Commercial Enterprise Transfer Agreements And Sample Agreement

1. What is a Commercial Enterprise?

Many different commercial enterprises such as workplaces, enterprises, branches and companies can be established by entrepreneurs in order to generate commercial profit. Although the purpose of all of them is to make a profit, the structure and nature of each of them differ from each other legally. The concept of commercial enterprise is a technical concept and an enterprise that meets certain criteria can be legally qualified as a commercial enterprise. Article 11/1 of the Turkish Commercial Code regulates what should be understood when a commercial enterprise is mentioned in Commercial Law. According to this provision, "A commercial enterprise is an enterprise in which activities aiming to generate income at a level exceeding the limit stipulated for a tradesman enterprise are carried out continuously and independently." As can be seen, a commercial enterprise differs from a tradesman enterprise in terms of commercial volume and income level. Branches of a commercial enterprise do not qualify as commercial enterprises on their own. Because branches do not meet the independence criterion in the definition since they operate under the head office.

2. Concept of Transfer of Commercial Enterprise

Although it is a common reason for commercial enterprises to be transferred due to the inability to continue trading, the reason for transfer is not always that things are not going well. Commercial enterprises may also change hands for reasons such as changing the sector, growth, and the need for renewal. The rules governing the transfer of commercial enterprises and the manner in which they may be transferred fall within the scope of the Turkish Commercial Code. Pursuant to Article 11/3 of the Turkish Commercial Code, "A commercial enterprise may be transferred as a whole and may be subject to other legal transactions without the need for separate disposals required for the transfer of the assets it contains." It should be noted that the enterprises to be transferred according to this provision are only the enterprises that have the characteristics of a commercial enterprise as defined above. Apart from this, the transfer of tradesmen enterprises, branches and other workplaces is made according to the provisions of the Turkish Code of Obligations. In this article, we will focus on the transfer of commercial enterprises according to the Turkish Commercial Code, and we will try to make explanations with examples on how commercial enterprise transfer agreements should be prepared.

It should be noted immediately that the most important stage of the transfer of a commercial enterprise is the preparation of the transfer agreement. This is because in this agreement, the transfer of the elements included in the enterprise is realized at once, and many essential issues such as the conditions of the transfer, responsibility for rights and debts in the post-transfer period, and the transfer of contracts belonging to the enterprise are included. Therefore, the more detailed and appropriate the transfer agreement is, the more legal problems that may arise later are eliminated.

3. How Many Steps Can a Commercial Enterprise Transfer Be Completed?

It is possible to say that the transfer of commercial enterprise can be completed in 3 stages. These are:

• Competition Board Authorization
• Signing the commercial enterprise transfer agreement
• Registration and announcement in the trade registry

If the total turnover of the transaction parties in Turkey exceeds one hundred million Turkish Liras and the turnover of at least two of the transaction parties in Turkey exceeds thirty million Turkish Liras individually, or if the turnover of the asset or activity subject to the transfer in takeover transactions and the turnover of at least one of the transaction parties in Turkey exceeds thirty million Turkish Liras and the global turnover of at least one of the other transaction parties exceeds five hundred million Turkish Liras in merger transactions, permission from the Competition Board is required for the transfer of a commercial enterprise. Otherwise, the transfer will be invalid.

If there is no need to obtain Competition Board authorization, the first condition for the valid transfer of a commercial enterprise is the signature of a written transfer agreement by the parties. Without a written agreement, the transfer of the enterprise will not be possible. It is also possible and more secure to execute the agreement in official written form before a notary public instead of in ordinary written form. However, a written agreement alone is not sufficient to complete the transfer procedures. It is also necessary to register the transfer agreement with the trade registry. In fact, the moment of the transfer is determined by looking at the date of registration. The date of deposit of the trade registry fee is considered as the date of transfer. Because the process that formalizes the transfer is the registration process. The next stage after the registration is the announcement stage, which is explanatory. This stage is the stage that eliminates the good faith of third parties and notifies the transfer. With the announcement stage, the transfer transactions are completed.

4. Scope of Transfer of Commercial Enterprise

The transfer of a commercial enterprise is actually a type of asset transfer. However, it differs from a typical asset transfer since the Turkish Commercial Code stipulates a special transfer procedure for the transfer of a commercial enterprise and there are many individual assets, both tangible and intangible, within the commercial enterprise. For example, immovable properties, tools, equipment and machinery belonging to the enterprise are tangible assets. Intellectual property rights (trademarks, patents, etc.), tenancy rights, internet domain names, which are included in the assets of the enterprise and may sometimes be more valuable than tangible assets, are intangible assets. The fact that all these assets can be transferred in a single move with the transfer of commercial enterprise, and that there is no need to transfer and assign separately for each of them, provides great convenience.

