Choosing the right corporate structure—Joint Stock Company (JSC- Anonim Şirket) or Limited Liability Company (LLC- Limited Şirket)—is the most critical milestone shaping the future of the investment for international funds, cross-border M&A professionals, General Counsels, and CFOs planning strategic investments in the Turkish market. Local regulations may seem complex to investors from different legal systems; however, the Turkish Commercial Code (TCC) offers global-standard flexibility and a security shield when structured correctly.
To meet expectations regarding investment structuring, risk management, exit strategies, and operations, we have consolidated the JSC and LLC structures from a strategic perspective into a single guide.
I. Basic Corporate Structures and Dynamics
1. Joint Stock Company (JSC): For Large-Scale Funds and Flexible M&A Strategies
The JSC structure stands out due to its corporate governance and flexibility in share transfers, especially when targeting Energy Funds, technology investments, and large-scale M&A operations.
- Liability Shield: A joint stock company is a company whose capital is definite and divided into shares, and which is responsible for its debts solely with its assets. Shareholders are liable only for the capital shares they have committed and solely to the company. This provides perfect risk isolation for global investors and funds.
- Minimum Capital: With the Presidential Decree dated 24/11/2023, the updated minimum principal capital is 250,000 TRY, and the initial capital for non-public companies adopting the authorized capital system is 500,000 TRY.
- Corporate Governance and Internal Directive: Board members are elected to serve for a maximum of three years and can be re-elected unless otherwise stipulated. There is a delegation mechanism that provides a huge advantage in post-M&A integration; the board of directors can be authorized to delegate management partially or entirely based on an internal directive it will issue.
- Ease of Share Transfer and Exit: Unless otherwise stipulated by law or the articles of association, registered shares can be transferred without any restrictions. The transfer is executed by endorsing the share certificate and transferring its possession.
- Independent Audit: The financial statements of companies subject to audit are audited by an independent auditor in accordance with the Turkish Auditing Standards published by the Public Oversight, Accounting and Auditing Standards Authority. This builds trust for foreign investors seeking transparency.
2. Limited Liability Company (LLC): For Tight Control and Closed Partnership Structures
The LLC may be preferred for more closed-circuit investments, tight joint ventures, and structures requiring direct control.
- Single-Member Structuring: Both joint stock companies and limited liability companies can be established with just one person.
- Public Debt Risk (Attention General Counsels and CFOs): LLC partners are directly liable for public debts (taxes, social security) that cannot be collected from the company, in proportion to their capital shares. Compared to the full liability shield of JSCs, this requires legal and finance departments to conduct extra risk analysis when selecting LLC structures.
- Management Organ: Unlike JSCs, LLCs do not have a board of directors; management and representation belong to the managers.
3. Structural Changes: Merger, Spin-off, and Conversion
Restructuring companies in Türkiye requires legal vision for Cross-Border M&A Partners:
- Simplified Merger: If the acquiring company holds all the voting shares of the acquired company, the companies can merge under a simplified procedure. This eliminates the obligations to prepare a merger report, provide the right to examine, and submit the agreement for general assembly approval. This creates tremendous speed and cost advantages in M&A processes.
- Spin-off (Demerger) Strategies: Companies can be fully or partially spun off. In a partial spin-off, one or more parts of a company’s assets are transferred to other companies, and the shareholders of the transferring company acquire the shares and rights of the acquiring companies. This mechanism is vital in carve-out operations, such as placing specific power plants or licenses under a separate Special Purpose Vehicle (SPV) to sell them.
- Conversion (Change of Legal Form): You do not need to close the company when the business model changes. The Turkish Commercial Code offers the possibility of “Conversion” without liquidating the assets. A Limited Liability Company (capital company) can easily convert into a Joint Stock Company (another capital company).
II. Frequently Asked Questions (FAQ) for Investors
A. Company Incorporation, Partnership Structures, and Liability (General Counsel & Investor Focused)
1. Can a foreign fund establish a Joint Stock Company (JSC) or Limited Liability Company (LLC) alone in Türkiye? Yes, under Turkish law, both a joint stock company and a limited liability company can be established with only one real person or legal entity.
2. What is our legal status if we establish a contract-based Joint Venture without incorporating a registered company (JSC/LLC) in Türkiye? If you do not establish a registered company, this structure is considered an “Ordinary Partnership” (Adi Ortaklık). Since ordinary partnerships do not have a separate legal personality, the investors (partners) are primarily, unlimitedly, and generally jointly and severally liable for the joint venture’s debts to third parties. Therefore, establishing a JSC or LLC is recommended for risk isolation.
