Mergers and Demergers in Turkey: Corporate Restructuring, Creditor Protection, Employee Rights and Tax-Neutral Transfers

Introduction

Mergers and demergers are among the principal corporate restructuring tools available to companies operating in Turkey. A merger may be used to consolidate group companies, eliminate duplicated functions, integrate acquired businesses or simplify ownership structures. A demerger may separate business lines, allocate assets among different subsidiaries, prepare a division for investment or sale, or isolate operational risks.

These transactions, however, are not merely contractual transfers of assets. A statutory merger or demerger conducted under Turkish law may result in the automatic transfer of assets, liabilities, contracts and employment relationships through universal succession. The transaction must therefore be planned in accordance with corporate, tax, employment, competition and regulatory requirements.

The principal corporate rules are set out in Articles 134–194 of the Turkish Commercial Code No. 6102 (“TCC”). Tax-neutral restructuring is separately governed by Articles 19 and 20 of the Corporate Tax Law No. 5520. Compliance with the TCC does not automatically guarantee tax neutrality: the corporate-law transaction and its tax treatment must be analysed independently. (TBMM CDM)

What Is a Merger Under Turkish Law?

Under the TCC, companies may merge in two principal ways:

1. Merger by acquisition, where one company absorbs another company; or
2. Merger by formation of a new company, where two or more companies combine within a newly established entity.

In a merger by acquisition, the surviving company is known as the acquiring company, while the company whose legal personality terminates is the transferring company. Upon registration of the merger, the transferring company’s assets and liabilities pass automatically to the acquiring company as a whole. The transferring company is dissolved without liquidation and removed from the trade registry. Its shareholders generally become shareholders of the acquiring company according to the agreed exchange ratio. (TBMM CDM)

The TCC also regulates which company types may merge. Capital companies may merge with other capital companies and cooperatives, and may absorb collective or commandite companies. Different rules apply where partnerships or cooperatives participate in the transaction. The proposed structure should therefore be checked at an early stage to confirm that the selected companies are legally eligible to merge. (TBMM CDM)

What Is a Demerger Under Turkish Law?

The TCC recognises both full demergers and partial demergers.

In a full demerger, the entire property of the demerged company is divided and transferred to two or more companies. The shareholders of the demerged company receive shares and rights in the recipient companies. The demerged company then ceases to exist and is removed from the trade registry.

In a partial demerger, one or more parts of a company’s property are transferred to existing or newly established companies. Depending on the chosen model, either the shareholders of the demerged company receive shares in the recipient companies or the demerged company itself receives those shares and establishes a subsidiary relationship. Under the TCC, capital companies and cooperatives may be divided into capital companies and cooperatives. (TBMM CDM)

The demerger agreement or plan must clearly allocate the assets, receivables, liabilities, contracts and other rights forming each transferred business unit. Any ambiguous or incomplete allocation may create disputes between the companies and expose directors to liability.

Corporate Procedure for a Merger in Turkey

A standard merger normally requires a coordinated sequence of corporate actions.

Preliminary legal and financial review

Before preparing the formal documents, the companies should review:

• Corporate records and shareholder structures;
• Financial statements and tax liabilities;
• Material contracts and change-of-control clauses;
• Real estate, intellectual property and licences;
• Pending litigation and enforcement proceedings;
• Employment obligations;
• Regulatory permits and competition-law requirements.

This review is particularly important because the acquiring company becomes the successor to the transferring company’s assets and liabilities upon registration.

Merger agreement

The management bodies of the participating companies must prepare and execute a written merger agreement. The agreement typically addresses the identities of the companies, the share exchange ratio, any equalisation payment, the rights granted to shareholders and holders of special rights, the effective date for accounting purposes and the consequences for employees.

Merger report and financial documents

The management bodies generally prepare a merger report explaining the legal and economic reasons for the transaction, the exchange ratio, the effects on shareholders and creditors, and the consequences for employees.

An interim balance sheet is required where more than six months have passed between the balance-sheet date and the signing of the merger agreement or where material changes have occurred in the participating companies’ assets after the most recent balance sheet.

