Shareholder Disputes in Turkish Companies with Foreign Partners

Turkey has become a key market for international investors in sectors such as technology, logistics, real estate, tourism, manufacturing and energy. Many foreign investors choose to partner with Turkish entrepreneurs and set up a Turkish company with foreign and local shareholders together. These partnerships can be very profitable, but when expectations are not aligned, they can quickly turn into intense shareholder disputes.

Disagreements are not unique to Turkey, of course. What makes shareholder disputes in Turkish companies with foreign partners special is the combination of:

• Different legal systems and business cultures
• Turkish company law rules that are partly mandatory
• Complex documentation (articles of association in Turkish, shareholders’ agreement in English, side letters, board resolutions)
• Difficulties of enforcing foreign judgments or arbitral awards in Turkey

This article provides a comprehensive and original overview of how such disputes arise, which legal tools exist under Turkish law, and how foreign investors can protect themselves before and after a conflict breaks out.

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1. Corporate Landscape: How Foreign Investors Participate in Turkish Companies

1.1. Typical company forms used by foreign partners

Foreign investors usually join Turkish businesses through one of two company forms:

1. Joint Stock Company (Anonim Şirket – A.Ş.)
   • Suited for larger or scalable businesses.
   • Shares can be transferred relatively easily.
   • Managed by a board of directors.
   • Possible to go public or issue debt instruments in the medium to long term.
2. Limited Liability Company (Limited Şirket – Ltd. Şti.)
   • Common for small and medium-sized enterprises and family businesses.
   • Ownership is based on quotas (shares) recorded in the share ledger.
   • Transfers typically require approval of the general assembly and registration.
   • Governance is often more “personal” and closely tied to specific individuals.

Both company types are governed mainly by the Turkish Commercial Code (TCC), together with related legislation on trade registry, corporate governance, taxation and foreign investment.

1.2. Equality of foreign and Turkish shareholders

As a starting point, foreign shareholders are treated the same as Turkish shareholders. Except in a few regulated sectors (for example, in some media, aviation or real estate situations), there is no general limitation on foreign ownership. Foreign individuals or foreign companies can:

• Own 100% of a Turkish company
• Sit on the board or act as manager
• Exercise voting and economic rights without discrimination

However, this “equality” on paper does not eliminate practical challenges. Foreign shareholders often face:

• Language barriers when corporate documents and minutes are only in Turkish
• Stronger dependence on local management for access to information
• Unfamiliarity with local litigation practice, enforcement rules and corporate culture

These factors shape the dynamics of shareholder disputes when conflicts arise.

1.3. Two sources of rules: Articles of Association and Shareholders’ Agreement

In a foreign-participation Turkish company, there are usually two main pillars of governance:

1. Articles of Association (AoA)
   • Filed and registered at the trade registry.
   • Always prepared in Turkish (sometimes with a non-binding translation).
   • Binding on the company, shareholders and third parties.
   • Determine capital, share structure, voting rights, general assembly rules, board composition and representation.
2. Shareholders’ Agreement (SHA)
   • A private contract between some or all shareholders.
   • Often bilingual or English-only, governed by Turkish or foreign law.
   • Regulates details such as veto rights, reserved matters, share transfer restrictions, dividend policy, exit mechanisms, dispute resolution clauses and non-compete obligations.

In practice, many disputes originate from the tension between these two documents. The AoA is visible and enforceable against everybody, whereas the SHA is enforceable only between the parties. If the two are not aligned, foreign investors may discover that rights promised to them in the SHA are not reflected in the AoA, making them harder to enforce at corporate level.

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2. Common Types of Shareholder Disputes in Companies with Foreign Partners

Shareholder conflicts in Turkey follow certain patterns. Understanding these patterns allows foreign partners to anticipate, prevent and manage them more effectively.

