type of entity be used for a non-profit or charitable organization?

In principle, this is not possible since it is a commercial entity having the purpose of making profit.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

The Articles of Incorporation (“AoI”) must be submitted in electronic form via the Central Registration System (“Merkezi Sicil Kayıt Sistemi” or “MERSİS”) and a copy must be executed before the authorized personnel of the relevant Commercial Registry. It can be executed by virtue of a power of attorney of the incorporator(s); the documents to appoint managers and authorized signatories, including their signature specimen under the company’s commercial title; the identification documents for foreign shareholders and/or managers (e.g., translated and notarized registry extracts for legal entities / passports for real persons; potential tax identification numbers obtained in Turkey); a Membership Form for the Chamber of Commerce (“Oda Kayıt Beyannamesi”); and the Incorporation Declaration Form (“Kuruluş Bildirim Formu”).

Involvement of notary, company register, governmental authorities

The Limited Şirket must be registered with the Commercial Registry. The public notary’s involvement during the incorporation processes has been decreased pursuant to the statutory amendments of the past years, and consequently, the Commercial Registries are now authorized to certify signatures during incorporation phase and granting opening approvals for company books.

With the recent changes made in February 2021, the public notary’s role in certifying signatures of authorized signatories has been reinstated. However, this is limited to any changes in authorized signatories that occur after the incorporation of the Limited Şirket. In other words, the signatures of authorized signatories appointed during incorporation can only be certified before the Commercial Registry officers, while those appointed after the incorporation can have their signature certified by the public notary or authorized personnel of any Commercial Registry.

Timing (estimate)

The incorporation of a Limited Şirket is not subject to any strict waiting periods and the registration usually takes up to one week depending on the workload of the Commercial Registry.

In addition, Commercial Registries will initially seek to obtain the signature data of individuals from the databases of public institutions and organizations and will record the signature specimens to the Central Registration System. If the signature data is not available or cannot be obtained from the electronic databases, then the submission of a signature specimen will be requested.

Main costs, including registration and similar fees (excluding legal fees)

The main costs are concerning the registration, as well as the notary and lawyer fees along with the payment of a contribution to the Competition Authority (“Rekabet Kurumu”) (in an amount equivalent to 4/10.000 of the share capital).

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The aim and purpose of the Limited Şirket must be stated in the AoI. The company must also choose a NACE code corresponding to its field of activity.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one incorporator / shareholder and there is no residency requirement. At least one of the shareholders must be a manager with unlimited representation powers.

Minimum number of directors (or other applicable officers) and residency requirements

There must be at least one manager and there is no residency requirement.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The minimum share capital is TRY 10.000. As of 15 March 2018, the obligation to deposit 25% of the capital committed in cash to the bank account during incorporation is revoked for the Limited Şirket. Consequently, the share capital committed in cash must be paid within two years as of the incorporation at the latest. Additional payment requirements for the shareholders may be stipulated under the AoI.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

In general, the incorporation proceedings can be carried out by virtue of a power of attorney.

However, if there are non-shareholder signatories who reside in Turkey, they must be physically present to have their signature specimen certified by the authorized personnel of the Commercial Registry during incorporation. Signature specimens of signatories in foreign countries can be certified by the Turkish consulates in that country or the competent authorities in accordance with the applicable laws of that country, whereby signature specimens issued by the foreign authorities must be certified by the Turkish consulates or with an apostille certification.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The company is appointed a tax identification number by the Central Registration System during submission of the AoI in the electronic environment. After the incorporation, further proceedings should be followed up with the tax offices for completing the tax registration process.

The foreign shareholders, managers and signatories are also required to obtain a potential tax identification number in Turkey. The request letter must be submitted along with the notarized Turkish translation of the copy of their passport (for real persons) or notarized Turkish translation of the commercial registry extract (for legal entities). The submissions are concluded within the same day. It is possible to file the application with a power of attorney.

As of March 2020, foreign real persons can obtain potential tax identification numbers through the online application platform established by the Revenue Administration which requires filling an electronic form and uploading passport copies on the website. However, if the identification of the applicant cannot be confirmed through electronic database, physical application to the tax office is still required which can be carried out via power of attorney.

What is the title of the applicable company registry?

Commercial Registry Office (“Ticaret Sicil Müdürlüğü”). The registry is not centralized in one place, hence there are provincial offices.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

The information listed below must be filed at the Commercial Register and is publicly available:

• Articles of Incorporation;
• Company address;
• Share capital and shareholding structure;
• Identification, nationality and address details of the shareholders;
• Single or multiple shareholding status of the company, including the identification, nationality and address details of the sole shareholder;
• Identification, nationality, address details and representative authorities of the managers and non-member representatives;
• Identification of the statutory independent auditor;
• Information regarding insolvency and liquidation;
• Encumbrances on the entity;
• Decisions on establishment of branches; and
• Merger, demerger and conversion documents.

