Sole proprietorships are regulated under Articles 620 to 645 of the Turkish Code of Obligations No. 6098 (TCO) under the title of "Ordinary Partnerships." A sole proprietorship is a type of company formed by two or more natural persons coming together for various commercial purposes. Sole proprietorships do not have legal personality . In this type of company, partners have unlimited liability. The establishment of sole proprietorships is less costly compared to other types of companies. Therefore, sole proprietorships are often preferred for setting up small or medium-sized businesses.
In sole proprietorships, each partner is obliged to contribute either in-kind or in cash to the partnership . Unless otherwise agreed in the partnership agreement, all partners, regardless of the extent of their capital contributions, share the profits and losses equally. Sole proprietorships do not have legal personality and do not have a separate capital, which means they are not liable for their debts as a separate entity. Due to this, all partners are jointly and severally liable for the company's debts with their personal assets. Decisions within the partnership are made unanimously by all partners.
Sole proprietorships have a different tax system compared to capital companies, as they have a progressive tax system and are exempt from corporate tax. Additionally, the tax liability is inseparable from the company owner. Since the company does not have legal personality, the company's earnings are considered as the owner's earnings. There are three different types of taxes that sole proprietorships are required to pay: income tax, value-added tax (VAT), and withholding tax (stoppage taxes).
In sole proprietorships, many expenses can be classified as deductible business expenses. As a result, these expenses may be eligible for various tax deductions at different conditions and rates. These expenses include meal expenses, travel expenses, clothing expenses, passenger car expenses, and communication expenses.
According to the provisions of the Turkish Code of Obligations regarding ordinary partnerships, a sole proprietorship can be established by the parties through a written agreement between them. However, for the sake of ease of proof, it is more appropriate for the agreement to be made in the presence of a notary public. To establish a sole proprietorship, firstly, the agreement and necessary documents are prepared among the partners. Then, using these documents, an "ordinary partnership start-up notification" is submitted online through the interactive tax office platform. After the application, a tax office inspection is carried out within 2-3 days, depending on the workload of the tax office. Once the tax office inspection is completed, the company is considered established.
The required documents for establishing a sole proprietorship are the notarized signature circular, photocopy of ID card, passport-size photograph, rental contract or title deed for the business address, and the application form obtained from e-government or the tax office.
In Turkey, there is no requirement for citizenship to establish an ordinary partnership. All partners in a sole proprietorship can be foreigners. According to Article 9 of the Regulation on the Implementation of the Law on Direct Foreign Investments, "Companies that foreign investors can establish or participate in are those regulated in the Turkish Commercial Code and ordinary partnerships regulated in the Turkish Civil Code."
All foreign individuals with a valid work permit in Turkey can establish a sole proprietorship. If a foreign individual applies for a sole proprietorship establishment through a work permit, it is required that the intended company will have a positive impact on the Turkish economy, and the foreigner must have sufficient income for the activities to be carried out through this company. The foreign individual must submit the documents proving compliance with these requirements to the Ministry of Labor and Social Security along with other necessary documents.
Nazli OZKUL
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İrem Topsakal
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