2.1. Management and control conflicts

One of the most frequent problems is who really controls the company. Typical points of friction include:

• Which shareholder (or group) can appoint or dismiss board members or managers
• Whether there is a requirement to appoint at least one director nominated by the foreign shareholder
• How representation is structured: single signature, joint signatures, or different signing levels
• To what extent daily management decisions require board or shareholder approval

Foreign partners often assume they will have strong involvement in management, especially when they contribute most of the capital or know-how. Yet the AoA and trade registry records may show a different picture, for example:

• Only Turkish partners have individual signing authority
• The foreign partner’s nominee is appointed as a director but without effective powers
• Reserved matters are not clearly listed or are too narrow

When the business starts to grow or faces financial difficulties, these weak points become visible. Foreign investors may feel excluded from key decisions, while Turkish partners may view requests for more formal governance as an obstacle.

2.2. Profit distribution and dividend policy

Another recurring dispute concerns how and when profits are distributed. Typical disagreements include:

• Foreign shareholders expect regular dividends, while local partners prefer to reinvest profits or keep them in reserves.
• Majority shareholders approve generous salaries, bonuses or management fees for themselves and related companies, reducing distributable profit.
• Dividends are withheld for years under different pretexts, even when the company performs well.

Foreign shareholders may suspect that profits are being extracted through related-party transactions instead of transparent dividend distributions. They may also face practical issues, such as difficulties in repatriating dividends or dealing with withholding tax rules. Over time, this can turn a strategic investment into a source of frustration and distrust.

2.3. Capital increases, dilution and shareholder funding

Conflicts also arise around capital increases and shareholder financing, for example:

• The majority shareholder initiates a capital increase that the foreign minority cannot or does not want to match.
• Capital is increased at a time or in a manner that appears unnecessary, with the real goal of diluting a specific shareholder.
• Shareholder loans are provided by one side only, and there is disagreement about repayment, interest and conversion into equity.

Foreign investors may feel trapped between two options: either contribute more capital than they consider reasonable or lose influence through dilution. If pre-emption rights and capital increase rules are not clearly set out in the AoA and SHA, disputes over validity and fairness of such transactions are almost guaranteed.

2.4. Share transfer, exit and valuation disputes

Sooner or later, many joint ventures or partnerships reach a point where one party wants to exit and another one wants to stay. In this phase, disputes focus on:

• Whether a shareholder is allowed to transfer shares to a third party, and under what conditions
• How rights of first refusal, pre-emption, tag-along and drag-along rights operate
• How to determine the fair value of shares when put or call options are exercised
• Whether a change-of-control event has occurred, triggering certain rights

Foreign investors may discover that the majority refuses to approve a transfer, blocks exit routes or insists on a valuation that does not reflect the real market value. Conversely, Turkish partners may feel that foreign investors try to exit at a premium price, using dispute threats as leverage.

2.5. Deadlock situations in joint ventures

In joint ventures where foreign and Turkish partners each have strong blocking rights, deadlocks are extremely common. A deadlock may arise when:

• Important decisions (budget, investments, financing, appointments) require unanimity or super-majority.
• Partners fundamentally disagree on strategy or risk level.
• Neither side is willing to sell or buy the other out on realistic terms.

Without a contractually defined deadlock mechanism, the company can become paralysed. No major decisions are taken, new projects are blocked, and the relationship gradually deteriorates. Ultimately, one or both sides may resort to court proceedings, seeking dissolution or other drastic measures.

2.6. Information, transparency and access to books

Foreign shareholders rely heavily on trustworthy information about the company. Frequent information-related disputes include:

• Management’s refusal to share financial statements, management accounts or supporting documentation
• Incomplete or late delivery of information before general assembly meetings
• Limited access to invoices, contracts or bank statements, especially where related-party dealings are involved
• Suspicion that company books are not kept in compliance with law and accounting rules

Lack of transparency often hides deeper governance problems. When a foreign shareholder senses that information is intentionally withheld, confidence collapses and the conflict quickly escalates beyond technical questions of accounting.

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3. Why Disputes with Foreign Shareholders Are More Complex

The above types of disputes can occur in any company. However, in Turkish companies with foreign partners they are more complex and sensitive for several reasons.

