THE DIFFERENCES BETWEEN COMPANY STRUCTURES OF A JOINT-STOCK COMPANY AND A LIMITED LIABILITY COMPANY IN TURKISH LAW
General provisions regarding commercial companies and company types are regulated in the Turkish Code of Commerce No. 6102 and applicable legislation. The most common types of companies are joint-stock companies and limited liability companies. In this study, the differences between the company structures of a joint-stock company and a limited liability company are examined pursuant to the relevant provisions of the Turkish Code of Commerce Numbered 6102.
1. TYPES and PROPERTIES OF COMPANIES
Before addressing the differences between a joint-stock company and a limited liability company, it is necessary to provide basic information about company types, joint-stock companies, and limited liability companies.
In general, a company is a partnership established by two or more entrepreneurs by combining their labor, money, and goods under a contract to achieve a common economic goal. According to the Turkish Code of Commerce, there are five different types of companies in Turkey. Namely, joint-stock company, limited liability company, unlimited liability company, limited partnership, partnership limited by shares, and cooperative association. These companies' establishment, basic features, and functioning are regulated under the Turkish Code of Commerce No. 6102. Companies are divided into two in terms of their responsibilities: equity companies and sole proprietorships.
Joint-stock companies and limited liability companies subject to this article, and partnerships limited by shares are equity companies. In capital companies, the important thing is the capital, so the partners' responsibility is of secondary importance and limited.
- Joint Stock Company: The capital is fixed and divided into certain shares in this kind of company. The company is responsible for the company's debts to the extent of the company assets. Shareholders are only responsible for the capital shares they have subscribed to. Joint-stock companies are regulated in Article 329 et seq. of TCoC.
- Limited Liability Company: This kind of company is established by one or more natural or legal persons under one trade name. When establishing a limited liability company, a specific capital consists of all the shares. As in joint-stock companies, the shareholders are only responsible for the company's debts to the extent of the capital share they have subscribed to.
2. THE DIFFERENCES BETWEEN A JOINT-STOCK COMPANY AND A LIMITED LIABILITY COMPANY
The differences between a Joint Stock Company and a Limited Liability Company may be classified under many titles. In this article, these differences are stated and explained as much as possible under various headings.
1. Differences in terms of Partners
A single person may establish both the joint-stock companies and limited liability companies, and partners of this person may be natural or legal persons. However, while there is no upper limit on the number of partners of joint-stock companies, a limited liability company may have a maximum of 50 partners. Another essential difference is public float; if the number of partners in a joint-stock company exceeds 250, the shares may be offered to the public. However, the shares in limited liability companies are never offered to the public. The most significant difference between these two types of companies appears at this point; while the limited liability companies are smaller in terms of the partnership, the joint-stock companies may address a more comprehensive society.
2. Differences in terms of Purpose and Subject of the Company
Both joint-stock and limited liability companies can be established for any economic purpose and subject not prohibited by law. In this respect, these two types of companies have a wide range of activities thanks to their ability to carry out any economic and commercial activity. However, this activity must be included in the articles of association that the company has registered with the trade registry.
On the other hand, there are some exceptional companies that must be established as joint-stock companies or limited liability companies. Banks, brokerage houses, investment trusts, insurance, financial leasing, and factoring companies must be established as joint-stock companies. In this respect, it is clear that the companies required to be established as joint-stock companies cannot be established as limited liability companies. In addition, limited liability companies should not be established for charity and scientific purposes specific to associations and foundations.
3. Differences in terms of Capital
Minimum Share Capital: The minimum share capital amount in joint-stock companies, except those established by special law, is 50,000.00 TRY. For non-public joint-stock companies that accept the registered capital system, the initial share capital level may be a minimum of 100,000.00 TRY. The minimum share capital amount of limited liability companies is 10,000.00 TRY, which can be increased 10 times by the Presidential decree.
