Incorporation Procedures: Articles of Association, Incorporation Process, and Capital Contributions

The incorporation of a joint stock company is a serious legal process governed by Articles 335 et seq. of the Turkish Commercial Code (TCC), requiring strict compliance with a prescribed procedure. This process constitutes a chain of legal acts beginning with the preparation of the articles of association and extending through registration and publication.

1. Articles of Association: The Constitution of the Company

The cornerstone of the incorporation of a joint stock company is the Articles of Association. The TCC stipulates, through mandatory provisions, the minimum elements that must be included therein. In addition to essential matters such as the company’s trade name, registered office, field of activity, share capital, nominal value of shares, number and terms of office of board members, the Articles of Association may also contain special provisions governing the internal functioning of the company.

The Articles of Association must be executed in writing, and the signatures of the founders must be notarized. However, it should be emphasized that the Articles of Association are not merely a collection of standard forms; rather, they constitute the primary legal source that will govern future disputes among shareholders. Therefore, it is of vital importance that the company’s scope of activity be drafted broadly yet clearly, and that managerial powers be defined in a manner that permits effective supervision and accountability.

2. Incorporation Process and Registration/Announcement

Following the notarization of the Articles of Association, the incorporation process is entered into the Central Registration System (MERSIS). The prepared Articles are then submitted to the relevant Trade Registry Directorate.

An application for registration is filed with the trade registry where the company’s registered office is located. Upon determining that the submitted documents are complete and comply with legal requirements, the Trade Registry registers the company. Upon registration, the joint stock company acquires legal personality.

The registered company is subsequently announced in the Turkish Trade Registry Gazette. Such publication serves as evidence of the company’s existence against third parties, and from this point onward, the company becomes a legal subject capable of assuming rights and obligations.

3. Partial or Full Payment of Capital

Capital is the lifeblood of a joint stock company. Pursuant to the TCC, the entire share capital must be subscribed in the Articles of Association.

Under the legal framework applicable in 2026, at least one-quarter (25%) of the nominal value of cash capital commitments must be paid before registration, while the remaining portion must be paid within twenty-four months following registration.

This initial one-quarter contribution must be deposited into a bank account opened in the name of the company, and the deposit must be evidenced by a bank blockage letter.

Where capital contributions are made in kind (such as real estate, vehicles, intellectual property rights, etc.), a valuation report prepared by a court-appointed expert is mandatory.

Failure to fulfill capital contribution obligations is not merely a financial deficiency; it is also regarded as a breach that may give rise to the legal liability of directors and founders.

Shares Offered to the Public After Incorporation

The most significant feature distinguishing joint stock companies from other business entities is their capacity to broaden their capital base and access public investment through an initial public offering (IPO).

While joint stock companies typically begin with a closed shareholder structure, they may subsequently choose to go public in order to finance growth, fund new projects, or provide liquidity opportunities for existing shareholders. This process is governed not only by the Turkish Commercial Code but also by the Capital Markets Law and related secondary legislation, which impose stringent regulatory oversight.

Strategic and Legal Basis of Public Offering

A post-incorporation public offering signifies the company’s transition into the status of a publicly held joint stock company. For the company, this represents not only an influx of capital but also a commitment to full compliance with corporate governance standards.

A public offering involves inviting a broad investor base to purchase the company’s shares. While such an offering enhances the company’s prestige, it also entails substantial costs and significant transparency obligations.

To ensure a successful public offering, the company must align its internal control systems, financial reporting mechanisms, and board structure with international standards and the corporate governance principles mandated by the Capital Markets Board (CMB).

A company that was initially a privately held joint stock company thereby transforms into an entity accountable to the investing public.

Process: Prospectus and Regulatory Review

The most critical document in a post-incorporation public offering is the prospectus. The prospectus functions as an investor guide detailing the company’s financial condition, operations, risks, and ownership structure.

Approved by the Capital Markets Board, the prospectus constitutes the legal basis of the offering.

If the prospectus contains misleading or incomplete information, the members of the board of directors and the intermediary institutions conducting the offering may incur both civil and criminal liability.

Types and Methods of Public Offering

A public offering following incorporation may generally be conducted through two principal methods:

Public Offering Through Capital Increase

The company issues new shares and increases its share capital. The proceeds obtained through the offering are transferred directly to the company and may be used as working capital.

Public Offering Through Share Sale

Existing shareholders offer their shares to the public. In this method, no direct funds flow into the company; however, shareholders gain liquidity by selling their shares.

The public offering process continues with the determination of the company’s market value (price discovery). Such valuation is conducted based on reports prepared by independent auditing and valuation institutions.

Investor confidence depends largely upon the professionalism and transparency with which this process is conducted.

Advantages and Obligations of Going Public

The principal advantages include increased public recognition, enhanced liquidity, access to relatively inexpensive financing, and greater operational efficiency resulting from institutionalization.

