Miran Legal



Legal Expert Report On IPO Processes


            A public offering (IPO) is defined as the offering of capital market instruments of a joint stock company to persons other than the shareholders of the company for the purpose of becoming a shareholder of the company. The Capital Markets Law No. 6362 ("Law No. 6362") regulates the procedures and rules required for joint stock companies to offer their capital market instruments to the public or to make them available for trading on the stock exchange. Public offerings are considered as a model that requires long and detailed planning processes for companies, where valuation processes are carried out strictly, and as a result, companies obtain financing for themselves. Investors who will participate in the public offering process of companies have the right to obtain complete and accurate information in this process and have access to the necessary documents to be prepared in accordance with the capital markets legislation on capital market instruments. Accurate disclosure of the relevant information and documents to investors and the public in accordance with the regulations in the legislation plays an important role as it is of a nature to guide investments.


            In summary, the prospectus is a kind of public disclosure and information text that contains all the information that should be known about the company to be offered to the public and the public offering process. For this reason, this document, which is intended to inform the public and potential investors, must be accurate, complete and unproblematic. The prospectus includes the company's shareholding structure, fields of activity, capital and debts, public offering process and all possible risks. Law No. 6362 regulates the procedures and principles regarding the public offering process in detail. For this reason, the responsibilities and consequences of the documents aiming to inform the persons who intend to participate in the public offering process are also included. These responsibilities also include the liability arising from the damages incurred by the persons who have acquired the title of investor in the light of this information, in case the information provided does not reflect the accuracy. Since the prospectus is the most detailed of the relevant documents, the responsibility it gives rise to is just as great. For this reason, it should be prepared by experts. 

            A legal expert report is an information text prepared by an independent legal expert and included among the documents submitted to the Exchange during the public offering process. Although it is not directly mentioned in the Law No. 6362, the legal report is a part of the prospectus. The legal expert report is regulated under the Borsa Istanbul Incorporated Company Listing Directive, which is based on the Regulation on Principles Regarding Stock Exchange Activities published in the Official Gazette dated 19.10.2014 and numbered 29150. The Regulation on Exchange Activities was issued pursuant to the "Principles Regarding Exchange Activities" article of Law No. 6362. In other words, it is not correct to characterize the report as an independent document since the listing directive on which the legal expert report is based is a regulation under the Law No. 6362. The prospectus and its annex, the legal report, are of great importance in public offering processes, and the content referred to in the previous paragraph as the content of the prospectus is in fact the content of the legal report. The report includes the company's structure, assets (based on the information and documents in the bank), all details of the shareholding structure including legal entities and real persons, the company's litigation process and information, if any, and a general legal assessment with a conclusion section. Since it is written by a legal expert, it is expected not to contain misleading or untrue information. As a result of its trustworthiness, the responsibility of the legal expert who prepares it is an important element. Although the legal expert report is a document published separately from the prospectus, the prospectus refers to the findings of the legal expert report.

            There are many documents in the legal expert report that should be reviewed by the independent legal expert preparing it. These documents should not only be limited to the documents submitted by the shareholders or issuers of the company to be offered to the public, but all documents required for the legal determinations to be made should be requested from the relevant institutions and organizations. In general, legal reports prepared during IPO processes are based solely on the information and documents submitted by the company and are not duly prepared, insufficient in terms of content and far from informing the potential investor to the extent necessary. Since the statement of the public offering company from which the documents are obtained is not sufficient for the timeliness or accuracy of the information, and since the main purpose is to reveal the facts in all their nakedness, the accuracy should be tested in accordance with the statements of the necessary institutions and organizations, and the legal opinion should be given accordingly. 

         Those who carry out the public offering process are responsible for the accuracy or inaccuracy of all documents submitted to the stock exchange, as well as those who prepare the documents. For this reason, the legal expert's report binds not only the independent legal expert who prepared it, but also all shareholders of the company, investment institutions, guarantors, independent auditors and all other interested parties. Therefore, this report should not contain a superficial content, but an in-depth and detailed examination. Under Law No. 6362, liabilities arising from the prospectus are mainly regulated under Articles 32 and 10.       

            Guidelines and directives have been prepared on the format and preparation of the prospectus and related annexes. The "Guideline on the Format and Preparation of the Prospectus Consisting of a Single Document to be Used in the Public Offering of Shares" ("Prospectus Preparation Guideline") is one of the examples of these guidance texts.  In sections 30, 35i and other relevant sections of the Prospectus Preparation Guidelines, it is regulated in which procedure the documents to be qualified as supplementary documents will be qualified, which experts may be assigned and for what reasons, and that the information to be provided by the experts should be stated in the declaration that the information to be provided by the experts is complete and accurate by the preparer. All these articles regulate that companies should include the consultancy services to be received during the public offering process in the prospectus and emphasize that the legal expert report should be referred to as a "legal consultancy service". In accordance with the legal advice provided, companies will prepare the prospectus and inform the public in accordance with the documents submitted to the Exchange.       

            The legal expert's report should include the name, address and contact details of the independent legal expert who prepared the report. The reason for this is the indication of the person to be held responsible and the acceptance of possible responsibilities by the lawyer. The legal expert accepts and undertakes that his/her report will be made public by the prospectus and that he/she has consented to this. Most of the legal findings in the report are included in the prospectus by way of reference or mere information. The prospectus, which is the source of information about the company to be received by the public and potential investors, is based on the lawyer's report.



            When evaluated together with the Listing Directive prepared by Borsa İstanbul and the relevant legislation, the legal expert's report is an important document that is understood to be an annex to the Prospectus. Pursuant to the same directive, the annexes to the Prospectus are considered as a whole and therefore an integral part of the Prospectus. In the sections of the prospectus, reference is made to the independent legal expert's report and all kinds of information provided. Pursuant to Law No. 6362, the persons and institutions whose signatures appear on all documents and reports prepared for inclusion in the prospectus accept that they are responsible for the reports they have prepared in case they contain incorrect or incomplete information. Pursuant to Law No. 6362, the independent legal expert who prepared the report is responsible for the consequences of the legal report submitted to the Stock Exchange. Since the information provided to potential investors and the public during the IPO represents the image of the company and the actions and transactions that will take place afterwards, the content of the reports is important. For all these reasons, while managing the IPO process and preparing the necessary documents, companies should take into consideration the knowledge and ability to assume responsibilities of the legal counsel they will consult, and all measures should be taken to prevent damage to the company's image in the eyes of investors and the public, even if there may be recourse from the relevant independent legal counsel afterwards.