With the Draft Communique on Principles Regarding Companies Whose Shares Will Be Traded on the Venture Capital Market [“Draft Communique”] published in the Official Gazette on 20 September 2022, it will be possible to sell shares of a non-public joint stock company to qualified investors on the stock with the status of a public company. The Draft Communique also regulates the liabilities and exemptions of such companies. It is expected to enter into force soon following collecting public opinion.
Regulations to be Complied with During the Sale of Shares
According to the Draft Communique, the Venture Capital Market [“VCM”] will be established in order for corporations that do not desire to offer their shares to the public but wish to be listed on the stock exchange to make operations in the market. Accordingly, the corporations will be able to sell their shares to qualified investors in VCM through capital increases, allowing for an alternative method of public offering for companies.
Within the scope of the Draft Communique, certain conditions must be complied with during and after the sale of their shares by corporations that wish to offer their shares to the VCM. They are first required to obtain approval from the Capital Markets Board [“CMB”] for the prospectus, the principles of which are governed by CMB. Prior to receiving this approval, the corporation must align their articles of association with CMB regulations. Furthermore, they are required to issue a decision regarding the partial or total limitation of their right to acquire new shares, excluding those that are within the registered capital system. If the prospectus is approved by CMB, the shares will be issued on the VCM for the acquisition of qualified investors. In other words, the company will -in a way- go public with the qualified investors’ participation to the capital increase.
Apart from all these, the financial statements of the corporation whose shares will be traded in the VCM must also meet the minimum limits determined in accordance with 2022 valuations, which stipulate that, shares of the companies prepared in accordance with the CMB regulations, and which have undergone a special independent audit must have (i.) total assets exceeding 50 million Turkish Liras, (ii.) net sales revenue exceeding 30 million Turkish Liras (iii.) and a registered capital of at least 5 million Turkish Liras.
These corporations will apply the method of sale on the stock exchange in the sale of their shares as specified, will not be able to sell additional shares and will not be able to convert the shares of their current partners that are not subject to capital increase into shares that are traded in the stock exchange. In addition, corporations covered by the Draft Communiqué will not be able to repurchase their own shares.
The Liabilities and Exemptions After the Sale of Shares
The respective corporations cannot initiate an initial public offering (IPO) for two years following the offering on the VCM. In addition, within five years of their entry into the VCM, companies must apply to the CMB for public offering through capital increase in order for their shares to be traded in other markets, and this application must be approved by the CMB, as otherwise, the shares will be deemed to have been removed from the VCM by the stock exchange. Likewise, if these companies go through a merger or demerger, the shares will be deemed to have been removed from the VCM.
In accordance with the Draft Communique, the related corporations are exempted from the obligation to prepare quarterly and nine-month interim financial reports, and furthermore do not have to comply with the provisions of the Communique on Corporate Governance No. II-17.1, Communiqué on Mandatory Tender Offer No. II-26.1 and Communique on Material Transactions and Exit Rights No. II-23.3.
With the Draft Communique presented to the public, it becomes possible for joint stock companies that meet the above-mentioned conditions and comply with the obligations to issue their shares to the stock market through capital increase without being obliged to initiate a public offering. In this respect, the options of non-public corporations to list their shares on the VCM as a regulated market, seem quite advantageous compared to the public offering in order to increase their visibility and receive financial support. The Draft Communique is expected to enter into force in the upcoming period.
By Zahide Altunbas Sancak, Partner, and Beliz Boyalikli, Legal Trainee, Guleryuz & Partners