Photo: Amina Atar / Unsplash

International startup investment agreements commonly contain three provisions that can fundamentally affect the relationship between founders and investors:

Vesting

Tag-Along

Drag-Along

These concepts developed largely through international venture capital and private equity practice and are now frequently encountered in Turkish startup investment transactions.

Their commercial purposes are relatively straightforward.

Vesting is designed to ensure that founders remain committed to the company over time.

Tag-along rights protect minority investors when controlling shareholders sell their shares.

Drag-along rights help facilitate the sale of the entire company by preventing a minority shareholder from blocking an exit.

The legal implementation in Türkiye, however, requires more care.

The Turkish Commercial Code does not contain a single statutory chapter called “vesting, drag-along and tag-along rights.” These mechanisms are generally created through contractual arrangements, especially Shareholders’ Agreements, and must operate within mandatory Turkish company-law rules.

This distinction is particularly important for foreign investors accustomed to English, U.S. or other common-law venture capital documents.

A clause that works perfectly in a Delaware startup agreement should not simply be copied into an investment agreement for a Turkish company.

The transaction must take into account:

• the Turkish Commercial Code;
• the Turkish Code of Obligations;
• the company’s Articles of Association;
• whether the company is an A.Ş. or Ltd. Şti.;
• statutory share-transfer formalities;
• corporate approval requirements;
• and practical enforcement mechanics.

This guide explains how vesting, tag-along and drag-along clauses are typically structured in Turkish startup transactions and the risks foreign investors should consider.

1. Why Do Startup Investors Need These Clauses?

Startup investment is fundamentally different from purchasing shares in a mature listed company.

In an early-stage technology business, much of the company’s value may depend on:

• the founders;
• the development team;
• source code;
• intellectual property;
• business relationships;
• industry know-how;
• and the founders’ future work.

Assume a startup has:

Founder A: 40%

Founder B: 40%

Foreign Investor: 20%.

The investor contributes:

EUR 3 million.

Six months later, Founder A leaves the company.

If Founder A keeps the entire 40% interest permanently, the remaining founder and investor may continue creating value for a shareholder who no longer works for the business.

This is the problem vesting attempts to solve.

Now assume five years later Founder B sells the controlling stake to a strategic purchaser.

The foreign investor may not want to remain a minority shareholder under a completely different controlling owner.

This is the problem tag-along attempts to solve.

Finally, suppose a buyer offers EUR 50 million for 100% of the company, but a shareholder holding 5% refuses to sell.

The buyer may abandon the transaction.

This is the problem drag-along attempts to solve.

These clauses therefore address three different stages of startup life:

Founder commitment → Investor protection → Exit execution.

2. What Is Vesting?

Vesting means that a founder’s economic entitlement to shares becomes secure gradually rather than being entirely unconditional from the first day.

The international startup market commonly uses time-based vesting.

A typical arrangement may involve:

4-year vesting period

with a

1-year cliff.

The founder effectively earns the protected economic benefit of the shares over time.

The commercial objective is simple:

A founder who remains and builds the company keeps the shares.

A founder who leaves very early should not necessarily retain the same equity position as a founder who works for the company for many years.

3. Example of Four-Year Founder Vesting

Suppose a founder holds 40% of the startup.

The investment agreement provides:

48-month vesting period.

12-month cliff.

After 12 months:

25% of the relevant founder stake becomes vested.

After that:

vesting continues monthly for another 36 months.

If the founder leaves after six months:

little or none of the relevant stake may be treated as vested, depending on the agreement.

If the founder leaves after two years:

approximately half may be vested.

If the founder remains for four years:

all relevant shares become vested.

The exact commercial arrangement varies considerably from transaction to transaction.

4. Is Vesting Specifically Regulated by the Turkish Commercial Code?

Not as a standalone startup financing institution.

Vesting is primarily implemented through contractual mechanisms in Turkish investment practice.

Recent Turkish legal analysis describes vesting as a contractual mechanism used to ensure that founders or key employees gradually obtain unconditional economic entitlement to shares based on time, performance or departure conditions.

The difficulty is that Turkish company law does not simply allow parties to pretend that fully issued shares do not exist until they “vest.”

If a founder legally owns fully issued shares, those shares already exist as part of the corporate structure.

The investment documentation therefore needs a mechanism to achieve the intended economic result.

5. Reverse Vesting Is Commonly Used in Turkish Startup Transactions

A common solution is reverse vesting.

