Differences Between Joint Stock Companies and Limited Liability Companies
What Makes Joint Stock Companies More Desirable?
The two most commonly preferred types of company in Turkey are joint stock companies and limited liability companies. It is important to know the advantages and disadvantages of the two types, particularly for entrepreneurs who consider launching a startup. In terms of these companies regulated in the Turkish Commercial Code, joint stock companies appear to have more important and substantial advantages over limited liability companies.
- The minimum capital required for the establishment of a joint stock company is fifty thousand Turkish Liras. In joint stock companies where the registered capital system is adopted, the initial capital may not be less than one thousand Turkish Liras. In this system, the Board of Directors has the authority to increase the capital up to a designated amount in the articles of association.
- For limited liability companies, it is possible to establish the company with a capital of at least ten thousand Turkish Liras.
2. Public Offering
- Under Turkish Law, only joint stock companies are entitled to conduct public offerings.
3. Presence of Attorney
- Joint stock companies with a minimum capital of two hundred fifty thousand Turkish Liras are mandated to make a consulting agreement with an attorney.
- There is no requirement for limited liability companies to have an attorney present.
4. Number of Shareholders
- Limited liability companies and joint stock companies may both be launched with a single shareholder.
- In joint stock companies, there are no restrictions as to the number of shareholder.
- Limited liability companies cannot have more than 50 shareholders.
5. Liability of the Shareholders
- In joint stock companies, shareholders’ liabilities regarding corporate debts are limited. The partners are solely responsible for fulfilling the capital they have committed and only to the company. The partners cannot be held liablefor the public debts of the company. This characteristic of the joint stock companies ensures that the shareholders’ personal assets are exempted from the losses and risks undertaken by the company.
- For Limited Liability Companies, there is no strict restriction regarding shareholder liability as in joint stock companies. The shareholders are personally and directly liable for public debts that cannot be collected from the company (such as tax debts, SSI employer premium debts, etc.), in proportion to their capital shares.
6. The Obligation for the Shareholders to be Managers
- In joint stock companies, it is possible for the shareholders to participate in the Board of Directors as managers; however, it is not obligatory for at least one shareholder to be a member of the Board of Directors.According to common practice, shareholders in joint stock companies do not usually hold positions in the Board of Directors as managers or legal representatives. Experts and professionals of the fields in which the company operates manage the company. This provides a more functional and effective operation for the company. The obligations arising from public debts and criminal liabilities of the company are undertaken not by the shareholders but by the persons assigned to that position. The responsibilities of shareholders are thereby limited significantly.
- In limited liability companies, the directors carry out the management operations. Management and representation of the company may be granted to one or more shareholders or all shareholders or third parties bearing the title of manager by the articles of association. However, at least one shareholder has to assume management and representation authority of the company.The obligation of legal representation and management by at least one shareholder constitutes an economic risk for the said shareholder, and also imposes legal and criminal liability arising from the managerial duties. In this regard, particularly limited liability companies with single-shareholder face unexpected economic, legal and penal risks and challenges.
7. Withdrawal and Expulsion of Shareholders
- In joint stock companies, the shareholders cannot be expelled from the company by court order. If a shareholder does not pay the share price and further fails to make the payment with interest upon payment request, they will be deprived of the shares they have committed.
- In limited liability companies, the articles of association may provide causes for withdrawal or for expulsion by resolution of the general assembly. In addition, in cases where there are justified reasons for a shareholder to withdraw or to be expelled, the interested party may apply to the court. The shareholder who wishes to withdraw from the company may request the real value of his/her capital share.
8. Share Transfers
- In joint stock companies, it is not mandatory to perform the transfer of shares before the notary public or to register these transfers in the trade registry. In joint stock companies, the shares are divided into two types as registered shares and bearer shares:
- Registered shares may be transferred freely unless otherwise provided in the articles of association. The transfer of registered shares occurs by endorsement and delivery to transferee.
- The transfer of bearer share certificates takes effect for the company and the third parties only after simple delivery.
Procedural convenience of share transfer in joint stock companies meets the speed and efficiency requirements of business.
- In limited liability companies, transfer of shares is subject to certain conditions and formal requirements. The transfer must be made by a notarized transfer agreement, the approval of the general assembly (Shareholders holding at least three quarters of the capital must approve) and the share transfer must be registered in the trade registry. If the transfer is not registered, the transfer shall not be deemed legally valid.
In conclusion; joint stock companies may be preferred over limited liability companies for minimizing the financial liabilities and risks for the shareholders commercial activities and personal assets, the easy and rapid transfer of capital shares, and the various advantages in terms of management.