Differences between an LLC and a JSC 

The two predominant types of companies in Turkey are the Limited Liability Company, denoted as LLC or “LTD”, and the Joint-Stock Company, represented as JSC or “A.Ş.”. Both LLC and JSC fall under the category of capital companies, indicating that the liability of the shareholders is confined to the capital they contribute to the company. A common query arises regarding the choice between initiating an LLC or a JSC for a specific business endeavor.

In essence, the principal distinctions between a Limited Liability Company and a Joint-Stock Company are as follows:

When determining whether to form an LLC or a JSC, several factors merit consideration:

1) Anonymity

In a Limited Liability Company, existing shareholders are recorded within the trade registry directorate and subsequently disclosed in the trade registry gazette. Each transfer of LLC shares necessitates a new announcement, rendering the identities of the current shareholders and their shareholdings consistently available to the public.

Conversely, a Joint-Stock Company does not register current shareholders, allowing shares to change hands freely and frequently. The identities and shareholdings of the current shareholders remain private, known only to the board of directors. However, this information becomes public following a general assembly of shareholders, with the attendance list—comprising the current shareholders as of that specific date—being published in the trade registry gazette.

Consequently, shareholders in a JSC may enjoy a level of anonymity, while the share structure in an LLC remains transparent to the public.

2) Bureaucracy

Establishing a Limited Liability Company (LLC) involves a lesser degree of bureaucratic documentation in contrast to a Joint-Stock Company (JSC). Similarly, convening a general assembly of shareholders in an LLC necessitates fewer administrative formalities compared to its counterpart. Consequently, in terms of the bureaucratic processes associated with the formation and operation of the company, an LLC is deemed more beneficial.

Conversely, transferring shares within an LLC entails a more extensive paperwork process compared to a JSC. Therefore, in the context of share trading, an LLC does not hold the advantage, which will be elaborated upon in the following discussion:

3) Trading of Shares

Within a Joint-Stock Company (JSC), profits accrued from the sale of shares are exempt from income tax provided the shareholder has retained them for a minimum of two years post-acquisition. This provision enables investors to divest after a two-year period and reap the profits devoid of tax implications. This specific tax advantage is not extended to Limited Liability Companies (LLC).

Moreover, the process of share transfer in a JSC is markedly straightforward. In such entities, the transference of shares can be effected through a basic written agreement of share transfer, accompanied by the registration of this transfer in the company’s shareholder ledger. In contrast, within an LLC, such transfer mandates approval by the general assembly of the shareholders, necessitates notarization, and subsequent registration in the trade registry.

In conclusion, for investors with a predilection for share trading, a Joint-Stock Company emerges as the more advantageous structure.

4) Cost

In a Limited Liability Company (LLC), the stipulated minimum capital requirement stands at a modest 10,000 TL, with no preliminary payment mandated either preceding or during the incorporation phase. The entirety of the capital is permissible for payment within a two-year timeframe post-incorporation. Conversely, a Joint-Stock Company (JSC) necessitates a minimum capital of 50,000 TL, of which 25% is required to be paid in advance of incorporation, while the residual 75% is due within two years thereafter. Consequently, the incorporation of an LLC is discernibly less financially strenuous.

This principle extends to the operational costs inherent in maintaining an LLC as opposed to a JSC. The expenditures associated with conducting the general assembly of shareholders, the remuneration for Certified Public Accountants, legal service fees, among other incurred costs, are notably lower in the context of an LLC compared to a JSC.

5) Limitation of Liability

In a capital company, be it an LLC or a JSC, shareholders are, by essence, not accountable for the company’s debts, with their liability circumscribed to the pledged capital amount.

Nonetheless, in the context of an LLC, shareholders bear personal and collective responsibility for any of the company’s unsettled debts to the state, encompassing taxes, duties, and penalties. This scenario represents a distinct deviation from the foundational principle of segregating business and personal liability within limited liability companies.

Moreover, within an LLC, the stipulation mandates that at least one shareholder concurrently holds a directorial role, and such directors are accountable to the company for any acts of negligence.

Consequently, a JSC emerges as the more favorable alternative for investors seeking to circumvent any personal liability stemming from company activities and who desire to entrust the business management to adept professionals.

6) Ease of Investing

Limited Liability Companies (LLCs) typically attract entrepreneurs and startups, primarily due to their intent to constrain their liability in business ventures. Conversely, Joint-Stock Companies (JSCs) are the favored choice for investors and those pursuing investment, whether through private equity or public offerings.

The capability to transition into public companies through an Initial Public Offering (IPO) is exclusive to Joint-Stock Companies. This transformation permits public investment into the companies and provides a platform for shareholders to trade their shares on the stock exchange.

Furthermore, Joint-Stock Companies has a mechanism called “registered capital” by way of which they can increase their capital up to 5x simply by a resolution of the board of directors.

Finally, issuing new shares and allowing venture capital from investors is significantly easier and simpler for Joint-Stock Companies.

Conclusion

In conclusion, an LLC can be seen as advantageous due to its lower establishment and operational costs and reduced bureaucratic requirements. Conversely, a JSC holds advantages in offering a degree of anonymity to its shareholders, providing strict limitations of liability, and allowing the freedom to conveniently trade shares, coupled with the added benefit of tax exemptions on profits from share sales held for a specified period.

Investors are highly recommended to consult with an experienced Turkish corporate lawyer to advise them on whether to incorporate an LLC or a JSC and to adequately incorporate the company.