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Common Legal Mistakes Made By Startup Companies
Common Legal Mistakes Made By Startup Companies

APRIL 24,2016

newsletter-1  Common Legal Mistakes Made By Startup Companies newsletter 1 300x136“Creativity” and “Courage” have become the two most significant motions for success in the 21st century. The number of startup companies increases day by day but only a few of them succeeds. One of the main reasons of business failure is the negligence of legal requirements and unawareness of legal advantages.

 

5 (five) most frequent legal mistakes made by startup companies are given below:

  1. Not preparing a shareholders’ agreement

Even though shareholders’ agreement is not obligatory due to the Turkish Legislation, preparing a written agreement would avoid disputes that may occur among shareholders in future. Shareholders may determine important and confidential issues such as percentages, responsibilities, pre-emptive rights, drag-along and tag alone rights, restrictions on transfer of shares etc. by executing a shareholders’ agreement.

  1. Not choosing right entity type

Choosing the suitable entity type according to the scope of business is vital considering that liabilities, requirements and advantages vary due to the entity type. At this point, in order to have a strong legal infrastructure, entrepreneurs who want to start a business in Turkey should first choose the right entity type by taking into consideration the differences given in the table below*.

JOINT STOCK COMPANY LIMITED LIABILITY COMPANY
Minimum Capital requirement

 

50.000,00TRY 10.000,00 TRY
Management

 

One or more

Directors

– One or more managers.

– If more than one manager is appointed, at least one of the managers shall be a shareholder

Share Transfer No registration procedures for share transfer Share transfer shall be registered with Turkish Trade Registry
Liability

 

– Company is responsible only for its debts as an amount of its assets.

– Shareholders are solely responsible to the company and their responsibility is limited to their subscribed shares

– Shareholders can be held liable to the company, to other shareholders and creditors for breaching their liabilities regulated by law and articles of association wrongfully arisen from the law and contract.

 

*The table is prepared according to the articles of Turkish Commercial Code numbered 6102.

 

  1. Not being protected by intellectual property (IP) rights

Startup companies which do not add intellectual property protection into their business plan are condemned to deal with problems. Unlike most entrepreneurs think, intellectual property is not only a legal issue but also has an important role for creating value for companies.

A shortlist to protect companies and prevent infringement is given below.

  • Running a trademark research before creating a company name
  • Taking necessary measures for confidentiality such as signing invention agreements and non-disclosure agreements (NDA) with employees and outside contractors
  • Implying internal policies regarding the limitation of access, transfer of information, ownership of work etc.
  • Choosing the most suitable intellectual property right for the business.
  1. Unawareness of incentives

Turkey aims to encourage entrepreneurs to do business in Turkey by offering plenty of incentives. Unfortunately, most of the startup companies do not know how to benefit from these incentives and this cause unnecessary expenses for them.

Incentive types that entrepreneurs might be interested in are outlined as follows:

  • Investment incentives
  • Research and Development (AR-GE) incentives
  • Scientific and Technological Research Council Of Turkey (TÜBİTAK) incentives
  • Small and Medium Enterprises Development Organization incentives (KOSGEB)
  • Free Trade Zones
  • Tax incentives regulated under Corporate Tax Law numbered 5520
  • Income tax incentives for young entrepreneurs regulated under the Law Amending Income Tax Law and Some Other Laws numbered 6663.
  1. Inadequate Terms of Use Agreement & Privacy Policy and Not Establishing Efficient Protection Measures for Personal Data

Terms of Use Agreement and Privacy Policy are essential agreements since most of the companies operate through their websites. Even if they do not operate through website, they still create a website in order to connect with their users/customers. At this point, it is important for companies to determine the scope of responsibilities and set forth rights and obligations of users/customers.

Apart from that the companies should collect and use personal data in accordance with the relevant legislation. “Personal data protection” has become a global issue and many countries started to adopt policies and imply legal measures to protect personal data at national level. Turkish Parliament enacted Personal Data Protection Code numbered 6698, dated 24.03.2016 which entered into force on 07.04.2016. Therefore, the companies which do not collect and process personal data in compliance with Personal Data Protection Code would be subject to administrative and penal sanctions.

Ayben Arıkan (ayben@bbahukuk.com)

© BBA Law Firm 2016

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