What is a collective company, how is it established, and what are its characteristics?

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For entrepreneurs who want to start commercial activities with more than one person, there are different types of companies available. One of these company types, particularly preferred by small and medium-sized enterprises, is the joint venture. A joint venture is a type of company where trust among partners is paramount, its establishment is relatively easy, and its management is straightforward. However, due to the extensive responsibilities of the partners, it is a structure that requires careful consideration.

What is a Partnership?

A partnership is a type of company established by two or more natural persons for the purpose of operating a commercial business under a trade name. The most important characteristic of a partnership is that the partners are jointly and severally liable for the company's debts without limit.

According to the Turkish Commercial Code, partnerships can only be established between natural persons. Legal entities (such as other companies) cannot be partners in a partnership. In this respect, a partnership is more like a sole proprietorship.

In summary, a partnership:

• Is based on the personal trust of the partners.

• Partners are liable for the company's debts with all their assets.

• Is suitable for small-scale businesses.

Legal Basis of a Collective Company

Collective companies are regulated in Articles 211-303 of the Turkish Commercial Code No. 6102. These articles detail the establishment of the company, the responsibilities of the partners, its management, termination, and liquidation.

Key Characteristics of a Collective Company

There are some fundamental characteristics that distinguish a collective company from other types of companies. These characteristics directly affect the company's structure and risks.

Unlimited Liability of Partners

The most distinctive feature of a collective company is that partners are personally liable for company debts with their own assets. If the company's debts cannot be met with the company's assets, creditors can directly claim from the partners.

Joint and Several Liability

Partners are jointly and severally liable for debts. This means that a creditor can claim from any partner for the entire debt. The partner who pays the debt can seek recourse against the other partners.

Established by Natural Persons

A collective company can only be established by natural persons. Legal entities cannot be partners.

Use of a Trade Name

The company must use a trade name that includes the first and last name of at least one of the partners. The phrase "Collective Company" must be included in the name.

No Minimum Capital Requirement

There is no minimum capital requirement for the establishment of a collective company. Partners can freely determine the amount of capital.

Management Authority Rests with the Partners

Unless otherwise specified in the contract, the management of the company belongs to all partners. Partners have the authority to act on behalf of the company.

How to Establish a Partnership?

Establishing a partnership is simpler and less expensive compared to capital companies. However, due to legal responsibilities, caution should be exercised during the establishment phase.

Determining the Partners

First, at least two natural persons who will establish the company are determined. Trust and harmony among the partners are extremely important.

Preparing the Company Agreement

A partnership is established with a written company agreement. This agreement should include the following information:

• The company's trade name

• The company's headquarters

• The company's field of activity

• The names and addresses of the partners

• Capital shares

• Management and representation authorities

Notary Approval

The prepared company agreement is signed and approved in the presence of a notary.

Registration in the Commercial Registry

The notarized agreement is registered with the commercial registry office in the location of the company's headquarters. With registration, the company acquires legal personality.

Tax Office and Social Security Procedures

Following registration:

• An application is made to the tax office.

• A tax certificate is obtained.

• If necessary, a Social Security workplace registration is created.

Bookkeeping Certification

Legal books such as the journal and general ledger are notarized.

Advantages of a Collective Company

A collective company has several important advantages:

Ease of Establishment

The establishment process is quick and inexpensive.

No Capital Requirement

It is suitable for small businesses as there is no minimum capital requirement.

Trust-Based Structure

It offers an efficient structure in businesses where trust among partners is high.

Management Flexibility

Partners can participate directly in management, and decision-making processes are fast.

Disadvantages of a Partnership

In addition to its advantages, there are also significant disadvantages:

Unlimited Liability

All personal assets of the partners are at risk.

Risk of Disputes Between Partners

The mistake of one partner can affect all partners.

Difficulty in Attracting Investors

It is difficult to attract external investors compared to capital companies.

Continuity Issue

The death, bankruptcy, or resignation of one of the partners may lead to the termination of the company (unless otherwise specified in the contract).

Taxation in Partnerships

Joint ventures are subject to income tax. Company profits are distributed among the partners, and each partner pays income tax on their share.

Tax obligations include:

• Income Tax

• Value Added Tax (VAT)

• Withholding Tax Return

• Stamp Duty

They are not subject to corporate tax.

Who is a Joint Venture Suitable For?

A joint venture is more suitable for:

• Businesses established among family members

• Small businesses and commercial enterprises

• Structures with high trust among partners

• Entrepreneurs who want to start a business with low capital.

Termination of a General Partnership

A general partnership may be terminated in the following situations:

• Expiration of the term specified in the partnership agreement

• Death or bankruptcy of one of the partners

• Unanimous decision of the partners to dissolve the partnership

• Achievement of the company's purpose

The liquidation process begins after termination.

Conclusion

A general partnership is an attractive option for small businesses due to its ease of establishment, low-cost structure, and flexible management. However, because it carries serious risks such as unlimited and joint liability, partners should carefully consider all legal and financial consequences before choosing this structure.