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