Under a reverse-vesting structure, the founder already legally owns the shares.

However, certain unvested shares may be subject to:

• a call option;
• repurchase obligation;
• transfer undertaking;
• or another contractual mechanism

if the founder leaves before completing the agreed vesting period.

For example:

Founder owns 40%.

20% has vested.

20% remains unvested.

Founder becomes a Bad Leaver.

The investment documentation may require the unvested portion to be transferred to:

• another founder;
• an investor;
• another agreed shareholder;
• or another permitted purchaser,

at an agreed price.

This structure is often more compatible with the reality that the founder legally obtained the shares at incorporation.

6. Why Not Simply Say “The Founder Loses the Shares”?

Because share ownership cannot generally be removed through an informal statement.

A clause saying:

“If the founder leaves, all shares automatically disappear.”

may create serious legal problems.

The agreement should instead create a legally workable transfer mechanism.

The Turkish Commercial Code also follows a capital-protection approach. In joint stock companies, Article 480 provides, among other things, that shareholders generally cannot be burdened through the Articles of Association with obligations beyond their statutory capital contribution except where the Code specifically permits otherwise.

For that reason, international vesting language should be translated into a Turkish-law contractual structure rather than simply copied word for word.

7. Vesting Should Distinguish Vested and Unvested Shares

A well-drafted vesting arrangement should clearly answer:

• how many shares are subject to vesting;
• when vesting begins;
• whether a cliff applies;
• how frequently shares vest;
• whether vesting is time-based;
• whether performance conditions apply;
• whether vesting accelerates during an exit;
• what happens if the founder resigns;
• what happens if the founder is dismissed;
• and how the transfer price is calculated.

The clause should avoid vague wording such as:

“Founder shares shall vest according to continued contribution.”

“Continued contribution” can become extremely difficult to measure.

8. What Is a Vesting Cliff?

A cliff is a minimum period during which the founder must remain before the first portion becomes vested.

The most familiar structure is:

12-month cliff.

Suppose the founder leaves after 11 months.

No shares subject to that cliff may have vested.

If the founder reaches month 12, the first 25% of a four-year vesting package may become vested immediately.

The remaining portion then normally vests gradually.

The commercial purpose is to prevent a founder who remains for only a few months from permanently holding a substantial portion of the cap table.

9. Good Leaver and Bad Leaver Provisions Are Closely Connected to Vesting

Vesting clauses usually need Good Leaver / Bad Leaver provisions.

A founder leaving the company should not necessarily receive identical treatment in every situation.

A founder leaving because of permanent incapacity is different from a founder who commits fraud and establishes a competing company.

Good Leaver

Potential Good Leaver events may include:

• death;
• permanent disability;
• serious illness;
• termination without cause;
• mutually agreed departure;
• or another objectively defined circumstance.

Bad Leaver

Potential Bad Leaver events may include:

• fraud;
• serious misconduct;
• material breach of the Shareholders’ Agreement;
• breach of confidentiality;
• prohibited competition;
• criminal conduct affecting the company;
• unjustified early resignation;
• or unauthorized diversion of company opportunities.

The consequences should then be defined separately.

10. How Should the Price of Unvested Shares Be Determined?

This is one of the most important drafting questions.

Possible approaches include:

Nominal Value

Unvested shares are transferred at nominal value.

Original Acquisition Price

The founder receives the amount originally paid for the shares.

Fair Market Value

An independent valuation is used.

Discounted Fair Market Value

For example, 50% of fair value.

Different Good Leaver / Bad Leaver Pricing

Good Leaver:

fair market value.

Bad Leaver:

nominal value or a heavily discounted value.

However, extremely punitive mechanisms should be analysed carefully under Turkish contract-law principles.

The objective should be to create an enforceable commercial allocation rather than a clause whose primary function is punishment.

11. Accelerated Vesting During a Company Sale

Founders may negotiate accelerated vesting if the startup is sold before the ordinary vesting period ends.

For example:

Founder has completed 30 months of a 48-month vesting schedule.

A strategic purchaser acquires the company.

The agreement might provide that:

• all remaining shares vest immediately; or
• 50% of the remaining unvested portion accelerates.

Two common international concepts are:

Single Trigger Acceleration

Vesting accelerates when the company is sold.

Double Trigger Acceleration

Vesting accelerates only if:

1. the company is sold; and
2. the founder is then terminated or materially disadvantaged.

