Borsa Istanbul's New Venture Capital Market
Introduction
The Communiqué on the Principles Regarding the Companies whose Shares will be Traded on the Venture Capital Market (II-16.3)[1] ("Communiqué") has facilitated for private joint stock companies to sell their shares to qualified investors without a public offering. Thus, a new opportunity is created for joint stock companies that do not meet the conditions for going public but have a certain size to sell their shares to qualified investors. This market, established within Borsa Istanbul (“Venture Capital Market”), is expected to make a dynamic contribution to Turkiye's financial and start-up ecosystems and to be a catalyst for innovation, entrepreneurship and economic growth. This article examines the requirements for the company's shares to be traded on the Venture Capital Market, the process of offering the shares for sale and the obligations to be complied with following the sale.
Requirements for Offering Shares for Sale
In order for the shares of joint stock companies to be traded on the Venture Capital Market, in their independently audited financial statements for the year preceding the year in which their shares will be offered for sale;
- Total assets must be at least TL 20 million,
- Net sales revenue must be at least TL 10 million,
- In order to switch to registered capital, its registered capital must be at least TL 10 million and fully paid up.
Process of Offering Shares for Sale in the Venture Capital Market
Pursuant to the Communiqué, private joint stock companies shall prepare a prospectus in order for their shares issued through capital increases to be sold to qualified investors without public offering and to be traded on the Venture Capital Market. The prospectus must be prepared in accordance with the principles determined by the Capital Markets Board and approved by the Capital Markets Board.
Before applying to the Capital Markets Board for the approval of the prospectus, private joint stock company shall complete the following procedure:
- The board of directors shall resolve on the draft amendments to the articles of association prepared in a manner to include the necessary amendments to the articles of association to comply with the regulations of the Capital Markets Board and the objectives and principles of the Capital Markets Law, and shall apply to the Capital Markets Board together with the documents listed in Annex-1 of the Communiqué. Amendments to the articles of association shall be resolved at the general assembly meeting to be held within six months at the latest following the approval of the Capital Markets Board.[2]
- In the event that the private joint stock company has a principal capital system, the general assembly resolves to increase the capital and to partially or completely restrict the rights to purchase new shares in accordance with the provisions of the Turkish Commercial Code ("TCC"). If the private joint stock company has a registered capital system, this decision is taken by the board of directors if authorized by the articles of association.[3]
Upon completion of the above procedures, the company applies to the Capital Markets Board for approval of the prospectus together with the prospectus and other documents annexed to the Communiqué.
The provisions of the Communiqué on Prospectus and Issuance Document (II-5.1)[4] shall apply by analogy to the preparation of the prospectus, submission of the prospectus to the Capital Markets Board for approval, registration and announcement, amendments to the prospectus and liability for the prospectus.
In case the sales price of the shares is higher than their nominal value, a price determination report shall also be prepared by the sales intermediary organization regarding the sales price and the methods used in the calculation of this price. This report shall be announced on the Public Disclosure Platform (“PDP”) at least two days before the date on which the shares will be put up for sale.
Following the approval and announcement of the prospectus by the Capital Markets Board, the start and end dates of the sale are announced on PDP at least two days before the date on which the shares will be offered for sale. The sales period is two business days.
The final amount of the issuance, the number of investors, the persons who purchased more than 5% of the nominal value of the shares (without the need to specify their names) are announced by the authorized institution on PDP within two business days following the day the distribution list is finalized.
Additional share cannot be sold in stock exchange of the companies whose shares will be traded in the Venture Capital Market. In the sale of shares to qualified investors without public offering, the provisions of the Communiqué on Capital Market Instruments (II-5.2)[5] shall be applied to the extent appropriate.
Liabilities following the Sale of Shares
A joint stock company whose shares are traded on the Venture Capital Market;
- Shall apply to the Capital Markets Board, within five years following the year in which its shares started to be traded on the stock exchange, for the approval of the prospectus to be prepared for public offering of its shares only by capital increase, in order to ensure that its shares are traded in other markets of the stock exchange. If the prospectus is not approved by the Capital Markets Board or if the company does not apply to the Capital Markets Board for approval within this period, the company shall be deemed to have left the scope of the Capital Markets Law and its shares shall be deemed to have been removed from the Venture Capital Market by the stock exchange without any further action;
- May not sell its shares by public offering before the completion of two years following the year in which its shares started to be traded on the stock exchange;
- And its affiliates, may not repurchase the company's own shares;
- Cannot be a party to a merger by acquisition and takeover; otherwise, upon the registration of the merger, the company shall be deemed to be excluded from the scope of the Capital Markets Law and its shares shall be deemed to have been removed from the Venture Capital Market by the stock exchange without the need for any further action. The transferee company may apply for its shares to be traded in the Venture Capital Market only two years after the registration of the merger;
- Cannot be a party to a spin-off transaction; otherwise, upon the registration of the spin-off, the company shall be deemed to be excluded from the scope of the Capital Markets Law and its shares shall be deemed to have been removed from the Venture Capital Market by the stock exchange without any further action. The company that is a party to a partial spin-off may apply for its shares to be traded in the Venture Capital Market only two years after the registration of the general assembly resolution regarding the partial spin-off.