Certain documentation and approval requirements may be reduced in simplified mergers, particularly where the acquiring company owns all or at least 90% of the voting shares of the transferring company and the statutory minority-protection conditions are satisfied. (TBMM CDM)

Shareholder inspection and approval

The merger documents and relevant financial statements must be made available to shareholders in accordance with the statutory inspection rules. The merger agreement is then submitted to the competent general assemblies.

Approval thresholds vary according to the legal form of the participating companies and the terms of the transaction. Higher thresholds may apply where the merger creates additional payment obligations, personal performance obligations, personal liability or a mandatory cash exit for shareholders. (TBMM CDM)

Trade registry registration

After approval, the management bodies apply to the competent trade registry directorates. A merger becomes legally effective upon registration. At that moment, all assets and liabilities of the transferring company automatically pass to the acquiring company, and the transferring company ceases to exist.

Trade registry applications in Turkey are generally processed through the Central Registry Record System, known as MERSİS, and registrable matters are announced in the Turkish Trade Registry Gazette. (TBMM CDM)

Corporate Procedure for a Demerger

A demerger requires either a demerger agreement or a demerger plan.

A demerger agreement is used where assets are transferred to one or more existing companies. A demerger plan is prepared where the transferred assets will be allocated to newly incorporated companies. Both documents must be in writing and approved by the general assembly.

The documentation should identify each asset and liability being transferred, the allocation of shares, the effective accounting date, the rights granted to shareholders and the impact on employees and creditors.

An interim balance sheet is required if the most recent balance sheet is more than six months old or if material changes have occurred in the company’s financial position. Shareholders must ordinarily receive access to the demerger documents and financial statements before the general assembly. (TBMM CDM)

Unlike a merger, the creditor-protection process in a demerger is normally completed before the general assembly approves the transaction. The management bodies submit the demerger agreement or plan to the general assemblies after the required security has been provided or the statutory conditions for exemption from security have been demonstrated. (TBMM CDM)

The demerger becomes effective upon trade registry registration. The assets and liabilities identified in the demerger inventory then pass automatically to the relevant recipient companies.

Protection of Shareholders

A merger or demerger must preserve the economic value of shareholder rights.

In a merger, shareholders of the transferring company are entitled to shares and rights in the acquiring company corresponding to the value of their existing interests. The calculation must take account of company values, voting rights and other material factors. A limited equalisation payment may be used to address mathematical differences in the exchange ratio.

The merger agreement may offer shareholders a choice between shares in the acquiring company and a cash exit payment. Under the statutory conditions, it may also provide only a cash exit payment. Transactions involving mandatory exit consideration are subject to enhanced approval requirements. (TBMM CDM)

In a demerger, shares may be allocated proportionately or disproportionately. A proportion-preserving demerger maintains the shareholders’ existing ownership ratios in the recipient companies. A non-proportionate demerger gives different ownership ratios and generally requires a significantly higher approval threshold.

Shareholders whose rights have not been adequately preserved may apply to the competent commercial court for an appropriate equalisation payment. Claims for annulment may also arise where mandatory merger or demerger provisions have been violated, subject to the statutory conditions and time limits. (TBMM CDM)

Creditor Protection in Mergers

Creditors do not have a general veto right over a merger, but the TCC gives them specific security rights.

Creditors of the participating companies may request security from the acquiring company within three months after the merger becomes legally effective. The participating companies must notify creditors through the prescribed announcements.

Security may not be required where it is established that the merger does not place the relevant claim at risk. Where other creditors will not be prejudiced, the company may pay the debt instead of providing security. (TBMM CDM)

The creditor analysis should not be limited to bank loans. It should also cover trade payables, guarantees, contingent liabilities, pending litigation, tax exposures, lease obligations and contractual indemnities.

Loan and commercial agreements should also be reviewed for change-of-control, restructuring, notification, consent or termination provisions. Although assets and liabilities may transfer by operation of law, contractual breaches can still arise if mandatory notice or consent obligations are ignored.

Creditor Protection in Demergers

Creditor protection is more prominent in demergers because a company’s asset base may be divided among several legal entities.

Creditors must be invited to declare their claims and request security through announcements made three times at seven-day intervals in the Turkish Trade Registry Gazette and, where applicable, on the company’s website. Participating companies must secure the claims of creditors who apply within the statutory period.

