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September 17, 2020

Startup Series – II – Building Your Company

Innovation & Fintech
Reading Time: 3 minutes

I.  INTRODUCTION TO BUILDING COMPANY FOR STARTUPS

In the first article of our startup series, we have mentioned crowdfunding, which is a contemporary and interesting topic, and dwelled on the conditions of using crowdfunding as an alternative financing source in your company. For the second article of our series, we want to turn our course back a little bit, to the period when your ideas and your startup are slowly maturing. One of the most important questions in mind during the initial period when there is no legal entity yet when there is just you and perhaps your partner, your opinion and effort are undoubtedly “Will we establish a company?” It is not possible to deny that building a company is a difficult process for entrepreneurs from time to time in terms of the capital required and the procedures to be followed. However, we think that this process is an important milestone in a startup’s journey. Therefore, we would like to shed some light on the incorporation process for startups and the most preferred types of companies for those whose answer is “Yes!” to the previous question.

You can establish your company as a joint-stock company or limited liability company, which are the most preferred types of companies in practice among the commercial companies that can be established according to Turkish Law. Apart from these two options, you can also choose a private company, which is a riskier type and where individual responsibility is very heavy. However, it is useful to remind that majority of the companies with a strong commercial reputation are joint-stock companies or limited liability companies.

II. JOINT STOCK CORPORATIONS

First of all, we would like to share information about joint-stock companies, which are the type of company that requires higher capital to be established. Joint-stock companies are companies whose capital is determined and divided into shares, which are liable for their debts only with the company’s assets and can be established for any purpose and subject that is not prohibited by law.

According to Turkish Law, a joint-stock company can be established with a capital of at least 50.000.-TL (FiftyThousandTurkishLiras) and at least one shareholder, unless otherwise provided in special laws. Company shareholders can be real or legal persons. There is no maximum limit on the number of shareholders, but you should remember that if your number of shareholders exceeds 500, you are now obliged to act under the regulations of the Capital Markets Board. Also, during the establishment of your joint-stock company, you have to pay 1/4 of the cash capital. You can pay the remainder within 24 months.

An indispensable issue in the establishment process of a joint-stock company is, of course the company’s articles of association. The elements that should be included in the articles of association are listed in the Turkish Commercial Code and some of which is the trade name of your company, the location of the headquarters, the field of activity, the founders and members of the board of directors and other persons will be provided from the company’s profits, the meeting procedures and voting rights of the company boards.

So how will you set up your company? For this, the Commercial Code sought the existence of some documents and the completion of some transactions. Following the preparation of the necessary documents, including the company’s articles of association, and the notarization of some documents, your company will be established to perform the necessary establishment procedures before the Trade Registry Office.

III.  LIMITED LIABILITY COMPANIES

Another frequently preferred type of company, which limited liability company, is established under a trading name with at least one and at most fifty shareholders; the principal capital must be minimum of 10.000,00-TL (TenthousandTurkishLiras). The explanations we made regarding the payment of the capital for the joint-stock companies are also valid for limited liability companies. The establishment of limited liability companies, as in joint-stock companies, is carried out by physically submitting the relevant documents to the Trade Registry Office and performing the established procedures. Many issues regulated regarding limited liability companies are in parallel with the regulations regarding joint-stock companies. For this reason, we believe that the issues that should be underlined concerning limited liability companies are in terms of share transfer and public debts.

It can be said that the issue of share transfer is more difficult in limited liability companies than it is in joint-stock companies. While it is sufficient to make a share transfer agreement in joint-stock companies, share transfer in limited liability companies takes place before a notary public. In terms of public debts such as tax debt and social security debt, in case, these cannot be collected from the legal entity of the limited liability company, the liability of the legal representatives and shareholders of the company will be borne.

Both types of companies have their advantages and disadvantages, and determine which type of company will be more suitable for you depends on your commercial preferences as well as legal parameters.

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