Capital Increase: In joint-stock companies, the capital may be increased with the resolution of the General Assembly or amendment of the articles of association in the capital system, and only with the resolution of the Board of Directors in the registered capital system. In limited liability companies, on the other hand, the capital may only be increased with the resolution of the General Assembly, and this is not a power that may be assigned to the board of directors.
Type of Share Capital: Labor capital cannot be included in joint-stock companies and limited liability companies; only cash or in-kind capital with a certain value can be included.
The Division into Groups: The share capital may be divided into groups in joint-stock companies and limited liability companies. However, the difference between these two companies in this respect is that it is not necessary to specify such division in the company's articles of association in joint-stock companies. However, in limited liability companies, it must be stated in its articles of association.
4. Differences in terms of Liabilities of the Partners
It is widespread for companies to become indebted to third parties or the public. In the general properties of the Joint Stock and Limited Liability companies, we already stated that the company is primarily responsible for the company's debts to third parties with the company assets in both types of companies. In this regard, the shareholder only has an obligation to subscribe to the share capital and fulfill additional obligations regarding the company. If the debt in question is public debt, the situation is different for both companies. In joint-stock companies, the burden of paying the public debts is assumed by the Board of Directors. If the company fails to pay the debt, the managers shall be responsible for the company's public debt with their assets. On the other hand, in limited liability companies, the partners are held directly responsible for the public debts that cannot be collected from the company in proportion to their shares in the capital.
5. Differences in terms of Roles of Partners in Management
There is no obligation for any partner to be on the Board of Directors in joint-stock companies. The company can be managed without any partner on the Board of Directors. However, partners can also be directors if they want to. As can be seen, there is freedom in this regard in joint-stock companies. The situation is different in limited liability companies; even if a manager is elected from the partners or 3rd parties for the management, at least one partner must have the authority of management and representation.
6. Differences in terms of Legal Entity and Trade Name
The legal entity status is acquired by registering the company to a trade registry office in joint-stock companies and limited liability companies. However, the establishment of a limited liability company is only possible when the founders' will is included in the articles.
Both companies are the same in terms of liability of legal entity, establishment expenses, and trade name. The person who made the transaction before the registration assumes the responsibility personally and severally in both types of companies. However, the responsibility of said person ends if it is stated that the registration has been performed on behalf of the company and if the relevant company accepts that the registration is completed on behalf of the company within 3 months from its establishment. From then on, this company will assume this responsibility.
If the company does not undertake the establishment expenses, the founders will cover these expenses; the founders' right of recourse to the shareholders is reserved.
Both types of companies must have a trade name. The trade name must consist of the relevant company's subject and type of activity.
7. Differences in terms of Share Transfer
When transferring shares in joint-stock companies, there is no requirement to perform the transfer at a notary office; however, shares in limited liability companies can only be transferred by making a written contract in the notary office. In addition, if there is no article regarding non-assignment of shares in the articles of association of joint-stock companies, the transfer process is carried out only with a written contract; it is not required for the process to be registered in the trade registry office. In limited liability companies, on the other hand, the share transfer must first be approved by the general assembly, and the process must be registered in the trade registry office and logged in the stock ledger. In this respect, it can be said that the transfer of shares in joint-stock companies is generally much easier and more effortless than transferring shares in limited liability companies.
8. Differences in terms of Retaining of Lawyer
In Article 35 of the Legal Profession Act No. 1136, the companies obliged to retain a lawyer are specified. With respect to this matter, in Article 35 of Legal Profession Act, it is specified that the joint-stock companies with an original capital five times the amount of original capital stipulated in Article 272 of the TCoC or more are required to retain a lawyer under contract. The capital amount specified in Article 272 of the TCoC is 50,000.00 TRY. Accordingly, joint-stock companies with a capital of a minimum of 250,000.00 TRY are required to retain a lawyer. The limited liability companies are excluded from this scope since this article requires that only the joint-stock companies with the mentioned properties have an obligation to retain a lawyer among the capital companies.
