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GUIDE TO CLOSING A COMPANY: ALL THE LEGAL REQUIREMENTS AND PROCESSES YOU NEED TO KNOW

What is Company Closure (Liquidation)?

In its simplest form, company closure is the process of a business permanently ending its commercial activities and terminating its legal existence (its status as a legal entity or real person merchant) before official institutions. This process, also called "liquidation" in capital companies, ensures the closing of company accounts, the collection of receivables and payment of debts, and the complete withdrawal of the company from commercial life by being deregistered (deleted) from the trade registry.

Why is a Company Closed?

Although every venture is established with the aim of growth and profit, conditions in commercial life may not always go as planned. We can group the factors that lead to the closure of a company under four main headings: legal, financial, operational, and partnership structure-related reasons:

1. Legal Reasons

   The Turkish Commercial Code (TCC) and related legislation offer various legal grounds for the dissolution of companies. For example, Article 376 of the TCC mandates that in cases of capital loss or over-indebtedness, the company's general assembly must convene urgently to evaluate the situation and take protective measures for the capital. If these measures cannot be taken, a decision may be made to dissolve the company.

   Similarly, according to the Tax Procedure Law, severe violations of tax obligations (such as issuing fake documents, etc.) can trigger an ex officio deregistration (closure) by the tax office. In addition, situations such as the cancellation of the business's operating permit or the revocation of mandatory licenses prevent the company from legally continuing its commercial activities, thus initiating the liquidation process.

2. Financial Reasons

   Financial bottlenecks are the most common cause of company closures. The disruption of cash flow, the company's inability to pay its mature debts, capital inadequacy, and the depletion of financial resources bring liquidation or bankruptcy processes to the agenda.

   In the event of an inability to pay debts, companies can request a concordat (composition with creditors) to recover their financial structure; however, if the debts still cannot be rolled over at the end of this process, the court may issue a bankruptcy decision. Especially in joint-stock and limited liability companies, when capital inadequacy occurs, if the partners do not increase the capital, the business cannot sustain its commercial existence and enters the closure process by a general assembly decision.

3. Operational Reasons

   Operational reasons relate to the company becoming unable to sustain its daily operations and competitiveness. Sudden changes in market conditions, failure to keep up with digitalization and technological innovations, disruptions in the supply chain, and inefficient business processes can erode the business's market share.

   Companies that lose their profitability and operational efficiency choose to terminate their activities in order to avoid further losses.

4. Partnership-Related Reasons

   Disputes within the partnership structure are also a significant factor shortening the lifespan of companies. Vision differences and trust issues between partners can make it impossible to manage the company, especially when they block decision-making mechanisms.

   Furthermore, a key partner's desire to leave the company can shake both the financial and operational balance of the business. In such deadlock situations, under the Turkish Commercial Code (within the scope of TCC Art. 531 for joint-stock companies and TCC Art. 636 for limited liability companies), in the presence of justifiable reasons, partners can request the dissolution of the company from the court, and the company can be closed by a judicial decision.

What Are the Legal Requirements for Closing a Company?

5 Key Legal Steps to Follow When Closing Capital Companies

Closing a company, especially in the case of capital companies (Limited Liability and Joint-Stock Companies), is subject to strict formal requirements. Although there are slight nuances depending on the type of company, the 5 primary legal steps to follow in the liquidation of capital companies are as follows:

