Joint Stock Company Merger Agreements And Agreement Examples

1. Joint Stock Company Mergers

Mergers, also called company marriages, are needed for different reasons in commercial life. Companies may merge, sometimes to gain strength and momentum, to increase competitiveness, sometimes to combine experiences or for many different reasons. In Turkish law, mergers are regulated under the Turkish Commercial Code. According to Article 136/3-4 of the Turkish Commercial Code, "A merger is realized through the acquisition of the shares of the transferee company by the shareholders of the transferee company in exchange for the assets of the transferred company, according to an exchange ratio. With the merger, the transferee company takes over the assets of the transferred company as a whole. With the merger, the transferred company is terminated and deleted from the trade registry." Company mergers can be realized in two different ways: merger by new establishment and merger by acquisition. More precisely, it is possible for two or more commercial companies to merge and establish a new commercial company, or for one of these companies to merge by acquisition through the incorporation of the other.

In company mergers, the assets of the companies are not liquidated, but transferred to the other company collectively. The shareholders of the company that is dissolved without liquidation (dissolved) automatically acquire a shareholding in the merged company according to a calculated exchange ratio.

In our law, there is a rule that the merging companies must be of the same type. Joint stock, limited liability and limited partnership companies may merge with each other since they are capital companies. These companies may also merge with cooperatives. Again, there is no theoretical obstacle to the merger of capital companies with collective and limited partnership companies, which are private companies, provided that they are the transferee. In this article, we will discuss mergers in general and mergers between joint stock companies and joint stock or limited liability companies in particular.

2. Stages of the merger

It is possible to categorize joint stock company mergers as a 3-stage process;

• Preparation and planning phase

At this stage, which can be expressed as the process of making the merger decision and making preparations, due diligence activities, preliminary study on the purpose and results of the merger, research and selection of the company to be merged, and negotiations with the company selected for the purpose of merger should be completed.

Due diligence is a preliminary study conducted to obtain a clear picture of the overall situation of the company to be merged by analyzing it from many different angles such as legal, tax, financial status, human resources. Legal due diligence is a process that requires mastery of various areas of law and meticulous work. Due diligence is the key to a successful corporate marriage, which is the product of a joint work to be carried out with a team of competent lawyers in the fields of Corporate Law, Contract Law, Labor Law, Administrative Law, Procedural Law and Economic Law, and with the support of independent accountants, certified public accountants or independent audit institutions.

Since the parties share very important data regarding their companies with each other during the preparatory phase, we advise our clients to sign a confidentiality agreement with the other party regarding the information and documents obtained and shared during the preparatory phase.

• Preparation and signing of the merger agreement

Joint stock company merger agreements are subject to the written validity requirement. The merger agreement shall be made in writing. The agreement is signed by the management bodies of the companies participating in the merger and approved by their general assemblies. Undoubtedly, the most important stage of the merger process is the preparation and signing of the agreement. This is because this agreement is the text that constitutes the constitution of the merger. The more detailed and clear the merger agreement is, the more possible disputes are prevented. In joint stock and limited partnership companies, it must be approved by three-fourths of the votes present in the general assembly, provided that it represents the majority of the capital or issued capital, and in limited liability companies, it must be approved by three-fourths of the votes of all shareholders, provided that they hold shares representing at least three-fourths of the capital. In collective and limited partnership companies, the merger agreement must be approved unanimously. However, the company agreement may stipulate that the merger agreement shall be approved by a three-fourths vote of all shareholders.

• Registration and announcement of the merger

Mergers of joint stock companies become effective upon registration with the trade registry. The registration must then be announced in the Trade Registry Gazette. The merger becomes valid with the registration of the merger in the trade registry. At the time of registration, all assets and liabilities of the transferred company are automatically transferred to the transferee company. The shareholders of the transferred company become shareholders of the transferee company.

As briefly explained, the merger of joint stock companies is a complicated process that requires detailed work and expertise in more than one field. For this reason, it is very important to work with a team of experts in the field starting from the pre-merger period in order to obtain the expected benefit in a short time and to minimize the problems. As Solmaz Law and Consultancy team, we provide professional legal support services to our clients on company mergers, starting from the preparation stage of the merger process, including the preparation of the merger agreement and merger report, registration and announcement process. During the merger process, we work with our expert business partners not only in the legal but also in the financial field, and we work with the principle of holistic and one-stop service in company mergers. We aim for a smooth merger process with uninterrupted legal services on issues such as post-merger announcements, relations with creditors, tax declarations.

