Company Dissolution and Liquidation in Turkey
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Company Dissolution and Liquidation in Turkey
This article delves into the topic of company dissolution and liquidation in Turkey. Turkey is a country that draws foreign investors who want to invest in the country’s real estate market or other industries. Despite the fact that Turkey’s economy is functioning strongly, some businesses have decided to cease operations for one or maybe more reasons.
Some investors want to withdraw from the Turkish market when they find themselves indebted, and they want to pay those debts by undergoing the company liquidation process. It’s then followed by the dissolution of the business/company as per the Company Law in Turkey, which provides dissolution and liquidation of companies in Turkey.1
You should be aware that different industries have different criteria, so you should seek the advice of an experienced attorney in Turkey to learn how your business/company can be lawfully liquidated and dissolved in Turkey.
What Does Dissolving a Company Means?
A company is required to be dissolved when its purpose has been served and it will not be started up again. This usually happens when either the head of a company retires or when it is clear that a company is no longer required or just simply doesn’t serve its purpose anymore. There might also be other reasons, such as; corporate debt, company not making a profit, etc.
The dissolution is a process in which a business/company is closed legally by filling out the required paperwork and informing the government. It also informs the government that a company doesn’t exist for tax purposes. Also, a company has to pay its creditors in full before it is officially closed down.2
What Does Liquidating a Company Means?
Liquidation is a process in which the assets of a company are sold to pay debts before it is closed as a result of necessity or choice.2 This action usually occurs when a company is not able to make profits and/or has to pay debts to several investors/creditors.
The company may be forced to shut down, but it’s necessary to first pay their investors/creditors. The company may get into several types of liquidations, such as; board members’ voluntary liquidation, creditors’ voluntary liquidation, and compulsory liquidation.
Most of the time, a company is dissolved by the intentional choice of the director, whereas liquidation is necessary to shut down a company to pay debts to investors/creditors.
What are the company types that can undergo Dissolution and Liquidation in Turkey?
As per Turkish law3, the companies undertaking commercial activities are only allowed to undergo liquidation first and then dissolution. These companies include; Private Limited Liability Companies, Joint Stock Companies, Collective Companies, Commandite Companies, Cooperative Companies, Foundations, and Associations responsible for commercial activities.
You must know that Collective and Commandite Companies in Turkey serve equal partnerships in other European countries. Due to this fact, foreign investors who own businesses in Turkey and are looking for liquidation are advised to take legal help from an experienced and capable Turkish law firm. During the liquidation process, the company’s name must be changed by adding some kind of phrase of the owner’s choosing. This will indicate that a company has been liquidated.
What are the types of company liquidation procedures in Turkey?
There are two forms of company liquidation in Turkey, which are voluntary and obligatory.
Voluntary company liquidation is recognized by the shareholders of the company in a general assembly and by altering the Articles of Association of the company/business. On the other hand, compulsory liquidation is often demanded by the investors/creditors, and this mandatory ordered by a court of law.
Whatever type of company liquidation procedure is being followed, the result of this is the company’s/business’s dissolution.
There are a variety of factors that might lead to a company’s dissolution and liquidation in Turkey. Here are a few examples:
- The limited period of activity,
- Unable to understand its objectives within the desired duration,
- If a company has lost 2/3 of its share capital,
- If the number of shareholders is less than two,
- Sometimes the articles of association for certain causes can lead to the dissolution of the company.
It’s recommended to consult with a company formation agent in Turkey to get detailed information about the company act associated with company dissolution and liquidation in Turkey.
What are the steps of Company Dissolution and Liquidation in Turkey?
When the management/board of a company decides to company liquidation during a general meeting, a liquidator is selected who will represent the company all through the liquidation process. Some required information about the company is given to the Trade Register in order to start the liquidation process of the company.
At the same time, you must know that the general meeting has the freedom to terminate the liquidator at any time and can decide at what level he/she can perform in this process. If there is a compulsory liquidation, the court appoints a liquidator and has full power to terminate it if necessary.4
It’s the liquidator’s responsibility to prepare the balance sheet as well as the entire inventory of the assets of the company. This should also be approved by the shareholders. Then, the liquidator will check all documents and inform the creditors about the company’s liquidation process.4
After this, the investors/creditors will submit their claims. If they aren’t accomplished within the due time, the amount covering their claims is required to be deposited to an administrative authority allotted by the liquidator.
Once the company’s all debts are paid, the remaining assets will get distributed between the company’s shareholders depending on their contribution to the company’s capital.
At last, a general meeting is held to announce the termination of the liquidation process. When this decision is registered at the Trade Register, it will remove the company’s name permanently. The best way is to take the help of a lawyer to make the entire process hassle-free.
Also, the liquidator must assign a third party who will keep all the documents of the company for at least ten years. The information, such as the name and address of this third party must be stated in the application to the Turkish Trade Registry.
What is the taxation during a company’s dissolution process?
You must know that if your company is undertaking a dissolution process, it is still liable to local taxation. The company will have to follow the standard taxation system which applies to other companies in Turkey. But if the company is under the liquidation process, it means the company no longer exists in a financial year. It will be substituted by a liquidation period.
Would you like to learn more about; “Corporate Taxation in Turkey“? Check out our article on the topic.