Introduction
This article aims to tackle the legal and practical differences between a JSC and an LLC without going into further details for each type of company.
Number of Shareholders
Before July 2012, when the new Turkish Commercial Code came into force, A JSC could be established by at least five shareholders. The minimum number of shareholders for an LLC was two.
The new commercial code decreased the minimum number of shareholders for both the JSC and the LLC to one. So now a sole shareholder JSC as well as a sole shareholder LLC is possible under Turkish law.
However, while a JSC can have unlimited number of shareholders, an LLC cannot have more than 50 shareholders.
Capital
An LLC can only have a basic capital system. As a result of such capital system, the share capital can only be raised by a resolution of the general assembly.
A JSC, on the other hand, can choose between the basic capital system and the registered capital system in its articles of association. As a result of that, the board of directors of a JSC that has a registered capital can raise its share capital (within the limits of the registered capital) without the hassle of taking a resolution in the general assembly of the company.
The minimum share capital for an LLC is 10.000 TRY.(1)
In the basic capital system, the share capital of a JSC cannot be less than 50.000 TRY. The minimum share capital of a JSC that chooses the registered capital system is 100.000 TRY.
Additional Payments
Provided that it is expressly stated in the articles of association, the shareholders of an LLC may be asked to make additional payments (other than the subscribed capital) if the company is in loss or cannot continue its operations without the additional funds, etc.
The shareholders of a JSC can only be held liable for the capital they subscribed unless they voluntarily accept to make additional payments.
Share Transfer
In order to duly transfer the shares of an LLC; a share transfer agreement must be signed and notarized, the share transfer must be approved by the general assembly, registered in the trade registry office and in the shareholders’ ledger of the company.
The process of transferring the shares of a JSC is far less complicated. There is no need to notarize the share transfer agreement or register it in the trade registry office or shareholders’ ledger or get the approval of the general assembly. Unless expressly prohibited in the articles of association, the shares can be transferred by a share transfer agreement between the seller and purchaser or simply endorsing the share certificates to the purchaser.
Tax Exemption for the Transfer of Shares
If the shareholder of a JSC holds his shares for more than two years, he is going to be exempt from the income tax for the profit he makes out of these shares when he transfers them.
The shareholder of an LLC, no matter how long he holds the shares, is not going to be exempt from the income tax for the profit he makes out of these shares when he transfers them.
Squeeze Out
The shareholder of an LLC can be squeezed out by a resolution of the general assembly (provided that it is expressly permitted in the articles of association of the company) or by a court verdict upon justifiable reasons.
On the other hand, the shareholder of a JSC, in principle, cannot be squeezed out.(2)
Liability for Public Debts
The shareholders of an LLC are personally responsible for public debts. For the tax obligations of the company, the shareholders are responsible in proportion to their shares in the capital. Their responsibility towards the social security premium payments for the employees of the LLC is for the whole debt and not in proportion to their shares in the capital.(3)
Shareholders of a JSC, on the other hand, are only responsible, either for legal or tax obligations of the JSC, within the limits of the share capital they subscribed.
Issuing Securities
A JSC can issue both equity and debt securities in order to raise finance. As a result, a JSC can go public.
It is not possible for an LLC to raise finance through issuing securities. So an LLC can neither issue equity nor debt securities. As a natural result of that, an LLC cannot go public at all.
Shareholder Loans
The loans granted to an LLC by its shareholders cannot be paid back unless all the other debts of the company are redeemed.
A JSC is not bound with such limitations, i.e. can any time pay its debts to its shareholders without having to worry about the other creditors.
Management
Both types of companies have general assemblies where the shareholders come together in the ordinary and extraordinary meetings in order to take important decisions for the company.
The day-to-day business operations of an LLC are managed by its Director(s).
The managing body of a JSC, responsible for running the business and routine operations of the company, is its board of directors (which, in principle, can be composed of a single member).
Employing a Legal Adviser
A JSC with a share capital over 250.000 TRY has to hire an in-house or independent legal adviser.
There is no obligation for an LLC to employ a legal adviser no matter how high its share capital is.
(1) Current EUR/TRY and USD/TRY exchange rates can be found here and here respectively.
(2) There are a couple of exceptions to this rule.
(3) However, such liability will only occur if such debts cannot be collected from the assets of the company.
