Article
TYPES OF COMPANIES AND THEIR DIFFERENCES
DISCOVER DIFFERENT TYPES OF COMPANIES IN TURKEY
The process of starting a business in Turkey begins with choosing the right type of company. A proper company structure not only fulfills legal obligations but also plays a significant role in the growth and sustainability of the business. Therefore, selecting the right type of company is a critical decision depending on your business's strategic planning, financial structure, and the sector in which you operate.
Each type of company comes with a different organizational structure, tax obligations, and capital requirements. Structures such as sole proprietorships, limited liability companies, and joint-stock companies each have their own advantages and disadvantages. Determining which type of company is best suited for investors and entrepreneurs is a factor that influences long-term success.
Legal regulations and trade laws in Turkey impose different requirements for various types of companies. In this article, we will examine the main types of companies that can be established and the opportunities they offer businesses in detail. Additionally, by addressing fundamental features such as company management, tax advantages, partnership structures, and capital requirements for each type of company, we aim to assist you in making the right choice.
LIMITED LIABILITY COMPANY (LTD. ŞTİ.)
Limited liability companies are the most commonly preferred type of company in Turkey, appealing to both local and foreign investors. Here are the characteristics of a limited liability company:
- Establishment: Can be established with a minimum of one partner. The minimum capital requirement is 10,000 TRY.
- Capital: The capital determined among the partners must be deposited before starting business activities.
- Management: The management of the company is determined by the partners, and a manager can be appointed.
- Liability: The liability of the partners is limited to their capital contributions. Personal assets are protected.
- Taxation: Subject to income tax, with annual earnings taxed accordingly.
ADVANTAGES
- Provides an opportunity to start a business with low capital requirements.
- Flexibility in management and profit-sharing among partners.
- Liability is limited to the company’s debts, protecting personal assets.
DISADVANTAGES
- Decision-making can sometimes be challenging, as all partners are involved in the process.
JOINT-STOCK COMPANY (A.Ş.)
A joint-stock company is the most suitable structure for large-scale businesses. It is generally preferred for publicly traded companies or major investment projects.
- Establishment: Requires at least one partner and a minimum capital of 50,000 TRY.
- Capital: Capital is divided into shares, and these shares can be bought and sold.
- Management: Management is conducted by one or more board members. Partners are independent of the management.
- Liability: The liability of the partners is limited to the capital they contribute to the company.
- Taxation: Joint-stock companies are subject to corporate tax.
ADVANTAGES
- Raising capital is easier as investments can be made through shares.
- Clear distinction between partners and managers allows for more professional decision-making processes.
- The company’s shares can be traded on the stock exchange, providing opportunities for further investment.
DISADVANTAGES
- High capital requirements and more complex management structures.
- Higher establishment and administrative costs.
SOLE PROPRIETORSHIP
A sole proprietorship is a type of company established and operated by a single individual. It is particularly suitable for small-scale businesses and entrepreneurs.
- Establishment: Can be established by one person, and no initial capital is required.
- Capital: There is no capital requirement for sole proprietorships, and the owner manages the company with personal assets.
- Management: The owner makes all decisions independently, resulting in a simple management structure.
- Liability: The owner is personally liable for all debts of the company. Personal assets are at risk.
- Taxation: Sole proprietorships are subject to income tax, with annual earnings taxed accordingly.
ADVANTAGES
- Easy setup and low-cost business operations.
- The owner has full decision-making authority, providing flexibility.
- Tax processes are simpler, requiring less complex accounting.
DISADVANTAGES
- The owner's personal assets are at risk due to company debts.
- As the business grows, tax liabilities may increase, along with additional legal responsibilities.
- Management relies solely on one person, which can sometimes complicate decision-making.
BRANCH OFFICE
A branch office is a structure that allows a foreign company to conduct its activities in Turkey. A branch operates as part of the parent company.
- Establishment: The foreign company must apply to the relevant tax office to open a branch in Turkey.
- Capital: The branch’s capital is directly linked to the parent company’s capital.
- Management: The branch operates under the instructions of the parent company. The management of operations in Turkey is conducted by individuals appointed by the parent company.
- Liability: The parent company is responsible for the branch’s debts.
- Taxation: The branch pays taxes on income generated from its activities in Turkey.
ADVANTAGES
- Low-cost operations under the guarantee of the parent company.
- Operations in Turkey adapt to the existing business structure of the parent company.
DISADVANTAGES
- A branch is not an independent legal entity, leading to higher legal liabilities.
- The branch’s activities are subject to the parent company’s approval.
LIAISON OFFICE
A liaison office only conducts market research, promotional, and communication activities and does not engage in commercial activities. It is usually preferred by investors looking to familiarize themselves with the market in Turkey.
- Establishment: A liaison office can be established by applying to the Ministry of Trade. There is no capital requirement.
- Capital: There is no capital requirement, but there may be office and staff expenses.
- Management: Only research and communication activities are carried out; commercial activities are prohibited.
- Liability: Activities in Turkey are the responsibility of the parent company.
- Taxation: A liaison office is not subject to taxation.
ADVANTAGES
- Low-cost setup and operational expenses.
- Flexible structure as only research and communication activities are required.
DISADVANTAGES
- Commercial activities are not permitted, limiting operational capacity.
- It is only suitable for marketing and promotional activities.