Facilitated Merger Procedure In Capital Companies

INTRODUCTION

The merger of capital companies is regulated under Article 136 and subsequent articles of the Turkish Commercial Code No. 6102 (“TCC”). Pursuant to Article 136 of the TCC, companies can merge in two different ways: (i) one company acquiring another, technically referred to as a “merger by acquisition”, or (ii) companies coming together to form a new company, technically referred to as a “merger by formation of a new company.” One of the most significant legal consequences of a merger is that the transferee company takes over the entire assets of the assignee company, and the assignee company is dissolved and removed from the commercial registry. In this context, with the registration of the merger transaction, the assignee company ceases to exist. While capital companies are generally required to follow the standard merger procedure under the TCC, they may also merge using the facilitated procedure if certain conditions are met.

A. CAPITAL COMPANIES ELIGIBLE FOR FACILITATED MERGER PROCEDURE

It should first be noted that under the TCC, capital companies must meet certain conditions to merge using the facilitated procedure. According to Article 155 of the TCC, a merger can be carried out using the facilitated procedure only in the following cases:

• Under the first paragraph of Article 155 of the TCC; if the transferee capital company holds all the voting shares of the assignee capital company, or
• If a company or a real person or groups of persons connected due to law or contract hold all shares with voting right in capital stock companies participating in the merger,
• Under the second paragraph of Article 155 of the TCC; if the transferee capital stock company holds at least ninety percent of, but not all, shares with voting rights, the merger can take place under simplified terms provided that the minority shareholders are offered; (i) an option equal to the actual value of company shares in the transferee in accordance with Article 141 in addition to the company shares and (ii) no additional payment, personal performance liability or personal responsibility arises due to merger.

As can be seen, not every capital company can merge using the facilitated procedure; the merging parties must have a specific connection as regulated in Article 155 of the TCC.

B. DIFFERENCES BETWEEN FACILITATED MERGER AND STANDARD MERGER PROCEDURE

• In the standard merger procedure, the merger agreement must include all items regulated in Article 146 of the TCC. However, in the facilitated merger procedure to be realized under the first paragraph of Article 155 of the TCC, the merger agreement shall only include the following at minimum: (i) trade names, legal types, and headquarters of the companies participating in the merger, and in the case of a merger by formation of a new company, the type, trade name, and headquarters of the new company; (ii) cash payment for withdrawals, if necessary; and (iii) the names of the shareholders with unlimited liability, if necessary. In the facilitated merger procedure to be realized under the second paragraph of Article 155 of the TCC, the merger agreement shall include at minimum: (i) the purpose and consequences of the merger, (ii) the amount of any increase in capital to be made by the transferee company, if necessary, and (iii) the effects of the merger on the employees of the merging companies and, if possible, the contents of a social plan.
• According to Article 147 of the TCC, the management bodies of the companies participating in a merger are required to prepare a report on the merger, either separately or jointly. This report must include details such as the purpose and consequences of the merger, the merger agreement, any compensation payments, exchange ratios, and the amount of capital increase. However, if capital companies are merging using the facilitated procedure, they are not obliged to prepare this merger report by their management bodies.
• According to Article 151 of the TCC, a merger agreement prepared by the management body must be submitted for approval by the general assembly. However, in the facilitated merger procedure, there is no requirement to submit the merger agreement for approval by the general assembly.
• According to Article 149 of the TCC, each company participating in a merger, within thirty days before the general assembly decision, must make available for inspection at their headquarters, branches, and, for publicly traded joint stock companies, at locations specified by the Capital Markets Board; (i) merger agreement, (ii) merger report and (iii) annual financial statements and annual activity reports for the last three fiscal years, and interim financial statements if necessary, for examination by shareholders, beneficiaries of usufruct rights, holders of securities issued by the company, interested parties, and other relevant individuals. These documents are also published on the relevant capital companies' websites. In mergers conducted under the first paragraph of Article 155 of the TCC, capital companies are not obligated to provide this inspection right. However, in facilitated mergers under the second paragraph of Article 155 of the TCC, ensuring this inspection right must occur at least thirty days before the application for registration of the merger in the commercial registry.

C. CONCLUSION

The merger of capital companies involves significant stages such as preparation of the merger report and agreement, submission of the merger agreement for approval by the general assembly, and making the merger report and agreement available for inspection by shareholders within a specified period. However, under the TCC, companies that meet certain conditions have the option to choose a facilitated merger procedure, which offers a shorter and simpler process compared to the normal merger procedure.

The key differences between the normal and facilitated merger procedures lie in the facilitated procedure's requirement for the merger agreement to include only limited essential elements and its exemption from the necessity to submit the merger report for approval by the general assembly. Additionally, in facilitated mergers, there is no mandatory requirement to prepare a merger report. These aspects streamline the process and provide flexibility for companies under the facilitated merger option, while the normal merger procedure entails more comprehensive documentation and procedural steps

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.