Differences of LLP and Joint Stock Corporation

This memorandum is to outline briefly the differences between the business forms of a limited liability partnership (“LLP”) and a joint stock corporation (“Joint Stock Corporation”) under relevant provisions of Turkish law.

As will be seen below, rather than presenting all the differences between an LLP and a Joint Stock Corporation, only the differences which may affect the liabilities of the shareholders or the operation and management of such business forms are explained.

Distinctions between these two business entities can be summarized as follows:

•In an LLP, all shareholders are jointly liable towards the company and the third parties for the unpaid portion of the share capital regardless of full payment by a shareholder of its subscription. In a Joint Stock Corporation, however, each shareholder’s liability is several for the unpaid portion of its equity capital in the company.
•In a Joint Stock Corporation it is possible to classify the shares of the company in different classes and attribute different privileges with these share classes with a view to protecting the minority shareholders’ rights, whereas in an LLP there is no possibility to make such division of the shares.
•In an LLP, shareholders may be held liable for specific corporation debts in the nature of taxes and levies (i.e. corporate tax, social security premiums of employees and income tax deductions from employees’ wages), if they are not paid as required. Such liability is limited to two times of the amount of equity capital each shareholder has invested in the company. In a Joint Stock Corporation, shareholders cannot be held liable for company debts at all. However, it should be noted that the members of the board of directors in a Joint Stock Corporation may also be held liable for specific corporation debts in the form of taxes and levies unless they are paid as required.
•Each shareholder in an LLP is obligated to manage the company and represent it vis-a-vis third parties unless otherwise provided for in the articles of association (the articles of association may provide that a manager or managers elected by the general assembly of shareholders be delegated responsibility for managing the company). In a Joint Stock Corporation, however, the shareholders are not required to directly manage the company since the power to manage the business and affairs of a Joint Stock Corporation is vested in its board of directors and not in its shareholders.
•In an LLP, there is no board of directors. The manager(s) elected by the general assembly of shareholders are responsible for managing the business and affairs of the company. In a Joint Stock Corporation, there is a board of directors acting as a corporate organ composed of at least three persons and management power is typically centralized with powers of delegation held by the board of directors, who establish the company policy and are elected by the shareholders.
•An LLP cannot issue debentures.
•An LLP cannot “go public”.
•In an LLP, an equity share which has been subscribed to in kind rather than in cash cannot be transferred for a period of three years. Such period is two years in Joint Stock Corporations.
•If an LLP consists of fewer than 20 shareholders, the law does not require the appointment of statutory auditors. In a Joint Stock Corporation, regardless of the number of the shareholders, at least one statutory auditor should be appointed by the general assembly of the shareholders.
•In an LLP, subject to the conditions prescribed in the Turkish Commercial Code and any conditions provided for in the articles of association, it is possible to expel a shareholder.
•There are certain business activities that may not be pursued by an LLP, i.e. banking, insurance, and brokerage services.
•In an LLP, the share capital of the company can only be increased if two thirds of the shareholders agree to such a capital increase. However, in a Joint Stock Corporation, a simple majority is sufficient to increase the share capital.
•Transfer of equity shares in an LLP can be valid vis-a-vis the company only after the company has been been notified of such a transfer, and it has been registered to the shareholders’ ledger Moreover, such registration would not be made unless 75% of the shareholders holding at least 75% of the equity shares of the company approve such registration.
•In case one of the shareholders of an LLP is declared bankrupt, the bankruptcy directorate or one of the creditors of such shareholder may request from the court the dissolution of the company. The other shareholders may avoid dissolution by buying out the bankrupt shareholders’ stake in the company.
•The income earned by the shareholder of an LLP as a result of his transfer of an equity share to any third person shall be subject to income tax. With respect to the income earned by a shareholder of a Joint Stock Corporation through the transfer of his shares to a third party, the said tax will not be applicable if the company has issued share certificates or temporary share certificates prior to such share transfer.
•Apart from the above, a Joint Stock Corporation may be formed for an indefinite period of time, whereas an LLP must have a definite term, e.g. 99 years or less.

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