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Entrepreneurship In Turkey: Startup Law And Incentives And Supports For Entrepreneurs – Contracts and Commercial Law



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Startup Law, also called Entrepreneurship Law, is an innovative
business model that is rapidly developing and we have frequently
come across in recent years. The first Startup model emerged in
Silicon Valley in the USA and then spread all over the world.
Advancements and changes in technology around the world have also
contributed to the spread of the entrepreneurship ecosystem.
Startups have an important place in the developing entrepreneurship
ecosystem in Turkey. According to the “Global Startup
Ecosystem Index 2021”1 report published by the
global startup ecosystem research center Startup Blink, Turkey
ranked 44th among the 100 countries with the best startup
ecosystem. In accordance with the data published by the Investment
Office of the Presidency of the Republic of Turkey, in 2020, 179
startups received a total investment of 137 million dollars from
angel investors and venture capitalists, while 61 Turkish Startups
received 509 million dollars in the first quarter of 2021.

A startup, which does not have a proper equivalent in the
Turkish language yet, is also called an
“enterprise” (girişim) or
“new venture” (yeni girişim)  in
Turkish, although it is not exactly the same concept. Even though
there is no common definition, Startups are projects and
initiatives that aim to grow rapidly, offer and use technology
suitable for this purpose, appeal to large audiences, deliver the
service they offer to customers, meet needs, have continuity, and
are suitable for development. In this context, a Startup could be
defined as a customer-oriented organization with a growth index,
aiming to reach a large audience from a small audience in a short
time. Steve Blank, an entrepreneur and a business professor who
first introduced the definition of a Startup, defines a startup
as “an organization formed to search for a repeatable
and scalable business model”
2

Although Startup Law does not have separate legislation under
Turkish law yet, it is involved in general law areas such as
Commercial Law, Law of Obligations, Intellectual Property Law,
Labor Law, and Tax Law. In addition to these general legal
regulations, Startups should also be evaluated in terms of special
regulations such as Personal Data Protection Law, Banking and
Finance Law, Capital Markets Law, Investment Law, Competition Law,
IT Law, and Consumer Law within the scope of their activities, and
in terms of legal areas with the supervisory authorities. Along
with Startups, new branches of law such as E-Commerce Law, E-Sports
Law, Blockchain Law, and Artificial Intelligence Law have also come
to the fore in recent years. In the light of all these general and
special legal regulations, it is of great importance to manage
efficiently the processes such as the official studies and
applications of the Startups before the venture, the necessary
legal protections, the protection of the project after the start of
the initiative, the realization of the project activities in
accordance with the law.

Legal Phases of a Startup

Legal processes can be encountered in almost all phases of the
Startup from the beginning. In order to avoid legal risks and
disputes that may arise in the future, it is crucial to manage
legal processes very carefully and get appropriate legal advice and
support. Detailed research should be done on the issues such as
that the entrepreneur is not subject to a ban on trading and other
profitable activities, that the product or activity subject to the
venture is in compliance with the legal order, and that the new
venture does not in any way violate the trade name, business name,
domain names, intellectual and industrial rights of third parties,
etc. In addition, it must be evaluated before starting the
activities whether a permit, approval, or authorization from an
administrative authority is required for the services or activities
subject to the new initiative. Besides, in order to construct each
phase of the Startup on a solid legal basis and to protect the
Startup afterwards, it is necessary to act in accordance with the
law and legal regulations. In cases where the aim of the new
venture is to operate in the international arena, it will be
necessary to determine the legality of the product or activity
subject to national legislation, as well as its compliance with the
relevant laws in other countries where it will take place.
Fulfillment of these requirements is also very crucial within the
scope of the search for future investors and partnership relations,
which is one of the primary objectives of Startup projects.

1. Legal Protection of the Idea

The emergence of the idea is the first phase of the Startup
project. First of all, it is important to conduct preliminary
research on how the new idea differentiates itself and how these
differences should be protected within the framework of
intellectual and industrial rights. Within the scope of this
preliminary research, it should be evaluated whether the idea
violates the intellectual and industrial property rights of other
real persons or companies. It is essential for Startups to put
these ideas under legal protection at the beginning in order to
avoid problems such as the use or copying of the new idea by
others.

