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WITH VERY FEW EXCEPTIONS, MOST TURKISH BUSINESS GROUPS AND COMPANIES ARE FAMILY CONTROLLED OPERATIONS.

THEREFORE WHEN COLLABORATING WITH A TURKISH PARTNER FOR A NEW VENTURE OR ACQUIRING SHARES IN AN EXISTING COMPANY, USUALLY DEPENDENCY TO THE FORMER OWNER FAMILY, INADEQUATE INSTITUTIONAL MANAGEMENT, INSUFFICIENT ACCOUNTING STANDARTS, IMPROPER INFORMATION SYSTEMS MAY BE EXPECTED AS PROBLEM AREAS. ARMS LENGTH RELATIONS BETWEEN COMPANY AND OWNER OR OWNER’S OTHER COMPANIES ARE ALSO QUITE USUAL AND PROBLEMATIC.

THE OVERCOMING OF THE GAP BETWEEN THE OWNER MANAGEMENT AND INSTITUTIONAL MANAGEMENT REQUIRES DELICACY AND TIME.

THE INVOLVEMENT OF CONSULTANTS OR TURKISH BOARD MEMBERS ALSO RESPECTED BY THE TURKISH COUNTERPART IS ALMOST A MUST AND VERY RECOMMENDABLE TO OVERCOME THE INITIAL PROBLEMS.

IV. FORMS OF BUSINESS ORGANISATIONS

The Turkish Commercial Code recognises two distinct types of business enterprise;

Partnerships

Corporations

The legal differences between the two concern the allocation of liability and the legal identity of the entity. Corporations established by foreign joint venture partners with or without a Turkish partner are treated as Turkish corporations and are entitled to all rights available to Turkish companies under the Turkish commercial code.

Foreign investors may establish a corporation in either of these two forms:

Limited Liability Company (Limited Sirket - Ltd. Sti.)

Joint Stock Company (Anonim Sirket - A.S.)

These business types exist as separate legal entities and offer their shareholders limited liability. The most common type of business entity in Turkey is the joint stock company and generally foreign investors establish such corporations for doing business in Turkey.

Joint Stock Company

A joint stock company is defined as a corporation having its own trade name and a predetermined amount of capital divided by shares. The liability of the shareholder is limited to their capital.

The structure and organisation of joint stock companies are subject to regulation by the Turkish Commercial Code. However, the founders of joint stock companies are afforded significant flexibility in drafting the articles of association, thereby serving the needs of the specific venture. Capital Market Board regulations also apply to joint stock companies whose shareholders' number at least 250, or who have issued bonds or whose shares are quoted on the Istanbul Stock Exchange.

A minimum of five shareholders, who may be either real persons or legal entities, are required for the formation of a joint stock company. The overall share capital must be a minimum of 5 billion TL and the minimum capital contribution by each foreign shareholder is US $ 50,000.

The capital of a joint stock company is divided into shares of equal value which are treated as negotiable commercial paper. The shares may be issued in either registered or bearer form. Registered shares are freely transferable subject to approval by the board of the company, unless prohibited by the company's articles of association. Bearer shares are freely transferable under the Code of Obligations, unless otherwise agreed by the parties.

Decision making in a joint stock company is by majority vote; but the Turkish Commercial Code includes certain provisions to protect minority interests. Minority shareholders may also request the appointment of a special auditor on their behalf.

Limited Liability Company

Limited liability companies may be composed of real persons or legal entities and must consist of at least 2 and no more than 50 partners. The overall share capital must be a minimum of 500 million TL and the minimum capital contribution by each foreign shareholder is the TL equivalent of US $ 50,000. All partners are personally liable for the debts of the company up to a maximum of their contribution, however, partners are not held liable for the unpaid portions of others' contributions. They are also more directly exposed to the tax liabilities of the company, limited however to their own shares.

Shares held in a limited liability company are non-negotiable and may be transferred only with the approval of the other partners. Transfers must be approved by at least a 75% majority vote, with at least 75% of the total capital represented. Limited liability companies are also prohibited from engaging in banking or insurance business. A limited liability company differs from the joint stock company in that its capital is not divided into shares of stock nor represented by share certificates. There is no board of directors for a limited company. Instead, the appointed manager has authority to run the company.

Branches and Liaison Offices

Foreign companies may also operate through liaison offices or branches providing they are established in accordance with the relevant legislation. The income of a branch derived in Turkey is taxed in the same way as resident corporations.

Liaison offices may be used to establish a presence in Turkey, but may not carry on any commercial activity and must be funded by the parent company outside Turkey.

Employing Foreign PersonNel

Foreign personnel can be employed in Turkey with the permission of General Directorate of Foreign Investments. Companies can apply to employ foreign personnel, but a real person cannot make an application by himself.

The applications are made directly to the General Directorate of Foreign Investments and the applications are evaluated according to a specific criteria where the qualifications of the personnel and the performance of the company are taken into account.

V. ROADMAP FOR ESTABLISHING A FOREIGN CAPITAL COMPANY IN TURKEY

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