Üsküdar Corporate Lawyer - Company Mergers, Demergers and Conversions

Üsküdar Corporate Lawyer - Company Mergers, Demergers and Conversions Companies may use mergers, demergers and conversions for purposes such as growth, restructuring, separation of business activities or changing their existing legal structure. These transactions are not merely commercial or financial decisions. They are comprehensive legal processes that directly affect shareholders' rights, company assets, liabilities, employees, creditors, contracts, shareholding structure and trade registry records. Turkish Commercial Code No. 6102 regulates mergers, demergers and conversions of commercial companies in detail. During corporate restructuring, not only the economic purpose of the transaction but also the provisions of the Turkish Commercial Code, articles of association or company agreement, general assembly resolutions, duties of the management body, shareholders' rights, protection of creditors and trade registry procedures must be considered together. Therefore, in assessments made within the scope of an Üsküdar corporate lawyer, Istanbul corporate lawyer, company merger lawyer, company demerger lawyer, company conversion lawyer, corporate law lawyer or corporate legal consultancy, it is important to focus not only on registration before the trade registry but on the entire restructuring process. What Is a Company Merger? A company merger is the combination of two or more companies under a single legal structure through one of the methods prescribed by the Turkish Commercial Code. As a result of the merger, the assets of the transferring company may pass as a whole to the acquiring or newly established company. While the transferring company ceases to exist upon occurrence of the legal consequences of the merger, its shareholders may acquire shares and membership rights in the acquiring or newly established company according to the determined exchange ratio. A merger may be carried out for various purposes such as bringing companies' economic activities under a single structure, strengthening their market position, reducing operational costs or restructuring group companies. Through Which Methods Can Companies Merge? Under the Turkish Commercial Code, a merger may essentially be carried out in two ways: merger by acquisition, merger by formation of a new company. In a merger by acquisition, one of the existing companies acquires the other company or companies. In a merger by formation of a new company, the participating companies combine under a newly established company. The method to be selected should be determined according to the companies' shareholding structures, assets, liabilities, activities, commercial objectives and restructuring plan. What Is a Merger by Acquisition? In a merger by acquisition, one company acquires the assets of another company. The acquiring company retains its legal personality while the transferring company ceases to exist upon completion of the merger. The assets, rights and liabilities of the transferring company pass to the acquiring company within the legal consequences of the merger. This method may particularly be used to consolidate group companies under a single structure or incorporate one company into another. What Is a Merger by Formation of a New Company? In a merger by formation of a new company, two or more companies combine under a newly established company. The existing companies participating in the merger cease to exist while the new company continues the legal and commercial activity. A merger by formation of a new company may be preferred where establishing a new corporate structure is desired instead of one existing company acquiring another. The provisions concerning incorporation must also be taken into account for the newly established company. Which Companies Can Merge? The Turkish Commercial Code determines which types of companies may merge with each other. Capital companies may merge with: capital companies, cooperatives, collective and commandite companies provided that the capital company is the acquiring company. Partnership companies may merge, subject to certain conditions, with other partnership companies, capital companies and cooperatives. Cooperatives may also merge with cooperatives, capital companies and partnership companies under the conditions prescribed by law. Therefore, it should not be assumed that every type of company can merge with every other company in every capacity. Can a Limited Company Merge With a Joint Stock Company? Yes. Since limited companies and joint stock companies are capital companies, they may merge under the Turkish Commercial Code. However, the fact that the merger is legally possible does not mean that the transaction can be completed solely through a general assembly resolution. Many stages must be assessed, including the merger agreement, merger report, financial statements, shareholders' rights, capital structure, required examinations, general assembly approval and trade registry procedures. What Is a Merger Agreement? A merger agreement is the principal legal document governing the transaction between the companies participating in the merger. The parties to the merger, method of merger, share exchange ratio, rights granted to shareholders and other fundamental conditions of the merger may be regulated in this agreement. The merger agreement must be prepared in accordance with the content and form prescribed by the Turkish Commercial Code. As one of the most important legal documents in the merger process, it is important to accurately reflect the commercial agreement between the companies in the legal structure. What Is a Merger Report? A merger report is a document intended to explain the legal and economic grounds of the merger and the consequences of the transaction for shareholders. The purpose and consequences of the