In order to legally protect the project idea as well as the
product and service created within the scope of the idea, patents,
trademarks, models, and ideas are registered and copyrights are
determined in accordance with the Law on Intellectual and Artistic
Works No. 5846 and the Industrial Property Law No. 6769. Protection
for trademark, design, geographical indications, utility models,
and patents are provided within the scope of industrial property,
and the work is protected by copyright within the scope of
intellectual rights. In this context, in order to protect products,
services, and works against third parties, an intellectual property
strategy should be established at the very beginning of the process
and necessary application and registration procedures should be
carried out within the scope of this strategy.

2. Contracts

Startups also encounter contracts, which are one of the
indispensable elements of commercial life, at every stage. Within
this scope, starting from the first emergence of a new idea,
Startups should prepare contracts that will provide them with the
necessary legal protection and analyze the contracts they encounter
well. The benefits of the contracts prepared in accordance with the
processes of the startup are numerous. In general, the contracts:
(i) provide the protection of the idea and the enterprise; (ii)
contribute to the healthy and stable growth of the enterprise;
(iii) bring the relations with investors and customers to a more
professional dimension; (iv) contribute greatly to the legal
compliance process; (v) facilitate legal review processes for
additional investments, share sales, loan purchases transactions,
etc. that may occur in the future, and (vi) prevent possible
disputes and problems.

The most common types of contracts that startups encounter are
as follows: Non-disclosure/Confidentiality Agreement, Term
Sheet/Letter of Intent, Articles of Association and Partnership
Agreement, Shareholders Agreement, Share Purchase and Sale
Agreement, E-Trade Agreements, Franchise/Dealership/License
Agreements, Employment Agreements, Agreements and Protocols on the
Protection of Personal Data.

3. The Phase of Incorporation

Deciding on the type of company during the incorporation phase
of startups is crucial in terms of taxation, the responsibilities
of the company and its partners in case of any dispute, and the
legal obligations of the company. For this reason, it is necessary
to determine the most suitable company type for the activities,
purposes, and characteristics of the Startup during the
establishment phase of the company. It will be in favor of the
company to outline the future business plan during the
establishment phase.

According to Turkish legislation, a startup can be established
as a sole proprietorship or any type of capital company. However,
since the sole proprietorship (private company) is riskier in terms
of individual liability, joint-stock or limited liability companies
are usually preferred. The reason being that while the partners are
responsible for the debts of the company with all their assets in a
sole proprietorship, partners are not personally liable in limited
and joint-stock companies.

In accordance with the Turkish Commercial Code No. 6102, a
joint-stock company is “a company whose capital is
determined and divided into shares, and which is liable only for
its debts with its assets” 
and can be established
with a capital of at least 50,000 Turkish Liras. Shareholders are
liable only to the capital shares they have committed and only to
the company. On the other hand, a limited company
is “established by one or more real or legal persons
under a trade name, its basic capital is determined and this
capital consists of the sum of its basic capital
shares”
 and can be established with a capital of at
least 10,000 Turkish Liras. The maximum number of partners can be
50 and the partners are not responsible for the company’s debts
and are only obliged to pay the basic capital shares they have
committed.

4. The Phase of Investment

One of the main starting points of Startups is that the project
can survive in commercial life and then turn into a
revenue-generating value with rapid growth momentum. Parallel to
this, there are partnership and investor models in the Startup
culture, either by hiring an investor in exchange for the
company’s share or by transferring the company after the
company reaches a certain value. It is important to receive
investment for the development, growth, and profit of the Startup.
In this context, the types of investors that will potentially apply
during the establishment phase of the venture are Angel Investors,
Venture Capital, Private Equity, and Crowdfunding.

When partners or investors decide to invest in a Startup
project, they consider not only the new business idea but also
whether it has a professional financial and legal structure in
terms of the values created by the project.

Angel investors are individual investors who want to invest in
new ventures with a high potential of risk and return and have
sufficient financial background and experience for this. Venture
capital investors, unlike angel investors, are institutional
investors who invest larger amounts in later phases of the company.
Crowdfunding, on the other hand, is the financing of a project or
initiative by a small number of people via the internet with small
amounts.

