🚫 Our client wanted to sell his company in six months. I told him: then do not do the conversion now, or postpone the deal. He was surprised, because "everyone does it that way."
The situation. The owner of a Limited Şirket (Ltd. / LLC) had spent twelve years building the business and found a buyer. He had heard about a well-known scheme: convert the Ltd. into an Anonim Şirket (A.Ş. / Joint-Stock Company) prior to the sale, wait, and the capital gains from the sale of the shares are not taxed at all. The plan was: conversion now, deal closing in six months.
Where it breaks down.
The difference between the corporate forms is real: when selling a share quota in an Ltd., capital gains tax is always payable, no matter how many years you have held it. When selling shares in an A.Ş. after a two-year holding period, there is no tax at all. That is where the scheme comes from. However, it contains a nuance worth millions: upon conversion, the holding period resets to zero. Twelve years of holding an Ltd. share quota do not count. The clock starts anew from the date the new corporate type is registered and the shares are issued. Selling six months after the conversion triggers progressive income tax of up to 40% on the capital gain. On a profit of 10 million TRY, this represents a loss of around 3.5 to 4 million TRY. The tax authority and the courts maintain a strict stance on this issue: the share acquisition date is the date of their issuance by the new A.Ş., not the incorporation date of the former Ltd.
What we did.
We restructured the transaction timeline. We carried out the conversion immediately, and on the date of registration issued temporary share certificates (ilmühaber): it is precisely this document that locks in the start of the two-year countdown; without it, the date drifts. We executed an option agreement structure with the buyer: the price and terms were locked in immediately, with deal closing set after passing the two-year threshold. The seller secured a guaranteed price, the buyer obtained transaction certainty along with time for comprehensive due diligence, and the capital gains tax on the sale was zero.
Takeaway. In corporate structuring maneuvers, what ruins a transaction is not the mechanism itself, but the timing. The right legal tool applied six months prematurely costs more than not using it at all. A corporate conversion for a prospective sale must be planned at least two years prior to the transaction, and registering the company without issuing share certificates results in lost months of the statutory holding countdown.
Preparing your business for sale or simply considering it? Reach out to us; we will review your transaction timeline before the tax authority does.