Introduction

A founder raises investment, signs a term sheet, closes the funding round and finally sees significant capital enter the startup.

Six months later, relations with the investors deteriorate.

The board begins questioning the founder’s performance. The investor-appointed directors demand a new CEO. The founder is accused of missing targets, breaching reporting obligations or creating problems within the management team.

Then the founder receives an unexpected message:

“The board has decided that you should leave the company.”

This immediately raises one of the most important questions in venture capital transactions:

Can investors remove the founder of a startup after investing in the company?

Under Turkish law, the answer depends on what “remove” actually means.

There are at least four completely different legal consequences:

1. removing the founder as CEO or employee;
2. removing the founder from the board of directors;
3. removing the founder from management and representation authority;
4. forcing the founder to transfer his or her shares and cease being a shareholder.

These consequences are not legally identical.

A founder may therefore be removed as CEO and board member while continuing to own 30% of the company.

Conversely, if the investment documents contain properly structured vesting, bad-leaver or compulsory-transfer provisions, the founder may potentially be required to transfer some or all of the shares after leaving.

For startup founders, understanding this distinction before signing the investment documents can determine whether losing the management position also means losing millions of lira in equity.

1. The Most Important Rule: Removing the Founder from Management Does Not Automatically Remove the Founder as Shareholder

This is the starting point for almost every startup founder dispute.

Suppose:

Founder: 55%

Investor: 35%

Employee option pool: 10%

The founder is also:

• CEO;
• board member;
• authorised signatory.

A dispute arises and the founder is removed as CEO and board member.

Unless another valid legal mechanism operates on the shares, the founder may still remain:

55% shareholder.

Therefore:

Management position and share ownership must always be analysed separately.

The investor may have the power to remove the founder from operational control but may not necessarily have the power to confiscate or cancel the founder’s shares.

2. Most Turkish Startups Receiving Institutional Investment Are Structured as Joint-Stock Companies

Although startups may initially be incorporated as limited liability companies, many companies convert into or are established as joint-stock companies (anonim şirket) when professional investment is contemplated.

This structure is generally more suitable for:

• investment rounds;
• different share classes;
• share certificates;
• employee equity plans;
• board representation;
• future capital increases;
• acquisitions and exits.

Therefore, the principal focus of this article is a Turkish joint-stock company governed by the Turkish Commercial Code No. 6102 (“TCC”).

Limited liability companies will be considered separately where relevant.

3. Can Investors Remove the Founder from the Board?

Yes — under certain conditions.

Article 364 TCC provides that members of the board of directors may generally be removed by the general assembly at any time where the relevant item is on the agenda, or where just cause exists even if it is not specifically on the agenda.

Importantly, this applies even where the director was originally appointed under the articles of association.

Therefore, being a founder does not create a permanent right to remain on the board.

If investors obtain sufficient voting power at the general assembly, the founder may potentially be removed from the board.

But that still does not mean:

“The founder is no longer a shareholder.”

It means only:

“The founder is no longer a director.”

4. A Board Seat Can Be Protected Through Special Representation Rights

Startup investment documents frequently allocate board seats between founders and investors.

For example:

Five-member board:

• two founder-appointed members;
• two investor-appointed members;
• one independent member.

However, merely writing this arrangement into a shareholders’ agreement may not always create the same corporate-law protection as incorporating an appropriate mechanism into the articles of association.

Article 360 TCC permits certain share groups, shareholder groups or minority shareholders to be granted a right of representation on the board where this is provided in the articles.

Where such a right exists, the candidate nominated by the relevant group must generally be appointed unless there is just cause not to do so.

This can substantially strengthen the founder’s governance position.

However, Article 360 usually protects a group’s representation right, rather than necessarily guaranteeing that one particular individual founder can remain on the board forever.

That distinction matters.

5. Removing the Founder as CEO Is a Separate Question

The title “CEO” does not itself create shareholder protection.

The founder may simultaneously have:

• a corporate office;
• an employment contract;
• a service agreement;
• management authority;
• representation authority.

The legal consequences of termination therefore depend on the underlying contractual structure.

For example, the founder may lose the CEO position but potentially retain claims arising from:

• contractual notice provisions;
• unpaid compensation;
• bonus arrangements;
• employment rights;
• share-option arrangements.

Therefore, investors should not assume that a board resolution ending the founder’s operational role automatically terminates every contractual relationship.

Likewise, founders should not assume that being removed from employment automatically affects already owned shares.

6. The Critical Question: Can Investors Force the Founder to Give Back the Shares?

Sometimes.

But there is no general rule under Turkish joint-stock company law allowing investors to confiscate founder shares merely because they invested money or control the board.

This is the crucial distinction.

If a founder legally owns 30% of an anonymous company, the investor normally requires a specific legal mechanism to force a transfer.

In venture transactions, that mechanism is usually contractual.

Common examples include:

• vesting;
• reverse vesting;
• good-leaver provisions;
• bad-leaver provisions;
• call options;
• compulsory-transfer obligations;
• drag-along provisions.

Whether those provisions actually work depends on how they are drafted and implemented under Turkish law.

7. What Is Founder Vesting?

Founder vesting is designed to solve a simple commercial problem.

Suppose two founders each receive 50% of a startup on day one.

Six months later, Founder B leaves.

Founder A continues working for four years.

Without vesting, Founder B might keep 50% permanently despite contributing only six months of work.

Investors usually consider this unacceptable.

A vesting mechanism therefore links the founder’s ultimate economic ownership to continued involvement with the startup.

A typical commercial model may provide:

4-year vesting

with

1-year cliff.

However, Turkish law does not contain a statutory institution called “vesting.”

Vesting mechanisms are instead constructed contractually using concepts recognised under Turkish obligations and company law.

Recent Turkish legal literature similarly treats vesting as a contractual mechanism rather than a separately regulated statutory institution.

8. Reverse Vesting Is Particularly Important for Founders Who Already Own the Shares

Startup founders usually own their shares before the investor enters.

This creates a practical difficulty.

The investor cannot simply say:

“You have not vested those shares yet.”

The founder already owns them.

Therefore, many investment structures use reverse vesting.

Under a simplified model:

Founder initially owns 40%.

The investment agreement treats that 40% as subject to a four-year vesting schedule.

If the founder remains throughout the period, all shares become economically protected from the contractual repurchase mechanism.

If the founder leaves early, a defined portion may become subject to:

• a call option;
• compulsory transfer;
• repurchase by another shareholder.

The exact structure is extremely important under Turkish law.

9. What Is a Bad-Leaver Clause?

A bad-leaver provision defines circumstances in which a founder leaving the startup suffers less favourable equity consequences.

Typical bad-leaver events may include:

• fraud;
• embezzlement;
• intentional misconduct;
• serious breach of fiduciary duties;
• breach of non-compete obligations;
• breach of confidentiality;
• unauthorised transfer of intellectual property;
• criminal misconduct materially harming the startup;
• voluntary resignation during a restricted period.

The clause may provide that the bad leaver must transfer shares at:

• nominal value;
• acquisition cost;
• a heavily discounted value;
• another contractually defined price.

The economic difference can be enormous.

10. Good Leaver vs Bad Leaver Can Determine Millions of Lira

Consider the following startup.

Post-money valuation:

TRY 400 million.

Founder owns:

25%.

Economic value of founder stake:

TRY 100 million.

The founder leaves.

If classified as a good leaver, the agreement may provide for transfer at fair market value.

Potential value:

TRY 100 million.

If classified as a bad leaver, the transfer price might be:

TRY 1 million.

The legal dispute is therefore no longer merely about whether the founder remains CEO.

It may become a TRY 99 million classification dispute.

This is why leaver definitions are among the most heavily negotiated provisions in sophisticated venture capital transactions.

11. Investment Agreements Should Not Give Investors Unlimited Power to Declare Someone a Bad Leaver

A poorly drafted provision may say:

“The investor may determine that the founder is a bad leaver.”

That creates an obvious conflict of interest.

A founder-protective structure should define objectively identifiable events.

For example:

Bad Leaver Event:

• final judicial determination of fraud;
• intentional material breach not cured within a specified period;
• serious breach of confidentiality;
• competitive activity in violation of an enforceable covenant.

The agreement should also define:

• who makes the determination;
• whether a cure period exists;
• what evidence is required;
• whether the founder can challenge the classification;
• how valuation is determined.

Ambiguity almost inevitably produces litigation.

12. A Shareholders’ Agreement Is Not the Same as the Company’s Articles of Association

This is one of the most important drafting issues in Turkish startup law.

The investment relationship is commonly documented through:

• Investment Agreement;
• Shareholders’ Agreement (“SHA”);
• amended Articles of Association.

These documents perform different legal functions.

The SHA primarily creates contractual obligations among its parties.

It does not automatically rewrite mandatory Turkish corporate law.

Therefore, a clause stating:

“If Founder X becomes a Bad Leaver, Founder X shall cease automatically to be a shareholder.”

should not be assumed to make the shares disappear automatically.

The transfer must still be implemented in accordance with the applicable legal regime.

That may require analysing:

• the type of shares;
• whether share certificates exist;
• endorsement;
• delivery;
• share-register issues;
• contractual transfer obligations;
• restrictions contained in the articles.

The startup’s investment documents must therefore be drafted as one integrated system.

13. Founder Shares Cannot Simply Be “Cancelled” Because the Investor Says So

The language used in investment negotiations can sometimes be misleading.

An investor may say:

“If you leave, your unvested shares are cancelled.”

Commercially, that may describe the intended result.

Legally, however, cancellation of existing shares is not necessarily achieved by simply declaring them cancelled.

If the shares already legally belong to the founder, the mechanism normally requires a legally valid route for transferring or otherwise dealing with those shares.

A properly structured agreement therefore typically defines:

1. the triggering event;
2. the number of affected shares;
3. who has the right to acquire them;
4. the purchase price;
5. the exercise period;
6. the transfer procedure;
7. the consequences of refusal to cooperate.

The final point is particularly important.

14. Who Should Buy the Founder Shares?

Many poorly drafted startup agreements simply say:

“The company shall repurchase the shares.”

That may create problems.

Under Article 379 TCC, a joint-stock company’s acquisition of its own shares is generally subject to significant restrictions, including the principle that acquisitions for consideration must not exceed 10% of the company’s capital under the ordinary statutory mechanism, alongside financial and general-assembly authorisation requirements.

Therefore, the company itself may not always be the appropriate purchaser of a large founder stake.

Alternative structures may provide acquisition rights to:

• existing investors;
• other founders;
• another designated shareholder;
• an eligible third party.

The structure should be tested against Turkish company-law restrictions before the investment round closes.

15. Investors Cannot Normally Use a Capital Increase Simply to “Delete” the Founder

Another potential strategy is dilution.

Suppose:

Founder: 40%

Investor: 60%.

Investor causes the company to undertake an extremely large capital increase.

The founder cannot participate.

The founder’s ownership is diluted to 5%.

This does not technically remove the founder.

But economically, it may produce a similar result.

Turkish company law contains shareholder protections against abusive capital increases, including pre-emption rights and the broader principles governing shareholder equality and good faith.

Accordingly, a capital increase designed primarily to destroy the founder’s position rather than genuinely finance the company may be vulnerable to challenge.

A startup founder should therefore investigate:

• genuine financing requirements;
• valuation used in the round;
• pre-emption rights;
• restrictions on those rights;
• voting thresholds;
• investor vetoes;
• the purpose of the capital increase.

16. Failure to Pay Capital Can Produce Much More Serious Consequences

There is one important statutory exception.

If a shareholder fails to fulfil an outstanding capital contribution obligation, Article 482 TCC gives the board significant powers in relation to the defaulting shareholder, including the possibility of depriving the shareholder of rights arising from the subscription and replacing that shareholder through sale of the relevant shares, subject to statutory requirements.

This is not a general founder-expulsion mechanism.

It concerns default on capital contribution obligations.

But it demonstrates that certain specific statutory circumstances can result in loss of shareholding rights even without a voluntary exit.

17. Can a 90% Investor Force Out the Founder?

There is a very specific mechanism under Article 208 TCC.

Where a controlling company directly or indirectly holds at least 90% of the shares and voting rights in another capital company, it may under certain statutory conditions acquire the minority shares where the minority obstructs the company’s operations, acts contrary to good faith, creates perceptible difficulties or acts recklessly.

However, several important qualifications apply.

This provision belongs to the law of groups of companies.

It is not a general rule stating:

“Any investor owning 90% can automatically squeeze out a founder.”

The factual and structural requirements of Article 208 must exist.

Therefore, it should not be confused with ordinary VC contractual leaver mechanisms.

18. A Merger Can Also Produce Compulsory Exit Consequences

Turkish law also recognises structural transactions in which shareholder continuity may be replaced by exit compensation.

Article 141 TCC permits merger documentation to provide shareholders with a choice between shares in the surviving company and exit compensation corresponding to the real value of their interests.

The merger agreement may also provide only for exit compensation.

This can have compulsory-exit consequences.

However, a merger is a major corporate restructuring governed by detailed statutory requirements.

It cannot simply be used informally by investors as a substitute for a missing bad-leaver clause.

19. Drag-Along Is Different from Bad Leaver

Startup documents frequently contain both provisions, but they serve different purposes.

Bad Leaver

Triggered because of something concerning the founder.

For example:

• resignation;
• misconduct;
• breach.

Drag-Along

Triggered because shareholders are selling the company.

For example:

An acquirer offers TRY 1 billion for 100% of the startup.

Investor and majority shareholders accept.

Founder owns 12% and refuses to sell.

A drag-along clause may contractually require the founder to sell on the same transaction.

Therefore:

Bad leaver removes a founder because of a founder-related event.

Drag-along removes the founder’s continuing shareholding because the company is being sold.

They should not be drafted or interpreted as the same mechanism.

20. A Founder May Be Fired but Still Block an Exit

Consider:

Founder owns 30%.

Investor removes founder as CEO.

Founder remains 30% shareholder.

Two years later, a buyer offers to acquire the entire startup.

The founder refuses.

If the investment documents contain no effective drag-along mechanism, the shareholder dispute may interfere with the exit.

This illustrates why sophisticated investors negotiate governance and exit provisions before providing funding.

Trying to reconstruct those rights after relations collapse is far more difficult.

21. A Founder May Keep Shares but Lose Control

Another common misunderstanding is:

“I still own 30%, therefore I control the company.”

Not necessarily.

Corporate control may depend on:

• voting percentages;
• board composition;
• preferred share rights;
• investor vetoes;
• reserved matters;
• management delegation;
• future financing requirements.

A founder may therefore remain economically valuable as a shareholder while having very limited influence on day-to-day operations.

This is often the practical result of late-stage venture financing.

22. Reserved Matters Can Be More Important Than Share Percentage

Investment agreements often provide that certain important decisions cannot be taken without investor consent.

These may include:

• new share issuances;
• borrowing above a threshold;
• acquisition or sale of major assets;
• business-model changes;
• related-party transactions;
• appointment of key executives;
• annual budgets;
• acquisitions;
• liquidation;
• mergers.

A founder may therefore technically hold a significant percentage of shares while still requiring investor approval for fundamental decisions.

Founders should therefore negotiate not merely:

“How much percentage do I keep?”

but also:

“What decisions can I still make?”

23. Founder Board Rights Should Be Negotiated at the Investment Stage

Once investors obtain control, it is usually too late to renegotiate governance rights.

Before signing, founders should consider:

• guaranteed board representation;
• founder nomination rights;
• investor nomination rights;
• independent director mechanisms;
• board quorum;
• reserved matters;
• deadlock procedures.

Where appropriate, Article 360 mechanisms should be considered so that governance protection is reflected in the articles rather than existing solely at the contractual level.

24. Do Not Give Investors an Extremely Broad Bad-Leaver Trigger

A provision such as:

“Any material disagreement with the investor constitutes Bad Leaver”

creates enormous risk.

Likewise:

“Failure to achieve the business plan constitutes Bad Leaver”

may effectively allow investors to take founder shares whenever financial performance disappoints.

Startup performance depends on:

• market conditions;
• competition;
• financing;
• regulatory developments;
• investor decisions.

Bad-leaver clauses should therefore generally focus on serious personal conduct rather than ordinary business underperformance.

25. Valuation of Founder Shares Is Often the Real Dispute

Even where everyone agrees that the founder must leave, the next question may be:

At what price?

Possible contractual standards include:

• nominal value;
• original subscription price;
• latest financing-round valuation;
• fair market value;
• independently appraised value;
• discounted fair market value.

Suppose:

Founder stake: 20%.

Latest financing valuation: TRY 500 million.

Implied stake value:

TRY 100 million.

If the contract defines a bad-leaver purchase price as nominal value:

Transfer price may be:

TRY 500,000.

The classification of the founder’s departure therefore creates a difference of:

TRY 99.5 million.

Any founder signing a leaver clause should therefore focus on the pricing formula, not merely the definition of leaving.

26. The Valuation Date Must Also Be Defined

Another dispute may arise even where the formula says:

“Fair Market Value.”

Fair market value when?

Possible dates include:

• date of breach;
• date employment ended;
• date the call option was exercised;
• date shares were transferred;
• date of valuation report.

In a rapidly growing startup, six months may materially change valuation.

The contract should therefore expressly define the relevant valuation date.

27. Founder Intellectual Property Can Become a Separate Battleground

Even if the founder is removed, the company’s technology must remain with the startup.

Investors therefore normally require founders to transfer or assign intellectual property rights relating to:

• source code;
• software;
• trademarks;
• patents;
• designs;
• domain names;
• product documentation;
• databases.

A founder should not assume:

“I created the software, therefore I can take it with me when I leave.”

Likewise, investors should not assume that intellectual property automatically belongs to the company merely because the founder developed it while building the startup.

IP ownership should be documented during investment due diligence.

28. What If Investors Remove the Founder in Breach of the Investment Agreement?

Suppose the SHA guarantees the founder a governance position but investors nevertheless vote to remove the founder.

Two different questions arise:

Corporate validity

Was the relevant corporate resolution legally valid under the TCC and articles?

Contractual liability

Did the investors breach the SHA?

A corporate resolution may in certain circumstances remain effective at the company-law level while simultaneously creating contractual liability between the shareholders.

This is why founders should never analyse a dispute only under the SHA.

The analysis should cover:

TCC + articles + SHA + investment agreement + employment/service contracts.

29. General Assembly Decisions Can Be Challenged

If investors use their majority to adopt unlawful corporate resolutions, the founder may have judicial remedies.

Article 447 TCC expressly treats as void, among others, certain resolutions that unlawfully restrict indispensable shareholder rights, improperly restrict information or inspection rights, or violate fundamental principles of corporate structure and capital protection.

Other resolutions may be subject to annulment proceedings under the applicable TCC rules.

Therefore:

Investor majority does not mean investor immunity.

Majority power remains subject to mandatory corporate law.

30. Practical Example: Founder Is Removed as CEO but Keeps the Shares

Assume:

Founder: 35%.

VC Fund: 40%.

Angel Investors: 15%.

Employee pool: 10%.

The founder misses revenue targets.

The board removes the founder as CEO.

No bad-leaver event applies.

The founder may become:

former CEO

but remain:

35% shareholder.

The shares do not automatically disappear merely because investors have lost confidence in the founder’s management ability.

31. Practical Example: Founder Leaves During Reverse Vesting

Assume:

Founder originally owns 40%.

Founder signs a four-year reverse-vesting arrangement when the investment closes.

After one year, the founder voluntarily abandons the startup.

The investment documents provide that the unvested portion is subject to a properly drafted call option in favour of designated shareholders.

In this scenario, leaving management may trigger contractual consequences for part of the founder’s equity.

The result may be:

Founder loses management position

and

must transfer a defined portion of the shares.

This result arises because of the investment documents — not merely because the investor invested in the company.

32. Practical Example: Investor Attempts to Invent a Bad-Leaver Event

Suppose the SHA defines Bad Leaver narrowly as:

• fraud;
• intentional criminal conduct against the company;
• serious confidentiality breach.

Founder fails to meet quarterly revenue targets.

Investors vote to remove the founder as CEO and demand transfer of all shares at nominal value.

The founder may accept removal from management but dispute the share transfer.

The legal question becomes:

Did the contractual bad-leaver trigger actually occur?

Investors cannot necessarily rewrite the contract after the relationship deteriorates.

33. What Should Founders Negotiate Before Accepting Investment?

A founder should examine at least the following provisions before signing:

Governance

• Who appoints board members?
• Can the founder be removed easily?
• Does the founder group have Article 360 representation rights?

Vesting

• How long is the vesting period?
• Is there a cliff?
• How much equity is already vested?

Bad Leaver

• What precisely constitutes bad leaver?
• Is underperformance included?
• Who makes the determination?

Good Leaver

• Death?
• Disability?
• Termination without cause?
• Founder removal by investors?

Share Price

• Nominal value?
• Cost?
• Fair market value?
• Discounted market value?

Transfer Procedure

• Who purchases the shares?
• When?
• What happens if the transfer is disputed?

Exit

• Drag-along?
• Tag-along?
• Minimum price?
• Qualified majority?

Acceleration

What happens to vesting if:

• the company is sold;
• the founder is removed without cause?

These provisions can be more important than the headline valuation of the investment round.

34. What Should Investors Negotiate?

Investors should also protect themselves.

A founder may hold significant equity but stop contributing shortly after the investment.

A properly designed investment package should therefore consider:

• reverse vesting;
• clear founder commitments;
• IP assignment;
• confidentiality;
• non-compete restrictions within legally permissible limits;
• good-leaver/bad-leaver definitions;
• call-option mechanics;
• board-control provisions;
• reserved matters;
• drag-along;
• dispute-resolution procedures.

The objective should not be to make the founder powerless.

It should be to ensure that founder equity remains aligned with continued contribution to the startup.

35. Limited Liability Companies Require a Different Analysis

If the startup is structured as a limited liability company, the position changes.

Article 630 TCC permits the general assembly to remove managers and restrict their management or representation authority.

Again:

removal as manager ≠ removal as shareholder.

However, unlike joint-stock companies, limited companies have an express statutory expulsion regime.

Article 640 provides that:

• the articles may identify grounds for expulsion by general assembly resolution; and
• the company may seek judicial expulsion of a shareholder for just cause.

An expelled shareholder may challenge an expulsion decision made under the articles within three months following notarial notification.

Article 641 also provides the departing shareholder with a right to an exit payment corresponding to the real value of the capital share.

This is a major difference between limited and joint-stock company structures.

36. The Most Dangerous Founder Mistake: Negotiating Only Valuation and Dilution

Founders frequently negotiate:

“Are you investing at a USD 5 million or USD 7 million valuation?”

but pay less attention to:

• bad leaver;
• board control;
• liquidation preference;
• anti-dilution;
• drag-along;
• vesting;
• investor consent rights.

A founder can technically keep 30% of a USD 20 million startup and nevertheless lose much of the practical value of the founder position through poorly negotiated governance and leaver provisions.

Investment valuation tells the founder:

How much the company is worth today.

Investment documents determine:

Whether the founder will still participate in that value tomorrow.

37. Conclusion: Investors Can Fire a Founder — But They Cannot Automatically Erase the Founder’s Shares

The statement:

“Investors removed the founder from the company.”

is legally incomplete.

The first question must always be:

Removed from what?

If the founder is removed as:

CEO

employment or service-contract consequences arise.

Board Member

Article 364 TCC and governance provisions become relevant.

Manager

different rules apply, particularly in limited companies.

Shareholder

a completely separate legal basis is required.

In Turkish startup transactions, a founder’s shareholder exit most commonly depends on carefully structured contractual mechanisms such as:

reverse vesting, bad-leaver clauses, call options, compulsory transfers or drag-along rights.

Those provisions must then operate consistently with mandatory Turkish company-law rules.

The most important practical principle for founders is therefore:

Do not confuse your job with your shares.

And the most important principle for investors is:

Do not assume that board control automatically gives you ownership of founder equity.

A professionally structured investment should answer the difficult questions before the money enters the company:

What happens if the founder resigns?

What happens if investors remove the founder?

How much equity remains vested?

Who can buy the shares?

At what price?

Who decides whether the founder is a bad leaver?

What happens if the founder refuses to transfer?

When these questions are left unanswered, what begins as a successful investment round can quickly become a high-value shareholder dispute.