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 A.Ş. has legal personality.

(Maximum) period of existence

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

Governing document(s)

The A.Ş. 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

Incorporators/shareholders are not personally liable for the debts of the company. The liability of the shareholders is limited to their contributions in share capital.

(Governing) bodies

The Board of Directors (the “BoD”, “Yönetim 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 the A.Ş. 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).

The A.Ş. is usually more fit for M&A transactions due to its more bureaucratic management and organic structure compared to the limited company (“Limited Şirket”), as well as the possibility to qualify for a capital gains exemption during the transfer of share certificates which certificates were held for a minimum of two years. This is not possible for Limited Şirket shareholders.

Can this type of entity be publicly listed or held?

Yes, the A.Ş. is the only form of entity that can be listed or publicly held in Turkey.

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 directors and authorized signatories, including their signature specimen under the company’s commercial title.

The identification documents for foreign shareholders and/or directors (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”).

The Incorporation Declaration Form (“Kuruluş Bildirim Formu

Involvement of notary, company register, governmental authorities

The A.Ş. must be registered with the Commercial Registry. 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.

Depending on its field of activity (e.g. banks, insurance companies, etc.), the incorporation of an A.Ş. may be subject to the approval or affirmative opinion of a public authority under the relevant legislations.

With the recent changes made in February 2021, the authorized signatories can have their signature certified by the public notary or authorized personnel of any Commercial Registry. In addition, the 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.

Timing (estimate)

The incorporation of an A.Ş. 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.

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 A.Ş. 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.

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

There must be at least one director 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 50.000. The company is obliged to open a bank account to deposit at least 25% of the capital committed in cash, which must be blocked in the bank account and to be released following the incorporation. The rest of the payment must be completed within two years after incorporation at the latest.

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.

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 the 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, directors 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 natural 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;
• Identification, nationality and address details of the sole shareholder (if any);
• Identification, nationality, address details and representative authorities of the members of the BoD 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?

BoD (“Yönetim Kurulu”).

The BoD and its members 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 375 of the TCC regulates the non-assignable and unalienable responsibilities and authorities of the BoD on a numerus clausus basis. In this regard the BoD is obliged to:

1. Pursue the senior management of the company and give related instructions;
2. Establish the management organization of the company;
3. Supervise accounting and finance of the company, and to the extent necessary for the management, establish necessary organization for financial planning;
4. Appoint and dismiss the managers and other persons with management powers and authorized signatories;
5. Supervise whether the persons who have management duties act in compliance with the laws, AoI, internal procedures and written instructions of the BoD;
6. Keep the share ledger and resolution books of the BoD and General Meeting of Shareholders; prepare annual reports and submit to the approval of the shareholders; 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 members of the BoD are appointed in the AoI during incorporation. After that, the General Meeting of Shareholders is entitled to appoint and/or dismiss members of the BoD in accordance with the principles set out under the AoI.

As an exception, if a member of the BoD resigns before the expiry of his/her term of office; the BoD can appoint a replacement to be submitted to the approval of the earliest General Meeting of Shareholders convened.

Any change in the structure of the BoD and their signature authorities must be registered with the relevant Commercial Registry.

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

Yes, if the AoI allows the BoD to distribute their management and/or representative authorities to one or more than one director or third persons. The BoD must issue an internal directive establishing the authorities and duties assigned to the roles and subsequently adopt a BoD resolution regarding the appointment of persons to such roles. The internal directive regarding the representation authorities and the appointment of representatives are subject to registration.

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 directors. Non-executive BoD members are appointed, dismissed and replaced in the same manner as the executive BoD members. 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. BoD) are:

• Amendment of the AoI;
• Appointment, dismissal and acquittal of BoD members determining their remuneration;
• Appointment of independent auditors;
• Approval of the annual financial tables and activity reports;
• Distribution of dividends;
• Decision to merge, demerge and change of company type;
• Decision to sell significant amount of company assets;
• Decision to terminate the A.Ş. except for statutory exceptions.

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 be convened with the attendance of the shareholders representing ¼ of the share capital and decisions are taken with the majority of 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.

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

Publicly held companies and companies listed at the stock exchange are subject to the special governance regime set forth in Capital Markets Law numbered 6362 (“6362 sayılı Sermaye Piyasası Kanunu”) and the TCC.

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 BoD 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. These include privilege on voting powers, receiving dividends or liquidation proceedings and having the right to nominate BoD members.

What documentation is required for the transfer of ownership interests?

If the company has issued share certificates; the shares can be transferred by way of endorsement and transfer of the possession of the share certificates. If the company has not issued any share certificates, a written agreement between the transferor and the transferee is required in order to transfer the shares. The AoI may contain transfer restrictions or the requirement for a BoD approval.

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. The AoI may also contain the requirement for a BoD approval.

If the share prices of the transferred shares are not fully paid up, the company’s approval is required. The AoI may contain other transfer restrictions in limited cases.