3.1. Language barriers and inconsistent documents

Many documents in a Turkish company – AoA, general assembly minutes, board resolutions, trade registry filings – are in Turkish only. The SHA or investment agreement, on the other hand, is usually in English. This creates a number of risks:

• The foreign partner may sign the AoA based on a translation that is inaccurate or incomplete.
• Later amendments to the AoA might not be properly translated or communicated to the foreign shareholder.
• The SHA may contain rights (for example, veto rights or nomination rights) that are not mirrored in the AoA, making enforcement more difficult.

When a dispute arises, the foreign shareholder often feels that the company is being run according to a set of rules that they cannot fully read or verify. On the other side, Turkish partners may argue that only the registered AoA matters, and that contractual arrangements are “private”.

3.2. Choice of law, jurisdiction and arbitration clauses

In cross-border structures, parties frequently agree on:

• Foreign governing law for the SHA (e.g. English law)
• International arbitration (e.g. ICC, LCIA, ISTAC)
• Foreign courts for certain disputes

This is perfectly valid for many issues, but not everything can be removed from Turkish law and Turkish courts. Matters such as:

• Validity and annulment of general assembly decisions
• Registration and effectiveness of share transfers
• Company dissolution and liquidation
• Representation of the company vis-à-vis third parties

are deeply connected to the company’s status as a Turkish legal entity. As a result, even when an arbitration clause exists, parallel court proceedings in Turkey may be required for certain remedies. This interaction between arbitration and Turkish court proceedings requires careful planning.

3.3. Different expectations about corporate culture and risk

Foreign and local partners often have very different expectations about how a company should be run:

• International investors may insist on written policies, internal controls, strict compliance with competition, anti-bribery and data protection rules.
• Local partners may rely more on personal relationships, improvisation and informal decision-making.
• Concepts such as related-party transactions, family members on the payroll or shareholder expenses paid by the company may be viewed differently.

When the business environment is stable and profits are high, such differences may be tolerated. But in times of stress – cash-flow problems, regulatory investigations, market downturns – they turn into serious governance disputes touching not only legal, but also ethical and cultural issues.

3.4. Enforcement and time horizons

Foreign investors often operate with the assumption that effective legal enforcement is available within predictable time frames. In reality, complex commercial litigation can take time, and court expertise in certain niche matters may vary. Arbitration may be faster, but it also has costs and requires subsequent recognition or enforcement steps in Turkey if local effects are needed.

This gap between expectations and reality reinforces the importance of prevention and early negotiation, rather than relying on a court or tribunal to “fix everything” at the end.

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4. Preventing Shareholder Disputes: Structuring and Documentation

The best way to handle shareholder disputes in Turkish companies with foreign partners is to prevent them by proper planning. Prevention has three pillars: the articles of association, the shareholders’ agreement and ongoing corporate housekeeping.

4.1. Drafting strong and tailored Articles of Association

Standard-form AoA templates are not sufficient for complex cross-border investments. A tailored AoA should address, among other things:

• Share classes and voting rights
  • Whether all shares have equal vote or some classes have privileges.
  • Whether certain decisions require the approval of a specific share class.
• General assembly quorums and majority rules
  • Higher quorums for critical decisions such as mergers, sale of substantial assets, change of business scope or liquidation.
  • Clear rules for adjourned meetings to avoid abusive quorum games.
• Board structure and representation
  • Number and term of directors, nomination rights of each shareholder or group.
  • Single or joint signature rules and detailed representation powers.
• Capital increases and pre-emption rights
  • Confirmation of pre-emptive rights in proportion to shareholding.
  • Conditions for limiting or excluding pre-emptive rights, if allowed.
  • Mechanisms for notifying shareholders and determining subscription periods.
• Transfer of shares
  • Approval requirements and conditions for share transfers.
  • Cases where transfer is automatically allowed or restricted (e.g., transfers within a group).
  • How share price or fair value will be determined if approval is denied.

The AoA provisions should be transparent and accessible for all partners, with reliable translations where necessary.

