Limited Company Merger Agreements

Limited Company Merger Agreements and Agreement Examples

Companies, which are important subjects of commercial life, are subject to various legal transactions. Some of these transactions are that the companies are subject to a sales contract, division, subject to sale (transfer), going to change type or merging with each other. In this article, we will focus on the mergers of limited companies.

Limited companies are regulated as a kind of capital company in the Turkish Commercial Code. Limited companies are the most preferred companies by entrepreneurs because they are a company where the capital element is at the forefront and the responsibilities of the partners are limited and they can be established with low capital. Due to the prevalence of limited liability companies, we frequently come across in practice that mergers, which are also described as “company marriages”, are used in practice. Limited companies may choose to merge for various reasons such as increasing market share and competitiveness, reducing costs and taking advantage of tax advantages.

The merger of limited companies is regulated in articles 134 and the following of the Turkish Commercial Code. According to Article 136/3-4 of the TCC , “A merger takes place when the shares of the transferee company are automatically acquired by the partners of the transferee company, based on an exchange rate, in return for the assets of the transferred company. With the merger, the acquiring company takes over the assets of the transferred company as a whole. The company transferred by the merger ends and is deleted from the trade registry .

Mergers of companies take place in two different ways: “merging under the roof of a new organization” and “merging through the acquisition of another company or companies”. In both cases, the company participating in the merger dissolves into the transferee and loses its legal personality and is deleted from the trade registry. Because all the assets, liabilities and assets belonging to this company have now been transferred to the acquiring company. The shareholders of the companies that are dissolved in this way automatically acquire a partnership share in the merged company according to a calculated exchange rate.

This situation, which is explained by the principles of dissolution without liquidation and universal succession in law, has some legal consequences. In order to turn these legal results in favor and to prevent negative consequences, one should be very careful while preparing merger agreements and a meticulous study should be carried out on the issues we explain in detail below.

Which Companies Can Limited Companies Merge With?

According to the system adopted in Turkish Commercial Law, it is not possible for every company to merge with each other randomly. There is a rule that merging companies must be of the same type. Joint stock, limited and limited partnership companies can merge with each other as they are capital companies. It is also possible for these companies to merge into cooperatives. In short, limited liability companies can merge with joint stock, limited liability companies, limited partnerships and cooperatives both as transferee and transferee. Although limited companies can merge with collective and commandite companies, which are individual companies, provided that they are the transferee parties, such mergers are not encountered in practice. Generally joint stock companies and limited company mergers are common.

Stages of Merger in Limited Companies

It is possible to examine the process to be followed in limited company mergers in 4 different stages;

• Planning and preparation phase of the merger,
• Writing and signing of the merger agreement,
• Approval of the merger agreement,
• Registration and announcement of the merger in the trade registry

 

• Planning and Preparation Phase of the Merger

Before the limited company merges with another limited liability company or joint stock company, a series of researches should be carried out in order to determine the target company for the merger, the number of companies should be reduced by elimination by making a list of companies suitable for the purpose of merger. After the target company is determined, negotiations should be started and information about the company should be obtained. The most important step of this stage is the activity of obtaining information about the general situation of the company by analyzing the legal, tax, financial situation and human resources of the company that is planned to be merged, which we call Due Diligence. Legal due diligence is a process that requires dominance and meticulous work in various fields of law. The due diligence processes, which will be carried out both legally and financially, will reveal the clearest picture about the company and will help the company to see the way forward in the merger. Legal due diligence is possible with a staff of lawyers who are competent in the fields of Corporate Law, Contracts Law, Labor Law, Administrative Law, Procedural Law and Economic Law. The due diligence activity, which is the product of a joint work to be carried out with the support of a certified public accountant, certified public accountant or independent auditing institutions, is the key to a successful merger.

Another thing we should remind you is that since the parties share very important data about their companies with each other during the preparation stage, necessary precautions in terms of information security should be taken at this stage. We prepare confidentiality agreements and submit them to the approval of the parties in order to ensure the security of the information and documents that our clients share with other companies or companies participating in the merger during the meetings held during the preparation phase.

• Writing and signing of the merger agreement

Since the law stipulates that limited company merger agreements must be made in writing, the merger agreement must be made in writing. The contract must be signed by the directors or authorized representatives of the companies participating in the merger and approved by the general assemblies. Undoubtedly, the most important stage of the merger process is the preparation and signing of the contract. Because all the terms and details of the merger, the responsibility of the managers and partners, prohibitions and sanctions are specified in the contract. Therefore, the more detailed and clear the merger agreement is drawn up, the more likely conflicts are avoided.

