Authors: Capital Markets Law Department, Atty. Mustafa Şahin

Introduction

A public offering constitutes one of the most significant financing methods available to joint stock companies, enabling them to raise funds from the capital markets while simultaneously strengthening their corporate structure. Under Turkish law, the concept of a public offering is defined pursuant to Article 3 of the Capital Markets Law No. 6362 (“CML”) as a general invitation to the public to purchase capital market instruments and the sale conducted following such invitation.

In addition to providing financing, a public offering produces multifaceted effects such as enhancing liquidity, enabling market-based valuation of the company, accelerating the institutionalization process, and granting access to both domestic and international investor bases. Accordingly, a public offering should not be viewed merely as a financing transaction, but rather as a comprehensive transformation process through which the company’s legal, financial, and governance structures are aligned with the capital markets regime.

Within Turkish capital markets legislation, the principal regulation governing the public offering of shares is the Communiqué on Shares (VII-128.1) (“Share Communiqué”), while the rules concerning prospectuses and issuance documents are set forth under the Communiqué on Prospectus and Issuance Document (II-5.1) (“Prospectus Communiqué”).

II. Legal Nature of a Public Offering and Regulatory Framework

Pursuant to Article 2 of the Share Communiqué, applications must be submitted to the Capital Markets Board of Türkiye (the “Board”) for transactions such as the public offering of shares of non-public companies, the public offering of shares to be issued through capital increases, and the sale of existing shares.

Article 4 of the same Communiqué defines a public offering as a general invitation to purchase capital market instruments and the subsequent sale carried out as a result of such invitation. In this respect, a public offering entails the offering of capital market instruments to a broad and undefined investor base.

According to Article 5 of the Prospectus Communiqué, a prospectus must be prepared and approved by the Board in order for capital market instruments to be offered to the public or admitted to trading on an exchange. The prospectus constitutes the principal disclosure document containing all information necessary for investors to make an informed investment decision, including details regarding the issuer’s financial condition, operations, risks, and the characteristics of the capital market instruments being offered.

III. Public Offering Methods

In Turkish capital markets practice, public offerings are generally carried out through three principal methods:

• Sale of existing shares,
• Issuance of new shares through capital increase,
• A combination of both methods.

Pursuant to Article 6 of the Share Communiqué, in order for existing shares to be offered to the public, such shares must not be subject to any pledge, encumbrance, or restriction that would limit their transferability or the exercise of shareholder rights.

Public offerings through capital increase are regulated under Article 7 of the Share Communiqué. Accordingly, non-public companies may offer newly issued shares to the public by partially or fully restricting the pre-emptive rights of existing shareholders.

In practice, the combined model is frequently preferred, allowing existing shareholders to obtain liquidity through partial share sales while the company simultaneously raises new capital.

IV. Legal Preconditions Prior to a Public Offering

Article 5 of the Share Communiqué sets forth certain fundamental preconditions for companies undertaking an initial public offering.

Accordingly:

• The company’s issued or paid-in capital must be fully paid (Article 5/1 of the Share Communiqué).
• Within the two years preceding the application, the capital must not include revaluation funds or similar funds arising from asset revaluations, except for those permitted under the legislation (Article 5/1 of the Share Communiqué).
• Non-commercial receivables from related parties must not exceed certain thresholds (Article 5/6 of the Share Communiqué).

These requirements aim to ensure that companies entering the capital markets possess a transparent and sustainable financial structure.

V. Preparatory Process for the Public Offering

The public offering process is not limited to the approval of the prospectus but requires a comprehensive legal and financial preparation phase.

The first step in this process is the execution of an underwriting or brokerage agreement with an authorized intermediary institution. Pursuant to Article 30 of the Share Communiqué, public offerings must be conducted through intermediary institutions authorized by the Board.

Subsequently, the company’s financial statements must be prepared in accordance with capital markets regulations and subjected to independent audit. Under Article 7 of the Prospectus Communiqué, financial statements included in the prospectus must, as a rule, be independently audited.

From a legal perspective, the company’s articles of association must be amended to comply with capital markets legislation. Pursuant to Articles 6/2 and 7/2 of the Share Communiqué, draft amendments to the articles of association must be approved by the board of directors and submitted to the Board for approval. Following the Board’s favorable opinion, such amendments must be approved by the general assembly within six months.

VI. Preparation and Approval of the Prospectus

The prospectus constitutes the most critical stage of the public offering process. Pursuant to Article 7 of the Prospectus Communiqué, the prospectus must include all material information relating to the issuer and the capital market instruments to be offered in a clear, comprehensible, and analyzable manner.

Furthermore, the prospectus must be signed by:

• The issuer and, if applicable, the selling shareholder,
• The authorized intermediary institution,
• The lead intermediary institution, in the case of a consortium,

as stipulated under Article 7/4 of the Prospectus Communiqué.

Once approved by the Board, the prospectus becomes effective upon registration and announcement, and the public offering may be carried out thereafter, in accordance with Articles 22 and 28 of the Prospectus Communiqué.

VII. Applications to the Capital Markets Board and Borsa İstanbul

During the public offering process, an application must be submitted to the Board for the approval of the prospectus, while a simultaneous listing application must be made to Borsa İstanbul for the determination of the market on which the shares will be traded.

Pursuant to Article 5/4 of the Prospectus Communiqué, where capital market instruments are required to be traded on an exchange, the issuer must apply to the exchange in addition to the Board approval application.

Following the application, the Board and exchange experts review the company’s legal and financial position, and on-site inspections may be conducted at the company’s premises where deemed necessary.

VIII. Post-IPO Restrictions and Obligations

Article 8 of the Share Communiqué introduces certain post-IPO sale restrictions. Accordingly, shareholders holding ten percent or more of the capital as of the prospectus approval date, as well as shareholders exercising management control, may not sell their shares on the exchange below the public offering price for a period of one year following the commencement of trading.

This rule is designed to preserve price stability and investor confidence following the public offering and constitutes one of the key protective mechanisms governing post-IPO market conduct.

Conclusion and Assessment

Under Turkish capital markets law, the public offering process extends beyond a mere financing transaction and represents a comprehensive transformation aimed at aligning the company’s structure with capital markets standards. In this process, the Share Communiqué and the Prospectus Communiqué, along with other secondary legislation, regulate each stage of the public offering in detail.

A successful public offering requires the proper structuring of the legal framework, the alignment of the articles of association and corporate governance structure with regulatory requirements, the preparation of transparent and reliable financial statements, and the meticulous execution of the prospectus process. Accordingly, a public offering should be regarded not only as a financial transaction, but also as a strategic corporate transformation enabling the company’s integration into the capital markets ecosystem.