Introduction
Defined in the Turkish Commercial Code No. 6102 ("Code"), the joint stock company and the limited liability company differ in many respects, such as the establishment of the company, its purpose and the liability of its shareholders. In this respect, it would be beneficial for individuals to determine which type would be more suitable for their activities before establishing a company.
What is a Joint Stock Company?
Joint stock company is defined in Article 329 of the Law. Accordingly, a joint stock company is a company whose capital is definite and divided into shares, and which is liable for its debts only with its assets.
What is a Limited Liability Company?
A limited liability company is regulated under Article 573 and the following articles of the Law and is defined as a commercial company established by one or more real or legal persons under a trade name, which has a certain share capital, but this capital consists of the sum of the shares of the share capital.
What are the Differences Between Joint Stock and Limited Liability Companies?
- In terms of Establishment
According to the Code, while the establishment of a joint stock company requires the authorisation of the Ministry of Customs and Trade, limited liability companies may be established without any authorisation. Accordingly, both companies are established upon the founders' declaration of their intention to establish a company in the articles of association, which is drawn up in accordance with the law, in which they unconditionally undertake to pay the entire capital, and in which their signatures are notarised. Within 30 days following the establishment of the company, the company is registered in the trade registry of the place where the company is established and the establishment phase of the company is completed with its announcement in the Trade Registry Gazette.
- In terms of Company's Purpose and Subject
Since joint stock and limited liability companies may be established for any economic purpose and subject not prohibited by law, they have a wide range of activities. In both companies, in order to carry out the activity, it shall be included in the articles of association of the company in writing and registered in the trade registry.
Exceptionally, the Turkish Commercial Code and other laws stipulate that companies operating in certain fields must be established as joint stock companies, and the establishment of limited liability companies in these subjects would clearly be against the law. For example, according to the Banking Law No. 5411, banks are obliged to be established as joint stock companies, and according to the Capital Markets Law No. 6362, investment institutions are obliged to be established as joint stock companies.
- In terms of Number of Shareholders
The Code stipulates that the existence of at least one founder who is a shareholder is sufficient for joint stock companies to be established and continue their activities, and no upper limit is specified. In addition, it is stated that if the number of shareholders in joint stock companies exceeds 250, the company will be offered to the public.
Limited liability companies are smaller companies compared to joint stock companies in terms of the number of shareholders. In order for these companies to be established and carry out their activities, a minimum of 1 and a maximum of 50 partners are required. Unlike joint stock companies, there is no public offering in these companies.
- In terms of Responsibility of the Shareholders
In joint stock companies, the company is liable to third parties only with its assets and the shareholders are only obliged to fulfil the capital commitment and additional acts, i.e. they are not liable for the debts of the company. In terms of public debts, since the obligation to pay belongs to the board of directors ("BoD"), the BoD members will have to pay the debts from their own assets in case of non-payment.
In limited liability companies, the company is liable for its debts to third parties with its assets. Although the law states that the shareholders are not liable for the debts of the company and are only responsible for fulfilling the capital commitment and additional performances, the shareholders will be held directly responsible for the public debts that cannot be collected from the company in proportion to their capital shares.
- In terms of Capital
In joint stock companies, according to Article 332 of the Code, the initial capital, which refers to the capital fully subscribed in the articles of association, cannot be less than TRY 50,000, and in non-public joint stock companies that have adopted the registered capital system, which indicates the ceiling of authorisation granted to the board of directors for the increase of the capital, the initial capital cannot be less than TRY 100,000. This minimum capital amount may be increased by the President.
For limited liability companies, according to Article 580 of the Code, the initial capital of the company is at least TL 10,000. The amount stated in this article may be increased up to ten times by the President.
- In terms of the Structure of the Board of Directors, Board of Managers and General Assembly
In joint stock companies, the general assembly, the board of directors and the auditor are among the mandatory organs and the company is managed by the board of directors. In joint stock companies, both real persons and legal entities can be on the board of directors and shareholders are not obliged to be on the board of directors. The general assembly is the decision and will body of the company and the shareholders specified in the list prepared by the board of directors may attend the meetings.
In limited liability companies, the general assembly and the board of directors are mandatory organs. Since there is no board of directors in these companies, the managers are the administrative and management body of the company. Managers may be elected from among the shareholders or from outside, and according to the Law, at least one shareholder must have the authority to manage and represent the company. The decision-making body of the company, which is formed with the participation of all shareholders, is the general assembly. Real persons or legal entities may be members of the general assembly, but legal entities must appoint a real person to represent them.
- In terms of Quorums in Meeting and Adopting Resolutions
Meeting Quorum: In joint stock companies, unless a higher quorum is agreed upon, the board of directors shall convene with the majority of the total number of members. The general assembly shall convene in the presence of the shareholders or their representatives meeting at least one quarter of the capital; however, if this quorum is not met, a quorum shall not be sought in the second meeting. In limited liability companies, the general assembly is convened by the managers and more than half of the shareholders of the share capital who have the right to vote must be present together in order to ensure the quorum for the general assembly meeting.
Quorum for Adopting Resolutions: In joint stock companies, the quorum for adopting resolutions in both the board of directors and the general assembly is determined as the majority of the members present at the meeting. In limited liability companies, except for important decisions, general assembly resolutions are taken by absolute majority of the votes represented at the meeting.
- In terms of Dividend Distribution
As stated in the Law, dividends in joint stock companies are distributed from the annual net profit and free reserves. Each shareholder may participate in this profit in proportion to his/her share. In limited liability companies, dividends are distributed only from the annual net profit for the period and from the reserves set aside for this purpose.
- In terms of Liquidation
The termination and liquidation of joint stock companies are regulated under Articles 529 and following of the Law, and as a natural consequence of the reasons for termination, companies enter the liquidation process.
As for the liquidation of limited liability companies, Article 643 of the Law stipulates that the provisions regarding the liquidation procedure for joint stock companies shall apply. Therefore, the same procedure shall be followed for both types of companies.
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.