9. Differences in terms of Company Organs
Mandatory bodies in Joint Stock Companies are the general assembly, board of directors, and auditor. Mandatory bodies in limited liability companies are the general assembly and the board of managers. In both types of companies, these mandatory bodies can be convened electronically. On the other hand, in these two types of companies, an optional body can be formed in a manner not to exceed the non-assignable powers of the mandatory bodies.
10. Differences in terms of Liability of Keeping Books
There are books that must be kept in both Joint Stock Companies and Limited Liability Companies. The obligatory books to be kept in both types of companies are general journal, general ledger, inventory register, shareholders' stock ledger, and General Assembly meeting and negotiation books. In addition to these, it is compulsory to keep the resolution book of the Board of Directors in limited liability companies. In this respect, it is possible to say that the compulsory books are almost the same.
11. Differences in terms of Issuance of Bonds and Dividend Certificates
In summary, we can define a bond as a written deed, which can be issued to borrow money by the state or certain private institutions, and which can have interest income at various rates in specific periods. While joint-stock companies can issue bonds, limited liability companies cannot.
On the other hand, Dividend Certificates are securities in nature of negotiable papers that provide only asset rights to the owner and do not represent any shares, unlike stock certificates; they are regulated in Article 503 of the Turkish Code of Commerce No. 6102. Dividend Certificates can be issued in joint-stock companies; however, they can be issued in limited liability companies only on condition that this is specified in the Articles of Association.
12. Differences in terms of Tax Exemption Regarding Sales of Company Shares
In joint-stock companies, if the company is sold within 2 years after the purchase of the share certificate, income tax is incurred; however, if it is sold after 2 years, no income tax is incurred. In limited liability companies, there is no time limit. Whenever company shares are sold, income tax is incurred.
13. Differences in terms of Dividend
In joint-stock companies, no dividend advance is distributed to the partners. In limited liability companies, dividend advances can be distributed to the partners. In joint-stock companies, it is not obligatory to have the share certificates printed. However, a registered share certificate can be issued, and if the price is fully paid, a bearer share certificate can also be issued. The principal capital share can be tied in a provable share certificate or a registered share certificate in limited liability companies.
In joint-stock companies, different rights may be granted to specific share certificates or share certificate groups in terms of voting rights, representation, Board Membership, dividend, liquidation share, priority rights, etc., under the articles of association. In limited liability companies, on the condition that the value of the share differs, the voting right may be limited, and voting privileges may be granted, provided that it is specified in the articles of association.
14. Differences in terms of Audit
The subject of how companies will be audited varies depending on whether they are one of the companies determined by the Council of Ministers. Companies determined by the Council of Ministers in joint-stock and limited liability companies are subject to independent auditing. The audit of the Joint Stock Companies other than these is carried out in accordance with Article 80 of Law No. 6455. There is no regulation in Law No. 6455 on carrying out audits to limited liability companies that the Council of Ministers does not determine. However, joint-stock company rules can be applied to such limited liability companies pursuant to article 635 of the TCoC.
15. Differences in terms of Leaving and Exclusion from Partnership
Leaving partnership: The judge may decide that the majority of the partners may purchase rights of the minority partner who acts unfairly in joint-stock companies. Thus, the minority partner becomes indirectly excluded from the partnership. In the case of a limited liability company, the exclusion conditions may be contained in the articles of association, or there may be justified reasons for the related person to leave the partnership depending on the event. Apart from these, the transfer of the shares is another way to leave the partnership for both types of companies.
Exclusion from the partnership: In joint-stock companies, the partners may file a lawsuit for the dissolution of the company based on a valid reason. The judge of this case may decide for dissolution of the company or exclusion of one or more partners as a result of examining the situation that constitutes the subject of the case. In limited liability companies, any partner can be excluded with the resolution of the partnership if the company's articles of association indicate conditions for the exclusion from the partnership and with the order of the court if there is any justified reason.
In this article, some general regulations regarding commercial companies in terms of TCoC and the differences between joint-stock companies and limited liability companies in terms of company structures are addressed. The differences between the Limited Liability Company and the Joint Stock Company are important, and both the legal regulations and the practice should be considered when evaluating the concrete case.