Shareholders Agreement in Turkey: 6 Key Clauses and the Limits of Turkish Law

A shareholders agreement in Turkey is usually the first document a foreign investor asks for when entering a Turkish company, and the one most often drafted on the wrong assumptions. Investors arrive with term sheets and templates built for English, Delaware or Dutch law, where a shareholders agreement can shape the company’s governance almost freely. Turkish law works differently. The Turkish Commercial Code No. 6102 (TCC) is largely mandatory, and a shareholders agreement binds only the people who sign it, not the company itself.

This article does not explain what a shareholders agreement is. It sets out the six clauses that matter most in a shareholders agreement in Turkey, explains where Turkish law draws the line, and shows how experienced counsel combines the agreement with the articles of association so that the protection actually holds. A Turkish-language version, Pay Sahipleri Sözleşmesi: 6 Temel Başlık ve TTK Sınırları, is also available.

Why a Shareholders Agreement in Turkey Matters

When a partnership breaks down, the parties are left with two things: the law and the documents they signed. The law offers the same solution to everyone, while every partnership has its own balance. How the founder’s work and the investor’s money meet at the same table, who holds a veto over which decision, and at what valuation a departing partner’s shares are transferred are not written in the TCC. They are written in the shareholders agreement.

A well-drafted agreement sets the rules of the game at a moment when nobody has lost yet and everyone is calm. Negotiating those rules after a dispute has started is always far more expensive.

Six Key Clauses of a Shareholders Agreement in Turkey

Governance, Representation and Decision-Making

A shareholders agreement in Turkey should define, without room for doubt, which strategic decisions require unanimity or a qualified majority: hiring senior executives, issuing new shares, transferring significant assets or selling the company. It should also set out how board members are nominated and in what circumstances they may be removed.

In a joint stock company (A.Ş.), granting a share group the right to be represented on the board is possible under Article 360 TCC, but only through the articles of association. If this right is written only in the shareholders agreement, it has no direct effect on the company’s organs. Governance provisions are therefore usually split between the two documents.

Share Classes, Privileges and Share Transfers

Where different share classes are created, the rights attached to each must be defined clearly, including dividend preference, voting privileges and liquidation preference. Article 479 TCC caps voting privileges at fifteen votes per share. A clause that exceeds this limit looks strong on paper but cannot be enforced.

Transfer provisions are the backbone of any shareholders agreement in Turkey. They typically cover rights of first refusal and pre-emption rights, tag-along rights allowing minority shareholders to sell on the same terms as the majority, drag-along rights obliging the minority to join a sale of the whole company, lock-up periods for founders, and transfer restrictions on registered shares requiring the company’s approval under Article 493 TCC. Together, these mechanisms protect existing shareholders against unwanted dilution and against being locked in with an incompatible partner.

Capital Contributions and Future Financing Rounds

What happens when the company needs cash is the most neglected and most contentious topic. Are shareholders obliged to contribute additional capital, and up to what ceiling? How much is a non-contributing shareholder diluted? Is a shareholder loan treated as debt or as an advance on capital?

The choice of company type matters here. In a joint stock company, a shareholder’s only obligation is, as a rule, to pay the subscribed capital, and additional payment obligations cannot be imposed. In a limited liability company (Ltd. Şti.), Articles 603 et seq. TCC allow additional payment and ancillary obligations to be included in the articles of association.

Dispute Resolution and Exit Scenarios

Even the most aligned founders disagree eventually. A sound shareholders agreement in Turkey builds a tiered mechanism that resolves disputes without harming the company: negotiation at management level first, then mediation and, failing that, arbitration or the competent courts. For cross-border investments, arbitration is usually preferred, and Turkey is a party to the New York Convention on the recognition and enforcement of foreign arbitral awards.

Deadlock mechanisms should also be agreed in advance. A common solution is the shotgun clause, under which one party names a price and the other must either buy or sell at that price. Good leaver and bad leaver provisions determine the valuation method applied to a departing shareholder’s shares, on the principle that a founder who leaves in breach of a non-compete should not receive the same price as one who leaves after loyally completing their term.

