Foreign investors buying shares in an existing Turkish company should carefully investigate the company’s historical debts before completing the transaction.
Buying shares is different from establishing a new company. The legal entity continues to exist after the acquisition together with its existing tax debts, Social Security (SGK) liabilities, bank loans, commercial debts, lawsuits and contractual obligations.
For this reason, the purchase price alone should never determine whether an acquisition is safe.
1. The Company’s Existing Debts Remain
When an investor purchases shares, the company’s debts do not disappear.
The company may still be liable for:
- corporate tax;
- VAT;
- withholding tax;
- tax penalties and interest;
- SGK premiums;
- employee claims;
- bank loans;
- supplier debts;
- guarantees; and
- pending litigation.
Therefore, financial statements should be reviewed together with legal and tax due diligence.
2. Special Risk When Buying a Turkish Limited Company
Foreign investors should be particularly careful when acquiring shares in a Turkish limited liability company (Ltd. Şti.).
Under Article 35 of Law No. 6183, shareholders of a limited company may be personally responsible, in proportion to their shareholding, for public debts that cannot be collected from the company.
More importantly, where shares are transferred, the former shareholder and the new shareholder may be jointly liable for certain public debts relating to the period before the transfer.
This means that simply stating in the Share Purchase Agreement that “all previous debts belong to the seller” may not prevent public authorities from pursuing the new shareholder where statutory liability applies.
The buyer may have a contractual claim against the seller afterwards, but this does not necessarily eliminate liability toward the public authority.
3. SGK Debts Should Also Be Checked
Social Security Institution debts can also create significant risk.
SGK guidance confirms that limited company shareholders may be pursued under Article 35 of Law No. 6183 for certain uncollectible public receivables in proportion to their shareholding.
Before acquiring the company, investors should therefore check outstanding premiums, penalties and historical employee registrations.
4. What About Joint Stock Companies?
The position of shareholders in a Turkish joint stock company (A.Ş.) is different.
A shareholder is generally not personally liable merely because the company has commercial debts.
However, additional liability issues may arise where the foreign investor also becomes:
- a board member;
- a legal representative;
- an authorised manager; or
- responsible for statutory obligations of the company.
Therefore, the investor’s management role should be reviewed separately from the share acquisition.
5. Conduct Due Diligence Before Payment
Before buying shares, a foreign investor should investigate:
- tax debt records;
- SGK liabilities;
- ongoing tax inspections;
- enforcement proceedings;
- bank loans;
- guarantees;
- employee liabilities;
- lawsuits;
- accounting records; and
- related-party transactions.
Turkey generally applies the same share-transfer framework to foreign and domestic investors.
However, equal investment rights also mean that foreign investors may face the same liabilities applicable to Turkish shareholders.
6. Protect the Investor in the Share Purchase Agreement
If historical risks exist, the acquisition agreement should include:
- representations and warranties;
- tax indemnities;
- SGK indemnities;
- protection against undisclosed debts;
- escrow or holdback mechanisms;
- purchase price adjustments; and
- specific indemnities for known risks.
For example, if there is a pending tax audit, part of the purchase price may be retained until the potential liability becomes clear.
Conclusion
A foreign investor should never purchase shares in a Turkish company without investigating its historical liabilities.
This is especially important when buying a limited liability company, because Turkish law may impose personal liability on a new shareholder for certain public debts relating to periods before the share transfer.
Before completing the acquisition, the investor should therefore determine:
Does the company owe taxes?
Are there SGK debts?
Are there pending audits or lawsuits?
Has the company provided guarantees?
Could the investor become personally liable?
Proper legal and tax due diligence can identify these risks before the purchase price is transferred.
This article provides general information and does not constitute legal or tax advice. Each acquisition should be reviewed individually according to the company type, shareholding structure and historical liabilities.
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