November 2024
GENERAL
In an acquisition transaction, parties may structure their deals either as a share deal or an asset deal. In a share transfer, the transferee receives ownership of the target company's shares from the shareholders, whereas in an asset transfer, only certain or possibly all assets are acquired by the transferee from the target.
The below sets out the main differences between a share transfer and asset transfer mainly in closely held joint stock companies, from a Turkish law perspective. Taxation aspects are not covered.
SHARE TRANSFER
Share transfers in joint stock companies are typically not subject to the target’s approval, unless otherwise specified in the Articles of Association. The process of share transfer depends on whether share certificates or interim certificates have been issued. In the absence of issued certificates, a written share transfer agreement between the transferor and the transferee is required. After the agreement is executed, the transferee needs to be registered in the company's share book.
In cases where share certificates or interim certificates have been issued, there may be two types of shares, registered shares or bearer shares. Transfer of registered shares is carried out through the endorsement of certificates for transfer, delivery of the possession of the certificates to the transferee and the registration of the transferee in the share book of the company as a shareholder by the Board of Directors of the target. On the other hand, transfer of bearer share certificates can be carried out through a mere transfer of possession to the transferee. The transfer of bearer share certificates must be notified to the Central Securities Depository (MKK), even if they are not publicly traded.
For all share transfers, if the capital subscription for the related share is not fully paid, the share transfer is treated as an assumption of debt, requiring the company's consent, which can be withheld in only limited circumstances. A Board of Directors' resolution is typically obtained to approve the share transfer and for its registration in the company's share book.
ASSET TRANSFER
Under Turkish law, it is possible to acquire only certain assets from a commercial enterprise through an asset transfer. As a general matter, an asset transfer requires the execution of an asset transfer agreement which does not necessitate any specific form. However, if the transfer of specific assets is subject to certain legal formalities or requirements, such requirements must be met to ensure the validity of the respective transfers. The transferee obtains ownership of the transferred assets, along with the rights and liabilities associated therewith.
In certain instances, an asset transfer may also involve the transfer of an entire business. If the assets transferred constitute an "essential part" of the commercial enterprise, the transfer may be considered a business transfer, entailing both the rights and obligations of the transferred business to pass onto the transferee. Three criteria are generally considered to distinguish between a mere asset transfer and a business transfer:
whether the assets transferred can be considered as a standalone business line,
whether the assets subject to the transfer are sufficient/suitable for the continuation of the operations of a commercial enterprise,
whether the transferor’s capacity to perform its activities in its business line has significantly decreased after the transfer.
Furthermore, specific regulation governs the transfer of commercial enterprises as a whole. According to the relevant provisions, the validity of the transfer agreement is subject to written form and transfer agreement must be registered with the trade registry and announced in the Trade Registry Gazette. In such instances, all assets of the commercial enterprise are transferred as a whole upon signing and registering the transfer agreement. Consequently, separate legal transactions for each particular asset are not necessary.
MAIN DIFFERENCES BETWEEN SHARE TRANSFER AND ASSET TRANSFER
Liabilities and Obligations: In an asset or business transfer resulting in the acquisition of rights and obligations, the transferee must notify the creditors or announce such transfer in the Trade Registry Gazette for commercial enterprises and in a newspaper distributed throughout Turkiye for others. The transferor would also be jointly and severally liable with the transferee for the debts and obligations related to the transferred asset or business for two-years following from the date of notification or announcement for due debts, and from the maturity date for undue debts. In a share transfer, such notifications are not required, the shares are transferred with all associated liabilities and obligations related only to the shares, and not the assets, liabilities, and obligations of the target company, which principally remain with the target company subject to exceptional circumstances. Notification with the Trade Registry may become required if certain shareholding thresholds are exceeded through the acquisition.
Contracts: In an asset or business transfer, while contracts are passed to transferee, it is essential that such contracts are assignable to ensure their continuity under the new ownership. In a share transfer, since the legal entity of the target company remains unchanged, the contracts to which it is a party continue to be binding on both the company and the contracting party, provided that such contracts do not contain a change of control clause that would cause the termination of contract in the event of a change of ownership of the company.
Employees: Employment contracts automatically transfer to the transferee employer with all associated rights and obligations upon a business transfer. A business transfer is not solely a valid ground for termination of employment contract; such transfer could qualify as a valid reason only to the extent it qualifies as a genuine necessity for the business and is used as last resort. Nonetheless the transfer may in certain instances, be regarded as a substantial change in the employment terms of the employee and therefore may require prior consent from the employee. In a business transfer, the transferor and transferee are jointly and severally liable to the employees for all rights and claims for two years from the date of the transfer. Conversely, in a share transfer, the transferor does not bear liability, as the party to the employment contract remains the same—the target company.
Licenses and Permits: Share transfers typically do not impact the validity of the company's licenses and permits although specific legislation in certain fields, such as energy, banking or insurance, may require notification and approval for the realization of the transfer, whereas asset transfers might require new applications to the respective administrative authority, depending on the type of permits and licenses involved.
Annulment of Dispositions: Regarding assets transfer, in connection with voidability lawsuits, applicable law includes a presumption that the party, who acquires the entirety or a substantial part of the commercial enterprise from an insolvent target with the intent of harming its creditors, is aware of the debtor target’s intention to harm the creditors. Further, it is presumed that the debtor acts with such intent in these instances. If these presumptions are not reversed through means set out in applicable law or rebutted, the transfer may be subject to annulment. Conversely, no such presumption applies in acquisition of shares in the target, as the debtor remains unchanged.
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