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CONVERTING A SOLE PROPRIETORSHIP TO A LIMITED OR ANONYMOUS COMPANY

Can a Sole Proprietorship be Converted to an Anonymous or Limited Company?

As stated in the Turkish Commercial Code, it is possible for non-legal entities such as sole proprietorships to become limited companies with legal personality. Sole proprietorships can also be converted into anonymous companies. This conversion is called a change of type in the law. When a sole proprietorship becomes a limited company, it can have a single-person or partnership structure. If a partnership structure is to be formed for the limited company, an agreement must be made between the real person and the third person or persons regarding the partnership.

What you need to do to convert your sole proprietorship to a limited company is explained in articles 182-193 of the Turkish Commercial Code and regulations. You can convert your sole proprietorship to a limited company without any additional tax payments. This way, you can have a great convenience. You can transfer these products to your limited company without having to sell them, pay VAT, or income tax. In addition, if you have any assets on your sole proprietorship, you can transfer them to your limited company without making an additional payment. These assets include vehicles registered on your sole proprietorship.

If you cannot decide whether to convert your sole proprietorship to an anonymous or limited company, you can look at the requirements and features of these company types. Generally, the differences between anonymous and limited companies are in terms of costs, number of partners, responsibilities, and procedures.

Advantages of Converting a Sole Proprietorship to an Anonymous or Limited Company

The possibility of later converting a sole proprietorship to an anonymous or limited company provides the advantage of being able to expand the company at the right time according to the business volume. In this way, you can establish a company without allocating additional capital and later make your business more institutionalized. You can gain many advantages by converting your sole proprietorship to an anonymous or limited company. Anonymous and limited companies provide both the institutionalization you are looking for and reduce your fees and payment costs. Having a single partner is sufficient to establish a limited company. In addition, limited companies provide great convenience in terms of internal structuring for your company to become more institutionalized.

By converting your sole proprietorship to a limited or anonymous company, you can have the following advantages:

• You can transfer all the inventory products in your sole proprietorship to your limited or anonymous company without selling them and be exempt from VAT and income tax.
• You can transfer all real estate owned by your sole proprietorship to your anonymous or limited company without paying any tax.
• You can transfer all real estate owned by your sole proprietorship to your anonymous or limited company without paying any tax.
• You can transfer past period losses in your sole proprietorship's balance sheet to your limited or anonymous company.
• You can use the VAT transferred in your sole proprietorship's VAT return in your limited or anonymous company.
• When you convert your sole proprietorship to an anonymous company, you and your partners are not responsible for your company's public debts. Thus, you can protect your personal assets from risks such as your company's losses.

Required Documents to Convert a Sole Proprietorship to an Anonymous or Limited Company

If you want to convert your sole proprietorship to an anonymous or limited company, you should know the steps you need to follow well. To start this process, you need to write a petition about the registration request and submit it. The documents required to convert a sole proprietorship to an anonymous or limited company are as follows:

• Two separate petitions for the commercial registry and chamber registry,
• A petition for limited company conversion specified in the Turkish Commercial Code,
• A report stating the change of type,
• Balance sheet presentation,
• Establishment declaration form,
• Founders' declaration signed by the founders,
• Freelance Receipt or Sworn Financial Advisor report.

You must apply to the Trade Registry Directorate for registration to convert the sole proprietorship. Some documents will also be requested from you during this application:

• Sole proprietorship type change declaration,
• Documents required for limited company establishment,
• Type change report,
• Type change plan,
• Signature statements under the trade name by the company managers at the notary public,
• Documents specified in the Turkish Commercial Code and relevant regulations regarding in-kind capital,
• Bank receipt showing that at least 25% of the pay amounts according to the limited company's capital are deposited in the bank as specified in the Turkish Commercial Code if in-kind capital is provided.

Cost of Converting a Sole Proprietorship to an Anonymous or Limited Company

If you want to expand your sole proprietorship by turning it into an anonymous or limited company, you may be thinking about the expenses you need to incur during this process. First of all, you should know that you do not need to pay VAT, income tax, or title deed fee to expand your current sole proprietorship with a change of type. You can transfer all your products in your company to your anonymous or limited company without the need to sell them and without making an additional payment for the real estate owned by your company. However, you should know how much capital is required to establish a limited or anonymous company because this will be checked during the type change process. If you are going to convert your sole proprietorship to a limited company, you need at least 10,000 TL capital, while you need 50,000 TL capital to convert it to an anonymous company.

When you want to expand your sole proprietorship to an anonymous or limited company, you also need to make a payment to the registration and notary. Although registration and notary expenses vary depending on the company, they are generally between 2,000-3,000 TL. It is important to wait for the right time to change the company type and to have sufficient capital. Therefore, you should not rush for the company type change. You can minimize many costs by making this change when your business has sufficient volume.

Establish Your Anonymous or Limited Company with IFASTURK

If you are going to start a new business, it is quite logical to start with a sole proprietorship. By turning it into an anonymous or limited company as your business grows, you can manage your business more efficiently. You can easily convert your current sole proprietorship to an anonymous or limited company if you meet the necessary conditions. In addition, IFASTURK's expert staff can provide you with consultancy on which type of company to establish and can proceed with you at all stages of the process.

Converting a sole proprietorship to an anonymous or limited company is very important for the future of the business. In this way, you can become more institutionalized and benefit from many advantages. However, before making a type change, you need to act at the right time according to the size and needs of your business. As IFASTURK, we would be happy to serve you in this process.