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Ecem Ağca

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Under Turkish law, the most common types of capital companies used for commercial activities are limited liability companies and joint stock companies. Both company types are regulated under the Turkish Commercial Code No. 6102 (“TCC”) and share a key characteristic: shareholders are generally liable only up to the amount of capital they undertake to contribute to the company. Nevertheless, there are substantial differences between the two structures in terms of incorporation and shareholder structure, capital system, shareholder relations, management, share transfers, and investment processes. These distinctions make it particularly important for foreign investors, start-ups, and businesses with growth potential in Türkiye to carefully evaluate which structure better suits their needs.

1. Incorporation and Shareholder Structure

Under the TCC, neither limited liability companies nor joint stock companies are required to have more than one shareholder in order to be incorporated. Pursuant to Article 338 of the TCC, a joint stock company may be established with a single shareholder, while Article 573/1 allows a limited liability company to be incorporated with one shareholder as well. However, limited liability companies may have a maximum of 50 shareholders (TCC Art. 574/1), whereas no upper limit is prescribed for joint stock companies.

Since joint stock companies are not subject to any cap on the number of shareholders and provide a more suitable framework for growth and investment, they are generally more advantageous for businesses aiming to expand and attract investors. Limited liability companies, on the other hand, are typically preferred by smaller-scale businesses due to their more restricted shareholder structure.

The incorporation of both company types requires the preparation of articles of association, registration with the trade registry, and completion of other legal formalities. The provisions governing the incorporation of joint stock companies are set out under Articles 335 et seq. of the TCC, while the incorporation of limited liability companies is regulated under Articles 575 et seq. However, the incorporation and organizational framework of joint stock companies is more institutionalized and detailed compared to limited liability companies.

2. Share Capital

One of the key distinctions between limited liability companies and joint stock companies is that joint stock companies offer a capital structure more suitable for investment and growth. In joint stock companies, the capital is divided into shares, and it is possible to create privileged shares, grant different voting rights, and issue share certificates. Indeed, Article 478 of the TCC specifically regulates privileged shares. In limited liability companies, however, the capital consists of capital shares and the structure is generally more closed in nature. As a result, shareholder relations in limited liability companies are typically based more on personal relationships, whereas joint stock companies provide a more flexible and institutionalized capital system.

With regard to minimum capital requirements, Article 580 of the TCC stipulates a minimum capital of TRY 50,000 for limited liability companies, while Article 332 requires a minimum capital of TRY 250,000 for joint stock companies. In addition, non-public joint stock companies adopting the registered capital system must have an initial capital of at least TRY 500,000.

3. Liability of Shareholders

Compared to limited liability companies, joint stock companies provide a safer liability structure for shareholders, particularly because shareholders are not directly liable for public debts of the company. Since both company types are classified as capital companies, the general principle is that shareholders are liable only up to the amount of capital they have committed to contribute. The liability of shareholders in joint stock companies is regulated under Article 329 of the TCC, while the liability of shareholders in limited liability companies is regulated under Article 573.

However, pursuant to Article 35 of the Law on the Procedure for the Collection of Public Receivables No. 6183, shareholders of limited liability companies may be held directly liable for public debts that cannot be collected from the company, in proportion to their shareholding ratio. By contrast, shareholders of joint stock companies are, as a rule, not directly liable for such public debts. For this reason, joint stock companies are often considered a more protective structure for shareholders, particularly in businesses with a high commercial volume.

4. Management Structure

Joint stock companies operate under a more institutionalized and professional management structure based on a board of directors, whereas limited liability companies are managed in a simpler and more practical manner through managers.

Pursuant to Article 359/1 of the TCC, the board of directors of a joint stock company may consist of either a single member or multiple members, and professional managers may also be appointed. In limited liability companies, the management and representation of the company is carried out by one or more managers under Article 623/1 of the TCC. Although managers are not required to be shareholders, the management structure is generally less institutionalized and more straightforward in practice.

5. Share Transfers

Joint stock companies allow for easier entry into and exit from the company due to the more flexible nature of share transfers. According to Article 490 of the TCC, the transfer of registered shares in joint stock companies may generally be carried out without being subject to any formal requirements.

In limited liability companies, however, share transfers are subject to stricter procedures. Pursuant to Article 595 of the TCC, share transfers must be notarized and registered with the trade registry. In addition, restrictions that may be included in the articles of association make the transfer process more controlled. As a result, shareholder relations in limited liability companies tend to remain more closed and personal in nature.

6. General Assembly

As the number of shareholders in joint stock companies may increase significantly, these companies are subject to a more institutionalized, systematic, and procedure-oriented general assembly structure. In limited liability companies, by contrast, decision-making processes are usually faster and involve fewer formalities due to the smaller shareholder base.

In both company types, fundamental corporate decisions are taken by the general assembly, including amendments to the articles of association, capital increases, profit distribution, and the appointment of managers or directors. The provisions governing the general assembly of joint stock companies are regulated under Articles 407 et seq. of the TCC, while the provisions applicable to limited liability companies are set out under Articles 616 et seq.

In practice, the smaller number of shareholders and their active involvement in the company generally result in a more direct and practical decision-making mechanism in limited liability companies. In contrast, the meeting procedures, call requirements, and quorum rules applicable to joint stock companies are more detailed and formalistic.

In conclusion, there are significant differences between limited liability companies and joint stock companies, and the choice of structure for foreign investors and start-up ventures seeking to operate in Türkiye ultimately depends on the specific needs and objectives of the business. Where the number of shareholders is limited and a simpler, faster management process is preferred, a limited liability company often provides a sufficient and practical solution. On the other hand, for businesses aiming to attract investment, pursue long-term growth, or establish a more institutionalized corporate structure, a joint stock company is generally the more suitable option. Accordingly, foreign investors planning to establish a company in Türkiye should consider not only their current commercial needs, but also their future investment plans, financing strategies, and growth objectives when determining the most appropriate corporate structure.