Legal Processes in Company Mergers and Acquisitions

Legal Processes in Company Mergers and Acquisitions. In the 2024-2025 period, where the global economy is being reshaped and inflationary pressures alongside technological transformation are radically changing business models, Mergers and Acquisitions (M&A) have become not just a growth strategy for companies, but a means of survival, gaining competitive advantage, and establishing vertical integration within the value chain. The Turkish legal system regulates these complex commercial transactions through a multi-layered and interdisciplinary approach revolving around the Turkish Commercial Code No. 6102 (“TCC”), Capital Markets Law No. 6362 (“CML”), Law on the Protection of Competition No. 4054, Labor Law No. 4857, and relevant tax legislation.

This report, titled “Legal Processes in Mergers and Acquisitions,” examines the M&A ecosystem in Turkey in all its dimensions, incorporating academic depth and practical applications. The primary objective of the report is to present the legal roadmap extending from the preparatory phase to closing and integration processes, in light of the most current legislative changes (specifically the Competition Authority’s updated turnover thresholds and the definition of technology undertakings), judicial precedents, and doctrinal discussions. The report exhaustively covers the effects of structural differences between Joint Stock Companies (A.Ş.) and Limited Liability Companies (Ltd. Şti.) on transaction mechanics, critical deadlock and exit mechanisms in Shareholders’ Agreements (“SHA”), joint liability risks in workplace transfers, exit right procedures in public companies, and tax optimization strategies.

1. Introduction: Legal and Economic Foundations of M&A Transactions

Mergers and acquisitions are macroeconomic events that serve the function of capital displacement and directing economic resources to more efficient areas, beyond being mere legal transactions. In Turkish law, this process is built upon the principle of “universal succession.” This principle implies that upon the registration of the merger or acquisition, all assets and liabilities, rights and obligations of the transferred company pass to the transferee company as a whole and by operation of law, independent of the parties’ will.

1.1. Economic Conjuncture and Legal Infrastructure

Following the decline in global M&A volume, markets are being shaped under the shadow of high interest rates and geopolitical risks. However, this environment of uncertainty creates new opportunities for strategic acquisitions and technology-focused mergers. To adapt to this dynamic process, the legal system aims to establish a delicate balance between the protection of creditors and the speed of the transaction. The TCC’s structure, which encourages mergers, includes mechanisms to prevent rights holders from maliciously blocking the process (e.g., lawsuit for inspection, limits on security obligations) while protecting the rights of creditors and shareholders.

1.2. Distinction Between Merger and Acquisition Concepts

In the legal sense, a “Merger” occurs when two or more trading companies combine into a single legal entity, either by one absorbing the other (merger by acquisition) or by coming together under a new company (merger by new establishment). In contrast, an “Acquisition” generally occurs through a Share Deal or Asset Deal, where the control right of a company changes hands. While TCC Arts. 136 et seq. technically regulate “mergers,” acquisitions via share transfers are subject to the general provisions of the Code of Obligations and Commercial Law.

2. Merger Processes and Procedural Architecture under the Turkish Commercial Code

The Turkish Commercial Code No. 6102 regulates company mergers between Articles 136 and 158 with a modern, transparency-focused system compatible with the European Union acquis. The Code structures merger transactions in three main phases: preparation, decision-making, and implementation (registration).

2.1. Valid Merger Types and Capacity of Parties

The TCC does not adopt a principle of freedom regarding the “merger of types.” Which company types can merge with which is determined by the numerus clausus (limited number) principle in the Code.

Capital Companies: (Joint Stock, Limited Liability, and Partnerships Limited by Shares) can merge freely among themselves.
Personal Companies: (Collective and Commandite Companies) can merge with capital companies provided they are the transferred company.
Cooperatives: Can merge with capital companies (provided the transferee is a capital company) and among themselves.

Important Nuance: Whether a company in liquidation can participate in a merger was long debated in doctrine; TCC Art. 138 clarified this. Accordingly, a company in liquidation can participate in a merger provided that the distribution of assets has not yet begun and it is the transferred company. This is a vital regulation allowing the company to be salvaged without losing its economic value.

