Mergers in Joint Stock Companies:

Among the structural changes of joint-stock companies, "mergers" are one of the most dynamic and strategic moves in commercial life. A merger is when two or more commercial companies combine their assets, either to form a single company or to create a new company. The Turkish Commercial Code (TTK) regulates mergers with the principle of "universal succession"; that is, all rights, obligations, and assets of the merging companies pass as a whole to the acquiring company.

I. Types of Unions

In law, mergers occur in two main ways:

• Merger by Acquisition: This is a process where one or more companies transfer their assets to another; the acquiring company retains its existence, while the legal entities of the acquired companies are removed from the commercial registry and cease to exist.

• Merger through New Incorporation: This occurs when two or more companies combine their assets under a newly formed joint-stock company, and the former companies are dissolved.

II. Main Steps of the Unification Process

Although a merger may seem like a simple process on paper, it is a rigorous procedure requiring the complete fulfillment of all legal processes

1. Merger Agreement: A written merger agreement is prepared by the boards of directors of the merging companies. This agreement includes the names of the companies, the exchange ratios (share swap rates), and the basic legal conditions of the merger.

2. Merger Report: Boards of directors prepare a detailed "merger report" explaining the legal and economic reasons for the merger, the share exchange ratio, and, if applicable, the valuation of the companies. This report ensures that shareholders are accurately informed about the future of the company.

3. Right to Inspection: Before the merger process begins, the merger agreement, reports, financial statements for the past three years, and other critical documents are made available for shareholders' inspection. This is a requirement of the principle of transparency.

4. General Assembly Approval: The general assemblies of both companies must approve the merger agreement. Unless a stricter quorum is stipulated in the articles of association, the merger decision is taken by a majority vote at a meeting where at least 75% of the capital is represented.

III. The Principle of Universal Succession

The most important legal consequence of the merger is "universal succession". This succession occurs the moment the merger is registered;

• All assets of the transferred company (real estate, trademarks, business books) are directly transferred to the acquiring company.

• All debts and liabilities of the transferred company are now the responsibility of the acquiring company.

• The shareholders of the transferring company automatically become shareholders of the acquiring company.

IV. Why Are There Such Strict Rules?

The primary reason for such detailed regulation of merger processes is the protection of creditors. Creditors may suffer losses if a debtor company suddenly merges with another company, resulting in the mixing of its assets into a different structure. Therefore, the law mandates both pre-merger announcements and grants creditors the "right to demand security."

V. The "Founding" Effect of Registration

A merger is not completed with the approval of the general assembly. The merger is legally completed with registration in the commercial registry . From the moment of registration, the legal personality of the transferring company ceases. This registration has a "creative" (constitutive) effect for third parties; that is, a merger not registered in the registry is considered not to have taken place in the legal world.

Additional Note: With which companies can a Joint Stock Company merge?

The Turkish Commercial Code (TTK) offers a certain degree of flexibility in merger transactions between company types. A joint-stock company can merge with the following structures, provided it is a commercial company :

1. With Capital Companies: A joint-stock company can merge with another joint-stock company, a limited liability company, or a limited partnership with capital divided into shares.

2. With cooperatives: Joint-stock companies can also merge with cooperatives, subject to appropriate legal conditions.

3. With Joint Stock Companies and Limited Partnerships: A joint stock company can merge with a joint stock company or a limited partnership. However, it is important to note that if the joint stock company the acquiring , there is no problem. But if the joint stock company the acquiring (i.e., it will continue to exist as a joint stock company), then the special conditions for type change and merger stipulated by law must be complied with.

In summary: A public limited company has the ability to merge with almost any form of business registered in the commercial registry, provided it meets the legal requirements, whether it is with another commercial company, a cooperative, or in a merger/acquisition scenario.

Division: Company Downsizing or Restructuring

Unlike a merger a demergeris the process by which a company transfers part or all of its assets to another company or a newly formed company. In commercial law, demergers are a complex but highly legally protected structure often used for purposes such as "strategic downsizing," "increasing efficiency by separating business units," or "distribution among heirs in family businesses."

I. Types of Division: Complete and Partial Division

In the Turkish Commercial Code, division occurs in two main ways:

• Complete Division: All assets of the company are divided into parts, and these parts two or more companies. In a complete division, the company undergoing the division is liquidated and its legal personality ceases.

• Partial Demerger: Only one or more parts are transferred to another company (existing or newly established). In this process, the company undergoing the demerger continues to exist; only a portion of its assets (for example, only a part representing a factory or a group of brands) is transferred to the other company.

