Merging Companies in Türkiye: Procedure, Merger Agreement and Shareholder Rights (TCC 134-158)

A foreign investor who holds shares in a Turkish company, or who sits on its board, may be told that the company is to merge with another company. The questions follow quickly. Will I keep a stake, and at what exchange ratio? Can I be paid in cash instead? Which documents can I see before the vote, and what majority is needed? What happens to creditors and employees? And what can I do once the merger has been registered? The Turkish Commercial CodeTTKTurkish Commercial Code No. 6102The statute that governs merchants, companies, commercial paper, insurance and carriage — the framework a foreign business actually operates inside.Glossary → (TCC, Law No. 6102) answers these questions in Articles 134 to 158, with the shareholder remedies in Articles 191 to 193. This guide follows the merger procedure step by step as the statute words it.

1. Two Forms of Merger and What Happens to the Companies (TCC 134-136)

Under TCC 134(1), Articles 134 to 194 apply to mergers, demergers and changes of type of commercial companies. TCC 136(1) recognises two ways of merging. In a merger by absorption (devralma şeklinde birleşme), one company takes over the other. In a merger by new formation (yeni kuruluş şeklinde birleşme), the companies come together in a new company. TCC 136(2) calls the company that takes over the absorbing company (devralan) and the company that joins the transferring company (devrolunan).

Under TCC 136(3), the merger takes place through the shareholders of the transferring company automatically acquiring shares of the absorbing company, according to an exchange ratio, in return for the assets of the transferring company; the merger agreement may also provide for exit compensation within the meaning of TCC 141(2). Under TCC 136(4), the absorbing company takes over the assets of the transferring company as a whole, and with the merger the transferring company ceases to exist and is deleted from the trade registry.

TCC 135(1) defines the neutral terms used in the merger chapter. A partner (ortak) means the shareholders of a joint stock company and the partners of limited companies, partnerships and cooperatives; in this guide, shareholder and partner are used for that one statutory word. The management body means the board of directors in joint stock companies and cooperatives, the manager or managers in limited companies, and the managers in partnerships and partnerships limited by shares.

2. Which Companies Can Merge: Company Types, Liquidation and Capital Loss (TCC 137-139)

TCC 124(2) treats collective and limited partnerships as partnerships, and joint stock companies, limited companies and partnerships limited by shares as capital companies. TCC 137 then provides:

• Capital companies may merge with capital companies, with cooperatives, and with collective and limited partnerships provided that the capital company is the absorbing company (TCC 137(1)).
• Partnerships may merge with partnerships, and with capital companies and cooperatives provided that the partnership is the transferring company (TCC 137(2)).
• Cooperatives may merge with cooperatives and capital companies, and with partnerships provided that the cooperative is the absorbing company (TCC 137(3)).

A joint stock company (anonim şirket) and a limited company (limited şirket) are both capital companies, so TCC 137(1)(a) allows them to merge with each other.

Companies in liquidation. Under TCC 138, a company in liquidation may take part in a merger if the distribution of its assets has not begun and provided that it is the transferring company; these conditions are proven by documents submitted to the trade registry directorate of the place where the absorbing company has its seat.

Capital loss and over-indebtedness. Under TCC 139, a company that has lost half of the total of its capital and statutory reserves through losses, or that is over-indebted (borca batık), may merge with a company that has freely disposable equity in an amount capable of covering the lost capital or, where necessary, the over-indebtedness. Documents proving this condition must be submitted to the trade registry directorate of the place where the absorbing company has its seat.

3. Your Shareholding: Exchange Ratio, Equalisation and Exit Compensation (TCC 140-142)

Continuity of the shareholding. Under TCC 140(1), the shareholders of the transferring company have a claim to shares and rights in the absorbing company of a value corresponding to their existing shares and rights. This claim is calculated by taking into account the value of the assets of the merging companies, the distribution of voting rights and other matters of importance.

Equalisation payment. When the exchange ratios are set, TCC 140(2) allows an equalisation payment to be provided for, on condition that it does not exceed one tenth of the real value of the shares allotted to the shareholders of the transferring company.

