Transfer Of A Commercial Enterprise: Legal Framework And Principles Of Application

INTRODUCTION

A commercial enterprise is a fundamental concept at the core of commercial law, and the transfer of a commercial enterprise constitutes a transaction that gives rise to significant consequences in terms of both the legal framework and economic functioning. Through transfer, the overall value of the enterprise may be converted into cash by the transferor, while the transferee is afforded the opportunity to enter the market more securely with an existing organization and customer base. In this manner, the uninterrupted continuation of commercial activities and the preservation of continuity within the economic structure become possible.

1. The Concept of a Commercial Enterprise

Pursuant to Article 11 of the Turkish Commercial Code (“TCC”), a “Commercial enterprise is an enterprise in which activities aimed at generating income exceeding the threshold prescribed for artisan enterprises are carried out in a continuous and independent manner.” Under this definition, for an enterprise to be characterized as a commercial enterprise, it must encompass all of the following elements;

• (i) The aim of generating income;
• (ii) Continuity;
• (iii) Independence; and
• (iv) Exceeding the threshold prescribed for artisan enterprises.

In this regard, whether an enterprise makes a profit or incurs a loss is not decisive for it to qualify as a commercial enterprise. The decisive factor lies in the continuity of the activity and in its being carried out independently, without being subject to the will or control of another person or entity. Additionally, it is mandatory for the enterprise to aim to generate income exceeding the threshold for artisan enterprises as determined by a Presidential decree in order to acquire the status of a commercial enterprise.

2. Transfer of a Commercial Enterprise

The transfer of commercial enterprises is regulated under the TCC and the Trade Registry Regulation (“TRR”). In this regard, Article 11 of the TCC provides that “a commercial enterprise may be transferred as a whole, and may be subject to other legal transactions, without the need to separately perform the compulsory dispositive transactions required for the transfer of the asset elements it contains.” Accordingly, it is stipulated that a commercial enterprise may be transferred entirely through a single dispositive transaction, without the need to carry out separate transactions for the transfer of each asset element.

Pursuant to Article 133 of the TRR, it is regulated that commercial enterprises may be transferred as a whole in accordance with Article 11 of the TCC, provided that their continuity is ensured.

As reflected in these provisions, the transfer of commercial enterprises as a whole and their participation in legal transactions are expressly regulated.. This situation is defined in doctrine as the principle of “universal succession,” pursuant to which all rights and obligations included in the commercial enterprise are transferred as a whole through a single dispositive transaction. Therefore, in a transfer by way of universal succession, it is not necessary to carry out separate and individual transactions for each active and passive element that will pass from the assets of one legal person to the assets of another.

Since all assets and liabilities of a commercial enterprise are transferred together under a single transfer agreement, it is possible in practice for the transferee to assume certain liabilities that were not disclosed by the transferor. This situation may place the parties in an unequal position in commercial life and cause the transaction to deviate from its intended purpose.

For this reason, the doctrine has developed the concept of the “principle of partial universal succession,” which aims to enable the transfer of a specific portion of an asset through a single transaction in the transfer of a commercial enterprise. As a result of partial universal succession, a defined part of the assets of the transferor undertaking passes to the transferee through a single legal transaction, without the need for a separate dispositive act for each individual element. In this regard In this regard, for example, the transfer of movables does not require the separate transfer of possession. Likewise, in the case of promissory notes, endorsement is not required for their transfer. Owing to this transactional convenience provided by universal succession, it becomes possible to structure the transfer process in a manner aligned with the parties' expectations and needs.

Nevertheless, the law does not expressly regulate whether a commercial enterprise must necessarily be transferred by way of partial universal succession. In doctrine, it is accepted—parallel to the regulations under the Swiss Merger Act—that, with respect to the transfer of assets, the parties are granted a right of choice; accordingly, the parties may elect to carry out the transfer either as a whole by way of universal succession, or in accordance with the general provisions through separate dispositive transactions for each individual element, or, if they so prefer, by way of partial universal succession.

