Different Types of Companies and Turkish Corporate Lawyers

Differences Between LLC and JSC in Turkish Corporate Law

In Turkish corporate law, there are major differences between a limited liability company and a Joint-Stock Company. When it comes to deciding whether to incorporate a Limited Liability Company or a Joint-Stock Company in Turkey, an investor should consider several aspects:

1) Anonymity in Joint-Stock Companies

Under Turkish Law, in a Limited Liability Company, the current shareholders are registered in the trade registry directorate and then announced on the trade registry gazette. A new announcement is made every time a share in an LLC exchanges hands. Therefore, the identity of the current shareholders and the number of their shares are always publicly accessible information.

On the other hand, under Turkish Law in a Joint-Stock Company current shareholders are not registered and shares can exchange hands daily. Therefore, the identity of the current shareholders and the amount of their shares is known only to the board of directors. However, this information is made public after a general assembly of shareholders when the attendees, who are the current shareholders on that particular day, are published in the trade registry gazette.

As a result, shareholders in JSC may benefit from a certain degree of anonymity whereas in LLC share structure is transparent to the public.

2) Bureaucracy in Turkish Companies

An LLC requires less paperwork to incorporate in comparison to a JSC. For example, it is not necessary to open a bank account and deposit money before registering an LLC. Furthermore, holding a general assembly of shareholders in an LLC requires less paperwork in comparison to holding a general assembly of a JSC. To overcome out these bureaucratic hurdles, it is recommended that companies hire Turkish corporate lawyers and corporate law firms in Turkey.

In short, with respect to the bureaucracy of establishing and running the company, it can be said that an LLC is more advantageous. On the flip side, in an LLC transferring shares requires more paperwork in comparison to a JSC. Therefore, an LLC is not advantageous for trading of shares which will be discussed next:

3) Trading of Shares in Turkish Companies

In a JSC, profits from the sale of shares are exempt from income tax if the shareholder has held them for at least 2 years since their acquisition. This allows investors to exit from their investments after 2 years and enjoy the profits tax-free. LLC does not benefit from this type of tax break.

Furthermore, in JSC share transfer is significantly simple. In JSC, shares can be transferred by a simple written agreement of share transfer and by registering this transfer in the company’s shareholder ledger, whereas in LLC the transfer must be approved by the general assembly of the shareholders, be notarized and then registered in the trade registry.

Finally, only Joint-Stock Companies can be turned into public companies by way of an Initial Public Offering (IPO), allowing the public to invest into the companies and allowing the shareholders to sell their shares or buy new ones on the stock exchange.

In conclusion, JSC is the more advantageous option for investors who wish to trade their shares.

4) Costs of Incorporating Turkish Companies

In an LLC, the minimum required capital is only 50,000 TL and no advance payment is necessary before or during the incorporation. All of the capital can be paid within 2 years of incorporation. On the other hand, in JSC, the minimum required capital is 250,000 TL, 25% which must be paid prior to the incorporation while the remaining 75% of the capital is payable within 2 years. Therefore it can be said that an LLC is less costly to incorporate.

The same rule is applicable when it comes to the costs of running an LLC vs a JSC. The costs of holding general assembly of shareholders, Certified Public Accountant fees, legal fees and many other costs are lower in LLC than in JSC.

5) Limitation of Liability in Turkish Companies

In a capital company, whether it is LLC or JSC, shareholders by definition are not liable for the debts of the company and their liability is limited to the amount of capital that they pledge.

However, in an LLC, shareholders are personally and jointly liable for the company’s unpaid debts to the state (e.g. taxes, duties and penalties). This is a clear exemption to the rule of separation of business and personal liability in limited liability companies.

Furthermore, in an LLC, at least one of the shareholders must be also a director, and the directors are liable to the company for negligence.

In short, JSC is the preferable option for investors who wish to avoid any personal liability arising from company affairs and who wish to leave the management of the business to professionals.

It is possible for directors to be sued and/or held liable for the debts of the company or the director’s obligations to the company. In these cases, it is recommended that defendants hire Turkish corporate lawyers to represent them and refute claims.

Turkish Corporate Lawyer Baris Erkan Celebi and his Corporate Law Firm in Turkey offer legal support and legal assistance in all types of Turkish corporate law. The services of a Turkish company law firm include but are not limited to  incorporating the company, assisting with corporate governance, and mitigating liabilities.