A. What is a Limited Liability Company (“LLC”)?
A Limited Liability Company, referred to as "Limited Company" in Turkish, is a type of corporate entity with legal personality. It is known as "Limited Liability Company" in Anglo-Saxon law, "Gesellschaft mit beschränkter Haftung (GmbH)" in German law, and "Société à responsabilité limitée (SARL)" in French law. The term essentially signifies a "limited liability company" in meaning.
The Limited Liability Company is regulated within the framework of the Turkish Commercial Code (TCC) in Articles 573-644. While outlining the regulations for limited companies, the law often makes references to provisions related to joint-stock companies, and in cases where there are legal gaps, the regulations applicable to joint-stock companies are applied to limited companies as appropriate. In limited companies, as can be understood from their name, members are generally not liable for the company's obligations beyond their capital contributions and any additional payment or ancillary obligations stipulated in the company's articles of registration. Members' liability is limited to their ownership interest, excluding their capital contributions. (TCC Article 573)
- A Limited Liability Company has an independent legal personality. As a direct consequence of this, the company can enter into any kind of contract not prohibited by law, have rights and obligations, and be a party to lawsuits in its own name. The company possesses a legal personality therefore has its own assets different from its members' assets, hence it is directly liable for its obligations with these assets. Generally, except for exceptional circumstances such as the piercing of the corporate veil, members are not personally liable for the company's obligations.
- Limited Liability Companies possess legal personality and are therefore required to have a trade name and use it. According to TCC Article 16, Limited Liability Companies are considered legal entities engaged in trade, thus they are mandated under TCC Articles 18 and 39 to determine a trade name for themselves and use it. The chosen trade name should be specified in the company's articles of registration according to TCC Article 576. Normally, subject to requirement of determining the business area, and subject to TCC Article 46, the trade name can be freely chosen. However, if the company has multiple business areas, at least one of them must be indicated in the trade name. Additionally, it must be indicated within the trade name that the company is a limited liability company.
- The basic capital of a Limited Liability Company is fixed. TCC Article 573 emphasizes that the basic capital will be included in the articles of registration. Changing the basic capital requires an amendment to the agreement. According to TCC Article 581, members can contribute the capital in cash or in kind. In cases where capital is pledged in kind, the cash value of the pledge must also be determined.
The entire committed capital must be paid in full within 24 months.
- A Limited Liability Company can be founded with at least one member. In Limited Liability Companies, individuals or legal entities can participate as members without any distinction. According to TCC Article 573, a Limited Liability Company can be established as a single-member company. However, TCC Article 574 specifies that the number of members in a Limited Liability Company cannot exceed 50. Therefore, if having more than 50 members in the company is desired, choosing the joint-stock company type becomes a legal requirement.
B. Foundation Process of Limited Liability Companies
The starting point of the foundation of a Limited Liability Company is for the members to materialize their intention to establish a company by drafting an article of registration. Before this stage, it should be determined which members will contribute cash and which will contribute in-kind capital, and if there are members contributing in-kind capital, the value of the in-kind capital should be determined. At this point, the regulation in Article 343 of the TCC under the title of "Joint-Stock Company" concerning assessing the value of in-kind capital also applies to Limited Liability Companies.
After this stage, the members must declare their intention to establish a company through the articles of registration. The company's basic capital and the members’ capital contributions should be stated in the articles. Furthermore, the following points must be included in the articles according to TCC Article 576:
a) The trade name of the company and place of its registered office
b) The business area
c) The nominal amount of the basic capital, the number and nominal values of shares, and if any, privileges and groups of shares
d) The names, surnames, titles, and citizenship information of the managers
e) The form of announcements to be made by the company.
If any of these points is missing, the company will not be registered in the trade registry. Additionally, the Limited Liability Company Articles of Registration are just as restrictive as those of joint-stock companies; according to TCC Article 579, the parties may deviate from the content of this agreement only if explicitly permitted by the law. However, TCC Article 577, which is unique for Limited Liability Companies and lists the areas where the parties can make arrangements, mitigates the impact of this rule for Limited Liability Companies, as the wording of the article indicates that these provisions are not restrictive and that the parties can add similar provisions to the articles of registration. The points explicitly listed in TCC Article 577, which are anticipated to be included in the articles of registration and become binding when agreed upon by the parties, are as follows:
a) Provisions differing from legal regulations regarding the transfer of shares.
b) Granting rights of offer, preemptive rights, buyback rights, and acquisition rights to members or the company regarding shares.
c) Additional payment obligations, their forms, and scope.
d) Secondary obligations, their forms, and scope.
e) Provisions granting veto rights to specific or ascertainable members or providing superior voting rights to certain members in case of equal votes resulting from the voting of a general meeting resolution.
f) Provisions on contract penalty that can be applied in case obligations stipulated by law or the articles of association are not fulfilled or not fulfilled on time.
g) Provisions differing from legal regulations regarding non-compete clauses.
h) Provisions granting special rights for calling a general assembly meeting.
i) Provisions differing from legal regulations regarding decision-making, voting rights, and calculation of voting rights in the general meeting.
j) Provisions on authority regarding entrusting the company management to a third party.
k) Provisions differing from legal regulations regarding the use of profits.
l) Provisions indicating special reasons for the expulsion of a member.
m) Provisions regarding termination reasons other than those stipulated in the law.
When the drafted agreement is signed in the presence of authorized personnel at the trade registry office, preliminary company is established (TCC 585), but legal personality is not yet acquired. According to TCC Article 585, the requirement that at least 25% of the subscribed cash capital must be paid will not apply to Limited Liability Companies, so the application to the trade registry for the registration and announcement of the company can be made immediately after the agreement is established. However, in accordance with Article 39/c of the Law on Protection of Competition, 4/10.000 of the capita contribution must be paid, and the receipt must be added to the application documents. With the registration carried out according to TCC Article 587, the company acquires legal personality according to TCC Article 588 and is officially established.
C. Transactions and Expenses Made on Behalf of the Company
According to TCC Article 588, the expenses incurred for the foundation of the company can be accepted and assumed by the company after its foundation. If not accepted by the company, the founders will bear the foundation expenses.
Before the company acquires legal personality through registration in the trade registry, for the company's activities to be conducted, transactions such as leasing of a place of business, subleasing, etc. may be carried out. Those who perform such transactions are jointly and severally liable under TCC Article 588. However, if it is explicitly stated that these transactions are carried out on behalf of the future company and if the company accepts these expenses after its foundation, then the company becomes solely responsible for them.
D. Deficiency in Foundation
The issue of what will happen in case of deficiencies in the foundation procedures has not been separately regulated for limited liability companies; the law makes a reference to Article 353 concerning joint-stock companies. Accordingly, a registered limited liability company cannot be declared null and void. This situation is necessary to ensure legal security because third parties may have entered into legal relations with the company relying on the registration made in the trade registry. Their rights need to be protected. However, if the interests of creditors, members, or the public are endangered, due to the violation of the law during the foundation phase, the board of directors, upon the request of the Ministry of Trade, creditor, or member, or upon the court's decision, may grant a period for remedy the deficiencies or decide on the dissolution of the company.
The lawsuit must be filed within a three-month statute of limitations period from the registration date.