Mesrutiyet Avenue, Ersoy Business Center, No: 102/11-12 Floor: 5 Beyoglu 34420 ISTANBUL / TURKEY


July 1, 20080


The importance of the division of companies is raised up together with the growing up of the business environment. Company division can be defined as a way of returning to the main area of activity for companies which are departing from their main field. Besides this, if the owner of the company believes that his successors will not be able to continue to the business, he/he can divide the company as to leave a company to every successor. Moreover, for the companies which want to go public keeping some of their assets beyond the scope of this operation may also use the option of dividing the company for this purpose. As may be observed, one may benefit from the method of dividing the company for diverse purposes. We may fairly say that in our country, the legal regulations on division of companies are not satisfactory. As the main legal regulations on the issue, we may mention the article 19 of the new Law on Corporate Tax, the Notice on the Principles and Procedure of Partial Division of Joint-Stock and Limited Companies and relevant articles of the Notice on the Application of the Law on Corporate Tax nr. 1. However, all these regulations are rather related with the financial aspect of the issue than its legal aspect.

Definition of Division of Companies

We may define division of companies as partial or total separation of some assets of capital companies or cooperatives from themselves and transfer of these assets to other capital companies of cooperatives by means of complete succession in return for automatic acquisition of shareholding position by the shareholders of the transferor company in the transferee companies. When the assets of a company are divided for transferring some of them to another company, the shares of the company would loose their value insofar as the value of the transferred items. In order to compensate the lost value, shareholders of the transferor company automatically acquire the shares of the transferee company. Division can be total or partial. In the total division, all the assets of the company are divided into portions and are transferred to other companies. The shareholders of the divided company acquire the shares and the rights of the transferee company. The totally divided and transferred company ceases to exist and its business name is cancelled from the commercial registries. In partial division some part of the assets of a company are transferred into other companies. The partners of the divided company acquire the shares and the rights of the trensferee company or the divided company acquires the shares and the rights of the transferee company in return for the transferred assets. Divided companies do not have to be of the same kind. A joint-stock company can be divided into two or more joint-stock or limited companies.

Financial Advantages

Company divisions have several advantages; but the financial ones are the most significant ones. The division proceedings are exempt from any tax. According to the article 20 of the Law on Corporate Tax, division is exempt from the corporate tax. This provision perfectly conforms to the logic of the institution of company division. As the budget of the transferor company will be transferred to the transferee companies, there will be no income, thus no tax shall accrue. Additionally, according to the Law on Value Added Tax, the division proceedings are also exempt from the value added tax. Also the Act on Fees and Act on Stamp Tax provide some advantages. Accordingly, real estates which are transferred through company division are exempt from the title deed fee and the division contract and all other relevant documents are exempt from the stamp duty.

Evaluation of the Provisions of the Draft Commercial Code

The provisions of the Draft Turkish Commercial Code on company divisions shall also be mentioned. With the draft, the legal aspect of company division is regulated for the first time. For this reason, the legal gap on company divisions will de filled with the entry into force of the draft. The draft regulates the issue of company divisions between the articles 159 – 179. In these articles some important issues are dealt with such as the protection of the shares and rights of the shareholders, the division contract, the monitoring of division proceedings, the situation of the creditors of the company and the registration of the division. The Draft Turkish Commercial Code provide for both total and partial divisions of companies. Partial division is divided in two categories as full partial division and establishment of a subsidiary company. The Draft sets forts the phases of the division proceedings. Fist of all, a division contract or a division report shall be prepared depending on the type of division. Taking the decision of division of the company is not possible without guaranteeing the debts of the creditors of the company. Moreover, the managing organs of the companies which take part in the division shall prepare a report on the division.


Although the division of companies were not observed very often until recently due to the lack of legal regulations on the subject, its use is increasing with the impact of the financial advantages brought by recent legislations and its applicability for diverse purposes. However, it cannot be denied that the issue is not perfectly known in the society in terms of both its legal and financial aspects and this creates problems in practice. We may expect the increase of the importance of company divisions with the entry into force of the Draft Turkish Commercial Code, as has been the case to mergers and acquisitions with the entry into force of the Law on Protection of Competition.

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Mesrutiyet Avenue, Ersoy Business Center, No: 102/11-12 Floor: 5 Beyoglu 34420 ISTANBUL / TURKEY
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