LEGAL AND OPERATIONAL DIFFERENCES BETWEEN A LIMITED LIABILITY COMPANY AND A JOINT STOCK COMPANY
The Turkish Commercial Code No. 6102 (“TCC”) defines joint stock companies and limited liability companies as follows “A company whose capital is definite and divided into shares and which is liable for its debts only with its assets is called a joint stock company, and a company established by one or more real or legal persons coming together under a certain trade name and whose main capital is definite and consists of all of these capitals is called a limited liability company.” Since there are many differences between joint stock and limited liability companies, it will be more useful to examine these areas by categorising them.
Number of Partners
A joint stock company can be established with at least 1 person and no upper limit is set. However, the limited liability company must be between 1-50 persons.
When the number of shareholders in a joint stock company exceeds 500, the shares are offered to the public However, in a limited liability company, the shares are not publicly traded. Public offering is the activity of giving all investors the opportunity to become shareholders of a company when a company announces that it has put its shares up for sale. In other words, it is the sale of companies and the assets owned by these companies by dividing them into small shares. Companies may offer their shares to the public for various reasons, such as successful growth rates, the desire to expand activities, to provide funds for investments, or to pay their debts without resorting to bank loans or borrowing when a financial resource deficit occurs. Public offering of shares provides financing to companies, strengthens the financial structure, provides liquidity, increases prestige, increases credibility and increases value.
Subject and Purpose of the Company
If the business to be carried out is in the field of banks, brokerage houses, investment trusts, insurance, financial leasing and factoring, the type of company must be incorporated. The fact that the shareholders of such companies are liable with their personal assets does not seem to be equitable in terms of the purpose and the service they provide. The condition of being a joint stock company is a matter specified in the conditions for the establishment and operation of each company, and Article 4 of the second book of the TCC, in the section on joint stock companies, points to the existence of joint stock companies whose establishment is subject to the permission of the ministry. This ministerial authorisation is provided by a communiqué.1
In terms of the ability to issue bonds and tax exemptions, the status of joint stock company is favourable instead of limited liability company.
Limited liability companies cannot be established for charitable works and scientific studies that are reserved for associations and foundations.
Capital Amount
The minimum capital amount should be at least TRY 000 in the share capital system and at least TRY 100.000 in the registered capital system2 in joint stock companies. In a limited liability company, the minimum capital amount is TL 10.000 and this capital can be increased by 10 times with the Presidential Decree.
In joint stock companies, the capital increase can be made by the decision of the general assembly and amendment of the articles of association if the authorised capital3 system is adopted, and only by the decision of the board of directors if the authorised capital system is adopted. In limited liability companies, the capital increase can be changed by a general assembly resolution, and this authority is a non-transferable authority to the board of directors.
Liability of Shareholders
In both joint stock companies and limited liability companies, the liability of the shareholders is limited to the capital they have committed to the company. In other words, the shareholders are liable for the debts of the company with all their property up to the amount of the capital they have subscribed. The members of the board of directors of a joint stock company and the managers of a limited liability company who fail to fulfil the duties imposed on them by the law or the articles of association are jointly and severally liable to the company, the shareholders and the receivables of the company for the damages incurred as a result. The plaintiff may claim the entire compensation from one or all of them, regardless of the degree of fault of the responsible managers. The liability of the persons is based on fault, and these persons are deemed to be at fault unless they prove that they are not at fault.
The board of directors of joint stock companies is responsible for the payment of public debts. If not paid, the managers are liable with their assets, while in limited liability companies, if this public debt cannot be collected, the shareholders are liable in proportion to their capital shares. Limited liability company shareholders are directly liable for all public receivables (such as tax debts, SSI debts) that cannot be collected from the company, in proportion to their capital shares.
The liability explained in this section are the topics that should be taken seriously and can be examined legally and criminally in terms of both shareholders and members of the board of directors
Participation of Partners in Management
In joint stock companies, shareholders may have the executive qualification in the board of directors, but this is not a sine qua non for a joint stock company. A joint stock company can be managed without the shareholders being on the board of directors.
In limited liability companies, management is provided by managers. The manager may be an outsider or one of the partners, but at least one partner must have management and representation authority.
Legal Entity and Trade Name
In both types of companies, legal personality is acquired with the registration to the trade registry, but in limited liability companies, this registration will be realised and personality will be born when the founders add the founding will to the agreement.
Article 6102 of the TCC states that “Joint stock, limited liability and co-operative companies may freely choose their trade names, provided that the subject of business is indicated and the provision of Article 46 is reserved. The words “joint stock company”, “limited liability company” and “co-operative” must be included in their trade names. If the trade name of these companies includes the name or surname of a real person, the phrases indicating the type of company cannot be written in initials or abbreviated in any other way.”
Again, there are obligations for companies established under independent administrative authorities such as BRSA, CMB, CBRT, etc., such as the phrase obligations that they must have in their titles.
Change of Company Type
Pursuant to Article 181/1/a of the TCC, capital companies may transform into each other. In these changes of type, the establishment provisions of the new company to be established will be applied and the change of type will be made in accordance with the guidance of Articles 185 and following articles of the TCC No. 6102.
