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


February 24, 20150

Overall View of Foreign Investments In Turkey

By the Law No. 4875 “On Direct Foreign Investments” of 5 January 2003, the previous regulation of the Law on Encouragement of Foreign Investment was abolished.

The new law aims to promote direct foreign investments, protection of foreign investors’ rights in the context of investment and investor terms by adopting the international standards. And also it aims to implement the foreign investments procedure, to alter the previous system, where the permission and the approval of notification was required, also to compose the legal policy essential in order to improve the volume of direct foreign investments in Turkey.

When the historical back ground is considered, at the current phase, the new law demonstrates that investments of foreign capitals are now assumed to be a sine qua non capital resource for Turkey. The historical conflicts between protectionist and etatist policies and liberal policies have come to an end and thanks to the new Law taking the side of the liberal point of view. The obligations such as obtaining permission and approval have been removed by the new law but informing the relevant authorities is still required. New definitions regarding “foreignness” have been introduced. Further, Law no 4686 on International Arbitration has come into effect for the dissolution of disputes which involves foreign elements.

Moreover, new and radical provisions have been introduced.For instance, freedom of investment for a foreign investor is now the same as the national investors. Furthermore, a foreign investors’ privilege of acquiring real estate without taking the reciprocity principles are also taken into account. Also, the new law has introduced that the dissolution of disputes with the State are to be done at the arbitration tribunals instead of the national courts and also foreign investments may not be nationalized unless there is an evident public interest present. In addition, free transfer of foreign investors’ profits, dividends, foreign credits, privilege of employment of foreign personnel without taking their numbers and job qualifications into account, and many other things have been introduced. , in consideration of today’s political and economical conjuncture, a better evaluation of the Law will be made in the future years; since only time can prove whether this Law serves its purpose.

However, Turkey’s agenda of integrating into the EU shall certainly serve the nationals as well as the foreigner investors. We can assume that, with each passing day, due to the rapid efforts for a healthy harmonization procedure with the EU acquis, foreign investors shall find a better investment environment in Turkey.

Specifics of the Due Diligence

Legal Due Diligence is a study procedure that aims to determine the legal position of the target company’s activities by finding out implicit or explicit legal risks. In this context, it focuses on all legal transactions of the target company and their effects. Its main purpose is enabling the legal protection and acquiring information on legal cultural patterns of the target company, defining the “economical organism” which is studied with respect to its relationships, liabilities and assets.

Official Permissions and Notifications


Some portions of the shares of a public company are subject to a Share Purchase and Sale Contract, for the transfer transaction at hand, the company’s Articles of Association may be subject to a relevant change by considering the Shareholders Contract as well as Share Commitment Contract. In such cases, permission should be obtained from the Capital Markets Board. If the buyer prefers to avoid this requirement, then an exemption application should be made to the Capital Markets Board.

EXPLANATION OF SPECIAL CIRCUMSTANCES: Public companies are obliged to inform the Capital Markets Board about share and asset sales and purchase transactions which might directly or indirectly affect their capital structures and management controls as well as the related Stock Exchange, pursuant to Capital Markets Board’s Notice on the Principles of the Publicity of Special Circumstances, Series: VIII, No:39.

In addition, pursuant to the same notice, the public companies or parties to the transaction are obliged to inform the Capital Markets Board and related stock exchange immediately when;

? an individual or a legal entity, or other individuals or legal entities acting together with the individual or the legal entity has/have directly or indirectly at least 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 and 75% or more of the total voting rights of the partnership or sharecapital or its/theirs total voting rights or capital shares decrease below the mentioned percentages/ratios; or
? sale or purchase amounts of acquired or disposed financial fixed assets reach at least 5% of the latest publicised balance sheet according to the notices of Capital Markets Board, or when 10% or more of sharecapital of another company or its total voting rights are acquired or disposed, however when a decision is made in the case when the amounts do not exceed the mentioned percentages, a decision on acquisition or disposal of a significant number of financial fixed assets.


Article 1 of the Notice on Mergers and Acquisitions (1997/1) mentions that “The purpose of the Notice hereby is, pursuant to Article 7 of Law No. 4054 “On Protection of Competition” of 7 December 1994, to determine and enunciate the mergers and acquisitions which require the permission of Competition Board’s permission to become legally valid.

In the frame of Article 7 of the Law on the circumstances assumed or not assumed to be mergers and acquisitions, mergers and acquisitions which require the Competition Board’s permission to be legally valid and the relevant procedures and principles for informing the Competition Board are included to this Notice from now on.”

Forbidden Mergers:

The subject of forbidden mergers and acquisitions is regulated by Article 7 of the Law. According to this Article under the name of “Protection of Competition” any contract in which an individual or legal entity acquires shares of another legal entity and has therefore taken control over its management and this consequently leads to a significant depletion in competition or creates a state of monopolization by the continuance of acquiring individual or legal entities is illegal and prohibited.

