What Is A Limited Company? What Are The Advantages It Offers To Start-ups?


Hello! In our previous blog series, we tackled the questions, "Which Company Types Are More Suitable for Start-ups?" and "What Is a Joint-Stock Company? How To Establish One?" We then explained why the joint-stock company is the most suitable company type for start-ups. Let's look at limited companies in detail this time.


Realizing our business idea, which we had thought about for a long time and have gotten various feedbacks about, and establishing a start-up is a fascinating and valuable process. Keeping the start-up going or finding the budget to establish a new start-up should this start-up fail are even more valuable processes.


How Can We Do That?

We can solve this problem by establishing a corporation. To give more detail, corporations are joint-stock companies and limited companies. By establishing these companies, we're essentially saying: we have a legal entity, and if things don't go the way we planned, our personal assets and natural person won't be negatively affected by this situation.


What Is a Limited Company?

A limited company can be established for any legal, economic purpose and affair under a trademark by one or more natural or legal person(s). The old commercial legislation deemed establishing a one-person limited company was considered illegal, which increased the number of limited companies with "dummy shareholders". The new commercial legislation solved this problem.


The limited companies must seek profit in accordance with the statement given in the legislation article: "A limited company can be established for any legal, economic purpose and affair." It's not possible to establish a non-profit limited company.


In terms of establishment, aside from preparing the limited company's documents, it takes approximately 1 week for the documents to arrive at the Trade Registry Gazette and go through publishing, typesetting, and dispensation processes. The company's shutdown can happen in two ways: with and without liquidation.[1]


  • Shutdown with liquidation: Limited companies and joint-stock companies are shut down either when the circumstances stated in the law occur or by resolving the shareholders' assembly.

  • Shutdown without liquidation: The company is shut down when the court decides to do so if it's justified.


In either case, the shutdown process takes approximately 1 year. The shutdown process without liquidation drags on if there is debt involved.


The minimum capital stock of limited companies used to be TRY5.000 in the Old Commercial Legislation, which was increased to TRY10.000 in the New Commercial Legislation. The best part is that the obligation to block 25% of your capital stocks is no more. You only need to pay the capital stock amount within 2 years.


As you will remember, we mentioned that establishing a corporation with a legal entity plays a significant role in protecting the personal assets and natural person should things go wrong.

While the joint-stock companies offer complete protection to the person, there's a small exception for limited companies. Regarding limited companies, it is stated in the Law on the Procedure for the Collection of Public Receivables that "The shareholders of limited liability companies are directly responsible for public receivables which may not be completely or partially collected from the company in proportion to their capital share and will be subject to follow up as per the provisions of this Law. According to the first paragraph, when a shareholder transfers their capital share, the alienator and the assignee are severally responsible for the public receivables before the transfer." Thus, it is clarified that the limited company's shareholders will be held liable for the public receivables such as fees, taxes, and charges.


To stop the investors from changing their minds about investing in your limited company because of this very reason. If you need to give stocks away, you can turn your limited company into a joint-stock company by the method of changing type.


In addition, in limited companies, the responsibilities and faults of the managers are the rule.


What are the Advantages of Establishing a Limited Company?

A limited company is advantageous compared to establishing a sole proprietorship and being a natural tradesperson as it's a capital company, and it imposes second-degree liabilities in terms of the company's debt. Its establishment costs, establishment capital, and expenses that need to be paid regularly are lower than joint-stock companies', which is another advantage.[2]


What Are The Documents Required to Establish a Limited Company?

  • 2 certificates of residence from every shareholder

  • ID photocopies of shareholders

  • 3 passport photos from every shareholder

  • The address of the main office

  • Office lease agreement or a photocopy of the certificate of ownership

  • The title of the company to be established

  • Company capital stock

  • Capital ratios

  • Company representative


What Are The Documents Required for a Registry?

  • Documentation stating central registration system and application number

  • Letter of Application

  • "Chamber registration declaration" with the shareholders' photos

  • If there are foreign shareholders, declaration of incorporation[3]

We hope you have enjoyed reading our blog post and learned new things. The following blog post in our series: What is a Sole Proprietorship and how to establish one? See you soon and stay healthy :)


Other Content on Our Website You Might Be Interested In;

Which Company Types Are More Suitable for Start-ups?

What Is a Joint-Stock Company? How To Establish One?

Upcoming: "Digital Lira"


Fatih Berk Şener

Digital Marketing&Law Assistant Specialist


Bibliography

Hacıpaşaoğlu, E. M., & Şencan, O. (2019). Startup Hukuku. İstanbul: Sola Unitas.

Türk Ticaret Kanunu. (n.d.).

Türk Ticaret Kanunu. (n.d.). 2011.

UP, M. (2020, 06 17). Limited Şirket Kurma Rehberi. From Multinet UP: https://multinet.com.tr/blog/inovasyon-girisimcilik/limited-sirket-kurma-rehberi


https://multinet.com.tr/blog/inovasyon-girisimcilik/limited-sirket-kurma-rehberi

[1] Erdem Mümtaz Hacıpaşaoğlu & Okan Şencan, Startup Law (Startup Hukuku), Sola Unitas, 2019, page 71. [2] Erdem Mümtaz Hacıpaşaoğlu & Okan Şencan, Startup Law (Startup Hukuku), Sola Unitas, 2019, page 74. [3] Multinet Up "Limited Company Establishment Guide". Access 07.12.2021, https://multinet.com.tr/blog/inovasyon- girisimcilik/limited-sirket-kurma-rehberi

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