Companies whose shares are deemed to have been removed from the Venture Capital Market by the stock exchange may not apply for public offering within the scope of the Communiqué on Equity (VII-128.1)[6] for a period of two years from the date of deemed removal, and the provisions of the Communiqué on Equity (VII-128.1) regarding the companies whose shares are deemed to have been offered to the public due to the number of shareholders shall not apply to these companies.
Material Event Disclosures
Pursuant to Article 7 of the Communiqué, a company whose shares are traded on the Venture Capital Market is obliged to make a public disclosure in the following cases:
- In case of any change in the general information regarding the company, within two business days at the latest;
- In the event that a natural or legal person, or other natural or legal persons acting in concert with such natural or legal person, directly holds 5%, 25%, 50%, 67% or 95% of the share capital or total voting rights of a company, or in the event that such share capital or total voting rights reaches or falls below 5%, 25%, 50%, 67% or 95% of the share capital or total voting rights of a company, or in the event that the management control of the company directly changes hands due to a contract or by other means, by such persons within two business days at the latest;
- A resolution on dividend distribution is adopted by the general assembly;
- General assembly agenda and minutes of the general assembly meeting, and if the general assembly meeting cannot be held, the reason for this situation;
- Resolution of the authorized body regarding capital increase or decrease, merger, spin-off or change of type and finalization of these transactions;
- Change in the Company's actual field of activity, partial or complete cessation or impossibility of activities or production, or emergence of developments that may lead to these consequences;
- The filing of a dissolution lawsuit against the company, the realization of a reason for dissolution regulated in the articles of association, if any, or the decision to dissolve the company in the general assembly, the initiation of enforcement proceedings against the company for an amount corresponding to 10% or more of the tangible fixed assets in the last annual statement of financial position, the filing of a bankruptcy case or the realization of one of the termination reasons that may result in the liquidation of the company;
- Asset transfers and acquisitions corresponding to 10% or more of the total assets of the company in the last annual statement of financial position.
Exemptions
Article 8 of the Communiqué sets out that the provisions of the Communiqué on Share Purchase Offer (II-26.1)[7], the Communiqué on Material Transactions and Exit Right (II-23.3)[8], the Communiqué on Corporate Governance (II-17.1)[9] and the provisions of the eighth chapter of the Communiqué on Shares (VII-128.1) shall not apply to the companies whose shares are traded on the Venture Capital Market; and in the capital increases, Articles 12, 13, 16, 22, 23, 25, 30 and 31 of the Communiqué on Shares (VII-128.1) shall be applied by analogy to the extent appropriate.
Conclusion
Venture Capital Market, established within Borsa Istanbul, allows joint stock companies that cannot meet the conditions for a public offering but have significant size and potential to sell their shares to qualified investors. The conditions that companies must meet in order to offer their shares for sale in this market, the process of offering the shares for sale, the obligations to be complied with after the sale, and the special circumstances requiring public disclosure, which are discussed in this article, are set forth in detail in the Communiqué. As this market develops, it has the potential to play an important role in shaping the future of the Turkish economy and the start-up ecosystem.
- Published in the Official Gazette dated 18/5/2023 and numbered 32194.
- In the event that the draft amendment approved by the Capital Markets Board is not approved by the general assembly within six months, the draft amendment shall lose its validity.
- Article 461/2 of the TCC (Pre-emptive right) shall apply to the partial or complete limitation of the rights to acquire new shares, and Article 461/3 of the TCC shall apply to the partial exercise of the rights to acquire new shares.
- Published in the Official Gazette dated 22/6/2013 and numbered 28685.
- Published in the Official Gazette dated 28/6/2013 and numbered 28691.
- Published in the Official Gazette dated 22/6/2013 and numbered 28685.
- Published in the Official Gazette dated 23/1/2014 and numbered 28891.
- Published in the Official Gazette dated 27/6/2020 and numbered 31168.
- Published in the Official Gazette dated 3/1/2014 and numbered 28871.
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