Turkish legislation assumes that the creation or improvement of a dominant position will bring forth a significant depletion of competition and also assumes that, a concentration which creates or strengthens a dominant position, will significantly deplete the competition at the market.

Here, to enter into the market with a dominant position is not forbidden. Also if a company reaches the dominant position using its own internal dynamics and becomes successful, this fact solely cannot be determined within the context of prohibition.

Mergers Subject to the Board’s Permission:

Under Article 4 of the Notice No. 1997/1, mergers and acquisitions subject to the Board’s permission are listed. According to this article,

As a result of a merger or an acquisition, if the total market share of the undertakings which perform the merger or acquisition exceeds 25 % of the market in the relevant product market within the whole or a part of the territory, or even though it does not exceed this rate, their total turnover exceeds twenty-five trillion, (according to previous Turkish currency-approximately $16, 6 million) it is compulsory for them to take the authorization of the Competition Board.

With this article, monopolization through M&A deals are prohibited and a double-step threshold system consisting of revenue threshold and market share in the relevant product market is set forth. Due to the threshold systems, if the M&A transaction does not exceed the mentioned thresholds, it is assumed that it does not create a dominant position or it does not strengthen a dominant position already achieved, as a result competition is not significantly decreased. Therefore, notifying to the Competition Board is not required.

Consequently, the work burden of the Competitive Board is reduced and legal certainity and predictability is provided for business firms on M&A deals. Thresholds designated by Article 4 of the Notice does not consider all markets of the parties in the M&A deals. It only considers the deals among parties concerning country-wide or regional relevant product markets.

Examination of the Competition Board:

The Competition Board examines mergers and acquisitions upon notification by the parties or by denouncing or by ex officio. According to Article 40 of the Law, the Board may decide to set up an inquiry or to make a pre-investigation to determine whether an inquiry is needed. If a pre-investigation is to be made, an inspector prepares and submits his report within 30 days.

According to Article 41, the Board shall decide whether an inquiry should be set up within 10 days following the delivery of the report.

If the Board has decided that an inquiry is necessary, then the parties shall be informed of this decision within 15 days pursuant to Article 43 and they will be asked to respond within 30 days. The inquiry should be completed within 6 months by the nominated Board members. When it is nesessary, an ad-hoc additional period can be granted by the Board but this may be done only once. The additional period would be a maximum of 6 months.

Pursuant to Article 45/2 of the Law, if any violation of the regulations is discovered, the parties are notified to send their written defence to the Board within 30 days. The inquirers can declare their counter opinions against the provided defences within 15 days and it is delivered to the all of the parties by the Board. Also, the parties in the M&A deal can respond to these counter opinions within 30 days, as well as also being entitled to use their right of verbal defence pursuant to Article 46. In the case of verbal defence, a meeting will be held within at least 30 days after the investigation period, but no later than 60 days after. Holding such a meeting is not compulsory.

However, the parties have the opportunity to state their defences clearly when they cannot sufficiently express themselves in written form. Within the frame of Article 47, these meetings are open to the public with reservation of general ethics and provisions of commercial secrets. The Board has discretion to open the meeting to the public.

The parties are allowed to benefit from all means to present evidence and every type of proof according to the Turkish Code of Civil Procedure.

According to Article 48, the Board shall give its final decision on the same day as the verbal defence meeting ends; or if it is possible, it shall be given within the following 15 days with its legal grounds.

Pursuant to Articles 52, 53 and 55 of the Law, the losing party may appeal against the Board decision to the Turkish State of Council (Danýþtay).The Board decisions are duly written with their justifications and published on the Competition Authority’s website in a manner where the commercial secrets should not be revealed.

Within 15 days following the delivery date of the notification, the Board performs a pre-examination and either permits the M&A deal or decides to have a final examination on the deal. At the same time, the Board informs the notifying party that the M&A deal shall be pending till the decision which will be made at the end of final examination, therefore the deal cannot be implemented. In case the Competition Board fails to give any response to the M&A application or fails to make or conduct any operations concerning the application, the M&A contract shall be legally valid after thirty days following the delivery date of the notification.

As a result of the examination made by the Board, it may be decided to permit the M&A deal conditionally or unconditionally or it may be decided to prohibit the deal or grant exemptions to the deal or issue a negative clearance certificate confirming that the deal is not violating the Law. Moreover, the Board can apply certain penalties on the parties of the deal in case they find out that they are violating the provisions of the Law.

These penalties have been changed on 23.1.2008. It can be seen that the fixed penalties has been cancelled. The Board may impose administrative fines and in addition it may impose penalties for each day. According to Art 16 of the Law these are as follows:

1. When False or misleading information or documents are provided in exemption and negative clearance applications and in authorization applications for mergers and acquisitions,

2. When Mergers and acquisitions which are subject to authorization are realized that they are made without the authorization of the Board,

3. Presenting incomplete, false or misleading information or when a document is provided or information or document is not provided within the determined duration or at all upon request of the Board or on the spot inspection

For all of the above situations, the Board shall impose on natural and legal persons which are having the nature of undertaking and on association of undertakings or members of associations an administrative fine of 000,1 of annual gross revenues of undertakings and associations of undertakings or members of associations which generate by the end of the financial year preceding the decision, which is generated by the end of the closest financial year which is closest to the date of the decision if it is not possible to calculate it then in this situation it would be determined by the Board.

