Last Updated on 28/11/2023
When it comes to establishing a business in Turkey, the choice of legal structure plays a critical role in determining the business’s operations, liabilities, and growth potential. Two commonly chosen structures are Joint Stock Companies (JSC) and Limited Liability Companies (LLC). In this article, we’ll dive deeper into the essential differences between these structures, with a specific focus on Limited Liability Companies.
You can have more details about different types of companies in Turkey in this article.
Shareholder Structure
Joint Stock Companies can be incorporated with as little as one shareholder, and there’s no upper limit defined for the maximum number of shareholders.
On the other hand, Limited Liability Companies require a minimum of one shareholder and can have up to a maximum of 50 shareholders. This flexibility in ownership is one of the defining features of an LLC. Besides, it provides a more manageable range of shareholders, ensuring efficient decision-making and streamlined operations, particularly for smaller businesses or startups.
Public Offering
In a Joint Stock Company, if the number of shareholders exceeds 250, the company has the option to make its shares publicly available.
In contrast, Limited Liability Companies cannot offer their shares to the general public. This characteristic ensures a more private and closely-held ownership structure.
Company’s Purpose and Scope
Certain financial institutions, including banks, brokerage firms, investment trusts, insurers, leasing, and factoring companies, are required to adopt the joint stock structure.
However, Limited Liability Companies cannot be established for purposes exclusive to joint stock companies or for charitable objectives similar to NGOs. This restriction defines the scope and purpose of an LLC.
Learn more about Guide to Different Types of Companies in Turkey
Capital Requirement
The minimum capital requirement for a Joint Stock Company is 50,000 TL, and this amount can be adjusted through a resolution by the General Assembly (GA).
In contrast, the minimum capital requirement for a Limited Liability Company is lower, starting at 10,000 TL. Moreover, this capital can be increased up to tenfold through a resolution by the Board of Directors (BoD), offering more financial flexibility for starting a business.
The lower initial capital requirement makes LLCs an attractive option for small and medium-sized enterprises and startups.
Liability of Shareholders
In a Joint Stock Company, shareholders are liable only up to the extent of their contributions. However, directors hold personal liability if the company defaults.
In an LLC, shareholders are liable only up to the extent of their contribution to the company. They are also directly accountable for the company’s uncollected public debts, in proportion to their capital contributions. This characteristic offers a level of protection to shareholders while ensuring accountability.
Management Participation
Shareholder participation in the Board of Directors (BoD) is optional. A company can operate without direct shareholder involvement in management. On the other hand, Limited Liability Companies are managed by a Board of Managers. At least one shareholder must have management and representation rights, ensuring some shareholder involvement in the company’s management.
A comprehensive guide on company registration in Turkey
Corporate Entity and Trade Name
Establishing a Joint Stock Company doesn’t necessitate a declaration of intent in the articles of association.On the opposite, a Limited Liability Company is established when the intent to incorporate is stated in the agreement, streamlining the establishment process.
Share Transfer
In Joint Stock Companies, share transfers usually do not require notarized endorsement. A written agreement is generally sufficient, and commercial registry documentation is optional.
In Limited Liability Companies, a notarized agreement is required for share transfer. Additionally, share transfer needs approval from the General Assembly (GA), commercial registry documentation, and recording in the share ledger. These requirements add an extra layer of formality to share transfers in LLCs.
Attorney Requirement
In Joint Stock Companies, if the capital surpasses 250,000 TL, retaining an attorney is mandatory. However, in Limited Liability Companies, there is no compulsory provision for legal representation, providing more flexibility in legal requirements.
Organs
In a Joint Stock Company, the compulsory organs include the General Assembly (GA), Board of Directors (BoD), and an auditor.
However, in a Limited Liability Company, the essential organs are the General Assembly (GA) and the Board of Managers. This simplified structure may streamline decision-making and operational processes.
Mandatory Records
In Joint Stock Companies, there is no obligation to maintain a Board of Directors (BoD) resolution book. However, in Limited Liability Companies, maintaining a BoD resolution book is obligatory, ensuring comprehensive record-keeping.
Issuing Instruments
In Joint Stock Companies,both bonds and beneficiary certificates can be issued while on the other hand, bonds cannot be issued in a Limited Liability Company. However, beneficiary certificates can be issued if specified in the articles of association.
Tax Exemption
In Joint Stock Companies, capital gains tax applies if shares are liquidated within a 2-year span.Conversely, in Limited Liability Companies, capital gains tax imposition occurs regardless of when the company shares are traded. This difference in tax treatment is crucial for financial planning and decision-making.
Dividend Allocation
Provisions for advance dividend distribution are not present in Joint Stock Companies. Additionally, distinctive rights might be allotted to specific shareholder groups.
In Limited Liability Companies, advance dividend distribution is permissible, providing more flexibility in financial management. The ability to allocate dividends in advance can be beneficial for shareholders.
Understanding these key differences between Joint Stock Companies and Limited Liability Companies is vital for entrepreneurs and business owners. Making an informed decision regarding the appropriate legal structure for a business can significantly impact its growth, stability, and long-term success. Each structure has its unique advantages and considerations, and choosing the right one aligns with the goals and vision of the business.
