Turkey: Transfer Of A Business Line: An Asset Transfer, A Transfer Of Commercial Enterprise Or A Spin-Off?

Last Updated: 5 February 2014
Article by Pelin Baysal, Filiz Toprak Esin and Selin Başaran Savuran
Most Read Contributor in Turkey, November 2018

There are various reasons why a company may decided to transfer one or more of its business lines, such reasons being, not deriving sufficient profit, needing to facilitate the management and specialization of different business lines, or simply because during an acquisition the transferee may not wish to acquire all business lines of the transferor, instead preferring to exclude one or more of the transferor's business lines from the scope of the acquisition.

One of the essential criteria is to define the legal nature of such transfer. Occasionally the transfer of a business line may be qualified as an asset transfer, a transfer of a commercial enterprise or as a spin-off depending on the specific features of the transaction and the assets to be transferred. Each legal mechanism has different legal consequences and requires different procedures to comply with. Even the Trade Registry officers often have difficulty to qualify the related transaction correctly and need to understand the rationale behind the transaction as well as the details of the matter in each case. Therefore, it is vital to understand the characteristics of the transaction and choose the correct mechanism in order to set a better timeline of the transaction.

This article aims to define the legal mechanisms of asset transfer, commercial enterprise transfer and spin-off, as well as explains how they are regulated and differentiated under Turkish law.

Asset and Business Transfer under Turkish Law

Transfer of assets and business is regulated under Articles 202 and 203 of the Turkish Code of Obligations1 ("TCO") as a part of "Assignment of Liabilities".

The relevant articles do not require any special form for the valid execution of the asset or business transfer agreement. However, if the transfer of the particular assets is subject to special conditions or forms (e.g. transfer of a real property), such conditions and/or forms must be satisfied for the relevant transfers to be valid.

Under Article 202 of the TCO the transferee who acquires the assets or businesses is required to notify such transfer to the creditors of the transferor or announce such transfer in a newspaper distributed across Turkey. The transferee shall be liable against all of the creditors for the debts of the assets and businesses transferred, starting from the date of the notification or the announcement. Moreover, the transferor together with the transferee will remain liable for such debts for a period of two years starting from the notification or announcement date for due debts and starting from the maturity date for undue debts.

The transfer of assets or businesses does not affect the shareholding structure of the transferor or transferee. In other words, such transfer will not trigger the change of control clause in the agreements; however, the transferee must review these arguments carefully and check whether the "transfer of agreement" clause requires prior consent of the counter party.

Transfer of Commercial Enterprise under Turkish Law

This mechanism is regulated under the Turkish Commercial Code2 ("TCC"). Article 11 of the TCC defines the commercial enterprise as an enterprise aiming to reach an income exceeding the level of craftsman and the activities of which are run in a constant and independent way. The independence and consistency aspects play a significant role as to qualifying a business as a commercial enterprise and determining the application of the provisions of TCC rather than TCO.

Unlike the TCO, the TCC provides that, a transfer agreement shall be subject to certain requirements, such as; a validity requirement, the requirement for such agreement to be in a written form, to be registered with the Trade Registry and announced in the Trade Registry Gazette.

The announcement of the transfer agreement in the Trade Registry Gazette serves the same purpose with the announcement made as per the TCO, with the liabilities of the transferee and transferor against the creditors of the debts of the assets included in the transferred commercial enterprise starting as of the date of the announcement in the Trade Registry Gazette and the transferor remaining liable for a period of two years as of the date thereof for due debts and for a period of two years as of the maturity date for undue debts. Although a person who transfers its commercial enterprise ceases to exist as a tradesman following an applicable execution of the transfer agreement, they shall remain liable for such debts for a specific period of time.

Another significant distinction of the TCC is that all assets of the commercial enterprise (including the real property) are transferred to the transferee as a whole with the signing and registering the transfer agreement, hence it is not necessary to perform the legal transactions which are commonly required for transfer of each particular asset under the general provisions of law. This novelty of the TCC has brought an element of practicality to commercial life.

It is always possible to exclude some of the assets of the commercial enterprise from the scope of the transfer agreement, provided that the assets transferred are sufficient to continue activities as a commercial enterprise.

In situation where assets transferred cannot be qualified as a commercial enterprise after exclusion of certain assets, such transfer shall not be deemed as transfer under the TCC, and shall only be qualified as a transfer subject to the TCO. Given that it will not be considered in the scope of a commercial enterprise andonly the provisions of the TCO shall be applied for such a transfer.

Other matters requiring a consideration while transferring a commercial enterprise is where it may be necessary to notify the transfer of the commercial enterprise to the Competition Authority as per the Law on the Protection of the Competition3 and to obtain a clearance decision in order for the transfer to be valid.

Spin-off under Turkish Law

Companies may prefer to divide one of their business lines and transfer it to other companies by way of spin-off. In practice the term spin off is used in partial division of a company4.

The main aspect that distinguishes 'partial division' from the abovementioned types of transfer is that, only companies or cooperatives may be subject to division.

In a partial division, the assets of the company are divided into one or more parts and transferred to existing or to be newly established companies. After the partial division, shareholders of the partially divided company acquire the rights and shares of the transferee company or the partially divided company acquires the shares and rights of the transferee in return for the transferred assets.

Where transferor or its shareholders acquire shareholding rights in the transferee it may be a determining factor while choosing the legal mechanism for transfer of a business line.

In comparison to the asset transfer and transfer of a commercial enterprise, the process of completion during partial or complete division of a company is long and complicated.

The administrative and management bodies of all companies to be involved in the division are required to prepare a division agreement, a division plan and a division report. Such agreements and plans must be in written form and approved by the general assembly of the companies.

The division agreement, division plan, division report and other documents stipulated in the TCC such as financial tables and balance sheets shall be prepared for examination of the shareholders of the companies to be involved in the division two months prior to general assembly decisions.

The companies involved in the division make three announcements in the Turkish Trade Registry Gazette, those being, to call their creditors to notify their receivables and claim for guarantee for their receivables.

The division is deemed as completed when it is registered before the Trade Registry. The partially divided companies continue to exist with the assets that are not transferred.

The employment agreements made with the employees and all rights and liabilities arising thereof pass to the transferee unless the employees object.5

Conclusion

The process of transferring a business line may be more complex than it seems. Different legal mechanisms may be applied for such a transfer and these mechanisms may encompass different results in terms of labour law, competition law, tender law and etc. Hence it is important to define legal mechanism to be applied correctly during an acquisition or a merger process or else it may prolong the entire process and affect the closing date for the parties subject to transaction.

Footnotes

1 Numbered 6098, dated 04.02.2011.

2 Numbered 6102, dated 14.02.2011.

3 Numbered 4054, dated 13.12.1994.

4 Under the TCC, there are two types of division: partial division or complete division.

5 Article 178 of the TCC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Filiz Toprak Esin
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions