Turkey offers significant opportunities for foreign investors who want to acquire an existing company rather than establish a new business.
Under Turkey’s foreign investment framework, foreign investors are generally subject to the same rules as domestic investors, and the conditions for acquiring shares in Turkish companies are generally the same.
However, buying an existing company also means taking on certain legal and financial risks. Therefore, the company should be carefully investigated before any payment is made.
1. Conduct Legal Due Diligence
Before purchasing a company, the investor should review:
- Trade Registry records;
- shareholders and management;
- company debts;
- tax liabilities;
- SGK liabilities;
- lawsuits and enforcement proceedings;
- bank loans;
- employment liabilities;
- major contracts; and
- licences and permits.
A company may appear profitable while carrying significant hidden liabilities.
2. Check Who Owns the Shares
The buyer should confirm that the seller is legally entitled to transfer the shares.
It is also important to determine whether the shares are subject to:
- pledges;
- third-party rights;
- transfer restrictions;
- pre-emption rights; or
- shareholder agreements.
The procedure for transferring shares also differs depending on whether the target is a limited liability company (Ltd. Şti.) or a joint stock company (A.Ş.).
3. Investigate Tax and SGK Debts
Foreign investors should not rely solely on the seller’s statement that “the company has no debt.”
Tax records and Social Security Institution records should be examined independently.
Potential liabilities arising from previous periods should also be considered because some problems may become apparent only after the acquisition.
4. Review Lawsuits and Enforcement Proceedings
The investor should determine whether the company is involved in:
- commercial lawsuits;
- employment disputes;
- tax cases;
- administrative proceedings;
- enforcement proceedings; or
- significant compensation claims.
Pending disputes can directly affect the real value of the company.
5. Review Employees
If the company has employees, the investor should check:
- employment contracts;
- unpaid wages;
- overtime;
- annual leave;
- severance liabilities;
- workplace accidents; and
- SGK compliance.
Long-serving employees may create substantial accumulated liabilities.
6. Check Licences and Permits
For businesses such as hotels, restaurants, factories, healthcare companies and tourism businesses, licences may be essential to the value of the company.
The investor should confirm that all licences are valid and determine whether a change of ownership affects them.
Certain regulated sectors may also be subject to additional rules concerning foreign ownership.
7. Review Important Contracts
The company’s major contracts should be reviewed, especially:
- lease agreements;
- customer contracts;
- supplier agreements;
- franchise agreements;
- distribution agreements; and
- financing contracts.
Some contracts contain change-of-control clauses, allowing the other party to terminate the agreement if ownership of the company changes.
8. Determine Whether Real Estate Is Included
If the company owns property, title records should be reviewed separately.
Mortgages, liens, annotations and other restrictions should be identified before the acquisition.
Special rules may apply where foreign investors acquire at least 50% of a Turkish company or obtain certain management-control rights and the company owns real estate in Turkey.
9. Prepare a Strong Share Purchase Agreement
After due diligence, the investor should be protected through a properly drafted Share Purchase Agreement (SPA).
The agreement should address:
- purchase price;
- payment conditions;
- hidden debts;
- seller warranties;
- tax liabilities;
- employee claims;
- indemnification;
- escrow or holdback;
- conditions precedent; and
- termination rights.
The contract should reflect the actual risks discovered during due diligence.
10. Do Not Pay Before the Legal Checks Are Completed
One of the most important rules for foreign investors is simple:
Do not transfer the full purchase price before completing legal due diligence and securing the share transfer process.
The investor should first determine exactly what is being purchased, what liabilities exist and what protections will apply if an undisclosed problem appears after closing.
Conclusion
Foreign investors can generally acquire Turkish companies, but the transaction should not be completed based only on the company’s turnover, assets or the seller’s statements.
Before buying a company in Turkey, investors should verify:
ownership, debts, taxes, employees, lawsuits, licences, contracts and assets.
A proper legal due diligence process and carefully drafted acquisition agreement can substantially reduce the risks of purchasing an existing Turkish business.
This article provides general information and does not constitute legal advice. Each company acquisition should be evaluated according to the target company, sector and transaction structure.
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