In this Legal Memorandum, the methods that startups should follow legally, why these methods are necessary, the legal ways that can be followed for startups to grow, and what should be done during the incorporation phase are discussed. These issues are discussed in detail separately through different branches of law that Startups need to know.

1. What is a Startup?

Startup, with its simplest definition, is the name given to companies that set out to find a solution to any problem and for which a successful result is not guaranteed. A company can still be a startup at the first year, fifth year or a ten year and is still at the stage of development and improvement of the initial idea. The purpose of a startup is to find a solution for a specific problem and make profit for the company. 

2. What is the Startup Law?

Before starting to implement an initiative, an entrepreneur should evaluate with a competent lawyer whether the idea is legally feasible or not, what possible risks the startup may face and how it can overcome them in terms of Law. A startup needs to be convenient to the laws and regulations in order to reduce the risk for facing financial sanctions caused by unlawful actions. At the later stages, a startup has to take the idea under preservation, hire some employees to continue the implementation, make contracts with other companies for expansion, comply with all the obligatory regulations to not to break the law and so on. Depending on these reasons, a startup law is the essential element of a successful startup. 

Currently, in Turkey, there is not any specific law or regulation that shows up a roadmap for startups. Having no direct law or regulation on this topic makes things difficult for startups. By this reason, startup law is in fact the combination of intellectual property law, corporate law, commerce law, and, with the latest changes, law on the protection of personal data. In addition; it is necessary to specifically obey the rules of the area of a startup like information technology law, fashion law, e-commerce law etc. 

Although having legal support and spending money for the legal issues just at the beginning of a startup seems to be unreasonable; it is an essential part of making a successful and expanding business. In order to build-up a startup that will take the best investments and expand successfully as a company, compliance with the related regulations is the most important issue that should be considered. 

3. Compliance with Specific Areas of Law

   1. 1. In terms of Intellectual Property Law

A start-up is generally based on a project that is developed over an idea. Determining an intellectual property plan is essential for the preservation of the startup company and the investments made in this context. Startups need to consider the protection of trademarks, designs, patented products and copyright while creating their intellectual property plan.

Trademark is any sign that can be displayed by drawing or expressed similarly, published by printing and reproduced, especially words, figures, letters, numbers, the shape or packaging of the goods, including personal names; provided that it enables the goods and/or services of an enterprise to be distinguished from the goods and/or services of another enterprise. When evaluated in terms of consumers, a distinctive and catchy brand design makes your startup company preferable against competitors. However, once a brand value is established, competitors may attempt to influence consumers' purchasing preferences by using phrases similar to this brand. The main purpose of trademark registration is to identify a brand and help them to avoid competition. If another company uses the same (or very similar) designs for their products, it has the potential to cause confusion among consumers. For this reason, it is very important to have a trademark registration in order to protect the trademark.

Patent is the right of the inventor to produce, use, sell, have it produced (license) and import with her own permission an inventive product that can be produced and/or usable in any branch of industry including agriculture and provides solutions to all kinds of specific problems. Like trademark protection, patent protection also serves the purpose of protecting the startup's invention, in other words, its product against competitors and preventing violations of rights.

Copyright is the legally provided rights regarding the use or copying of information, ideas, works of art and products created by a person or persons with any intellectual effort. 

Therefore, it is essential to start by taking appropriate legal measures at the beginning in order to protect startups' ideas, products, services and works against competitors to avoid claims of infringement of both third parties and the Law itself. Considering that a startup needs to use financial resources effectively, they should take a consultation from lawyers in order to decide when it is necessary to take the appropriate measures in order to protect the idea in terms of intellectual property.

2. In terms of Corporate Law

A startup is actually a company in its simplest form although it is not a “must” for a startup to establish a company at the beginning; therefore startups should, first of all, pay attention to the rules of corporate law. 

Startups can be established by a single partner and also by more than one partner. Partnership is one of the most vital decisions an entrepreneur will face during his establishment. Especially in the face of the limited resources of the establishment period and the uncertainty of success, partnership structures are more advantageous than an initiative that set out alone in maintaining entrepreneurial motivation. In case a startup decides to continue with a partner in the following steps, it is important to have a “Partnership Agreement” in order to make the partnership in safe conditions. When startups with a partnership do not have a Partnership Agreement from the beginning, some uncertainties happen in case things are not going on its way. The easiest way to overcome such controversial processes with the minimum damage is to create a basic written resource that shows who puts what, how to solve problems, and generally how and by whom all business and transactions related to the enterprise will be carried out. Therefore, startups should start their partnership with a Partnership Agreement in order to have a responsibility plan for the future and take the longer view.

As stated before, it is not a “must” to establish a company to become a startup; however, in the later stage, a startup will need to establish a company in order to expand. At this stage, entrepreneurs have great uncertainties as to which company structure is suitable for their startups. In Turkey generally, since they are more appropriate for startups, entrepreneurs choose to establish either a joint stock company or limited liability company. They both have different advantages and disadvantages; therefore an entrepreneur should decide which one is more suitable for their startup.

A joint stock company is a company whose capital is determined and divided into shares, and which is liable for its debts only with its assets. Shareholders are only liable to the company with the capital shares they have contributed at the beginning. Joint stock companies can be established for any economic purpose and subject that is not prohibited by law. The joint stock company has an Articles of Association in writing and registered with the trade registry where its headquarters is located. They can be established by a single share and real and/or legal persons can be shareholders as well. As a rule, general assembly approval is not required for the transfer of shares; so, shareholders can freely transfer their shares to others. It is the only type of company whose shares can be offered to the public and whose shares can be traded on the stock exchange. The minimum capital amount is 50,000 Turkish Liras. At least one fourth of the nominal values of the shares committed in cash must be paid before registration. The remaining amount is paid within 24 months following the registration of the company. The payment schedule can be arranged in the company's Articles of Association or by the Board of Directors.

A limited liability company is a company whose capital is determined and divided into shares and that is responsible for its debts only with its assets. The shareholders are not liable for the debts of the company, they are only obliged to pay the basic capital shares they have committed and to fulfill the additional payment and side act obligations stipulated in the Articles of Association. Partners are liable in proportion to their capital shares for the public debts that cannot be collected from the company. A limited liability company also has a Company Contract written and registered with the trade registry where its headquarters is located. Limited liability companies cannot be offered to the public. A single-partnered limited liability company can be established and the number of partners cannot exceed fifty. Partners of limited liability companies can be both real persons or legal entities. The capital of the limited company is at least 10.000 Turkish Liras. It is possible to pay the entire capital brought in cash within 24 months after the registration of the company. The payment schedule can be arranged in the company contract or can be determined by the managers. Transfer of limited company shares is subject to the approval of the general assembly.

The requirements to establish both a joint stock company and limited liability company are listed above. In this case, entrepreneurs should make their choice depending on the willingness and the capacity to take an investment. Depending on what the entrepreneur is planning to do in the future should direct the entrepreneur to make a choice for the type of company. In some exceptional cases, even the sole proprietorship may be reasonable for startups. Therefore, entrepreneurs need to consider all these requirements together in order to decide which type of company is suitable for their startup.

3. In terms of Commerce Law

A startup starts with a development of an idea over a period of time. After the initial development steps are completed/continuing, the entrepreneur will be having relationships with the other companies, suppliers, business partners, customers etc. Mostly as entrepreneurs are inexperienced in making a relationship at the corporate level, they should be careful about their business relationships. 

Like other companies, startups are driven by the goal of ultimately making a profit. For this purpose, they cooperate with business partners, have dealings with suppliers, and sell to customers. During the negotiation period, there has to be communications and contracts with these groups. An entrepreneur should be considering what they may experience in the future by looking at the conditions of the contract. At this level, there will be non-disclosure/confidentiality agreements, supply agreements, ordinary partnership agreements, license agreements, sales and purchase agreements etc. Therefore, at this level, it is important for an entrepreneur to take a legal opinion from either a legal department of the company or a law firm in order to make a reasonable assessment for the relationship with these groups. Otherwise, this situation may cause negative consequences that can even lead to the entrepreneurs losing their company. 

Depending on the purpose of an entrepreneur, an entrepreneur may merge with another company or “exit” the startup at some point. In the Turkish Commercial Code, a merger is defined as two or more commercial companies merging with each other to establish a new commercial company or one or more trade companies to join another existing commercial company. Exit means that an entrepreneur and/or investor leave the startup after reaching an investment and return of the size they wanted to reach. When startups reach this level, they must be extremely careful about both making the right decision and acting in the right legal way. Otherwise, they may come up against unexpected consequences. Therefore, having a compliance with the corporate law and making the most reasonable legal and economic decisions is essential for entrepreneurs to achieve their purpose. 