Special shares. TCC 140 adds three rules:

• holders of non-voting shares receive shares of the same value, either non-voting or carrying voting rights (TCC 140(3));
• in return for privileges attached to shares, equivalent rights or appropriate consideration are given in the absorbing company (TCC 140(4));
• the absorbing company must either grant equivalent rights to holders of usufruct certificates (intifa senedi) or buy those certificates at their real value on the date the merger agreement was made (TCC 140(5)).

Exit compensation. Under TCC 141(1), the merger agreement may give shareholders a choice between shares and membership rights in the absorbing company and exit compensation (ayrılma akçesi) equal to the real value of the shares to be acquired. Under TCC 141(2), the agreement may provide that solely exit compensation is given. Under TCC 151(5), where the merger agreement provides for exit compensation, it must be approved by the affirmative votes of ninety percent of the voting rights existing in the company if the transferring company is a capital company, or of ninety percent of the partners with voting rights if it is a partnership.

Capital increase. In a merger by absorption, TCC 142(1) obliges the absorbing company to increase its capital to the level necessary to protect the rights of the transferring company's shareholders. Under TCC 142(2), the rules on contributions in kind do not apply in a merger.

4. The Merger Agreement, Interim Balance Sheet and Merger Report (TCC 143-147)

Form. Under TCC 145, the merger agreement is made in writing, signed by the management bodies of the merging companies and approved by their general assemblies.

Mandatory content. Under TCC 146(1), the agreement must contain:

1. the trade names, legal types and seats of the merging companies and, in a merger by new formation, those of the new company;
2. the exchange ratio, the equalisation amount if one is provided for, and explanations on the shareholders' shares and rights in the absorbing company;
3. the rights granted to holders of privileged and non-voting shares and of usufruct certificates;
4. the manner in which the shares are exchanged;
5. the date from which the shares acquired through the merger are entitled to the balance-sheet profit of the absorbing or newly formed company, and all particulars of this entitlement;
6. where applicable, the exit compensation under TCC 141;
7. the date from which the transferring company's transactions are deemed carried out on behalf of the absorbing company;
8. special benefits granted to the management bodies and managing partners;
9. where applicable, the names of partners with unlimited liability.

Interim balance sheet. Under TCC 144(1), the merging companies must draw up an interim balance sheet if more than six months have passed between the balance-sheet date and the signing of the merger agreement, or if significant changes have occurred in their assets since the last balance sheet. Under TCC 144(2), the rules and principles on the annual balance sheet apply to the interim balance sheet, subject to two qualifications: no physical inventory is required, and the valuations in the last balance sheet are changed only to the extent of movements in the commercial books, while depreciation, value adjustments and provisions, as well as value changes important to the business that do not appear in the books, are also taken into account.

New formation. TCC 143 applies the TCC and Cooperatives Law No. 1163 to the formation of the new company, except the rules on contributions in kind and the minimum number of partners.

Merger report. Under TCC 147(1), the management bodies prepare a merger report, separately or jointly. TCC 147(2) requires it to explain and give reasons, from a legal and economic point of view, for matters including the purpose and consequences of the merger, the exchange ratio and any equalisation payment, any exit compensation and the reasons for it, the share valuation, any capital increase, the effects on employees (with, if possible, the content of a social plan) and the effects on creditors. In a merger by new formation, the new company's articles are attached (TCC 147(3)). Under TCC 147(4), small and medium-sized companies may dispense with the report if all partners approve; TCC 135(2) refers to Articles 1522 and 1523 for the size criteria.

5. Before the Vote: the Thirty-Day Inspection Right and Material Changes (TCC 149-150)

What must be made available. Under TCC 149(1), each merging company must make the following available for inspection at its head office and branches within the thirty days before the general assembly resolution: the merger agreement, the merger report, and the year-end financial statements and annual activity reports of the last three years together with, where required, interim balance sheets. They are open to the partners, holders of usufruct certificates and of securities issued by the company, persons with an interest and other persons concerned. Capital companies also publish them on their websites.

