Foundations of Starting a Company in Turkey
Turkey offers an attractive market for entrepreneurs with its strategic geographic location, young and dynamic population, and growing economy. However, one of the first and most critical decisions when entering the business world is choosing the right company type. Under the Turkish Commercial Code, the two most commonly preferred company structures are the Limited Liability Company (LLC, known as Ltd. Şti.) and the Joint Stock Corporation (known as A.Ş.).
Each structure has its own distinct advantages, requirements, and limitations. To make the right choice, it is essential to examine both models in detail and determine which one best aligns with your business plan and long-term objectives.
What Is a Limited Liability Company (LLC)?
The LLC is the most commonly established company type in Turkey. It offers an ideal structure particularly for small and medium-sized enterprises. The formation process is relatively straightforward and costs are lower compared to a corporation.
Key Characteristics of an LLC
- Number of shareholders: Can be established with a minimum of 1 and a maximum of 50 shareholders.
- Minimum capital: A minimum capital requirement of 10,000 TL applies.
- Capital payment: The entire capital must be committed, but payment can be spread over 2 years.
- Management structure: Managed by directors. At least one shareholder must serve as a director.
- Public offering: LLCs cannot be publicly listed.
- Share transfer: Requires a general assembly resolution and notarized transfer.
Advantages of an LLC
The most prominent advantage of an LLC is its low capital requirement and simple management structure. It is an ideal option for small-scale entrepreneurs and family businesses. Formation costs are lower compared to a corporation, and bureaucratic processes are less complex.
Additionally, there is no requirement to establish a board of directors in an LLC. The company can be comfortably managed by one or several directors. This accelerates decision-making processes and provides operational flexibility.
What Is a Joint Stock Corporation?
The Joint Stock Corporation is a company type designed for larger-scale enterprises and ventures planning to attract investment. It provides access to capital markets and requires a corporate governance structure.
Key Characteristics of a Corporation
- Number of shareholders: Can be established with a minimum of 1 shareholder, with no upper limit.
- Minimum capital: A minimum capital requirement of 50,000 TL applies. For companies adopting the registered capital system, this amount is 100,000 TL.
- Capital payment: At least 25% of the capital must be paid at establishment, with the remainder due within 24 months.
- Management structure: Managed by a board of directors. At least one board member is required.
- Public offering: Corporations can be publicly listed.
- Share transfer: Shares can be easily transferred through endorsement and delivery.
Advantages of a Corporation
Corporations provide a strong foundation for growth-oriented businesses. With the ability to go public, issue bonds and commercial papers, and have an unlimited number of shareholders, they are ideal for large-scale investments. International investors generally prefer the corporation structure because share transfers are easy and swift.
Corporations managed under corporate governance principles also enjoy higher credibility with banks and financial institutions. The corporation structure is generally preferred for large-scale public tenders and projects.
LLC vs Corporation: Side-by-Side Comparison
To better understand the fundamental differences between the two company types, review the comparison table below:
| Feature | LLC (Ltd. Şti.) | Corporation (A.Ş.) |
|---|---|---|
| Minimum Capital | 10,000 TL | 50,000 TL |
| Number of Shareholders | 1-50 | 1 and above (unlimited) |
| Public Offering | Not allowed | Allowed |
| Management Body | Director(s) | Board of Directors |
| Share Transfer | Notarized, requires general assembly approval | Via endorsement and delivery |
| Bond/Commercial Paper Issuance | Not allowed | Allowed |
| Independent Audit | Required at certain thresholds | Required at certain thresholds |
Formation Process: A Step-by-Step Guide
The formation process for both company types follows similar steps. However, corporations have some additional requirements.
1. Trade Name and MERSİS Registration
The first step is to determine your company name and submit your application through MERSİS (Central Registration System). The name must not have been previously used. You can also prepare your company articles of association through the MERSİS system.
2. Capital Deposit and Banking Procedures
You must deposit the required portion of your capital in a bank. For LLCs, the entire capital is committed; for corporations, at least 25% must be deposited at formation.
3. Trade Registry Registration
An application is made to the relevant Trade Registry Office with the required documents. After registration, your company acquires legal personality and is published in the Turkish Trade Registry Gazette.
4. Tax Office Registration and Other Obligations
Following registration, you must register with the tax office, submit social security notifications, and obtain necessary permits and licenses. Transition to e-invoice and e-ledger systems should also be evaluated at this stage.
Tax Obligations and Comparison
Both company types are subject to corporate income tax. The corporate tax rate in Turkey is 25%. However, there are some important differences in terms of taxation.
When distributing profits in an LLC, shareholders are subject to income tax withholding. In corporations, profit distribution is made as dividends with similar withholding applied. However, capital gains from share sales in corporations may be exempt from tax under certain conditions.
Other tax obligations such as VAT, income tax withholding, and stamp duty apply to both company types. Accounting and audit requirements vary based on the company's size.
Which Company Type Should You Choose?
Choosing the right company type is a critical decision for the future of your business. You can evaluate your options based on the following scenarios:
When to Choose an LLC
- You are starting a small or medium-sized business
- Your number of partners is limited and will not exceed 50
- You want to start with lower capital
- You prefer a simple management structure
- You have no plans for a public offering
- You are establishing a family business or partnership structure
When to Choose a Corporation
- You are establishing a large-scale enterprise
- You plan to attract investors or pursue a public offering
- You want to establish international partnerships
- You are considering issuing bonds or commercial papers
- You aim to participate in public tenders
- You want to build a corporate image
Important Information for Foreign Investors
Turkey applies the principle of equal treatment to foreign investors. Foreign individuals or legal entities can establish a company under the same conditions as Turkish citizens. No special permits or prior approvals are required.
Some key considerations for foreign investors include:
- Physical presence in Turkey is not required for company formation; procedures can be conducted through a power of attorney.
- Foreign partners must obtain a tax identification number.
- Certain sectors may have restrictions on foreign capital ratios.
- Tax advantages may be available under double taxation prevention agreements.
Common Mistakes and Important Considerations
There are several common mistakes that entrepreneurs frequently make during the company formation process. Knowing these mistakes in advance will save time and costs throughout the process.
The choice of company type should be based not only on today's needs but also on your future growth targets. A wrong choice can lead to a costly type conversion process down the road.
- Insufficient capital planning: While establishing a company with minimum capital may seem attractive, failing to allocate sufficient capital for operational expenses is a common problem.
- Neglecting the partnership agreement: Particularly for companies with multiple partners, failure to prepare a detailed partnership agreement can lead to serious disputes in the future.
- Underestimating tax obligations: Tax return filing deadlines, VAT refund processes, and withholding obligations should always be monitored with the assistance of a certified accountant.
- Ignoring sector-specific regulations: Certain sectors have special permit, license, or certification requirements. It is important to research these requirements before formation.
Conclusion and Recommendations
Starting a company in Turkey is a fairly smooth process with proper planning and information. An LLC offers an ideal option for small and medium-sized ventures with its low capital and simple management structure, while a corporation provides a more suitable framework for growth-oriented businesses aiming to attract investment.
Regardless of which company type you choose, obtaining professional advisory services is of great importance for the healthy progression of the process. A holistic approach covering legal, financial, and operational dimensions will ensure your business is built on solid foundations.
Are you considering starting a business in the logistics and transportation sector in Turkey? Contact us to learn about our professional solutions that will help you manage your shipping processes most efficiently. We would be delighted to support you on your entrepreneurial journey.
