COMPANIES WHOSE SHARES TO BE TRADED ON THE VENTURE CAPITAL MARKET
The Communiqué on Companies whose Shares to be Traded on the Venture Capital Market (“Communiqué“) entered into force via publication in the Official Gazette dated 18 May 2023 and numbered 32194. The Communiqué sets the procedures and principles regarding the sale of shares of non-public private companies to qualified investors through capital increase without public offering on the Venture Capital Market (“VCM”), as well as liabilities and exemptions foreseen for such companies.
GENERAL PRINCIPLES OF SALES
Private companies that wish to sell their shares to qualified investors without public offering and trade their shares on the VCM will obtain the approval of the Capital Markets Board (“CMB”) and comply its articles of association with the capital markets law. Afterwards, the relevant company is obliged to make a second application to the CMB and a prospectus whose principles are determined by the Board must be prepared to be approved by the Board.
The content of the application to be made to the Board must include information and documents such as the current articles of association, the amendment text of the articles of association, the financial advisor's report regarding the payment of the capital, the introductory information of the partnership, the financial statements and the brokerage agreement for the sale of shares.
To be eligible to be traded on the VCM, a company’s total assets must exceed at least twenty million Turkish Liras, its net sales revenue must exceed at least ten million five hundred thousand Turkish Liras and its registered share capital must exceed at least ten million Turkish Liras according to the company’s financial statements of the year before the year in which the shares will be sold.
ISSUANCE OF SHARE
Only newly issued shares by private companies shall be traded on the VCM. In other words, it will not be possible for the existing shares of the companies to be traded on the Venture Capital Market. In companies whose shares to be issued without public offering for the purpose to be traded on the VCM, no additional shares will be sold.
It is regulated that an application should be made to the Capital Markets Board to ensure that the company shares are traded in other markets of the stock exchange within five years.
In case the selling price of the shares is higher than the nominal value, a price determination report should be prepared by the authorized institution that mediates the sale of the shares regarding the sale price and the methods used in calculating this price.
PRINCIPLES TO BE FOLLOWED AFTER SALES
The shares of the companies that are listed on the VCM cannot be offered and sold to the public during the two-year period following the year in which they started to be traded on the VCM.
Companies whose shares will be traded on the VCM will be obliged to apply to the CMB for a public offering through capital increase in order to ensure that their shares are traded in other markets of the stock exchange within five years. The public offering made in this way can only be made through capital increase. If the prospectus is not approved by the CMB or the application is not made in due time, the shares will be deemed to have been removed from the VCM by the stock exchange. In this case, the company will not be able to apply to the Board for the purpose of public offering of its shares for two years.
Additionally, after the initial public offering of the shares of the company, the shares that are not subject to the public offering, except for the shares that were previously traded on the Venture Capital Market, cannot be converted into a share that can be traded on the stock market for at least two years.
CONCLUSION
With this Communiqué, companies will be able to sell their newly issued shares to qualified investors by exempting themselves from the financial size requirement regarding the public offering and other certain obligations arising from the capital markets law. Thus, the Board also provided an alternative financing method to companies. Since the partnership shares traded on the VCM are only traded among qualified investors, it is expected that there will be a limited number of investors on the VCM and therefore the liquidity level will be low. In this regard, Borsa İstanbul A.Ş. is expected to resolve the problems by issuing a directive and regulating the market.