II. Partition Plan and Report

The demerger process begins with the "Demerger Plan" prepared by the board of directors . This plan is a "roadmap" that determines which assets will be transferred to which company and in what proportions.

• Division Report: The board of directors prepares a report explaining the reasons for the division, the rights to be granted to shareholders, and the new financial structure of the companies.

• Right to Inspection: As with mergers, the demerger plan and report are made available for shareholders' inspection. Transparency is a fundamental element in this process, protecting the rights of both creditors and shareholders.

III. Protection of Creditors in a Demerger (Critical Process)

A division of a company can pose a risk to creditors because it reduces the company's assets. For this reason, the legislator has subjected the "creditor call" process to very strict rules

1. Announcement: The decision to split the company will be announced three times in the Turkish Trade Registry Gazette

2. Summons: Creditors are summoned to report their claims and request security.

3. Security: If creditors can prove that the split would jeopardize their claims, the company is obligated to provide security (e.g., a bank guarantee letter) to cover those claims.

IV. Legal Consequences of the Partition

• Legal Transfer: The divided assets are transferred to the acquiring company through "universal succession" on the date specified in the division plan.

• Joint and Several Liability: The most important rule in a demerger is this: Unless otherwise specified in the demerger plan, the demerging company and the companies acquiring these debts jointly and severally liable for the debts of the demerging company. In other words, a creditor can claim their dues from either the demerging company or the acquiring company.

V. The “Creative” Effect of Registration

A division is deemed to have taken place the moment it is registered in the commercial registry. Upon registration, the acquiring company takes possession of the assets allocated to it in the division plan. In a full division, the divided company is removed from the registry.

Type Change:

Transformation is the process of changing a company's legal structure (or legal form) to another type. The most common examples are the conversion of a Limited Liability Company into a Joint Stock Company, or vice versa, or the conversion of a collective company into a joint stock company. An important point: Transformation is not the termination or re-establishment of the company; it is the continuation of the company with the "same identity" but under a different legal status.

I. The Basic Logic of Type Conversion

In a company transformation, the company is like "an individual changing its identity." The company's tax number, title, assets, and liabilities are preserved. Only the company's "management style," "shareholder liability," and "representation structure" change. For example, partners who were personally liable when the company was a limited liability company become liable only to the extent of their committed capital when the company is converted to a joint-stock company.

II. How to Change Type (Step-by-Step Process)

The species modification process is subject to a very strict procedure. Here are the legal steps:

1. Transformation Plan: This plan, prepared by the management body, defines the type of the new company, its articles of association, and the status of the shareholders' shares in the new company.

2. Company Form Change Report: The management body prepares a report explaining the purpose of the company formation change, the economic justifications, and the rights granted to the shareholders. (Note: In small companies, this report can be waived with the consent of all shareholders.)

3. Audit: If the company is subject to independent audit, the conversion plan and report must be reviewed and approved by an auditor.

4. Right of Inspection: Documents are made available for inspection by the partners.

5. General Assembly Approval: The company's general assembly approves the change of legal form plan. This is the most critical approval given to change the company's "legal identity."

III. How to Change Company Type? (Business Logic)

The species transformation process works in practice as follows:

• Balance Sheet Preparation: At the beginning of the conversion process, an up-to-date balance sheet of the company is prepared. This balance sheet will form the basis of the new company's capital.

• Capital Alignment: For example, when converting from a limited liability company to a joint-stock company, the capital must be adjusted to meet the legally mandated minimum amount for joint-stock companies (and any conditions in the articles of association, if applicable).

• Protection of Shareholders' Rights: Existing rights of shareholders (e.g., dividend rights, preferred shares) must be preserved during a change of company type. If these rights cannot be ensured under the new type, the company may face obligations such as paying shareholders "separation payments" (the value of their shares) to remove them from the company or providing them with compensation.

IV. Which Companies Can Transform into One Another?

The Turkish Commercial Code allows for "horizontal" and "vertical" transformations of company types:

• From Limited Liability Company to Joint Stock Company: (e.g., Limited -> Joint Stock Company).

• From Sole Proprietorships to Capital Companies: (e.g., Collective -> Joint Stock Company).

• From Cooperatives to Joint Stock Companies: Type conversion allows companies to freely move from one status to another.

V. Legal Effect of Type Change: The Principle of Continuity

Species change occurs the moment it is registered.

• Continuity: All debts and receivables of the old company are transferred to the new type of company without any changes.

• Liability: When a limited liability company is converted into a joint-stock company, the partners' liability in the limited liability company continues for debts incurred up to the date of the conversion; however, for transactions after the conversion date, the limited liability principle of the joint-stock company applies.