4.2. Designing a comprehensive Shareholders’ Agreement

The SHA is the place to handle fine-tuned governance and economic arrangements. For foreign-participation companies, an effective SHA typically covers:

• Governance and reserved matters
  • A detailed list of decisions that cannot be taken without the consent of specified shareholders (for example, changes to business scope, acquisitions, major contracts, borrowings above a threshold, granting of securities, IP transfers, related-party dealings).
• Dividend and financing policy
  • Minimum distribution ratios if the company reaches certain profit levels.
  • Conditions for retaining earnings or distributing extraordinary dividends.
  • Provisions on shareholder loans, guarantees and security interests.
• Deadlock and dispute resolution mechanisms
  • Escalation to senior management or parent entities.
  • Defined negotiation periods.
  • Optional mediation.
  • Buy-sell mechanisms or options triggered by unresolved deadlock.
• Share transfer regime
  • Rights of first refusal and pre-emption rights with clear procedures and timelines.
  • Tag-along and drag-along clauses for exit scenarios.
  • Good leaver/bad leaver concepts in founder-heavy structures.
  • Long-term lock-up periods, if commercially justified.
• Valuation methods
  • Preference for independent valuation, agreed formulas (EBITDA multiples, discounted cash flow) or fixed floors/ceilings in certain scenarios.
• Confidentiality, non-compete and non-solicitation
  • Clear post-exit obligations for shareholders and key managers.
• Choice of law and forum
  • Consistent selection of governing law and dispute resolution forum.
  • Consideration of how arbitration or foreign court decisions will interact with necessary actions in Turkey.

Crucially, after drafting the SHA, parties should adjust the AoA to mirror the key structural points, such as special voting rules or share classes. Otherwise, the SHA may be theoretically strong but practically weak.

4.3. Aligning language and hierarchy of documents

To avoid confusion:

• Prepare accurate bilingual versions (Turkish–English) of the AoA and SHA.
• Clearly state which language version prevails in case of discrepancies.
• Define the relationship between AoA and SHA. For example, parties can undertake to always adapt the AoA to reflect the SHA and to vote in accordance with it.

Foreign investors should invest in professional legal and translation support at this stage. Money saved by cutting corners during incorporation usually becomes insignificant compared to the cost of later disputes.

4.4. Corporate housekeeping and documentation culture

Even the best documents fail if they are not respected in daily practice. Effective dispute prevention requires:

• Regular, properly convened general assemblies and board meetings.
• Correctly drafted minutes, resolutions and attendance lists.
• Timely distribution of financial statements and management reports.
• Keeping a detailed and up-to-date share ledger.
• Maintaining a culture of recording key decisions in written form, rather than relying solely on messaging apps or informal conversations.

Such discipline not only reduces conflicts but also provides crucial evidence if a dispute ultimately reaches a court or arbitral tribunal.

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5. How Shareholder Disputes Are Resolved Under Turkish Law

Despite all preventive steps, disputes may still occur. In that case, shareholders must carefully select legal and strategic tools. In companies with foreign partners, it is common to combine contractual mechanisms (under the SHA) with remedies under Turkish company law.

5.1. Internal corporate tools before going to court

Before starting formal proceedings, shareholders should make use of internal mechanisms:

• Requesting information and inspection from the company and directors.
• Formally objecting to certain board or general assembly decisions, and ensuring that objections are recorded in minutes.
• Calling for a general assembly or demanding that specific items be placed on the agenda, where legal thresholds are met.
• Proposing corrective resolutions, restructuring packages or amendments to the AoA.

These steps are not just “nice to have”. They show good faith, help build a record of the dispute, and often constitute a precondition for specific court actions.

5.2. Challenging general assembly resolutions

If a general assembly resolution is illegal, contrary to the AoA, or adopted in bad faith, shareholders may seek its cancellation through court action. Typical targets include:

• Resolutions approving a controversial capital increase.
• Decisions that remove directors appointed by a specific shareholder in breach of agreed procedures.
• Resolutions refusing to distribute dividends without sound justification.
• Approvals of related-party transactions that harm the company or minority.

