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Exit in the Startup World and its Legal Aspects


ith the development of the startup ecosystem in Turkey, we have started to hear more and more about high-value exit news. These developments, which are quite exciting for the entrepreneurship ecosystem, also represent success and expansion to a global scale for the startup companies that exit. The exit phase, which is the dream of every startup, also brings with it a legally complex process that must be taken seriously.

In startup companies, an exit can take various forms, such as share transfers, mergers and acquisitions of companies, or going public. In startup companies where founders are closely associated and have a strong emotional connection, we can see different models for share transfers in exit scenarios. The model in which the founder partially or completely transfers their shares but continues to be involved with the venture as a CEO or executive might be the most common exit scenario we encounter. In startup companies with multiple partners, we may see share transfers among partners or the transfer of shares to another company by one or more partners.

For share transfers in limited liability companies, the approval of at least three-fourths of the partners and these partners owning at least three-fourths of the core capital is required. In joint-stock companies, the form and conditions of share transfers vary depending on whether the shares are publicly traded. In share transfers, substantive regulations are more important than formal conditions. The distribution of profits, losses, privileges related to stock option shares, and regulations related to management are crucial determinants for a startup, and therefore, it is essential to prepare privileged share regulations and a shareholder agreement for the new structure that will emerge after share transfers with great care.

In the merger and acquisition (M&A) processes, we often see acquisition scenarios where a company purchases some or all of the shares of a startup company. In this scenario referred to as an acquisition under the Turkish Commercial Code, we generally witness the startup company or founder continuing with a minority share, while the acquiring company continues with a majority share. This model is based on the strategy of maintaining the connection with the founder and is of great importance for both the founder and the acquiring company. For the founder, it is undoubtedly important, and for the acquiring company, the continuity of the system in case the founder departs becomes a critical issue. Therefore, the exit plan after share transfers, especially in terms of post-acquisition, needs to be well thought out.

Another exit model that we encounter in the Turkish Commercial Code is the establishment of a new company through a merger of two companies. However, this merger model, referred to as a merger by formation in the Turkish Commercial Code, is not a very preferred model in the startup world, considering factors such as brand recognition, emotional connection with users, and the age of the startup company.

It should be noted that, according to the Turkish Commercial Code, capital companies can merge with other capital companies, and sole proprietorships can merge with other sole proprietorships. However, sole proprietorships are allowed to merge with capital companies only if the sole proprietorship is the transferring company.

In the merger exit model, issues such as the preservation or change of the partners’ share ratios, voting rights, and many other details must be carefully examined in the merger report and merger agreement. Of course, it is important not to forget the rules and limitations related to mergers stipulated in the Turkish Commercial Code here.

According to the Turkish Commercial Code, going public can be done either during the company’s establishment or after its establishment through the public offering of shares. The model that may be relevant for startup companies is the public offering of shares. Going public not only provides financing for the company but also creates an alternative path for shareholders who want to exit.

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