A commercial enterprise includes not only the assets but also the debts of the enterprise. Therefore, the debts of the enterprise are also included in the scope of the transfer. A commercial enterprise must be transferred together with its assets and liabilities. It is not possible to transfer a commercial enterprise only through the transfer of assets. In other words, in the transfer of a commercial enterprise, both the elements included in the assets and the debts and receivables of the enterprise (i.e. assets and liabilities) will be included in the scope of the transfer. However, it should not be understood from this provision that all assets and liabilities of the enterprise must be transferred in full. The parties have a certain freedom in determining the content of the transfer agreement. They may exclude certain assets or liabilities from the transfer agreement. However, this also has a limitation. This limitation is a limitation on the ability of the enterprise to continue its activities as transferred and to have the ability to operate.

The main issue to be kept in mind when transferring a commercial enterprise is that the enterprise must be transferred as a whole, in such a way that it continues to operate. As long as this condition is met, it is possible to exclude some elements of the enterprise from the scope of the transfer.

Unless otherwise agreed by the parties, the scope of the transfer agreement covers;

• fixed assets
• enterprise value
• tenancy rights
• trade name
• intellectual property rights

The parties may exclude some of these elements from the contract if they wish. It should be noted that a commercial enterprise cannot be transferred separately from its trade name. What is meant by this is not that the trade name must be transferred, but that it must be transferred together with the commercial enterprise. Otherwise, the trade name may be excluded in the transfer. However, it is not possible to transfer the trade name separately from the commercial enterprise.

5. What are the Essential Elements of a Commercial Enterprise Transfer Agreement?

The parties may freely determine the content of the transfer agreement, provided that they comply with the legal obligations. However, the minimum content of a transfer agreement may be summarized as follows;

• Name, surname, title, notification address of the parties
• Unconditional declaration that the commercial enterprise is transferred as a whole and in a way to ensure its continuity
• Elements of the commercial enterprise excluded from the contract
• Sale price and payment terms of the commercial enterprise

As mentioned above, in order to avoid legal disputes during and after the transfer phase, a detailed transfer agreement should be prepared by taking due care from the very beginning, taking into account the sector in which the commercial enterprise operates, its financial status, balance sheets, asset values included in the enterprise and their needs, the status of employees in the enterprise, the transfer price, the balance of interests of the transferor and the transferee. The preparation of a commercial enterprise transfer agreement requires a multidisciplinary study. Within the field of law, it is necessary to master more than one branch of law related to the transfer, especially Commercial Law, Law of Obligations, Competition Law, Intellectual and Industrial Rights Law. Apart from the field of law, the preparation and evaluation of the balance sheets based on the transfer in the enterprise transfer is carried out by independent audit firms, independent accountant financial advisors.

As Solmaz Law and Consultancy Office, we successfully carry out and conclude holistic and solution-oriented processes with our expert legal staff as well as our enterprise partners specialized in different fields. In this way, we aim to minimize the time and costs that our clients will lose and ensure that they are satisfied with getting the result they want in a short time.

6. What Should Be Considered When Preparing a Commercial Enterprise Transfer Agreement?

While preparing a commercial enterprise transfer agreement; there are different issues to be considered regarding the transfer of assets, i.e. the transfer of assets, the transfer of debts and the transfer of contracts. However, first of all, it is necessary to briefly mention the process before the enterprise transfer agreement is concluded. First of all, since it is of great importance for the transferee, it is necessary to make a detailed examination and valuation of the existing capital, value, balance sheets, profit / loss status, debts, receivables, registered assets and their current and future status, intellectual property rights of the enterprise to be taken over. The preparation of the inventory and balance sheets to be taken as a basis for the transfer before the transfer agreement will ensure that the parties have full information about the enterprise subject to the transfer, and their inclusion in the annex of the agreement will minimize the disputes that may arise regarding the conditions under which the transfer has been realized.

After the necessary preparations are made, we will proceed to the preparation of the enterprise transfer agreement in accordance with the transfer will of the parties and the legal legislation. We share with you our sample commercial enterprise transfer agreement, in which we include explanations specific to each of the contractual clauses that we include in the transfer agreements we prepare. We hope it will be useful.