3. What is the most fundamental difference in shareholder liability between a JSC and an LLC? In a JSC, shareholders are liable only for the capital they have committed and solely to the company. While this is also the general rule for LLCs, LLC partners are directly liable for public debts that cannot be collected from the company, in proportion to their capital shares.
4. What exactly is the risk of “Piercing the Corporate Veil,” and in what specific situations is it triggered? It is a legal theory used to bypass the limited liability principle, especially in single-shareholder companies. According to legal doctrine and Supreme Court practices; in cases where the corporate personality is abused—such as mixing company assets with the shareholder’s personal assets, transferring company assets to oneself or relatives, having the company pay personal debts, or intentionally bankrupting the company—the corporate veil can be pierced, leading to the direct liability of the parent fund’s assets.
5. What is the minimum capital amount for joint stock companies? The minimum principal capital is 250,000 TRY, and the initial capital for non-public companies adopting the authorized capital system is 500,000 TRY. (Current figures were increased by the Presidential Decree dated 24/11/2023).
6. Can companies only do business in the sectors specified in their articles of association (Ultra Vires)? No, the Ultra Vires principle has been abolished; commercial companies can be established for any economic purpose and subject not prohibited by law. Transactions carried out by authorized representatives outside the scope of the business generally bind the company; unless it is proven that the third party knew the transaction was outside the scope of business.
7. Is official authority approval required for company incorporation in Türkiye? As a rule, the incorporation of a JSC or amendments to its articles of association do not depend on the permission of any authority; however, certain special joint stock companies whose fields of activity are determined by the Ministry of Customs and Trade are established with permission.
8. What are the formal requirements for the articles of association? The articles of association must be made in writing, and the signatures of all founders or their proxies must be notarized, or the articles of association must be signed directly before the trade registry manager or deputy manager.
9. Who is liable for the contracts we make “on behalf of the company” during the incorporation phase, before registration at the trade registry takes place? A commercial company gains legal personality upon registration with the trade registry. Those who act and undertake obligations on behalf of the company before registration are personally and jointly and severally liable for these transactions and obligations. This period is also called the “pre-company” (ön ortaklık) stage in our law (Prof. Dr. Mehmet Bahtiyar, Ortaklıklar Hukuku).
B. Capital, Funding, and Valuation Strategies (CFO & M&A Partner Focused)
10. What can foreign investors contribute as capital to the company other than cash? Intellectual property rights, movable properties, and real estate that do not have limited real rights, attachments, or injunctions on them, and which can be valued in cash and transferred, can be contributed as in-kind capital.
11. We will contribute valuable real estate in Türkiye as in-kind capital for the target company’s capital increase. Do we need to make a separate official sales contract at the land registry for this transaction? No, there is no need to issue a separate official deed at the land registry or notary during the commitment stage. The provisions of the articles of association containing the commitment to contribute real estate as capital are valid without requiring an official form. However, for the company to dispose of the real estate, it must be registered in the land registry, and the notification for this registration is made ex officio by the trade registry manager.
12. Can an investor contribute a “receivable” from a third party as capital instead of cash? If so, when does their liability end? Receivables can be contributed as capital to JSCs and LLCs. However, a shareholder who transfers their receivable to the company as capital is not relieved of their capital contribution obligation until this receivable is actually collected by the company. If the receivable is not collected in time, an obligation to pay default interest arises.
13. Can know-how, personal labor, or commercial reputation be committed as capital? No, service obligations, personal labor, commercial reputation, and undue receivables cannot be capital in JSCs and LLCs.
14. Who values in-kind capital, and is this valuation final? In-kind capital is valued by experts appointed by the commercial court of first instance where the company headquarters will be located, and the expert decision approved by the court is final.
15. How does the “Authorized Capital System” work for funding flexibility? The authority to increase capital up to the authorized capital ceiling specified in the articles of association can be granted to the board of directors for a maximum of five years. This allows for quick cash injections directly by a board resolution without waiting to convene the general assembly.
16. Can the pre-emptive rights (right to acquire new shares) of existing shareholders be restricted in new share issuances? Yes, provided there are justified reasons (such as acquiring businesses, etc.) and with the affirmative vote of at least sixty percent of the principal capital, pre-emptive rights can be restricted or completely abolished.