Free copies and notices. Under TCC 149(2), copies may be requested and no fee or cost may be charged for them. Each company refers to the inspection right in its announcement in the Turkish Trade Registry Gazette and on its website (TCC 149(3)), and announces where the documents have been deposited and where they are held ready for inspection at least three business days before the deposit, in the Turkish Trade Registry Gazette, in the newspapers named in the company contract and, for capital companies, on their websites (TCC 149(4)). Under TCC 149(5), small and medium-sized companies may dispense with the inspection right if all partners approve.

Material changes. If a significant change occurs in the assets or liabilities of a merging company between the signing of the agreement and the general assembly, its management body must notify its own general assembly and the management bodies of the other companies in writing (TCC 150(1)). The management bodies then examine whether the agreement needs to be amended or the merger abandoned; if so, the proposal is withdrawn, and otherwise the management body explains at the general assembly why no adjustment is needed (TCC 150(2)).

6. Approval Majorities, Registration and Publication (TCC 151-154)

Under TCC 151(1), the management body submits the merger agreement to the general assembly, which must approve it with the required majorities, including the following.

Other special rules apply where a cooperative absorbs a capital company (three quarters of the votes present at the general assembly, provided that the majority of the capital is represented; TCC 151(1)(b)), where a partnership limited by shares absorbs another company (all limited partners, komanditeler, must also approve the merger in writing; TCC 151(3)), and where a limited company absorbs a joint stock company or partnership limited by shares and additional obligations or personal performance obligations are introduced or extended (unanimity of all partners; TCC 151(4)).

Where the merger agreement provides for a change in the business purpose of the transferring company, it must also be approved with the majority required for amending the company contract (TCC 151(6)).

Registration and effect. As soon as the merger decision is taken, the management bodies apply to the trade registry for registration (TCC 152(1)). The transferring company is dissolved upon registration (TCC 152(3)). Under TCC 153(1), the merger becomes valid upon registration, and at that moment all assets and liabilities of the transferring company pass automatically to the absorbing company. Under TCC 153(2), the shareholders of the transferring company become shareholders of the absorbing company; this does not apply to shares held by a person acting in its own name but for the account of the absorbing company, or in its own name but for the account of the transferring company. TCC 153(3) provides that the provisions of Law No. 4054 on the Protection of Competition are reserved; merger control is not covered in this guide.

Publication. Under TCC 154, the merger decision is published in the Turkish Trade Registry Gazette (Türkiye Ticaret Sicili Gazetesi). This date starts the two-month periods for the actions in section 9; for the annulment action, where publication is not required, the period runs from registration (TCC 192(1)).

7. Simplified Merger Within a Group: 100% and 90% Holdings (TCC 155-156)

Full holding. Under TCC 155(1), capital companies may merge under the simplified procedure if the absorbing capital company holds all shares carrying voting rights of the transferring capital company, or if a company, a natural person or a group of persons bound by law or contract holds all shares carrying voting rights of the merging capital companies. Under TCC 156(1), the companies are then not obliged to prepare the merger report or to provide the inspection right, and they may refrain from submitting the agreement to the general assembly.

At least ninety percent. Under TCC 155(2), where the absorbing capital company holds at least ninety percent of the shares carrying voting rights of the transferring capital company, the simplified procedure is available if, for the minority shareholders:

1. alongside equivalent shares in the absorbing company, a cash consideration equal to the full real value of the shares under TCC 141 has been offered; and
2. the merger gives rise to no additional payment obligation, personal performance obligation or personal liability.

Under TCC 156(2), the merger agreement then contains a reduced set of particulars, and the companies are not obliged to prepare the merger report or to submit the agreement to the general assembly. The inspection right, however, must have been provided thirty days before the application to the trade registry.

