1.What is a Public Offering?
A public offering is the process in which a joint-stock company sells its shares to the public and begins trading on Borsa Istanbul. While this process provides significant advantages for companies in terms of capital increase and institutionalization, it also brings legal obligations. The Capital Markets Law No. 6362 (SPKn) and the Capital Markets Board (SPK) Regulations are the most important regulations outlining the framework of public offerings.
Publicly traded companies are subject to strict regulatory provisions regarding transparency, accountability, and the protection of investor rights. This process, conducted under the supervision of SPK, requires companies to first obtain prospectus approval and then complete the listing procedures on Borsa Istanbul. The independent audit of the company’s financial statements, compliance with public disclosure obligations, and proper investor information are among the fundamental requirements of a public offering.
2.The Legal Framework of The Public Offering
The legal framework of the public offering process in Turkey is established within the scope of the Capital Markets Law and secondary regulations issued by the Capital Markets Board (SPK). In order for the offered shares to be traded on the stock exchange, companies must also comply with Borsa Istanbul’s listing requirements. This process is subject to extensive regulations and legislation. The key legal regulations governing public offerings include:
-Capital Markets Law (Law No. 6362): Defines the fundamental rules of public offerings and the rights of investors.
-Share Communiqué (VII-128.1): Regulates the issuance of shares, public offerings, and post- public offering obligations.
-Prospectus Communiqué (II-5.1): Establishes the principles for the mandatory prospectus, which is required to inform investors during the public offering process.
-Communiqué on the Sale of Capital Market Instruments (II-5.2): Covers regulations regarding the public offering of shares or their sale to qualified investors.
-Corporate Governance Communiqué (II-17.1): Specifies corporate governance principles that must be followed by publicly traded companies and promotes transparent management.
These regulations aim to protect investors during the public offering process, ensure market security, and facilitate the healthy integration of companies into the capital markets.
3.Stages of the Public Offering Process
The public offering process begins with the company conducting an internal assessment to analyze whether it is suitable for going public. Based on the decision made by the board of directors, the necessary preparations are undertaken, and the key phases of the process are initiated.
a. Public Offering Decision and Preparation Process
For a successful public offering, the company must first review its financial and operational structure. Its current financial standing, cash flow, debt level, and growth potential should be suitable for going public. Before the offering, the company’s articles of association must be aligned with the Capital Markets Law. If amendments are required due to the public offering—such as transitioning to the registered capital system—these changes must be implemented beforehand.
Additionally, the company’s financial statements must undergo independent auditing. The last three years’ financial statements must be audited in compliance with the Turkish Financial Reporting Standards (TFRS) to ensure transparency and compliance with regulatory requirements.
b. Preparation of the Prospectus and SPK Approval
One of the most critical stages of the public offering process is the preparation of the prospectus and obtaining approval from the Capital Markets Board (SPK). The prospectus is a legally required document that provides investors with comprehensive information about the company’s operations, management structure, financial status, and the shares to be offered to the public. It ensures that investors have accurate, complete, and up-to-date information, enabling them to make well-informed investment decisions. Moreover, the prospectus clearly outlines potential risks and opportunities, allowing investors to evaluate their positions accordingly. Beyond serving as an informational document, the prospectus is a legally binding commitment for the company. This means that the company’s management, independent audit firms, and intermediary financial institutions involved in the offering are legally responsible for the accuracy and reliability of the information provided.
During the prospectus approval process, the company must submit audited financial reports and legal compliance reports to the SPK. The review period varies based on the size of the public offering and the financial status of the company, ranging from a few weeks to several months. If the SPK identifies deficiencies or requires modifications, the company must make the necessary corrections. Once these amendments are completed and SPK grants final approval, the public offering process officially commences.
c.Borsa Istanbul Listing Application
Companies that obtain approval from the Capital Markets Board (SPK) must apply for listing
(kotasyon) on Borsa Istanbul for their shares to be publicly traded. This listing application is a crucial step that determines which market segment the company’s shares will be traded in. The listing process is not only essential for enabling the company’s publicly offered shares to be traded on the stock market but also plays a critical role in building investor confidence and ensuring that the shares are traded in accordance with market dynamics. The evaluation of a company’s listing application is based on factors such as financial strength, corporate governance compliance, operational transparency, and public float percentage. Once the listing is approved, the company’s shares become available for trading on Borsa Istanbul, marking the official transition to a publicly traded company status.
d.Bookbuilding Process and Completion of the Public Offering
Companies that successfully complete the listing process proceed to the book-building (demand collection) phase, where shares are allocated to investors and legally issued to the market. This is a critical stage that involves regulatory and legal requirements governing the allocation of securities and the legal status of the issued shares. The process is conducted in compliance with the Capital Markets Law No. 6362, the Communiqué on the Sale of Capital Market Instruments (II-5.2), and Borsa Istanbul regulations. The distribution of publicly offered shares must adhere to the legal framework set by the Capital Markets Board (SPK). The prospectus must clearly disclose the number of shares to be offered, the offering price, and the allocation criteria. This document is published on the Public Disclosure Platform (KAP) to ensure that investors have full access to all relevant details.
It is essential that investors are properly informed before purchasing capital market instruments. To safeguard investor rights, the issuer is strictly bound by regulatory obligations, ensuring transparency and fairness throughout the public offering process.
e.Allocation of Shares and Commencement of Trading on Borsa Istanbul
Once the book-building phase is completed, shares are allocated to investors and distributed in compliance with Capital Markets Board (SPK) and Borsa Istanbul regulations. This process holds legal significance, as it ensures that publicly offered shares are allocated fairly, equitably, and in line with market integrity.
The distribution of shares and their subsequent trading on Borsa Istanbul are subject to strict regulations under the Capital Markets Law and related communiqués. Once the allocation process is finalized, the shares officially begin trading on Borsa Istanbul, granting the company publicly traded status and making it subject to the regulatory framework of the stock exchange.
With the commencement of trading, additional legal and regulatory obligations come into effect for publicly listed companies. SPK and Borsa Istanbul regulations mandate that publicly traded companies operate in a manner that safeguards investor interests and ensures corporate governance compliance.
Following the listing, company management is legally obligated to adhere to public disclosure requirements, publish periodic financial reports, and maintain transparent investor relations. Non-compliance with these obligations may result in regulatory sanctions, fines, or even delisting from the stock exchange.
f.Post-IPO(Public Offering) Obligations and Legal Responsibilities
The completion of the public offering process represents not only a financial transformation but also a legal status transition for the company. Once a company goes public, it becomes subject to stricter regulatory oversight under the Capital Markets Law No. 6362 (SPKn), the Turkish Commercial Code (TTK), Capital Markets Board (SPK) communiqués, and Borsa Istanbul regulations.
This change in status imposes strict legal obligations, requiring companies to comply with public disclosure requirements, regular financial reporting, independent auditing, corporate governance standards, and the protection of investor rights.
Failure to fully comply with capital markets regulations may result in severe regulatory sanctions by the SPK, including administrative fines, trading restrictions, legal actions against company executives, and, in the most serious cases, delisting from the stock exchange. Therefore, companies must ensure full compliance with the regulatory framework to maintain their publicly traded status and sustain investor confidence.
aa.Acting in Compliance with Public Disclosure and Transparency Principles
Publicly traded companies are required to comply with public disclosure obligations under the Capital Markets Board (SPK) Special Cases Communiqué No. II-15.1. Within this framework, companies must timely, fully, and accurately disclose significant developments, financial performance, and managerial changes to the public, ensuring transparency and investor protection.
Key Aspects of Public Disclosure Obligations:
-Special Case Disclosures: Public companies must announce any material events that may impact their operations, such as mergers and acquisitions, management changes, significant shifts in ownership structure, or large-scale investments. These disclosures must be made through the Public Disclosure Platform (KAP) to inform investors.
-Financial Reporting and Periodic Disclosures: Public companies are required to publish quarterly and annual financial statements, which must be independently audited and disclosed via KAP. These financial reports must comply with Turkish Financial Reporting Standards (TFRS) and Turkish Accounting Standards (TMS).
-General Assembly and Shareholder Information: Before general assembly meetings, companies must provide shareholders with detailed reports on financial performance, profit distribution policies, and key corporate decisions.
Providing misleading or incomplete information constitutes a regulatory violation and may result in sanctions by the SPK. Under Articles 103 and 104 of the Capital Markets Law No. 6362, companies that fail to disclose, provide false information, or mislead investors may face administrative fines, and in cases where legal violations occur, they may be subject to criminal liability.
bb.Compliance with Corporate Governance Principles
Under the Corporate Governance Communiqué (II-17.1) issued by the Capital Markets Board (SPK), publicly traded companies are obligated to appoint independent board members, establish an investor relations unit, and ensure transparency in management processes. These requirements aim to enhance corporate governance standards, protect investor rights, and promote accountability within publicly listed companies
4.Conclusion
While public offering (IPO) is a process that supports a company’s financial growth, it also represents a legal transformation requiring full compliance with capital markets regulations. The Capital Markets Law No. 6362, SPK communiqués, and Borsa Istanbul regulations impose a range of obligations on publicly traded companies, including public disclosure, regular financial reporting, adherence to corporate governance principles, and the protection of investor rights.
Companies must operate within the regulatory framework set by SPK and Borsa Istanbul, ensuring that investors are accurately and fully informed in accordance with the prospectus and that corporate governance practices align with market transparency principles. Failure to comply may result in administrative fines, trading bans, or even delisting from the stock exchange by SPK.
For this reason, companies undergoing public offering must carefully manage the process with legal counsel, ensure their operations uphold investor rights, and maintain full compliance with capital markets regulations. An IPO is not just a financing tool; it is a corporate transformation that comes with significant legal and regulatory obligations, shaping a company’s long-term market success and sustainability.