Liability of Shareholders in Limited Liability Companies under Turkish Commercial Code

Limited liability companies (LLCs) are one of the most common business structures in Turkey. The Turkish Commercial Code (TCC), specifically Law No. 6102, outlines the responsibilities and liabilities of shareholders in such companies. Recent changes introduced by Law No. 7511 have updated the minimum capital requirements for LLCs and further clarified the liability framework.

• With the new legal amendments effective from January 1, 2024, the minimum capital requirement for limited liability companies has been raised to TRY 50,000, up from the previous TRY 10,000

• An LLC can be formed by at least one and no more than 50 shareholders under the TCC. Shareholders’ liability is primarily limited to their capital contribution, which means they are not personally liable for the company's debts beyond their invested capital.

• LLCs in Turkey have a separate legal personality, meaning the company itself is responsible for its debts and obligations. Shareholders generally cannot be held personally liable for the company’s debts, except in specific circumstances detailed in the TCC.

• The fundamental principle of Turkish LLCs is that shareholders are liable only for the capital amount they have committed. Once their contribution is fully paid, they typically do not bear any further liability for the company’s obligations, making this structure attractive for business owners seeking to limit personal risk.

• Shareholders may, however, be held liable for any portion of their capital commitment that remains unpaid. Under Article 580 of the TCC, if the company faces financial distress, creditors can seek recourse against shareholders for any unpaid capital amounts.

• One key exception to the general rule of limited liability involves tax debts. Under Turkish law, if an LLC fails to meet its tax obligations, the shareholders may be held personally liable for unpaid taxes. This is particularly relevant in cases where the company does not have sufficient assets to cover tax liabilities.

• Similarly, shareholders can be held personally liable for unpaid social security contributions. If the company defaults on these payments, the Turkish Social Security Institution (SGK) can pursue individual shareholders for the outstanding amounts.

• Shareholders who engage in fraudulent activities or misconduct that leads to the company’s insolvency may lose their limited liability protection. The TCC allows courts to pierce the corporate veil in cases where shareholders abuse the corporate form for personal gain or act against the company’s interest.

• In many LLCs, shareholders also serve as managers of the company. Under the TCC, shareholder-managers bear additional responsibilities and can be held liable for management decisions that cause harm to the company, its creditors, or third parties.
• Shareholder-managers must act in good faith and with due diligence, ensuring they avoid conflicts of interest and act in the best interest of the company.

• If multiple shareholders are involved in managing the company, they may be held jointly and severally liable for any damages caused by mismanagement or breach of fiduciary duties. This liability extends beyond their capital contributions.

• In recent years, Turkish authorities have increased efforts to enforce tax liabilities against LLC shareholders, particularly in cases involving tax evasion or non-compliance with social security contributions.

• The TCC has introduced reforms aimed at improving corporate governance in LLCs, including stricter reporting requirements for shareholder-managers and clearer guidelines on managing conflicts of interest.
• Under recent amendments to the TCC, the responsibility for appointing and dismissing branch managers has been removed from the non-delegable powers of the board of directors. This allows companies greater flexibility in management

The Turkish Commercial Code provides a clear framework for the liability of shareholders in limited liability companies. While the general rule is that shareholders are only liable up to the amount of their capital contribution, exceptions exist, particularly regarding tax obligations and social security contributions. Shareholders, especially those involved in the management of the company, must be aware of their responsibilities and potential liabilities to avoid personal risk.

The liability of shareholders in Turkish limited liability companies is generally limited to their capital contributions, but certain exceptions, especially related to tax and social security obligations, may impose additional personal liabilities. The recent changes in minimum capital requirements and corporate governance highlight the evolving nature of shareholder responsibilities under Turkish law.