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Merger, in general, is a complex procedure which
requires detailed and long formalities. Simplified merger creates an option for
the joint stock companies to merge in a faster way without being subject to
certain transactions.
I.
Introduction
Merger, in general, is a complex procedure which
requires detailed and long formalities. Simplified merger creates an option for
the joint stock companies to merge in a faster way without being subject to
certain transactions.
In order to shorten merger procedures for companies
that already own at least 90% or more of the voting rights, the Turkish
Commercial Code numbered 6102 ("TCC")
has adopted the concept of simplified merger from Swiss Merger Law and
incorporated similar provisions contained therein. The underlying reason for narrowing
the shareholding percentages was that the risks that
may arise for the minority shareholders in case of a merger of two companies with
a prior shareholding relationship are usually lower or less significant.[1]
However, the TCC also limits
the type of companies that can benefit from the simplified merger procedures. Preamble
of TCC expressly states that simplified merger procedure is only applicable to
capital stock companies (i.e. joint stock companies and limited liability
companies).
Simplified mergers of capital stock companies are
categorized into two types under the TCC. In the first group the acquiring
company owns 100% of the voting rights of the acquired company and in the
second group it owns 90% of the voting rights of the acquired company.
II. Types of Simplified Mergers and Facilitations Under
Turkish Commercial Code
(a)
Mergers
Where the Acquiring Company Owns All of the Voting Rights of the Acquired
Company
Pursuant to first paragraph of Article 155, simplified
mergers where the acquiring company holds 100% of the voting rights of the
acquired company are divided into two sub-categories:
(i) Acquiring company holds all (100%) of the shares
with voting rights of the acquired
company; or
(ii) A company or a real person or a legally or
contractually connected group of persons hold all (100%) of the shares of the merging companies.
Under the first option
where the acquiring company holds all of the shares with voting rights, the
merging companies are generally parent and subsidiary companies. However, it is
usually the parent company who acquires the subsidiary and a reverse merger is
not likely to happen under simplified merger procedures.[2]
Under the second option
where a company or a real person or a legally or contractually connected group
of persons hold all of the shares with voting rights, the merging companies are generally two sister
companies or subsidiaries. For example, if a joint venture or a holding company
owns all of the voting rights of both Company A and Company B and those two
merge, such merger will be subject to the rules of a simplified merger.[3]
When
compared with the ordinary merger procedures, companies are under lesser
obligation to provide documentation and in granting rights to the shareholders
when they merge in accordance with the first paragraph of Article 155 of the
TCC. For example, in ordinary mergers,
merging companies have to prepare a merger report that explains the purpose and
consequences of the merger and a merger agreement (which will be submitted for
the general assembly's approval) and should subsequently submit the merger
agreement and merger report in their head offices and branches for the
shareholders to inspect.
Instead,
in simplified mergers defined under this section, companies are not obliged to
prepare a merger report or grant shareholders the right to inspect the merger
agreement and merger report. Nevertheless, the companies are still obliged to
prepare a merger agreement containing fewer clauses, which will be explained in
detail below. However, they have the option to not submit the agreement for the
general assembly's approval.
In
any case, the merging companies have to have the balance sheet audited, which
is the basis of the merger as year-end balance sheet, by an independent
auditing company, alongside its year-end financial statements.[4]
For
the validity of the merger agreement, it is sufficient to include the
information mentioned below:
(i) Trade names, legal status, headquarters of
companies participating in the merger; in the case of a merger by formation of
a new company, type, trade name and headquarters of the new company,
(ii) Cash payment
for withdrawals in accordance with Article 141, if necessary,
(iii) Date on
which the transactions and activities of the acquired company is considered as performed
on the account of the acquirer company,
(iv) Special benefits granted to managing bodies and
managing partners,
(v) Names of the shareholders with unlimited liability,
if necessary.
(b)
Mergers
Where the Acquiring Company Owns Shares with At Least 90% Voting Rights of the
Acquired Company
Pursuant to the second paragraph of Article 155, a
merger where the acquiring company holds at least 90% of shares of the acquired
company that has voting rights will be subject to the rules of simplified
merger provided that:
(i) the minority shareholders are offered, in addition
to the participation rights in the acquiring company, a cash or other
compensation payment in accordance with TCC, which is equivalent to the real
value of the participation rights; and
(ii)
no additional payment or personal performance
liability or personal responsibility of minority shareholders arise due to
merger.
Similar
with the first type of simplified merger, companies do not have to prepare
certain documents. Pursuant to the second paragraph of Article 156, merging
companies are not obliged to prepare a merger report. However, the companies
are obliged to grant shareholders right to inspect and prepare a merger
agreement containing fewer clauses. The company should grant the right to
inspect 30 (thirty) days before the application to the trade registry for the
registration of the merger. On the other hand, the company has the option to
not to submit the agreement for the general assembly's approval.
For
the validity of the merger agreement, it is sufficient to include the
information mentioned below:
(i) Trade
names, legal status, headquarters of companies participating in the merger; in
the case of a merger by formation of a new company, type, trade name and
headquarters of the new company,
(ii) Transfer
rates of company shares, and, if provided, equalization amount; explanations
regarding shares and rights of shareholders of the acquired company in the
acquiring company,
(iii) Cash
payment for withdrawals in accordance with Article 141, if necessary,
(iv) Date
on which the transactions and activities of the acquired is considered as
performed on the account of the acquirer,
(v) Special
benefits granted to managing bodies and managing partners,
(vi) Names
of the shareholders with unlimited liability, if necessary.
III.
Conclusion
The
simplified merger implemented by the TCC has created a more convenient and time
efficient merger structure for companies that are already in a shareholding
relationship. Thus, the simplified merger procedure has become more preferable
for such companies, especially since ordinary merger procedure results in
unnecessary delays and higher costs.
Authors: Gönenç Gürkaynak, Esq., Nazlı Nil Yukaruç and Defne
Kahveci, ELIG Gürkaynak Attorneys-at-Law
(First published by Mondaq on June 19, 2019)
[1]
Pulaşlı, Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book 1, January 2018, pg.273
[2] Pulaşlı,
Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book 1, January 2018, pg.274
[3] Id.
[4] Pulaşlı,
Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book 1, January 2018, pg.276