Before starting commercial activity, all partnerships must consider the question of “which type of company” is best for their needs and structure.
Under Turkish Commercial Code No. 6102 (“TCC”) and Turkish Code of Obligations No. 6098, companies are divided into two groups: sole proprietorships and equity companies. In this article, we will compare the structures of Common Partnership, Joint Stock Company, and Limited Company, which are the most commonly preferred.
Sole Proprietorship
- Ordinary Partnership
- Collective Partnership
- Commandite Partnership
Equity Companies
- Joint Stock Company
- Limited Liability Company
- Cooperative Company
- Commandite Partnership in which the capital is divided into shares
Liability of Shareholders for Corporate Debts
The main difference between ordinary partnerships and equity companies (Joint Stock and Limited Liability Companies) is the legal entity distinction. Since ordinary partnerships do not constitute a legal entity, shareholders have first-degree responsibility for the partnership’s debts with their personal assets. For capital companies, the distinction is as follows:
Joint Stock Company: Shareholders of a Joint Stock Company have sole responsibility to the company, and their responsibility is limited to executing their subscribed capital. The shareholders are not responsible for the company’s debts with their personal assets.
Limited Liability Company: Shareholders of a Limited Liability Company are not responsible for the company’s debts. They are only obliged to execute the capital shares they have subscribed to and to fulfill the additional payment and subsidiary obligations undertaken in the company contract. However, the shareholders of the Limited Liability Company are directly responsible for public receivables which are not fully or partially collected by the ratio of their capital shares. For this reason, unlike Joint Stock Companies, the shareholders of Limited Liability Companies will be directly responsible for public debts of the company (taxes, SSI debts, etc.) that cannot be collected due to the company’s bankruptcy, etc.
Initial Capital
Unlike equity companies, there is no initial capital sub-limit for ordinary partnerships. Partnerships can start operating with the amount of capital desired by the shareholders.
For Joint Stock Companies, the minimum limit stipulated in TCC is TRY 50,000. 1/4 of the amount is expected to be paid to the company before registration, and the remaining portion within 48 months after registration. In practice, it is sufficient to block TRY 12,500, which corresponds to 1/4 of the minimum amount, to a bank account. Following the incorporation of the company, it is possible to withdraw that amount from the bank.
For Limited Liability Companies, the minimum limit stipulated in the Turkish Commercial Code is TRY 10,000.
Share Transfer Tax
According to Article 80 of the Income Tax Law, the earnings obtained from the issuance of shares belonging to full taxpayer institutions within two years from the date of acquisition are subject to tax as gains from appreciation for Joint Stock Companies. This means that the shareholders of the Joint Stock Company will not be subject to tax after two years from the date of acquiring the company share.
For Limited Liability Companies, there is no time limit as for Joint Stock Companies. Limited Liability Company shareholders will be taxed in case of a share transfer without any time limit.
This distinction is especially important for start-ups planning to get funding. In other words, it may cause Limited Liability Company shareholders to pay a substantial part of their investment as tax.
In conclusion, it cannot be said that one company type is more advantageous than the other. The relationship between shareholders, the subject of activity, short- and long-term plans, and financial situations should be taken into consideration when deciding on the type of company.