LAW BULLETIN ABOUT

 COMPARISON OF JOINT STOCK AND LIMITED LIABILITY COMPANIES

IN TURKEY

BULLETIN DATE: 07/04/2020

When it is necessary to make a decision in terms of companies to be established, it is important which type of company is more advantageous in the legal frame. Since the most common types of capital companies in Turkey are Joint Stock and Limited Liability Companies, some of the similarities/differences and advantages/disadvantages of these companies will tried to be explained below within the context of Turkish Commercial Law (“TCC”).

1. CHARTER

• In joint stock companies, the articles of association of the company are made in writing, signed by the partners. Except for some exceptions, it is not subject to the permission of the Ministry of Customs and Trade. 
• According to Article 575 of TCC, limited liability companies are also subject to the same regulation with joint stock companies regarding the charter.

2. NUMBER OF PARTNERS

• Joint stock companies are established with at least 1 partner (natural or legal person). There is no limit in the number of partners. The person (having the value of negotiable documents) is the shareholder.
• Limited liability companies are also established with at least 1 partner (natural or legal person). But the number of partners cannot exceed 50. It has a common shareholding (without a negotiable document).

3. REGISTERED CAPITAL

• Principal capital of joint stock companies cannot be less than TRY 50.000. The start-up capital may not be less than TRY 100,000 in non-public joint stock companies that have adopted the registered capital system showing the authorized ceiling of the board of directors in increasing the capital. A share must be at least one cent.
• The basic capital of limited liability companies cannot be less than TRY 10.000. A share cannot be less than TRY 25. However, in order to improve the situation of the company, shares below TRY 25 can be issued.

4. CAPITAL SHARE AND LIABILITY

• In joint stock companies, shareholders are only responsible for the capital shares they have committed and this responsibility is directed towards the company.
• In limited liability companies, the partner is as responsible as the main share of capital committed to put. Partners are not responsible for company debts.

Although the shareholders are not responsible for the company's debts in limited liability companies, this rule does not apply to public debts. Limited liability company shareholders are responsible in proportion to their shares due to all taxes, social insurance and other public debts. In joint stock companies, shareholders who are not members of the board of directors have no responsibility for public debts, no matter how high their share rates are. Consequently, this is one of the disadvantageous characteristics of limited liability company when compared to joint stock company.

5. ISSUING A SHARE CERTIFICATE

• Shareholders may issue a share certificate as registered stock or bearer stock for their certain and divided shares.
• In limited liability company, the share certificate may be issued as registered stock to prove the partnership only.

This may seem like one of the disadvantages of the limited liability company because issuing a share certificate in limited liability companies, does not provide tax advantage, as in joint stock companies.

6. ASSIGNMENT OF SHARE

• In joint stock companies, when the partner wants to transfer a share, if there is no contrary provision in the articles of association, it can be done with a share transfer agreement. If a share certificate is issued in exchange for a share or a temporary certificate is issued, these can be transferred by endorsement. Transfer does not have to be done in the presence of a notary. Transfers are not registered in the trade registry. Transfer of shares can be limited, but not prohibited.
• On the other hand, transfer of shares in limited liability companies can be made with the permission of the general assembly of the company. Also, it can only be done by making a share transfer agreement at the notary. The transfer of the shares shall be registered in the trade registry. Transfer of shares can be forbidden with the provisions to be put in the articles of association.

This is one of the disadvantages of limited liability companies. Because share transfers must be made at the notary which means notary expenses will occur for each share transfer transaction.

7. TAKING THE COMPANY PUBLIC

• Joint stock company shares are securities. It is subject to free movement. Joint stock companies can be opened to the public.
• Limited liability companies cannot be opened to the public. Stocks are not securities.

This is an important advantage for the institutionalization of the company in terms of joint stock company. Moreover, even if shares are not offered to public in joint stock companies, it may be possible to choose the registered capital system. If the registered capital system is adopted, capital increase decisions can be made by the board of directors until the determined upper limit and no change in the articles of association are required. This means saving from the labour and expenses to be spent for general assembly transactions and trade registry announcement fees.

8. ISSUING BONDS

• Joint stock companies can issue bonds to find borrowed money.
• Limited liability companies are not able to issue bonds or brokerage activities related to securities.

9. EXCLUSION

• In joint stock companies, it is not possible to exclude the partners from the partnership. The only exception is issuance due to default in the payment of the subscribed capital share.
• In limited liability companies, it is possible for the partner to be removed from the partnership due to the reasons specified in the charter or if there are justified reasons.

This opportunity in limited liability companies ensures that the remaining partners continue to work efficiently by removing the partners who create problems and damage the operation of the company.

10. LEGAL REPRESENTATIVE

• In joint stock companies, the Board of Directors is authorized to manage and represent the company’s business. The legal representative is the "Board of Directors". In the perspective of TCC, the members of the Board of Directors who do not fulfil the duties and responsibilities imposed by the law and the articles of association are responsible for the joint stock company, the company partners and the creditors of the company due to the damages that occurred and will possibly occur.
• In limited liability companies, company affairs are carried out by the manager or managers elected by the general assembly. The elected managers are authorized to manage and represent the company affairs in this capacity. The legal representative is "Company Manager" or "Board of Directors" if there is more than one manager. The company is responsible for the wrongful act committed by the person authorized by the management and representation of the company during the performance of the duties related to the company.

11. GENERAL ASSEMBLY AND MINISTRY REPRESENTATIVE

• Joint stock companies are obliged to convene a General Assembly every year. In cases where capital increase, merger, division and type changes, and general assembly meetings are held electronically, the ministry representative has to attend the general assembly.
• Also in limited liability companies, there is an obligation to hold a General Assembly every year but the ministry representative does not have to attend the general assembly.

12. AUDITING

• Joint stock companies determined by the Council of Ministers are subject to independent auditing. Companies that fall outside of these determinations are not subject to independent auditing.
• In this regard, the article of law applied to joint stock companies is also applied to limited liability companies.

13. CHANGES IN THE COMPANY CONTRACT

• The company contract can only be changed by the decision of the partners corresponding to half of the registered capital. 
• In limited liability companies, the company contract can be changed by the decision of the partners representing 2/3 of the registered capital.

14. OBLIGATION TO HAVE A LAWYER

• Joint stock companies with a capital of TRY 250,000 and above are obliged to have a lawyer with contract. Otherwise, administrative fines are applied to the company.
• Limited liability companies do not have to have a lawyer.

This requirement for joint stock companies can be perceived as an additional cost item. However, it is imperative for a company to have legal support regularly. The company does not have to employ a lawyer in its own structure, it is sufficient to make a consultancy agreement with at least one freelance lawyer.

According to the above explanations and general understanding, When a company is to be established, similarities/differences and advantages/disadvantages explained above need to be taken into consideration along with company operations and financial situation. The type of the company shall be chosen afterwards.

Best Regards

Forensis Attorney Partnership

Note: The explanations in our bulletin have been prepared in a general manner to address the issue within the framework of the relevant legislation. We recommend you to contact a law firm for detailed information.