With the recent legislation amendments made on 31 December 2020, the transfer of bearer share certificates is subject to the notification to the Central Registry Agency (“Merkezi Kayıt Kuruluşu”) by the transferee.

In case the share transfer changes the single or multiple shareholder status of the A.Ş., as applicable, the A.Ş. 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 be registered as well.

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 of this situation within ten days as of the completion date of pertinent transactions.

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 a capital increase which must be adopted by the General Meeting of Shareholders and the relevant article in the AoI must be amended. A Ministry Representative (“Bakanlık Temsilcisi”) must be present at the meeting (except for single shareholder companies that are not otherwise subjected to the required presence of the Ministry Representative). The capital cannot be increased until the previous share capital is paid in full. The shares are issued upon registration of the capital increase with the relevant Commercial Registry. The newly issued shares and the holders of such shares must be recorded in the share ledger of the company.

The share certificates can be registered or bearer share certificates, which must be specified in the AoI. No bearer share certificates can be issued without full payment of the share subscriptions.

At least 25% of the share capital must be paid up before registration, and the remainder may be completed within two years 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 A.Ş. 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 contribute share premiums during the issuance of the shares. If the shares will be issued with share premium, the BoD must prepare a report on the reasons why the shares are contributed with share premiums and the calculation method of the share premium. This report must be registered with the relevant Commercial Registry. 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. In principle, the company can only repurchase the shares paid up in full, and the repurchased shares cannot exceed 10% of the entire share capital. The General Meeting of Shareholders must authorize the BoD to accept the repurchase of shares, unless the repurchase of the shares is necessary to prevent an imminent and severe loss, in which case the BoD must inform the first General Meeting of Shareholders in writing regarding the reason and purpose of the repurchase, the amount and the payment terms of the repurchased shares.

Article 382 of the TCC provides exceptional cases for share repurchases, including share repurchases made for capital reduction, as a result of an universal succession rule or statutory obligations. In these cases, or in cases where the company repurchases its shares without consideration, repurchased shares shall be disposed of at the earliest opportunity, which shall not exceed three years, without incurring any losses to the company.

In any case, repurchased shares in violation of the TCC shall be disposed of (and pledges established thereon shall be removed, as applicable) within six months.

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 provisions of 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 A.Ş. 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

In the General Meeting of Shareholders of the A.Ş. which falls within any of the below criteria, a Ministry Representative appointed by the Ministry of Trade must be present:

1. General Meetings of Shareholders of companies whose incorporation and AoI amendments are subject to the approval of the Ministry of Trade;
2. General Meetings of Shareholders held with the agenda to discuss a capital increase or decrease, the entering to or exiting from the registered share capital system, the increase of the maximum of the registered capital, the AoI amendments for changing the field of activity, mergers, spin-offs or the conversion of the legal entity type;
3. General Meetings of Shareholders of companies that apply the Electronic General Meeting System (“Elektronik Genel Kurul Sistemi”);
4. General Meetings of Shareholders (and Special Committees of Preference Shareholders) that are held abroad.

With the amendments made on 9 October 2020, single shareholder companies, except for those whose incorporation and AoI amendments are subject to the approval of Ministry of Trade, are exempted from the Ministry Representative requirement unless it is requested by the parties who called the meeting and such request is considered appropriate by the authorities appointing the Ministry Representative.

In addition, the shareholders may request the appointment of a Ministry Representative in order to hold a meeting exclusively for the election of the members of the BoD if the BoD does not exist or it is not possible to have the BoD quorum, with a petition bearing the signatures of all shareholders or their representatives certified by a public notary.

• 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 bearer share certificates are now required to be notified and registered to the Central Registry Agency (“CRA”). Transfer of bearer shares are effective upon notification to the CRA and the ownership rights in transferred bearer instruments begin on the date of the notice to the CRA. As a condition to exercising shareholder derivative rights, TCC now requires, in addition to the possession of bearer share certificates, proof of notice of share ownership made to the CRA. Until 31 December 2021, holders of bearer shares must apply to the issuing company for the purpose of application to the CRA and exercise of shareholder rights are conditioned upon such application. The Ministry of Trade further issued a Communiqué regarding Bearer Share Certificates on 6 April 2021, which regulates the issuance, transfer and notification procedures for bearer share certificates.
• The Ministry of Trade may oblige companies to keep their share ledgers, BoD resolution books and General Meeting of Shareholders resolution books electronically.
• With the amendments made to the TCC and the Communiqué on Execution of Articles of Incorporation with Commercial Registries in February 2021, there have been changes to the procedures for submission of signature specimens The changes concerning the A.Ş. 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 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.
• The public notary’s role in certifying signatures of authorized signatories has been reinstated. Consequently, the authorized signatories can have their signature certified by the public notary or authorized personnel of any Commercial Registry.

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 (could not distribute previous years’ profits or any distributable share capital reserves). In addition, the shareholders were not able to authorize the BoD 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.