2.2. Merger Transaction Steps: Detailed Procedural Analysis

The merger process begins with the initiative of the management bodies and is completed with registration in the trade registry. Each step of this process must be meticulously executed to prevent the transaction from being annulled and to avoid liability for the directors.

2.2.1. Preparation and Content of the Merger Agreement

The merger agreement, which is the constitution of the process, is prepared in writing by the management bodies of the participating companies. Under TCC Art. 146, the agreement must include minimum elements:

Trade names and headquarters of the companies.
Exchange Ratio of company shares and equalization amount.
Method of allocation of shares in the transferee company to the shareholders of the transferred company.
Exit Pay option (if any).
Legal status and rights of employees.

Strategic Insight: Offering an “exit pay” option to shareholders in the merger agreement instead of partnership rights in the transferee company (TCC Art. 141) is a strategic tool that facilitates the removal of dissenting shareholders. This option can be structured as “Optional” or “Mandatory.”

2.2.2. Preparation of the Merger Report

Management bodies are obliged to prepare a detailed report explaining the legal and economic grounds for the merger, how the exchange ratio was calculated, valuation methods, and the probable effects of the merger on creditors, employees, and shareholders. This report ensures the enlightenment of the general assembly as a requirement of the transparency principle. In Small and Medium-sized Enterprises (SMEs), the preparation of this report can be waived with the approval of all shareholders (SME exception applies in standard mergers as well, excluding simplified procedures).

2.2.3. Independent Audit and Transaction Auditor

The merger agreement, merger report, and draft articles of association must be examined by a transaction auditor in companies subject to audit. The auditor reports specifically on whether the exchange ratio is fair, whether the capital is preserved, and the status of over-indebtedness.

2.2.4. Right to Inspect and General Assembly Decision

Merger documents must be submitted for shareholders’ inspection at least 30 days before the general assembly date (this period may vary in public companies). Subsequently, the general assembly of each company must approve the merger with the quorums prescribed in TCC Art. 151. In Joint Stock Companies, this quorum is generally the affirmative vote of shareholders representing the majority of the share capital, but aggravated quorums are required in cases such as changes to the articles of association or the company’s subject of activity.

2.2.5. Registration and Announcement: Moment of Legal Validity

After the general assembly resolutions are taken, the merger transaction is registered with the relevant trade registry directorate. Registration is “constitutive.” That is, at the moment of registration, the transferred company dissolves (terminates), and its assets pass automatically to the transferee company. The shareholders of the transferred company become shareholders of the transferee company as of that moment.

2.3. Simplified Merger Procedure

TCC Art. 155 and the CMB Communiqué envisage a “Simplified Merger” procedure to accelerate the merger of capital companies. This procedure applies in two cases:

The transferee company owns 100% of the voting shares of the transferred company.
The transferee company owns at least 90% of the voting shares of the transferred company (provided that minority shareholders are granted the right to exit with exit pay).

In this procedure, there is no obligation to prepare an independent audit report, a merger report, or, most importantly, to submit the merger agreement to the general assembly for approval. The merger can be realized by a board of directors’ resolution. This provides a significant time and cost advantage, especially in intra-holding restructurings.

2.4. Protection of Creditors and Security Mechanism

The most sensitive point of a merger is securing the creditors of the transferred company. Under TCC Art. 157, participating companies notify their creditors of their rights through three announcements made seven days apart in the Turkish Trade Registry Gazette. Creditors may request their receivables to be secured by applying within three months from the registration of the merger.

Period Reduction: In the new regulation and practice, if it is established by the transaction auditor’s report that the creditors will not suffer damages (e.g., the transferee company has a very strong financial structure), the security obligation may not arise, or the debt may be paid immediately.
Liability of Directors: Disposing of assets without complying with the creditor protection procedure leads to the personal liability of the board members.

3. Capital Markets Legislation: Special Regime in Public Companies

M&A transactions involving public companies are subject to the Capital Markets Law No. 6362 (“CML”) and the “Communiqué on Mergers and Demergers” (II-23.2), which prioritize investor protection, in addition to the general provisions of the TCC.

