Joint Ventures under Turkish Legal System
I. General Information
Under Turkish law, joint ventures are defined as partnerships whereby two or more independent legal entities or individuals come together for the achievement of a common target. A joint venture is generally created for a specific project and the main elements needed for a joint venture are the individuals or the legal entities, a common purpose, contributions and the agreement of the partners. Under general principles of law, joint ventures can be formed as one of the commercial company types (most commonly, joint stock companies or limited companies) as defined in the Turkish Commercial Code numbered 6102 (“TCC”), or as an ordinary partnership in which case they shall be subject to the related provisions of the Turkish Code of Obligations numbered 6098 (“TCO”). Joint ventures which do not meet the criteria set out in the TCC shall be deemed as an ordinary partnership as per Article 620 of the TCO.
i. Commercial Companies
In the case where a joint venture is established in the form of a joint stock company or limited company (or other types of commercial companies specified in the TCC), related requirements set out in the TCC should be observed. Such requirements include minimum capital amount, number of shareholders and establishment procedure.
ii. Ordinary Partnership
The partners may, whether orally or in writing, agree on the terms and conditions regarding the government of an ordinary partnership since most of the respective provisions of the TCO are not imperative and are not regulated in detail. The TCO, generally, sets out provisions which shall be applicable where the agreement of the partners is silent. For instance, unless otherwise agreed by the partners, profits and losses are assumed by the partners equally, decisions are taken unanimously and the partnership is managed by all of the partners. Partners are prohibited from conducting any other work on their own account which is against the objective of the partnership. Unless otherwise agreed, partners are jointly and severally liable to third parties for liabilities of the partnership and no partner is allowed to transfer its share without the consent of all the other partners. The ordinary partnership is dissolved where: (i) the common objective has been accomplished or has become impossible to accomplish; (ii) any of the partners passes away in the absence of an agreement with the deceased’s heirs; (iii) executory proceedings are brought for the share(s) of any of the partners in liquidation, or the bankruptcy or mental incapacity thereof; (iv) the partners agree on dissolution; (v) the term of the partnership expires; (vi) six months’ prior dissolution notification is served by any of the partners where the partnership is established with an unlimited term or with a term limited to the lifetime of any of the partners; and (vii) the court decides on the dissolution due to just causes. Unless otherwise agreed in the partnership agreement, the dissolution is required to be pursued by the participation of all partners. According to the Communique numbered 2009/2 published in the Official Gazette dated 1 April 2009, it is possible, upon request, to register this type of joint venture (which is deemed included in the definition “the commercial enterprises which are established by commercial companies in order to accomplish an objective and gain profit and governed in common but which do not qualify as legal entities”) before the trade registry.
II. Regulations under Specific Laws
Apart from the above-mentioned general classification in the Turkish legal system, the “joint ventures” (“ortak girişim”), established as ordinary partnerships without having legal identity, are also referred to in the Public Procurement Law, and corporate tax legislation and foreign direct investment legislation.
i. Public Procurement Law
Article 4 of the Public Procurement Law defines joint ventures as “partnerships or consortia established by mutual agreement of more than one natural or legal person in order to participate in procurement.
According to Article 14 of the said Law:
“[j]oint ventures may be established by more than one natural or legal person either in the form of a business partnership or as a consortium. Members of a business partnership carry out the whole business jointly having equal rights and responsibilities while members of consortium carry out the business with separate rights and responsibilities according to their expertise field for the purpose of performing relevant parts of the business. Business partnerships may participate in any kind of tender. However, in cases where different expertises are needed, the contracting authorities shall indicate in tender documents whether the consortium are allowed or not to submit tenders. At the tender stage, the joint venture shall be asked to submit an agreement indicating the mutual agreement of the parties to form a business partnership or a consortium. The pilot partner and the coordinator partner shall be specified in business partnership agreements and in consortium agreements respectively. In case the contract is awarded to the business partnership or consortium, a notary-certified business partnership or consortium contract shall be submitted prior to signing of the contract. In both business partnership agreement and contract, it has to be stated that the natural or legal persons setting the business partnership are jointly and severally liable in the fulfillment of the commitment, whereas in consortium agreement and contract it has to be clarified which part of the business has been committed by natural or legal persons setting the consortium and they would ensure the coordination among them through coordinator partner in fulfilling the commitment. “
Where a joint venture is established in order to submit an offer for a public tender, the above-stated provisions and other requirements of the said Law should be taken into consideration.
ii. Corporate Tax Legislation
Article 2 of the Corporate Tax Law addresses the corporate tax payers, which include business partnerships. Business partnerships are defined as the partnerships that are established by the corporate taxpayers or among the corporate taxpayers and individuals or collective companies for the common accomplishment of a specific project and which request to be subject to taxation in this form. It is also stated in Article 2 that lack of having a legal entity shall make no difference to such status.
iii. Status regarding Foreign Investors under Foreign Direct Investment Law
Unless stipulated by international agreements and other special laws, foreign investors are free to make foreign direct investments in Turkey and they are subject to equal treatment with domestic investors pursuant to Article 3 of the Foreign Direct Investment Law. Foreign direct investment term includes “establishing a new company or branch of a foreign company by foreign investor” pursuant to Article 2(b) of the Law. Article 9 of the Regulation for Implementation of the Foreign Direct Investment Law expressly states that the companies, which can be established or participated in by foreign investors, are “companies” designated in the TCC and “ordinary partnerships” designated in the TCO; and partnerships established through agreements under names such as ordinary partnerships, consortiums, business partnerships and joint ventures that do not conform to the explicit features of the company types designated in the TCC are deemed unincorporated partnerships for the purposes of the Law. Accordingly,, foreign investors are free to invest in Turkey through joint ventures subject to special provisions of the other specific laws related to the subject matter of its operations.