Entrepreneur’s Journal: Which Type of Company Is More Logical to Establish?

 

You have a business idea, you want to turn it into reality, and you have started setting long-term goals. One of the most important factors that makes an entrepreneur attractive in the eyes of investors is having a clear roadmap for how those goals will be achieved.

The main purpose of this article is to guide everyone who has an idea and concrete goals — especially entrepreneurs — in choosing the most suitable type of company to transform their ideas into a real and sustainable business. To do this, let’s begin with a brief overview of the company structures available in Turkish commercial life.

 

Which Types of Companies Can I Choose for My Venture?

 

In Türkiye, commercial enterprises are primarily classified based on whether they have legal personality. The vast majority of businesses that play an important role in the economy operate as legal entities. For this reason, it is useful to briefly review what legal personality means.

 

What Is Legal Personality?

 

Legal personality refers to the recognition by law of a group of people or a pool of assets formed around a specific commercial or social purpose as a single legal entity. This allows companies to have rights and obligations separate from those of real persons.

Among companies with legal personality, three main structures are most commonly seen in the entrepreneurship ecosystem:

• Sole Proprietorship (Sole Trader / Personal Company)
• Limited Liability Company (Ltd.)
• Joint Stock Company (Inc. / A.Ş.)

 

The Fundamental Difference Between These Company Types

 

The most critical distinction between these three structures is the liability regime. In sole proprietorships, the owners are personally liable for company debts with all of their personal assets. In contrast, in Limited and Joint Stock Companies, the company itself is primarily liable for its debts, and shareholders’ personal assets are generally not at risk.

In other words, in capital companies, if the company fails financially, only the company bears the loss. In sole proprietorships, however, the owners themselves are directly exposed to the same risk. This subtle but crucial difference is especially important for entrepreneurs who plan to take on significant commercial risk.

 

How Sole Proprietorships Differ from Ltd. and Inc. Companies

 

Unless there is a very specific reason to establish a sole proprietorship, growing ventures will usually need to transition into a Limited or Joint Stock Company structure at a certain stage. As business volume increases, a more professional management model, a more efficient operational structure, and — most importantly — a more stable system become necessary.

Sole proprietorships are generally smaller in scale, have a limited number of partners, and involve unlimited liability for their owners. While this structure can be practical in the early stages, it also comes with important structural limitations.

One of the biggest disadvantages for entrepreneurs is that partners must be natural persons. Because of this requirement, many investors — who typically operate through corporate or capital entities — are unable to become shareholders and therefore tend to avoid investing in sole proprietorship structures.

 

The Institutional Advantages of Capital Companies

 

Limited and Joint Stock Companies have more developed and institutionalized structures. These companies include clearly defined capital structures, establishment procedures, audit requirements, managers, partners, and executive bodies. This organized framework makes them indispensable actors in economic development.

In capital companies, the company is liable for its debts only to the extent of its own assets. This allows entrepreneurs to protect their personal wealth while pursuing commercial activities, enabling them to take stronger and more confident business steps.

Likewise, investors who become shareholders in capital companies can both participate in corporate decision-making processes and secure their investments as a financial asset through the shares they acquire.

 

Which Is More Attractive for Entrepreneurs: Ltd. or Inc.?

 

The main differences between Limited and Joint Stock Companies are seen in the number of shareholders, liability for public debts, and share transfer procedures.

In Joint Stock Companies, there is no upper limit on the number of shareholders, whereas in Limited Companies, the maximum number of shareholders is limited to 50.

In addition, after fulfilling their capital commitments, shareholders of Joint Stock Companies are not personally liable for public debts. In Limited Companies, however, shareholders may be held liable for public obligations such as social security premiums and tax debts in proportion to their capital shares.

Share transfers are also more flexible in Joint Stock Companies. While share transfers in Limited Companies must be executed before a notary, in Joint Stock Companies a written share transfer agreement is generally sufficient.

We will examine the differences between Limited and Joint Stock Companies in greater detail in our next article.

 

General Evaluation

 

From both an entrepreneurial and an investor perspective, when approaches to commercial risk and growth potential are taken into account, it is clear that Limited and Joint Stock Companies are generally the most rational and secure choices.

Nevertheless, for entrepreneurs who wish to test their business idea on a smaller scale and enter the market quickly, a sole proprietorship can serve as a practical and low-cost first step toward company formation.