This is the English version of a Turkish article. The original, with further detail and linked petition templates, is at Şirket Türü Seçimi: Şahıs, Limited mi Anonim mi?.
Choosing a company type is a question of liability, not tax: a sole trader is liable with their whole estate, while in a limited or joint-stock company liability is as a rule limited to the capital. But in a limited company the shareholders are personally liable, in proportion to their shares, for unpaid tax and social security debts — the difference most often overlooked.
The first legal decision on starting a business is the company type, and although it can be changed later, changing it is costly.
This article compares the three options — sole trader, limited company and joint-stock company — on liability, capital and exposure to public debts.
The Sole Trader Business
The simplest and cheapest structure. It is set up by registration with the tax office and the relevant chamber; notarial and trade registry costs are limited.
Its critical feature: the owner is liable without limit, with their personal estate, for all the debts of the business. Their home, car and bank accounts can be attached for business debts.
Tax is charged as income tax on a progressive scale: the higher the profit, the higher the rate.
Suitable for: low-turnover, limited-risk, one-person activities; the professions; entrepreneurs just starting out.
Unsuitable for: businesses requiring substantial borrowing, working with many suppliers, or planning to take on partners.
The Limited Liability Company
Articles 573 and following of the Commercial Code. It may be formed by one or more natural or legal persons, and the number of shareholders may not exceed fifty.
The capital must be at least the statutory minimum, which is set by legislation and updated from time to time.
Liability: the shareholders are not liable for the company's debts; they are liable only to pay the capital they have subscribed and to perform any additional payment and ancillary obligations set out in the articles.
But there is a critical exception: under Article 35 of Law no. 6183, shareholders of a limited company are directly liable, in proportion to their shareholdings, for public debts that cannot be collected from the company in whole or in part.
Tax and social security debts, in other words, fall on the shareholders personally in proportion to their shares. This is the single greatest risk of the limited company form.
Transferring shares: a transfer requires written form and notarisation, and unless the articles provide otherwise the approval of the general meeting. The transfer is registered in the trade register.
The Joint-Stock Company
Articles 329 and following. Its capital is defined and divided into shares, and it is liable for its debts with its assets alone.
Shareholders are liable only for the capital they have subscribed, and only to the company.
A joint-stock company may be formed by a single person. Its minimum capital is higher than that of a limited company, and a separate figure applies to non-public companies adopting the registered capital system.
The difference on public debts: shareholders of a joint-stock company are not liable as shareholders for the company's public debts. Liability under the repeated Article 35 of Law no. 6183 attaches to the legal representatives — the board members and those authorised to represent the company.
That is the form's greatest advantage: a shareholder who takes no part in management carries no exposure to public debts.
Transferring shares: registered shares transfer more easily as a rule and need no notarisation; bearer shares carry a duty to notify the central securities depository.
| Sole trader | Limited company | Joint-stock company | |
|---|---|---|---|
| Personal liability | Unlimited | Limited to the capital | Limited to the capital |
| Liability for public debts | Unlimited | Shareholders, in proportion to shares | Legal representatives, not shareholders |
| Number of participants | 1 | At most 50 | No limit |
| Formation cost | Lowest | Medium | Highest |
| Transfer of shares | — | Notarisation and registration | Easier; no notarisation for registered shares |
| Taxation | Progressive income tax | Corporation tax, plus withholding on distributions | Corporation tax, plus withholding on distributions |
| Attracting investment | Difficult | Possible | Preferred by investors |
The decisive difference is exposure to public debts: in a limited company it reaches the shareholders, in a joint-stock company only those who manage.
Which Should You Choose?
What to weigh:
- Personal liability: unlimited for a sole trader; limited in both company forms.
- Exposure to public debts: limited company shareholders are liable in proportion to their shares; joint-stock shareholders are not, but the legal representatives are.
- Formation and running costs: lowest for a sole trader, highest for a joint-stock company.
- Ease of transferring shares: easier in a joint-stock company; notarisation and registration are needed in a limited company.
- Number of participants: at most fifty in a limited company; no limit in a joint-stock company.
- Attracting investment: investors generally prefer the joint-stock form.
- Taxation: progressive income tax for a sole trader; corporation tax for capital companies, with withholding on distributions.
A practical approach: a joint-stock company for businesses carrying real exposure to public debts (high turnover, many employees); a limited company for small and medium businesses with few participants; a sole trader business for low-risk one-person activities.
Both company forms limit liability for ordinary debts. They part company on unpaid tax and social security: in a limited company those debts reach the shareholders in proportion to their shares, while in a joint-stock company they reach only the legal representatives. If you will hold shares without managing the business, that difference is decisive.
Frequently Asked Questions
What is the main difference between a limited and a joint-stock company?
Exposure to unpaid public debts. In a limited company the shareholders are personally liable in proportion to their shares; in a joint-stock company liability attaches to the legal representatives, not the shareholders.
Am I personally liable as a sole trader?
Yes, without limit. Your home, car and bank accounts can be attached for the debts of the business.
How many shareholders can a limited company have?
At most fifty. A joint-stock company has no limit, and either form may be established by a single person.
How are shares transferred?
In a limited company by written form with notarisation, plus general meeting approval unless the articles provide otherwise, and registration in the trade register. Registered shares in a joint-stock company transfer more easily and need no notarisation.
Which form do investors prefer?
The joint-stock company, because shares transfer more easily and shareholders carry no exposure to public debts.