• Approval of the merger agreement

The merger agreement must be approved by the general assembly in order for limited company mergers to be valid and to have results. There is also a clear provision regarding the majority of the general assembly to approve the merger. Accordingly, the merger agreement must be approved by the votes of three-quarters of all partners, provided that they hold shares representing at least three-quarters of the capital in limited liability companies.

• Registration and announcement of the merger

Mergers become effective by being registered in the trade registry. At the time of registration, all assets and liabilities of the transferred company automatically pass to the transferee company. The partners of the transferee company become the partners of the transferee company. Then, the registration must be announced in the Trade Registry Gazette of the merger. The merger becomes valid upon registration of the merger in the trade registry. In order to be registered with the trade registry, it is necessary that the merger agreements bear all the validity elements, and all other necessary documents should be prepared as requested by the relevant trade registry directorate. Deficiencies to be made at this stage may delay the registration process.

As summarized above, merger processes are a complex process that requires detailed work and expertise in more than one field. For this reason, after the merger decision is taken, it is necessary to work with an expert team consisting of lawyers and certified public accountants or independent financial advisors from the preparation stage. With our team, which has gained experience by playing an active role in merger and acquisition processes until today, we provide professional legal support services throughout the entire process, starting from the preparation phase, preparation of the merger agreement and merger report, registration and announcement process. In the merger process, we work with our expert business partners, providing the needed assistance not only in the legal but also in the financial field, with the motto of holistic and one-stop service on company mergers. Thus, we enable safe, easy and fast service delivery. In addition, we provide our clients with the support they need in matters such as post-merger announcements, relations with creditors, and tax returns.

Which Elements Should Be Included in the Limited Liability Company Merger Agreement?

Mandatory elements required to be included in limited liability company merger agreements are regulated in the Turkish Commercial Code. Here, we tried to present a list by mentioning the other elements that we paid attention to as a team while preparing merger agreements, in addition to the mandatory elements. Accordingly, the following elements must be included in a limited liability company merger agreement;

• Permission letter (For mergers subject to the permission or approval of the Ministry or other official institutions
• Trade names, legal types, headquarters of the companies participating in the merger, type, trade name and headquarters of the new company in case of merger with a new establishment, Date and number of the resolutions of the director or the board of directors based on the merger, which is the subject of the contract,
• Information on current capital structure and shares,
• Issued capital belonging to the transferor company and the transferor company, distribution of the issued capital in its current form among the shareholders, share amount, share ratio, title of the partner,
• Real and legal persons who indirectly own the capital,
• Purpose and results of the merger, (competitiveness, efficiency, increasing market share, rapid growth, positive effect to be obtained in financial statements, reducing operating expenses, combining market experiences, etc.)
• Financial statements based on the merger in the form of acquisition,
• Whether the privileges granted to the share certificates representing the capital will continue,
• Rights granted by the transferee company to the holders of privileged and non-voting shares and to the holders of usufruct shares,
• How to change company shares
• The date on which the transferee company’s transactions and actions will be deemed to have been made for the transferee company’s account,
• Special benefits granted to managing bodies and managing partners,
• Names of partners with unlimited liability when necessary,
• List of the transferred company’s goods and rights registered in similar registries such as title deed, trademark, patent, ship registry,
• Proof that the receivables are not in danger,
• The date on which the shares acquired through the merger are entitled to the balance sheet profit of the acquiring or newly established company and all the features related to this claim,
• Capital increase,
• New share issuance and issuance certificate due to the merger,
• The merger rate, the rate of change and the amount of capital increase to be made by the transferee in parallel with these, the number of shares to be allocated to the shareholders of the transferred company by the transferee company, the type and nominal value of the shares to be given to the transferred partners,
• Whether the transferee company shares will be given to the transferred company partners or whether they will be entitled to dividends,
• If a change is to be made in the articles of association, the relevant regulations, (for the amendment of the articles of association of the company, the companies must take a decision duly and as stipulated, and this decision must be registered and announced in the trade registry.)
• Right to leave (in which period and how it will be used must be regulated), separation fund or equalization amount,
• Corporate tax return
• Liability for debts of third parties,
• Provisions regarding registration and announcement
• Partnership rights of the partners in the transferee company in the transferee company.

1. Merger Report

After the merger agreement is signed and before the approval of the general assembly, a merger report should be prepared and announced in order to inform the shareholders of the company. The said merger report should be prepared by the director or the board of directors, which is the governing body of the limited liability company (Lawyers prepare the merger agreement and merger report in practice). According to Article 146 of the Turkish Commercial Code, the elements that must be included in a limited liability company merger agreement are as follows;

• Purpose and results of the merger,
• merger agreement,
• The rate of change of the company’s shares and, if foreseen, the equalization fund; partnership rights granted to the partners of the transferred companies by the transferee company,
• If necessary, the amount of the retirement fund and the reasons for issuing the retirement fund instead of the company’s share and partnership rights,
• Features regarding the valuation of shares in terms of determining the exchange rate,
• The amount of the increase to be made by the transferee company, if necessary,
• If foreseen, information about the additional payment and other personal performance obligations and personal responsibilities that will be imposed on the partners of the transferred company due to the merger,
• In the merger of different types of companies, the liabilities of the partners due to the new type,
• The effects of the merger on the workers of the companies participating in the merger and, if possible, the content of a social plan,
• The effects of the merger on the creditors of the companies participating in the merger,
• If necessary, the approvals obtained from the relevant authorities are explained in terms of legal and economic aspects and their justifications are stated.