3.1. Scope of the Communiqué and Public Disclosure

The CMB Communiqué applies to transactions where at least one of the parties is public. The main difference is that the process is subject to CMB supervision and the “Announcement Text” must be approved by the Board. The announcement text must include all information that may affect investors’ decisions (exchange ratio, expert opinion, synergy targets).

3.2. Management Control and Mandatory Tender Offer

A change in management control of a public company triggers a “Mandatory Tender Offer” for other shareholders. In CMB legislation, “Management Control” is defined as holding more than 50% of the voting rights or possessing privileged shares granting the right to elect the simple majority of the board members. The party acquiring management control as a result of a merger or acquisition must provide minority shareholders the opportunity to sell their shares.

3.3. Exit Right and Fair Price

A merger transaction is considered a “Material Transaction” under the CMB. Shareholders who vote against the merger transaction at the general assembly and have their dissenting opinion recorded in the minutes have the right to exit the partnership by selling their shares to the partnership.

Pricing: In mergers via acquisition, the exit right exercise price is the arithmetic average of the weighted average prices formed in the stock exchange within the thirty days prior to (excluding) the date the transaction is first disclosed to the public.
Public Institution Exception: With the amendment made in 2020, certain restrictions were lifted for shareholders of listed companies in mergers between public companies where management control is held by public institutions and private companies. This facilitated the restructuring of public affiliates.

4. Competition Law: Concentration Control and Thresholds

The audit conducted by the Competition Authority to prevent the market-distorting effects of mergers and acquisitions is one of the conditions for the validity of the transaction (Conditions Precedent). Communiqué No. 2010/4 determines which transactions are subject to authorization.

4.1. Turnover Thresholds

The Competition Board updates notification thresholds taking the inflationary environment into account. In light of current regulations and projections, the following thresholds must be exceeded for a transaction to be subject to authorization:

Total Turnover Threshold: The total Turkish turnover of the transaction parties exceeding 750 million TL AND the Turkish turnover of at least two of the transaction parties exceeding 250 million TL separately.
Asset/Activity Threshold: In acquisition transactions, the turnover of the asset or activity being transferred, or in merger transactions, the Turkish turnover of at least one of the transaction parties exceeding 250 million TL and the global turnover of at least one of the other transaction parties exceeding 3 billion TL.

4.2. Technology Undertakings Exception: A Strategic Intervention

Against the risk of “Killer Acquisitions” in the digital economy, the Competition Authority has introduced a special regime for “Technology Undertakings.”

Definition: Undertakings operating in digital platforms, software, gaming software, financial technologies (FinTech), biotechnology, pharmacology, agricultural chemicals, and health technologies.
Exception Rule: If the target company is a “Technology Undertaking” and has activities or R&D operations in the Turkish geographical market or provides services to users in Turkey; the 250 million TL Turkey turnover threshold is not sought.
Analysis: This regulation means that the acquisition of start-ups with little or no turnover (e.g., by a large global player) will be subject to Competition Board permission if the other party’s global turnover exceeds the 3 billion TL threshold. This is a critical detail directly affecting the transaction timeline and costs.

4.3. Ancillary Restraints and Non-Compete Obligation

“Non-Compete” obligations imposed on the seller in share purchase agreements are essential for the economic value of the transaction. However, Competition Law limits the duration and scope of these prohibitions.

Direct Relation: The prohibition must be directly related and necessary to the concentration transaction.
Duration Limit: The Competition Board generally limits the seller’s non-compete obligation to 3 years. If there is high customer loyalty and know-how in the transferred asset, this period may exceptionally be extended. However, indefinite prohibitions or those exceeding 5 years are generally considered unlawful and may be deemed invalid.

5. Contract Architecture: Legal Anatomy of SPA and SHA

The legal backbone of the M&A transaction is formed by the contracts signed between the parties. Within the framework of the freedom of contract principle of the Turkish Code of Obligations (TCO), concepts imported from Common Law are adapted to Turkish law.

5.1. Share Purchase Agreement (SPA)

The SPA is the main text of the transaction and determines the risk allocation.

