Company Formation and Articles of Association

Establishing a company involves far more than submitting a few forms to the trade registry. The company type you choose, every clause written into the articles of association, and the rules the partners agree on at the outset will determine how a dispute is resolved years down the line. For this reason, working with a company formation lawyer at the incorporation stage is one of the most practical ways to avoid costly disputes later on.

On this page, we summarize the legal steps involved in forming a joint stock company or a limited liability company, the issues that must be considered in the articles of association, and the mistakes commonly made during formation. For the general framework of company law, you can also visit our Commercial Law page.

Joint stock or limited liability? Choosing the company type

The Turkish Commercial Code (TCC) regulates five types of commercial companies; in practice, the most commonly chosen are the joint stock company (AŞ) and the limited liability company (Ltd. Şti.). Both can be established by a single partner. In a limited liability company, the number of partners cannot exceed fifty; a joint stock company has no such upper limit. The following differences are particularly important when choosing the type:

• Share transfer: In a limited liability company, the transfer of a share of the capital must be made in writing, the signatures must be notarized, and as a rule the approval of the general assembly is required. In a joint stock company, transfers are more flexible; however, the transfer of registered shares may be restricted by the articles of association.
• Liability for public debts: Partners of a limited liability company may be held liable, in proportion to their capital shares, for public receivables that cannot be collected from the company.
• Management structure: A joint stock company is managed and represented by a board of directors, while a limited liability company is managed and represented by a manager or a board of managers.
• Growth plans: If you anticipate an increase in the number of partners, bringing in investors, or an eventual public offering, a joint stock company generally offers a more suitable foundation.

Minimum capital amounts may be increased by Presidential decision and are updated from time to time; the amount in force should be checked before incorporation. Under provisional Article 15 added to the TCC by Law No. 7511, existing joint stock and limited liability companies whose capital falls below the current minimum amount are also required to raise their capital within the prescribed period; otherwise, they are deemed dissolved. Because this period may be extended by the Ministry, the current deadline should be verified separately.

The formation process step by step

1. Preliminary preparation: The trade name, company headquarters, business purpose, and each partner's capital contribution are clarified. It is important to choose a name that cannot be confused with an existing one.
2. Preparing the articles of association: The articles of association are created through MERSİS (Central Registry Recording System). The law requires the agreement to be made in writing. In a joint stock company, the founders' signatures may be notarized, or the articles may be signed before the trade registry director or deputy director; in a limited liability company, the articles are signed at the trade registry directorate before an authorized staff member.
3. Payment of capital: In a joint stock company, at least twenty-five percent of the nominal value of shares subscribed in cash must be paid before registration, and the remainder within twenty-four months following registration. In a limited liability company, the requirement to pay twenty-five percent before registration does not apply; cash capital may be paid within twenty-four months following registration.
4. Valuation if there is in-kind capital: If non-cash assets such as real estate, vehicles, or trademarks are contributed as capital, their value is determined by an expert appointed by the court.
5. Registration and announcement: The company acquires legal personality upon registration with the trade registry. The registration is announced in the Turkish Trade Registry Gazette; tax, social security (SGK), and banking procedures then follow.

What should you pay attention to in the articles of association?

The law lists the minimum elements that must be included in the articles of association: the trade name and headquarters, the business purpose, the amount of capital, the nominal value of shares, any privileges, the management structure, and how announcements will be made. Ready-made templates often settle for this minimum content. Yet it is the optional clauses that truly shape the company's future:

• Restrictions on share transfers and pre-emption rights granted to the other partners,
• Shares granted privileges in voting or dividends,
• Aggravated meeting and decision quorums required for certain important decisions,
• Grounds for withdrawal and removal from partnership in a limited liability company,
• The election of the management body and the scope of the power of representation,
• Additional payment or ancillary performance obligations to be imposed on partners.

For matters that you do not wish to include in the articles of association, or that would be undesirable to make publicly accessible in the trade registry, a separate shareholders' agreement can be made. This agreement binds the partners to one another; however, it may not provide protection against the company and third parties as strong as a provision of the articles of association. For this reason, which rule belongs in which document should be decided deliberately.

Common mistakes in formation

A significant portion of problems encountered in partnership relations stem from shortcomings at the formation stage. Chief among them are failing to provide for how decisions will be made if partners disagree in structures where shares are split equally, having no roadmap for partners who join later, and drafting the business purpose too narrowly. If the value of an asset contributed as in-kind capital does not reflect reality, this can also give rise to liability both among partners and toward creditors.

In ventures where one partner contributes labor and expertise and the other contributes money, how these contributions will be valued and how accounts will be settled if the partnership ends should be written down from the start. While these matters can be settled in a few meetings at formation, they can lead to lengthy litigation if they later turn into disputes between partners.

After formation: amendments and the obligation to retain a contract lawyer

The articles of association may later be amended by a general assembly resolution. Transactions such as capital increases, relocation of headquarters, and changes of name or business purpose also require registration and announcement; therefore, although the choices made at formation can be changed later, doing so costs time and money.

In addition, under the Attorneyship Law, joint stock companies whose capital is five times the minimum capital amount prescribed by law or more are obliged to retain a contract lawyer. Since the minimum capital amount is updated periodically, companies planning a capital increase should take this obligation into account as well.

The lawyer's role in the formation process

A lawyer's task is not merely to write the text of the articles of association. This role includes listening to the partners' commercial goals and translating them into workable legal rules, anticipating possible deadlock scenarios in advance, verifying the legal compliance of privileges and transfer restrictions, and following up on registry procedures. Every company's ownership structure and needs are unique; therefore, rather than a template text, the specific situation must be assessed individually.

At our office in Bakırköy, we support entrepreneurs planning to establish a company, as well as partners who wish to restructure an existing company, in preparing articles of association and shareholders' agreements. To schedule a consultation, you can use our contact page.