 

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

Manager / BoM (“Müdür / Müdürler Kurulu”).

The managers represent the company towards third persons and must carry out management duties in the interests of the company in accordance with the TCC and the AoI.

Article 625 of the TCC regulates the non-assignable and unalienable responsibilities and authorities of the managers on a numerus clausus basis. In this regard the managers are obliged to:

1. Pursue the senior management of the company and give related instructions;
2. Establish necessary accounting, finance and financial auditing plans as required by the management of the company;
3. Supervise whether the persons who are granted with partial management authorities act in compliance with the laws, AoI, internal procedures and instructions;
4. Except for small scaled limited companies, establish the early detection and management of risk committee;
5. Prepare the financial statements and annual reports, and if necessary, to prepare financial statements and annual reports of the corporate group;
6. Prepare the General Meeting of Shareholders and execute the shareholders’ resolutions; and
7. If applicable, notify the courts regarding the company’s heavily indebted status.

How are the members of the executive body appointed, dismissed and replaced?

Initially, the first managers are appointed in the AoI during incorporation. After that, the General Meeting of Shareholders is entitled to appoint and/or dismiss members in accordance with the principles set out under the AoI.

Any change in the management structure and their signature authorities must be registered and announced.

Is it possible to appoint corporate directors or must all directors be natural persons?

No. The BoM can be authorized in the AoI to distribute their management duties and/or representation authorities to one or more than one manager or third persons by means of adopting an internal directive establishing the roles of the directors, and duties and authorities assigned to such roles as per Articles 367 and 371/7 of the TCC. However, the General Meeting of Shareholders is authorized to appoint the representatives in accordance with the internal directive. The internal directive regarding the representation authorities and appointment of representatives are subject to the registration with the Commercial Registry.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

No, there is no requirement to have non-executive managers. In principle, non-executive managers are appointed, dismissed and replaced in the same manner as the executive managers. However, the AoI must allow delegation of management powers to executive directors and an internal directive must be issued as per Article 367 of the TCC in that respect.

A one-tier board with executive and non-executive members can be formed.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The title of the body consisting of shareholders is General Meeting of Shareholders (“Genel Kurul”).

The main tasks/responsibilities of the General Meeting of Shareholders which cannot be transferred to any other body (e.g. managers) are:

• Amendment of the AoI;
• Appointment and removal of the managers and auditors, determining the remuneration of the managers;
• Appointment of independent auditors;
• Approval of the annual financial tables and activity reports.
• Distribution of dividends;
• Approval of the share transfers;
• Filing a request with the relevant courts for the removal of a shareholder from the company;
• Authorizing the managers for the repurchase of company shares or approving such transaction;
• Terminating the company;
• Other matters stipulated under the AoI.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

In principle, the General Meeting of Shareholders can decide with the majority of the votes of the shareholders present at the meeting. This general rule is varied by aggravated quorums specified under the TCC for certain matters. It is also possible to stipulate aggravated quorums in the AoI. The shareholders’ resolution may be circulated among the shareholders, in which case no physical meeting would be required. However, the proposal must be submitted for the approval of all shareholders for the validity of the circulated resolutions.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The annual financial statements must be prepared by the managers and submitted to the approval of the General Meeting of Shareholders within three months after the end of the financial year of the company.

Is the entity permitted to determine its own financial year?

Yes.

Is the entity subject to any statutory (external) auditor obligations?

Yes. In accordance with Article 397/4 of the TCC, the President of the Republic of Turkey (prior to 2 July 2018, the Council of Ministers) is authorized to determine “independent auditor” obligations for the companies. Accordingly, the Council of Ministers’ decision numbered 2018/11597 (“Decree on Independent Audit”) sets forth the companies that are subject to independent auditing.

The general principle establishes that it is mandatory for companies to appoint an independent auditor, which itself or along with its subsidiaries and affiliates meet at least two out of three of the following thresholds for two subsequent financial years:

1. Having total assets equivalent to or above 35 Million Turkish Liras;
2. Having annual net sales revenue equivalent to or above 70 Million Turkish Lira;
3. Employing 175 or more employees.

Notwithstanding, the companies listed in Schedule I and Schedule II of the Decree on Independent Audit are also subject to independent audit, which generally consist of companies operating in certain fields of activity and having licensing requirements or regulatory supervision such as banks, financial institutions, energy companies, publication companies, and certain publicly held enterprises, whereby the companies falling within the scope of Schedule II must also meet thresholds as to their assets, sales revenues and/or employees which varies from above.

The companies which are subject to independent audit are also obliged to create a corporate website.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares (“pay” or “hisse”).

Are different classes of ownership interests possible? If so, what are some examples of different classes?

It is possible to create privileged classes of shares given that their rights are defined in the AoI, such as privilege on voting powers.

What documentation is required for the transfer of ownership interests?

