Sole Proprietorship or Limited Company? Which One for a New Business?

“Should I set up a sole proprietorship or form a limited company?” — this is the question I hear most often from people starting a new business. The short answer: it depends. But below I’ve gathered the clear differences, together with 2026 figures, to make your decision easier.

Sole proprietorship

Advantages:

• Quick and cheap to set up (no capital requirement), and easy to close down too.
• Accounting and bureaucracy are simpler.
• Practical if you’re starting small, on your own.
• Once the tax is paid, the money you earn is directly yours — there’s no second layer of tax for “taking money out” of a company.
• If you’re under 29 and this is your first tax registration: with the young entrepreneur exemption, earnings of up to TRY 400,000 (for 2026) are exempt from income tax for three years, and the Treasury covers your Bağ-Kur premiums for one year. This exemption doesn’t exist for a limited company.

Disadvantages:

• Liability is personal; a business debt binds you and your personal assets directly.
• As earnings rise, the progressive income tax gets heavier. The 2026 schedule runs from 15% up to 40%: 15% up to TRY 190,000, 20% up to TRY 400,000, 27% up to TRY 1,000,000, 35% up to TRY 5,300,000, and 40% above that.
• Corporate image is limited, and taking on partners isn’t structurally possible.

Limited company

Advantages:

• Limited liability: As a rule, you take on risk only up to the capital you put in (with narrow exceptions for partners on public debts).
• However large the profit grows, a flat 25% corporate tax. No progressive schedule.
• Suited to forming partnerships and growing through a share structure.
• Provides a corporate image; some clients and institutions look for this.

Disadvantages:

• A minimum TRY 50,000 capital subscription is required (payable within 24 months after registration).
• Formation and running costs are higher than a sole proprietorship; accounting and obligations are more extensive.
• The critical point: the 25% is the company’s tax. If you want to take the profit into your own pocket, a 15% dividend withholding comes on top — the total burden rises to 36.25%. (The alternative: cheaper channels such as a director’s fee.)

Where’s the tax tipping point?

The rough compass is this: if the money stays in the business, the limited company wins; if the money goes home, the calculation changes.

• If you’ll leave a significant part of the profit in the business and invest it in growth, the flat 25% is clearly better than the 27–40% upper brackets of the schedule.
• If you’ll take all the profit home every year, the limited company’s real burden is 36.25%; at mid-scale earnings a sole proprietorship (especially with the young entrepreneur exemption) often pays less tax.
• In the in-between scenarios, a director’s-fee-plus-dividend mix can put the limited company back in front. That’s why the decision is a function not of turnover but of profit — and where the profit will go.

How should you decide?

Your answers to these three questions point the way:

1. What will your profit be, and where will it go? If profit is growing and staying in the business, the limited company comes to the fore; if profit is mid-scale and going home, the sole proprietorship does.
2. Will you take on partners? If so, a limited/joint-stock company is required; a sole proprietorship can’t take partners.
3. How much is your risk? In a business carrying borrowing, stock, staff or litigation risk, limited liability alone can justify the limited company.

Worth knowing too: you can start as a sole proprietorship and convert to a limited company when the business grows — but the conversion has costs and paperwork. Choosing correctly from the start is always cheaper.

This isn’t a matter of “right or wrong”; it’s a balance that depends on your business, your goals and your appetite for risk. When we sit down and look at it with the numbers, the answer usually becomes clear.

Let’s calculate together which makes more sense for your situation. In a free initial call I’ll lay out both scenarios for you, with the numbers. For the details of the formation process, see the Company Formation page; for the first steps, take a look at the guide to setting up a company in Şişli.

Note: The rates and amounts in this article are based on legislation in force as of July 2026 (2026 income-tax schedule — General Communiqué No. 332; corporate tax 25% — Corporate Tax Law art. 32; dividend withholding 15% — Presidential Decree No. 9286; minimum capital TRY 50,000 — Presidential Decree No. 7887; young entrepreneur exemption — Income Tax Law repeated art. 20). Rates can change; get in touch with me for a calculation specific to your business.