What is a Legal Entity?

Companies, associations, foundations, and cooperatives… All of them exist thanks to legal entities, which can hold rights and obligations in their own name as independent entities. In this article, we will examine what a legal entity is, its examples, how it differs from natural persons, and how it acquires legal personality.

 

In the legal system, communities of persons or property that are not natural persons but are recognized as independent entities capable of having rights and obligations are called legal entities. According to the Turkish Civil Code, legal entities are organized communities of persons or independent communities of property established to achieve a particular purpose and acquire legal personality under specific provisions. In Turkish law, legal entities are divided into two main groups: public law legal entities and private law legal entities. Public law legal entities are established by law or based on the authority granted by law and carry out public duties. Examples of these are the state, municipalities, and universities. Private law legal entities, on the other hand, are entities established by individuals under private law provisions. These structures are also divided into profit-sharing and non-profit legal entities. Among profit-sharing legal entities are joint stock companies and limited liability companies, while associations and foundations are examples of non-profit legal entities.

 

In our article, we will mainly focus on private law legal entities. The best-known among them are:

 

Companies are legal entities engaged in commercial activities to make a profit. Structures such as joint stock companies (A.Ş.) and limited liability companies (Ltd. Şti.) can acquire legal personality under the Turkish Commercial Code and engage in commercial transactions. These types of companies differ from each other in terms of capital structure, management bodies, and levels of liability. For instance, in joint stock companies, shareholders are liable only up to the amount of capital they have committed. In contrast, in limited liability companies, the liability of the partners is limited to their capital shares.

 

Foundations are legal entities based on communities of property that may operate in areas such as education, health, culture, and social assistance. An individual or institution allocates property to achieve a particular purpose, and this property is managed in line with the foundation’s objectives.

 

Associations are non-profit legal entities established to achieve a specific social, cultural, or sporting goal. Associations operate through member fees and donations and aim to serve the public interest. For example, environmental protection associations, animal rights associations, and sports clubs can operate under association status.

 

Cooperatives are legal entities established by their members to protect their economic interests. Members contribute to the cooperative’s capital and come together to meet their everyday needs. Cooperatives can operate in various sectors, including agriculture, housing, consumption, and credit.

 

The concepts of legal entity and natural person refer to two distinct types of legal personalities with unique legal statuses within the legal system. An individual whose existence begins at birth and ends at death is defined as a natural person. In contrast, institutional structures formed by individuals coming together for a specific purpose are defined as legal entities. The differences between these two personality types become evident in terms of rights and obligations, as well as representation and liability structures.

 

Natural persons acquire legal capacity at birth and can act on their own behalf, sign contracts, file lawsuits, and be sued. However, capacity to act depends on conditions such as the ability to distinguish, adulthood, and not being under restriction. For example, a natural person can acquire property in their own name or sign an employment contract.

Legal entities, on the other hand, acquire legal capacity once the establishment procedures are completed and they are registered in the official registry. They can sign contracts, file lawsuits, and be sued in their own name. However, they exercise the capacity to act through their governing bodies. These bodies act in line with the objectives of the legal entity. For example, the board of directors of a company or the president of an association can be given as examples of such bodies.

 

Natural persons represent themselves directly. For instance, when a natural person signs a contract or files a lawsuit, they carry out these actions personally. Legal entities, however, are represented through governing bodies that act on their behalf. These bodies operate within the rules and authorities determined by the legal entity. For example, in joint stock companies, members of the board of directors are the organs representing the company.

In terms of liability, natural persons are personally responsible for the consequences of their own actions. For instance, a natural person is obliged to pay the penalty for a crime they commit. Legal entities, however, are liable for their debts and obligations only with their own assets. The partners or members of the entity are not personally liable for these debts but only participate in proportion to the capital they have contributed. For example, if a company has tax debt, the shareholders are not held liable with their personal assets. The debt is primarily paid from the company’s own assets.

 

In Turkish law, acquiring legal personality requires specific establishment procedures and registration. This process may vary depending on the type of legal entity.

 

The process of acquiring legal personality may vary depending on the entity's purpose and type. For example, the establishment stages of a joint stock company can be listed as follows:

 

• Determination of the company type: A decision is made whether the legal entity to be established will be a joint stock company, limited liability company, etc.

• Preparation of the articles of association: The articles of association are drafted, including elements such as the company’s name, purpose, capital structure, and management model.

• Determination of founders and notarization of signatures: The founders of the company are identified, and their signatures on the articles of association are notarized.

 

Associations, on the other hand, can acquire legal personality when at least seven natural or legal persons come together, prepare an association’s bylaws, and notify the local administrative authority (governorship or district governorship).

 

After the establishment stages are completed, registration is required for the legal entity to be officially recognized and to operate within the legal framework. The process of acquiring legal personality continues with the following steps:

 

• Registration in the trade registry: Especially for companies, it is necessary to apply to the trade registry office with the prepared documents. Registration is mandatory for a legal entity to gain legal existence.

• Obtaining a trade name: After the registration process is completed, the legal entity is recorded in the trade registry under the chosen trade name. This name must be distinctive from other legal entities and must not be contrary to law, morality, or public order.

 

Sources: 1, 2.

 

This blog post contains general information, not legal, financial, or investment advice. The content is prepared for informational purposes only, and you are advised to seek professional advice for your specific circumstances. The expressions in this article do not carry any binding nature or responsibility and reflect only the author’s evaluation. All your decisions are your responsibility, and Papel Electronic Money and Payment Services Inc. accepts no liability for any consequences arising from them.