The obligation to provide security may be avoided where it is demonstrated that the demerger does not endanger the claims. If other creditors will not be harmed, the relevant company may pay the claim instead. (Ticaret Bakanlığı)

The TCC also contains a secondary liability mechanism. If the company to which a liability was allocated fails to perform and certain enforcement or insolvency conditions arise, other companies participating in the demerger may become jointly liable as secondary obligors. This mechanism makes accurate liability allocation and post-closing solvency analysis particularly important. (TBMM CDM)

Employee Rights in Mergers and Demergers

Employment issues should be reviewed at the planning stage rather than after registration.

For mergers, TCC Article 158 refers to the employee-transfer rules in Article 178. In a full or partial demerger, employment agreements transfer to the recipient company with all existing rights and obligations unless the employee objects.

If an employee objects, the employment relationship terminates at the end of the applicable statutory notice period, and both the employee and the recipient employer must continue to perform their obligations until that date. The former employer and the recipient company are jointly liable for certain employee claims that became due before the transfer or become due within the statutory protected period. Employees may also request security for protected claims.

Article 6 of the Labour Law No. 4857 separately provides that, upon the legal transfer of a workplace or part of a workplace, existing employment agreements pass to the transferee with all rights and obligations. The transferee must calculate length-of-service-related rights by reference to the employee’s original commencement date. The transfer alone does not constitute a valid reason for termination by the transferor or transferee. (Türkiye Büyük Millet Meclisi)

Before implementation, companies should therefore identify:

• Employees assigned to each transferred business unit;
• Accrued salary, bonus, overtime, leave and severance exposures;
• Collective bargaining agreements;
• Workplace union representation;
• Social security records;
• Employee benefit and incentive plans;
• Pending employment disputes.

Merger and demerger reports should accurately explain the transaction’s expected impact on employees and any proposed social plan.

Tax-Neutral Mergers Under Turkish Law

A merger that is valid under the TCC is not necessarily tax neutral.

For a merger to qualify as a tax-neutral transfer under Articles 19 and 20 of the Corporate Tax Law, the statutory requirements must be satisfied. In general, the legal or business centres of both the transferring and acquiring entities must be located in Turkey, and the acquiring entity must take over the transferring entity’s balance-sheet values as a whole and record them at the same book values.

Where these conditions and the relevant filing obligations are fulfilled, only the transferring company’s profit generated up to the transfer date is taxed. The profit arising solely from the merger is not separately calculated or taxed. (Gelir İdaresi Başkanlığı)

This is commonly described as tax neutrality, but it is more accurately a continuation or deferral mechanism. Hidden gains are not generally stepped up or permanently exempted; the recipient company continues with the transferred book values.

The tax filings, closing balance sheet, joint declarations and assumption of tax liabilities must be prepared in strict compliance with Corporate Tax Law Article 20 and the Corporate Tax General Communiqué.

Tax-Neutral Full and Partial Demergers

The tax definition of a demerger is narrower than the corporate-law definition.

A tax-neutral full demerger generally requires a fully liable capital company to divide all its assets, receivables and liabilities at book value between two or more existing or newly established fully liable capital companies. The shares received in consideration are allocated to the shareholders of the demerged company.

For a tax-neutral partial demerger, eligible assets currently include participation shares held for at least two complete years and one or more production or service businesses. Where a production or service business is transferred, the assets and liabilities necessary to preserve operational integrity must be transferred together. (Gelir İdaresi Başkanlığı)

A significant current limitation is that real estate is no longer included as an independent eligible partial-demerger asset under the wording applicable from 1 January 2024. A structure that merely transfers real estate to another company may therefore be valid as a corporate transaction but fail to qualify as a tax-neutral partial demerger. (Gelir İdaresi Başkanlığı)

This distinction is one of the most important issues in restructuring practice. The asset perimeter should be tested under Corporate Tax Law Article 19 before any binding corporate documentation is signed.