However, the obligations are equally significant. Continuous disclosure requirements through the Public Disclosure Platform (KAP), mandatory independent audits, increasingly complex general assembly procedures, and ongoing supervision by the Capital Markets Board impose substantial discipline upon corporate management.

In conclusion, the post-incorporation public offering process represents the final stage in a company’s transformation from an entrepreneurial venture into a fully institutionalized organization. Throughout this process, obtaining legal counsel and professional support from authorized intermediary institutions is not only a practical necessity but also a strategic imperative for safeguarding the company’s future in the capital markets.

This major step transforms the company from a local business enterprise into an investment vehicle capable of attracting capital on a global scale.

Sanctions for Deficiencies and Irregularities in Incorporation Procedures

The incorporation of a joint stock company is subject to strict formal requirements and mandatory legal provisions under the Turkish Commercial Code. Deficiencies or violations occurring during the incorporation stage may prevent the valid registration of the company and may also give rise to serious legal consequences after registration.

Such sanctions may threaten the very existence of the company and may result in personal liability for founders and members of the board of directors.

Within Turkish law, defects in incorporation are generally examined under the concepts of nullity and invalidity of incorporation.

Nullity of Incorporation

Article 353 of the TCC provides that a joint stock company may be dissolved through an action for nullity even after registration if the Articles of Association violate mandatory legal provisions or if the legally prescribed incorporation procedures have not been observed.

An action for nullity may arise where essential elements required by law—such as the company’s trade name, registered office, or share capital—are absent from the Articles of Association, or where the Articles were not executed before a notary public.

Such deficiencies may lead to the company being treated as legally non-existent and ultimately removed from the Trade Registry.

An action for nullity may be brought by any interested party and may also be considered ex officio by the courts.

Annulment of Incorporation and Special Sanctions

Unlike nullity, less severe irregularities or defects of consent during the preparation of the Articles of Association—such as mistake or fraud—are assessed under the general provisions of law.

However, false declarations regarding capital commitments or irregularities in the valuation of contributions in kind trigger liability under the principle of incorporation liability.

Because the TCC is founded upon the principle of capital maintenance, the absence of genuinely existing capital at the time of incorporation may justify both the annulment of registration and the imposition of civil and criminal sanctions upon responsible individuals.

Legal Liability of Founders and Directors

Deficiencies during incorporation may expose not only the company but also founders and directors to substantial liability.

Pursuant to Article 553 of the TCC, founders, directors, and auditors who participate in the incorporation process are jointly and severally liable for damages arising from violations of the law, the Articles of Association, or their statutory duties.

Examples include intentionally inflating the value of in-kind contributions, establishing capital payment plans contrary to the Articles of Association, or improperly charging personal expenses to the company.

Such liability encompasses both compensation claims and, where applicable, administrative sanctions.

False Declarations to the Trade Registry and Criminal Liability

Submission of forged documents or intentional misrepresentation of information during incorporation may constitute criminal offenses under the Turkish Penal Code, including forgery of official documents and commercial fraud.

Although Trade Registry Directorates conduct electronic reviews through MERSIS, the registration system remains largely declaration-based.

Accordingly, if false statements are subsequently discovered, legal proceedings may be initiated to cancel the registration, and founders responsible for the misrepresentations may face severe criminal sanctions.

Particularly serious violations include falsified bank blockage letters or declarations falsely stating that capital contributions have been paid.

Remedying Defects and Protecting the Company

Not every deficiency in incorporation necessarily requires dissolution of the company.

Where a defect is capable of correction—for example, the addition of an omitted clause to the Articles of Association—the deficiency may be remedied through resolutions of the general assembly or the board of directors.

Since the company acquires independent legal personality upon registration, the principles of legal certainty and creditor protection play a decisive role in determining whether defects may be cured.

Nevertheless, obtaining legal counsel during incorporation and ensuring that all documents are prepared under professional supervision remains the most reliable means of avoiding such sanctions.

Liability of the Partnership During Incorporation

The incorporation process of a joint stock company may be divided into two phases: the period before registration and the period after registration.

However, the concept of incorporation liability extends not only to the post-registration period but also to legal transactions undertaken by founders among themselves or with third parties prior to registration.

Since the company has not yet acquired full legal personality during this stage, determining who bears liability is of critical importance for the protection of creditors.

Pre-Registration Period and Founders’ Liability

Until registration, the company exists merely as a company in formation.

Persons acting on behalf of the company during this stage, including founders and representatives, are personally and jointly liable for transactions concluded in the company’s name.

Accordingly, a third party supplying goods or services before registration may seek payment directly from the founders rather than from the company.

This rule exists to protect third parties, as the company’s assets and legal existence have not yet been fully established.

Assumption of Liability by the Company

Upon registration in the Trade Registry, the company may assume liability for transactions undertaken before registration.

Under Article 355 of the TCC, founders remain liable for incorporation-related transactions conducted prior to registration. However, if the company expressly adopts such transactions after registration, liability transfers to the company.