COMMERCIAL ENTERPRISE TRANSFER AGREEMENT

1. PARTIES

The parties to a commercial enterprise agreement may be an individual or a company. If it is a sole proprietor, it must be indicated with its name and identity number; if it is a company, it must be indicated with its title and tax identification number. In addition, the addresses of the parties suitable for notification should also be written in the contract. In the transfer of a commercial enterprise, the parties may be named as "transferor/transferee" or "buyer/seller". As a result, the transfer of a commercial enterprise is also a type of commercial sales contract. Apart from these, if there is a witness in the contract, his/her name and identification number should also be indicated.

2. DESCRIPTION OF THE TRANSFER/SUBJECT OF THE CONTRACT

After the parties are specified in the commercial enterprise transfer agreement, it is preferred to include an article that briefly states the subject of the agreement.

3. GENERAL CONDITIONS/NON-PERFORMANCE OF OBLIGATIONS

The basic rights and obligations upon which the contract is built may be set out in an article entitled general terms. Here, it is sufficient to make brief explanations on the obligations of the parties to each other and the matters that they are authorized to request from each other. This is because the rights and obligations of the parties are detailed in the rest of the contract.

4. TRANSFER FEE

One of the articles that should be regulated most carefully in terms of commercial enterprise transfer agreements is the determination of the transfer price. This is the most important clause for both the transferor and the transferee. While determining the transfer price, many data such as the reason for the transfer, the expected benefit of the transfer, the balance sheets of the enterprise in recent years, the monthly profit/loss status of the enterprise in the last year, the values of movable and immovable properties in the enterprise, the valuation of intellectual property rights, the value of the investments made in the enterprise should be evaluated at the same time. In this regard, it is recommended to get support from valuation experts, independent auditors or financial advisors for valuation transactions.

5. BALANCE SHEETS BASIS OF TRANSFER

It is important to see and evaluate the balance sheets of the commercial enterprise to be taken over at the pre-acquisition stage. Especially the balance sheet of the last year is favorable for obtaining an opinion on the takeover. In the transfer agreement, it should be specified which dated balance sheet is taken as basis.

6. LIABILITY FOR DEBTS

When a commercial enterprise is transferred, the issues of who will be responsible for the debts, in what amount, for how long and from when are frequently the subject of disputes between the parties.

Pursuant to Article 202 of the Turkish Code of Obligations, "The transferee of an asset or an enterprise together with its assets and liabilities shall be liable to the creditors for the debts in the asset or the enterprise starting from the date on which he notifies the creditors or announces this in the Trade Registry Gazette for commercial enterprises and in one of the newspapers distributed throughout Turkey for others." The general rule is that the transferor will be liable for the debts of the enterprise together with the transferee for 2 years. It is possible for the parties to exclude certain enterprise debts from the scope of the transfer and to agree that the transferee will not be liable for these debts. Likewise, the parties may also determine which debts, which will be responsible for which debts and from which date. These provisions shall be valid between the parties. Some authors in the doctrine accept that this agreement will only bind the parties and will not be valid for third party creditors. Nevertheless, we believe that it would be beneficial to include these provisions, which are effective in the internal relationship, in the agreement.

Including a provision in the contract stating that the transferee cannot be held liable for debts that the transferee did not know, did not expect and could not foresee at the time of the transfer is a provision that will protect the transferee, so it may be beneficial to include it in the contract upon request.

For more detailed information about liability for debts in the transfer of commercial enterprise, you can check our newsletter titled "Transfer of debts and liability for debts in the commercial business transfer " on our website. https://www.solmazlaw.com/en/transfer-of-debts-and-liability-for-debts-in-commercial-business-transfer/

7. FIXTURES AND REAL ESTATE

The rights contained in the commercial enterprise, which are normally legally acquired by registration in various registries, can be acquired without such registration, only by registering the commercial enterprise transfer agreement with the trade registry. Unless otherwise agreed by the parties during the transfer of the enterprise, the ownership of the fixtures and real estate belonging to the enterprise will also pass to the transferee. For this, for example, there is no need to register the title deed separately.

The parties may exclude the assets that they do not want to be transferred to the transferee with a provision to be included in the agreement. However, immovable properties used in the conduct of the activities of production and service enterprises, such as buildings, land and land, which have physical and technical integrity with the production and service enterprises and therefore cannot be separated from these enterprises, should remain within the scope of the transfer if excluding them from the transfer of these enterprises would pose a problem for the continuity of the enterprise.

