Articles of Association in Turkey : Esas Sözleşme or Şirket Sözleşmesi
Articles of Association (known as “Esas Sözleşme” or “Şirket Sözleşmesi” in Turkish) is a foundational legal document that outlines the rules, structure, and operational framework of a company. It is a mandatory document for the incorporation of a company and governs how the company functions, defines the relationship between the company and its shareholders, and specifies the rights and obligations of shareholders, directors, and other key stakeholders. The AoA must be submitted to the Turkish Trade Registry for the official registration of the company.
Below is an overview of the key elements and requirements of the AoA in Turkey, and how they apply to different types of companies:
I. What is AoA?
The AoA is a legally binding document that:
- Sets out the company’s purpose and objectives.
- Details the company’s governance structure and the roles of shareholders and management.
- Regulates the rights and duties of shareholders and the company’s internal operations.
- Defines the rules for the transfer of shares and the admission or exit of shareholders.
The AoA must be in compliance with the Turkish Commercial Code (TCC) and must be registered with the Trade Registry.
II. Key Elements of the AoA in Turkey
The AoA in Turkey typically include the following sections:
1. Company Name and Registered Office
- Company Name: The legal name of the company, which must be unique and conform to Turkish naming conventions.
- Registered Office: The location of the company’s headquarters, which must be within Turkey.
2. Company Type and Legal Form
- Specifies the company type, e.g., Joint-Stock Company (Anonim Şirket) or Limited Liability Company (Limited Şirket).
- Each type of company has different governance structures, shareholder responsibilities, and capital requirements, so this section will vary depending on the company’s legal form.
3. Purpose and Scope of the Company
- Defines the business objectives of the company (e.g., the industries, sectors, or types of activities the company will engage in).
- The purpose must be specific and aligned with legal requirements in Turkey.
4. Share Capital and Shares
- Amount of Capital: For example, a Joint-Stock Company must have a minimum of 250.000 Turkish Liras in capital, while a Limited Liability Company requires a minimum of 50.000 Turkish Liras.
- Number and Type of Shares: The document will detail the nominal value of each share, the number of shares issued, and whether shares are registered or bearer shares.
- Share Classes: The Articles may specify different classes of shares (e.g., ordinary and preferred shares, registered or bearer shares) and the rights attached to each class, such as voting rights, dividend rights, etc.
5. Governance Structure
- Board of Directors: Specifies the number of board members and their duties. The Board of Directors is typically responsible for the company’s day-to-day operations, management decisions, and compliance with the law.
- General Assembly: Details the procedures for shareholder meetings (Annual General Meetings or Extraordinary General Meetings). It covers issues such as quorum requirements, voting rights, and decision-making processes.
6. Shareholder Rights
- Voting Rights: Specifies how shareholders can vote on various issues, including election of directors, changes to the AoA, and approval of financial reports.
- Dividend Rights: Outlines how profits will be distributed among shareholders, including the dividend policy.
- Transfer of Shares: Details how shares can be transferred or sold. In a Limited Liability Company , there are often restrictions on transferring shares to third parties, and approval from other shareholders may be required.
7. Duration of the Company
- Company’s Duration: Specifies whether the company is established for a specific period or indefinitely. Most companies are established for an indefinite duration, but the duration can be defined if needed.
8. Audit and Financial Reporting
- Audit Process: Details the requirements for auditing the company’s accounts, which may include internal audits or external auditing by a certified public accountant or auditing firm.
- Financial Statements: Specifies when and how the company must prepare its financial reports and how shareholders can access them.
9. Amendments to the AoA
- Amendment Process: Describes how amendments to the AoA can be made, including the required majority vote by shareholders. Changes often require a supermajority vote in a General Assembly meeting.
10. Dissolution and Liquidation
- Dissolution Procedure: Describes how the company may be dissolved, including the procedure for liquidation and the distribution of remaining assets among shareholders.
- Voluntary vs. Involuntary Dissolution: Details the steps for voluntary dissolution (e.g., decision by shareholders) or involuntary dissolution (e.g., bankruptcy, legal issues).
III. Types of Companies and AoA
1. Joint-Stock Company
- A Joint-Stock Company in Turkey must have at least one shareholder and can be publicly or privately held. The AoA will cover governance structures like the Board of Directors, General Assembly, and shareholder rights.
- Minimum Share Capital: 250.000 Turkish Liras (for registered capital system) or 500.000 Turkish Liras (for authorized capital system).
- Share Transfers: Generally, shares in a Joint-Stock Company can be transferred freely, though preemptive rights (right of existing shareholders to buy before external parties) may apply in some cases.
2. Limited Liability Company
- A Limited Liability Company has a more simplified governance structure. There is no requirement for a Board of Directors (though a manager can be appointed), and the company is run by manager or managers.
- Minimum Share Capital: 50.000 Turkish Liras
- Share Transfers: Transfers are typically restricted. Shareholders often need approval from other shareholders, particularly for transfers to outsiders.
- AoA: The AoA in a Limited Liability Company tend to be more flexible and allow for more control by the shareholders over how the company is managed.
3. Other Types of Companies
There are other types of legal entities in Turkey, such as Cooperatives, Limited Partnerships or Collective Companies, each with specific provisions for their AoA, depending on the nature of the business and the structure desired by the founders.
IV. How to Draft the AoA
The AoA must be drafted in accordance with Turkish laws, and it is recommended to seek legal advice to ensure compliance with the Turkish Commercial Code (TCC). For a new company in Turkey, here’s how to proceed:
1. Prepare the Document: The company founders (or legal advisors) draft the AoA, including all the key provisions mentioned above.
2. Notarization or Trade Registry: The AoA must be notarized for it to be legally binding or it must be signed at the Trade Registry.
3. Register the Company: Once notarized, the AoA must be submitted to the Trade Registry in the relevant jurisdiction where the company is being incorporated.
4. Public Disclosure: After registration, the AoA are publicly accessible through the Trade Registry and can be reviewed by anyone interested in the company’s structure and governance.
V. Why is the AoA Important?
- Legal Compliance: The AoA ensure that the company complies with the Turkish Commercial Code and other relevant regulations.
- Governance Framework: It provides a clear structure for how the company will be run, ensuring accountability and transparency among stakeholders.
- Dispute Resolution: Well-drafted Articles help prevent conflicts by clearly defining the rights and responsibilities of shareholders and directors.
Articles of Association in Turkey is a fundamental legal document that governs how a company operates and ensures compliance with the Turkish Commercial Code. Whether for a Joint-Stock Company or a Limited Liability Company , the Articles provide essential rules on ownership, governance, shareholder rights, and more. It is crucial to prepare and update this document carefully, as it determines the internal functioning and legal standing of the company. Seeking legal expertise in drafting the AoA is advisable to avoid any issues during the company’s lifetime. Please feel free to contact us for more information and further inquiries about our unique services. You can also subscribe to Tacirsoft Hukuk Bilgi Sistemi, that is Turkey’s only Corporate Law and OIZ Law database.
