Comparing Limited Liability & Joint Stock Company Structures in Turkey

The limited liability company (limited şirket) and the joint-stock company (anonim şirket) are the most common types of companies in Turkey. Other types of company structure in Turkey, such as cooperative companies and collective companies, are either outdated or reserved for very specific purposes. This article focuses on limited liability companies and joint stock companies, providing a practical guide for foreign investors interested in company formation in Turkey.

Foreign clients considering expanding their businesses to Turkey often ask us whether they can be the sole owner of a Turkish company. Foreigners can indeed be sole owners of Turkish companies. Some jurisdictions are strict about foreign ownership, but Turkey has specific laws to ensure that foreigners are treated equally in business. This is at least the case on paper, meaning that foreign ownership of a Turkish company is not restricted. Yet, practical limitations for foreigners are not altogether eliminated. We will cover issues that may be challenging for foreign business owners in Turkey, along with possible solutions, in a separate article.

The most practical differences between the two company types are the minimum capital requirement and the maximum number of shareholders. The minimum capital for a limited liability company is 50,000 TL, and for a joint stock company it is 250,000 TL. In both cases, you have 24 months to pay the capital. However, a joint-stock company requires a 25% deposit at incorporation (which you can withdraw later). Another important difference is the direct liability of shareholders for unpaid tax debt. There are other practical differences between the two companies that make the limited liability company easier to manage, but our article will focus more on their legal structures, including rules on share transfers and operational capacities across sectors.

Shareholder Anonymity in Turkish Joint Stock Companies

The primary difference between a limited liability company and a joint stock company lies in the joint stock company’s feature of anonymity. The Turkish name for a joint stock company is “anonim şirket”, which is literally translated as anonymous company. This means that the identities of joint stock company shareholders are generally kept secret from the wider public. This was the idea behind this type of company structure when it was introduced, and it has remained largely consistent, with only minor amendments. The anonymity of shareholders in a joint stock company remains essential. The shareholder identity is disclosed only during the incorporation phase, when the Turkish Trade Registry Gazette (TTSG) publishes the articles of incorporation. Beyond this point, the shareholder identity becomes practically hidden.

Limits to Anonymity: the MKK Notification Requirement

The shareholder identity was not intended to be publicly available for joint stock companies. This means that such information has not been disclosed on public platforms such as the Istanbul Chamber of Commerce or TTSG. This is still the case. However, it is important to note that the full protection of anonymity is no longer absolute. With the introduction of a mandatory notice to the Central Registry Agency (MKK), a government portal that maintains a database of companies, the shareholder identity of joint stock companies has been included in the government database under Law No. 7262 and the relevant Communique on MKK. This is introduced to combat money laundering, terrorism, and international crimes, and to uphold sanctions. Whether this fundamentally changes the anonymity feature is debatable.

The joint-stock company’s shareholders’ identities were never fully anonymous. Shareholders who wish to attend general assemblies and exercise their shareholder rights have always needed to disclose their identity, at least during the company’s management. However, this still does not mean that the data is necessarily publicly available. In a hypothetical scenario where the share transfer is not registered with the Trade Registry, the shareholder’s identity is not disclosed.

Share Transfers in Turkish Companies

The anonymity of the joint stock company arises from the different procedures for share transfers compared to those of the limited company. The limited company is subject to strict procedural rules under the Turkish Commercial Code and the Turkish Code of Obligations. Accordingly, the transfer of shares for a limited liability company starts with a written and notarised share transfer agreement. Furthermore, the transfer must be notified at the Trade Registry and published. Therefore, the identity of the new shareholder becomes public information immediately. Since no such rules apply to joint stock company share transfers, it is much easier to transfer shares in joint stock companies, but harder to keep track of them.

The transfer of shares in a limited liability company also requires a decision by the general assembly, while in a joint-stock company, the new shareholder simply registers in the share ledger before attending a shareholders’ meeting. Although there is also a formal administrative procedure for approving share transfers in both cases, it is much less strict in the case of the joint stock company.

