Company Valuation and Legal Risk Analysis in Turkey: A Guide for Foreign Investors

Foreign investors considering the acquisition of a company or business in Turkey should not evaluate the transaction solely on the basis of the purchase price, turnover, assets or expected profitability.

A company that appears profitable on paper may carry significant hidden liabilities. Tax debts, social security obligations, pending litigation, employee claims, regulatory problems, invalid licences, related-party transactions, unpaid commercial debts or contractual obligations may substantially reduce the real value of the investment.

For this reason, company valuation and legal risk analysis in Turkey should be carried out together before signing a binding acquisition agreement.

Under Turkish foreign investment legislation, foreign investors are generally entitled to the same treatment as domestic investors. The Turkish Foreign Direct Investment Law No. 4875 is based on the principle of equal treatment and generally allows foreign investors to establish companies and acquire shares in Turkish companies under the same basic framework applicable to Turkish investors.

However, having the legal right to acquire a Turkish business does not mean that every acquisition is commercially or legally safe.

The fundamental question is therefore not only:

“How much is this company worth?”

It should also be:

“What liabilities and legal risks am I acquiring together with this company?”

1. Why Legal Due Diligence Matters Before Buying a Company in Turkey

Legal due diligence is a systematic investigation of the target company before completing an acquisition.

Its purpose is to identify legal risks that may affect:

• the purchase price;
• the structure of the acquisition;
• the buyer’s liability after closing;
• the company’s future profitability;
• the validity of licences and permits;
• the ownership of assets;
• existing contracts;
• employee liabilities;
• pending or potential litigation;
• tax and social security exposure; and
• the investor’s ability to operate or sell the business in the future.

The financial statements of a company provide important information, but they do not necessarily reveal every legal risk.

For example, a company may show a strong balance sheet while simultaneously facing a substantial employment lawsuit, tax assessment, contractual penalty or regulatory investigation.

Accordingly, financial due diligence and legal due diligence should normally be conducted as complementary processes.

2. Share Acquisition or Asset Acquisition?

One of the first decisions for a foreign investor is whether to acquire the shares of the existing company or only particular assets and business operations.

This distinction can fundamentally change the investor’s risk profile.

Share Acquisition

In a share deal, the buyer acquires shares in the existing legal entity.

The company continues to exist after the transaction. Its assets, agreements, employees, rights and liabilities generally remain with the same company.

This structure can be commercially convenient because the business continues without establishing an entirely new operating entity.

However, it may also expose the investor to historical risks within the target company.

Therefore, before acquiring shares, the investor should investigate the company’s past activities carefully.

Asset or Business Acquisition

Instead of acquiring the shares, an investor may consider acquiring identified assets, commercial operations or parts of the business.

Depending on the structure of the transaction, this may provide greater control over which assets and obligations are being acquired.

However, an asset or business transfer is not automatically free from liabilities. Turkish law contains specific rules concerning business transfers, employees, contracts, creditors and other obligations.

The correct transaction structure should therefore be determined only after analysing the target business.

3. Do Not Rely Only on the Seller’s Valuation

A common mistake in acquisitions is to negotiate the price almost entirely on the basis of information supplied by the seller.

Statements such as:

• “The company earns EUR 1 million per year,”
• “There are no debts,”
• “All permits are complete,”
• “There are no important lawsuits,”
• “The property belongs to the company,” or
• “The employees have no claims”

should not simply be accepted without independent verification.

A foreign buyer should request documentary evidence and conduct an independent investigation.

The real value of a company may be significantly different from the seller’s asking price once legal liabilities are taken into account.

4. Corporate Records and Ownership Structure

A legal investigation should begin with the corporate structure of the target company.

Among other matters, it is important to examine:

• Trade Registry records;
• Articles of Association;
• current shareholders;
• shareholding percentages;
• share transfers;
• share certificates where applicable;
• management structure;
• directors and authorised signatories;
• general assembly resolutions;
• board resolutions;
• restrictions on share transfers;
• capital increases and decreases;
• privileged shares;
• shareholder agreements; and
• pledges or other encumbrances over shares.

The investor must confirm that the seller actually owns the shares being offered for sale and has the legal ability to transfer them.

