Joint ventures in Turkey

January 2013  |  EXPERT BRIEFING  |  JOINT VENTURES

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In line with continuous commercial growth in Turkey, it seems joint ventures will never lose their popularity. Under Turkish law, joint ventures may be formed in two different ways: as a commercial company pursuant to the Turkish Commercial Law or as an ordinary (simple) partnership under the Turkish Code of Obligations.

Types of joint ventures in Turkey

Ordinary partnerships are partnerships arising from the Turkish Code of Obligations where the partners have agreed to merge their labour and assets to reach a mutual goal. Ordinary partnerships may be formed with the mutual understanding and (oral or written) agreement of the parties with no requirement to be registered under the trade registry or a similar official authority.

Unless stated otherwise under the joint venture agreement, partners in an ordinary partnership are required to invest equal amounts in the partnership and will share the profit or loss equally among themselves. An agreement between the partners where it is agreed that one partner will not contribute to the loss, but will only share in the partnership’s profit, will only be valid if and when such partner has invested his efforts or labour as capital.

Unless a higher quorum is stated under the joint venture agreement, all decisions regarding the partnership may be passed by the majority of the partners in a meeting. However, the admission of a new partner must be approved by all existing partners.

Limited liability companies are companies incorporated by one or more than one real person and/or legal entity shareholders (in any case no more than 50) with a minimum capital of TL 10,000 (approximately US$5600). The liability of shareholders in a limited liability company is limited to their respective shareholding in such company; however, shareholders may be held personally liable for the limited liability company’s debts owed to public entities – for example, tax debt, social security premium debts, and the like.

In order to incorporate a limited liability company, a draft Articles of Association is prepared and signed by all shareholders before a Notary Public in Turkey and registered with the relevant trade registry. Any amendments to such articles of association will be required to be registered with the relevant trade registry. 

Unless a higher quorum is required under the Turkish Commercial Code or under the Articles of Association of the company, decisions may be passed with the affirmative vote of the majority of the shareholders present in a meeting. However, certain decisions, such as increasing the share capital, introducing or removing share transfer restrictions, or liquidating the company, will require a higher quorum.

Company managers, appointed by the shareholders, are responsible for representing the company and have the power to bind the company. Company managers may be appointed from among the real person or legal entity shareholders and/or non-shareholder third parties.

Joint stock companies are companies incorporated by one or more real persons and/or legal entity shareholders with a minimum capital of TL 50,000 (approximately US$27,800). The liability of shareholders in a joint stock company is limited to their respective shareholding in such company.

For the incorporation of a joint stock company, a draft Articles of Association is prepared and signed by all shareholders before a Notary Public in Turkey and registered with the relevant trade registry. Any amendments to such articles of association will also be required to be registered with the relevant trade registry. 

Unless a higher quorum is required under the Turkish Commercial Code or under the Articles of Association of the company, decisions may be passed with the affirmative vote of the majority of the shareholders present in a meeting. However, certain decisions, such as increasing the share capital, introducing or removing share transfer restrictions, or liquidating the company, will require a higher quorum.

Company directors, appointed by the general assembly (consisting of the shareholders), are responsible for representing the company and have the power to bind the company. Company directors may be appointed from among the real person or legal entity shareholders and/or non-shareholder third parties.

Brief comparison

Although the establishment of ordinary partnerships requires no formal procedures, because partners in ordinary partnerships may be held personally liable for the debts of the partnership, merchants, in practice, tend to incorporate either as a limited liability company or a joint stock company.

There are a number of differences between joint stock companies and limited liability companies. Following are a few substantial differences.

First, in joint stock companies, a share transfer may be completed with the endorsement of the share certificates (or the temporary share certificates), and delivery of the duly endorsed share certificates (or the temporary share certificates) by the seller to the buyer. The relevant share transfer may then be recorded into the share book of the company by a board decision taken in this respect. However, in limited liability companies, share transfers must be made by a written agreement signed before a Notary Public in Turkey and by a decision of the shareholders approving the share transfer. Since the signing of an agreement before a Notary Public will create costs (stamp duty and notary fees, etc.), investors tend to incorporate, or participate in, a joint stock company due to the ease of transferring shares.

Second, certain decisions regarding the company – for example, a share capital increase or decrease, the appointment of board members or auditors, and amendments to the company’s articles of association – can only be made through a shareholders’ decision in both joint stock and limited liability companies. However, a shareholders’ decision may be passed by completing more procedural requirements in joint stock companies compared to limited liability companies.

Finally, shareholders in a joint stock company are only liable for the debts of the company up to their respective shareholding; whereas, shareholders in a limited liability company may be personally liable for the debts of the company owed to public entities.

Based on the aforementioned, investors usually tend to incorporate, or participate in, joint stock companies rather than limited liability companies.

Joint ventures with foreign participation

There is no difference between joint ventures consisting of all Turkish parties and joint ventures consisting of all foreign parties or foreign and Turkish parties. However, where foreign shareholders are involved, the following notification requirements must to be made to the General Directorate of Foreign Investments of the Treasury by joint ventures in Turkey, under the Foreign Direct Investments Law: (i) an annual notification in the form as attached to the relevant legislation detailing its annual activities and capital, to be delivered by the end of May of each year; (ii) a notification in the form as attached to the relevant legislation detailing the payments regarding its capital, to be delivered within one month following the relevant payment of share capital; (iii) a notification in the form as attached to the relevant legislation detailing the share transfers in the share capital of the joint venture, to be delivered within one month following the relevant share transfer.

In the light of the foregoing, Turkey’s approach to promoting foreign investment has led to the country becoming a highly attractive market.

 

Zeynep Inal is a senior associate at Gokce Attorney Partnership. She can be contacted on +90 212 352 8833 or by email: zeynep@gokce.av.tr.

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Kaye Scholer LLP


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