In the merger by means of a new establishment, there is a condition that the contract of the new company should be included in the merger report. However, if all partners approve, small and medium-sized companies can abandon the preparation of the merger report.

Below are explanations about what should be considered when preparing limited company merger agreements. It should be noted immediately that since the articles of association, capital structure and partnership rights of each company are different from each other, merger agreements should be prepared by taking into account the unique characteristics of the companies. It is possible that a contractual provision that is advantageous for one company may be disadvantageous for another. For this reason, we will only make general statements in this content. All contract provisions in our article, which we tried to make more understandable with sample contract provisions, were written in a hypothetical form according to probabilities and to give an idea. In addition, every contract clause that should be included in a limited company merger agreement is not included below.

 

LIMITED COMPANY MERGER AGREEMENT SAMPLE

1.Parties

In this section, if there is a merger by acquisition, the companies that the transferee and the transferee are, their titles, headquarters, addresses, which trade registry they are registered in, their registration numbers and tax identification numbers should be stated. Address information is also very important as it will be used for correspondence and notification between the parties.

 

Example provision: The merger agreement by way of acquisition is signed by the Istanbul-based Barajyolu Cad. Imar Sk. No:88 Ataşehir/İstanbul, Adil Enerji Logistics Limited Company and on the other side (the transferee)…………, registered in the trade registry with …..registration number, Istanbul-based Dumlupınar Mah. Gumusdere Cad. No: 74 Kadıköy/İstanbul, between Saygın Enerji Limited Şirketi.   Example Provision: This merger agreement by takeover has been signed between the following parties, namely the “TRANSFERED” and the “TRANSFEREE” parties.   Transferee: (title) Transferee: (title) Tax Identity No/Trade Registration No: Tax Identity No/Trade Registration No: Address: Address:

 

2. Definition of Merger

In this section, explanations are given about how the companies that are party to the contract have merged, whether it is a merger through an acquisition or a new establishment.

Example Provision: This contract is signed between ……..LTD ŞTİ (the transferred) and …….. A.Ş. (the transferee) in the form of acquisition within the framework of the Corporate Tax Law and the Tax Procedure Law with the provisions of the Turkish Commercial Code No. 6102 and the following, this merger agreement has been concluded with the following conditions.     Example Provision: The balance sheet values ​​of the transferor company on the date of transfer will be taken over as a whole by the transferor company and will be transferred to its balance sheet as a whole, based on the independently audited balance sheets dated ….

 

3. Existing capital and shares 

The current capital structure and amount of the companies that are party to the merger should be specified in the contract. Explanations on the capital structure and amount of the acquiring company or the newly established company should also be included. If there is a joint stock company among the parties participating in the merger, the issued capital and the registered capital ceiling must also be written. Registered capital system is not applied in limited companies. It is necessary to regulate whether a capital increase should be made after the merger, and if so, what amount of increase will be made. Accordingly, it is necessary to make a capital increase in the transferee company by duly amending the articles of association and to register it.

 

Example Provision: OF THE TRANSFERRED COMPANY; Basic capital amount: The table showing the distribution of the issued capital among the partners as of the latest situation: Shareholder partner (name, title, tc, vkn) Share ratio Share amount                OWNED BY THE TRANSFERRED COMPANY; Basic Capital amount: The table showing the distribution of the issued capital among the partners as of the latest situation: Shareholder partner (name, title, tc, vkn) Share ratio Share amount

 

 

4. Securities, Real Estate and Intellectual Property and Rights

We recommend that a list of all registered/unregistered movable, real estate or intangible property belonging to the companies participating in the merger be included in the annex to the contract. We remind you that the fair values ​​of all commodities should be evaluated by YMM or SMMM or the auditor, and this should be submitted at the registration stage to the trade registry.

Example Provision:As of the merger date, all movable, real estate and other rights belonging to the transferee will be transferred to the transferee in full, exactly and in line with the principle of universal succession. The registration of the rights subject to registration shall be made pursuant to this contract. Example provision: All legal rights of all intellectual and industrial property rights, vehicles, real estates and other registered assets, including all registered trademarks belonging to the transferee, shall be transferred to the transferee in their entirety as of the merger date agreed in this contract.