4. on the spot inspection is hindered or complicated,

The same method is applied by the Board and it shall impose an administraive fine which would be 000,5 of the annual gross revenues of undertakings which were aforementioned.

In any case, the penalty cannot be less than ten thousand Turkish Liras. (Approximately $6,700) However, according to Art 16/4 the Board may impose a penalty against those who commit a prohibited behavior in Articles 4, 6 and 7 of the Law. In this case, the Board shall impose an administrative fine which would be up to 10% of the annual gross revenues of the undertakings.

Not only that, the Board may also impose daily penalties (Art 17) on undertakings and associations of undertakings which would be 0000, 5 of the annual gross revenues of the relevant undertakings and association of undertakings or members of such associations. These events are:
a) When Obligations introduced or commitments made by a final decision or a interim measure decision are not complied with,
b) On the spot inspection is hindered or complicated
c) In implementation of articles 14 and 15 of the Law, information or document requested is not provided within the duration determined.


Changes to the articles of association of the target company might be determined as a condition of share transfer. In this context, one of the innovations introduced by the Law No. 4857, on Direct Foreign Investments annuls the “permission and approval” system for foreign capital entering Turkey and adopts the “information” system. Pursuant to Article 5 of the bylaws on determining the procedures and principles to be implemented for the issues in the context of the Law, the companies and branches established through the Law on Direct Foreign Investments shall:
? Give information on their share capital and activities annually and in each year, till the end of May;
? To give information concerning capital account, within one month following the payment;
? To give information about share transfers conducted by present domestic or foreign shareholders between themselves or any third party domestic or foreign investors, within one month following the share transfer.

The abovementioned information is given, to the General Directorate of Foreign Investments, it has to be presented in the relevant forms which were shown in the bylaws.

Contractual Phase

IN GENERAL: In this section, the share sale/purchase contract and escrow agreement shall be analysed respectively.


The purpose of a Share Sale Purchase Contract is the partial or total transfer of authority concerning the determination of the economical future of a company as an economical unit. Share transfer is a tool to reach this objective, and when the matter is considered from the obligations law point of view, the subject of the indebting transaction is the company itself and the subject of the disposal transaction is the shares.

As it is mentioned above, for joint stock companies’ shares which form the subject of disposal transaction, the Turkish Code of Commerce does not require issuance of share certificates which qualify as securities. However, such requirement might be determined with any joint stock company’s articles of association and the shareholders may claim to have certificates proving their shareholding status. The contents, functions and disposal means of rights represented by certified shares and uncertified shares do not differ; however, the only difference between certified and uncertified shares becomes evident during the transfer and at the confirmation of shareholding. 190

In the Turkish Code of Commerce, share certificates are classified into three types:
? Bearer certificates;
? Registered shares; and,
? Tied-up registered shares.

For the transfer of bearer certificates, the possession of the certificate should be transferred to the buyer with the purpose of “the transferred share’s ownership.” For registered shares:
? the share certificate should be endorsed;
? possession of the endorsed share certificates should be transferred to the buyer;
? the possession should be transferred with the purpose of the transferred share’s ownership;
? the seller transferring the possession should have the power of appointment. Along with all those transactions required for the transfer of related shares ownership, the transferee should be recorded in the book of shares as a shareholder who is entitled to claim the shareholding rights towards the company.

Thirdly, one of the share certificate types is the tied-up registered shares. Such shares are subject to the corporate statute’s provisions called “Lockup.” This type of certificate restricts or totally forbids the transfer of registered shares. The only difference between transfer of registered shares and tied-up registered shares is that the transfer of tied-up registered shares is subject to the “Lockup Rule” which can be found in the articles of the association. The transferee cannot be registered to the book of shares if he does not comply with the lockup rule of the company’s articles of association. Therefore, he cannot claim the shareholding rights towards the company.

On the other hand, if the target company is a limited liability company, not a joint stock one, the share transfer procedure shall be different. Forasmuch as the limited liability companies do not issue share certificates, when compared with the joint stock companies, the share transfer is performed with a “share transfer contract” concluded between the transferee and the transferor. Article 520 of the Turkish Code of Commerce sets forth the rules of share transfer for limited liability companies. Accordingly;
? First, the parties to the transfer conclude a share transfer contract at the public notary;
? Afterwards, the company’s Executive Board takes a resolution for the share transfer and this resolution can only be made if and only if at least one of the company’s shareholders approves the transfer. The approving of one of the shareholders should also include at least one of the sharecapital;
? Then, the share transfer contract and the relevant executive board resolution is registered at the related Trade Registry and publicized in the Trade Registry Gazette;
? New shareholders are recorded to the company’s book of shares. The exemptions of this transfer procedure is to acquire the shares through inheritance or administration of matrimonial property. In these types of transfers of shares, the approval of the other shareholders is not required. Further, a letter of administration, will, heir’s certificate, or contract between the spouses can stand for the share transfer contract so that an additional contract is not required. However, provisions on approval of the shareholders of the share transfers through inheritance or administration of matrimonial property can be included in the articles of the association as well as a total prohibition of share transfers.