A share transfer requires the execution of a share transfer agreement at the public notary, the adoption of a shareholders’ resolution approving the transfer and the registration of the transaction with the commercial registry. The AoI may contain transfer restrictions.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The share transfer and the transferee must be recorded in the share ledger of the company.

In case the share transfer changes the single or multiple shareholder status of the Limited Şirket, as applicable, the Limited Şirket must also apply for the registration and announcement of the matter. In case of a sole shareholder, the identification, nationality and address of the sole shareholder must also be registered.

Also, for group companies, in case the share transfer results in an enterprise holding directly or indirectly 5%, 10%, 20% 25%, 33%, 50%, 67% or 100% of the shares, or if the share ratio of that enterprise decreases to a ratio lower than these percentages, the enterprise is obliged to notify the subsidiary and relevant authorities, including the commercial registry, of this situation.

Are there any applicable stamp duties imposed when transferring ownership interests?

No.

How are shares issued? (including information on payment obligations, registration requirements)

The shares are issued pursuant to capital increase which must be adopted by the General Meeting of Shareholders and the relevant article in the AoI must be amended. The capital cannot be increased until the previous share capital is paid in full. The shares are issued upon registration of the capital increase. The newly issued shares and the holders of such shares must be recorded in the share ledger of the company.

The increased share capital must be paid within two years as of the registration at the latest. If applicable, the share premiums must be paid in full before registration.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Any kind of asset that is transferable and appraisable can be used as non-cash payment on shares in the Limited Şirket except for personal effort, commercial reputation, undue debts and service performances. Valuation of such assets shall be made by experts appointed by competent commercial courts of first instance.

It is possible to require the payment of equity contributions exceeding the nominal value of shares during the issuance of shares. Share premiums must be fully paid in cash prior to registration.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

The shares can be cancelled by capital reduction, which cannot take place if the assets of the company are not sufficient to compensate the rights of the creditors.

Share repurchases are subject to having sufficient equity. The repurchased shares cannot exceed 10% of the entire share capital, unless the shares are repurchased due to the shareholder’s withdrawal or dismissal from the company as stipulated by the AoI or a court decision. The upper limit is then applied as 20% instead of 10%. However, the repurchased shares exceeding the 10% threshold must be disposed of or redeemed through a capital reduction within two years. The company must allocate legal reserves corresponding to the amount paid for the repurchase of the shares.

Any requirements with respect to distributions to shareholders?

The decision to distribute dividends is taken in the General Meeting of the Shareholders. No dividends can be distributed unless the legal reserves are allocated as per the TCC. The AoI may stipulate specific requirements.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. The provisions of the Shareholders Agreement must not contradict the AoI or the TCC, but additional and/or more detailed provisions are allowed. Unlike the AoI, the Shareholders Agreement is only binding upon the contracting parties.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The company must have a business address and bear the costs of this office. The Limited Şirket must hold an annual shareholders’ meeting and bear the related costs, and the company books must be notarized at the beginning of each financial year. The company must also pay a yearly membership fee to the relevant Chamber of Commerce, as well as pay all corporate and other applicable taxes.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The corporate tax rate applicable in 2020 is 22%, which will be applied as 25% in 2021 and 23% in 2022.

Summary of any specific matters, e.g. recent or prospective major legal developments

With the amendments made to the TCC and the Communiqué on Execution of Articles of Incorporation with Commercial Registries in 2021, there have been changes to the procedures for the submission of signature specimens. The changes concerning the Limited Şirket may be summarized as follows:

• Commercial Registries will initially seek to obtain the signature data of individuals from the databases of public institutions and organizations and will record the signature specimens to the Central Registration System. If the signature data is not available or cannot be obtained from the electronic databases, then submission of a signature specimen will be requested.
• The public notary’s role in certifying signatures of authorized signatories has been reinstated. However, this is limited to any changes in authorized signatories that occur after the incorporation of the Limited Şirket. In other words, the signatures of authorized signatories appointed during incorporation can only be certified before the Commercial Registry officers, while those appointed after the incorporation can have their signature certified by public notary or authorized personnel of any Commercial Registry. Regardless, signatories residing in foreign countries can still have their signature specimen certified by the Turkish consulates or the competent authorities in accordance with the applicable laws of that country.

With the amendments made to the TCC on 31 December 2020 within the scope of the omnibus bill, namely the Law on the Prevention of Financing the Propagation of Weapons of Mass Destruction numbered 7262, the Ministry of Trade may oblige companies to keep their share ledgers, BoM resolution books, and General Meeting of Shareholders resolution books electronically.

In 2020, within the framework of the measures taken against the Covid-19 pandemic, the distribution of dividends was temporarily restricted until 31 December 2020. Consequently, companies were only allowed to distribute up to 25% of their net distributable dividends for the financial year 2019 (they could not distribute previous years’ profits or any distributable share capital reserves). In addition, the shareholders were not able to authorize the managers for advance dividend distributions. While the term for this restriction has not been extended at this stage, the adoption of similar measures may be possible based on the progress of the pandemic.