Introduction
Related-party transactions in Turkish public companies are one of the most sensitive areas of Turkish capital market law. In a publicly held company, transactions between the company and its controlling shareholders, group companies, subsidiaries, board members, executives or other related persons may create serious conflicts of interest. Such transactions may be commercially legitimate, but they can also be used to transfer value away from the public company to controlling shareholders or related entities.
The main regulatory framework is based on Capital Markets Law No. 6362 and the Communiqué on Corporate Governance II-17.1, issued by the Capital Markets Board of Türkiye, known as the CMB in English and SPK in Turkish. The CMB’s official communiqué list identifies the Communiqué on Corporate Governance II-17.1 as one of the core capital market regulations for issuers, published on 3 January 2014.
Related-party transaction rules are designed to protect minority shareholders, preserve company assets, prevent disguised profit transfer, ensure market-based pricing, strengthen board accountability and maintain investor confidence. For this reason, Turkish public companies and their subsidiaries must follow strict procedures before entering into certain transactions with related parties.
What Is a Related-Party Transaction?
Under Communiqué II-17.1, the terms related party and related-party transaction are defined by reference to Turkish Accounting Standards. The communiqué expressly states that “related party” and “related-party transactions” mean the concepts defined in Turkish Accounting Standards.
In practice, a related party may include controlling shareholders, parent companies, subsidiaries, affiliates, joint ventures, board members, executives, close family members of key management personnel, entities controlled by such persons, and companies under common control. The exact classification depends on the accounting standards, ownership structure, control relationships and factual circumstances.
A related-party transaction may include asset purchases, asset sales, service purchases, service sales, lease transactions, loan arrangements, guarantees, debt transfers, management services, consultancy services, real estate transfers, intellectual property licensing, procurement, distribution agreements, intra-group financing, receivable transfers or any other transaction between the public company and a related party.
The key legal concern is not merely that the counterparty is related. The key concern is whether the transaction is fair, documented, priced at arm’s length, approved through proper corporate procedures and disclosed to investors where required.
Why Related-Party Transactions Are Risky
Related-party transactions create a structural conflict of interest. In a normal arm’s-length transaction, each party negotiates independently to protect its own commercial interest. In a related-party transaction, the same controlling shareholder or management group may influence both sides of the deal. This may cause the public company to pay too much, sell too cheaply, assume unnecessary liabilities or provide benefits to related entities.
For example, a listed company may buy services from a group company at above-market prices. It may sell valuable real estate to a controlling shareholder at below-market value. It may assume the debt of a related company. It may provide guarantees for another group entity. It may lease assets on unfavorable terms. It may transfer profitable business lines to an affiliate. Each of these transactions can harm minority shareholders if not properly reviewed.
This is why Turkish capital market law requires board resolutions, valuation reports, independent director approvals, general assembly review in certain cases and KAP disclosure. These mechanisms are designed to make related-party transactions transparent and fair.
Scope of Communiqué II-17.1
Communiqué II-17.1 determines the procedures and principles regarding corporate governance principles and related-party transactions to be applied by companies within its scope. The communiqué also provides certain exemptions. For example, publicly held companies whose shares are not traded on the exchange are not subject to the related-party transaction chapter of the communiqué.
This scope distinction is important. A listed company traded on Borsa İstanbul will generally face stricter related-party transaction obligations than a non-listed public company. However, non-listed public companies may still be subject to other provisions of Capital Markets Law No. 6362, especially the prohibition on disguised profit transfer under Article 21.
Therefore, when evaluating a transaction, the first question is whether the company is a listed public company, non-listed public company, subsidiary of a listed public company, investment company, bank, financial institution or another specially regulated entity. The applicable rules may differ.
Board Resolution Requirement
The first procedural requirement under Article 9 of Communiqué II-17.1 is a board of directors resolution. Public companies and their subsidiaries must adopt a board decision determining the principles of the transaction before entering into certain related-party transactions.
This requirement is fundamental. A related-party transaction should not be handled informally by management, controlling shareholders or executives. The board must review and approve the essential terms before the transaction begins. The board decision should identify the parties, nature of the relationship, transaction subject, price or consideration, valuation basis, commercial rationale, financial impact, payment terms, duration and whether the transaction is within ordinary business.
A weak board decision may later expose directors to liability. A proper board decision should show that the board reviewed the transaction as a corporate governance matter, not merely as a routine commercial contract.