17. Can the company buy back its own shares? Yes, provided that it does not exceed one-tenth of its principal or issued capital and that the shares are fully paid up, the company can acquire its own shares for consideration with the authorization of the general assembly.
18. Is a conditional capital increase (Convertible bonds) possible? Yes, it can be decided to increase the capital conditionally by providing creditors or employees with the right to acquire new shares through the exercise of exchange or purchase rights due to bonds or similar debt instruments.
C. Share Transfer, Partnership Control, and Minority Rights (M&A Partner & Investor Focused)
19. Can the transfer of registered shares in JSCs be made more difficult by contract? Yes, the articles of association may stipulate that registered shares can only be transferred with the company’s approval (Vinkulation/Transfer restrictions).
20. In what cases can the company refuse to approve a share transfer? The company may refuse approval by asserting an “important reason” stipulated in the articles of association (e.g., the economic independence of the enterprise) or by offering to acquire the shares at their real value on its own or third parties’ behalf.
21. How are bearer shares transferred in M&A transactions? The transfer of bearer share certificates takes effect against the company and third parties only by the transfer of possession and the notification made to the Central Registry Agency (CRA) by the transferee.
22. As a foreign partner, can we issue bearer share certificates for shares that are not fully paid up? No, bearer share certificates cannot be issued for shares whose prices have not been completely paid; those issued contrary to this provision are invalid.
23. Can minority shareholders directly intervene in the company’s audit processes? Yes, if the right to information and examination has been exercised, the general assembly can be requested to appoint a “special auditor”; if the general assembly refuses, shareholders holding at least one-tenth of the capital may request this appointment from the court.
24. Can the controlling fund (Majority Shareholder) squeeze out a troublesome minority? Yes, if the controlling company holds at least ninety percent of the shares and voting rights, and the minority prevents the operation of the company, acts contrary to the principle of good faith, or acts recklessly, the controlling company can purchase the minority shares at their stock exchange value, if any, or at their actual value, thereby squeezing them out.
25. Can the shareholders’ right to obtain financial information from the company be restricted? No, the shareholder’s right to information and examination cannot be abolished or restricted by the articles of association or by a decision of one of the company organs.
D. Corporate Governance, Board of Directors, and Liabilities (General Counsel & CFO Focused)
26. In a group of companies (Holding) structure, can our parent fund in Germany (Controlling Company) give a strategic instruction that would cause its subsidiary in Türkiye to suffer a loss? As a rule, the controlling company cannot use its control in a way that causes the subsidiary to suffer a loss. However, if this loss is actually compensated within that activity year, or a right to claim equivalent value is granted to the subsidiary by the end of that year at the latest, such an instruction becomes lawful. Otherwise, the subsidiary’s shareholders and creditors may demand compensation for the loss from the controlling company.
27. Our parent fund in Germany has an international reputation that creates intense trust in the Turkish market. Does a special legal liability arise from this “Holding” reputation? Yes, the concepts of “Liability based on trust” and “Group Reputation Liability” exist in Turkish law. In cases where the reputation of the group reaches a level that gives trust to society or the consumer, the controlling company (fund) can be held liable for the trust aroused by the use of this reputation.
28. If two different capital companies we invested in Türkiye purchase each other’s shares (Cross-shareholding), how are voting rights affected? Capital companies holding at least one-fourth (25%) of each other’s shares are considered to be in a cross-shareholding situation, and if this situation is entered into knowingly, only one-fourth of the total votes and other shareholder rights arising from the acquired shares can be exercised (excluding the right to acquire bonus shares); all other shareholder rights are frozen.
29. Is the term of office of board members flexible enough for M&A agreements? Board members are elected to serve for a maximum of three years; unless otherwise stated in the articles of association, the same person can be re-elected, and they can always be dismissed for a just cause.
30. Can board of directors meetings be held electronically from abroad? Yes, provided that it is regulated in the articles of association in capital companies, board of directors meetings can be held entirely in an electronic environment, or some members may participate electronically in a physical meeting.
31. Can the board of directors delegate its powers to professional local managers? Yes, based on a provision in the articles of association and an “internal directive” prepared accordingly, company management can be partially or entirely delegated to one or more members or third parties.
32. Can board members conduct transactions with the investor fund company? A board member cannot conduct any transaction with the company on behalf of themselves or someone else without obtaining special permission from the general assembly; otherwise, the transaction may be considered void.
