What is a Limited Liability Company? How to Establish a Limited Liability Company?

A limited liability company is a frequently encountered type of company among businesses operating in Turkey. For this reason, detailing the answer to the frequently asked question "what does a limited company mean?", especially by those who have just stepped or plan to step into the business world, is highly important.

Now, let us examine in detail important information such as the basic characteristics, advantages, and registration process of limited companies!

What is a Limited Liability Company?

A limited liability company, or with its frequently used abbreviation "Ltd. Şti.", is a type of company in Turkey whose capital is divided into specific shares, having at least one and at most fifty partners. The clearest answer to the question of what Ltd. Şti. means is that it is a type of company where partners have limited liability against company debts restricted only to their capital shares.

To elaborate slightly more on the answer we gave to the question what is a limited company; the liability of a limited company towards third parties due to its debts is limited only to the company's own assets. In Turkey's business culture, limited companies hold an important place, especially for entrepreneurs who want to minimize risks and facilitate business processes.

Which Units Must Exist in Limited Liability Companies?

Among the characteristics of limited companies, there are units required in terms of legal requirements and order of operations. The units that must exist in limited companies are as follows:

• Partners: Partners form the foundation of the company. These are individuals who provide the company's capital. A limited company can operate with at least one and at most fifty partners. Retrospective liability of each partner is limited to their own capital share.

• General Assembly: It is the center of the company's decision-making mechanism. Partners gather in the general assembly to make critical decisions regarding the company. These meetings are usually held annually, but extraordinary meetings can also be convened when necessary.

• Director or Board of Directors: Every limited company must have at least one director. The duty of the director or directors is to represent the company, carry out transactions, and be responsible for the general management of the company.

• Auditor: While appointing an auditor is not mandatory for every limited company, an auditor can be appointed via the company's articles of association or by a general assembly resolution. The auditor monitors the company's financial activities.

Depending on the field of activity, size, and needs of a limited company, these units can be expanded or intensified. However, the units listed above are the most basic elements of a limited company structure and hold great importance for the orderly operation of the company.

What Are the Advantages of a Limited Company?

Many entrepreneurs and investors ask themselves "why a limited company?" when stepping into the business world. The advantages behind choosing limited companies can generally be listed as follows:

• The liability of partners is limited.

• It is flexible in establishment and operation.

• It provides tax advantages.

• It offers a corporate structure.

• It has ease of investment and finding financing.

• It allows for corporate continuity.

• It is beneficial in creating brand and image.

• It is easier for partners to leave the company and for new partners to join.

• It provides the opportunity to establish a professional management and organizational structure.

• It offers the opportunity to be more recognized and reliable in national and international markets.

• It is more suitable for collaboration models such as business partnerships and franchising.

• It has a legally more protected structure.

What Are the Disadvantages of a Limited Company?

Although limited companies have many advantages, they also have some disadvantages. Here are some disadvantages that limited companies may face:

• The incorporation process can be challenging.

• It may require high initial costs.

• There are financial reporting and auditing obligations.

• It requires more formalities in managerial matters.

• Obligation to comply with legal regulations is stricter.

• There is limited individual control and freedom.

• There are obligations for registration and update with the trade registry.

• It may require equity requirements.

• Liquidation and dissolution of the company are more complex compared to sole proprietorships.

What Are the Responsibilities of a Limited Company?

The responsibilities of a limited company cover legal and ethical obligations that must be fulfilled both towards the company's corporate structure and state organs and third parties.

In limited companies operating in Turkey, obligations regarding capital commitments come first; partners are obliged to pay the capital they have committed to the company fully and on time.

These companies also need to prepare financial statements and reports at certain intervals, subject them to independent audit, and present them to the relevant authorities.

Within the framework of legal legislation in Turkey, fulfilling tax obligations, respecting employee rights, complying with environmental regulations, and completely fulfilling all obligations related to the trade registry are also among the responsibilities of limited companies.

Additionally, acting in accordance with the terms of agreements made with parties and protecting the rights of consumers are important ethical responsibilities for these companies.

