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Establishment of a Sole Proprietorship

A sole proprietorship is one of the most researched types of companies by individuals who want to enter the commercial world today. Especially those working from home offices, those wanting to engage in e-commerce, and young entrepreneurs are curious about whether they can establish a sole proprietorship to conduct their commercial activities. The primary reasons for applying for a sole proprietorship are its low cost compared to other types of companies and the simplicity of the establishment process. In this article, we will cover the details of what a sole proprietorship is and how it is established, its advantages and disadvantages, the cost of establishment, and comparisons with other types of companies.

What is a Sole Proprietorship?

When it comes to a sole proprietorship, it is often thought of as a commercial enterprise owned by a real person. However, a real person’s commercial enterprise is not a sole proprietorship. Essentially, there are three types of sole proprietorships: a general partnership, a limited partnership, and a simple partnership.

In all these types of companies, there is a partnership situation. In other words, they are not types of companies that real persons can establish alone. Compared to capital companies, the partnership is prominent, and generally, partners are indefinitely liable for the company's debts. The management and representation of the company are provided jointly by the partners.

General Partnership

A general partnership is defined in Article 211 of the Turkish Commercial Code. According to this definition, it is a type of company established among real persons to operate a commercial enterprise under a trade name, where all partners are indefinitely liable for the company’s debts. Its most important feature is that its partners can only be real persons, and it cannot be established by legal persons.

A general partnership is a type of sole proprietorship. It can be established with at least two partners. Since it is not a capital company, there is no minimum capital requirement. Very small amounts, such as 5-10 Turkish Liras, can be considered capital.

A general partnership agreement must be made in writing. Additionally, the signatures on the agreement must be notarized, or the company agreement must be signed in the presence of the relevant trade registry office director or assistant. Some elements are mandatory in the general partnership agreement. The mandatory elements are as follows:

Names and surnames, residences, and nationalities of the partners, along with their T.C. Identification numbers (tax numbers or identification numbers for foreigners).
The fact that the company is a general partnership.
The trade name and center of the company.
The business scope.
The type and amount of capital each partner undertakes to contribute.
The persons authorized to represent the company and the manner of representation.

The trade name of the general partnership must include the name and surname of all partners or at least one partner, along with a word indicating the type of company. For example:

Ahmet Yılmaz General Partnership,
Ahmet Yılmaz and Partners General Partnership,
Ahmet Yılmaz and Mehmet Çelik General Partnership,
Yılmaz Machine General Partnership – Ahmet Yılmaz,
Yılmaz Machine General Partnership – Ahmet Yılmaz and Partner.

How to Establish a General Partnership?

To establish a general partnership, first, log into the Central Registry Record System (MERSİS) via e-government, fill out the necessary form under the Establishment procedures, and obtain a request number. Subsequently, apply to the relevant regional office with the said request number.

The establishment process is completed by fulfilling the necessary conditions expressed below and paying the fees.

Documents Required to Establish a General Partnership

1-) Petition

The petition to be submitted to the registry office for the establishment of the company must be signed by all founders. If it will be signed by proxy, the original or certified copy of the power of attorney must be attached. The petition should specify the tax office the company will be affiliated with and include a list of the attached documents. The petition should clearly state the company’s trade name, capital, headquarters, start date, and the actual activity on this date with the NACE code. It should also declare that the information is correct and that the signatories of the petition are responsible for all consequences in case of any discrepancies.

2-) Chamber Registration Statement

3-) Establishment Notification Form if there are Foreign Partners or Turkish Citizens Not Residing in Turkey

4-) If the main contract prepared via MERSIS is to be signed by the company partners, the partners must be present at the relevant unit for signature during the application. If the contract is to be signed by proxy, the partners do not need to go to the Directorate if the original signed power of attorney is presented; the person with the power of attorney can apply alone.

5-) Signature Declarations of Persons Authorized to Represent the Company other than the Partners can be arranged at the relevant directorate or at other registry directorates to be sent to the relevant directorate, or they can be arranged at a notary.

6-) If there is a foreign partner or authorized person, the notarized translation of the passport and tax number must be submitted.

7-) If the general partnership is being established in a free zone, the original or notarized copy of the permit letter obtained from the Free Zones General Directorate must be submitted.

Cost of Opening a General Partnership

Certain fees must be paid for the establishment of a general partnership. Although the expenses for establishing a general partnership vary from city to city, they are generally similar. We have compiled the expenses for establishing a general partnership in Istanbul. The expenses and cost items are as follows:

Establishment Fee: 9,163.60 TL
Representative Fee: 2,267.30 TL
TTSG Announcement Fee (1.33 TL per word)
Announcement Expenses: 150.00 TL
Registry Certificate Fee: 523.30 TL
TTSG Announcement Fee (1.33 TL per word)
Announcement Expenses: 150.00 TL
Power of Attorney Costs: 400.00 TL - 800.00 TL
Signature Circulars: 400.00 TL - 600.00 TL
Notary Certification of Company Agreement: 1,300.00 TL - 2,000.00 TL
Notarized Passport Translation for Foreigners: 2,000.00 TL