Such lawsuits are time-sensitive and require adherence to procedural rules. Foreign shareholders should act quickly and coordinate with local counsel to avoid missing crucial deadlines.

5.3. Director and controlling shareholder liability

Where a dispute is linked to mismanagement or abuse, shareholders may pursue liability claims against:

• Directors who breach their duties of care and loyalty.
• De facto managers or shadow directors who, without formal title, effectively control the company.
• Controlling shareholders who instruct directors to act against the company’s interest.

Liability claims typically seek damages on behalf of the company or, in certain circumstances, directly for shareholders. They may relate to:

• Unauthorized related-party transactions.
• Fraudulent transfers of assets.
• Failure to comply with legal requirements causing fines or financial loss.
• Systematic exclusion of minorities from information and profits.

Although these claims can be complex, they often provide leverage for a negotiated settlement or governance change.

5.4. Dissolution of the company or forced exit for just cause

In extreme situations where the relationship between shareholders has become irreparably broken, Turkish law allows shareholders to ask the court to dissolve the company for just cause. This is an exceptional remedy; courts analyze:

• The extent and duration of the conflict.
• Whether the majority has abused its position.
• Whether less drastic measures could cure the problem.

In many cases, rather than ordering full dissolution, courts may opt for alternative solutions, including forcing one side to buy out the other at the real value of its shares. For a foreign shareholder trapped in a hostile environment, a court-ordered exit can be a powerful, though time-consuming, solution.

5.5. Mediation and negotiation

Turkish law encourages, and in some monetary disputes requires, parties to attempt mediation before going to court. Mediation is particularly useful in shareholder disputes because:

• Parties can design creative solutions that courts cannot impose (for example, staged buy-outs, governance adjustments, security packages).
• The commercial relationship or reputation can be preserved.
• Time and cost are often substantially lower than full-scale litigation or arbitration.

For foreign investors who wish to maintain good standing in the Turkish market, mediation provides a confidential and flexible forum to restructure the partnership or agree on an orderly exit.

5.6. Arbitration and parallel strategies

Where the SHA contains an arbitration clause, contractual disputes – such as breach of veto rights, failure to honour put or call options, breaches of non-compete provisions – may be referred to arbitration. Arbitration offers:

• Neutral venue and arbitrators with international experience.
• Confidentiality.
• Potentially faster and more predictable proceedings.

At the same time, shareholders must coordinate arbitration with necessary steps before Turkish courts for issues directly tied to the company’s legal status or registry records. A well-planned strategy may combine:

• Interim relief applications in Turkish courts (e.g., injunctions).
• Main contractual claims in arbitration.
• Supporting or follow-up actions in Turkey to reflect arbitral outcomes in the corporate structure.

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6. Example Scenarios and Lessons for Foreign Shareholders

Concrete scenarios help make the legal framework more tangible. The following are simplified examples, but similar situations are common in practice.

6.1. Scenario 1: Dilution through an aggressive capital increase

A foreign investor holds 30% of a Turkish limited company. Business is going well, but relations with the local majority have deteriorated. Suddenly, the majority calls a general assembly to increase capital to a level the foreign investor cannot afford. The majority hints that if the foreign partner cannot subscribe, it will take over the new shares, reducing the foreign stake to a marginal level.

Risks and problems:

• The capital increase may technically follow formalities but still be motivated solely by a desire to push out the foreign partner.
• If pre-emption rights are limited or eliminated without justification, the minority can suffer substantial loss.

Possible responses:

• Carefully review the AoA and SHA to see what conditions must be met for capital increases and restrictions on pre-emption.
• Attend the general assembly, vote against the resolution and ensure the objection is recorded.
• Consider filing a lawsuit to challenge the validity of the general assembly decision and, where appropriate, request interim measures to prevent registration.
• Use the dispute as an opportunity to negotiate a buy-out at a fair valuation.