5.1.1. Representations and Warranties

The seller makes commitments to the buyer regarding the status of the company (no tax debts, litigation is limited to the list, etc.). Although this situation is based on “warranty against defects” provisions (TCO Art. 219 et seq.) in Turkish law, SPAs usually include special provisions extending statutory periods (notification periods) and shifting the burden of proof. “Sandbagging” clauses (buyer knowing the defect but claiming damages later) are controversial under the good faith rule (Civil Code Art. 2) in Turkish law, but tend to be considered valid if there is an explicit “Pro-Sandbagging” clause in the contract.

5.1.2. Indemnification Mechanisms

The compensation the seller will pay if representations prove false is subject to certain limits:

De Minimis: The lowest damage threshold for which compensation can be claimed (e.g., damages under 5,000 USD cannot be claimed).
Basket: Damages cannot be claimed unless their total exceeds a certain amount (e.g., 50,000 USD).
Cap: The seller’s total liability is usually limited to a certain percentage of the purchase price (e.g., 20%-50%). However, in cases of fraud or wilful misconduct, these limits are invalid under Turkish law (TCO Art. 115).
Scope of Damages: Whether indirect damages and loss of profit will be indemnified must be explicitly stated in the contract.

5.2. Shareholders’ Agreement (SHA)

In cases where more than one partner remains in the company (Joint Venture or partial transfer), the SHA regulating the relationship between partners is of vital importance.

5.2.1. Drag-Along and Tag-Along Rights

Drag-Along: The majority shareholder can force the minority to sell when selling the company.
Tag-Along: The minority shareholder has the right to sell their shares under the same conditions when the majority sells.
Enforcement Issue: “Specific performance” of these rights is difficult in Turkish law. The Court of Cassation generally awards compensation for breach of contract. Therefore, these clauses in SHAs need to be supported by very high “penalty clauses” or “call option” mechanisms for violation.

5.2.2. Deadlock Resolution Methods

Mechanisms that come into play when a decision cannot be reached in the board of directors or general assembly due to 50-50 splits or veto rights.

Russian Roulette: One party sets a price, the other party either buys or sells at that price.
Texas Shoot-out: Parties submit sealed bids, the highest bidder buys.
Dissolution: As a last resort, dissolution of the company for just cause (TCC Art. 531) may be on the agenda.

6. Labor Law: Transfer of Workplace and Employee Rights

Article 6 of the Labor Law No. 4857 contains mandatory provisions protecting employee rights in M&A transactions.

6.1. Transfer of Contracts and Prohibition of Termination

In the event of a workplace transfer, employment contracts pass to the transferee employer with all rights and obligations. The transfer of the workplace does not constitute a just cause for termination for either the transferor or the transferee employer. Similarly, the employee cannot terminate for just cause solely because the workplace has been transferred.

6.2. Joint Liability

This is one of the biggest risk items in labor law. The transferor and transferee employers are jointly liable for debts born before the transfer and payable on the date of transfer (salary, overtime, unused leave pay, etc.).

Duration: The transferor employer’s liability is limited to two years from the date of transfer.
Severance Pay: The two-year time limit does not apply to severance pay. The transferee employer becomes liable for the entire severance pay, taking into account the employee’s service period before the transfer (based on the final wage). The transferor employer is liable limited to its own period and the wage at the date of transfer.

7. Tax Planning and Cost Management

Tax law opportunities must be used correctly to minimize the cost of M&A transactions.

7.1. Tax-Free Merger

Corporate Tax Law (KVK) Arts. 19 and 20 exempt mergers from tax under certain conditions.

Conditions: The balance sheet values of the transferred company must pass to the transferee company as a whole, and the transferee company must record these values exactly in its balance sheet.
Result: No merger profit is generated, and no tax arises. Additionally, the losses of the transferred company can be deducted by the transferee company provided that the same activity is continued for 5 years.

7.2. Tax and Exemptions in Share Transfer

Joint Stock Companies: If share certificates (or temporary certificates) are sold after being held for two years from the date of acquisition, there is a Income Tax exemption for individuals and a Corporate Tax exemption (75% or 50%) for legal entities. It is also exempt from VAT.
Limited Liability Companies: Since Ltd. share transfers are made with a notary-approved contract and issuing share certificates does not provide the same tax advantages (despite some differences in general opinion and practice), it may be more disadvantageous tax-wise.