Particular attention should also be paid to minority shareholders and contractual rights that could interfere with the proposed acquisition.

5. Tax Liabilities Can Change the Real Purchase Price

Tax exposure is one of the most important areas when acquiring an existing Turkish company.

An investor should not assume that the absence of a currently visible tax debt necessarily means that there is no tax risk.

The investigation should consider both existing debts and potential liabilities arising from previous accounting periods.

Depending on the company, this may include reviewing:

• corporate tax;
• VAT;
• withholding obligations;
• payroll-related taxes;
• stamp tax;
• tax declarations;
• invoices;
• deductible expenses;
• related-party transactions;
• tax inspections;
• previous tax penalties; and
• ongoing disputes with tax authorities.

If irregular transactions are identified, the financial effect should be calculated before the purchase price is finalised.

Where necessary, the purchase agreement can also include specific tax warranties and indemnification mechanisms.

6. Social Security and Employment Liabilities

Employees can represent a significant hidden liability in a company acquisition.

Foreign buyers should review:

• employment contracts;
• employee numbers;
• salaries;
• seniority;
• severance exposure;
• notice compensation;
• overtime claims;
• annual leave;
• unpaid wages;
• Social Security Institution (SGK) obligations;
• workplace records;
• occupational health and safety compliance;
• pending employment lawsuits; and
• terminated employees who could still bring claims.

A company with a large workforce may have substantial accrued employment liabilities even if those liabilities are not immediately visible in a basic financial presentation.

This is particularly important where employees have worked for the business for many years.

7. Pending Lawsuits and Enforcement Proceedings

Before acquiring a Turkish company, the buyer should investigate whether the target is involved in litigation or enforcement proceedings.

The investigation should cover cases in which the company is either claimant or defendant.

Particular attention should be paid to:

• commercial litigation;
• employment disputes;
• tax cases;
• administrative proceedings;
• intellectual property disputes;
• consumer claims;
• compensation cases;
• debt collection proceedings;
• enforcement proceedings;
• insolvency-related risks; and
• criminal proceedings involving company representatives where these may affect the company.

A pending lawsuit should not automatically prevent an acquisition.

The important question is whether the potential liability can be quantified and properly reflected in the acquisition agreement.

For instance, the parties may agree that part of the purchase price will be retained until a significant lawsuit is resolved.

8. Commercial Contracts Must Be Reviewed

The economic value of many companies comes largely from their contracts.

A business may depend heavily on one distributor, supplier, landlord, franchise agreement or key customer.

Accordingly, important agreements should be reviewed before completion.

These may include:

• customer agreements;
• supply contracts;
• distributorship agreements;
• dealership agreements;
• franchise agreements;
• lease agreements;
• bank financing agreements;
• licensing agreements;
• software agreements;
• insurance policies; and
• joint venture arrangements.

Special attention should be given to change-of-control clauses.

Certain contracts may provide the counterparty with termination or consent rights if ownership of the company changes.

This means that acquiring the company may unexpectedly result in the loss of one of its most valuable commercial relationships.

9. Real Estate Ownership and Lease Risks

If the target company owns land, offices, factories, hotels, warehouses or other real estate, the title and legal status of these properties should be investigated separately.

The investor should examine matters such as:

• ownership records;
• mortgages;
• liens and encumbrances;
• annotations;
• zoning status;
• construction permits;
• occupancy permits;
• lease agreements;
• third-party rights; and
• restrictions affecting the intended commercial use.

Additional rules may apply to Turkish companies with foreign ownership in relation to the acquisition and use of real property, particularly depending on the shareholding/control structure and the location and purpose of the property. Turkey’s official investment guidance notes specific rules for Turkish-incorporated companies meeting defined foreign ownership or control criteria.

Real estate should therefore never be included in a business valuation merely because the seller states that it “belongs to the company.”

The title must be independently verified.

10. Licences, Permits and Regulatory Compliance

Some businesses cannot legally operate without specific governmental approvals or licences.

This is especially important for investments involving sectors such as:

• tourism;
• hotels;
• healthcare;
• food production;
• restaurants;
• energy;
• transportation;
• education;
• financial services;
• telecommunications;
• manufacturing; and
• regulated professional services.

Foreign investors should determine whether all necessary licences are valid and whether they will remain valid after the acquisition.

A company may have significant equipment, employees and turnover but very little commercial value if an essential operating licence is invalid, expired or non-transferable.

11. Intellectual Property and Digital Assets

In modern businesses, significant value may exist outside physical assets.

Foreign investors should identify and verify ownership of:

• trademarks;
• patents;
• industrial designs;
• copyrights;
• software;
• domain names;
• websites;
• mobile applications;
• databases;
• social media accounts; and
• other digital assets.

A common problem arises where a company’s brand, domain name or software is actually registered in the name of a shareholder, employee, developer or third party rather than the company itself.

In such a case, acquiring the shares of the company may not automatically provide ownership of the asset the buyer considered most valuable.

12. Bank Loans, Guarantees and Security Interests

Financial liabilities must be examined beyond the balance sheet.

The investor should investigate:

• outstanding bank loans;
• credit facilities;
• mortgages;
• commercial pledges;
• guarantees;
• surety arrangements;
• letters of guarantee;
• shareholder loans;
• factoring arrangements; and
• other financial commitments.

It is particularly important to determine whether the company has provided guarantees for debts belonging to shareholders, group companies or other third parties.

These obligations can materially affect the valuation of the business.

13. Related-Party Transactions Should Be Investigated

Transactions between the target company and its shareholders, directors or affiliated companies deserve special attention.

Examples may include:

• loans to shareholders;
• shareholder loans to the company;
• sales below or above market value;
• asset transfers;
• management fees;
• related-party leases;
• guarantees provided to group companies; and
• transfer of intellectual property.

Such transactions may distort the company’s apparent profitability or create hidden liabilities.

A proper valuation should therefore distinguish between genuine operating performance and financial results created by related-party arrangements.

14. Competition Authority Approval May Be Required

Certain mergers and acquisitions in Turkey may require notification to and approval by the Turkish Competition Authority.

This issue should be checked before closing the transaction.

Importantly, Turkey updated its merger and acquisition notification regime in 2026. The Competition Authority announced that the relevant turnover thresholds were increased, including increases from TRY 250 million to TRY 1 billion for the relevant individual threshold, from TRY 750 million to TRY 3 billion for the Turkish turnover threshold and from TRY 3 billion to TRY 9 billion for the worldwide turnover threshold under the updated framework.

The Authority subsequently published updated merger and acquisition guidelines in May 2026.

As a result, foreign investors contemplating significant acquisitions should analyse competition-law notification requirements at an early stage rather than immediately before closing.

15. How Legal Risks Affect Company Valuation

Legal due diligence should ultimately influence the commercial terms of the deal.

Suppose a company is initially valued at EUR 5 million.

During due diligence, the buyer discovers:

• EUR 300,000 potential tax exposure;
• EUR 200,000 estimated employment liabilities;
• a significant commercial lawsuit;
• an expired operating licence; and
• a key customer contract that may terminate following a change of control.

The company’s economic value may no longer justify a EUR 5 million purchase price.

The investor may therefore:

• reduce the purchase price;
• require the seller to settle certain liabilities before closing;
• place part of the purchase price in escrow;
• defer part of the payment;
• request specific indemnities;
• require additional warranties;
• make closing conditional upon resolution of identified problems; or
• withdraw from the transaction.

Legal due diligence is therefore not merely a defensive exercise.

It is also an important price negotiation tool.

16. Representations and Warranties in the Share Purchase Agreement

Once the principal risks have been identified, the acquisition agreement should allocate those risks between the buyer and seller.

The seller may be required to provide representations and warranties concerning matters such as:

• valid ownership of shares;
• accuracy of financial information;
• absence of undisclosed debts;
• tax compliance;
• employee liabilities;
• pending litigation;
• ownership of intellectual property;
• validity of licences;
• compliance with applicable legislation;
• ownership of assets;
• material contracts; and
• absence of undisclosed security interests.

However, representations and warranties should not replace due diligence.

A contractual promise is valuable only if it can ultimately be enforced against a seller who has sufficient assets to satisfy the resulting claim.