Whether one or both of the parties are determined as a “Merchant” does not appear to be an important point when determining the nature of the share transfer transaction; whether it is a commercial sale transaction or an ordinary sale transaction. This fact becomes evident when considering the terms of imperfection, or notice terms pursuant to Article 24/3-4, especially when the imperfection notice terms and periods of the legal remedies for the buyer when the sale’s subject appears to be imperfect. According to the dominant legal point of view in Turkish doctrine, to determine a transaction as a “commercial sale transaction,” the “thing” forming the subject of the sale contract should be purchased aiming to re-sale and for a purpose related to commercial operations. Even if a sale contract is concluded between two merchants, if this goal is not pursued, the transaction cannot be determined as commercial. Consequently, a sale transfer contract concluded without aiming to re-sale shall be subject to the ordinary sale provisions of the Turkish Obligations Code.

If the parties subject the execution of their contractual debts to a delaying condition, then the obligation to transfer the shares and pay the sale amount shall be due together with all other obligations arising from the contract. Once the designated prerequisites are realized the parties can only make a claim for the contract’s execution at that time. If the parties subject the execution of their contractual debts to a nullifying condition, the contract shall come into effect at the date of its conclusion and the parties’ debts shall become due. In case any of the conditions designated by the parties are not realized, the conditional debts shall be subject to a refund. One of the main issues concerning the Share Sale Purchase Contract is the declarations and obligations of the transferee. The declarations and obligations serve two main purposes; firstly, it gives a definition of the target company; secondly, in case the company does not comply with the definitions and determination of the liabilities of the transferee. In practice, the issues listed below are specifically included in the declarations and obligations section of the relevant contract.
? Existence of the power of appointment on the shares or assets or rights to be transferred and non-existence of an encumbrance over them;
? Existence of official permissions and licenses required for the company’s activities;
? Not being a party to a court case other than those already revealed;
? At the share transfer, non-existence of any due debt, deferred or conditional debt of the company other than those revealed;
? Validity of the trademarks, licences and patents and non-existence of any objections towards them and any reason necessitating their cancellation;
? Validation of supply contracts and non-existence of a violation necessitating their termination;
? Non-existence of any tax debts or other public debts;
? Non-existence of any rights which do not appear at title deed’s register and might affect the ownership right (legal

Mortgage, confiscation, compulsory right of way, etc.);
? Good working conditions of the goods and real property estates allotted for the company and non-existence of any malfunctioning which may affect their operation;
? Presence of all required legal books and book of accounts which are being kept according to the valid regulations.

In practice, the approach of “arranging everything possible as declarations and obligations” prevails; yet, only arranging the necessary qualities taking the nature of the parties and the company into consideration would be healthier, so protractions and complications arising from “shallow and meaningless promises” could be prevented.

The liability of the imperfections of the seller arising from the sale contract can appear in two ways; firstly, when the contract’s subject does not have the objective qualifications; secondly, when the contract’s subject does not have the qualities subscribed by the seller. However, for contracts which subject is a company, a definition of the “objective qualities” for the company is almost impossible in Turkish Obligations Code.

Therefore, in share sale purchase contracts, the transferee party’s declarations and obligations to the company becomes much more important. It should be noted that, in the Turkish law system, the source of liability from the imperfections is an indebting transaction, not a disposal transaction.

This differentiation’s importance becomes more evident when it is considered that the essential purpose of a share sale purchase contract is for the transfer of authority which decides the economical future of the company and stating this expressly in the contract. The transferee party may claim that it cannot be blamed for the imperfections, for it did not sell the company, but its shares or some of the company’s concrete assets.

To overcome such a claim, the buyer party should act pretty carefully and cautiously when determining the contract’s subject. In share sale purchase contracts, a certain amount can be determined as stipulated damages to be paid to the transferee party when the declarations and obligations of the seller are not fulfilled or the seller fails to fulfil some of his major liabilities; such as not competing with the buyer or keeping information confidential. In practice, the most important reason for setting up stipulated penalty clauses is in the case where the transferee fails to fulfil their contractual liabilities; here the transferee party shall not be obliged to prove the facts for demonstrating (both experienced losses and damages and the amount of actual losses and damages) when claiming its damages and losses through the general provisions of the Turkish Obligations Code, here they just claim the determined damage amount and do not have to prove anything.

Also, in practice, the “call option” or “put option” are arranged as stipulated damages, with the purpose of remedying /indemnifying / equalizing the transferee’s anticipated interest’s losses arising from the transferor’s breaches of its declarations and obligations or contractual liabilities.

