Turkey: The Ultimate Comparison Between Joint Stock Company And Limited Liability Company Under Turkish Law

1. INTRODUCTION

Two most commonly preferred types of company in Turkey are:

  • "Joint Stock Companies" ("anonim şirket" in Turkish, abbreviated as "A.S.") and
  • "Limited Liability Companies" ("limited şirket" in Turkish, abbreviated as "Ltd. Sti.")

Both companies are limited liability corporations. These types of companies provide limited liability for their shareholders; thus a shareholder's personal liability for debts of either A.S. or Ltd. Sti. is limited to his/her capital contribution, except for certain obligations vis-à-vis the government.

Prior to the enactment of the Turkish Commercial Code (the "TCC") in 2012, the differences between A.S. and Ltd. Sti were so prominent as investors who were looking for more closed and controlled environment with a lot less procedural requirement usually preferred Ltd. Sti., whereas investors looking for more professional and established corporate structure preferred A.S. Although, with the TCC, those differences are greatly diminished, both company types still have their advantages and disadvantages that investors should take into consideration when establishing a company in Turkey.

2. COMPARISON

  1. Tax Issues in Share Transfers :

    • Stamp Tax: In order to transfer shares in Ltd. Sti., a written contract must be executed before a public notary. Therefore, in addition to the notary costs, stamp tax in the amount 09,48 of the purchase price must also be paid. However, unlike in Ltd. Sti., no notarization is required for share transfers in A.S.; therefore, no such stamp tax must be paid.
    • Income Tax for Real Persons: In A.S., profits made from sale of shares which have been held by the transferor continuously for more than 2 years are not subject to any income tax, provided the transferred shares are represented by share certificates or temporary share certificates. However, in Ltd. Sti., profits made from share transfers are subject to income tax, since Ltd. Sti. cannot issue share certificates for transferring shares.
    • VAT for Legal Entities: In A.S., transfer of shares which are represented by share certificates or temporary share certificates is exempt from Value Added Tax without being subject to any time limitation. If shares are not represented by any certificates, the transferor must be holding the shares continuously for more than 2 years in order to escape from the VAT requirement. Whereas, in Ltd. Sti. (since share certificates cannot be issued for transferring shares), VAT must be paid unless the shares are held continuously for more than 2 years by the transferor.
    • Corporate Tax for Legal Entities: Both in A.S. and Ltd. Sti., sale of share certificates or temporary share certificates may be exempt from corporate tax provided they are held by the transferor continuously for more than 2 years and certain other conditions stipulated under the Corporate Tax Law are met.
  2. Unlimited Liability for Public Debts: In Ltd. Sti., all shareholders (regardless of whether they are involved in the management or representation of the company) and managers (those with representation powers) are personally all liable for public debts (taxes, social security premiums, administrative costs, fines and charges) which cannot be collected from the company. In A.S., only directors with representation powers are personally liable for such debts. Shareholders who are not involved in the management and representation of the company do not have such liability as long as they fulfill the obligation to pay the consideration of the shares they subscribe for.
  3. Alienation, Restricting Share Transfers and Expulsion: A.S. is – as a rule – more anonymous (as it is called "anonim" in Turkish) and is more open to alienation. Share transfer procedures are much easier in A.S. (especially shares represented with bearer share certificates can be transferred by simple delivery). There is no notarization requirement and share transfers are not announced in the Trade Registry Gazette. Shareholders owning bearer share certificates are not required to be recorded in the share ledger of the company.

    Share transfers in A.S. can be restricted in the articles of association only in certain conditions and to a certain extent allowed by the TCC. This downside of A.S. is often tried to be compensated by private shareholding agreements. However, violation of share restrictions in private shareholding agreements may only present grounds for breach of contract, not for nullification of a share transfer, since private contracts do not bind the bone fide third party transferees.

    Whereas, in order to transfer shares in Ltd. Sti., first there has to be a formal written and notarized contract executed between the transferor and the transferee and unless otherwise is ruled in the articles of association, all share transfers must be approved (by simple majority) in the General Assembly (can be rejected for any reason) and recorded in the share ledger of the company. In order for any share transfer in Ltd. Sti. to take effect, such transfer must also be registered with the relevant trade registry and announced in the Trade Registry Gazette.

    Moreover, in Ltd. Sti., share transfers can be prohibited completely without the need for showing any reason. Share transfer restrictions and mechanisms, such as preemption rights, call/put options, buy-back rights can be incorporated in the articles of association of Ltd. Sti, whereas it is not allowed in A.S.

    In Ltd. Sti. the articles of association may mandate expulsion of a shareholder on certain occasions. Also, the company itself may apply to the court for expulsion of a shareholder based on a justified reason (to be determined on case-by-case basis). Whereas such expulsion mechanism is available in A.S only if a shareholder defaults in paying the consideration of shares he/she subscribes for.
  4. Imposing Additional Financial Obligations on Shareholders in Case of Loss: In A.S., the articles of association cannot impose additional financial obligations on the shareholders in excess of the consideration of the shares they subscribe for.

    However, in the articles of association of Ltd. Sti., shareholders may be required to make additional payments to compensate the losses of the company, if the company's capital with legal reserves is insufficient to cover the losses of the company and the company is unable to continue its business without additional financial support.
  5. Management and Corporate Structure: In Ltd. Sti., at least one shareholder is required to be involved in the management and representation of the company, whereas there is no such requirement in A.S. In A.S., all management powers may be delegated to third parties. A.S. is more preferable for more professional corporate structure, as provisions relating to the governance of A.S. under the TCC are more developed and clear.
  6. Audit: According to the current legislation, A.S. is in any case subject to independent audit requirements, whereas, Ltd. Sti. is required to be independently audited only if thresholds in certain criteria such as revenue, employee and/or assets are exceeded. In case an audit requirement is not met, unaudited financial statements and activity reports are deemed null and void.
  7. Shareholders and Capital: Ltd. Sti. cannot have more than 50 shareholders, but no such maximum applies to A.S. The minimum capital required for Ltd. Sti. is TL 10,000 as opposed to TL 50,000 required for A.S. Only A.S. can adopt registered capital system where capital can be increased up to a designated amount in the articles of association, by the Board of Directors.
  8. Public Offering: Only A.S. can be listed with stock exchanges.
  9. Business Activities: Certain institutions such as banks, financial institutions, holdings, etc. are required to be established as A.S.
  10. Bonds/Debentures: Ltd. Sti. cannot issues share certificates, bonds or debentures.
  11. Leveraged Buyout Transactions: Article 380 of the TCC prohibits A.S. to enter into transactions for provision of an advance, loan or security with the third parties, for the purpose of acquisition of its shares, with few exceptions. However, in Ltd. Sti., LBOs are not prohibited.
  12. Decision Making: Mandatory quorums for decision making in Ltd. Sti. are higher compared to A.S by default; however the same can be achieved in A.S. by increasing the default quorums in the articles of association.
  13. Dividend Distribution: Rules regarding dividend distribution and setting aside voluntary reserves are stricter in Ltd. Sti.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions