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Limited Liability versus Joint Stock: Advantages and Disadvantages in Turkish Law Perspective

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Due to the recent amendments in the Turkish Commercial Code and the equity principle between domestic and foreign investors, the number of established local and international companies has been increasing in recent years in Turkey. As a conclusion, the question which company type shall be established comes to the fore frequently. Before the clarification of differences between these company types, it is important to provide information regarding the legal amendments in Turkish company law.

Reforms in company law with the New Turkish Commercial Code

An investor shall determine before starting a project in Turkey which company type may be appropriate for his/her investment. Joint stock companies and limited liability companies have been the most preferred company types by investors. According to the statistics, more than 80 % of established companies in Turkey are limited liability companies.

As mentioned above, the number of company establishments in Turkey have increased in last years. Especially the amendments in company law with the New Turkish Commercial Code and its harmonization with EU Laws play an essential role in increase of number of company establishments in Turkey.

An important reform which has been brought with the new Turkish Commercial Code is that a limited liability company and a joint stock company may be established by one person. Single-shareholder company, defined as a company with one shareholder, which has been existing in many other jurisdictions for a long time, plays an essential role especially for foreign investors that it is not required to find a second shareholder in Turkey.

The simplified and accelerated incorporation due to online company establishment system and minimized bureaucracy, and the possibility of online general meetings are other amendments which may be regarded as essential law reforms which affect the number of company establishments in Turkey in a positive way.

Online company establishment and online general meeting

As mentioned above, companies shall use the online establishment and they may benefit from online general meeting options within the frame of the new system in company law. The online company establishment system, which does not depend on the type of the company, provides transparency and authenticity for companies along with reduction of bureaucracy.

The online general meeting is another system which has been enabled by the New Turkish Commercial Code. Accordingly, companies using this system may conduct their general meetings without difficulties in an online platform. The conditions of this system and for which companies it is required and for which companies not, has been regulated. Accordingly, a company may or shall use this system depending on the conditions which have been regulated by the related legislation.

Which company type may be advantageous?

Even if joint stock companies and limited liability companies have been regulated as capital companies with a limited liability, the both company types differ from each other in many aspects such as their capital amounts, liability of shareholders and directors for tax debts social security premiums. For instance, a limited liability company is not able to issue and offer its shares to public whereas a joint stock company has this possibility.

Apart from the advantages and disadvantages, the type of the company depends on many factors such as the sector and amount of the investment, costs of company establishment which the investor intends to pay and institutionalization purposes. There are several sectors such as banking and insurance, in which the establishment of a joint stock company is required. Moreover, a joint stock company is also appropriate for corporate governance.

In conclusion, the law reforms with the New Turkish Commercial Code and the new system of online general meetings and company establishment affect company establishment in Turkey in a positive way. Even if there may be differences, advantages and disadvantages of both company types, it is important to determine the correct company type in accordance with all facts such as capital, investment purposes and the sector in which the company will operate before taking the decision about the company type.

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