Strategic Guide to Company Formation: Limited Liability Company (LTD) or Joint Stock Company (JSC)? Comprehensive Comparison
One of the most fundamental and strategic decisions to be made when starting a business venture is what the legal structure of the business will be. The Turkish Commercial Code (TCC) provides entrepreneurs with various types of companies for different needs and objectives. Among these types, the Limited Liability Company (LTD) and the Joint Stock Company (JSC), which fall under the category of capital companies, are the two most widely preferred models in Turkey. Although both are “capital companies” that limit the liability of the shareholders to the capital they contribute, there are significant structural, financial and operational differences between them. These differences directly affect the future growth potential of the company, its ability to receive investment, the flexibility of the partnership structure and even the risk status of the partners’ personal assets. In this article, we will comprehensively compare the main differences between a limited liability company and a joint stock company so that an entrepreneur or business owner can choose the type of company that best suits his or her vision.
1. Capital Structure and Financial Requirements:
- Limited Liability Company (LTD): According to the TCC, the minimum initial capital is TL 50,000(as of 2024). This capital must be fully subscribed and at least one quarter of it must be paid before registration. The remaining part can be paid within 24 months. The capital is divided into “capital shares” and the nominal value of these shares can be at least TRY 25.
- Joint Stock Company (A.Ş.): The minimum initial capital is TL 250,000(as of 2024). For non-publicly traded A.Ş.’s that have adopted the authorised capital system, the initial capital must be at least TRY 500,000. Like LTD, at least one quarter of the capital must be paid before registration. The capital is divided into “shares” and authorised to issue shares. This feature makes the A.Ş. more advantageous in terms of access to capital markets.
2. Liability of Partners: This is the most importantdistinction between the two types of companies and directly concerns the personal assets of the partners.
- Limited Liability Company (LTD): As a rule, the partners are liable only for the capital shares they undertake to put into the company and to the company. However, for the uncollectible public debts of the company (such as taxes, SSI premiums), the partners are liable directly and with all their personal assets in proportion to their capital shares. This is a serious personal risk for LTD partners.
- Joint Stock Company (JSC): The liability of the partners (shareholders) is limited, without exception, only to the amount of capital they have subscribed. The personal assets of the shareholders may not be utilised for the public debts of the company. The liability for public debts belongs to the members of the board of directors. This feature makes the A.Ş. a safer harbour for shareholders.
3. Ease and Cost of Share (Share) Transfer: This difference gains importance when a new shareholder is recruited or an existing shareholder leaves the company.
- Limited Liability Company (LTD): The transfer of the main capital share is quite bureaucratic and costly. The transfer agreement must be notarised, approved by the general assembly and registered in the trade registry. This process is both time consuming and costly due to notary fees and charges.
- Joint Stock Company (JSC): Share transfer is much easier and more flexible. If a bearer share certificate is issued, the transfer takes place only upon “delivery” of the share certificate. If registered shares are issued, the transfer is made by “endorsement and delivery”. In both cases , there is no requirement for notarisation or registration in the trade registry. This makes the A.Ş. much more favourable for situations where the shareholding structure may change frequently or investor inflows and outflows are expected.
4. Management and Organisation Structure:
- Limited Liability Company (LTD): The management and representation of the company is carried out by the “manager” or “board of managers”. At least one of the partners must be a director. It generally offers a more flexible management structure with fewer formalities.
- Joint Stock Company (JSC): Management is provided by a “board of directors”. Board members are not required to be shareholders; professional managers may be appointed from outside. This provides a more favourable structure for the implementation of corporate governance principles. Bodies such as general assembly and auditors are subject to stricter rules in A.Ş.’s.
5. Public Offering and Capital Markets:
- Limited Liability Company (LTD): Shares of LTDs cannot be offered to the public and cannot be traded on the stock exchange. For capital increase, processes such as general assembly resolution and registration are required.
- Joint Stock Company (A.Ş.): A.Ş.’s can offer their shares to the public and be traded on Borsa Istanbul after obtaining the necessary permissions from the Capital Markets Board (CMB). This is the only way to raise large-scale funds.
6. Obligation to Have a Lawyer: According to Law No. 1136 on Lawyers;
- Limited Liability Company (LLC): Limited liability companies with a capital of TL 250,000 or more are obliged to have a contracted lawyer.
- Joint Stock Company (A.Ş.): Regardless of the amount of capital, all joint stock companies must have a contracted lawyer.
Which Company Type is Suitable for You?
- Who is a Limited Liability Company (LTD) Suitable for?
- Family-owned companies with fewer partners (usually between 1-10).
- Situations where the shareholding structure is desired to remain constant and the transfer of shares is desired to be kept under control.
- Entrepreneurs who want to start with lower start-up capital.
- Businesses that do not aim to go public or attract large-scale institutional investors.
- Who is a Joint Stock Company (A.S.) Suitable for?
- Startups aiming for a broad partnership structure or planning to receive investment from angel investors/venture capital (VC) funds.
- Large-scale enterprises with the potential for a future public offering.
- Shareholders who do not want to be personally liable for public debts.
- Those who prefer easy and cost-free share transfers.
- Companies that adopt corporate governance principles and want to be managed by a professional board of directors.
The choice between a limited liability company and a joint stock company is a strategic decision that an entrepreneur must make depending on his/her business model, growth objectives, capital needs and risk appetite. While LTD is attractive for small and medium-sized enterprises with its simpler structure and low capital requirement, A.Ş. is indispensable for growth-oriented and corporate structures as it limits the liability of partners, offers ease of share transfer and access to capital markets. Especially a critical difference such as the personal liability of shareholders for public debts should be carefully considered in the decision-making process. Obtaining consultancy from a financial advisor and a lawyer specialised in commercial law prior to the incorporation of a company is the best step to be taken to minimise the legal and financial risks that may be encountered in the future.