The above post is correct. Further, merchant republics have the option (unless this was changed in a recent patch!) to allow a faction to take over and form an advanced Constitutional Republic. To do this, get one of your factions (guilds, traders, aristocrats) to at least 80 influence and wait for the Revolution event -- then surrender to the revolutionary rebels.
Just as an FYI:
It's not actually a 20 province limit -- it's a 20
stated province limit.
Keep your 20 best provinces as states (works well with economic ideas and playing tall), and territory the rest. Merchant republics are extremely good, but you will not get the most out of them if you don't go colonial. You get full benefit from trade company provinces, without them counting towards your 20 province limit, and that's where your power lies. Merchant republic can also make great use of vassals and marches -- this combined with a large trade league, trading cities, trade posts and 50%+ goods produced in all owned provinces (not affected by autonomy, multiplied on manufactories) ensures no other government form can come close to matching the income of a well played merchant republic. In return, you give up manpower and army size