Requirements for Establishing a Limited Company

To establish a limited company, the company must operate with at least one and at most fifty partners. It is also a requirement that partners make a commitment in accordance with the determined minimum capital amount. However, this amount can change with laws.

The process progresses as preparing the company's articles of association, obtaining notary approval, and then registering with the trade registry. At this point, the fields of activity of the limited company must be clearly specified in the articles of association. What kind of business the company will engage in and in which sectors it will be active is clarified in this way.

To become a taxpayer, registering the company with the tax office and obtaining a tax plate is also among the installation requirements. Additionally, determining the company's management bodies and notifying the authorized persons in these bodies to the trade registry is important.

It should also not be forgotten that there may be additional requirements and obligations specific to the sector or field of activity. The process of establishing a limited company must be planned in detail and full compliance with legal requirements must be ensured.

How to Create a Limited Company in 9 Steps?

Establishing a limited company in Turkey depends on certain legal procedures and steps. These steps can sometimes seem complex.

1. Give your company a name

A company's name reflects its identity. When choosing a name, you should take care to select a name that is compatible with your sector, memorable, and unique.

At the same time, it must be ensured that the chosen name is not taken by another firm.

2. Determine managers and partners

The roles of partners and the manager in limited companies are very important. Who the manager will be, partners' shares in the company, rights, responsibilities, and liabilities must be determined. Furthermore, this info must be clearly defined in the company's articles of association.

3. Establish capital and share ratio

It should be decided how much the company's starting capital will be. This capital is determined according to the amount of money the partners will put into the company. Additionally, each partner's share in the capital and the share ratio they will hold in return for this share are also determined at this stage.

4. Prepare company agreement

The articles of association discuss matters such as company operation, fields of activity, lifestyle of management in detail. This document has a legal nature regarding the rights, responsibilities of all partners and the operation of the company.

5. Apply to the Trade Registry Directorate

For the company to gain legality, it is necessary to apply to and register with the Trade Registry Directorate. Company registration ensures that the establishment gains official status. Having the required documents complete at this stage helps speed up the process. 

6. Handle Tax Office and Social Security Institution procedures

After the registration process, the company's Tax Office registration must be made. In addition to this, applications to the Social Security Institution must be made to guarantee the social security rights of company employees.

7. Get necessary permits from local government

Depending on the sector you will operate in and local government rules, you may need to get various permits. For example; if you plan to open a restaurant, you might need permits such as a certificate of compliance with health and hygiene rules. At this point, you can learn the necessary information from the chamber associated with your field of activity.

8. Open a bank account

To conduct financial transactions such as invoice collection, salary payments, tax, and SGK investments on behalf of the company, it is mandatory to open a bank account under the legal entity.

9. Put your company into operation

When all these steps are completed, your company is now ready to operate. By doing market research, you can reach your customer base, increase your brand awareness, and grow with strategies suitable for your business plan.

Documents Required to Establish a Limited Company

Documents required for establishment of a limited company are special documents determined by Trade Registry Directorates and other related institutions in Turkey. Below, you can find the documents generally required for limited company installation:

• Articles of Association

• Trade Registry Declaration

• Photocopy of Partners' Identity Cards

• Board of Directors Resolution

• Notary Approved Signature Declaration

• Letter of Consent

• Photocopy of Tax Plate

• Residence Certificate

• Passport and its Translation

• Rental Contract or Letter of Commitment

• Capital Blockage Document Obtained from the Bank

• Two photographs

• Tax Liability Certificate to be obtained from the Tax Administration

With these documents, you can start the establishment procedures of your limited company by applying to the Trade Registry Directorate. However, this list is for general information purposes. It is advised to check the current document requests of the relevant institutions and work with a financial advisor or a lawyer.

What to Consider When Establishing a Limited Company?

When establishing a limited company, there are some points to consider. If you do not pay attention to these points, your chance of showing progress decreases. Then let’s examine the points you need to pay attention to!

• Set a capital above the minimum amount of capital.

• Correctly define the area the company will operate in.

• Clearly specify all details in the articles of association.

• Choose reliable and experienced partners.

• Fulfill all tax and financial obligations on time.

• Choose your location according to your target audience and sector.

• Get professional consultancy on legal and financial matters.

• Complete your trade registry transactions fully.

• Obtain all necessary permits and licenses.

• Be prepared for possible financial difficulties in the first stage.

• Take care to select qualified and correct personnel.

Partnership Principles in Limited Liability Companies

In limited companies, partners' liability is limited, and this responsibility is equal to the capital shares specified in the company's articles of association. Partners do not have any financial responsibility other than the amount of capital share they are obliged to pay to the company.

According to partnership principles, each partner in limited companies participates in profit and loss in proportion to their capital share. Unless specified otherwise in the company's articles of association, profit distribution is made according to the partners' share ratios. Partners' debts to the company have priority over company receivables.

In limited companies, there are some restrictions on the transfer of shares of partners. Capital share transfer can only be done in accordance with the principles specified in the articles of association. According to Turkish Commercial Code information, for the transfer of capital share to be valid against other partners and the company, it must be registered by the Trade Registry.

Additionally, in limited companies, partners gather in the general assembly to make major decisions of the company. These meetings and decisions reached are accepted as another important element of partnership principles.

How is the Capital Structure in a Limited Liability Company?

The capital structure of limited companies is shaped within certain rules and principles under the Turkish Commercial Code (TCC). Limited companies, as the name suggests, are established upon a specific capital, and this capital is divided into shares.

• Minimum capital amount: Under the TCC, there is a minimum capital amount determined for establishing a limited company. This amount is the quantity determined during the establishment process and set by law.

• Capital shares: The capital of a limited company is divided into specific capital shares. The value of each capital share must be equal. Partners commit to capital in the amount specified in the articles of association and are obliged to meet this commitment.

• Liability of partners: Limited company partners are only liable as much as the capital amount they have committed. Their personal assets are not at risk for other debts of the company.

• Capital increase and decrease: Capital increase or decrease is made with a general assembly resolution. Such changes must be registered by the Trade Registry. Capital increase can be carried out either by existing partners increasing their shares or by including new partners in the company.

• Payment of capital: Partners must pay the capital they committed within the specified period. Legal interest and compensation can be requested for capital not paid within this period.

• Capital reserves: In certain situations, companies must set aside capital reserves by law or pursuant to the provisions of the articles of association. These reserves are important for the sustainability and financial robustness of the company.

In summary, capital structure in limited companies is determined by rules regarding the commitments of partners, division of capital shares, how and when the capital will be paid, and capital reserves. These rules protect the rights and obligations of both the company and the partners.

How is the Tax Status in Limited Liability Companies?

The tax status of limited companies in Turkey is an important factor affecting the income and field of activity of the company. These companies are primarily subject to corporate tax. However, the concept of limited company income tax covers the tax applied to the individual incomes of the company partners.

Limited companies also have Value Added Tax (VAT) liability on their sales and services. This rate changes according to the sector they operate in. Additionally, limited companies can be subject to other taxes such as special consumption tax and stamp duty. Keeping accounting records in accordance with tax legislation is essential for companies' tax audits and financial reporting.

Tax obligations of limited companies directly affect their financial health and operational success. Therefore, complying with tax legislation holds a vital importance for every company.

What is the Cost of Establishing a Limited Company?

The cost of establishing a limited company in Turkey consists of several basic items. Initially, there is a fee that must be paid when applying to the Trade Registry Directorate for establishment. Also, notary expenses arising during the process of notarization of the company's articles of association make up establishment costs.

In addition to this, advertisement expenses must also be paid for the publication of the establishment in the Turkish Trade Registry Gazette. 

According to the insurance status of the company manager, BAĞ-KUR (SGK) premium payments can also be included in costs. The tax plate obtained from the Tax Office for the company to start operation also requires a certain fee.

Finally, for limited companies to conduct regular accounting transactions, an agreement is usually made with an accountant, and this is a periodic cost. However, these costs can change according to the sector, city, and other specific needs of the company.