Lesson: Capital increase provisions in the AoA and SHA should be clear, detailed and fair, preventing their use as a pure weapon against one shareholder.

6.2. Scenario 2: Deadlock in a 50/50 joint venture

A foreign company and a Turkish group each own 50% of a Turkish joint stock company. All major decisions require approval of at least one director nominated by each side. After several years, partners disagree on whether to expand abroad and how much risk to take. Board meetings become unproductive and general assemblies are filled with mutual accusations.

Risks and problems:

• The company loses opportunities, banks become hesitant, key employees leave.
• Both sides suffer loss of value, but neither wants to be the first to sell.

Possible responses:

• Activate any existing deadlock resolution mechanism under the SHA – if one exists.
• If not, consider mediation supervised by a neutral expert, with scenarios for one party to buy out the other.
• As a last resort, consider court action aiming at dissolution or court-imposed exit.

Lesson: In 50/50 structures, deadlock provisions are not a luxury. They are essential to avoid value destruction and endless fights.

6.3. Scenario 3: Hidden related-party transactions

A foreign minority shareholder notices that profit margins are shrinking, despite stable turnover. On closer examination, it appears that the company is buying goods and services from entities controlled by the local majority shareholder at inflated prices, while selling to the same group at discounts.

Risks and problems:

• Value is shifted from the company to entities controlled by the majority.
• The foreign minority receives no dividends and sees the value of its shares erode.

Possible responses:

• Use information and inspection rights to obtain detailed documentation of these transactions.
• Raise concerns formally in board and general assembly meetings and ask for reviews or independent audits.
• Consider liability claims against directors for breach of their duties toward the company, as well as actions challenging resolutions that approve such transactions.
• Combine legal proceedings with negotiation efforts, possibly seeking a buy-out or restructuring of related-party dealings.

Lesson: The SHA and internal policies should contain clear, enforceable rules on related-party transactions and conflict-of-interest situations, not just general goodwill language.

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7. Practical Checklist for Foreign Shareholders in Turkish Companies

To manage and reduce the risk of shareholder disputes, foreign investors can use the following practical checklist:

1. Before investing or partnering
   • Conduct thorough partner due diligence (including litigation history and market reputation).
   • Avoid signing standard AoA templates without careful review and adaptation.
   • Ensure there is a detailed SHA with clear governance, dividend, financing and exit provisions.
   • Align AoA and SHA, and invest in quality translations.
2. During the life of the company
   • Monitor corporate governance actively; attend assemblies or be represented.
   • Request regular financial and management reporting.
   • Document objections, questions and disagreements in writing.
   • Encourage a culture of proper minutes, resolutions and compliance.
3. At early signs of conflict
   • Seek legal advice promptly; do not wait until all options are exhausted.
   • Use internal tools: information requests, agenda items, formal objections.
   • Explore negotiation and mediation early, before parties become entrenched.
   • Check time limits for challenging resolutions and other claims.
4. If serious disputes break out
   • Secure all relevant evidence (contracts, e-mails, minutes, WhatsApp conversations, financial data).
   • Map all available remedies: contractual, corporate and procedural.
   • Consider interim measures to prevent irreversible changes.
   • Evaluate commercial realities: sometimes a carefully negotiated exit is better than years of litigation or arbitration.

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8. Conclusion

Shareholder disputes in Turkish companies with foreign partners are multidimensional. They combine corporate law, contract law, procedural rules, cultural differences and commercial realities. While the legal framework provides a range of powerful tools – from challenging general assembly resolutions to seeking dissolution for just cause – these tools are most effective when used as part of a broader strategy that includes negotiation, mediation and careful documentation.

For foreign investors, the key messages are:

• Invest serious effort in structuring and documentation from the first day of your Turkish investment.
• Keep a close eye on governance and information flow; do not ignore early warning signs.
• Use professional advisers familiar with both Turkish law and cross-border transactions.
• Treat disputes not only as legal battles, but also as business problems to be solved pragmatically, with exit options always in mind.