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The sale of newly issued company shares to qualified investors on Venture Capital Market

Capital Markets Board of Turkey ("Board") published the Communiqué on Principles of Companies whose shares to be Traded on the Venture Capital Market numbered II-16.3 ("VCM Communiqué") in the Official Gazette dated 18.05.2023 and numbered 32194 which takes effect as of its publication date.

VCM Communiqué regulates the sale of shares of non-public joint stock companies (“JSCs”) to be issued through capital increase without public offering to qualified investors and sets out the liabilities and exemptions to be applied to these JSCs.

In contrast to the public companies, Board has granted certain exemptions and flexibility to the JSCs whose newly issued shares through capital increase are traded on the Venture Capital Market (“VCM”) for sale to qualified investors as per the VCM Communiqué. Accordingly, JSCs are held exempt from (i) the liability to prepare quarterly and nine-month interim financial reports and (ii) the enforcement of Corporate Governance Communiqué numbered II-17.1, the Communiqué on Takeover Bids numbered II-26.1 and the Communiqué on Material Transactions and Exit Right numbered II-23.3.

In order for the newly issued shares of the JSCs through capital increase to be sold to qualified investors without public offering and to be traded in the VCM, the articles of association of the JSC shall primarily be amended in accordance with the relevant capital market legislation.

Following this, a prospectus shall be prepared in the same format as required by the Board and such prospectus shall be submitted to the Board for approval.

The other key issues set out under the VCM Communiqué can be found below.

  • The audited financial statements of the JSC relating to the financing year preceding the year in which JSC will sell its shares shall meet the following conditions:

    • The total value of the assets of the JSC must be at least twenty million Turkish liras.

    • The net sales revenue of the JSC must be at least ten million Turkish liras.

    • In order for the JSC to be in the registered capital system, its registered capital must be at least ten million Turkish liras and this capital must be fully paid.

  • Only the shares issued through capital increase are traded in the VCM.

  • Shares owned by existing shareholders that are not issued through capital increase cannot be converted to shares to be traded on the stock exchange during the periods specified in the VCM Communiqué.

  • JSC shares cannot be offered to public before the expiry of two years following the date on which these are started to be traded in the VCM.

  • JSCs are required to apply to the Board with the relevant prospectus for the public offering of their newly issued shares through capital increase before the expiry of five years following the year in which their shares started to be traded on the stock exchange. If this application is not made to the Board within the said period, the JSC will be deemed to fall out of the scope of the Law and such JSC shares will be deemed to have been removed from the VCM. In this case, the JSC will not be able to apply to the Board for the purpose of public offering of its shares for two years from the date of its removal from VCM.

  • If JSCs become a party to a merger or a demerger transaction, the shares of these JSCs will be deemed to be removed from the VCM.

With this Communiqué, JSCs will be able to sell their newly issued shares to qualified investors by being exempt from the financial size requirement and certain liabilities related to public offerings as per the capital market legislation. In a nutshell, Board provides an alternative financing method for JSCs.

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