Similarities and Differences between Joint Stock Company and Limited Liability Company

Similarities and Differences between Joint Stock Company and Limited Liability Company

Determining the type of company in accordance with the requirements of the Turkish Commercial Code No. 6102 (“TCC”) is critical in the establishment process. The success and continuity of a company established in accordance with the Turkish Commercial Code in the sector in which it operates depends on the selection of an appropriate type. The needs and purposes of companies may change over time, and therefore, a change of company type may be required.

The most preferred company types by domestic and foreign investors in our country are Joint Stock Companies and Limited Liability Companies. These two types of companies differ from each other in terms of the responsibilities of the shareholders, capital amount, management bodies and share transfer transactions.

In this article, the general characteristics of Joint Stock Companies and Limited Liability Companies are analyzed and the pros and cons of these two types of companies are considered.

Similarities

Although joint stock companies and limited liability companies are fundamentally different from each other, both types of companies have common features. The common features of joint stock and limited liability companies are as follows:

• Both types of companies have higher bodies such as general assembly, board of directors or board of directors.
• In both types of companies, the management body may be a legal entity. A real person will fulfill the duties of the legal entity through a representative to be elected by the management body, which is a legal entity.
• Both types of companies can be established with at least 1 partner. Partners can be real persons or legal entities.
• In both types of companies, the existing shares can be transferred to the other party by making the necessary transactions.
• In both types of companies, ¼ of the capital must be deposited in the bank during the establishment phase and the remaining capital must be paid within 24 months following the registration.
• Pursuant to Article 342 of the TCC, in both types of companies, assets, including intellectual property rights and virtual environments, which are not subject to any limited real right, attachment or injunction, which can be valued and transferred in cash, may be contributed as capital in kind. However, acts of service, personal labor, commercial reputation and outstanding receivables cannot be capital.
• All kinds of commercial activities that are not prohibited by law can be carried out in both types of companies.
• In both joint stock and limited liability companies, the board of directors must be consulted before taking any action that may constitute competition against the company.
• In both joint stock and limited liability companies, the period for dissolution of the company is 6 months. In both types of companies, the company cannot be dissolved until 6 months have elapsed since its inception.

Differences

I. Joint Stock Company

• According to Article 329 of the Turkish Commercial Code No. 6102 (“TCC”), a joint stock company is a type of company whose capital is fixed and divided into shares, which is liable for its debts only with its assets, and whose shareholders are liable only for the capital share they have subscribed and only to the company.
• In joint stock companies, the trade name may be freely determined, provided that the phrases indicating the subject of business and the type of company are in Turkish. In addition, the trade name must include the phrase “joint stock company” and the subject of activity pursuant to Article 43 of the TCC.
• Pursuant to Article 332 of the TCC, the minimum capital amount for joint stock companies is TL 250,000. For non-public joint stock companies that accept the registered capital system, the initial capital may be at least TRY 500,000. In addition, pursuant to Article 476 of the TCC, each share must be worth 1 kurus and its multiples.
• Pursuant to Article 344 of the TCC, at least one fourth of the nominal value of the shares subscribed in cash in joint stock companies must be paid before registration. The remaining amount shall be paid within 24 months following the registration of the company. The payment schedule may be regulated in the articles of association of the company or may be determined by the board of directors.
• The maximum number of shareholders in joint stock companies can be 500. The number of shareholders above 500 is only possible if the joint stock company is publicly traded.
• Pursuant to Article 339 of the TCC, the only obligation of the shareholders in joint stock companies is to pay the capital amounts they have subscribed. The shareholder who pays the capital debt undertaken by the shareholder and who is not a member of the board of directors is not liable for public debts.
• Joint stock companies carrying out certain fields of activity and joint stock companies whose balance sheet total assets, annual net sales revenue and number of employees exceed the threshold values of the criteria determined according to the number of employees are subject to independent audit.
• Public offering is available in joint stock companies upon the fulfillment of certain conditions.
• Joint stock companies are obliged to have a lawyer if their share capital exceeds TL 1,250,000.
• Article 490 of the TCC regulates the transfer of registered shares in joint stock companies and registered shares may be transferred without any restriction unless otherwise stipulated in the law or articles of association. Therefore, the sale or transfer of shares in this type of company does not have to be notarized.

II. Limited liability company

• According to Article 573/1 of the Turkish Commercial Code No. 6102 (“TCC”), a limited liability company is a type of company whose capital is fixed and divided into shares, and which is liable for its debts only with its assets. In limited liability companies, the shareholders are not liable for the debts of the company, but are only obliged to pay the capital shares they have subscribed and to fulfill the additional payment and ancillary performance obligations stipulated in the company agreement.
• The trade name may be freely determined, provided that the phrases indicating the subject of business and the type of company are in Turkish. In addition, the trade name must include the phrase “limited liability company” pursuant to Article 43 of the TCC and must indicate the subject of activity.
• The share capital of a limited liability company shall be at least TRY 50,000, and the nominal value of the shares of the share capital may be determined as at least twenty-five Turkish Liras or multiples thereof. It is possible to pay the entire capital brought in cash within twenty-four months after the registration of the company. The payment schedule may be regulated in the articles of association or may be determined by the directors.
• In limited liability companies, the shareholders of the company shall be held responsible for the public debts that cannot be collected or understood to be uncollectible from the company in whole or in part, in accordance with Article 35 of the Law No. 6183 on the Procedure for Collection of Public Receivables (“AATUHK”), taking into account their shareholding rates.
• A limited liability company may be established with a single partner. However, the number of partners cannot exceed fifty. Limited liability company partners may be real persons or legal entities.
• There is no public offering in limited liability companies.
• Limited companies are not obliged to have a lawyer.
• Transactions regarding the transfer of shares in limited liability companies must be in writing, the signatures of the parties must be approved by a notary public, and unless otherwise specified in the company agreement, the transfer is valid if this approval is given together with the approval of the general assembly for the transfer of the share.