Incentives and Supports for Entrepreneurs

Grant and incentive support for Startups in Turkey has increased
considerably in recent years. Such incentives provide convenience,
especially to entrepreneurs who are afraid of high insurance and
tax costs, and support them in realizing their projects. Within
this scope, the Capital Markets Board of Turkey has published the
Communiqué on Principles Regarding Venture Capital
Investment Trusts, which paves the way for the efficient operation
of venture capital investment trusts, and also offered an
opportunity to fund such investments with capital market
instruments.

Some incentives and supports provided to entrepreneurs and
investors are as follows;

  • TÜBİTAK – the Scientific and Technological
    Research Institution of Turkey –  supports
    project-based R&D activities, development, and sustainability
    of the national entrepreneurship ecosystem through national support
    programs. Various supports, especially the Entrepreneurship Support
    Program (Individual Young Entrepreneurship), provide particularly
    cash incentives.

  • The Ministry of Industry and Technology of the Republic of
    Turkey provides important incentives for entrepreneurs operating in
    Technology Development Zones, such as reduced rental fees, income
    and corporate tax exemptions, wages, and premium support for
    employees within the scope of Law No. 4691.

  • KOSGEB – Small and Medium Enterprises Development
    Organization of Turkey – one of the most important
    entrepreneur support programs in Turkey, provides various
    opportunities for Startups which consist of the Traditional
    Entrepreneur Support Program (Geleneksek
    Girişimci Destek Programı)
    , the Advanced
    Entrepreneur Support Program (İleri
    Girişimci Destek Programı)
     and the Business
    Plan Award Support Program (İş
    Planı Ödülü Destek Programı)
    . In
    addition to these, entrepreneurship training is also organized by
    KOSGEB.

  • Young Entrepreneur Support (Genç Girişimci
    Desteği)
    : With the amendment made to Income Tax Law No.
    193 on 18 May 2018, an income exemption was introduced for young
    entrepreneurs. Accordingly, it covers exemption from 3 taxation
    periods and 1-year SSI (Social Security System) (4b3)
    premiums for entrepreneurs aged 18-29 who meet the specified
    conditions. The annual portion of 75,000 Turkish Liras of the
    income obtained during the 3 taxation periods starting from the
    calendar year in which the activity was commenced is exempt from
    income tax. Bağ-Kur premiums of those who are insured for the
    first time as of 1 June 2018 within the scope of 4b will be covered
    by the Ministry of Treasury and Finance of Turkey for a period of 1
    year.

  • Tax support for angel investors: Angel investors who make
    individual investments in new ventures are defined as individual
    participation investors (bireysel katılım
    yatırımcısı)
     in Turkish legislation,
    and tax support is provided for real persons holding an individual
    participation investor license, with an incentive introduced with
    the article added to the Income Tax Law No. 193 on 15 February
    2013.

In addition to these, there are also supports provided by the
Ministry of Commerce, İŞKUR (Turkish Employment Agency)
and various foundations, institutions and organizations.

Conclusion

Many companies that started their business lives as Startups
have become some of the most valuable companies in the world in a
short period of time. The best examples are startups such as Airbnb
and Uber. On the other hand, Turkey’s initiatives such as
Trendyol and Getir received large investments in a short time, and
Getir continues its growth in Europe and the United States.

Looking at the startup ecosystem researches in Turkey, it is
possible to say that the most trending entrepreneurship topics in
recent times are the gaming industry, e-commerce, financial
technology (fintech) applications, fast delivery, and deep
technology (deep tech) entrepreneurship.

As we explained in our article, incentives and supports have
been provided to entrepreneurs and investors in Turkey, and
favorable conditions have been created for the development of
Startups. We believe that many more Turkish startups will grow in
our country and around the world with the good management of legal
processes from the beginning, the adoption of a correct
incorporation approach and, of course, the successful management of
investment processes.

Makalenin Türkçesine 
buradan
 ulaşabilirsiniz.

Footnotes

1. StartupBlink Global Startup Ecosystem Index
2022

2. BLANK Steve, What’s A Startup? First
Principles, January 25, 2010

3. The relevant provision constituting the legal grounds
for such premiums is article 4, paragraph 1, subparagraph (b) of
Social Security and Universal Health Insurance Law No. 5510.
Therefore premiums within this scope are practically referred to as
4b.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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