7.3. Stamp Tax and Fee Exemption

Papers issued regarding share transfers of Joint Stock and Limited Liability companies are exempt from stamp tax under the Stamp Tax Law (2) table. No notary fee is charged under the Fees Law (only fixed signature and writing fees are charged). This is a significant cost advantage in large-volume transactions (considering the 0.948% stamp tax rate).

8. Closing and Registration Procedures

The “Closing” phase, where the transaction is legally completed, occurs with the delivery of documents and registration.

8.1. Closing in Joint Stock Companies

A.Ş. share transfer is not subject to registration (except for single shareholding). Actions required at closing:

Endorsement and delivery of share certificates.
Taking the Board of Directors resolution and recording it in the Share Ledger. Recording in the share ledger is a constitutive condition for the shareholder status to be asserted against the company (TCC Art. 499).
Resignation of old board members and appointment of new ones (by General Assembly or Board decision).

8.2. Closing and Registration in Limited Liability Companies

Ltd. closing is more formal:

Notary: Share transfer agreement is signed at the notary.
General Assembly: The transfer is approved by a general assembly resolution (may require 3/4 majority).
Registration: The transfer is registered and announced in the Trade Registry. Partners are visible in the registry gazette.

8.3. Closing Documents (Checklist)

Minimum document set for a successful closing:

Signed SPA and annexes.
Competition Authority permission letter (if any).
General Assembly and Board of Directors resolutions (Notarized).
Share ledger, share certificates, board decision book.
Resignation letters and release documents.
Bank instructions and signature circular amendments.

9. Conclusion and Strategic Projections

Merger and acquisition processes in Turkey are carried out at international standards with the solid foundation provided by the TCC and dynamic regulations of the CMB/Competition Authority. However, legal compliance alone is not enough; strategic planning is the key to success.

Critical Takeaways:

Early Planning: The Competition Authority’s “Technology Undertaking” exception and turnover thresholds can extend the transaction calendar. Notification analysis should be done at the very beginning of the DD phase.
Contract Security: Due to the uncertainty of “specific performance” in the judiciary, compensation and penalty clauses in SPAs and SHAs must be structured in a very detailed and deterrent manner.
Human Resources: The 2-year joint liability after workplace transfer carries a hidden debt risk for the buyer. Labor receivables (especially those with litigation risk) must be fully calculated during the DD process and reflected in the price or secured.

In conclusion; an M&A process where law, finance, and tax disciplines work in an integrated manner and where not only today’s but also future risks are managed is the most effective way for companies to create sustainable value.

Table 1: Comparative Analysis of Joint Stock and Limited Company Share Transfer

Feature	Joint Stock Company (A.Ş.)	Limited Liability Company (Ltd. Şti.)
Transfer Method	Endorsement of Share Cert. + Delivery	Notary Approved Written Agreement
Registration & Notice	Not Required (Except single shareholder)	Mandatory (Trade Registry Gazette)
General Assembly Approval	Generally not required (Board approval sufficient)	Mandatory (Unless agreed otherwise)
Tax Exemption (Individual)	100% exemption after 2 years holding	No exemption (Capital gains tax applies)
VAT	Exempt (VAT Law 17/4-g)	Generally Exempt (Participation share 2 years)
Confidentiality	High (Partners not visible in registry)	Low (Partners are public)

Table 2: Competition Authority Merger and Acquisition Authorization Thresholds

Threshold Category	Amount (TL)	Description
A) Total Turnover Threshold	750 Million TL	Total Turkish turnover of transaction parties
+ Individual Turnover	250 Million TL	Turkish turnover of at least two parties separately
B) Asset/Activity Threshold	250 Million TL	Acquisition: Target’s / Merger: At least one party’s TR turnover
+ Global Turnover	3 Billion TL	Global turnover of the other party
Technology Exception	Threshold Not Sought	If target is a tech company, 250M TL threshold is ignored

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