What is a Limited Liability Company

What is a Limited Company?

A Limited Company is a type of business entity established by one or more natural or legal persons under a commercial title for any economic purpose and subject that is not prohibited by law. It has a defined capital, and the liability of its shareholders is limited to the capital shares they have contributed. Due to its low initial capital requirement and the ability to be established by a single person, it is the most preferred type of capital company in Turkey.

Characteristics of Limited Companies

This type of company has different characteristics compared to joint-stock companies and sole proprietorships. The characteristics of these companies can be listed as follows:

• Shareholders are not responsible for the company’s debts but are obligated to pay the capital shares they have committed and fulfill any additional payment and ancillary obligations specified in the company’s articles of association.
• It can be established by at least 1 and at most 50 natural or legal persons.
• The minimum capital must be 10,000 TL.
• The minimum capital contribution by shareholders must be at least 25 TL or multiples thereof.
• The company itself is liable for taxes.
• It is subject to corporate tax.
• It cannot issue shares or bonds.
• The capital is divided into shares, not stocks.
• It can engage in any activity not prohibited by law, except for banking and insurance.
• Not all shareholders are subject to the non-compete clause; only managers are subject to this prohibition.
• Transferring shares is more difficult compared to joint-stock companies. Share transfers must be executed before a notary, registered in the trade registry, and announced in the Trade Registry Gazette.
• Shareholders can be managers, or an external manager can be appointed.
• Companies with more than 20 shareholders must have at least 1 and at most 5 auditors.

Advantages and Disadvantages of Establishing a Limited Company

Like sole proprietorships and joint-stock companies, this type of company has its unique advantages and disadvantages. The advantages of establishing this type of company are as follows:

• It can be established with a minimum capital of 10,000 TL.
• Fixed rate taxation (25%).
• A single natural or legal person is sufficient for its establishment.
• Costs can be shared if there are many shareholders.
• Personal assets can be protected.
• The company title is more prestigious compared to a sole proprietorship.
• It is the most preferred type of company in Turkey.
• Suppliers and customers have more trust in these companies compared to sole proprietorships.
• The number of shareholders can be increased over time to facilitate company growth.
• No requirement to have a lawyer on staff.

The disadvantages of this type of company are as follows:

• The number of shareholders is limited to 50.
• There is no opportunity to go public.
• It cannot issue bonds.
• In public debts, shareholders are held responsible in proportion to their capital shares.

How to Establish a Limited Company?

First, you should carry out the official procedures with your financial advisor. You also need to decide on the activities the company will engage in, the company’s title, the amount of initial capital, who the directors will be, the number of shareholders, and the share ratios. To establish a limited company, you need to complete the necessary procedures through the Central Registry System (MERSIS), ensuring the flow of the required documents, and apply the important procedures with your financial advisor. After this step, the MERSIS system assigns a tax identification number to the company. Once the company's articles of association are approved, the founders go to the Trade Registry Office to sign for the establishment. After the transactions at the Trade Registry Office, the company's articles of association, registration certificate, and company books are obtained. The following steps continue with the tax office.

Documents Required to Establish a Limited Company

• Residence certificate for the company’s shareholders
• Lease agreement or copy of the title deed for the company’s headquarters
• Document showing the Mersis registration and request number
• Establishment petition with Nace code (stamped and signed)
• Company’s articles of association, wet-signed and certified by the relevant directorate
• Receipt showing that four per thousand of the company’s capital has been deposited in the account of the Competition Authority (at the relevant chamber’s cash desks)
• Chamber registration declaration including photographs of the shareholders
• If there is a foreign shareholder, company establishment notification
• Financial advisor service agreement