The 5% Threshold and Valuation Report
Article 9 of Communiqué II-17.1 introduces a valuation requirement when certain ratios exceed 5%. For asset and service purchase-type transactions and liability transfer transactions, the transaction amount is compared with total assets, revenue or company value calculated according to the six-month average of adjusted weighted average prices before the board decision. For asset and service sale-type transactions, the transaction amount, or net book value if higher, is compared with similar metrics. If the relevant ratio is expected to exceed 5%, a valuation must be obtained from an institution designated under CMB rules before the transaction.
This rule prevents related-party transactions from being priced solely by insiders. An independent valuation helps determine whether the transaction is consistent with market conditions. The valuation report should not be treated as a formality. It should explain assumptions, methodology, market comparables, cash flow analysis where relevant and the financial basis for the valuation.
The communiqué provides that if the transaction concerns shares and the share transfer is conducted on the exchange, a separate valuation report is not required. For lease transactions and other transactions where cash flows can be clearly separated, the transaction amount is calculated by discounting the total lease income or expense or other income or expense to net present value.
The 10% Threshold, Independent Directors and General Assembly
Article 9 also introduces a higher level of protection when the relevant ratios exceed 10%. In addition to the valuation requirement, the board decision must be approved by the majority of independent board members. Board members who are related parties cannot vote in the board meeting where the matter is discussed.
If the majority of independent directors do not approve the transaction, this must be disclosed on KAP with sufficient information, and the transaction must be submitted to the general assembly. At the general assembly, the transaction parties and persons related to them cannot vote. No meeting quorum is required for such general assembly meetings, and the decision is taken by the simple majority of voting rights present. Board and general assembly decisions not taken in accordance with these rules are not considered valid.
This is one of the strongest minority protection mechanisms in Turkish corporate governance law. It gives independent directors a gatekeeping function and prevents interested shareholders from approving a conflicted transaction with their own votes if the matter reaches the general assembly.
KAP Disclosure of Related-Party Transactions
If the company decides to carry out the related-party transaction, Article 9 requires public disclosure through KAP. The disclosure must include the direct or indirect relationship between the transaction parties, the nature of the transaction, valuation assumptions, valuation results and, if the transaction is not carried out in accordance with the valuation report conclusions, the reasons for that difference.
KAP disclosure is not simply a notice to the market. It is the legal record showing what the company told investors. A defective disclosure may create investor claims, CMB scrutiny and director liability. The disclosure should be clear enough for investors to understand the relationship, transaction rationale and economic effect.
For example, if a listed company purchases real estate from a controlling shareholder, the KAP disclosure should not merely state that “a property was purchased.” It should explain the related-party relationship, valuation results, transaction amount, material assumptions and whether the price is consistent with the valuation.
Real Estate Transactions
Real estate-related transactions require special attention. Article 9 provides that real estate, integral parts of real estate, real estate projects and rights attached to real estate must be valued under the CMB’s real estate valuation regulations.
This is important because real estate valuation can be highly subjective. A public company may suffer loss if it buys real estate from a related party at an inflated price or sells real estate to a related party at a depressed price. Valuation must therefore be performed by authorized valuation professionals under CMB standards.
Where the transaction involves zoning risk, construction rights, lease income, development potential, encumbrances or title restrictions, the valuation report should address these issues properly. Directors should not rely only on headline appraisal value; they should review the assumptions and limitations.
Continuous and Repeated Related-Party Transactions
Not all related-party transactions are one-time asset transfers. Many listed companies have repeated intra-group transactions, such as procurement, distribution, raw material supply, logistics, management services, technology services, lease arrangements or financing support.
Article 10 of Communiqué II-17.1 regulates common and continuous transactions. It provides that the scope and terms of such transactions between public companies, their subsidiaries and related parties must be determined by board decision. If there is a significant change in the scope or terms of the transactions, a new board decision must be adopted.
If the total amount of continuous related-party transactions in one accounting period is expected to exceed 10% of cost of sales for purchase transactions or 10% of revenue for sales transactions, the board must prepare a report comparing the transaction terms with market conditions, and the full report or its conclusion must be disclosed on KAP. Transactions of the same nature must be evaluated collectively.
This rule is critical for group companies. A series of small monthly transactions may collectively become economically material. The regulation prevents companies from avoiding disclosure by splitting repeated transactions into smaller invoices.
