Introduction
For international investors and multinational companies, Turkey has long been an attractive destination due to its strategic position between Europe and Asia, dynamic economy, and growing consumer market. One of the most common ways foreign investors enter the Turkish market is through mergers and acquisitions (M&A).
However, Turkish corporate law has its own specific framework, procedures, and regulatory requirements that must be carefully followed. Understanding the legal framework of mergers in Turkish law is therefore essential not only to ensure compliance but also to prevent disputes with shareholders, creditors, or regulatory authorities.
Legal Basis of Mergers in Turkey
The primary legal framework for mergers is provided under the Turkish Commercial Code (Law No. 6102, “TTK”), which governs all corporate entities. In addition, certain other laws and authorities play a role:
- Competition Law (Law No. 4054): Requires notification and approval from the Turkish Competition Authority if turnover thresholds are exceeded.
- Capital Markets Law (No. 6362): Applies when one of the merging parties is a publicly traded company, requiring transparency and disclosure.
- Corporate Tax Law (No. 5520): Provides tax-neutral treatment for certain qualifying mergers.
- Labour Law and Employment Regulations: Protect employees during business transfers.
In practice, this means that foreign investors must not only comply with the Commercial Code but also consider regulatory approvals, tax structuring, and employee rights.
Types of Mergers under Turkish Law
The TTK provides for two main forms of merger:
- Merger by Acquisition (Devralma Yoluyla Birleşme)
- One company absorbs the other, taking over all of its assets, rights, and liabilities.
- The absorbed company is dissolved without liquidation.
- Merger by Formation of a New Company (Yeni Kuruluş Yoluyla Birleşme)
- Two or more companies dissolve and create an entirely new legal entity.
- The new company becomes the universal successor of all assets and liabilities of the merged entities.
Both models are open to foreign investors provided they comply with the relevant provisions of Turkish law.
Step-by-Step Merger Procedure in Turkey
- Preparation of a Draft Merger Agreement
- Boards of directors prepare a written agreement outlining share exchange ratios, shareholder rights, and treatment of employees.
- Expert Examination (Fairness Opinion)
- Independent experts may review the exchange ratio and fairness of the merger.
- Creditor Protection
- Creditors must be informed through announcements in the Trade Registry Gazette.
- They may demand guarantees if the merger threatens their receivables.
- General Assembly Approval
- Shareholders approve the merger, usually by a qualified majority.
- Minority shareholders can object or request exit compensation.
- Regulatory Approvals
- If applicable, prior approval must be obtained from the Competition Authority or Capital Markets Board.
- Registration at Trade Registry
- The merger becomes legally effective upon registration.
- At this point, the surviving company or the newly established entity assumes all rights and obligations.
Why This Matters for Foreign Investors
Mergers in Turkey are not only legal formalities but also instruments that shape the economic and competitive landscape. For foreign companies, they serve as:
- Market Entry Tools: Acquiring a Turkish company provides immediate access to established clients, suppliers, and licenses.
- Restructuring Mechanisms: Foreign investors often merge subsidiaries to simplify their structure.
- Risk Points: If due diligence is not carried out properly, foreign investors may inherit undisclosed debts, tax liabilities, or litigation risks.
Real-Life Applications and Disputes
- M&A Practice in Turkey
Foreign investors often use mergers by acquisition to enter strategic sectors such as logistics, energy, and technology. However, failure to conduct thorough due diligence has led to post-merger disputes in several high-profile cases. - Competition Authority Oversight
The Turkish Competition Authority carefully examines mergers in sensitive markets. For example, large transactions in banking and telecommunications have been blocked in the past because they threatened to restrict competition. - Minority Shareholder Challenges
Minority shareholders may challenge a merger if they believe that the exchange ratio is unfair or that their rights are disregarded. Turkish courts, including the Court of Cassation (Yargıtay), have annulled mergers due to insufficient or biased expert reports. - Creditor Lawsuits
Creditors who feel that their claims are at risk may sue for guarantees or try to block registration. This is particularly relevant when merging companies carry significant debt.
Tax and Employment Considerations
Foreign investors should also be aware of:
- Tax Neutrality: If structured properly under the Corporate Tax Law, mergers can be tax-free. Improper structuring, however, may lead to unexpected tax burdens.
- Employment Transfer: Employees’ rights are protected under Turkish Labour Law. Employment contracts automatically transfer to the surviving or newly formed company unless employees object.
Conclusion
The legal framework of mergers in Turkish law offers clear rules for corporate restructuring while balancing the rights of shareholders, creditors, and employees. For foreign investors, mergers remain an efficient path to enter or expand in Turkey, provided that compliance, due diligence, and regulatory approvals are handled with care.
In real life, disputes often arise over valuation, creditor rights, or regulatory approvals. These risks underline the importance of working with experienced Turkish lawyers and financial advisors.
Ultimately, mergers in Turkey represent both an opportunity and a challenge: an opportunity to grow in a dynamic market, and a challenge requiring careful legal navigation. For foreign investors, success depends on aligning strategic business goals with the legal framework governing mergers in Turkey.
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