The one of the most significant principle in an M&A
transaction is "the principle of maintenance of
partnership structure" (or the maintenance
principle) under Turkish Commercial Code. As is
known, result of a merger and acquisition
transaction affects two main actors: the first one is the
company itself and the second is shareholders of the
company in fact maintenance of the partnership structure
is a result of the second affect of an M&A
transaction. Maintenance of the partnership structure under Turkish
Commercial Code means preserving the rights
of each partner in the transferor or
merged company, and right to request value and rights of
their existing stock in the transferor or merged company
or equipotent stocks or rights from the transferee
company. The maintenance principle can be described as
equality which provides partners of transferor or
merged company to be new shareholders in
transferee company as much as transferor or
merged company's shareholders equity. This equality does
not only mean nominal value of the stocks but also the rights that
stocks provide to the shareholders in the transferee company.
Exchange of Stocks
The principle is a compulsory legal rule which is
foreseen in Turkish Commercial Code. The main legal protection is
in this principle is to maintain a shareholder's
right in the transferee company as well as it was in
his/her transferor company.
The principle of exchange of stocks completes the principle of
maintenance of partnership structure. Shareholders continue to be
shareholder in the transferee company however their
capital remains same as before. In case of share capital
increase in transferee company their capital ratio decreases
In case of exchange of privileged shares, the privileged rights
which are provided to privileged shareholder must be determined and
described in the merger agreement and the same rights must be
obtained in return or otherwise money's worth must be
given for these privileged shares.
As a result of principle of maintenance of partnership
structure, the transferee company is obliged to increase its
capital to give the rights of shareholders of the transferor or
merged company. As is mentioned
above, shareholders of transferor company have
right to maintenance their shareholder status in transferee
Equalization payment is an exception of the
principle of maintenance of partnership structure because
in this situation, shareholders cannot obtain
new shares in return for their old shares.
Shareholders must be paid in kind or cash.
In case of determination of the
equalization payments, it is possible to pay up to 10 %
of actual value of the stocks exchanged. This 10 % is an upper
limit for equalization payments. However, if the commercial
court decides to equalization payments,(please see "right
to sue"below) this upper limit is no longer valid for the
shareholders of the company. Because this is a cash payment,
equalization payments are an exception
of the maintenance principle.
Calculation of Right to Claim
Under Turkish Commercial Code, in principal, several
conditions are described in regard of calculation of
shareholders' rights to claim. The calculation method
includes every single item which affects the share value such
as M&A transaction parties' assets and shareholders
equity, distribution of voting rights of the shareholders of
the transferor company, nominal value of the shares and
The shares are mostly calculated according to current value of
the time when the merger agreement has been signed. The
calculation of the current value of the shares is "a
must" in a merger agreement.
Right to Sue
Unless the main elements which affect share valuation of
transferor or merged company are taken into consideration in a
merger agreement, each shareholder has right to sue
against the merger and acquisition transaction or to request
protection of their partnership status. Each
shareholder has capacity to sue against the
merger and acquisition transactions within two
months demanding of determination of their share value
after the M&A decision of company was declared in
Turkish Trade Registry Gazette.
By this lawsuit which is called "equalization suit",
authorized commercial court will be able to monitor whole M&A
process. Hereunder, commercial court may decide the company to
pay equalization payment to shareholder of the company or annul the
transactions which are subject to Merger and Acquisitions of
As it is mentioned above, shareholders have right to sue against
M&A transactions within two months after the M&A
decision of company is declared in Turkish Trade Registry Gazette.
This term is a final term so that the judge will apply the
principle of ex officio examination for term of litigation.
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.
In a recently released milestone decision, the Swiss Federal Supreme Court held, for the very first time, that the duty of financial intermediaries to report suspicions of money laundering...
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”
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).