Contents of the Continuous Transaction Report
Article 10 sets out minimum contents for the report on common and continuous related-party transactions. The report must include information about the transaction parties, including trade names, activities, whether they are public companies, financial data such as assets, operating profit and net sales, the nature of the relationship, the effect of the transaction on the company’s activities, the contract date and subject, material contract elements unless trade-secret protection applies, criteria used to compare the transaction with market conditions, and an assessment of whether the transaction is market-compliant.
This report is an important compliance document. It should be prepared with care, because it may later be reviewed by the CMB, investors, auditors or courts. Generic statements such as “the transaction is market-compliant” are usually insufficient unless supported by objective criteria.
A good report should include market price comparisons, alternative suppliers or customers, benchmarking, historical pricing, independent offers, cost analysis, profit margins and commercial rationale.
Exceptions Under Articles 9 and 10
Communiqué II-17.1 includes several exceptions. Article 9 does not apply to portfolio management, investment advisory and brokerage services received by investment companies from their related parties. It also provides that banks and financial institutions are not required to comply with Article 9 obligations for related-party transactions arising from their ordinary activities.
Article 10 similarly excludes dividend distribution, exercise of pre-emption rights due to capital increases, payments regarding managers’ financial rights, certain services received by securities investment companies, real estate investment companies and venture capital investment companies from related parties, and ordinary activity-related related-party transactions of banks and financial institutions.
These exceptions should be interpreted carefully. A company should not assume that every transaction with a related bank or financial institution is automatically exempt. The exception relates to ordinary activities and must be assessed according to the facts.
CMB Authority to Require Valuation
Article 9 gives the CMB a broad supervisory power. The CMB may require valuation and public disclosure of valuation results for transactions between companies and their subsidiaries with related or unrelated parties, regardless of the numerical thresholds in the communiqué, if it considers this necessary.
This authority is significant. Even if a transaction technically falls below the 5% or 10% thresholds, the CMB may still intervene where it sees investor protection concerns. This may occur where the transaction is unusual, strategically important, complex, repeated, linked to controlling shareholders, or capable of materially affecting shareholder value.
The existence of this authority means that companies should not structure transactions solely to remain below thresholds. Article 13 also states that transactions cannot be split into several parts or accounting policies changed in order to remain below the thresholds specified in the communiqué.
Disguised Profit Transfer Under Article 21
The most serious legal risk in related-party transactions is disguised profit transfer, known in Turkish as “örtülü kazanç aktarımı.” Article 21 of Capital Markets Law No. 6362 prohibits public companies, collective investment institutions and their subsidiaries and affiliates from transferring gains to related persons by entering into agreements, commercial practices or transaction volumes involving prices, fees, amounts or terms contrary to arm’s-length principles, market practice, prudence and honesty, thereby reducing their profits or assets or preventing their profits or assets from increasing.
The SPK’s public company obligations guidance explains that disguised profit transfer may also occur where a public company fails to perform activities that a prudent and honest merchant would be expected to perform to protect or increase its profits or assets, thereby increasing the profits or assets of related persons.
This second form is particularly important. Disguised profit transfer is not limited to active overpayment or underpricing. It may also occur through inaction. For example, a public company may fail to collect receivables from a related party, fail to charge market rent, fail to enforce contractual penalties, fail to demand interest, or fail to pursue commercially reasonable opportunities so that a related company benefits.
Documentation and Eight-Year Recordkeeping
Article 21 requires public companies and collective investment institutions to document that their related-party transactions are carried out under arm’s-length terms, market practice, prudence and honesty, and to keep supporting information and documents for at least eight years.
This recordkeeping obligation is extremely practical. If the CMB later investigates a related-party transaction, the company must be able to prove that the transaction was fair and market-compliant. It is not enough for the board to say years later that the transaction was commercially reasonable.
Companies should keep valuation reports, board minutes, independent director opinions, comparable offers, market price data, correspondence, contracts, payment records, expert reports and internal memoranda. A company that cannot produce documents may be in a weak legal position even if the transaction was commercially defensible.
Return of Transferred Gains
If the CMB determines disguised profit transfer, Article 21 provides that the public company or collective investment institution must request return of the transferred amount with legal interest from the persons who received the benefit, within the period determined by the CMB. The persons who received the benefit must return the amount with legal interest. Civil, criminal and administrative sanctions remain reserved.
