• Limited Liability Companies and Joint Stock Companies in Turkish Law: Advantages and Disadvantages
  • October 24, 2013
  • Law Firm: HERDEM Attorneys At Law - Istanbul Office
  • Limited liability company for small and medium-sized enterprises

    An important reform which has been brought with the new TCC is that a limited liability company and a joint stock company may be established by one founder. In that cases, all transactions with the company shall be written. The both company types differ from each other in many aspects. Firstly, a limited liability company may be established by maximum 50 founders, whereas maximum founders number in a joint stock company is not restricted. Moreover, the establishment of both company types requires different capital amounts. The minimum capital of a limited liability company must be 10.000 TL, whereas it must be minimum 50.000 TL in a joint stock company. Therefore, limited liability companies are ideal for small or medium-sized enterprises. Especially easiness of establishment procedure and relatively low capital requirement are facts that make the limited liability companies attractive. However, bank, insurance (except insurance agents), factoring companies must be joint stock companies a limited liability company may not operate in these sectors.

    Advantages and disadvantages regarding liability

    Another important subject concerning limited liability and joint stock companies is the liability of the company and its legal representatives. Principally, shareholders / founders of both companies may not be liable for the companies' debts. Regarding the company debts, the liability of the company, shareholders and legal representatives comes into question.

    There are differences between the both company types regarding the tax debts and social security premiums of company. In principle, the company is liable for the tax debts and social security premiums. In a joint stock company, the legal representatives of the company are liable with their personal assets for the tax and social security debts which can not be obtained from the company assets. In that case, the liability of the shareholders will not come into question. This may be regarded as an advantage in joint stock companies because the shareholders do not have to be legal representative of the company. However, the Article 35 of the Law on Collection Procedure of Assets provides the liability of limited liability companies' shareholders for these debts. According to this article, the shareholders will be liable for the tax debts and social security premiums of the company with their personal assets pro rata their shares. Nevertheless, a shareholder will be liable for these debts completely and with his/her personal assets if he/she is legal representative of the company at the same time. In this regard, a joint stock company may be regarded more advantageous.

    Joint stock companies and limited liability companies with regard to income tax in share purchase

    The advantages of the joint stock companies are also in question with respect of the income tax in share transfers.  According to the Income Tax Law which is in force the income because of the transfer of shares which have been retained for minimum 2 years is exempt from income tax in joint stock companies. Contrary to this, the income because of the share transfer is subject to income tax notwithstanding its retain duration. Moreover, according to the Draft of New Income Tax Law this difference between joint stock companies and limited liability companies, the two years term for joint stock companies will be abolished and the taxation of share transfer income will be levied per year by degrees. These regulations will be valid as of 01.01.2014 if this new code enters into force. Nevertheless  the current law constitutes a distadvantage for limited liability companies.

    Public offering

    If an investor intends to issue his/her shares, a limited liability company would not be convenient for this purpose. A joint stock company may issue its shares and offer them to public. Moreover, it may issue bonds for a credit, whereas these all are not possible in a limited liability company.


    In conclusion, there are advantages and disadvantages of both company types in Turkish Law. However, the joint stock company provides more advantages than disadvantages especially with the new TCC and also with new legislation in Income Tax Law. It is important to determine the correct company type in accordance with all facts such as capital, purposes and area of company activity.