merger, share exchange ratios and important matters concerning shareholders' rights may be assessed in the report. Since the Turkish Commercial Code may provide special or simplified rules for certain companies and merger methods, the documents and procedures applicable to each merger must be determined according to the particular transaction. Why Is the Share Exchange Ratio Important in a Merger? It is necessary to determine the proportion of shares that shareholders of the transferring company will hold in the acquiring or newly established company following the merger. The share exchange ratio may directly affect the economic and managerial position of shareholders after the merger. Many factors may be relevant to this assessment, including the actual economic values, assets, liabilities and activities of the companies and the nature of the shares. Incorrect determination of the share exchange ratio may lead to significant disputes between shareholders. Are Shareholders' Rights Protected in a Merger? The Turkish Commercial Code contains protective provisions based on continuity of membership rights in company mergers. Shareholders' economic or managerial rights cannot be unlawfully eliminated because of a merger. However, share ratios, voting rights or the shareholding structure may change as a result of the merger. Therefore, the legal position of shareholders before and after the merger should be compared when planning the transaction. What Happens to Company Debts in a Merger? One of the most important consequences of merger transactions concerns company liabilities. The assets of the transferring company do not consist solely of positive assets. Debts and other obligations are also part of the merger process. Therefore, before a merger, the company's tax debts, bank loans, commercial debts, employee obligations, pending litigation, guarantees and other legal risks should be examined in detail. Making a merger decision based solely on the company's assets may create serious legal and economic risks. Why Is Legal Review Important in a Company Merger? A legal review before a merger may identify hidden or not yet realised legal risks of the company. This review may cover: company agreements, shareholding structure, commercial contracts, credit agreements, guarantees, pending litigation, enforcement proceedings, employee obligations, intellectual property rights, licences and permits, public debts, company assets. This review is an important part of legal due diligence in company merger and acquisition processes. Does the Transferring Company Cease to Exist as a Result of the Merger? In a merger by acquisition, the transferring company ceases to exist upon registration of the merger with the trade registry. In a merger by formation of a new company, the legal personalities of the companies participating in the merger cease to exist and the newly established company continues its activities. Therefore, a merger is not merely an agreement between companies but a restructuring transaction producing direct consequences for their legal personalities. What Is a Simplified Merger? The Turkish Commercial Code permits simplified mergers for capital companies satisfying certain conditions. Particularly where the shareholding relationship between companies satisfies the statutory requirements, it may be possible to reduce certain procedures. A simplified merger does not mean that companies may merge without carrying out any legal procedure. The procedures that may be simplified and the documents that must still be prepared should be determined according to the particular corporate structure. What Is a Company Demerger? A company demerger is the restructuring of a company by transferring all or certain parts of its assets to other companies. The Turkish Commercial Code regulates demergers of capital companies in detail. A demerger may particularly be used to separate different fields of activity, consolidate company assets in different companies, restructure the shareholding structure or reorganise a corporate group. What Is a Full Demerger? In a full demerger, all assets of the company are divided into parts and transferred to other companies. The shareholders of the demerged company acquire shares and rights in the acquiring companies. Upon completion of the full demerger, the demerged company ceases to exist. Accordingly, a full demerger is a comprehensive restructuring method in which the legal personality of the demerged company does not continue. What Is a Partial Demerger? In a partial demerger, one or more parts of the company's assets are transferred to other companies. Unlike a full demerger, the legal personality of the demerged company may continue. A partial demerger may, for example, be used where a company wishes to organise a particular line of business or a specific group of assets under a separate corporate structure. However, the assets to be transferred and the liabilities connected with them must be clearly and lawfully identified. Why Is a Partial Demerger Used? Companies may prefer a partial demerger for different commercial purposes. For example, it may be used to: separate different fields of activity, make particular business divisions independent, restructure a corporate group, change the investment or partnership structure, conduct operational activities under different legal entities. However, both the legal and financial consequences of the transaction should be assessed in advance together with its commercial purpose. What Are a Demerger Agreement and Demerger Plan? Depending on whether the demerger is carried out between existing companies or through establishment of new companies, a demerger agreement or demerger plan may need to be prepared. These documents determine which assets will pass to which company, which shares and rights shareholders will acquire and the other fundamental conditions of the demerger. Failure to clearly allocate the assets may lead to disputes between companies and creditors in the future. How Are Liabilities Allocated in a Demerger? A demerger requires consideration not only of the company's assets but also of its liabilities and obligations. The demerger plan or agreement should clearly determine which debt will belong to which company. However, because of the provisions of the Turkish Commercial Code concerning protection of creditors, the allocation of liabilities agreed between the parties does not necessarily eliminate the legal position of creditors. Therefore, the effect of the demerger on liabilities must be separately assessed. How Are Creditors Protected in a Demerger? The Turkish Commercial Code contains special provisions protecting creditors in company demergers. Creditors of the companies participating in the demerger may be invited, in the manner prescribed by law, to notify their claims and request security. Where certain conditions are satisfied, companies may become obliged to secure claims. The purpose of these rules is to prevent the legal and economic position of creditors from being endangered because of corporate restructuring. Must a Demerger Be Registered With the Trade Registry? Yes. Registration with the trade registry is important for the legal consequences of a demerger to occur. In a full demerger, the transferring company ceases to exist upon registration and its assets pass to the relevant companies. In a partial demerger, the parts of the assets to be transferred pass to the acquiring companies within the legal consequences of registration. Therefore, a demerger is not completed solely by documents signed between the companies. What Is a Company Conversion? A conversion is the transformation of a commercial company from its existing legal form into another company type. For example, where the statutory conditions are satisfied, a limited company may be converted into a joint stock company or a joint stock company may be converted into a limited company. The fundamental characteristic of a conversion is preservation of the company's economic and legal continuity. Once converted to its new form, the company remains the continuation of the former company. Can a Limited Company Be Converted Into a Joint Stock Company? Yes. A limited company may be converted into a joint stock company under the conditions prescribed by the Turkish Commercial Code. Conversion from a limited company to a joint stock company may be preferred because of company growth, plans to attract investment, changes in share structure, corporate governance requirements or future commercial objectives. However, it should be remembered that the structure of a joint stock company is subject to different rules concerning corporate bodies, capital, shares and management compared with a limited company. Can a Joint Stock Company Be Converted Into a Limited Company? Where the statutory conditions are fulfilled, a joint stock company may also be converted into a limited company. This type of conversion may be preferred according to the number of shareholders, management structure, scale of operations and corporate requirements. However, it should be noted that conversion cannot be used as a method for avoiding the company's existing obligations. Is the Company Re-Established in a Conversion? Although the legal form of the company changes through conversion, continuity of the company is the fundamental principle. The company is not considered to have been liquidated and replaced by a completely new and unrelated legal entity. Therefore, conversion should be assessed in light of the principle of continuity regarding the company's assets, contracts and legal relationships. Do Company Debts End Upon Conversion? No. Conversion of a company from a limited company into a joint stock company or another valid company type does not automatically terminate existing debts. Conversion changes the company's legal form; it is not a liquidation method enabling the company to avoid its liabilities. Existing debts and legal obligations should therefore be assessed before the conversion. What Is a Conversion Plan? During the conversion process, the management body must prepare a conversion plan in accordance with the content prescribed by the Turkish Commercial Code. The plan contains fundamental information concerning the company's existing and new legal form, the new articles of association or company agreement and shareholders' rights within the new structure. The conversion plan is one of the principal documents determining the legal structure of the transaction. What Is a Conversion Report? A conversion report is a document intended to inform shareholders about the purpose and consequences of the conversion. The characteristics of the new company type, shareholders' legal position in the new structure and the economic and legal consequences of the conversion may be explained in the report. Exceptions and simplified procedures permitted by law for certain companies must be separately assessed. What Happens to Shareholders' Shares in a Conversion? Protection of shareholders' existing rights is one of the fundamental principles of conversion. However, because different company types have different share structures and membership rights, existing shares must be adapted to the new company type. For example, limited company shares and joint stock company shares do not have the same legal structure. Therefore, shareholders' shares and rights within the new structure should be clearly determined during the conversion process. Is a General Assembly Resolution Required for Conversion? Because conversion changes the company's fundamental legal structure, resolutions of the competent corporate bodies are required. The conversion plan and new company structure must be approved in accordance with the voting