This remedy is designed to restore the company’s assets. Since the harm is suffered by the company and indirectly by its shareholders, the transferred gain must be returned to the company or collective investment institution whose assets or profits were reduced.
For controlling shareholders and related companies, this creates significant financial risk. A transaction that appears profitable at the group level may later result in repayment obligations, interest, CMB sanctions and criminal exposure.
Criminal Consequences
The SPK’s guidance explains that Article 110 of Capital Markets Law No. 6362 treats acts that reduce the profits or assets of public companies by engaging in Article 21 transactions, or prevent such profits or assets from increasing, as a qualified form of breach of trust. The guidance states that the penalty cannot be less than three years under the relevant criminal law framework.
This means that related-party transaction violations are not merely corporate governance problems. In serious cases, they may create criminal liability for persons involved in disguised profit transfer.
Directors, executives, controlling shareholders and related-party representatives should therefore treat related-party transaction compliance as a high-risk legal function. Informal intra-group practices may create major legal consequences if they harm the public company.
Guarantees, Pledges, Mortgages and Sureties
Related-party risk is not limited to sales and purchases. Article 12 of Communiqué II-17.1 regulates guarantees, pledges, mortgages and sureties. Public companies and subsidiaries may generally provide guarantees, pledges, mortgages and sureties only in favor of their own legal entity, fully consolidated subsidiaries, or other third parties for ordinary commercial activities. They cannot freely provide security for unrelated or related third parties outside the permitted categories.
For securities in favor of directly held affiliates and joint ventures, security may be provided in proportion to the company’s direct capital participation. For security given to third parties in ordinary commercial activities, board decisions require approval by the majority of independent directors, and related board members cannot vote. If independent directors do not approve, dissent reasons must be disclosed on KAP.
This rule protects public companies from being used as credit support vehicles for controlling shareholders or group entities. A guarantee given by a listed company for a related party’s debt may create major hidden risk for minority shareholders.
Related-Party Transactions and Significant Transactions
Some related-party transactions may also qualify as significant transactions under Turkish capital market law. The SPK’s earlier significant transaction guidance states that significant asset acquisitions by public companies from related parties may be considered significant transactions.
Where a transaction is both a related-party transaction and a significant transaction, additional rules may apply, including general assembly approval and withdrawal rights for dissenting shareholders under the relevant significant transactions framework. The company must therefore analyze the transaction under all applicable regulations, not only under Communiqué II-17.1.
This is particularly important for large asset purchases, sales, mergers, demergers, business transfers, real estate transactions and acquisitions from controlling shareholders.
Role of Independent Directors
Independent directors play a central role in related-party transaction governance. Their function is to protect the company and minority shareholders against conflicted decisions. Under Article 9, transactions exceeding the 10% threshold require approval by the majority of independent directors. Related board members cannot vote.
Independent directors should not approve related-party transactions automatically. They should review valuation reports, ask for comparable market data, evaluate alternatives, examine whether the transaction serves the company’s interest, and request further information where necessary. If they dissent, their reasons may need to be disclosed and may become important for investor protection.
For independent directors, silence may be dangerous. A documented dissent may protect both the company and the director if the transaction appears unfair.
Director Liability
Directors may face liability if they approve related-party transactions that harm the public company. Liability may arise under capital market law, corporate law, tort principles, breach of fiduciary duties, administrative sanctions or criminal rules if disguised profit transfer is involved.
A director should be able to show that the transaction was reviewed carefully. Evidence may include valuation reports, market comparisons, legal opinions, board minutes, independent director votes, conflict-of-interest records and KAP disclosures.
A director who participates in a related-party transaction despite having a conflict, or votes when not permitted, may expose the board decision to invalidity and personal liability. Article 9 expressly states that related-party board members cannot vote in the relevant board meeting where the 10% threshold procedure applies.
Public Disclosure Liability
KAP disclosures regarding related-party transactions may create liability if they are false, misleading or incomplete. If investors buy or sell shares based on an incomplete disclosure and later suffer loss when the truth emerges, public disclosure liability may arise under capital market rules.
Related-party transaction disclosures should therefore avoid vague language. They should disclose the relationship, transaction nature, valuation assumptions, valuation result and any deviation from valuation conclusions. If a company states that a transaction is market-compliant without explaining the basis, the disclosure may be challenged.
