Abstract
This article deals with both legal and economic analysis of the new Turkish Commercial Code provisions regarding single member companies. In this respect, legal provisions of the Turkish Commercial Code are examined and compared not only with the Twelfth European Union Directive and Societas Unius Personae, but also regulations of the European Union member states. Since single member companies are to be established as limited liability companies under Turkish law, this article considers the benefits of the limited liability form that can be applied to single member companies in the framework of firm theory. It also examines the benefits and risks of single member companies in terms of transaction costs and assesses the safeguards against the risks in this regard. Finally, an evaluation is made in the light of the data collected relating to the number of companies established after the new Turkish Commercial Code entered into force.
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Notes
Main concerns of lawyers about SMCs were the organ formation and operation of company abuse. See Tekinalp (2013).
Since the investors invest their assets in a single firm, diversification is not a crucial consideration for closely held firms. For further information see Ribstein (1991).
In American law debt investors in sole proprietorship, general and limited partnerships, business trusts and other ventures possess limited liability. See Easterbrook and Fischel (1996). On the other hand, in Turkish law only the commercial companies can be subject to limited liability.
There are two kinds of creditors: voluntary and involuntary. Voluntary creditors are consumers, employees, trade creditors and lenders (Easterbrook and Fischel 1996). Involuntary creditors can be considered as tort victims and tax and regulatory authorities. Posner (2008), states that voluntary creditors are fully compensated by high interest rates, as a result of estimation of company default risk when the loan agreement signed. Defenders of the limited liability concept state that uncompensated transfers of risk of business failure from shareholders to creditors would occur on a substantial scale. Therefore, this would presumably restrict the availability of credit to limited liability companies and reduce the level of economic activity accordingly. For the historical evaluations and doctrinal discussions regarding limited liability see Halpern et al. (1980). Despite the assertions made by the defenders, consensus has been reached on the fact that limited liability aggregates the level of economic activity.
For all possible answers stated in this article see Posner (2008).
One should never overestimate the fact that, under some conditions, large shareholder might monitor the risk of company default better than a small trade creditor. The trade creditor on the other hand can protect himself by limiting the extension of credit to a short period (Posner 2008). These general characterizations of shareholders and corporate creditors are not universally true especially when unsophisticated creditors and employees who hold no diversified portfolios are likely to be more risk adverse and less able to appraise business risks than institutional shareholders. See Ribstein (1991: 101 fn. 92).
The reasons why economic activities should be carried out in firms rather than individuals are illustrated in firm theory. For one of the first articles on this theory see Coase (1937).
Three kinds of conflicts, conflicts between managers and shareholders, conflicts among shareholders and company’s other constituencies are called by economists as agency problems (Hansmann et al. 2009).
It is important to mention that, market for corporate control performs better for publicly held private companies.
It should be stated that, unlike unlimited liability company, in limited liability shares are fungible and each share has its fixed market price. Therefore, there is no risk of being surcharged for an investor who wants to purchase shares.
[1897] A.C. 22, H.L. See Davies (2012).
For a detailed evaluation of French regulation of SMCs see Çevik (1998).
Twelfth Council Company Law Directive on Single Member Private Limited Liability Companies 89/667/EEC of 21 December 1989, Official Journal (OJ) L 395, 30.12.1989; This directive is changed by Directive 2009/102/EC of 16 September 2009, OJ L 258/20, 1.10.2009.
For a detailed study on the Directive see Çelik (2007).
White paper on growth, competitiveness and employment: The challenges and ways forward into the 21st century COM (94) 207 Final and COM (93) 700 Final.
See footnote 15.
European Commission, Roadmap, Single member Company, DG MARKT/F2, 03/2013, available at http://ec.europa.eu/smartregulation/impact/planned_ia/docs/2014_markt_003_single_member_company.pdf (accessed on 15 October 2014).
The report “EU SMEs in 2012: at the crossroads. Annual report on small and medium-sized enterprises in the EU”, 2011/12, available at http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/files/supporting-documents/2012/annual-report_en.pdf. (accessed on 23 January 2015).
European Commission Staff Working Document Impact Assesment, COM (2014) 212.
COM (2014) 212.
For an analysis of director’s liability in listed firms using modern finance theory see Rose (2011).
See COM (2014) 212.
COM (2014) 212.
For ownership characteristics of different countries see Marinov and Heiman (1998).
For limited liability companies see Hansmann and Kraakman (2000).
Regarding the cost of bureaucracy see Williamson (1985).
According to Williamson (1985: 154) the major benefit of integration derives from the fact that party with the authority in a firm can resolve disputes without litigation but by decision making. It is quite difficult to agree with this statement from a legal point of view since in some cases decision making would not be easy even though the majority principle is accepted. Moreover directors carry the burden of personal liability because of the decisions they have made.
For mandatory accounting disclosure by small private companies see Arrunada (2011).
Almost every US cases where veil is pierced, involved a close corporation. See Easterbrook and Fischel (1996).
According to Art. 2 of Turkish Civil Code “every person is bound to exercise his rights and fulfill his obligations according to the principles of good faith.” Therefore judges would decide if there is a misuse or not accordingly. For the translation of this article see Eroğlu (2008: 1282).
For some of the important cases with respect to piercing the corporate veil doctrine in Turkish law see. Supreme Court 19. HD., 2.11.2000, E. 2000/5828, K. 2000/7383; Supreme Court 19. HD., 15.6.2006 E. 2005/8774, K. 2006/5232; Supreme Court 11. HD, 5.4.2012, E. 2010/14261, K. 2012/5407 available at http://kazanci.com (accessed on 13.02.2014).
For same approach in limited liability principle see Hansmann et al. (2009).
In favor of this system see Eroğlu (2008).
Report on Turkish Economy, Ministry of Customs and Trade, 13 February 2014, Available at http://risk.gtb.gov.tr/data/52c2bb03487c8e312c013182/T%C3%9CRK%C4%B0YE%20EKONOM%C4%B0S%C4%B0%20G%C3%96STERGELER%C4%B0_2014_02_13.pdf (accessed on 13.02.2014).
Available at http://risk.gtb.gov.tr/data/52c2bb03487c8e312c013182/T%C3%9CRK%C4%B0YE%20EKONOM%C4%B0S%C4%B0%20G%C3%96STERGELER%C4%B0_2014_02_13.pdf (accessed on 13.02.2014).
See press release of Hayati Yazici, Minister of Customs and Trade available at http://www.gtb.gov.tr/haberler/yazici-yeni-turk-ticaret-kanunu-uygulama-sonuclarini-basin-toplantisinda-acikladi (accessed on 13.02.2014).
Available at http://risk.gtb.gov.tr/data/52c2bb03487c8e312c013182/T%C3%9CRK%C4%B0YE%20EKONOM%C4%B0S%C4%B0%20G%C3%96STERGELER%C4%B0_2014_02_13.pdf (accessed on 13.02.2014).
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This article is dedicated to my beloved aunt Nurten Giray who passed away during the earlier stages of drafting this work.
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Gürbüz Usluel, A.E. Considerations on the economic effect of the new Turkish commercial code provisions regarding single member companies. Eur J Law Econ 42, 25–43 (2016). https://doi.org/10.1007/s10657-015-9511-2
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DOI: https://doi.org/10.1007/s10657-015-9511-2
Keywords
- Single member company
- Limited liability
- Private limited liability company
- Public limited liability company
- Firm