3. Required Elements in Merger Agreements of Joint Stock Companies

The Turkish Commercial Code regulates the mandatory elements that must be included in the merger agreements of joint stock companies. In addition to the mandatory elements, we have tried to present a list of other elements that we pay attention to as a team while preparing merger agreements. Accordingly, the following elements must be included in a merger agreement of a joint stock company;

• Authorization letter (For mergers subject to the permission or approval of the Ministry or other official institutions
• Trade names, legal types, headquarters of the companies participating in the merger, in case of merger by way of new establishment, the type, trade name and headquarters of the new company, the date and number of the decisions of the board of directors taken as basis for the merger transaction subject to the Agreement,
• Information on the current capital structure and shares,
• Issued capital of the transferee company and the transferor company, registered capital ceiling, distribution of the issued capital among the shareholders, share amount, share ratio, title of the shareholder,
• Real and legal persons who indirectly own the capital,
• The purpose and results of the merger (the part where the objectives such as competitiveness, efficiency, increasing market share, rapid growth, positive impact on financial statements, reduction of operating expenses, combining market experiences are explained)
• Financial statements taken as a basis for merger by acquisition,
• Whether the privileges granted to the share certificates representing the capital will continue or not,
• The rights granted by the acquiring company to the holders of preference shares, non-voting shares and usufruct certificates,
• Form of exchange of company shares
• The date on which the transactions and actions of the transferred company shall be deemed to have been made for the account of the transferee company,
• Special benefits granted to management bodies and managing partners,
• Names of partners with unlimited liability when necessary,
• List of goods and rights of the transferred company registered in similar registries such as land registry, trademark, patent, ship registry, etc.,
• Proof that their claims are not doubtful,
• The date on which the shares acquired by the merger are entitled to the balance sheet profit of the transferee or newly established company and all the features related to this request,
• Capital increase,
• Issuance of new shares due to merger and issuance certificate,
• Merger ratio, change ratio and the amount of capital increase to be realized by the transferee in parallel with these, the number of shares to be allocated by the transferee company to the shareholders of the transferred company, the type and nominal value of the shares to be given to the transferred shareholders,
• Whether the shareholders of the transferred company will be given shares of the transferee company or whether they will be entitled to dividends,
• If amendments are to be made to the articles of association, the relevant regulations required in this context (in order to amend the articles of association, companies are required to take a decision duly and in the prescribed manner and have this decision registered and announced in the trade registry).
• The right to leave (within which period and how to exercise it should be regulated), separation fund or equalization amount,
• Corporate tax return
• Liability for the debts of third parties,
• Provisions on registration and announcement
• Shareholding rights of the shareholders of the transferred company in the transferee company.

4. Merger Report

After the merger agreement is signed and before the approval of the general assembly, a merger report must be prepared and announced in order to inform the shareholders. The merger report is prepared by the board of directors and submitted to the general assembly for approval (in practice, the merger report is drafted by lawyers). According to Article 146 of the Turkish Commercial Code, the issued that must be included in a merger agreement are as follows

• Purpose and consequences of the merger,
• Merger agreement,
• The rate of exchange of company shares and, if provided, the equalization fund; the shareholding rights granted to the shareholders of the transferred companies in the transferee company,
• If necessary, the amount of the separation fund and the reasons for granting a separation fund instead of company shares and partnership rights,
• Features of the valuation of shares in terms of determining the rate of change,
• The amount of the increase to be made by the transferee company, if necessary,
• If foreseen, information on the additional payment and other personal performance obligations and personal liabilities that will be imposed on the shareholders of the transferred company due to the merger,
• In mergers of different types of companies, the obligations of the shareholders due to the new type,
• The effects of the merger on the workers of the merged companies and, if possible, the content of a social plan,
• The effects of the merger on the creditors of the merging companies,
• If necessary, the approvals obtained from the relevant authorities are explained in legal and economic terms and justifications are stated.

In the case of merger through a new company, the agreement of the new company must be attached to the merger report. If approved by all shareholders, small and medium-sized companies may waive the preparation of the merger report.

Below are explanations on what should be considered when drafting merger agreements of joint stock companies. It should be noted immediately that since the articles of association, capital structure and shareholding rights of each company are different from each other, merger agreements should be prepared by taking into account the specific characteristics of the companies. It is possible that a contractual provision that is advantageous for one company may be disadvantageous for another. For this reason, we will only make general explanations in this context. We hope that our article, which we have tried to make more understandable with sample contract provisions, will be useful.

EXAMPLE OF A JOINT STOCK COMPANY MERGER AGREEMENT

1. Parties

In this section, it should be stated which companies are the transferee and the transferor, together with their titles, headquarters, addresses, the trade registry in which they are registered, registration numbers, and tax identification numbers.

2. Definition of Merger

In this section, the merger of the companies that are parties to the agreement, whether it is a merger by acquisition or a merger in the form of a new organization are explained.

3. Existing capital and shares

The existing capital structure and amount of the companies that are parties to the merger should be specified in the agreement. It is also necessary to include explanations regarding the capital structure and amount of the transferee company or the newly established company as of the latest situation.

4. Movable, Immovable and Intellectual Property and Rights

We recommend that a list of all registered and unregistered movable, immovable or intangible property belonging to the companies be attached to the agreement. The conditions and the date of transfer of goods and rights, and the status of rights subject to registration should be regulated under this article. Since it will be required to submit the fair values of the commodities at the stage of registration with the trade registry, a report should also be prepared by a Certified Public Accountant or a Freelance Accountant Certified Public Accountant or an auditor, if any. Since the assets and requirements of each company are different, this section should be regulated by evaluating the circumstances and conditions accordingly. For the aforementioned reason, we do not find it right to share a printed contract provision.