The limited liability company is a relatively compact form of company in which the shareholder structure is heavily emphasised. There are stricter rules governing share transfers in limited liability companies, in addition to the procedural rules stated above. The Turkish Commercial Code assigns considerable powers to the limited company, allowing it to reject share transfers at its discretion, whereas the shares of a joint stock company are much freer to pass on and can usually not be rejected by the company’s management.

Limited Liability vs Joint Stock Company Rules on Shareholder Agreements

Another important difference between the two company types covered in this article is that the limited liability company has special provisions for shareholder agreements under the Turkish Code of Obligations. There is no such provision for joint-stock companies under Turkish law. This makes SHAs more flexible but also harder to enforce within joint-stock companies. This is primarily due to the application of the Turkish Code of Obligations rather than the Turkish Commercial Code, given the latter’s lack of explicit provisions on the matter. The Code of Obligations fills gaps and provides overarching rules when the Commercial Code is silent in the Turkish legal system.

Limited liability company shareholders are better positioned to enforce their agreements. This is because their rights are governed by the Commercial Code, which allows courts to issue orders directly to the company, as a legal entity, and to its bodies. On the other hand, the Code of Obligations allows only monetary and similar remedies, which cannot directly affect the legal status of a joint stock company in such disputes.

Joint-stock company shareholders can take additional precautions to strengthen their position under a shareholder agreement. The penalty clause in the SHA plays an important role. The applicable laws and jurisdiction can also be an important choice in this regard. However, it is also important to be aware of the limitations on matters that may be submitted to arbitration under Turkish law. The Turkish courts can be quite strict and more conservative than those in foreign jurisdictions, and international lawyers and business owners are familiar with this when adjudicating Turkish company law matters through arbitration. Finally, amending the articles of association to complement the shareholders’ agreement is also possible, but it is a complex area that requires considerable practical experience and goes beyond the scope of this article.

Joint Stock Company Structure for Regulated Sectors and Parent Companies

A major practical difference between the two types of companies is that the joint stock company is reserved for specific sectors, licences, and business activities, whereas the limited liability company is not. The joint stock company is the more elite type of structure that, first and foremost, allows it to act as a parent company, owning shares in other companies. The main principle behind this difference is simple: the joint stock company can acquire and control shares in other types of companies without major restrictions, whereas the limited liability company is relatively free to hold and control the shares of other limited liability companies but not of joint stock companies. This means the joint-stock company can operate as an active parent company managing subsidiaries without control restrictions.

The essential difference in the status as a parent company is more significant, given that joint stock companies are also unrestricted in their business activities compared with limited liability companies. Many banking and financial activities require a licence from the Banking Regulation and Supervision Agency (BDDK) or compliance with the Central Bank of the Republic of Türkiye (TCMB), which often requires a joint stock company structure. For example, a payment gateway entity must be incorporated as a joint-stock company under the payment gateway licensing regulations. Capital market activities, even those designed with less strict entry requirements, such as crowdfunding, require a joint stock company. Limited liability companies cannot be publicly listed on the Turkish stock market either. Foreign entities that will engage in crypto markets beyond proprietary trading on their own account will also require a joint stock company structure.

Choosing the Right Structure

Our advice for foreign investors considering incorporating their company in Turkey is to choose a limited liability company for its ease of management, lower maintenance costs, and more straightforward structure. This is ideal for sectors such as e-commerce or retail exports. However, those who wish to engage in larger-scale operations should consider forming a joint stock company, even if they will not be active in the fields mentioned above, where licensing and public authorities require a joint-stock company. Larger-scale business operations often involve cross-border transactions, international letters of guarantee or bank credit arrangements. For example, VAT exemptions under Turkish law for exports have complicated requirements, as the government must determine that a company is reliable and capable. In such cases, joint stock companies with high capital amounts proportionate to their scale are essential.

A Turkish company’s structure can be changed later in its lifetime. Although this would incur additional costs due to government fees, it could be a solution to licensing requirements in certain fields. For example, our clients in the start-up sector had to go through such transitions to secure venture capital and crowdfunding investments. That is why it is important for foreign investors to set the company’s focus and vision when deciding on the type of company structure in Turkey.