Creditors' Protection and Publication Obligations

In joint-stock companies, structural changes such as mergers, divisions, or conversions can fundamentally alter the company's assets, ownership structure, and debt repayment capacity. The legal system "preventing harm to creditors". A company merger or division must prevent a creditor from saying, "I lent money to this company trusting in its financial situation, but now the company has changed/divided and it cannot repay my debt."

I. Obligation to Call on Creditors

To complete structural change processes, the law requires companies to inform and assure their creditors.

1. Publication of Notices: After the registration of the general assembly resolution regarding the structural change, notices inviting the company's creditors are published in the Turkish Trade Registry Gazette. These notices serve as a "warning bell" for creditors to protect their rights.

2. Three Announcements at Seven-Day Intervals: The law mandates that these announcements three times, seven days apart . The announcement text must clearly state that creditors must declare their claims and request security.

II. Creditors' Right to Demand Security

Creditors may request security from the company if they can prove that the structural change jeopardizes their claims (for example, the division and fragmentation of the company's assets or the elimination of partners' personal liability through a change of legal form) .

• Security Requirement: The company is obligated to provide the requested security (e.g., bank guarantee letter, mortgage, or blocked cash). Failure to provide security may prevent the registration of the structural change in the commercial register.

• Risk of Cancellation: Failure to meet the security deposit requirement may invalidate the structural change and lead to creditors filing a lawsuit for its cancellation.

III. Legal Effects of Announcements: Commencement of Time Limits

Announcements serve not only as an informational notice but also of the statute of limitations .

• Creditors must submit their security claims within a specified period (usually three months under the Turkish Commercial Code) from the date of the announcement

• After this period, creditors' rights to object to the structural change or to demand security (within the framework of special possibilities granted by law) expire.

IV. Responsibility of the Governing Body

Board members are directly responsible for failing to make announcements or provide guarantees related to creditor protection. In cases where creditors' rights are violated, board members personally liable for the damages. Failure to comply with transparency rules poses a serious legal risk for company executives.

V. The Connection Between Advertisements and the Right to Review

Announcements serve as protection not only for creditors but also for shareholders. The published documents (merger agreement, demerger plan, etc.) must be kept readily available for inspection at the company headquarters. Creditors and shareholders can follow the process through these announcements and, if necessary, apply to the court to request a halt or correction of the process.

Registration and Legal Consequences: Completion of the Conversion

Structural changes (mergers, divisions, transformations) reach their final goal with registration after lengthy preparations, general assembly approvals, and creditor protection processes. Registration in the commercial registry is not merely a "record" in these processes, but a "constitutive" element that determines the fate of the transaction . In other words, an unregistered merger or division is considered "null and void" in the legal world.

I. The Constitutive Effect of Registration

According to the Turkish Commercial Code, registration in the commercial registry is required for structural changes to take effect.

• The Emergence of Legal Consequences: Upon registration, the assets of the merging companies are transferred to the acquiring company, new companies are created through the division, or the company acquires a new legal status through a change of type.

• Impact on Third Parties: With registration, the structural change is presumed to be “known” worldwide. Creditors, debtors, or business partners can no longer claim any rights by saying, “I was unaware of this change.”

II. The Outcome of Post-Registration Liabilities

Registration not only initiates a new situation; it also finalizes the transfer of old responsibilities to the new structure

• Continuity: In a merger or demerger, who is responsible for the existing debts of the transferred company (joint and several liability) becomes clear upon registration. After registration, creditors can easily identify their counterparties (debtor companies) from the registry records.

• Managerial Responsibility: After registration, board members retain responsibility for transactions from the previous period; however, their responsibilities under the new structure are redefined within the framework of the new articles of association and registered powers.

III. Risk of Registration Cancellation

In very exceptional circumstances, the process can be reversed by a court decision (cancellation lawsuit) regarding the registration of the structural change. However, Turkish law "protect trust in commercial life ." Even if a cancellation lawsuit is filed after registration, the court generally chooses to award compensation for damages rather than reversing the process. This is a consequence of the principle of continuity of commercial life.

IV. Digital Registry and Real-Time Updates (MERSİS)

Today, thanks to the MERSİS system, the company's "current name," "representatives," and "capital structure" are updated in the system the moment it is registered. When citizens query a company through e-Government, they can instantly see if that company underwent a merger yesterday or transformed into another type today. This transparency is the most powerful technological tool for minimizing the risks created by structural changes.

V. Conclusion: The Success of the Transformation

A company that successfully registers a merger, demerger, or transformation process has essentially achieved a "legally sound and reliable" structure in the market. Registration is the legal seal on this complex operation.