thresholds prescribed by the Turkish Commercial Code. The applicable thresholds should be separately determined according to the company type, shareholding structure and characteristics of the particular transaction. What Is the Role of the General Assembly in Mergers, Demergers and Conversions? Mergers, demergers and conversions are fundamental transactions that directly affect the company's structure and shareholders' rights. Therefore, in addition to the preparatory and implementation duties of the management body, the general assembly may be required to adopt resolutions in the manner prescribed by law. Failure to adopt general assembly resolutions with the correct meeting and decision thresholds may create problems regarding validity of the transaction and future shareholder disputes. What Is the Responsibility of the Management Body? The management body preparing and conducting a merger, demerger or conversion must act in accordance with the Turkish Commercial Code and the company's articles of association or company agreement. Correct preparation of documents, provision of necessary information to shareholders, protection of company interests and compliance with statutory procedures are important. Unlawful actions of the management body may give rise to liability disputes where the relevant conditions are satisfied. Can Shareholders Object to a Merger or Demerger? The legal remedies available to shareholders who do not agree with a merger or demerger may vary according to the nature of the transaction and the rights alleged to have been violated. The Turkish Commercial Code contains special provisions protecting shareholders' shares and rights. A shareholder's commercial disagreement with the transaction and a violation of a right arising from law or the company agreement do not necessarily produce the same legal consequences. Therefore, the remedies available to shareholders should be assessed according to the particular dispute. What Happens to Employees in a Merger, Demerger or Conversion? Corporate restructuring may also have consequences for employment relationships. Particularly in mergers and demergers, the status of employment contracts and employee rights and obligations within the new corporate structure should be assessed. In addition to the Turkish Commercial Code, employment law and rules concerning transfer of workplaces may also be relevant. Therefore, assessing the restructuring process solely from a corporate law perspective may not be sufficient. Do Existing Contracts Terminate in a Merger? It would not be correct to assume that all contracts to which a company is party automatically terminate because of a merger. However, commercial agreements may contain special provisions concerning mergers, changes of control or restructuring. Credit agreements, distribution agreements, licence agreements, lease agreements and other significant commercial contracts should be reviewed before the merger. Where an agreement requires the other party's consent or notification, the necessary procedures should be carried out in a timely manner. What Happens to Pending Litigation in a Company Merger? The manner in which litigation and enforcement proceedings involving the transferring company continue after the merger is assessed within the universal succession consequences of the merger. Therefore, all pending litigation and enforcement proceedings involving the company should be identified before the merger. Disputes involving significant amounts or capable of affecting the company's activities should particularly be assessed as part of the legal risk analysis before the merger decision. What Is Due Diligence Before a Merger? Due diligence is a detailed review of the company's legal position before a merger or restructuring. This review may cover: corporate records, shareholding structure, significant contracts, debts and guarantees, litigation and enforcement files, employment relationships, intellectual property rights, permits and licences, real estate, legal obligations. The purpose is to identify legal risks before completion of the transaction and plan the restructuring accordingly. Are Mergers, Demergers and Conversions Conducted Through MERSİS? Trade registry procedures are conducted through the Central Registry Record System. Following preparation of the necessary corporate resolutions and documents in merger, demerger and conversion transactions, the trade registry registration process must also be completed. A MERSİS procedure alone does not replace the legal preparation stages of restructuring. Internal corporate resolutions, required documents and the registration application must be consistent with one another. Why Is Trade Registry Registration Important? In mergers, demergers and conversions, trade registry registration is not merely an administrative recording procedure. Registration may be decisive for the legal consequences attached by law to the relevant transaction. Therefore, adoption of a general assembly resolution or signing an agreement between the parties does not necessarily mean that the transaction has been completed. Registration and, where required, publication procedures must also be completed. How Long Do Company Mergers, Demergers and Conversions Take? There is no fixed period applicable to every company. The process may be affected by: company type, number of companies participating in the merger or demerger, preparation of financial statements, legal due diligence, general assembly procedures, creditor-related procedures, required permissions, trade registry procedures, existing legal and financial structure of the companies. Therefore, the duration varies according to the characteristics of the companies and the selected restructuring method. Do Mergers, Demergers and Conversions Have Tax Consequences? Corporate restructuring may also have important consequences under