17. Indemnities, Escrow and Holdback Mechanisms

If a particular risk is discovered before closing, it may be better to address it specifically rather than relying on a general warranty.

For example, if a tax investigation is already ongoing, the agreement may provide that the seller will indemnify the buyer against liabilities arising from that particular investigation.

The parties may also agree to:

• escrow arrangements;
• holdbacks;
• deferred consideration;
• earn-out structures; or
• price adjustment mechanisms.

These mechanisms can be particularly useful when the exact financial consequences of an identified risk cannot be calculated at the time of closing.

18. Foreign Investors Generally Have Equal Investment Rights

Turkey’s foreign direct investment framework is generally based on equal treatment between foreign and domestic investors.

Official investment guidance confirms that international investors may establish company forms recognised by the Turkish Commercial Code and that the conditions concerning establishment and transfer of shares are generally the same as those applicable to domestic investors.

However, this general principle does not eliminate sector-specific regulations, competition rules, real estate restrictions or licensing requirements.

The legal structure of each proposed investment should therefore be examined individually.

19. Documents a Foreign Investor Should Request Before Buying a Turkish Company

Although the appropriate document list depends on the sector and transaction, a prospective investor will commonly need access to:

• Articles of Association;
• Trade Registry records;
• shareholder information;
• share ledger;
• corporate resolutions;
• financial statements;
• tax documentation;
• SGK records;
• employee lists;
• employment agreements;
• material customer and supplier contracts;
• loan agreements;
• bank security documents;
• litigation records;
• enforcement proceedings;
• property title information;
• lease agreements;
• licences and permits;
• intellectual property registrations;
• insurance policies; and
• documents relating to regulatory investigations.

A structured virtual data room is often used in larger acquisitions to organise these documents.

20. Never Transfer the Entire Purchase Price Before the Legal Structure Is Secure

Foreign buyers should be cautious about transferring substantial funds merely on the basis of a preliminary agreement or informal promise.

Before making the final payment, the transaction documents should clearly establish:

• what exactly is being acquired;
• who owns it;
• the purchase price;
• the payment schedule;
• conditions precedent;
• closing documents;
• seller warranties;
• indemnification obligations;
• treatment of existing debts;
• post-closing obligations;
• dispute resolution procedures; and
• consequences of breach.

Depending on the transaction, an escrow or staged-payment arrangement may substantially reduce the buyer’s risk.

21. A Low Purchase Price Does Not Necessarily Mean a Good Investment

Investors are sometimes attracted to Turkish companies offered at prices substantially below their apparent market value.

However, a discounted purchase price may reflect problems such as:

• significant debt;
• tax exposure;
• shareholder disputes;
• loss of major customers;
• regulatory problems;
• employment liabilities;
• litigation;
• inability to renew licences;
• poor title to assets; or
• urgent financial distress.

For this reason, the lower the purchase price appears compared with the company’s apparent assets or turnover, the more carefully the reasons for that discount should be investigated.

Conclusion: Determine the Legal Value, Not Just the Market Price

Buying a business in Turkey can provide substantial opportunities for international investors.

Turkish law generally permits foreign investors to participate in companies under an equal-treatment framework, and foreign investment is an established part of the Turkish commercial system. Nevertheless, acquiring an existing company inevitably involves greater complexity than simply establishing a new company because the buyer may also indirectly acquire the company’s historical legal and financial problems.

A foreign investor should therefore not ask only:

“What is the purchase price?”

The more important questions are:

What does the company actually own?
What does the company owe?
What legal risks exist?
Can those risks be quantified?
And how should those risks affect the price and transaction structure?

A comprehensive legal due diligence and company valuation process in Turkey can identify hidden liabilities before the acquisition, strengthen the buyer’s negotiating position and allow risks to be addressed through price adjustments, warranties, indemnities, escrow mechanisms and conditions precedent.

For international investors considering the acquisition of a Turkish company, business, hotel, restaurant, factory or commercial operation, obtaining legal advice before signing a binding agreement or transferring the purchase price can be a critical part of protecting the investment.

This article provides general information concerning company acquisitions and foreign investment in Turkey. Each acquisition has its own corporate, tax, employment, regulatory and commercial characteristics and should therefore be evaluated individually.