Draft Communiqué on Principles of Joint Stock Companies Whose Shares Will Be Traded in the Venture Capital Market ("Draft Communiqué") regarding non-public joint stock companies ("JSC") under Capital Markets Law numbered 6362 ("Law No. 6362") has been published on September 20th, 2022 for public consultation. Regulations under the Draft Communiqué allows the sale of the JSC shares issued by a capital increase to qualified investors under the Venture Capital Market ("VCM") without an initial public offering of shares.

Procedure and principles that will be implemented for sale/post-sale of shares; conditions, obligations, and exemptions for JSCs are regulated under the Draft Communiqué.

Pursuant to the Draft Communiqué, the shares will be traded under VCM which will be established under Borsa Istanbul Equity Market. Accordingly, two applications to the Capital Markets Board of Turkey ("Board") are required to be submitted by JSC in order for the amendment of the articles of association and subsequently, approval of the offering circular. The documents required for the aforementioned applications are included in the annex of the Draft Communiqué.

The following thresholds for the JSC financial statements of the year prior to the year in which the shares began traded are determined under the Draft Communiqué:

  • net assets shall exceed 50,000,000.00 TRY,
  • net sales revenue shall be minimum of 30,000,000.00 TRY,
  • stated capital shall be above 5,000,000.00 TRY.

It is necessary to revaluate the stipulated amounts considering the revaluation coefficient, however, the Board may opt otherwise.

JSC shares, which will be traded under VCM without an initial public offering of shares, shall be solely issued by capital increase and shall be only sold to qualified investors with sales in the exchange method. Draft Communiqué forbids additional share sales, conversion of existing shareholders' shares, which are not subject to the capital increase, into exchange-traded shares, and repurchase of JSC's own shares.

The shares can be offered to the public two years following the year they first entered the Exchange during post-sales. On the other hand, the JSC shall submit an application to the Board for approval of the offering circular, which will be issued only by capital increase, provided that the shares will be traded under another sub-market within five years. In case, the application is not submitted or the offering circular is not approved by the Board, JSC will be deemed excluded from VCM and will be prohibited from the initial public offering of shares for two years. In addition, if the JSC are involved in mergers or spin-offs, they will also be deemed excluded from VCM and will not be allowed to trade their shares in VCM for two years.

On the other hand, JSC are exempted from the obligation to issue Q1 and Q3 interim financial reports and provisions of Communiqué on Takeover Bids numbered II-26.1 and Communiqué on Significant Transactions and the Retirement Right numbered II-23.3.

JSC within the scope of Draft Communiqué will be considered as businesses, whose capital market instruments are traded in the exchange and/or other sub-markets, in regard to financial reporting and independent audit. The aforementioned JSC also have public disclosure obligations limited by the conditions stated under the Draft Communiqué.

Consequently, the JSC that meet the requirements outlined in the Draft Communiqué will be allowed to trade their shares issued by a capital increase to qualified investors without conducting an initial public offering. The Draft Communiqué imposes a number of obligations on the JSC, and unless these obligations are met, serious consequences, such as exclusion from VCM. Although the process of trading the shares in VCM can be compared to the initial public offering process, it is less extensive.

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.