The appropriate solution depends on the investment structure.

12. Vesting in a Turkish Limited Liability Company Requires Special Attention

This is where company form becomes critical.

Article 595 of the Turkish Commercial Code provides that:

• the transfer of a limited company capital share; and
• transactions creating an obligation to transfer that share

must be in writing and the parties’ signatures must be notarized.

This wording is particularly relevant to vesting.

If a reverse-vesting mechanism creates a future obligation for a founder to transfer Ltd. Şti. shares, the formal requirements under Article 595 must be considered from the beginning.

Academic analysis of Article 595 similarly emphasizes that the statutory form requirement covers not merely the final transfer agreement but also transactions creating an obligation to transfer, including preliminary commitments and similar arrangements.

This means that a standard electronically signed foreign-law vesting schedule may not be sufficient for a Turkish limited company’s share-transfer obligation.

13. General Assembly Approval May Also Matter in a Limited Company

Article 595 further provides that, unless the Articles of Association state otherwise, transfer of a limited company capital share requires approval of the general assembly.

The transfer becomes effective with that approval.

The Articles may even permit the general assembly to refuse approval without giving a reason, and the Articles can prohibit transfers entirely.

Accordingly, a vesting structure involving Turkish Ltd. Şti. shares should answer:

Who will approve the transfer when vesting enforcement occurs?

If the founder who is required to transfer shares also controls the voting process, an otherwise impressive vesting clause may become commercially difficult to implement.

14. What Is a Tag-Along Right?

A tag-along right protects minority shareholders when another shareholder sells shares.

Assume:

Founder: 70%

Foreign Investor: 30%.

A strategic buyer offers EUR 20 million for the founder’s entire 70% interest.

The investor may not want to remain as a 30% shareholder under an unknown new owner.

A tag-along clause can provide:

If the founder sells shares to a third party, the foreign investor has the right to participate in the sale on the same or equivalent terms.

The minority investor therefore “tags along” with the majority seller.

15. Why Is Tag-Along Important for Foreign Investors?

Foreign investors often invest based on trust in:

• the founder;
• a specific management team;
• a business strategy;
• particular governance arrangements;
• or the founder’s sector expertise.

If the founder sells control, the commercial basis of the investment may fundamentally change.

Without tag protection, the investor may suddenly become a minority shareholder opposite:

• a strategic competitor;
• a private equity buyer;
• another founder group;
• or an investor it never selected.

Tag-along rights provide an exit opportunity in that situation.

16. Full Tag vs Pro Rata Tag

Tag clauses can be structured differently.

Full Tag

The minority investor can sell all of its shares if the controlling shareholder sells.

Example:

Founder sells 70%.

Investor can also require the buyer to purchase the investor’s full 30%.

The buyer must therefore purchase 100%.

Pro Rata Tag

The investor may participate proportionately.

If the founder proposes to sell half of its shares, the investor may be entitled to sell a proportionate part of its own holdings.

The agreement should make this distinction clear.

17. Tag-Along Should Define the Trigger

A weak clause may say:

“If the Founder sells shares, the Investor may tag.”

But does selling one share trigger a full exit right?

The agreement should define the relevant trigger.

For example:

Tag rights apply where:

• the founder sells more than 20%;
• a change of control occurs;
• the founder ceases to hold more than 50%;
• or the transaction transfers effective control.

The drafting should correspond to the commercial objective.

18. Tag-Along Should Require the Same Economic Terms

A common principle is that the minority investor receives:

the same price per share and equivalent consideration.

However, transactions can involve:

• cash;
• buyer shares;
• earn-out;
• seller financing;
• rollover equity;
• contingent payments;
• employment agreements;
• and consulting arrangements.

Suppose the founder receives:

EUR 10 million share price

plus

EUR 3 million “consultancy fee.”

If the consultancy arrangement is actually additional consideration for control, the minority investor may argue that the tag mechanism has been circumvented.

The agreement should therefore define what constitutes consideration.

19. What Is a Drag-Along Right?

A drag-along right operates in the opposite direction.

Assume:

Founder: 55%

Investor A: 25%

Investor B: 15%

Small shareholder: 5%.

A global technology company offers:

EUR 100 million

for 100% of the startup.

The shareholders holding 95% want to accept.

The 5% shareholder refuses.

The buyer says:

“We will not purchase 95%. We require 100% ownership.”

Without an effective drag mechanism, the 5% shareholder could potentially block the entire transaction.

A drag-along clause may allow specified shareholders to require the remaining shareholders to sell on the agreed transaction.

20. Drag-Along Prevents Hold-Out Risk

Minority shareholders may have legitimate reasons for rejecting an acquisition.

But sometimes refusal is strategic.

A shareholder owning 2% may say:

“I know the buyer requires 100%. Pay me twice the price paid to everybody else.”

This is known as hold-out risk.

A drag-along right attempts to prevent such behaviour.

If the contractually agreed trigger is satisfied, the minority shareholder must participate in the exit under the specified terms.

21. Who Should Be Able to Trigger Drag?

This is one of the most important negotiations.

Possible trigger structures include:

Founder Majority

Shareholders holding more than 50% can drag.

Supermajority

Shareholders holding at least 75% can drag.

Founder + Investor

Drag requires approval of both:

• founder majority; and
• specified investor majority.

Investor Drag

An institutional investor may receive drag rights after a specified investment period.

For example:

If no qualified exit occurs within seven years, investors holding at least 60% of Preferred Shares may initiate a company sale.

Each structure changes the balance of power.

22. Investors Should Consider a Minimum Drag Valuation

A founder with 51% should not necessarily be able to force a foreign investor to sell at any price.

Suppose the investor invested:

EUR 5 million

at a company valuation of:

EUR 20 million.

Six months later, the founder wants to accept an offer valuing the company at:

EUR 8 million.

A drag provision without minimum protections could force the investor to realize a major loss.

The agreement may therefore require:

• a minimum company valuation;
• minimum investor return;
• minimum multiple on invested capital;
• investor consent below a valuation threshold;
• or expiry of an initial lock-up period.

23. Dragged Shareholders Should Not Give Unlimited Seller Warranties

This is a major issue in M&A transactions.

A buyer may request extensive warranties concerning:

• tax;
• intellectual property;
• employment;
• accounting;
• regulatory compliance;
• and company contracts.

A small passive minority shareholder may know nothing about these matters.

It would be commercially unfair to force a 2% shareholder through drag-along to provide unlimited warranties concerning company operations.

The drag clause should therefore specify that a dragged shareholder’s obligations are normally limited to matters such as:

• ownership of its shares;
• authority to sell;
• absence of encumbrances created by that shareholder;
• and perhaps several liability limited to the proceeds received.

Management or founder warranties can then be dealt with separately.

24. Drag and Tag Are Primarily Contractual Rights Under Turkish Law

Turkish practice generally treats drag and tag mechanisms as provisions of the Shareholders’ Agreement.

A shareholders’ agreement is fundamentally a private contract.

Consequently, the principal obligation normally exists between the shareholders who signed it.

Recent Turkish analysis of drag and tag provisions emphasizes that their contractual validity is easier to establish than their automatic corporate-level effect.

This distinction is crucial.

A shareholder may breach a drag or tag provision and incur contractual liability, but the clause does not necessarily function like an automatic statutory share-transfer mechanism.

25. A Shareholders’ Agreement Does Not Automatically Bind Third Parties

Suppose:

Founder agrees contractually that it will never sell shares without allowing Investor B to tag.

Founder nevertheless sells shares to Buyer C.

If Buyer C is not itself bound by the Shareholders’ Agreement, the investor cannot simply assume that the contractual tag clause automatically invalidates every corporate effect of the transfer.

Turkish-law commentary and court practice distinguish between:

• contractual obligations among shareholders; and
• corporate effects under company law.

For this reason, tag and drag rights require an enforcement architecture, not merely a paragraph in a contract.

26. Why the Articles of Association Still Matter

The Articles of Association determine the company’s corporate structure.

For joint stock companies, Turkish Commercial Code Articles 490-493 contain important rules concerning transferability and restrictions on registered shares.

The statutory starting point is that registered shares are transferable unless law or the Articles provide otherwise.

The Articles may make certain transfers subject to company approval, but those restrictions must remain within the boundaries established by the Commercial Code.

Foreign investors therefore need to coordinate:

Shareholders’ Agreement

with

Articles of Association

and

actual share-transfer mechanics.

However, it is equally important not to assume that every contractual drag/tag obligation can simply be copied into an A.Ş. Articles of Association.

Mandatory corporate-law limitations still apply.