Termination of a General Partnership

General partnerships, except for the provisions regarding the death of a partner regulated in Article 253 of the Turkish Commercial Code, can be terminated based on Articles 639 and 640 of the Turkish Code of Obligations, under the following conditions:

The realization of the objective stipulated in the partnership agreement or the objective becoming impossible.
The death of a partner if there is no provision in the agreement regarding the continuation of the partnership with heirs.
The restriction, bankruptcy, or forced liquidation of a partner's share in case there is no provision for the continuation of the partnership in the agreement.
Unanimous decision of all partners.
The expiration of the agreed period for the partnership.
Termination notice by a partner if the right to termination has been reserved in the partnership agreement, or if the partnership has been established for an indefinite period or for the lifetime of a partner.
Court decision upon the request for termination due to justifiable reasons, without requiring any other conditions.

Additionally, as per Article 243 of the Turkish Commercial Code, the partnership may be terminated if:

a) The company goes bankrupt, even if it ends in concordat.

b) Despite the loss of the entire capital or two-thirds of it, a decision is not made to complete the capital or to continue with the remaining capital.

c) The company merges with another company.

d) Registration and announcement are not made within the specified period in Article 215 of the Law, and regardless of the elapsed time, if any partner requests it and sends a warning to the other partners via a notary with an appropriate period, the court decides to terminate.

e) The bankruptcy of a partner, with the provision regarding the bankruptcy of a partner regulated in Article 254 of the Turkish Commercial Code being reserved.

Limited Partnership

A limited partnership is a company established to operate a commercial enterprise under a trade name, where the liability of one or more partners for the company’s debts is unlimited, while the liability of other partner(s) is limited to a specific amount of capital. It is the least common type of company in our country. One of the main differences from a general partnership is that the partner can also be a legal entity. Another important difference is that the liability of one of the partners is limited to a specific capital. The partner with unlimited liability is called the general partner, while the partner with limited liability is called the limited partner. The liability of the limited partner is limited to the amount of capital they contribute or commit to the company. If the company’s debts cannot be collected from the company, the limited partner is liable only up to their contributed capital. However, if the limited partner's name appears in the company name, they will be liable as a general partner.

General partners can only be real persons, while limited partners can be both real and legal persons.

There are two types of limited partnerships: Ordinary Limited Partnerships and Limited Partnerships Divided into Shares. An ordinary limited partnership is a type of sole proprietorship, while a limited partnership divided into shares is a capital company. When referring to a limited partnership, it generally means an ordinary limited partnership. A limited partnership divided into shares is a special case of a limited partnership. In a limited partnership divided into shares, the capital is divided into shares, and some partners are liable for the company’s debts as in a general partnership, while others are liable as shareholders of a joint-stock company.

The trade name of limited partnerships must include the name and surname of at least one general partner and indicate the type of company. The names and surnames or trade names of limited partners cannot appear in the trade name. It is also important to note that merely looking at the trade name is not enough to determine whether a company is a limited partnership. The company agreement must clearly indicate that it is a limited partnership.

Examples of names for limited partnerships include:

Ahmet Yılmaz Limited Partnership
Ahmet Yılmaz and Partners Limited Partnership
Ahmet Yılmaz and Mehmet Çelik Limited Partnership
Yılmaz Machine Limited Partnership – Ahmet Yılmaz
Yılmaz Machine Limited Partnership – Ahmet Yılmaz and Partner

How to Establish a Limited Partnership

To establish a limited partnership, first, log into the Central Registry Record System (MERSIS) via the e-government portal, fill out the necessary form under the Establishment procedures, and obtain a request number. Subsequently, apply to the relevant regional office with the said request number.

The establishment process is completed by fulfilling the necessary conditions and paying the required fees, as outlined below.

Documents Required to Establish a Limited Partnership

Petition

The petition to be submitted to the registry office for the establishment of the company must be signed by the person authorized to sign on behalf of the company. If signed by proxy, the original or certified copy of the power of attorney must be attached. The petition should specify the tax office the company will be affiliated with and include a list of the attached documents.

The petition should clearly state the company’s trade name, capital, headquarters, start date, and the actual activity on this date with the NACE code. It should also declare that the information is correct and that the signatories of the petition are responsible for all consequences in case of any discrepancies.

Chamber Registration Statement
Establishment Notification Form if there are Foreign Partners or Turkish Citizens Not Residing in Turkey
If the main contract prepared via MERSIS is to be signed by the company partners, the partners must be present at the relevant unit for signature during the application. If the contract is to be signed by proxy, the partners do not need to go to the Directorate if the original signed power of attorney is presented; the person with the power of attorney can apply alone.
Signature Declarations of Persons Authorized to Represent the Company other than the Partners can be arranged at the relevant directorate or at other registry directorates to be sent to the relevant directorate, or they can be arranged at a notary.
If capital in kind is contributed, a valuation report and expert appointment letter determining the value of the contributed capital. This report should be prepared by an expert appointed by the court.
A letter stating that there are no restrictions on the capital in kind. This letter should be obtained from the relevant registry.
A document showing that the immovable properties, intellectual property rights, and other values contributed as capital in kind have been annotated in their respective registries.