5. The merger ratio, the exchange ratio of company shares, the equalization fund, and the shareholder rights granted to the shareholders of the transferring company in the acquiring company.

While determining the exchange rates of the shareholding shares, an equalization payment may be envisaged, provided that it does not exceed one tenth of the actual value of the shares allocated to the shareholders of the transferred company. Since this issue is a matter to be determined according to the merged companies and the calculation to be made, it is not deemed appropriate to include a mathematical provision.

6. General Conditions/Non-performance of Obligations

7. Liability for Debts

The issue of liability for debts is the most important issue in a joint stock company merger agreement together with the shareholder rights. The most controversial issue between the parties to the agreement is the issue of liability for debts. Although it is regulated that all debts will be transferred to the transferee company or the newly established company in case of merger, this situation is not as simple as it is described. In the agreement, it is necessary to specify the exact and clear dates of who is responsible for the debts arising before and after the transfer, due or not yet due, disputed (disputed) debts, and time-barred debts. The duration of joint and several liabilities and the starting date of the liability should also be included. If there are partners with unlimited liability, it is also appropriate to include an exceptional provision regarding their situation. While drafting this provision, the regulations stipulated by the Turkish Commercial Code regarding the call to the creditors should also be taken into consideration. Since the most advantageous arrangement should be made in line with the specific needs of each company, we do not find it right to share a printed provision.

8. Liability for Tax Debts

In the merger agreement of a joint stock company, it is also necessary to regulate which party will submit the corporate tax return and who will pay the tax debts that have accrued and will accrue until the date of merger. The commitments and guarantees to be given in this regard should be included under this provision.

For more detailed information about liability for debts in the transfer of commercial enterprise, you can check our newsletter titled "Transfer of debts and liability for debts in the transfer of commercial enterprise" on our website. https://www.solmazlaw.com/en/transfer-of-debts-and-liability-for-debts-in-commercial-business-transfer/

9. Leaving right and leaving fund

In the merger agreement, the companies participating in the merger may grant the shareholders the right to choose between the acquisition of shares and partnership rights in the transferee company and a leaving fund corresponding to the real value of the company shares to be acquired. The companies participating in the merger may stipulate in the merger agreement that only the leaving fund shall be given.

10. Future of Concessions

If there are privileges granted to partnership shares in the transferred company, it should be stated whether these privileges will continue or not.

11. Registration procedures

The date of registration and announcement of the merger and which party is responsible for this matter may be regulated in the agreement.

12. Law and Provisions Applicable to the Contract

If there is a foreign element in the parties to the contract, a determination may be made as to which country's law will be applied in the application and interpretation of the contract.

13. Contract Copies and Enforceability

14. Signatures

Since the merger agreement is subject to the written validity condition, the parties must sign the agreement. The agreement must be signed by the manager or the board of directors.

Conclusion and Recommendations

Joint Stock Company is the most important type of company in the national economy. Joint stock companies adapt to the requirements of commercial life by being subject to various legal transactions such as merger, division and transfer. It is seen that companies often choose to merge in order to join forces and sometimes in order to benefit from legal and tax advantages. According to the Turkish Commercial Code, joint stock companies are capital companies and can merge with companies of the same type. Accordingly, it is possible for a joint stock company to merge with another joint stock company, as well as with a limited liability company or a limited partnership with shares. It is also possible for joint stock companies to merge with collective and limited partnership companies, provided that they are the transferee.

Joint stock companies are the companies with the most corporate and complex structure. Features such as high capital amounts, high number of shareholders (mostly), and the ability of these companies to issue shares make it difficult to prepare merger agreements for joint stock companies.

In order for a joint stock company to merge with another capital company, a preparatory study should first be carried out, and it should be determined legally and financially whether it would be more appropriate for the companies wishing to merge to merge through acquisition or in a new organization. At this stage, it is necessary to prepare the annual balance sheet and, if necessary, the interim balance sheet of the companies and then prepares the merger agreement. In the agreement, the financial status of the companies should be presented, the merger ratio should be determined, and in parallel with this, issues such as share ratios, the amount of new capital, and shareholder rights should be regulated. In this process, apart from the preparation of the merger agreement, a series of transactions must be completed, each of which must be kept under legal supervision, such as obtaining general assembly and board of directors' resolutions, capital increase transactions, informing the necessary information about the changing financial situations, making the necessary announcements, obtaining permits and approvals from official institutions, registering and announcing the merger. Illegality or irregularities in the legal procedures during the merger process may even lead to the annulment of the merger. For this reason, mergers must be completed in accordance with the law and in a complete manner, and agreements that can respond to the needs of the parties in the most appropriate way in order to realize the expected benefit of the merger must be constructed in a way to provide legal and financial protection to the parties. A contract prepared in detail, without overlooking the details, and a meticulously managed process will minimize the legal disputes that may arise later and satisfy the parties.

The explanations on the merger process of joint stock companies, which we have tried to discuss in general terms above, are summarized and many details need to be dealt with in practice. Since each merger is unique, we believe that it would not be right to share a complete merger agreement, so we have only drawn attention to the important points. You can contact our team for detailed information and consultancy on joint stock company mergers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.