LLC vs Joint Stock Company in Turkey: Which One to Choose?

Comparing LLC and Joint Stock Company in Turkey

One of the most frequently asked questions by domestic and foreign investors planning to establish a company in Turkey is whether to form a limited liability company (LLC / Ltd. Sti.) or a joint stock company (JSC / A.S.). Both company types are capital companies where the shareholders' liability is limited to their committed capital. However, there are significant differences in management structure, capital requirements, share transfer and taxation.

In this guide, the Emir Law & Consulting corporate law team provides a detailed comparison of both company types to help investors make the right decision.

Capital Requirements

Limited Liability Company (LLC)

• Minimum capital: TRY 10,000
• The entire capital must be subscribed, with at least 25% paid in at the time of establishment. The remaining balance must be paid within 2 years.
• In-kind capital contributions are permitted (real estate, machinery, etc.)

Joint Stock Company (JSC)

• Minimum capital: TRY 50,000 (TRY 100,000 for companies adopting the registered capital system)
• At least 25% of the capital must be paid at establishment, with the remainder due within 2 years.
• In-kind capital contributions are permitted.
• Capital increases can be executed much more flexibly through public offerings.

Number of Shareholders

Share Transfer

LLC

Share transfers in an LLC involve a relatively more complex procedure:

• Share transfers must be executed before a notary public.
• Approval by at least 75% of the shareholders' general assembly is required (unless the articles of association provide otherwise).
• The transfer must be registered with the trade registry.
• The transfer process can be lengthier and more costly.

JSC

Share transfers are much more flexible:

• Bearer shares can be transferred by delivery of possession (though notification to the Central Securities Depository is mandatory).
• Registered shares can be transferred by endorsement and delivery.
• General assembly approval is generally not required (unless restricted by the articles of association).
• The transfer process is faster and more practical.

Management Structure

LLC - Manager(s)

• The company is managed by one or more managers.
• At least one shareholder must be appointed as a manager.
• Managers are appointed and dismissed by the shareholders' general assembly.
• Non-shareholders may also be appointed as managers, but at least one manager must be a shareholder.

JSC - Board of Directors

• The company is managed by a board of directors.
• The board may consist of at least 1 member.
• Board members are not required to be shareholders.
• Legal entities may be appointed as board members.
• Independent audit requirements apply to companies exceeding certain thresholds.

Tax Differences

Both company types are subject to the 25% corporate income tax rate. However, there are some notable tax differences:

Important Tax Notes

• Capital gains from the sale of JSC share certificates held for more than 2 years are exempt from income tax. This exemption does not apply to LLC shares.
• Publicly traded JSCs may benefit from a 2 percentage point reduction in the corporate income tax rate.

Which Structure Is Better for Foreign Investors?

When an LLC May Be Preferred

• Small to medium-sized investments
• Businesses operating with a limited number of partners
• When lower establishment costs are preferred
• Structures where restricted share transfer is considered advantageous
• When a simpler management structure is desired

When a JSC May Be Preferred

• Large-scale investments and projects
• Companies planning an initial public offering in the future
• Multi-partner structures
• Structures requiring easy and flexible share transfers
• Sectors where corporate image and prestige are important
• Companies planning to issue bonds or commercial paper
• Companies operating in certain regulated sectors (banking, insurance, etc. require JSC formation)

Branch and Liaison Office Alternatives

Foreign investors may also consider the following alternatives to establishing a company in Turkey:

Branch Office

• An extension of the foreign company in Turkey with no separate legal personality.
• The parent company bears unlimited liability.
• May engage in commercial activities and generate revenue.
• Subject to corporate income tax.

Liaison Office

• Cannot engage in commercial activities or generate revenue.
• Limited to market research, promotional and liaison activities.
• Not subject to taxation.
• Established with Ministry approval for a specified duration.

Establishment Process Comparison

The establishment process for both company types involves similar steps:

1. Preparation of articles of association: Defining the company's field of activity, capital, shareholders and management structure
2. Obtaining a potential tax identification number
3. Depositing 25% of the capital in a bank
4. Trade registry registration: Submitting all documents to the trade registry
5. Tax office registration
6. Social security registration

The establishment process can be completed within 3-5 business days when all documents are in order. For foreign shareholders, additional requirements include apostilled document translations and notarization.

Practical Recommendations

1. Determine Your Field of Activity Accurately

In certain sectors (banking, insurance, factoring, leasing), forming a JSC is mandatory. It is important to research the legal requirements after identifying your business sector.

2. Evaluate Your Long-Term Plans

If you plan to grow your company, bring in additional partners or go public in the future, establishing a JSC from the start will help you avoid conversion costs down the road.

3. Assess Your Share Transfer Needs

If frequent share transfers are anticipated, a JSC offers a much more practical solution. The notarization and general assembly approval requirements for LLC share transfers add cost and time.

4. Seek Professional Advice

Choosing the right company type is a strategic decision that directly impacts the success of your investment. Obtaining guidance from an experienced legal team is crucial in determining the optimal structure.

Conclusion

Both the LLC and JSC are valid and effective options for foreign investors looking to establish a company in Turkey. The right choice depends on the investment's size, sector, shareholder structure and long-term objectives.

At Emir Law & Consulting, we provide comprehensive legal advisory services at every stage of the company establishment process. From determining the right corporate structure to completing formation procedures, we are by your side throughout. For a free preliminary assessment, please contact us.