 

5. Merger rate, exchange rate of company shares, equalization funds, partnership rights granted to the partners of the transferred company in the transferee company

While determining the exchange rates of the partnership shares, an equalization payment may be envisaged, provided that it does not exceed one tenth of the actual value of the partnership shares allocated to the partners of the transferred company.

 

Example Provision:According to the CPA report in the annex of this contract dated ….. and numbered, based on the balance sheets of the contracting companies with the date of …, the balance sheet values ​​of the transferee on the date of transfer are taken over as a whole by the transferee and transferred to its own balance sheet, in the amount of …………….. capital increase has been realized. The merger rate calculated according to the YMM report is …..% and approximately 3 transferred shares correspond to 2 transferee shares. As a result of the merger, …….. registered shares, each of which is a nominal value of 1 TL, corresponding to ……. The number of registered shares corresponding to ……TL will be given.

 

 

 

6. Impact of the Merger on Creditors

Example Provision:With the CPA report attached to this contract, it has been determined that the merger will not prejudice the creditors of the merging companies.

 

7. Merger Date

Example Provision:Pursuant to Article 153 of the TCC, since the merger will take effect at the time of registration in the trade registry, the registration date will also be accepted as the merger date.

 

8. Failure to perform obligations

We recommend adding a provision to the contract regarding the sanctions and compensation liability if the parties fail to fulfill their obligations due to the merger agreement.

9. Liability for Debts

The issue of liability for debts is the most important issue in a limited company merger agreement, together with the partnership rights. The most controversial issue between the parties to the contract is the issue of liability for debts. Although it is regulated that all debts will be transferred to the acquiring company or the newly established company in the event of a merger, this situation is not as simple as described. In the contract, it is necessary to specify who is responsible for debts that are due or not yet due, disputed (disputed) debts, obsolete debts, arising in the period before and after the transfer, by specifying the exact and clear dates. The joint and several liability period and the starting date of the liability should also be included. If there are unlimited liability partners, it is appropriate to put an exceptional provision regarding their situation. While arranging this provision, the regulations stipulated by the Turkish Commercial Code regarding the call to be made to the creditors should also be taken into consideration. In this regard, we do not find it appropriate to share a preprinted provision, since the most advantageous arrangement should be made in line with the unique needs of each company.

10. Liability for Tax Debts

In the limited company merger agreement, it is also necessary to regulate the issue of which party will submit the corporate tax return, and who will pay the tax liabilities that have accrued and will accrue until the merger date. Commitments and guarantees to be given in this regard should be included under this provision.

11. Right to Separation and Separation Fund

Companies participating in the merger may, in the merger agreement, give the partners the right to choose between the acquisition of share and partnership rights in the transferee company and a withdrawal fund corresponding to the actual value of the company shares to be acquired. Companies participating in the merger may stipulate in the merger agreement that only the withdrawal fund is to be paid.

12. Fate of Concessions

If there are privileges granted to partnership shares in the transferred company, it should be stated whether these will continue or not.

13. Registration Procedures

The date on which the merger will be registered and announced, and on which party the liability in this regard belongs, can be regulated in the contract.

14. Laws and Provisions Applicable to the Contract

If there is an element of foreignness in the contracting parties, a determination can be made about which country’s law will be applied in the implementation and interpretation of the contract.

Example Provision:It is accepted that Turkish Law is valid in the implementation and interpretation of this contract. Companies participating in the merger will fully comply with the requirements stipulated in the CMB and its communiqués, TCC, Corporate Tax Law and other legislation. In cases where there is no provision in this merger agreement, the provisions of the TCC and the Corporate Tax Law regarding the merger shall apply.

15. Contract Copies and Enforcement

 

Example Provision:This merger agreement has been issued in 2 copies and will enter into force after it is approved by the boards of directors of the companies that are party to the merger.

16. Signatures

Since the merger agreement is subject to a written validity condition, the agreement must be signed by the parties. The contract must be signed by the manager or the board of directors.

Conclusion and Recommendations

Summary explanations about the limited company merger process are given above. While there are suggestions on what to consider when issuing merger agreements, sharing a preprinted agreement template is specifically avoided. Because, limited liability company merger agreements are extremely important legal texts that should be arranged by taking into account many factors such as the unique capital and partnership structure of the merging companies, their assets, the sector in which they operate, the purpose of the merger and the expected benefit from the merger. At a simple level, a merger agreement, which is drawn up by neglecting the necessary details, causes a great deal of disagreement between the parties. For a valid and trouble-free merger, not only at the contract stage,

You can ask for help from the Solmaz Law and Consultancy team for your legal questions and problems regarding the limited company merger processes.

Regards.