VAT, Stamp Tax and Fee Considerations

Transactions qualifying as transfers or demergers under the Corporate Tax Law may benefit from VAT exemption under Article 17/4-c of the VAT Law. If the transaction fails to meet the Corporate Tax Law requirements and is treated as an ordinary asset sale, the transfer may become subject to VAT under the general rules. (Gelir İdaresi Başkanlığı)

Following changes effective from August 2024, the treatment of input VAT that could not be deducted by the transferring or demerged company must be examined under the amended mechanism, which may require a tax inspection before the recipient entity can claim the transferred input VAT. (Gelir İdaresi Başkanlığı)

Documents prepared for qualifying mergers, transfers and demergers may benefit from stamp-tax exemptions. Relevant corporate restructuring transactions involving joint-stock, limited and certain other capital companies may also qualify for exemptions from notary, trade registry and title deed fees under the Fees Law, provided that the transaction falls within the statutory scope. (Gelir İdaresi Başkanlığı)

The tax treatment should nevertheless be analysed document by document. A contract executed after the restructuring is not automatically exempt merely because it is commercially connected to the merger or demerger.

Competition Authority Clearance

A merger or restructuring may also require prior approval from the Turkish Competition Authority where it results in a permanent change of control and the applicable turnover thresholds are exceeded.

The merger-control rules were updated in February 2026. The amendment increased the relevant individual Turkish turnover threshold from TRY 250 million to TRY 1 billion, the combined Turkish turnover threshold from TRY 750 million to TRY 3 billion and the worldwide turnover threshold from TRY 3 billion to TRY 9 billion. The technology-undertaking regime was also revised and is now limited to technology undertakings established in Turkey, subject to the updated individual threshold rules. (Rekabet Kurumu)

An intra-group statutory merger may fall outside notification requirements where no permanent change of control occurs. Nevertheless, the control structure before and after the transaction should be documented. If clearance is required, closing or registration should not occur before Competition Board approval.

Regulated industries may also require approvals or notifications from the relevant sector authority. Competition and sector-specific clearances should therefore be incorporated into the transaction timetable as conditions precedent.

Common Legal Risks

The most common problems in Turkish merger and demerger projects arise from treating the restructuring as a purely accounting exercise.

Typical risks include:

• Using an outdated balance sheet without preparing the required interim balance sheet;
• Applying an incorrect share exchange ratio;
• Failing to preserve privileged or minority shareholder rights;
• Omitting material liabilities from a demerger inventory;
• Ignoring creditor notices and security obligations;
• Assuming that employees transfer without additional analysis;
• Treating a TCC-compliant transaction as automatically tax neutral;
• Transferring assets that are not eligible for tax-neutral partial demerger treatment;
• Failing to obtain Competition Authority or sector-specific approval;
• Registering inconsistent documents with different trade registry directorates;
• Overlooking contract-specific notification and consent requirements.

Directors, managers, advisers and other persons participating in the restructuring may be liable for losses caused by their fault in connection with a merger or demerger. The TCC expressly preserves liability toward companies, shareholders and creditors. (TBMM CDM)

Practical Restructuring Checklist

A properly managed Turkish restructuring project should ordinarily include:

1. A legal and tax feasibility memorandum;
2. Corporate, financial, tax, employment and regulatory due diligence;
3. Identification and valuation of the transferred assets and liabilities;
4. Preparation of the merger agreement, demerger agreement or demerger plan;
5. Preparation of financial statements and any required interim balance sheet;
6. Shareholder, creditor and employee impact analysis;
7. Competition-law and sector-specific approval review;
8. General assembly approvals;
9. MERSİS and trade registry filings;
10. Tax declarations and post-registration implementation;
11. Updating licences, bank mandates, property records, contracts and employment records.

Conclusion

Mergers and demergers in Turkey offer flexible solutions for group simplification, business separation, succession planning, investment preparation and operational restructuring. Their advantages depend, however, on careful alignment between corporate law and tax law.

A transaction may be legally valid under the Turkish Commercial Code while failing to qualify as a tax-neutral transfer. Likewise, universal succession does not remove the need to protect shareholders, notify creditors, preserve employee rights, review contractual restrictions or obtain regulatory approvals.

For this reason, the corporate structure, asset perimeter, tax conditions, employee allocation and creditor exposure should be analysed before the merger agreement or demerger plan is finalised. Early legal and tax planning significantly reduces the risk of unexpected tax liabilities, registration delays, shareholder disputes and post-closing claims.

This article provides general information on Turkish law and does not constitute legal or tax advice. Each merger or demerger should be assessed according to the parties’ corporate structure, financial position, assets, employees and regulatory status.