8. Creditors, Partners' Personal Liability and Employees (TCC 157-158 and 178)

Security for creditors. Under TCC 157(1), if creditors of the merging companies make a request within three months of the merger becoming legally valid, the absorbing company secures their claims. Under TCC 157(2), the merging companies notify creditors of their rights through announcements made three times at seven-day intervals in the Turkish Trade Registry Gazette, together with an announcement on their websites. Under TCC 157(4), if it is understood that the other creditors will not suffer loss, the obligated company may pay the debt instead of providing security.

Partners' personal liability. Under TCC 158(1), the liability of partners who were liable for the debts of the transferring company before the merger continues, on condition that the debts arose, or their causes occurred, before the publication of the merger decision. Under TCC 158(2), claims concerning that personal liability become time-barred (zamanaşımına uğrar) three years after the date of publication of the merger decision; if the claim falls due after publication, the period starts from the date it falls due. This limitation does not apply to the liability of partners who are personally liable for the debts of the absorbing company.

Employees. TCC 158(4) applies TCC 178 to employment relationships:

• if the employee does not object, the employment contract passes to the transferee with all rights and obligations arising from it up to the day of transfer (TCC 178(1));
• if the employee objects, the contract ends at the end of the statutory notice period, and the transferee and the employee must perform it until then (TCC 178(2));
• the former employer and the transferee are jointly and severally liable for the employee's claims that fell due before the transfer and those falling due until the contract would normally end or ends because of the objection (TCC 178(3));
• employees may ask for security for those claims (TCC 178(5)).

9. Remedies After the Merger and a Practical Checklist (TCC 191-193)

Equalisation claim. Under TCC 191(1), if the shares and membership rights have not been properly protected, or the exit compensation has not been set appropriately, each partner may ask the commercial court of first instanceAsliye ticaret mahkemesiCommercial court of first instanceThe specialised first-instance court that hears commercial cases — and, unless the law says otherwise, it hears them whatever the amount in dispute.Glossary → (asliye ticaret mahkemesi) at the seat of one of the merging companies to determine an appropriate equalisation payment, within two months of the publication of the merger decision in the Turkish Trade Registry Gazette. The one-tenth limit in TCC 140(2) does not apply. The judgment also has effect for partners in the same legal situation as the claimant (TCC 191(2)). The costs are borne by the absorbing company, although the court may place them partly or wholly on the claimant where special circumstances justify it (TCC 191(3)). This action does not affect the validity of the merger decision (TCC 191(4)).

Annulment action. Under TCC 192(1), where Articles 134 to 190 have been breached, partners who did not vote in favour of the merger decision and had this recorded in the minutes may bring an annulment action within two months of the publication of the decision in the Turkish Trade Registry Gazette; where publication is not required, the period starts from registration. Under TCC 192(3), if there is a defect, the court gives the parties time to remedy it; if the legal defect cannot be or has not been remedied within that time, the court annuls the decision and takes the necessary measures.

Liability. Under TCC 193(1), all persons who took part in the merger in any way are liable to the companies, the partners and the creditors for the damage they caused through their fault.

Checklist for a foreign shareholder or director:

1. Identify the form of merger and whether your company is absorbing or transferring (TCC 136-137).
2. Check the conditions in TCC 138 and 139 if a company is in liquidation, has lost half of its capital and statutory reserves or is over-indebted.
3. Test the exchange ratio, any equalisation payment and any exit compensation against TCC 140 and 141.
4. Within the thirty days before the vote, inspect the documents and ask for free copies (TCC 149).
5. Before agreeing to an SME waiver, remember that it requires the approval of all partners (TCC 147(4), 149(5)).
6. Check that the majority in TCC 151 is reached, and the ninety percent threshold where exit compensation is provided for.
7. If you oppose the merger, vote against it and have this recorded in the minutes (TCC 192(1)).
8. Diarise the publication date and the two-month periods in TCC 191 and 192; for the annulment action, where publication is not required, the period runs from registration (TCC 192(1)).
9. As a creditor, request security within three months of the merger becoming legally valid (TCC 157(1)).

Lexin Legal advises foreign investors, shareholders and directors on Turkish company mergers, from the review of the merger agreement to the shareholder actions that follow publication.

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