33. Can CFOs and managers borrow cash from the company? No, board members who are not shareholders and their relatives cannot borrow cash from the company, and the company cannot provide bailment, guarantee, or collateral in favor of these persons.
34. How is the non-compete obligation for managers applied in Turkish law? Board members cannot engage in commercial transactions falling within the company’s field of activity on their own or another’s behalf, nor can they enter a competing company as a partner with unlimited liability without the permission of the general assembly.
35. Can the damages caused by board members to the investor or the company be insured? Yes, the damage that members may cause to the company due to their fault can be insured at a price exceeding twenty-five percent of the company capital; this serves as a safeguard regarding corporate governance principles.
E. Structural Changes: Mergers, Spin-offs, and Conversions (M&A Strategies)
36. While merging the target company (JSC) by acquisition, are we obliged to give shares from our own company to the partners of the target company, or can we provide their exit solely by paying them cash (cash-out)? The Turkish Commercial Code allows stipulating in the merger agreement that only a severance payment (cash) is given instead of allocating shares to the partners. In this way, you can squeeze out the partners of the target company via cash payment (squeeze-out via merger) without integrating them into the new structure.
37. Is it legally possible for an ordinary partnership in our portfolio to acquire a Joint Stock Company (capital company) we are targeting? No, the law does not allow this. Ordinary/personnel companies can only merge with capital companies on the condition that they are the “acquired” (merged) company; meaning the acquisition of capital companies by personnel companies is legally prevented.
38. Can we spin off a Joint Stock Company (JSC) that is our subsidiary and transfer its assets to a newly established ordinary/personnel company? No. While regulating valid spin-offs, the law permits capital companies and cooperatives to be divided only into capital companies and cooperatives. Spinning off into personnel companies is prohibited[cite: 1].
39. For the sake of flexibility, can we convert an existing JSC or LLC into an ordinary/personnel company? No. The Turkish Commercial Code explicitly prohibits the conversion of capital companies and cooperatives into personnel companies. A capital company can only convert into another capital company or a cooperative.
40. What happens to the debts of the target company in mergers by acquisition (Universal Succession)? With the registration of the merger in the trade registry, all assets and liabilities of the acquired company automatically pass to the acquiring company.
41. Does the personal liability of former partners for the past debts of the acquired company end immediately? No, the liabilities of the partners who were liable before the merger continue for three years starting from the announcement of the merger decision.
42. We acquired 100% shares of the target company. What options are there to speed up the merger? If the acquiring company owns all the voting shares of the acquired company, the “Simplified Merger” procedure applies.
43. What is the operational and legal advantage of a simplified merger? The obligation to prepare a merger report is lifted, the requirement to provide an examination right to partners is not applied, and the merger agreement can be registered without being submitted for general assembly approval.
44. We only want to sell a specific power plant (Carve-out). Is a partial spin-off possible? Yes, a “Partial Spin-off” without liquidation can be executed by transferring one or more parts of a company’s assets in exchange for acquiring shares.
45. Can we convert our Limited Liability Company into a Joint Stock Company to reduce legal risks? Yes, via the Change of Legal Form (Conversion) procedure, a transition from LLC to JSC can be made without liquidating the company and while preserving its economic identity.
F. Financial Reporting, Audit, and Dividend Distribution (CFO Focused)
46. According to which standards are the financial statements of our subsidiary in Türkiye prepared? The financial statements of joint stock companies must be prepared in accordance with the Turkish Financial Reporting Standards (TFRS/TMS) published by the Public Oversight, Accounting and Auditing Standards Authority.
47. Who appoints the independent auditor? The auditor is elected by the company’s general assembly before the end of each fiscal period; in group companies, the group auditor is appointed by the general assembly of the parent company.
48. Can the entire profit (Net Profit) be distributed as a dividend to the shareholder fund? No, five percent of the annual profit must be set aside as a “general legal reserve” until it reaches twenty percent of the paid-in capital. Dividend distribution cannot be determined unless legal reserves are set aside.
49. What are the legal consequences if the auditor issues an adverse opinion on the financial statements? If an adverse opinion is given, the board of directors must call the general assembly to a meeting within four business days from the delivery of the opinion letter, and the general assembly elects a new board of directors; meaning the report directly affects the continuity of management.
50. Can dividends or preparation period interest paid in bad faith be reclaimed later? Yes, shareholders who receive dividends or interest, and managers who receive profit shares unjustifiably and in bad faith are obliged to return them, and this right is subject to a five-year statute of limitations.
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