Undoubtedly, one of the most important decisions you will make after you decide to start your own business is to determine which type of company is more suitable for you. When determining the type of company, you need to consider a number of variables, from the initial cost to your future plans.

Every entrepreneur grapples with many questions before choosing the type of company.

• Company Establishment Cost,

• Tax rates,

• The structure of the sector in which it operates,

• Does the company to be established provide ease of entry to new partners?

• The issue of whether or not investment can be received,

• Ability to withdraw money from the company

• Things went wrong Which company can I close the fastest?

• Which type of company is more costly for me in the short, medium and long term?

• Which type of company has less tax and operating costs in the following process (In which company can I deduct the expenses of my vehicle from tax?

• Can I withdraw money from my company?

Questions like these cause confusion in many places here. Many people who want to start a company have similar questions in mind.

One of the answers to some of the questions above is ‘Which company type should I choose?’ skipping the question.

First of all, there are nearly 10 types of companies that can be established according to our Commercial Code. When we look at the averages among them, we can list the most available ones in Turkey as follows:

1. LIMITED (LTD)

2. JOINT STOCK (A.Ş.)

3. PARTY COMPANIES

Let’s compare these types from the above questions.

When we compare the establishment costs and processes of company types, we see that the establishment costs of sole proprietorships are much lower and easier.

Individual companies can be established online without going to the tax office. The cost in the establishment is only the stamp tax of the rental and financial advisor contract.

The costs of establishing limited and joint stock companies are very close to each other, and the establishment processes are a bit more comprehensive and costly compared to sole proprietorships. The items that constitute the establishment costs are the fees paid to the chamber of commerce and other payments and the payments made to the notary public for the signature circular after the establishment of the company. In addition, as in a sole proprietorship, stamp duty is paid to the tax office afterwards. However, the cost of establishing a joint stock or limited company, which will operate in a very detailed and many fields, with more than one director and partner, is higher. While preparing the company’s articles of association, it is extremely critical for a smooth start to determine the works and future goals of the company and to prepare a comprehensive articles of association accordingly.

It is possible to gain as well as lose tax exemptions due to a field of activity written or not written in the main contract. (such as construction-vat-institutions etc. or overseas software services).

Do your suppliers, where you sell goods and services in the sector in which you operate, dictate a certain type of company to you? For example, there may be some corporate suppliers that do not accept to work with a sole proprietorship, or is it considered credible in the sector in which you will operate, as the sole proprietorship can be closed immediately? Is forward buying accepted? You need to consider factors such as

Tax rates are perhaps the most important criterion you will consider when choosing the type of company you will establish. While the tax rate is 23% in limited and joint stock companies, tax rates start from 15% and go up to 35% in private companies.

Whether you own a limited-stock company or sole proprietorship, you must have one or more exit plans. For this reason, you should definitely consider exit plans before establishing a company.

If we give brief information, the closing process for private companies can be carried out in a very short time and with very little cost, while in limited and joint stock companies, it is necessary to wait at least six months and bear the liquidation costs.

If you want to exit by selling your company shares, if you sell your shares in joint stock companies at least two years after you have acquired them, you do not pay taxes by fulfilling certain conditions, but there is no such advantage in a limited company. Since the exit plan may not only be to close the company, but to transfer it, the following options are also available.

-Selling the company to employees

-Selling the company to a competitor

-Like Selling to Your Partner

As a result, which exit plan will be easier for you is also an important criterion in choosing the type of company.

LIMITED vs JOINT STOCK COMPANY

ADVANTAGES

• Flat Rate Tax (23%)
• Liability for debts is more limited than sole proprietorships.
• It has a higher reputation than a sole proprietorship due to its corporate structure.
• The number of partners can be increased and it is suitable for structures with more than one partner
• Joint stock companies have the opportunity to go public and issue bonds.

DISADVANTAGES

• The company establishment cost is higher than the sole proprietorship (due to the costs of the chamber of commerce and notary public)
• Higher running costs than the sole proprietorship,
• Some changes are subject to registration and their costs (address change, partner change, capital increase, etc.)

PERSONAL COMPANY

ADVANTAGES

• Easy and Low Cost Establishment and Closing processes (Online)
• Articles of Association, Board of Directors decision, etc. lack of institutional formalities or legal procedures such as
• Having more types of expenses that can be subject to tax deduction in your Income Tax Return (Spouse, Child, health, education, etc. – at a certain rate)
• No additional obligations when withdrawing money from the company (All profits can be withdrawn)
• No obligation to put capital into the company
• Young Entrepreneurs can benefit from income tax and BAĞ-KUR advantages

DISADVANTAGES

• Progressive tax burden. If the tax rate calculated on the profit is higher than the joint stock and limited companies after a certain amount
• Tax and insurance personal assets and liability for all debts of the company
• Low confidence in the continuity of the business (because there is no liquidation period, it can be closed immediately)

Although there are many articles about choosing a company type on the Internet, we have organized a summary article because it is not a source with all the information or curiosity. In the article, we briefly touched on the issues to be considered in the selection of a company.

As IG Accounting, we evaluate all the pros and cons in company establishment processes according to the wishes of the people, take all necessary steps together, taking into account all financial and legal criteria.

Resources: https://ticaret.gov.tr