Turkey: Share Deal Or Asset Deal?

In General

We may, in general, talk about a "share deal versus asset deal" situation when a transaction that involves the transfer of a business or provides freedom of contract for the parties. In practice, these transactions are mainly comprised of (i) the signing of sale and purchase agreements on the acquisition of all of the shares or the entire business of a target company that contains extensive and detailed provisions, (ii) fulfillment of conditions precedent and pre-completion covenants, and (iii) subsequently, the completion of the transfer transaction. Therefore, our subject herein is to make a comparison between the transfer of the shares of a target company, and the transfer of an entire business of such target company, without the legal entity. The legal provisions hereby discussed are Art. 489 et seq. of Turkish Commercial Code No. 61021 ("TCC") applicable to share transfers and Art. 11/3 TCC, and Art. 202 of Turkish Code of Obligations No. 60982 ("TCO"), applicable to the transfer of business. Transactions involving the transfer of business with a certain type of contract, due to special provisions of applicable laws or transactions dealing with the transfer of only significant assets, or a certain part of business are not taken into account herein.

Pursuant to Art. 489 TCC, the transfer of bearer share certificates requires the transfer of possession of the share. As to registered share certificates, pursuant to Art. 490/2 TCC, the transfer concerning legal transactions is realized by the transfer of possession of the registered share certificate that has been validly endorsed.

On the other hand, Art. 11/3 TCC regulates that a commercial enterprise can be transferred as a whole that will not necessitate conducting the legally required transactions for the transfer of each asset, separately. According to this provision, the transfer agreement shall be in written form, and registered, and announced with the trade registry, and unless otherwise specifically indicated, is considered as covering the fixed assets, enterprise value, tenancy rights, trade name, and other intellectual property rights, and other assets that are permanently attached to the business.

Transfer Procedures

In a share deal, the entire business of the target company, including, but not limited to the assets, agreements, permits and licenses, the employees and liabilities are subject to transfer, while the buyer acquires the shares of the target company. In other words, if there are assets or other elements of the target company that are not intended to be covered by the transfer, then these should be carved out from the company through separate legal transactions prior to the share transfer transaction, and to procure this result, such an undertaking should be regulated as a condition precedent or a pre-completion covenant under the sale and purchase agreement.

On the other hand, in an asset deal where there is a transfer of business, as indicated in Art. 11/3 TCC, unless otherwise specifically set forth under the written contract, the elements of business (i.e. the fixed assets and other assets that are permanently attached to the business, enterprise value, tenancy rights, trade name and other intellectual property rights) are deemed to be included in the transaction. In other words, the parties of the transaction have a certain degree of freedom of contract as to which assets and other elements are to be included in, or carved out from, the sale and purchase transaction, provided that the entirety of the business is preserved within the transfer transaction. The Trade Registry Regulation3 ("TRR") sets forth that the integrity of the commercial enterprise shall not be affected, and the continuity of the commercial enterprise shall not be damaged as a result of carving out any asset or element of the business from the transaction.4

As per this provision, upon the registry and announcement of the transfer agreement with the trade registry, the business can be transferred as a whole without requiring separate transactions for the transfer of each asset. Before the TCC entered into force on 1 July 2012, each asset constituting the acquired business must have been transferred through a different procedure (e.g. in the event of a conveyance of an immovable, such conveyance must be conducted before the land registry office, or in the case of a transfer of vehicles, such transfers must be made with traffic registry branches or offices of police departments). To that end, the TCC reflects a very important and positive step for the entirety of a business transfer. The entirety of the transaction is achieved through written form, registration and announcement with the trade registry and notification to other registries by the trade registry. According to Art. 133/3 TRR, all transfer agreements must be registered. The registration is institutive, whereby publication has an explanatory effect that will prevent the bona fide acquisition by third parties. The most important rule for the completion of a transaction is the notification of other registries by the Trade Registry. As to Art. 135/5 TRR, simultaneously with the registration of the transfer of business, the directorate shall notify all of the related registries in order to register the assets and rights, such as immovables, ships and intellectual property rights.

As is clear from the above-mentioned provisions, legislators have preferred to simplify the business transfer transaction by regulating one-step registration before the public registries. In addition, the ability to carve out certain assets, as well as the risks within a business during such transfer, can be accepted as an advantage of having an asset deal.


Before the TCC entered into force in July, 2012, within the context of an asset deal, all agreements of a target company must have been assigned to the buyer with the consent of the other party of such agreements, since there was no special provision regarding the transfer of business through one single transaction. Upon TCC coming into force, the transfer of agreements within an asset deal became controversial for Turkish scholars. Although TCC Art. 11/3 sets forth that a commercial enterprise can be transferred as a whole without requiring separate transactions for the transfer of each asset, as a basic argument, some scholars accept agreements as being assets of such business, since they create obligations and receivables; whereas some scholars argue that due to the change of party provisions under the TCO, the agreements of a business shall still be assigned separately. With respect to the transfer of the lease agreement of a business place, Art. 323 TCO regulates that the lessor cannot refrain from providing the approval without just cause.5 In practice, in order to be on the safe side, it is recommended to draft special provisions under the sale and purchase agreement for receipt of the approvals by the relevant counter parties.