4. In terms of Law on the Protection of Personal Data

The Personal Data Protection Law (KVKK) numbered 6698 was published in the Official Gazette on April 7, 2016 and entered into force. The Law on Protection of Personal Data aims to protect the fundamental rights and freedoms of individuals, especially the privacy of private life, and to regulate the obligations of natural and legal persons who process personal data and the procedures and principles to be followed.

This Law is about the processing of personal data belonging to natural persons, therefore all natural and legal persons who process this data (automatic or not) as part of a recording system are covered by this Law.

The deadline for compliance with the Law on the Protection of Personal Data has expired, and all persons and companies that process personal data must complete their work on compliance with the law as soon as possible. The cost of not complying with these legal regulations can be very high. Institutions that fail to fulfill their obligations may face fines of up to 2,000,000 TL (as of 2021), and those who process illegal data may face imprisonment from 1 to 3 years.

Having compliance with the Law on the Protection of Personal Data is easier for startups than the other companies since a startup is just at the beginning. It is easier to take the appropriate measures at the startup level because the processing personal data has just started. Entrepreneurs should be careful to take the necessary measures at this stage in order to use their capital effectively. Otherwise, they may experience unexpected sanctions which may cause their capital to be a waste. 

Therefore, entrepreneurs should make the Protection of Personal Data as part of their business strategies and daily operations, so they should have the opportunity to have a more solid and reliable place in the market. A compliance committee within the startup company may be a good start for entrepreneurs to have the Protection of Personal Data as part of their business.

4. Conclusion

Entrepreneurs should be aware of all aspects and all economic consequences of the Startup Law in order to do a reasonable and efficient business. Considering the objectives of entrepreneurs, having a compliance with all areas of the law and acting accordingly constitutes the basis for a startup to grow and reach where it wants. One of the most important things entrepreneurs should do in achieving success is undoubtedly to make the right decisions on the steps they take, not hesitating to get support when it is necessary.

With its gorgeous nature and reputability in the international arena, Turkey is one of the most attractive and advantageous countries to acquire second citizenship. As there are some different ways of acquiring Turkish Citizenship, Foreigners commonly apply for the acquisition of citizenship by investment which is accepted as an exception. Acquiring citizenship by investment is enacted in the Article 12 of the Law of Turkish Citizenship no. 590 (“Law”) and further arrangements are conducted in the Regulation of the Implementation of the Turkish Citizenship Law (“Regulation”). With the latest amendments done by the Presidential Decrees No. 106 and No. 418 in 2018, requirements for investment amount are reduced and eased. Therefore, acquiring Turkish Citizenship by investment became reasonable and preferable for foreigners. 

With respect to recent amendments stated above, foreigners who satisfy at least one of the investment requirements stated below may be granted with Turkish citizenship subject to the approval and an administrative decision of the President according to Article 12 of the Law. Investment requirements are listed as follows:

1. Making a fixed capital investment to a Turkey based company/legal entity in the amount of minimum $500.000 or equivalent foreign currency or equivalent amount of Turkish Lira and the investment must be confirmed by the Ministry of Industry and Technology;

2. Purchasing a real estate with a minimum value of  $250.000 or equivalent foreign currency or equivalent amount of Turkish Liras and attached an annotation of no-sale for at least three years at the relevant land registry; Purchasing a real estate which has a property ownership or a construction servitude on it, with a preliminary sale contract executed in the presence of a notary public and at least $250,000 or amount of foreign currency or Turkish Liras is paid in advance and such notarized preliminary sale contract shall be recorded at the relevant land registry with the undertaking not to transfer or assign the agreement for three years and any investments stated above must be confirmed by the Ministry of Environment and Urbanization;

3. Providing/creating employment for at least 50 individuals and the investment must be confirmed by the Ministry of Family, Labor and Urbanization;

4. Banking a minimum of $500.000 or equivalent foreign currency or equivalent amount of Turkish Lira to banks that operate in Turkey with the condition to keep such money in the relevant bank for at least three years and the investment must be confirmed by the Banking Regulation and Supervision Agency;

5. Purchasing State internal debt instruments in the amount of minimum $500.000 or equivalent foreign currency or equivalent amount of Turkish Lira and keeping in reserve for at least three years and the investment must be confirmed by the Ministry of Treasury and Finance;

6. Purchasing real estate mutual fund participation share or venture capital fund participation share with a minimum value of $500.000 or equivalent amount of foreign currency or Turkish Liras and keeping those in reserve for at least three years and the investment must be confirmed by the Capital Markets Board.

Once a foreigner provides one of the above-stated conditions, the application process starts. Applicant obtains a conformity certificate from the related authority which is specified separately for each investment type above. After fulfilling prerequisites, the foreigner finally makes Turkish citizenship application at the special office of the Immigration Office in Istanbul and Ankara. 

The Turkish Ministry of Treasury and Finance announced that in the event amounts in foreign currency based or indexed contracts would be re-applied as based or indexed in foreign currency or determined again in foreign currency or as foreign currency indexed following the transition period of two years stipulated by the Communiqué Nr. 2008-32/34 Regarding the Decree Nr. 32 on the Protection of the Value of the Turkish Currency, sanctions will be imposed according to the Turkish foreign exchange legislation. 

On 13th of October within this week, the Turkish Ministry of Treasury and Finance made an announcement on its official website with the headline “Announcement Regarding the Foreign Currency Based or Indexed Contracts”. 

As it is known, as per the Presidential Decision Nr. 85 published in Turkish Official Gazette on 12 September 2018 several changes have been made on the Decree Nr. 32 on the Protection of the Value of the Turkish Currency. Accordingly, residents in Turkey were urged to use Turkish currency in contracts they have entered among themselves and the Turkish Ministry of Treasury and Finance was assigned to issue a Communiqué for the announcement of contracts, which could be exempted from the mentioned requirement. The said communiqué entered into force after being published in the Official Gazette dated 6 October 2018 and some amendments were made in the Communiqué on the Decree No. 32 on the Protection of the Value of Turkish Currency (Communiqué Nr: 2008-32/34) according to which the scope of the contracts that could be issued in foreign currency was expanded. Additionally, a stamp duty circular was issued for explaining the conditions to benefit from the stamp duty exemptions in contracts that cannot be determined in foreign currency and therefore have to be converted into Turkish Lira.  

In its announcement of 13th of October within this week, the Turkish Ministry of Treasury and Finance published that in the aforementioned regulations, if the contracting parties fail to agree on the conversion to Turkish lira, principles to convert amounts to Turkish currency along with the rate of increase to be applied to the amounts determined as Turkish lira in residential and roofed workplace lease contracts during the two-year transition period were determined. The Turkish Ministry of Treasury and Finance further declared that the transition period will end with the expiry of the two-year term and if the parties fail to agree on the rate of increase to be applied to Turkish lira amounts, they will be subject to the limits set forth in Article 344 of the Turkish Code of Obligations Nr. 6098, which regulates the determination of the rental fee.

As it will be remembered, before the date when the provisional Article 8 of the Decree Nr. 32 on the Protection of the Value of Turkish Currency entered into force, i.e. before 13 September 2018, in residential and roofed workplace lease contracts; it was decided that for a period of two years the amounts determined as foreign currency or foreign currency indexed rates are stated in Turkish Lira as per the provision arising from the first paragraph of sub-paragraph 28 of Article 8 of the Communiqué Regarding the Decree Nr. 32 (Communiqué: 2008/ 32-34). However, it was announced that to be valid for one year from the end of the rental year in which the Turkish currency is determined, the rental fee fixed in Turkish currency in accordance with the aforementioned paragraph, if not settled by the parties while determining the reconciliation, would be increased by taking into account the consumer price index (CPI) monthly variation rates declared by the Turkish Statistical Institute for each month beginning from the date of determination of the rental fee until the end of the rental year in which such rental fee was fixed. In determining the rental fee for the next year, if not settled by the parties, it was announced that such rental fee would be determined by increasing the rental fee applicable in the previous year by taking into account the consumer price index (CPI) monthly variation rates declared by the Turkish Statistical Institute, which shall be valid until the end of the aforementioned two-year period.  

This two-year period has been determined as a transition period, and the Turkish Ministry of Treasury and Finance declared in this announcement that after the expiry of the two-year period foreseen for the transition period, it will not be possible to apply the amounts in the above mentioned contracts in foreign currency or indexed to foreign currency or to determine in foreign currency or indexed to foreign currency in the contrary of which the required sanctions will be imposed as per the foreign exchange legislation.