A KAP example shows how companies disclose continuous related-party transaction reports under Article 10, including the statement that a report was prepared where the amount of common and continuous related-party transactions is expected to exceed 10% of the relevant financial metric.
Minority Shareholder Protection
Related-party transaction regulation is fundamentally a minority shareholder protection regime. Minority investors usually cannot prevent controlling shareholders from influencing company decisions. The law therefore creates procedural safeguards: valuation reports, independent director approval, general assembly approval without related-party voting, KAP disclosure, market comparison reports and CMB oversight.
Minority shareholders should monitor KAP disclosures carefully. When a public company announces an asset purchase from a group company, a service agreement with a shareholder, or a continuous transaction report, investors should review the valuation assumptions and commercial rationale.
If minority shareholders believe a transaction is unfair, they may consider CMB complaint, general assembly opposition, civil litigation, cancellation actions where legally available, or claims based on disguised profit transfer depending on the facts.
Practical Checklist for Public Companies
A Turkish public company planning a related-party transaction should follow a strict compliance checklist.
First, identify whether the counterparty is a related party under Turkish Accounting Standards. Second, determine whether the company itself, a subsidiary, affiliate or other group entity is involved. Third, classify the transaction as asset purchase, asset sale, service purchase, service sale, lease, debt transfer, guarantee, continuous transaction or another type. Fourth, calculate the relevant ratios under Article 9 or Article 10. Fifth, determine whether a valuation report is required. Sixth, obtain a board decision before starting the transaction. Seventh, if the 10% threshold is exceeded, obtain independent director approval and exclude related directors from voting. Eighth, if independent directors do not approve, disclose the situation on KAP and submit the transaction to the general assembly without related-party votes. Ninth, prepare KAP disclosures with sufficient detail. Tenth, preserve all documents for at least eight years under Article 21 documentation principles.
Practical Checklist for Investors
Investors reviewing a related-party transaction should ask the following questions:
Who is the related party?
What is the relationship with the company?
Is the transaction one-time or continuous?
What is the transaction amount?
Does the transaction exceed 5% or 10% thresholds?
Was a valuation report prepared?
Did independent directors approve?
Were related board members excluded from voting?
Was a general assembly held if required?
Were related shareholders excluded from voting?
Was the transaction disclosed on KAP?
Does the transaction appear arm’s-length?
Does it reduce the company’s profit or assets?
Could it constitute disguised profit transfer?
This analysis helps investors distinguish ordinary intra-group commerce from transactions that may harm minority shareholders.
Common Legal Mistakes
Common mistakes include failing to identify a counterparty as related, splitting transactions to remain below thresholds, not obtaining valuation before the transaction, treating continuous transactions as separate small transactions, allowing related directors to vote, failing to obtain independent director approval, making vague KAP disclosures, ignoring real estate valuation requirements, providing guarantees for group companies without proper legal basis, and failing to document arm’s-length pricing.
Another serious mistake is assuming that a transaction is lawful simply because it is common within a group. In capital markets, group practice is not enough. The transaction must protect the public company’s own interests and must be consistent with market terms, prudence and honesty.
Conclusion
Related-party transactions in Turkish public companies are regulated to prevent conflicts of interest, protect minority shareholders and preserve public company assets. The central regulation is Communiqué on Corporate Governance II-17.1, which requires board approval, valuation reports for transactions exceeding the 5% threshold, independent director approval for transactions exceeding the 10% threshold, general assembly approval where independent directors do not approve, and KAP disclosure of valuation assumptions, results and transaction relationships.
Continuous related-party transactions are separately regulated under Article 10. Where purchase or sale transactions are expected to exceed the 10% threshold in an accounting period, the board must prepare a market-comparison report and disclose the report or its conclusion on KAP.
The most serious risk is disguised profit transfer under Article 21 of Capital Markets Law No. 6362. Public companies and their subsidiaries must not transfer value to related persons through non-arm’s-length prices, fees, terms, transaction volumes or failure to act as prudent merchants. They must document market compliance and keep supporting records for at least eight years.
For companies and directors, related-party transaction compliance is a high-liability governance function. For investors, it is one of the most important areas to monitor when evaluating listed Turkish companies. In conclusion, any public company, board member, controlling shareholder, independent director, investor or related entity involved in a related-party transaction in Turkey should obtain professional legal advice before acting, especially where valuation, independent director approval, KAP disclosure, general assembly approval, guarantees or disguised profit transfer risks are present.
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