1. Adopting the General Assembly Resolution: The decision regarding the dissolution and entry into liquidation of the company is made by the general assembly in joint-stock and limited liability companies. This resolution must comply with the meeting and decision quorums stipulated in the Turkish Commercial Code (TCC) and must be recorded in the resolution book with notary certification. (The phrase "In Liquidation" is prefixed to the trade name of the company entering the liquidation process.)
2. Appointment of the Liquidator: At least one liquidator is appointed to manage the company's assets, settle debts, collect receivables, and conduct correspondence with official institutions throughout the liquidation process. Appointed by a general assembly resolution and required to be a resident of Turkey, the liquidator is officially registered with the trade registry.
3. Notification to the Trade Registry and Call to Creditors: The company's entry into liquidation is formally reported to the relevant Trade Registry Directorate. The directorate publishes this announcement in the Turkish Trade Registry Gazette (TTRG) three times at one-week intervals. These announcements are a statutory requirement allowing third-party creditors to learn about the liquidation and declare their claims.
4. Execution of the Liquidation Process: The liquidator draws up the opening inventory and balance sheet, converts company assets into cash, settles all liabilities including tax and Social Security Institution (SGK) debts, and collects outstanding receivables. To protect creditors, the statutory liquidation period must last at least 3 months following the third announcement (previously 6 months, reduced to 3 months under the current TCC). If any surplus assets remain after settling all liabilities, they are distributed among the shareholders in proportion to their shareholdings.
5. Registration of the Completion of Liquidation and Deregistration: Once all liabilities are settled and assets are distributed, the liquidator prepares the final balance sheet (closing balance sheet) and submits it for approval by the general assembly. Following approval, an application is submitted to the Trade Registry Directorate to strike off (deregister) the company. Upon publication of this final action in the Trade Registry Gazette, the legal personality of the company is legally terminated.

How to Close a Company According to Company Types

The company closing procedure varies substantially in terms of both timeline and cost depending on the legal structure of the business. While sole proprietorships can be closed in a single day, the process for capital companies takes several months.

How to Close a Sole Proprietorship?

Closing a sole proprietorship is a much faster, less costly, and simpler process compared to other corporate forms because there is no liquidation process for sole proprietorships.

• When deciding to terminate business operations, the business owner submits a notice of cessation of business either via the Digital Tax Office (Interactive Tax Office) or directly to their local tax office.
• The business must issue an internal disposal invoice for all remaining fixtures, machinery, and inventory.
• After tax office inspectors conduct an on-site audit to confirm the workplace is vacated, they terminate the tax liability.
• If the business has personnel registered with the SGK, employment termination declarations must be filed for these employees.
• Finally, if the business is registered with a Chamber of Commerce or Chamber of Tradesmen and Craftsmen, an application is made to cancel chamber and trade registry records. Following these steps, a sole proprietorship can be officially closed within a single day.

How to Close a Limited Liability Company (LLC)?

Closing a limited liability company is far more extensive than a sole proprietorship and is subject to a mandatory liquidation process:

• The process begins with the general assembly (board of partners) adopting a notarized resolution regarding the dissolution and liquidation of the company and registering it with the trade registry.
• The appointed liquidator monetizes company assets, settles existing debts, and formally notifies the tax office that the company has entered liquidation.
• Throughout liquidation, the company continues to file its routine tax returns (VAT, Withholding Tax, Advance Corporate Tax, and Annual Corporate Tax).
• Following the completion of all financial settlement procedures and the mandatory 3-month statutory waiting period, the liquidator presents the final report to the general assembly.
• Upon registration of the general assembly's approval with the trade registry and submission of the final closing notification to the tax office, the limited company's legal personality ceases to exist.

How to Close a Joint-Stock Company (JSC)?

While the closing process for joint-stock companies largely mirrors that of limited liability companies, it involves more rigid procedures due to multi-shareholder corporate governance and board of directors structures:

• Dissolution and liquidation commence with a general assembly resolution convened in accordance with the qualified quorums specified in the Turkish Commercial Code (the required presence of a Ministry representative is observed where applicable).
• Following the resolution of the general assembly, a liquidator is appointed and registered with the trade registry.
• The liquidator handles liquidating company assets, settling outstanding liabilities, and distributing the residual liquidation balance among shareholders.
• When all statutory operations are concluded, the general assembly convenes one final time to approve the final liquidation balance sheet. With the registration and gazette announcement of this approval, the joint-stock company's legal personality officially terminates.

In summary;

•   Process Differences: While sole proprietorships can be closed on the same day with a "notice of cessation of business"; Limited and Joint Stock companies are subject to a legal "liquidation" process that takes at least 3 months.
•   Liquidator Requirement: To close capital companies, a general assembly decision must be taken, and a liquidator who will manage the process must be appointed and registered with the Trade Registry.
•   Official Announcement Requirement: In order to protect the rights of the creditors, the liquidation decision must be announced 3 consecutive times in the Turkish Trade Registry Gazette (TTSG).

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