tax law. The tax consequences of mergers, demergers and conversions may vary according to the nature of the transaction and applicable tax legislation. A transaction valid under the Turkish Commercial Code should not automatically be assumed to provide the same advantages under tax law. Corporate law and tax law assessments should therefore be conducted together. Are Mergers, Demergers and Conversions Subject to Fees? In addition to the Turkish Commercial Code provisions concerning corporate restructuring, the provisions of the Fees Law No. 492 must also be considered. The Fees Law contains exemptions for certain transactions arising from incorporation, share transfers, capital increases, mergers, transfers, demergers and conversions of joint stock companies, partnerships limited by shares, limited companies and cooperatives. However, the total cost of a restructuring should not be assessed solely in terms of fees. Trade registry expenses, publication costs, consultancy, valuation and other financial obligations that may arise according to the nature of the transaction should be assessed separately. Can a Share Transfer Be Used Instead of a Merger? A company merger and a share transfer are different legal transactions. In a share transfer, the company's legal personality generally continues and its shareholding structure changes. A merger, on the other hand, may have much more comprehensive legal consequences for the legal personalities and assets of the companies. Therefore, an investor seeking to acquire a company or business should separately assess share transfer, asset transfer and merger alternatives. Does Establishing a New Company Instead of a Demerger Produce the Same Result? Not always. Establishing a new company and transferring assets of an existing company to a new or existing company through a demerger under the Turkish Commercial Code are not legally identical transactions. There may be important differences concerning the method of transfer of assets, rights acquired by shareholders, liabilities, tax consequences and protection of creditors. Therefore, even where the commercial objective appears similar, the legal method should be carefully selected. Can a New Company Be Established Instead of Conversion? Liquidating a company and establishing another company of a new type is legally different from converting the existing company. In conversion, continuity of the company is preserved, whereas liquidation and new incorporation involve termination of the existing legal entity and establishment of a new one. This distinction may have important consequences for contracts, assets, liabilities, employees and commercial relationships. Which Method Should Be Preferred in Corporate Restructuring? There is no single restructuring method that is correct for every company. The company's: commercial objectives, shareholding structure, assets, liabilities, fields of activity, investment plans, employee structure, ongoing contracts, tax position should be assessed together. A merger may be suitable for some companies, while a partial demerger, conversion or share transfer may be more appropriate for others. Company Mergers, Demergers and Conversions in Üsküdar Joint stock and limited companies and other commercial companies operating in Üsküdar may use mergers, demergers and conversions for growth, investment, changes in shareholding structure, separation of activities or corporate restructuring. Correct establishment of the legal infrastructure is as important as planning these transactions for commercial purposes. Therefore, in work conducted within the scope of an Üsküdar corporate lawyer, Üsküdar corporate consultancy, Istanbul corporate lawyer, company merger lawyer, company demerger lawyer, company conversion lawyer or corporate law consultancy, the company's existing structure and targeted new structure should be assessed together. Üsküdar Corporate Lawyer Assistance Legal assistance in merger, demerger and conversion processes may include: examining the existing corporate structure, conducting legal due diligence, assessing the appropriate restructuring method, preparing merger or demerger agreements, preparing or reviewing required plans and reports, assessing shareholders' rights, preparing general assembly and management body resolutions, assessing procedures for protection of creditors, reviewing commercial agreements, following trade registry and MERSİS procedures. Legal planning of corporate restructuring from the beginning is important for reducing potential disputes concerning shareholders, liabilities, contracts and registration after completion of the transaction. Conclusion Company mergers, demergers and conversions are important restructuring methods allowing companies to change their economic and corporate structures. Through a merger, companies' assets may be consolidated under a single structure; through a demerger, all or certain parts of a company's assets may be transferred to different companies; and through conversion, the company's legal form may be changed while preserving continuity of its legal personality. However, none of these transactions should be regarded as a simple change made before the trade registry. Significant legal consequences may arise concerning shareholders' shares, company liabilities, creditors' rights, employees, ongoing contracts, litigation, decisions of corporate bodies and trade registry registration. Therefore, matters such as company merger, company demerger, partial demerger, full demerger, company conversion, conversion of a limited company into a joint stock company, conversion of a joint stock company into a limited company, corporate restructuring, Üsküdar corporate lawyer, Üsküdar corporate consultancy and Istanbul corporate lawyer should be assessed comprehensively by considering the company's existing structure and the intended transaction.