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


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.


  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.

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