In case the target company whose control is aimed to be taken over is a public joint-stock company, in order to enable the minor shareholders to transfer their shares to the shareholder aiming to take over the control of the company, the Capital Markets Board has issued the Notice Series: IV, No: 8 (The Notice on Principles of Voting on Proxy at General Meetings of Public Joint Stock Companies and Proxy by Appeal or Accumulating the Share Certificates). According to this the Notice, the investor aiming to take the control of a public joint stock company might be obliged to appeal to the other shareholders to purchase their shares. However, in practice when only purchasing a specific portion of a company shares the remedy of “exemption on appeal requirement” is used, which is provided in the very same Notice Series: IV, No: 8.

ESCROW AGREEMENT: The Escrow Agreement is actually an Anglo-Saxon institution, and since it is not provided in the Turkish Code of Obligations or any other Turkish regulations. It can be accepted as an innominate contract. Although it may be compared to numerous agreements, such as custodian agreement, trust deed and the power of attorney, the last agreement has its own specific aspects.

The escrow agreement’s connection with sale/purchase/additional share purchase options should be separately studied, since these options differ from each other with their subjects and purposes. First, for the purchase option, such options can be assumed to be a sanction over the seller considering their nature; and, the ancillary receivership mechanism will have a “performance accelerating” function to overcome the risk of the seller’s unwillingness to transfer the shares during the exercise of a purchase option. For an ancillary receivership mechanism to operate together with the purchase option, the shares subject to the option should be endorsed by the seller with the aim of transfer and deliver it to the receiver in order to be preserved, according to the provisions of the escrow agreement. When a purchase option is used compatible with a tripartite relationship between the receiver, buyer and the seller, the physical delivery is performed with the purpose of shares transfer and is conducted by the receiver, who is entitled to represent the seller, pursuant to the relevant clause of the tripartite escrow agreement.

In practice, the ancillary receivership mechanisms operating with the sale option happens to be rare. However, the basis of such a structure is the buyer’s default which is provided by Article 90 et seq of the Turkish Obligations Code. In accordance with these provisions, the selling party may transfer his shares to an ancillary receiver by a unilateral declaration in order to fulfil his transfer obligation and prevent the buyer using the non-payment incidential plea.

An ancillary receivership mechanism operating together with the additional share purchase option can be considered as a structure combining the aforementioned purposes of the escrow agreement. For an additional share purchase option, the amount of share transfer becomes more realistic compared to the purchase option which aims to qualify as a penalty as well as constituting a more reasonable amount for the seller; so, during the exercise of the additional share purchase, the seller hardly reacts to the exercise of this option. Yet, the functions of facilitating and accelerating the performance will show themselves. Further, the ancillary receivership mechanism will be useful for the simultaneous fulfilment of reciprocal obligations.

On the other hand, a purchase option which aims for “expelling from partnership” shall remove the opportunity to delay the transfer of shares for the party who defaults to fulfil the obligation of timely transfer of the shares.

Types of M&A Deals

The concept of “transfer” in the real sense means that the transferor’s acquisition of authority is to determine the economical future of a specific business firm through the management of its assets which are devoted to that business firm. Such an acquisition is carried out by using two methods; either a share deal or an asset deal. The share transfer method called a “Share deal” is generally known as “Share Sale Purchase Contract” in Turkish legal practice. Since we have already examined the “Share

Sale Purchase Contracts,” also known as a “Share Deal,” in this section we will merely refer to the explanations given above.


For the asset transfer between business entities the Article 179 of the Turkish Obligations Code reads as follows:

“One who takes over a business firm with its assets and liabilities shall be liable for the debtors and creditors of the business firm beginning from the notification of the creditors or the date of announcement of assignments in the newspapers; until then the previous debtor (transferor) shall remain jointly liable with the new debtor (transferee; this period shall commence to proceed from the notice or announcement date for the due debts and for deferred debts from the date due.

The provisions to be applied to such delegation of debts are to be the same as the provisions of delegation of a single debt.”

At the transfer of assets or enterprise the parties agree on the transfer of specific assets or all assets and liabilities of an enterprise from one commercial enterprise to another and the assets and liabilities are transferred in pursuant to the provisions of the concluded contract.

For the validation of a share deal or business firm’s transfer, the approval of the creditors is not required, but for legal validation of the deal/transfer the creditors should be informed or the deal/transfer should be announced. For an asset deal, the transfer contract between the companies does not have to be a formal contract; but for the transfer of real rights concerning the movable estate or real estate property, the formal contracts provided by the related laws should be maintained.

Nevertheless, the transfer contract may not include all assets and liabilities transferred. As can be derived from Article 179 of the Turkish Obligations Code, it starts from the notification to the creditors or announcement, the transferee and the transferor shall be jointly liable to indemnify the debtors for two years. It should be noted that the transferee’s liability for the assigned assets or business firm is not restricted within the debts listed at the transfer agreement.

Whether the transferee is acknowledged or not, also whether all debts are included in the transfer agreement or not, the transferee shall be completely liable for the debts or assigned assets of a business firm. Any transfer agreement setting forth otherwise that provides only the transfer of the assets of a business firm is legally invalid. If the transfer of a business firm, consequently the transfer of all assets, happens to arise from the merging of companies, the former company cannot be jointly liable for the debts for two years, pursuant to Article 180 of Turkish Obligations Code. In this case, only the company who merged with the former company or the new company which incorporated as a result of the merger shall be liable.

Pursuant to Article 280 of the Law on Bankruptcy, the creditors have the right to claim cancellation of the transfer transactions providing that certain circumstances exist against the business firm which assets have been transferred. This article applies to these circumstances when a business firm is transferred or a significant amount of the assets of the business firm is sold to third parties with the purpose of having its creditors suffer from the losses. In this case, the creditor/s may claim to cancel the transfer or sale transaction with a lawsuit.

The creditor should have started unsatisfied enforcement proceedings via execution or bankruptcy within five years starting from the date of the fraudulent transaction; in other words, if the creditor starts enforcement proceedings within five years from the disposition, then he will be entitled to file a lawsuit for the cancellation. Further, the creditor is entitled to claim sequestration over the property which is the subject of the fraudulent transaction.

According to the provisions of Law on Bankruptcy, it is assumed that the transferee or the purchaser is aware of the fact that the transfer or sale transaction is exercised to the disadvantage of the debtor’s creditors. This prima-facie evidence can be disproven by proving that, at least three months before the transfer’s or sale’s date,
• The plaintiff of the lawsuit was informed of the circumstances in written form; or
• The announcement of sale/transfer was listed on the notice board in the premises of the firm and it was also announced in the Trade Registry Gazette; and when such an announcement is impossible;
• The sale/transfer was announced with suitable media in order to have all creditors learn about of the relevant transaction.

If the transferee succeeds in proving any of these facts, then he shall not be liable from the debts of the transferor.

Similar to Article 280 of Law on Bankruptcy, Article 30 of the Law on Collection Procedure of Public Credits covers legal transactions exercised to the disadvantage of the claimants. The relevant article provides that all transactions exercised by the debtor and third parties who know or should have known the fact that the transactions are actually exercised to render the collection of debts impossible are invalid. Here, the difference between the articles is that the timing of the transaction is irrelevant for the Law on Collection Procedure of Public Credits and consequently such a transaction can be cancelled at anytime without being subject to any time prescription.

Transfer of Employees

Severance pay is one of the major issues in the transfer of employees to the acquirer. In principle, the buyer is liable to indemnify its employees for their service contract’s termination. However, in an asset deal it may be otherwise decided as that the buyer may become liable for the employees’ severance pays as a part of the sale amount of assets. Instead of discharging severance pays, transferring this liability from the seller company to Buyer Company can be assessed as an alternative way within the framework of the valid labour regulations.

The Labour Law has found it necessary to set the transfer of a business firm totally or partially with respect to the labour rights as well as transferor’s and transferee’s liabilities. Pursuant to Article 6, paragraph 1 of Labour Law, when a work place is totally or partially transferred through a legal transaction, all work contracts at the date of transaction are assigned to the transferee for those related to the transferred work place or the department/section of the work place subjected to the transfer.

The extent of transfer provided by the Article is applicable to the final and ultimate transfer of a work place belonging to a business firm through merger, acquisition or privatization, as well as work place’s temporary and time-bound transfers due to a tenancy contract.

For both cases, the transferee assigning the work place of a business firm totally or partially in any manner whatsoever is bound with the work contracts concluded before the transfer and the transferee automatically becomes the employer in these contracts.

The transferor or the transferee cannot terminate the work contracts due to the transfer itself. The only exception is when the exercision of termination rights are necessary because of the transferor or transferee employer’s solid economical or technological needs; or if a change at the labour organization has to be made.

Pursuant to the same article when the employees of the assigned work place claim any of their rights which comes from their work terms, then their actual starting dates at the work place (before the transfer) should be predicated on the calculation of severance pay and payment in lieu of notice, and annual leave with pay of a worker/employee, the total work period spent at the work place without considering the identity of the employer.

Moreover, for the credits of the worker/employer which have arisen before the transfer of the work place, both the previous and new employees shall be jointly liable for two years. In other words, the worker/employee is free to request from his former employer and new employer for the total or partial payment of his credits that are involved in the liability of their former employer.

In case the transferor employer has been rendered to pay the worker credits arising from the previous period, then the transferor employer is entitle to have the right to recourse from the former employer. But, we should note that this right of recourse should be exercised within two years from the transfer. If the transferee employer is a legal entity and the transfer has been a result of a merger, acquisition or a corporate type transformation, the business firm transferred by a merger or acquisition and the corporately transformed business firm shall not be jointly liable for the workers’ credits.

Further the transfer of workplace is also provided in the Social Insurances Law. Article 82 of the Law provides that the transferor and the transferee are jointly liable for the unpaid insurance premiums of the workers, together with default fines and due interests. However, here the joint liability is not restricted by a time prescription.


To give a general definition of the Joint Venture, we may say that a joint venture is a kind of partnership established by at least two individuals and/or legal entities in order to realise a common purpose which can either have a legal entity or may not have a legal entity.

A joint venture can be founded either as a Contractual Joint Venture or Corporate Joint Venture. In a contractual joint venture, the parties combine their powers for an economical purpose; whereas in a corporate joint venture the parties take a step further and establish a company together. The Joint venture model is commonly used in Turkey and worldwide, continues to be appealing due to its various advantages.

In respect of Turkish Law, it is accepted that provisions of ordinary company in Turkish Obligation Code are legal basis for a joint venture.

According to Article 9 of the regulation on the Law on Foreign Direct Investments, “… the partnerships which are contractually founded with the titles such as ordinary partnership, consortium, business partnership, joint venture which have not pronounced qualities of the companies provided at the Turkish Code of Commerce shall be assumed as ordinary companies for the implementation of the Law (Law No. 4875 on Direct Foreign Investments).”

Joint ventures are also regulated in the Corporate Tax Law as well as various General Notices on Corporate Tax. According to Article 1/d of the Law, the revenues generated by joint ventures (in business partnership type) are assumed to be included in the calculation of corporate tax. In Article 2/7, The definition of a business partnership is made. According to this, in case the institutions mentioned in other paragraphs of the article (companies, state owned enterprises, cooperatives, etc.) which were found in the form of a partnership in order to undertake the performance of specific works and share the revenue as well as claiming the undertaking of corporate tax liability are deemed as business partnerships.

In the case that the business partnership is not a legal entity, this fact does not affect the liability to pay tax. However, consortiums are not mentioned as taxpayers to corporate tax, so revenues generated by consortiums shall be taxed according to other laws, such as income tax and value added tax and are restricted to the portion of the works undertaken by each member of the consortium.

The Public Procurement Law regulates the issue of joint ventures participating in public tenders. According to Article 4, in the definitions section of the Law, joint ventures are listed with others as the supplier, service provider or candidate applying for pre-proficiency.

Also, a definition of “joint venture” is provided in the same article: “In the context of this law, a joint venture is the business partnership or the consortium founded by more than one individual or legal entity to participate in the tender.” Also, Article 14 provides the conditions for the foundation of joint ventures aiming to participate in public tenders.

According to the article, a “pilot partner” for business partnerships and a “coordinator partner” for consortiums should be nominated at the offer and joint venture agreements should be certified by a public notary. In business partnerships, the partners founding this model of joint venture should be jointly and commonly liable for the liabilities arising from the works to be done; and for consortiums, the respective liabilities and responsibilities of each partner as well as the coordination manners between coordinator partner and the other member/s should be clearly shown.

According to Article 46, if the joint venture happens to be the successful bidder, then the tender’s contract has to be signed by all parties of the joint venture agreement. Not only has the Public Procurement Law provided these general rules but also the special laws and by-laws on service or goods supply to public offices have provisions on joint ventures which require participating in relevant public tenders.

Financial Issues of M&A Deals

Share or Asset Deals

Asset transfers enable the buyer company to increase the book values of its assets. By recording the values of the assets which have increased during the transfer, the buyer company can spare amortization over these values.

In asset purchases, the total amount of the invoice issued by the seller should be recorded at their market value and the difference in between should be assumed as betterment tax and then should be entered as an intangible fixed asset to the buyer’s commercial records. The recorded betterment tax is paid within 5 years in equal instalments. The revenue generated by the sold commodities is included in the commercial profits of the seller company and levied thereupon. The sold commodities are recorded in the buyer’s commercial books at their purchase prices. However, the sale prices of the commodities should be determined by the market prices, according to the prices of similar commodities.

Previous Financial and Commercial Liabilities

Asset purchase of the target company generally prevents the buyer’s obligation to takeover a company’s risks arising from all previous financial and commercial liabilities. In such purchases, the pre-sale financial and commercial liabilities are undertaken by the seller company. However, if the seller becomes unable to pay its post-sale taxes and the tax department determines that the seller exercised a fictitious transaction to avoid its financial liabilities, then the purchase contract may be cancelled by the court.

Present Contracts

In asset purchases, the existing contracts between the seller and third parties are not automatically transferred to the buyer as a consequence of the sale transaction. Therefore, the buyer should conclude “new” contracts with the third parties. Another alternative is, the buyer may undertake liabilities on behalf of the seller which arise from the existing contracts, with creditors’approval.

Increase of Book Values by Assets

Asset transfers enable the buyer company to increase its assets’ book values. The buyer company may record its assets increased values during the transfer operation to its commercial books and spare depreciation amortization over these increased values. While conducting amortization accounts of the buyer company, the amortizations spared by the Seller Company over the assets shall not be taken into consideration. During the purchase transaction, if betterment tax is also paid as well as the asset values, the paid tax shall be recorded as intangible fixed asset and it might be redeemed in equal instalments within five years.


Revenues generated by an assets sale shall be subject to Corporate Tax, because they are assumed to be a part of the commercial revenues of the seller company. On the other hand, shareholders of the seller company can only obtain the post-tax profit generated by the sale if and only the seller company performs dividend distribution. Dividend distribution can only be possible if the seller company pays dividends. Consequently, when the withholding tax on dividends and personal income tax declarations of the shareholders are considered, the revenues generated from the sale can only become a part of the personal assets of the shareholders after a serious tax burden.

Share Purchases

The main spending item from the point of the buyer is the amount spent on share purchases. According to Turkish regulations, evaluation of the share purchase amount is not required. However, the purchase amount has to comply with the imputed costs. In the context of taxation and accountancy, during share purchases a betterment tax is not generally considered to be derived over the share amounts and the total amount paid for the share purchase is assumed to be the cost of the purchased shares. However, it should be noted that, recently the Turkish Ministry of Finance has delivered an opinion stating that betterment tax may be imposed on share purchases.

Previous Financial and Commercial Liabilities

When purchasing a target company’s shares, the buyer undertakes the future liabilities of the company, as well as bearing its previous financial and commercial liabilities for the next five years, pursuant to the taxation time limitation of five years. In share purchases, actualizing the book value of company assets and sparing amortization over these values is impossible. However, the buyer may continue to benefit from the company’s current tax discounts and exemptions. A change in the company’s shareholding structure does not form an obstacle for benefitting from these discounts and exemptions. Other commercial and non-tax liabilities of the company are transferred to the buyer company at the share purchase, including the company’s contracts with third parties. If there are special licenses and contracts unique to the target company, then this might be an important point for the buyer. If otherwise provided, changes in company’s shareholding structure do not affect the validation of such documentation and their re-arrangement is not necessary.


In contrast to asset purchases, the current shareholders of the target company directly acquire the revenue obtained from the sale. In principle, the capital value increase revenue arising from the sale is subject to taxation. However, in special circumstances, the capital value increase revenue can be exempted from taxation. In this context, the exemption provisions provided in the tax laws as well as legal structure of the companies may have an impact on the taxation principles and planning strategies.

Buyer’s Transfer Expenses
(a) Value Added Tax
The share sales are not subject to Value Added Tax.

(b) Stamp Duty
The share sale amount stated at the share sale contract is subject to a stamp duty of 0,75%. The Stamp Duty should be separately calculated for each signed copy of the share sale contract. The Stamp Duty is calculated for those contracts concluded within Turkey. Pursuant to Article 1 of the Stamp Duty Tax, contracts concluded at Turkish embassies and consulates in foreign countries as well as foreign embassies and consulates in Turkey are subject to the Stamp Duty, when they are submitted to official departments in Turkey, when transfer or assignment transactions are performed over them or their provisions are implemented in any means. The taxpayers to the Stamp Duty are defined as signatories to the contract and there is not any special provision determining which one of the parties shall be deemed a taxpayer. Therefore, all parties to the

contract are jointly liable to pay the Stamp Duty. Upon the Stamp Duty Law, the amount of duty calculated for a contract cannot exceed 800.TL. But it should be noted that the transfer of limited liability company shares are not subject to the Stamp Duty, but are subject to public notary fees.

Expenses of Asset Purchases
(a) Value Added Tax

At asset sales, a Value Added Tax is charged over the sale amount of the sold assets. According to the type of asset which is sold, the rate of the Value Added Tax might be varied from 1%, 8% or 18%. The calculated Value Added Tax is included monthly sale declaration and declared to the related tax department, till the 20th day of the next month. If there is a Value Added Tax to be paid it is shown in the declaration, the seller should pay this tax by the 26th day of the month the declaration is submitted.
(b) Title Deed Fees

The title deed fees should be paid at the sale of real estate property. Upon the Law on Charges, at the transfer or acquisition of any real estate in return for a consideration, the buyer and seller should pay 1,5% of title deed fee which is charged separately over the real estate’s value regarding the real estates tax, but this value cannot be lesser than the declared transfer and acquisition value of the real estate. Since the title deed’s fee is calculated separately for the buyer and the seller, the total liability to pay this fee happens to be 3% of the total sale amount.
(c) Stamp Duty

All types of contracts concerning asset deals shall be subject to the Stamp Duty as is explained above. In case the commercial or non-commercial contracts are transferred from the seller to the buyer, the Stamp Duty is calculated to be one fourth of the tax derived from the original contract.

Share Purchases

Finance Expenses

Keeping the provisions on camouflaged capital and revenues reserved, the finance expenses for share purchases are assumed to be expenses made on the Corporate Tax account.

Other Expenses

Expenses of financial, legal and taxation studies as well as consultancy fees, investigation fees and other expenses for share purchases might be also deducted as expenditures in Corporate Tax account.

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