We advise our clients to make an inventory of the fixtures and real estates registered in the assets of the enterprise before the transfer and to include this inventory in the contract, thus preventing any disputes that may arise regarding the assets subject to the transfer.

8. UNDERTAKING REGARDING COLLUSION

Collusion is a term used in the sense that a transaction that is not real and is not intended to have legal consequences between the parties is presented to the outside world as real. When the parties create the appearance of transferring certain assets to another person for the purpose of protecting them from attachment in order to get rid of their debts to third parties, this transaction is collusive. In our law, collusive transactions are subject to invalidity sanctions. In the event of a collusive transfer of a commercial enterprise, the right or interest holders may request the cancellation of the transfer. It is recommended to add a clause on collusion to the contract, considering the possibility of encountering such negativities.

9. DISPUTE RESOLUTION

It is possible to include a clause in the agreement regarding the courts or enforcement offices in which the disputes that may arise from the implementation of the commercial enterprise transfer agreement will be resolved. However, in order for this authorization clause to be valid, both parties to the agreement must have the title of merchant.

If the parties wish to resolve disputes that may arise from the contract through arbitration, they may include an arbitration clause in the contract.

10. LAW APPLICABLE TO THE CONTRACT

If there is a foreign element in the parties to the contract, a determination may be made as to which country's law will be applied in the application and interpretation of the contract.

11. CONTRACT COPIES AND LANGUAGE

The contract may be drafted in more than one language at the request of the parties. This situation comes to the agenda especially in cases where there is a foreign element. If the contract is prepared in more than one language, it is useful to specify in the contract which version of the contract will be taken as basis in case of dispute, anticipating the disputes that may arise in the differences between the two contract texts.

12. TRANSFER DATE AND EFFECTIVE DATE

The date of the transfer agreement must be attached to the agreement. This date is important in terms of when the consequences of the transfer will arise, especially in terms of the internal relationship. According to the Turkish Commercial Code, the date of the transfer is the date of registration of the transfer agreement in the trade registry.

13. SIGNATURES

Since the commercial enterprise transfer agreement is subject to the written validity condition, the agreement must be signed by the parties. The person signing the agreement must be an authorized representative.

Conclusion and Recommendations

Commercial enterprises are important entities in terms of financial and commercial life. Commercial enterprises, which are subject to many legal transactions, are subject to purchase and sale, i.e. transfer transactions, just like other assets. While the acquisition of a commercial enterprise is a very important decision for the transferee, it is also a legal transaction that has important consequences for the transferor. The first step in the process of the acquisition of a commercial enterprise should be the correct analysis of many different parameters, starting from the financial, tax and legal status of the enterprise to be taken over, to the personnel working in the enterprise, to the condition of the fixtures, tools, equipment and machinery of the enterprise. For this purpose, it is recommended to reveal the financial and legal status of the enterprise with a team of experts in the field and then make a transfer decision.

The second and most important step of the transfer process is the preparation of the commercial enterprise transfer agreement. The transfer of a commercial enterprise is a process that requires a written transfer agreement. Although a commercial enterprise can be transferred with a simple and superficial transfer agreement that focuses only on basic issues, such transfers bring many problems. In particular, it is witnessed that the parties have disputes on many issues such as the transfer price, the payment of this price, which party will be responsible for the debts of the transferred enterprise, from when and up to what amount, which party will fulfill the tax obligations for which party until when, which party is responsible for the problems arising due to the defects and malfunctions in the machinery and fixtures of the enterprise taken over. Again, since transfer agreements are ultimately a type of purchase and sale agreement, we suggest that provisions on liability for defective performance and for possession should be included in the agreement. This is because, although a detailed examination is made before the transfer, there may be various problems in the enterprise that are not immediately noticeable and disputes may arise between the parties.

The status of commercial enterprise employees is another problematic issue in enterprise transfers. It is recommended to make arrangements in the contract on whether the contracts of the personnel working with an employment contract will continue after the transfer, which party will be responsible for receivables such as labor receivables, severance pay, and the principles of joint liability. You can get more detailed information by visiting our bulletin on "The Effect of the Transfer of Commercial Enterprises and Workplaces on Labor Contracts". https://www.solmazlaw.com/en/the-effect-of-transfer-of-commerical-businesses-and-workplace-on-employment-contracts/

It is important that these issues are agreed from the outset so that both sides can see the way forward and problems can be easily resolved.

Please contact our team for your questions and concerns about commercial enterprise transfer.

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.