Accordingly, the use of the method of universal succession is not mandatory but constitutes an option that may be preferred depending on the will of the parties. This freedom of choice allows the transfer to be carried out without registration and announcement obligations, thereby enabling the parties in practice to complete the transfer in a faster and more practical manner.

3. Transfer Agreement and Transfer Process

Paragraph 3 of Article 11 of the TCC provides that “Transfer agreements and other agreements that have a commercial enterprise as their subject as a whole shall be executed in writing and shall be registered with and announced in the trade registry.” Based on this provision, it is possible to state that the transfer of a commercial enterprise consists of the following three stages:

• i) Execution of the transfer agreement;
• ii) Registration with the trade registry;
• iii) Announcement of the transfer in the Turkish Trade Registry Gazette.

Pursuant to paragraph 3 of Article 11 of the TCC, it is stipulated that a transfer agreement concerning the transfer of a commercial enterprise must be executed in written form. The mandatory elements to be included in the transfer agreement are set out in paragraph 2 of Article 133 of the TRR as follows:

• a) The names and surnames or trade names of the parties, together with their addresses for service of process;
• b) The elements of the commercial enterprise excluded from the scope of the agreement;
• c) An unconditional declaration that the commercial enterprise is transferred as a whole and in a manner ensuring its continuity;
• d) The sale price of the commercial enterprise and the terms of payment.

Nevertheless, as explained in detail above, since a transfer generally encompasses the commercial enterprise as a whole, there is no obligation to list all elements subject to the transfer in the transfer agreement. However, if there are any asset elements excluded from the scope of the transfer, such excluded elements must be expressly specified in the agreement.

Following the execution of a written transfer agreement between the parties, the agreement must be registered with the trade registry office to which the commercial enterprise is affiliated. 

Indeed, paragraph 3 of Article 133 of the TRR provides that “The transfer of a commercial enterprise becomes effective upon the registration of the entire transfer agreement,” thereby stipulating that the registration of the agreement in its entirety is required for the validity of the transfer and that registration with the trade registry is constitutive in nature rather than declaratory.

Due to the constitutive nature of registration, even if a transfer agreement has been executed between the parties, the transfer becomes valid only as of its registration with the trade registry, and the agreement concluded solely between the parties does not, in itself, give rise to the legal consequence of a transfer of a commercial enterprise.

Following registration with the trade registry, the registration shall be announced in the Turkish Trade Registry Gazette, and such announcement shall be declaratory in nature with respect to third parties. Accordingly, as of the date of publication, third parties may no longer rely on good faith.

It should be noted that, pursuant to Article 11 of the Communiqué on Mergers and Acquisitions Requiring the Authorization of the Competition Board, if the parties exceed the turnover thresholds specified therein, authorization from the Competition Board must also be obtained to carry out the transfer of the commercial enterprise.

4. Protection of Creditors in the Transfer of a Commercial Enterprise

Since liabilities are also subject to transfer in the transfer of a commercial enterprise, special protection is required in order to prevent the impairment of creditors' existing rights. In this context, the principal regulation regarding the protection of creditors is set out in Article 202 of the Turkish Code of Obligations (“TCO”), which provides that, upon notification or announcement of the transfer to the creditors, the transferee becomes liable for the debts related to the enterprise. The transferor, on the other hand, remains jointly and severally liable with the transferee for a period of two years—starting from the date of notification or announcement in respect of due debts, and from the date of maturity in respect of debts not yet due—after which the transferor's liability terminates automatically.

CONCLUSION

The transfer of a commercial enterprise is a special legal mechanism comprising both obligational and dispositive elements, which enables the transfer of assets through a single transaction while preserving the legal and economic integrity of the enterprise. While the Turkish Commercial Code and the relevant legislation safeguard the functionality and continuity of the enterprise, the provisions of the Turkish Code of Obligations protect the interests of creditors and prevent the abuse of the transfer mechanism. Within this framework, the transfer of a commercial enterprise emerges as a comprehensive institution that ensures legal certainty between the parties and serves the stability of the economic order.

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.