Conversion of Limited Liability Company into Joint Stock Company Under Turkish Commercial Code
Within the context of Turkish Commercial Code (“TCC”) numbered 6102, the type of the companies that could be established has been stated in detail pursuant to numerus clauses principle, that is to say it is not legally allowed to establish any kind of company which has not been regulated at TCC. A businessman who would like to operate and conduct activity through establishment of a company should opt for one of the choices stipulated at Article 124 of the TCC which are collective, commandite, joint stock, limited liability and cooperatives, respectively. Among the type of the companies stated above, founders usually prefer to incorporate in the form of limited liability company due to the advantages that kind of company provides during incorporation process. Based on the statistic published by “Turkish Chamber of Commerce DG Responsible for Access to Information” on regular bases, in 2019, the total number of the companies established in Turkey is 77.311 and 10.271 among them has been incorporated in the form of joint stock company, whereas that number hits 65.968 for the limited liability companies. Despite the relative advantages of the limited liability companies during incorporation process; it is quite common nowadays that the shareholders of the limited liability companies decide to convert their companies into joint stock company due to the legal, taxation and institutional wise advantages extended by joint stock companies over limited liability companies.
In the light of the foregoing, we are going the dig further the process of change of type in limited liability company and conversion into joint stock company.
- GENERAL OVERVIEW
Companies established to carry out activities in accordance with their main line of business stipulated at their Articles of Association might become a smaller or larger entity by the passage of time, and the need of shareholders and the Company itself might naturally evolve in the meantime. Accordingly, the Company and the shareholders might seek different protection mechanisms from legal and taxation point of view, and at this juncture, instead of dissolution or resorting other legal remedies, the shareholders quite often opt for conversion into another type of company e.g. Limited Liability Company into Joint Stock Company.
- ADVANTAGES OF JOINT STOCK COMPANIES
There are several advantages of Joint Stock Company over Limited Liability Company which can easily be understood by taking a close look at the pertinent Articles of Turkish Commercial Code, in terms of number of shareholders, minimum capital requirement, responsibilities of shareholders, option for public offering, and simplicity in share transfer.
In terms of number of the shareholders, TCC Article 574 limits the number of shareholders Limited Liability Company by 50, whereas there is not any such imposed restriction for Joint Stock Companies. In this regard, different than Limited Liability Companies, the Joint Stock Companies are entitled to initiate public offering and might accept as many shareholders as they deem proper, provided that other conditions precedents set forth at capital market law are met.
The shareholders of the Limited Liability Companies are responsible for the public debts in proportion to their shares in the company which have not been satisfied from the assets of the company;however the responsibility of the shareholders at Joint Stock Companies is limited to only making the payment of the committed capital and there is not any liability to be incurred for the third party receivables or public debts. In short, shareholders of the Joint Stock Companies benefit from the corporate veil when it comes to company debts.
One of the major advantages of the Joint Stock Company over Limited Liability Company is the simplicity in share transfer process. In the absence of an issued share certificate, the share transfer is consummated by execution of a share transfer agreement and making an annotation to share ledger. If there exists a share certificate, the share transfer is completed just by endorsing and physical delivery of the certificate.
On the other hand, the process of share transfer at Limited Liability Company necessities much more bureaucratic procedure comparing to Joint Stock Company, that is to say, the signatures of on the written share transfer agreement shall be notarized at Notary public of Turkey, and a Resolution on approving the share transfer shall be adopted at the general assembly meeting of the Limited Liability Company. The said Resolution along with the notary approved share transfer agreement shall be submitted to trade registry unit of Turkey for registration. Finally, the share transfer at Limited Liability Company shall be announced at Trade Registry Gazette of Turkey.
- LEGAL STATUS OF THE CONVERTED COMPANY
The converted company which has undergone type change and the new type company is indeed the same legal entity with same tax number from the legal point of view. Besides, rights and interest of the shareholders and their respective shares shall remain intact.
- PROCUDURE TO BE FOLLOWED FOR COMPANY TYPE CHANGE UNDER TURKISH COMMERCIAL CODE
First and foremost, a “Change of Type Report” containing the recent balance sheet and confirming the fact that the capital of the company destined to change the type has been paid in full, shall be prepared and presented by a certified public accountant. In case there is a time gap more than six months between the issuance of balance sheet and change of type report or there has been substantial change in the assets of the company since the issuance date of latest balance sheet, an Interim balance sheet shall be drafted for change of company type purposes.
After preparation of the Report and balance sheet, the board of directors of the Limited Liability Company shall draft the so called “Change of Type Plan”. In this Plan, the Articles of Association of the company, existing and new business name, the incorporation center of the Company and the number of the shares of the shareholders and peculiarities of such shares shall be addresses in detail. In parallel with Change of Type Plan, the board of directors of the Company shall also draft a detailed report explaining the aim and consequences of the company type change. All the required documents referred so far shall be submitted to the attention and review of the Shareholders at the company center no later than one month before the general assembly meeting.
Finally with the affirmative vote of qualified majority of the shareholders at general assembly meeting, the change of the type from Limited Liability Company into a Joint Stock Company is registered at the trade registry and announced at the Turkish Trade Registry Gazette.
 Türkiye Odalar ve Borsalar Birliği/Bilgi Erişim Müdürlüğü, “Kurulan/Kapanan Şirket İstatistikleri”, erişim: 10.01.2020, https://www.tobb.org.tr/BilgiErisimMudurlugu/Sayfalar/KurulanKapananSirketistatistikleri.php.
 Article 35/1 of the Act on Procedures for Collection of Public Debts Numbered 6183.
 TCC Article 184/2.
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