Pursuant to the Direct Foreign Investment Law No. 4875, foreign investors are equally treated with Turkish investors and are subject to the same requirements. A foreign investor may therefore establish all types of companies regulated under Turkish Commercial Code (the “TCC”) when investing in Turkey. In this article, however, we will briefly compare the two most common company types in Turkey, namely joint stock company (the “JSC”) and limited company (the “LC”).
Comparison between Joint Stock Company and Limited Company under Turkish Law
The JSC and the LC have differing features from the operational point of view. The JSC comprises the organs and other tools that enable companies to develop a complex governance structure. As such, the JSC is specifically preferred by shareholders with potentially conflicting interests, such as in a joint venture. In addition, JSC is the only plausible option where a public offering of securities is anticipated.
As opposed to the JSC, the LC provides for a simpler structure that is usually easier to run. LC is particularly preferable when the sole objective is to establish a fully owned subsidiary with minimum capitalization and administration requirements.
These two company types have no differences from taxation point of view. They are both subject to corporate tax under Corporate Tax Law No. 5520 . Corporate tax is currently levied at a rate of 22 per cent of a company’s taxable income. Similarly, regardless of the company type, a dividend withholding tax at a rate of 15 per cent applies to dividend distributions.
Regulatory framework of the JSC vary greatly from that of the LC, particularly in terms of governance and capital structure. Below is a brief list of such differences:
i. Both of these company types provides for a limited liability feature, i.e. shareholders’ liability for debts and obligations of the company is limited to their capital commitment. However, shareholders of an LC can be held liable, pro rata to their shareholding, for amounts owed by the LC to government authorities in taxes, duties and charges, in the event that government fails to collect such amounts from the LC. In other words, liability of the shareholders of an LC is not limited to their capital commitment in terms of debts owed to the government.
ii. Both JSC and LC can be established with a single shareholder. An LC may not have more than 50 shareholders whereas such a threshold regarding the number of shareholders does not apply to JSC.
iii. JSC and LC can be fully owned by foreign persons (i.e. no Turkish shareholder requirement).
iv. The minimum capital required for an LC is 10,000 Turkish Liras as opposed to 50,000 Turkish Liras for a JSC.
v. In a JSC, board of directors is the statutory body furnished with the authority to manage and represent the company. LC does not have a board of directors and is instead run by one or more managers. Although it is possible to appoint non-shareholders as a manager in a LC, at least one manager must be elected among the shareholders.
vi. Real persons as well as legal entities can be elected as a board member in a JSC or as a manager in an LC.
vii. Shares of an LC can only be transferred with a written agreement executed before a notary public and such transfer must be approved by shareholders representing three quarters of the capital of the company. These requirements do not apply to a share transfer in a JSC.