Privileged Share
Pursuant to TCC 401, the shares issued at the incorporation of a joint stock company or at a later stage may be subject to various groupings such as (A) group, (B) group and even (C) group, and certain privileged rights may be granted to these groups. For example, Group (A) shareholders may be granted a privilege in the election of the members of the board of directors, and the articles of association may stipulate that more than one half of the members of the board of directors must be elected from among the candidates nominated by Group (A) shareholders. In addition, it is possible to include some privileges other than these in the articles of association. For example, in the event of liquidation, privileged utilisation of the liquidation balance and privileged voting rights may be included in the articles of association.
The provisions of the TCC regarding limited liability companies generally permit the granting of privileges to the capital shares. However, only privileged shares in voting rights are regulated in the law with respect to privileged shares in limited liability companies, and there is no regulation on other types of privileges. However, the law stipulates that the provisions of the law applicable to joint stock companies regarding privileges in dividends and liquidation shares are also applicable to limited liability companies. However, it is not possible to apply privileges in participation in management in limited liability companies. Therefore, it will not be valid to determine a privilege in limited liability companies such that only certain capital shareholders can be elected as managers or that they have the exclusive right to nominate the manager candidate to be appointed from outside, although they are not elected as managers themselves.
Share Transfer
Within the scope of share transfer, while there is no need to make a transfer at a notary public in joint stock companies, a written agreement must be made at a notary public in limited liability companies
If there is no contrary provision in the articles of association of the joint stock company, the transfer is realised by written agreement. Registration in the trade registry is not a necessary element. In a limited liability company, the transfer must be approved by the general assembly, registered in the trade registry and recorded in the share ledger.
In joint stock companies, shares may be transferred with or without a deed. Registered shares may be transferred without any restriction. Joint stock companies may not restrict the transfer of bearer shares. In this context, there is complete freedom of transfer for bearer shares. For the transfer of bearer shares, the possession of the share certificates must be transferred to the transferee
In limited liability companies, the transfer of the capital share and the transactions giving rise to the obligation of transfer shall be made in writing and the signatures of the parties shall be approved by a notary public. Unless otherwise stipulated in the company agreement, the approval of the general assembly of shareholders is required for the transfer of the capital share. The transfer shall be valid with this approval.
Obligation to have a lawyer
Joint stock companies with a share capital of five times or more the amount of share capital stipulated in the article of the TCC and building co-operatives with one hundred or more members are obliged to have a contracted lawyer. If they do not, the public prosecutor shall impose an administrative fine equal to the gross amount of two months of the minimum wage in force on the date of the offence for workers over the age of sixteen working in the industrial sector for each month that they do not appoint a contracted lawyer. In a limited liability company, there is no such obligation, and the company may have such a person on request.
Company Bodies and General Assembly
In terms of compulsory bodies, joint stock companies must have a general assembly, board of directors and supervisory board. Limited liability companies must have a general assembly and board of directors.
There is no difference in the optional bodies.
Institutions at the initiative of the company Easier in joint stock companies
Issuing Bonds and Redeemable Bonds
Joint stock company can issue bonds. Limited liability company cannot issue bonds.
Joint stock company can issue usufruct certificates. Limited liability company can issue if it is included in the articles of association.
Tax Exemption
In a joint stock company, if a share certificate is purchased and sold within two years, income tax will be paid, but if it is sold after two years, income tax will not be paid. In other words, the income obtained by a real person from the transfer of a share in a joint stock company after holding it for 2 years is not subject to any income tax in accordance with the repeated article of the Income Tax Law.
In a limited company, income tax will be paid in any case. In Article 6183 of the Law No. 6183 on the Procedure for Collection of Public Receivables, it is stated that the partners of the limited liability company are directly responsible for the public receivables that cannot be collected or understood to be uncollectible in whole or in part from the company in proportion to their capital shares and are subject to follow-up in accordance with the provisions of this Law.
Apart from this, the corporate tax liabilities of both types of companies are the same.
Dividend
Joint stock companies may not distribute dividend advances4 to shareholders, while limited liability companies may.
Joint stock companies are not obliged to issue share certificates. Joint stock companies may issue registered share certificates; if the price is fully paid, they may issue bearer share certificates.
In limited liability companies, the share of the share capital may be attached to a document that can be proved or to a registered document.
In joint stock companies, the articles of association may grant different rights to certain shares or share groups in terms of voting rights, representation, board membership, dividend, liquidation share, pre-emptive rights, etc. In limited liability companies, voting rights may be limited or privileges may be granted, if it is included in the articles of association. The condition for this is the differentiation of the nominal value of the share.
Exit/Exclusion from Partnership
In joint stock companies, if there are minority shareholders who have committed an unfair behaviour, it is possible for the majority to purchase these rights by a judge’s decision. In limited liability companies, the cases of dismissal are written in the company agreement or there are justified reasons.
In joint stock companies, the shareholders may file a lawsuit for termination for just cause and the shareholders are dismissed by court decision. In limited liability companies, if the contract stipulates the cases of dismissal, it can be dismissed by the decision of the partners; if there is a just cause, it can be dismissed by court decision.
Conclusion
In the light of the foregoing, both types of companies have advantages and disadvantages that can be applied according to the place; In real life practice, it is a fact that i) limited liability company type is primarily preferred in family companies and then the joint stock company type is preferred, which serves the need for institutionalisation of the family and the company more, ii) structures that want to receive foreign investment and carry out a practical share transfer process in terms of their mission and vision, or that want to start as a start-up initiative and want to appear to be multi-partner in the ecosystem studies in their field of activity, iii) limited liability company type is preferred in cases where it is desired to avoid establishment costs, especially the main capital.
Kind regards.
