Introduction
Shareholders’ agreements play a crucial role in structuring corporate relationships in Turkey, particularly in joint ventures, private equity investments, family businesses, and startup ecosystems. While the Turkish Commercial Code (TCC) regulates corporate governance through articles of association, shareholders often prefer to execute a separate contractual arrangement to govern their internal relationship.
Under Turkish law, shareholders’ agreements are legally valid in principle; however, their enforceability may be subject to certain limitations, especially when they conflict with mandatory corporate law provisions or the company’s articles of association.
For foreign investors entering the Turkish market, understanding shareholders’ agreements under Turkish law is essential to ensure that governance mechanisms, exit rights, voting arrangements, and transfer restrictions are properly structured and enforceable.
This article provides a detailed overview of the legal framework, common clauses, enforceability issues, and risk considerations.
1. Legal Nature of Shareholders’ Agreements
Under Turkish law, shareholders’ agreements are:
- Private law contracts
- Governed by the Turkish Code of Obligations
- Binding only on the contracting parties
They are not automatically binding on:
- The company (unless it is a party)
- Third parties
Unlike articles of association, shareholders’ agreements are not registered with the trade registry and are not publicly disclosed.
2. Relationship Between Articles of Association and Shareholders’ Agreement
The articles of association (AoA):
- Govern corporate structure
- Bind the company and all shareholders
- Are registered and publicly available
A shareholders’ agreement:
- Is confidential
- Regulates internal arrangements
- May supplement but not contradict mandatory provisions
If a conflict arises between the AoA and the shareholders’ agreement:
- Corporate law rules prevail in relation to third parties.
- The agreement remains binding contractually among parties.
3. Common Key Clauses
Shareholders’ agreements under Turkish law typically include:
1️⃣ Governance and Voting Arrangements
- Board composition
- Quorum requirements
- Veto rights
- Reserved matters list
Certain matters may require unanimous or qualified majority approval.
However, mandatory TCC provisions cannot be overridden.
2️⃣ Share Transfer Restrictions
Common mechanisms include:
- Right of first refusal (ROFR)
- Tag-along rights
- Drag-along rights
- Lock-up periods
While transfer restrictions are generally valid contractually, enforceability against third parties may require inclusion in the articles of association.
3️⃣ Exit Provisions
Especially important in private equity investments.
Includes:
- Put and call options
- IPO exit mechanisms
- Trade sale clauses
- Liquidation preferences
Option clauses must comply with Turkish contract law.
4️⃣ Non-Compete Clauses
Shareholders may agree not to compete with the company.
However:
- Duration must be reasonable.
- Geographic scope must be limited.
- It must not excessively restrict economic freedom.
5️⃣ Deadlock Resolution Mechanisms
Deadlock clauses may include:
- Russian roulette
- Texas shoot-out
- Buy-sell mechanisms
- Mediation or arbitration
These clauses are common in 50/50 joint ventures.
4. Enforceability Under Turkish Law
A central issue regarding shareholders’ agreements under Turkish law is enforceability.
Key principles:
- Agreements contrary to mandatory TCC provisions are invalid.
- Agreements cannot eliminate statutory shareholder rights.
- Provisions affecting corporate organs must align with company law.
For example:
- Shareholders cannot contractually remove statutory general assembly powers.
- Directors’ duties cannot be contractually waived.
5. Binding Effect on the Company
If the company is not a party:
- It is not directly bound by the agreement.
To strengthen enforceability:
- The company may become a party.
- Critical provisions may be reflected in the articles of association.
This dual-layer protection is common practice.
6. Penalty Clauses and Damages
Breach of shareholders’ agreement may trigger:
- Contractual penalty clauses
- Compensation claims
- Specific performance actions
Turkish courts generally enforce penalty clauses unless excessive.
However, courts may reduce disproportionate penalties.
7. Shareholders’ Agreements in Joint Stock vs Limited Companies
Joint Stock Company (A.Ş.)
- More flexible capital structure
- Preferred by foreign investors
- Better suited for complex agreements
Limited Liability Company (Ltd.)
- Simpler structure
- Transfer restrictions already stricter by law
- Not always ideal for private equity
Choice of company type affects agreement drafting.
8. Arbitration Clauses
International investors often include:
- Arbitration clauses (e.g., ICC, ISTAC)
Arbitration is valid for contractual disputes arising from shareholders’ agreements.
Corporate validity disputes, however, may remain within Turkish courts’ jurisdiction.
9. Minority Shareholder Protection
Shareholders’ agreements frequently enhance minority protection through:
- Information rights
- Dividend policy commitments
- Board representation
- Exit rights
These mechanisms supplement statutory protections under TCC.
10. Confidentiality and Disclosure
Shareholders’ agreements are private documents.
Confidentiality clauses typically include:
- Non-disclosure obligations
- Restrictions on disclosure to third parties
This provides commercial protection not available in articles of association.
11. Tax and Regulatory Considerations
Certain clauses may have tax consequences, such as:
- Option arrangements
- Earn-out mechanisms
- Dividend guarantees
Additionally, public companies face regulatory disclosure obligations that may limit confidentiality.
12. Termination of Shareholders’ Agreements
Agreements may terminate upon:
- IPO
- Sale of shares
- Mutual consent
- Expiration of term
Clear termination triggers are essential to avoid uncertainty.
13. Risks and Practical Drafting Considerations
Foreign investors should consider:
- Ensuring compatibility with Turkish Commercial Code
- Reflecting key clauses in articles of association
- Addressing enforcement mechanisms clearly
- Including dispute resolution provisions
- Considering mandatory corporate governance rules
Improper drafting may result in unenforceable provisions.
14. Interaction with Mandatory Law
Certain corporate matters are strictly regulated:
- Capital increase procedures
- General assembly voting rights
- Director appointment and removal
- Dividend distribution rules
Shareholders’ agreements cannot override mandatory statutory provisions.
Conclusion
Shareholders’ agreements under Turkish law provide a flexible and confidential mechanism for regulating corporate relationships, especially in joint ventures and investment transactions. While legally valid as private contracts, their enforceability depends on alignment with mandatory provisions of the Turkish Commercial Code.
For foreign investors, proper drafting, strategic incorporation of key provisions into the articles of association, and careful dispute resolution planning are critical to ensuring legal effectiveness.
When structured correctly, shareholders’ agreements serve as powerful tools for risk allocation, governance structuring, and exit planning within Turkish corporate practice.
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