Within the context of a share deal, agreements of a target company will continue to be valid and enforceable with the same terms, without the need for a separate assignment. In this respect, some of the agreements may contain change of control clauses that may entitle the counter-parties of such agreements to terminate the relevant agreement in the event of a share transfer in the target company. Therefore, similar to the suggestion with respect to an asset deal, it is essential to draft a condition precedent in the sale and purchase agreement of a share deal to obtain the necessary approvals from the counter-parties of those relevant agreements.


As a general rule under Turkish labor law, the employees of a business place are automatically transferred when such business place is transferred to a new owner who keeps the business operational. In this regard, no special assignment contract or transaction must be entered into. However, it must be taken into consideration that for an automatic transfer to be effective and binding for the employees, the working conditions of the employees must remain as they were prior to the transfer. Otherwise, the employees may object to an automatic transfer and terminate their employment contracts. On a final note, an automatic transfer of the employees brings with it a transfer of rights of the employees with retrospective effect; i.e. for calculation of severance payments and annual leave payments, the date when the relevant employee commenced working for the target company will be taken into account, and not the date of the business transfer, whereby the employees are transferred.

As to a share deal, there will be no difference as compared to an asset deal, unless otherwise agreed to with the transferring party of the deal, and the employees of such target company are automatically transferred.

Exposure for Past Practices

Although it is much less likely for a buyer to inherit tax liabilities and penalties in the event of an asset deal when compared to a share deal, one cannot fully assert that in an asset deal, the buyer will not in any way be affected by the above-mentioned liabilities, which the target company may be exposed to due to their past practices, especially from a theoretical point of view.

Albeit a lack of reference with respect to the liabilities of the business under Art. 11/3 TCC, unless otherwise specifically provided for under the contract, the transfer of a business shall also be considered to cover the liabilities of such business as well, since Art. 202 TCO regulates that a transfer shall cover both the assets and the liabilities of a business.

According to Art. 202 TCO, if a business is transferred in its entirety, with all of its assets and liabilities, the transferee automatically becomes liable for the debts of the said enterprise, starting from date of announcement to that effect. In addition, Art. 280 of the Execution and Bankruptcy Code No. 20046 states that the transfer of a business in under certain conditions may expose the buyer to certain liabilities.

Although there is debate between scholars as to whether the provisions under Art. 202 TCO are mandatory, Art. 11/3 TCC indicates that "unless otherwise agreed" strengthens the opinion that the parties may freely determine the components of a transaction7.

Governmental and Environmental Permits and Licenses

Since the licenses and permits required for the activities of a business are issued under the title of the company that owns such business, within the context of a share deal, there is no requirement of renewal or change of such licenses and permits, unless there is a special provision under the applicable laws. There are special provisions applied to some sectors, such as the energy sector or insurance sector that require notification to, or approval from a relevant public authority prior to a share transfer; however, such requirements are relevant to the completion of the share transfer transaction, but not to the continuance of the activities after such transaction.

On the other hand, in the event of an asset deal in the form of a business transfer, in order for a business to continue its activities, in general, the buyer will mostly be required to apply to relevant governmental authorities for the renewal or change to permits and licenses, including general ones, such as workplace opening and operation permits. In order to be on the safe side, a draft detailed provision should be made under the relevant agreement regarding the renewal of the permits and licenses of the business in accordance with the mutual understanding of the parties.

Notification to the Competition Authority

Having a share deal or an asset deal will not make any difference with respect to the requirement to notify the Turkish Competition Authority of the transaction. Art. 7/2 of Law No. 4054 on the Protection of Competition shall be applicable.

Tax Expenses

Both in an asset deal and a share deal, tax expenses should be taken into account. In general, share deals are likely to be preferable since there are exceptional provisions.


The parties of a transaction should take into account all aspects of their specific intentions, and also their mutual understanding when they decide whether to conduct a share deal or an asset deal. In other words, every decision to that effect should be transaction specific. Moreover, necessary provisions, such as conditions, covenants and representations and warranties shall be specifically regulated in the relevant sale and purchase agreement based on the mutual understanding of the parties.


1.Official Gazette, 14.02.2011, P. 27846.

2.Official Gazette, 04.02.2011, P. 27836.

3.Official Gazette, 27.01.2013, P. 28541.

4.ERDEM, Ercüment; The Transfer of Commercial Enterprises pursuant to the Turkish Commercial Code, Newsletter, July, 2013, http://www.erdem-erdem.com/fr/articles/the-transfer-of-commercial-enterprises-pursuant-to-the-turkish-commercial-code-2/

5.According to Temporary Art. 2 of the Law No.6217 dated 31 March 2011 amended with the Law No. 6353 dated 4 July 2012; should the lessee be a merchant according to TCC, a public law or private law legal entity, Art. 323, 325, 331, 340, 342, 343, 344, 346 and 354 shall not be applied for a period of 8 years as of 1 July 2012. In such a case, the relevant articles of the agreement or the provisions of the abbregated Turkish Code of Obligations.

6.Official Gazette, 19.06.1932, P. 2128.

7.AŞIK ZİBEL, Berna: Transfer of Assets along with Liabilities as in Transfers of Business, Newsletter, February, 2012, http://www.erdem-erdem.com/en/articles/transfer-of-assets-along-with-liabilities-as-in-transfer-of-enterprisebusiness/

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.

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