Confidentiality, Non-Compete and Intellectual Property

Shareholders who are involved in operations inevitably access trade secrets. The agreement should protect confidentiality for a defined period and include proportionate non-compete and non-solicitation covenants. Keeping the non-compete within reasonable limits as to subject matter, duration and territory is decisive for its later enforceability.

For technology companies, the agreement should state clearly that software, trademarks and designs developed by the founders have been assigned to the company. Intellectual property left in the founders’ personal names is often enough to make an investor walk away during the first due diligence.

Penalty Clauses and Enforcement

Because a shareholders agreement in Turkey has limited direct effect on the company, its deterrent force rests largely on penalty clauses. Under Articles 179 et seq. of the Turkish Code of Obligations, a penalty can be claimed without proof of loss. Shareholders who qualify as merchants cannot ask for a reduction on the ground that the penalty is excessive, under Article 22 TCC, while the court retains its power to reduce penalties for individual shareholders.

Does a Shareholders Agreement in Turkey Override the Articles of Association?

No. The two documents have a different legal nature, and the hierarchy between them is fixed by law. The articles of association are registered with the trade registry, published in the Turkish Trade Registry Gazette and accessible through MERSİS. They bind the company, its organs and third parties. The shareholders agreement, by contrast, is a private contract governed by the Turkish Code of Obligations. It is not registered and binds only its parties.

Under Article 340 TCC, the articles of association of a joint stock company may deviate from the law only where the law expressly allows it. Within this structure, a general assembly or board resolution that complies with the law and the articles remains valid even if it breaches the shareholders agreement. The shareholder who acted in breach is liable to the other parties, not to the company.

The practical rule follows from this. Where a provision must bind the company, it should be moved into the articles of association, and what cannot be moved should be backed by strong penalty clauses. Pre-emption rights, qualified majority requirements, transfer restrictions and share privileges are typically written into both documents. A conflict between the two is the worst outcome, since it makes the applicable rule uncertain and invites litigation.

Governing Law for Foreign Investors

International investors often ask whether a shareholders agreement in Turkey can be governed by English or another foreign law. Under the Turkish Act on Private International and Procedural Law No. 5718, parties to a contract with a foreign element may choose the governing law. However, the internal affairs of a Turkish company, including share transfers, the powers of its organs and the validity of its resolutions, remain subject to Turkish law as the law of the company’s seat. A foreign-law shareholders agreement can work, but the provisions that need corporate effect must still be mirrored in Turkish-law articles of association.

The Hidden Cost of Template Agreements

Templates for a shareholders agreement in Turkey are written for an average situation and do not reflect your financing model, the balance between partners, your employee share plan or your growth scenario. Many are translated from foreign legal systems and contain clauses that conflict with the mandatory provisions of the TCC. The most common problems we see are vague veto rights, no provisions for future rounds, weak protection for minority and founder shares, conflicts with the existing articles of association, and covenants without any penalty clause behind them.

Consider two founders who signed a template at the start. Two years later, one wanted outside investment and the other had stepped back from the business. When a new investor arrived, the passive founder relied on a clause requiring unanimity for new share issues and blocked the round. With no tiered dispute mechanism and no leaver provisions, the company stalled, the investor withdrew, and one founder eventually bought the other out at a price far above market value. Every provision that would have prevented this could have been drafted on day one.

Frequently Asked Questions

Must a shareholders agreement in Turkey be notarised?

No. The agreement is valid in simple written form. Notarisation or a qualified electronic signature is nevertheless advisable to evidence the date and content.

Can a limited liability company have a shareholders agreement?

Yes. The articles of association of a limited liability company are more flexible under the TCC, which allows more of the agreed terms to be moved directly into the articles.

How KYO Legal Can Help

KYO Legal works with founders, early-stage companies and international investors on shareholders agreements, investment rounds and corporate governance. We draft agreements that work together with Turkish-law articles of association rather than against them. Learn more about our corporate law and corporate governance and mergers and acquisitions practices, read about the new Turkey startup incentives, or contact us. The text of the Turkish Commercial Code is available on mevzuat.gov.tr.

This article is for general information only and does not constitute legal advice. Please seek specific advice for your situation.