If the company fails to assume these obligations within three months of registration, liability remains with the founders.

This mechanism prevents irresponsible expenditures by founders and protects the company from unnecessary financial burdens.

Liability for Incorporation Expenses

Expenses incurred during incorporation—such as notarial fees, publication costs, and professional consultancy fees—may be reimbursed from company assets after incorporation.

However, such expenses must be necessary for the incorporation process.

Compensation or reimbursement claims by founders must be expressly provided for in the Articles of Association. Otherwise, founders may not seek reimbursement from the company.

This rule prevents founders from using the company as a vehicle for personal expenditures.

Scope of Liability and Joint and Several Liability

Liability arising during incorporation is based upon the principle of joint and several liability.

Each founder or director may therefore be held personally liable for the entire obligation.

A third party suffering damage during incorporation may seek full compensation from any one of the liable persons.

The liable parties may subsequently exercise rights of recourse against one another according to their respective degrees of fault.

However, joint and several liability toward third parties cannot be limited or excluded by the Articles of Association.

Duty of Care and Transparency

Another source of liability during incorporation is the duty of care imposed upon founders and directors.

The TCC requires founders to act honestly, transparently, and with the diligence expected of prudent businesspersons.

Providing misleading information regarding the company’s activities, capital structure, or incorporation process may directly result in liability.

For example, artificially inflating the value of a property contributed as in-kind capital may render all responsible parties—including founders, experts, and directors—liable for resulting damages.

In summary, the liability of founders during incorporation remains personal and unlimited until registration. Although many obligations transfer to the company following registration, every signature and expenditure made before registration retains its legal significance and potential consequences.

Fraud Against the Law (Fraus Legis)

In joint stock company law, fraud against the law (fraus legis) refers to the circumvention of mandatory legal provisions by establishing a structure that appears formally lawful but is intended to achieve a result prohibited or restricted by law.

Due to their separate legal personality and institutional structure, joint stock companies frequently serve as instruments in such arrangements.

Under both the Turkish Commercial Code and the Turkish Civil Code, legal consequences obtained through fraud against the law are denied legal protection and may trigger severe sanctions.

Concept and Mechanism of Fraud Against the Law

Fraud against the law occurs when parties avoid a directly prohibited course of action by pursuing an alternative route that appears legally permissible.

For example, where legislation prohibits certain persons from conducting commercial activities or requires a specific capital structure, an individual may establish a shell or nominee company to bypass these restrictions.

Although all incorporation formalities may appear valid on their face, the underlying purpose is to evade mandatory legal rules.

The doctrines of limited liability and separate legal personality often make joint stock companies attractive vehicles for such schemes.

Fraudulent Practices During Incorporation

One common form of fraud involves creating the appearance that capital exists when it does not.

The TCC requires that capital contributions genuinely exist and be transferred to the company. Temporarily depositing funds solely for registration purposes and withdrawing them immediately afterward constitutes fraud against the law.

Similarly, misrepresenting the company’s field of activity in order to conduct prohibited or unauthorized business operations constitutes a fraudulent incorporation.

Such conduct reflects deliberate bad faith rather than mere administrative error.

Piercing the Corporate Veil

One of the most important doctrines associated with fraud against the law is the piercing of the corporate veil.

The principle of separate legal personality ceases to function as a shield where the company is used to commit fraud, evade obligations, or deceive third parties.

According to Turkish judicial practice and legal doctrine, if a company is established or operated as a mere instrument for fraudulent purposes, the distinction between the company and its shareholders may be disregarded.

Creditors may then proceed directly against the personal assets of shareholders, thereby eliminating the benefits of limited liability.

Sham Transactions and Defects of Consent

Fraud against the law is often accompanied by sham transactions.

The Articles of Association may outwardly reflect one intention while concealing another.

For example, where nominee shareholders are used solely to satisfy legal requirements while ownership effectively remains concentrated in a single person, the incorporation may be challenged on grounds of sham transactions and defects of consent.

Such arrangements may be declared void from the outset, particularly in tax law and commercial law contexts.

Legal Consequences and Sanctions

The legal system affords no protection to transactions involving fraud against the law.

The registration of companies established through fraudulent means may be cancelled once the fraud is discovered.

Moreover, damages caused to third parties may result in personal liability for founders and directors.

Where the fraudulent conduct constitutes offenses such as tax evasion or aggravated fraud, the responsible individuals may face severe criminal penalties under the Turkish Penal Code.

In cases involving banks or public institutions, the corporate entity cannot serve as a shield against criminal responsibility; the individuals who committed the fraudulent acts remain personally liable.

In conclusion, the legal structure of a joint stock company is a privilege designed to facilitate commercial activity. Abuse of that privilege through fraud against the law undermines the fundamental principles of commercial law and may result in sanctions severe enough to end an individual’s commercial career. For prudent entrepreneurs and founders, the safest course is to operate within the limits prescribed by law and in accordance with the principle of good faith.