Understanding Company Types in Turkey: A Guide to Business Structures

Company types in Turkey

Introduction

If you're considering starting a business or expanding your operations into Turkey, understanding the types of companies recognized under the Turkish Commercial Code (TCC) is essential. Whether you're a foreign investor or a local entrepreneur, choosing the right business structure impacts your company's liability, capital requirements, and the way it's governed.

In this blog post, we’ll break down the five main types of companies in Turkey, explore additional business structures, including those established in free zones, and discuss other relevant entities that may suit your business model.

A-Main Company Types in Turkey

According to the Turkish Commercial Code, there are five principal company types in Turkey:

1. Joint Stock Company (JSC)

A Joint Stock Company is a capital company divided into shares, with liability limited to the company’s assets. Shareholders are responsible only up to the value of their capital contributions, making it an attractive option for larger businesses.

Key Features:

• Capital Requirements: Minimum capital is 50,000 TL. For non-public JSCs opting for the registered capital system, the minimum is 100,000 TL. This system allows companies to increase their capital without a general assembly decision, giving greater flexibility.

• Share Structure: JSCs can issue both registered and bearer shares, as well as bonds and debt instruments.

• Shareholder Liability: Limited to capital contributions.

• Governance: Managed by a Board of Directors. Foreigners can serve on the board, and a single-member board is permissible.

• Audit Requirements: Companies exceeding certain thresholds in assets, revenue, or employees are subject to independent audits.

• Stock Exchange: Only JSCs can issue shares on the stock exchange.

  
  

2. Limited Liability Company (LLC)

A Limited Liability Company is also a capital company, but with some notable differences from a JSC. It is a popular choice for small to medium-sized businesses.

Key Features:

• Capital Requirements: Minimum capital of 10,000 TL, which can be paid within 24 months of registration.

• Shareholder Liability: Shareholders are only personally liable for unpaid public debts (e.g., taxes) in proportion to their shares.

• Governance: Managed by a Director or a Board of Directors. Share transfers require General Assembly approval.

• Debt Instruments: LLCs cannot issue bonds or debt instruments.

• Maximum Shareholders: LLCs can have up to 50 shareholders.

3. Collective Company

A Collective Company is established by two or more real persons, with all partners having unlimited liability for the company’s debts. This type of company is rare and typically used by small firms, often family-owned businesses.

Key Features:

• Liability: Partners are personally and jointly responsible for the company’s debts.

• Governance: Each partner has the right and duty to manage the company, though management can be delegated to one or more partners.

• Capital Requirements: No minimum capital required.

4. Limited Partnership

Limited Partnerships are formed by two types of partners: active (unlimited liability) partners and dormant (limited liability) partners. This structure allows a mix of individuals who manage the company and investors who simply contribute capital.

Key Features:

• Liability: Active partners have unlimited liability, while dormant partners are only liable up to the value of their capital contributions.

• Governance: Active partners manage the company, while dormant partners have no say in management.

5. Cooperative Company

A Cooperative Company is designed to protect the economic interests of its members and is typically used by agricultural, housing, and consumer cooperatives.

Key Features:

• Capital Structure: Each partner holds between 1 and 5,000 shares, valued at 100 TL each.

• Liability: If the Articles of Association do not define liability as limited, the default is second-degree unlimited liability.

• Governance: Managed by a Board of Directors, with at least one auditor elected for oversight.

  
  

B-Additional Organizational Structures in Turkey

Beyond the five core company types, Turkey offers additional options for foreign and local businesses that may suit your business model:

1. Branch Office

A Branch Office represents a foreign parent company and does not have independent legal status. It is ideal for businesses that want to establish a presence in Turkey without creating a separate entity. The parent company is fully liable for the branch’s debts and obligations.

2. Liaison Office (Representative Office)

Liaison Offices are established by foreign companies to conduct non-commercial activities like market research, promotion, and public relations. These offices cannot generate revenue or engage in commercial activities. Liaison offices are often used to study market conditions before full market entry.

3. Foreign Company

Foreign Companies can operate in Turkey either by establishing a Turkish subsidiary (using one of the five main company types) or by registering as a foreign company. This structure allows companies to conduct business in Turkey with varying rights and obligations.

4. Commandite Company (a form of Limited Partnership)

A Commandite Company consists of partners with unlimited liability and others with limited liability. It’s commonly used in investment ventures where the active partner assumes management responsibilities, and the dormant partner contributes capital without involvement in management.

5. Sole Proprietorship

A Sole Proprietorship is not a company type under the Turkish Commercial Code, but it remains an important structure for small businesses. In this setup, the owner is personally liable for all debts and liabilities of the business.

6. Economic Enterprise

Economic Enterprises are formed by associations or foundations to support non-profit activities through business endeavors. While they serve the commercial interests of their founders, they operate under distinct regulations from regular businesses.

C-Companies in Free Zones (Şirketler Kurulan Serbest Bölge)

Businesses can also be established in Free Zones in Turkey. These zones are designed to encourage export-oriented investment and production. Companies operating in these zones benefit from special tax exemptions and incentives.

Key Features:

• Tax Exemptions: Companies in free zones may be exempt from VAT, customs duties, and certain income taxes depending on the type of activity (e.g., production or trade).

• Export Orientation: Free zone companies are primarily engaged in export activities, with minimal restrictions on the goods and services they trade.

• Flexibility: Companies from various sectors, including manufacturing, trade, and service industries, can operate in these zones, benefiting from simplified bureaucratic procedures.

D-Other Business Structures in Turkey

1. Holding Company

A Holding Company is not a separate legal entity under the TCC but refers to a company that primarily owns shares in other companies. Holding companies are used to manage groups of subsidiaries, often benefiting from tax advantages on dividend income and capital gains.

2. Joint Venture

A Joint Venture is a contractual business arrangement where two or more parties pool resources for a specific project or venture. It’s common for foreign companies looking to partner with local entities for large-scale projects.

3. Technology Development Zone Company

Companies operating in Technology Development Zones (TechnoParks) benefit from tax exemptions and incentives, particularly in IT, biotech, and other high-tech sectors. This is aimed at fostering innovation and research in Turkey.

4. Offshore Company

Offshore Companies are established in jurisdictions with favorable tax regimes and can be used by Turkish individuals or businesses for international trade or investment purposes. These companies do not commonly operate within Turkey.

5. Societas Europaea (SE)

A Societas Europaea (SE) is a European public limited company that can operate across the European Economic Area (EEA), including Turkey if the business has strong ties to the EU. This allows cross-border mergers and relocations without needing to create separate entities.

Conclusion

Choosing the right company structure in Turkey depends on your business goals, liability preferences, and future plans. Whether you opt for a Joint Stock Company to publicly trade shares or establish a Liaison Office to test the Turkish market, understanding the legal and financial obligations of each structure is crucial for success.

With the right approach, Turkey’s dynamic and diverse business landscape offers a wealth of opportunities for growth. Be sure to consult with legal and financial experts to ensure you select the company type that best suits your needs.