Cost of Opening a Limited Partnership

Certain fees must be paid for the establishment of a limited partnership. Although the expenses for establishing a limited partnership vary from city to city, they are generally similar. We have compiled the expenses for establishing a limited partnership in Istanbul. The expenses and cost items are as follows:

Registry Office Expense: 9,163.60 TL
Representative Fee: 2,267.30 TL
TTSG Announcement Fee (1.33 TL per word)
Announcement Expenses: 150.00 TL
Registry Certificate Fee: 523.30 TL
TTSG Announcement Fee (1.33 TL per word)
Announcement Expenses: 150.00 TL
Power of Attorney Costs: 400.00 TL - 800.00 TL
Signature Circulars: 400.00 TL - 600.00 TL
Notary Certification of Company Agreement: 1,300.00 TL - 2,000.00 TL
Notarized Passport Translation for Foreigners: 2,000.00 TL

Termination of a Limited Partnership

The termination of a limited partnership is governed by the same provisions as those for the termination of a general partnership. Article 328 of the Turkish Commercial Code explicitly regulates this matter. Accordingly, limited partnerships can be terminated based on the following provisions in Articles 639 and 640 of the Turkish Code of Obligations, except for the provision regarding the death of a partner regulated in Article 253 of the Turkish Commercial Code:

The realization of the objective stipulated in the partnership agreement or the objective becoming impossible.
The death of a partner if there is no provision in the agreement regarding the continuation of the partnership with heirs.
The restriction, bankruptcy, or forced liquidation of a partner's share in case there is no provision for the continuation of the partnership in the agreement.
Unanimous decision of all partners.
The expiration of the agreed period for the partnership.
Termination notice by a partner if the right to termination has been reserved in the partnership agreement, or if the partnership has been established for an indefinite period or for the lifetime of a partner.
Court decision upon the request for termination due to justifiable reasons, without requiring any other conditions.

Additionally, as per Article 243 of the Turkish Commercial Code, the partnership may be terminated if:

a) The company goes bankrupt, even if it ends in concordat. b) Despite the loss of the entire capital or two-thirds of it, a decision is not made to complete the capital or to continue with the remaining capital. c) The company merges with another company. d) Registration and announcement are not made within the specified period in Article 215 of the Law, and regardless of the elapsed time, if any partner requests it and sends a warning to the other partners via a notary with an appropriate period, the court decides to terminate. e) The bankruptcy of a partner, with the provision regarding the bankruptcy of a partner regulated in Article 254 of the Turkish Commercial Code being reserved.

Ordinary Partnership

Unlike other types of companies, an ordinary partnership is regulated under the Turkish Code of Obligations. An ordinary partnership requires at least two people. Partners can be either real persons or legal entities. An ordinary partnership does not have a legal personality. It is a partnership established for any reason between the partners. In other words, it forms spontaneously without the need for the intention to create a company. Since the partnership forms spontaneously, it can be established with either a written or oral agreement.

There is no requirement for application, registration, or notification to any institution for the formation of an ordinary partnership.

In an ordinary partnership, partners have unlimited liability for the company’s debts.

Establishment of a Sole Proprietorship via e-Government

As mentioned above, sole proprietorships include ordinary partnerships, general partnerships, and limited partnerships. Since an ordinary partnership forms spontaneously, there is no need for an establishment process. However, for general and limited partnerships, you can initiate the establishment process by selecting the type of company you will establish through the Company Establishment Procedures via MERSIS and uploading the required information and documents step by step. It is not possible to complete all establishment procedures via e-government. The request number given to you after your application through MERSIS must be used to apply to the relevant registry office to complete the company establishment process.

Differences Between Sole Proprietorships (General Partnership, Limited Partnership) and Limited Companies

Liability of Partners:

Sole Proprietorships:
General Partnership: Partners have unlimited, direct, and joint liability for the company's debts.
Limited Partnership: General partners (komandite) have unlimited liability, while limited partners (komanditer) are only liable up to the amount of capital they have committed.
Limited Company: Partners are only liable up to the amount of capital they have committed, and their personal assets are not at risk for the company's debts.

Partnership Structure:

Sole Proprietorships:
General Partnership: Can only be established by real persons.
Limited Partnership: Can include legal entities as limited partners.
Limited Company: Can include both real persons and legal entities as partners. The maximum number of partners is fifty.

Capital Structure:

Sole Proprietorships:
General Partnership: No specific capital requirement.
Limited Partnership: Capital is formed through the contributions of limited partners.
Limited Company: The minimum initial capital must be at least 10,000 TL, and the full amount of the cash capital commitment must be paid within 24 months after registration.

Management and Representation:

Sole Proprietorships:
General Partnership: All partners have the right to manage and represent the company.
Limited Partnership: Only general partners have the right to manage the company.
Limited Company: Management is provided by a manager or a board of managers. Partners may not be directly involved in the management.

Differences Between Sole Proprietorships (General Partnership, Limited Partnership) and Joint-Stock Companies