The Biggest Question on Entrepreneurs’ Minds: Personal Liability? Establishing a Company?

The Biggest Question on Entrepreneurs’ Minds: Personal Liability? Establishing a Company?

Entrepreneurship has been a popular concept in every era, but in today’s new world order, starting a new business and owning your own business is much more attractive. Hundreds of companies are being established in every field every day, especially with Generation Z showing up in business life and bringing different perspectives to this field.

For entrepreneurs who want to start their own business but are at the very beginning of their journey, there is only one question on their minds: should I opt for a sole proprietorship or should I set up a company?

Types of commercial companies you can establish in Turkey according to the Turkish Commercial Code:

• Incorporated company
• Limited liability company
• Collective company
• Limited company
• Limited partnership with capital divided into shares

Collective and limited liability companies are private companies, while joint stock, limited liability and limited partnership companies are capital companies.

Although there are several types of companies under the Turkish Commercial Code, joint stock companies and limited liability companies are the most common types of companies in Turkey.

What is Personal Liability?

Personal taxpayer means being liable for Income Tax on the income you earn from your business by submitting a petition to the tax office. Income is the amount of all earnings of a real person in a calendar year.

What is a Limited Liability Company?

A limited liability company is a type of company that can be established with a minimum capital of TL 10,000 in partnership with a legal person or more than one business.

• Limited liability companies may have at least 1 and up to 50 partners.
• It is a type of company with high establishment costs compared to a sole proprietorship, but lower costs compared to other types of companies and is therefore one of the most preferred company types.
• Limited liability companies can be established for any economic purpose and subject without any legal restriction.
• Limited liability companies do not have the right to go public.

What is a Joint Stock Company?

A joint stock company is a type of company that must be established by one or more persons under a trade name and can be established with a minimum capital of TRY 50,000.

• Joint stock companies may have at least 1 and up to 500 shareholders.
• Just like the limited liability company structure, joint stock companies can be established for any economic purpose and subject without any legal restriction.
• The joint stock company is the most suitable type of company for companies that will generate high revenues as it provides the advantage of a flat tax rate.
• It also stands out as the type of company preferred by entrepreneurs who plan to receive investment.
• Joint stock companies have the right to issue shares and bonds.

Company Formation Processes

There are many factors to consider when determining the type of company you want to establish. The cost of setting up a company is the most important point. The cost of establishing a company is determined by the structure of the sector in which the business you will establish, the scale of commercial activities, tax rates, the ability of the company to take partners, the ability to receive investment and exit plans.

Company Establishment Costs

Personal Liability Cost

There are no costs involved in personal liability. There is no cost other than paying Income Tax on the amount you earn.

Limited Company Establishment Cost

In the establishment of a limited liability company, the minimum company capital is determined as 10,000 TL. A financial advisor must carry out the establishment of a limited liability company on your behalf. Cost items in limited company establishment:

• Financial advisor service and financial advisor representation,
• Signature circular
• Foundation mandate,
• Signature declaration for the manager,
• A copy of the identity card,
• Approval of the articles of association,
• Trade book approval,
• Rental cost,
• Stamp duty for lease agreement,
• Chamber of Commerce registration and activity certificate,
• Company stamp
• Invoice and delivery note printing.

The cost of company establishment for all these transactions is at least between 5,000-15,000 TL.

Joint Stock Company Establishment Cost

In the establishment of a joint stock company, the company’s main capital is determined as 50,000 TL. Cost items in the establishment of a joint stock company:

• Financial advisor service and financial advisor representation,
• Signature circular
• Agency of incorporation,
• Signature declaration for the manager,
• A copy of the identity card,
• Approval of the articles of association,
• Trade book approval,
• Rental cost,
• Stamp duty for lease agreement,
• Chamber of Commerce registration and activity certificate,
• Company stamp
• Invoice and delivery note printing.

The cost of company establishment for all these transactions is at least between 5.000-25.000 TL.

Tax Rates

In terms of tax rates, the method with the least tax obligations is the personal taxpayer. However, there are various advantages and disadvantages in terms of tax rates in limited liability and joint stock company types.

Income Tax Rates for Individual Taxpayers

The income tax rate for personal taxpayers starts at 15% and goes up to 40% depending on the amount of your earnings. In this respect, if you have a high personal taxpayer income, this will not be an advantage for you; it will be a disadvantage.

2021 INCOME TAX AMOUNTS

• If you are a young entrepreneur, i.e. between the ages of 18-29, you can earn up to 75,000 TL income tax exemption for 3 years.
• Bağ-Kur premium support for 1 year is also among the advantages provided to young entrepreneurs.
• Young entrepreneurs who want to establish a joint stock or limited liability company cannot benefit from these supports.

Tax Rates for Limited and Joint Stock Company

• You are liable to pay Income Tax, Corporate Tax, Value Added Tax, Withholding Tax, Provisional Tax and municipal taxes.
• Although there is a common understanding that limited and joint stock companies pay more taxes in terms of tax liabilities, the corporate tax rate is fixed for limited and joint stock companies, whereas for individual taxpayers it increases according to the income rate.
• Limited and joint stock companies are subject to the Corporate Tax rate set for the year in question (e.g. the Corporate Tax rate for 2021 is set at 25%), while the tax rates for individual taxpayers can be up to 40%.

Liquidation Processes

Closing Process in Personal Taxpayer

In the case of a private taxpayer, the closure process is quite easy. You can get rid of personal taxpayer obligations with a petition to the Tax Office.

Liquidation Process in Limited Liability Company and Joint Stock Company

Since there are various procedures in the liquidation of limited liability companies and joint stock companies, the process of closing the company can take at least 6 months. Limited and joint stock companies can only be dissolved with the decision of the board of shareholders.

For more information, please visit our Company Incorporation Consultancy service page.