Establishment of Foundations
Introduction
Foundations are defined under Turkish Civil Law No. 4721 (“Civil Law”) as a group of properties with legal personalities, established through the allocation of appropriate assets and rights for a certain and constant purpose by real persons or legal entities. Foundations are considered to be legal entities.
The Civil Law, Law on Foundations No. 5737, Regulation on Foundations, Bylaw on the Registration and Announcement of the Foundations that was published in the Official Gazette dated 26.04.2013 and numbered 28269, as well as other relevant legislation, comprises provisions regarding the incorporation of foundations. This article briefly analyzes the establishment steps, management, auditing, purposes and activities, and termination of foundations within the framework of the aforementioned legislation.
Establishment of Foundations
Foundations that are established in accordance with the abrogated Law numbered 743 and Civil Law are considered as new foundations. For new foundations, the will to establish a foundation may be declared either before a notary public through an official deed (“deed”) issued in statutory form or by a testamentary disposition.
Real persons or legal entities declare their will to establish a foundation before a notary public through a deed issued in statutory form. Following the issuance of the deed, the founder or the representative of the founder, submits the deed to the authorized civil court of first instance. The foundation to be established by a testamentary disposition may be established by registration following the death of the founder.
The court to which the submission shall be made requests the opinion of the General Directorate of Foundations. Nonetheless, the court may hear the founders, request expert examination, and eventually, decide as to whether or not the foundation shall be registered.
If the court renders a decision regarding refusal of the registration request, the decision of the court may be appealed. On the other hand, if the court renders a decision in favor of registration, the foundation shall be granted legal entity status, and then, it shall be registered with the court that has jurisdiction over the foundation’s headquarters, and, as well, with the central registry kept by the General Directorate of Foundations.
The foundation that is registered with the central registry shall be announced in the Official Gazette. The said announcement consists of information, such as the names of the founders, name, headquarters, purpose of the foundation, its managerial bodies, assets and rights devoted thereto, and information regarding the court that will render the registration decision.
Deed of foundation
The deed is the document that is comprised of information on the assets and conditions of the foundation. The deed includes the name, headquarters and purpose of the foundation, the acts and actions to be performed in order to fulfill the purpose of the foundation, the establishment asset, managerial bodies, management, and termination procedures of the foundation.
Rejection of the submission for registration shall not be necessary, provided that the purpose of the foundation, and the assets and rights allocated to such purpose envisaged in the deed, are adequate to realize the ultimate purposes of the foundation, even if the deed contains other deficiencies. The court may order remedies for such deficiencies prior to its registration decision.
Assets and rights allocated to the foundation
Foundations may acquire assets and may dispose of its property. However, provisions regarding acquisition via possession shall not be applied to the properties of foundations.
The minimum amount of assets to be allocated to new foundations is determined annually by the Council of Foundations. The ownership of the assets and the rights allocated to the foundation shall be transferred to the legal entity, once the foundation gains its legal personality after being registered. Thus, the court shall notify the land registry administration in order for them to register the immovable property with the name of the legal entity foundation.
Management of the new foundations
The managerial bodies of the new foundations shall be established in accordance with the deed, and the majority of the persons responsible in these managerial bodies shall reside in Turkey. However, persons who have been convicted of thievery, fraud, illegal trafficking, or forgery shall not be appointed as a manager.
Managers of foundations shall act in conformity with the purpose of the foundation, as well as the legislation in force. Managers who do not use the assets and incomes of the foundation in accordance with the purpose of the foundation, thereby damaging the foundation through gross negligence and malicious actions, do not remove or repair defects or errors identified by the auditors, lose his/her capacity to use civil rights. Those persons who acquire an illness or become incapacitated, which constitutes an impediment to the performance of his/her duties, may be dismissed by the civil court of first instance that has jurisdiction over the headquarters of the foundation, upon the auditors’ application that is based on the decision of the Council of Foundations.
Nonetheless, on the basis of just cause, the court may alter the organization, management structure and functioning of the foundation, upon request of either one of the managerial bodies of the foundation or the General Directorate of Foundations, along with the written opinion of the other.
In the event of a decrease in the number of members of the bodies due to death, reassignment, or for any other cause, the deficiency shall be remedied in accordance with the procedure envisaged in the deed. If no procedure is envisaged, the deed shall be amended. By virtue of this fact, the amendment procedure can be avoided if the fixing procedure, upon a decrease among members of the bodies, is explicitly specified in the deed.
Activities of foundations
To give broad examples, foundations may be engaged in areas of health, education, science, and culture, and carries out activities within such areas. To carry out such activities, and to earn income for the use of the foundation, the foundations are permitted and authorized to dispose of and manage movable and immovable properties and cash, to acquire securities, and to sell such securities by utilizing them in line with the purpose of the foundation, cooperate with real persons and legal entities, domestic or foreign foundations with similar purposes, receive aid from persons or entities other that state institutions and authorities, enter into agreements to procure such aid, incorporate commercial enterprises and companies, and other similar activities, within the framework of the Civil Law.
Foundations may become shareholders of current incorporated companies, provided that they inform the General Directorate of Foundations. However, incomes from commercial enterprises shall not be allocated for any purposes other than those of the foundation.
Additionally, the foundations are authorized to cooperate and carry out activities, internationally, open branches abroad, receive donation and aid in cash and kind from persons, institutions and authorities located abroad, financially assist or make donations to foreign or domestic foundations and associations with similar purposes.
Audit of foundations
All acts and actions of the foundations are within the scope of internal auditing. Foundations may either be audited by its own bodies or by independent auditing firms. An independent auditing firm shall be appointed by the decision-making body of the foundation.
Managers of the foundation present the internal auditing reports that are prepared at least once a year, and these reports are provided to the General Directorate of Foundations within two months as of the date of the report. The audit assessment the compliance of the foundation with its purpose and legislation, along with the audit assessment the compliance of the foundation’s commercial enterprises with legislation is performed by the General Directorate of Foundations.
Termination of Foundations
Where the decision-making body of the foundation or the General Directorate of Foundations concluded that the purposes of the foundation were impossible to be fulfilled, they may always request registration of such situation from the civil court of first instance by a petition.
The Court may render a decision regarding the dissolution of the foundation and establishment of a board of liquidators and register the decision of dissolution, if necessary. The termination of the foundation shall be registered into the central registry and announced in the Official Gazette by the General Directorate of Foundations.
The remaining assets and rights of the new foundation shall be transferred to a foundation or an institution with similar purposes that are set out in its deed. If there are no specific provisions in the deed regarding the said matter, the assets and rights of the foundation shall be transferred to a foundation with similar purposes that will be determined by the court, provided that the opinion of the General Directorate of Foundations and the transferee foundation is taken.
Conclusion
The establishment, management, purposes and activities and termination of foundations are subject to legislation regarding foundations and notably the Civil Law. The establishment and termination procedures of foundations require an attentive and careful assessment due to the fact that such procedures necessitate an opinion of General Directorate of Foundations and a court decision.
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