What Is a Legal Entity?

Companies, associations, foundations, and cooperatives… All of them exist through legal entities—independent bodies that can own rights and obligations in their own name. In this article, we will explore what a legal entity is, its examples, how it differs from natural persons, and how legal personality is acquired.

What does legal entity mean?

In the legal system, entities that are not natural persons but can be parties to rights and obligations and are recognized as independent entities are referred to as legal entities. According to the Turkish Civil Code, legal entities are groups of persons organized to achieve a specific purpose or independent property groups, and they acquire legal personality under special provisions. In Turkish law, legal entities are divided into two main categories: public law legal entities and private law legal entities. Public law legal entities are organizations established by law or by the authority granted by law and perform public duties. Examples of such entities include the state, municipalities, and universities. Private law legal entities, on the other hand, are structures 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 and limited liability companies, while non-profit entities include associations and foundations.

Examples of legal entities

In this article, we will mainly focus on private law legal entities. The most well-known of these are:

Companies

Companies are legal entities engaged in commercial activities for profit. Structures such as joint stock companies (A.Ş.) and limited liability companies (Ltd. Şti.) can acquire legal personality and conduct business transactions under the Turkish Commercial Code. These types of companies differ from each other in various aspects such as 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, while in limited liability companies, shareholders’ liability is limited to their capital shares.

Foundations

Foundations, which can operate in areas such as education, health, culture, and social assistance, are legal entities based on property groups. An individual or institution dedicates its assets to achieve a specific purpose, and these assets are managed in line with the foundation’s objective.

Associations

Associations are non-profit legal entities established to achieve a particular social, cultural, or sporting purpose. Associations operate through membership 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

Cooperatives are legal entities established to protect the economic interests of their members. Members contribute to the cooperative’s capital and come together to meet their common needs. Cooperatives can operate in sectors such as agriculture, housing, consumer goods, and credit.

Differences between legal and natural persons

The concepts of legal and natural persons represent two distinct legal statuses in the legal system. A natural person is an individual whose existence begins at birth and ends at death, while legal persons are institutional structures formed by individuals coming together for a specific purpose. The differences between these two personality types become clear in terms of rights and obligations, as well as representation and liability structures.

Differences in terms of rights and obligations

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

Legal persons, on the other hand, acquire legal capacity once the establishment process is completed and official registration is made. These entities can sign contracts, file lawsuits, and be sued in their own name. However, they exercise their capacity to act through their governing bodies, which operate in accordance with the organization’s objectives. For instance, members of a company’s board of directors or the president of an association are examples of such governing bodies.

Representation and liability structure

Natural persons represent themselves directly. For example, when a natural person signs a contract or files a lawsuit, they carry out these actions personally. Legal persons, however, are represented through bodies acting on their behalf. These bodies operate within the rules and powers defined by the legal entity. For example, in joint stock companies, board members are the bodies representing the company.

In terms of liability, natural persons are personally responsible for the consequences of their actions. For instance, a natural person is personally obliged to pay for a crime they commit. Legal persons, however, are liable for their debts and obligations only with their own assets. The partners or members of the organization are not personally liable for these debts but only to the extent of their capital contributions. For example, if a company has a tax debt, the shareholders are not held personally liable for this debt; it is paid primarily from the company’s own assets.

How is legal personality acquired?

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

Stages of establishment

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

Determining the company type: Decide whether the legal entity to be established will be a joint stock company, limited liability company, or another type.
Preparation of the articles of association: Prepare the articles that include the company’s title, purpose, capital structure, and management form.
Determination of founders and approval of signatures: Identify the founders and have their signatures on the articles of association notarized.

Regarding associations, at least seven natural or legal persons can come together, prepare the association's bylaws, and notify the local administrative authority (governorate or district governorship) to acquire legal personality.

Registration and formalization process

After completing the establishment stages, the legal entity must go through registration to be officially recognized and conduct its activities within a legal framework. The process of acquiring legal personality continues as follows:

Registration with the trade registry: Especially for companies, an application must be submitted to the trade registry office with the prepared documents. Registration is mandatory for a legal entity to gain legal existence.
Obtaining a title: After the registration process is completed, the legal entity is recorded in the trade registry under the chosen title. This title must be distinctive from others and must not violate the 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.