Transformation of Company Types and Its Legal Basis

In some cases, entrepreneurs participate in an already established company due to economic support and concerns. In such scenarios, the type of the company becomes a crucial factor. It is beneficial to briefly discuss the transformation of company types and their legal basis.

The Turkish Commercial Code (TCC) addresses corporate restructuring, including the transformation of company types. According to these regulations:

• Partnerships (such as general partnerships and limited partnerships) can transform into capital companies or cooperatives,

• Limited companies can transform into joint-stock companies or cooperatives,

• Cooperatives can transform into capital companies, and

• Joint-stock companies can transform into cooperatives or other capital companies.

The most common transformations occur from partnerships to limited or joint-stock companies and from limited companies to joint-stock companies. The primary reason for this lies in liability differences:

• In partnerships, partners are personally liable for all debts with their private assets.

• In limited companies, partners may still bear personal liability for public debts.

• In joint-stock companies, however, shareholders who are not board members are not personally liable for any debts, including public debts.

The new Turkish Commercial Code further enhances the appeal of joint-stock companies by allowing external board members to be appointed, effectively shielding even a sole shareholder from personal liability.

Transformation of Commercial Enterprises into Companies

Another significant aspect is the transformation of commercial enterprises into companies. While a commercial enterprise cannot merge with a capital company as the acquirer, the law permits its transformation into a capital company. Following such a transformation, the new entity may participate in merger agreements as the acquirer.

Legal Continuity in Transformations

The law emphasizes that the new entity formed through a transformation is considered a continuation of the previous entity. This continuity ensures that the company maintains its existence with all its assets and liabilities, without requiring a separate transfer process. Essentially, the company undergoes a “shell change” while preserving its business operations.

Advantages of Company Type Transformation

The growing interest in company type transformation in recent years is due to several advantages:

1. Limited Liability: Transforming partnerships into limited or joint-stock companies eliminates the risk of unlimited personal liability.

2. Management Flexibility: The ability to appoint external board members in joint-stock companies provides professional management opportunities for small and medium-sized businesses.

3. Tax Advantages: Exemptions like stamp tax immunity during transformations make the process more financially appealing.

4. Legal Continuity: The company retains its identity, including its commercial reputation and contracts, without interruption.

Simplified Procedures and Current Regulations

Recent amendments have streamlined the transformation process:

• A transformation report prepared by a Certified Public Accountant is now sufficient, eliminating the need for additional notifications and approvals.

• Digitalization of transactions at trade registry offices has also accelerated the process.

Conclusion

Company type transformation has become an essential strategic tool for businesses and entrepreneurs. The ability to adapt to more favorable company structures not only minimizes liabilities but also fosters growth and corporate development. With expert guidance and careful planning, this process can provide long-term benefits for businesses aiming for resilience and success in the competitive market.