27. TTK Article 480 Creates an Important Limitation for A.Ş. Structures

Article 480 provides, as a general rule, that an A.Ş. shareholder cannot be burdened through the Articles of Association with obligations beyond payment of the share price or premium except where specifically permitted by law.

This is relevant when lawyers attempt to insert contractual obligations such as:

• mandatory future share sales;
• put options;
• tag obligations;
• drag obligations;
• or other positive performance obligations

directly into the Articles.

Accordingly, the strongest Turkish-law implementation is not necessarily achieved by copying the entire Shareholders’ Agreement into the Articles.

Each provision should be analysed individually.

28. The Situation Is Different for Turkish Limited Companies

Limited companies have their own rules.

Article 595 expressly refers to:

• pre-emption;
• purchase rights;
• repurchase rights;
• and contractual penalties

in connection with limited company share-transfer documentation.

It also requires notarized signatures for both the share transfer itself and transactions creating transfer obligations.

This makes form particularly important.

A drag or tag clause relating to a Turkish Ltd. Şti. should therefore be reviewed for compliance with Article 595 from the moment the SHA is executed.

29. Notarization Can Be Critical for Ltd. Şti. Drag and Tag Clauses

Consider a foreign investment agreement signed electronically in London.

It contains a drag-along clause requiring a founder to transfer Turkish Ltd. Şti. shares if a company sale occurs.

Three years later, the founder refuses.

The investor attempts to enforce the transfer obligation in Türkiye.

Article 595’s mandatory form requirements immediately become relevant because the clause itself creates a future obligation to transfer limited company capital shares.

Accordingly, parties should not postpone formality analysis until the exit occurs.

By then, the relationship may already be hostile.

30. General Assembly Approval Can Create Additional Ltd. Şti. Execution Risk

Unless the company agreement provides otherwise, Article 595 requires general assembly approval for a limited-company share transfer.

The company agreement can also impose additional restrictions or prohibit transfers.

This means a drag arrangement should consider not merely the selling shareholder’s obligation but also:

• required corporate approval;
• voting undertakings;
• company agreement amendments;
• and closing mechanics.

An exit clause is valuable only if the parties can actually execute it.

31. Contractual Penalties Can Strengthen Drag and Tag Enforcement

A major weakness of exit clauses is timing.

Suppose a buyer gives the shareholders ten days to complete an acquisition.

The minority shareholder refuses to comply with drag.

A damages lawsuit that takes years does not save the acquisition.

For that reason, contractual penalties can be commercially important.

Recent Turkish analysis of drag/tag enforcement identifies appropriately structured contractual penalties as one potential mechanism to make non-compliance economically unattractive.

The penalty should nevertheless be proportionate and carefully structured under Turkish contract law.

32. Powers of Attorney May Be Considered, but Require Careful Drafting

Some international investment agreements attempt to support drag-along rights by requiring shareholders to issue powers of attorney allowing another party to execute exit documents if a shareholder refuses.

This mechanism should be approached cautiously under Turkish law.

Questions may arise concerning:

• form;
• scope;
• revocability;
• conflict of interest;
• self-dealing;
• notarization;
• and the exact share-transfer procedure.

A generic power of attorney copied from foreign transaction documents should not be assumed to solve every enforcement problem.

33. New Shareholders Must Join the Existing SHA

Drag and tag rights are much less useful if a shareholder can transfer shares to another person who never signed the agreement.

The SHA should therefore generally provide that a permitted transferee must execute a:

Deed of Adherence

or

Accession Agreement

before the transfer is completed.

This ensures that future shareholders become bound by:

• drag;
• tag;
• vesting-related transfer provisions;
• ROFR;
• confidentiality;
• and other continuing shareholder obligations.

34. Founder Transfers to Family Members Should Also Be Addressed

A transfer restriction often contains “Permitted Transfers.”

For example, a founder may transfer shares to:

• a personal holding company;
• spouse;
• child;
• family trust;
• or affiliate.

That may be commercially acceptable.

But the new holder should ordinarily remain subject to the same shareholder obligations.

Otherwise, a founder might bypass drag or vesting by moving shares to another entity before the trigger occurs.

The agreement should therefore require permitted transferees to adhere to the SHA.

35. Drag and Tag Should Work With ROFR and ROFO

A Shareholders’ Agreement may simultaneously contain:

• ROFR;
• ROFO;
• tag-along;
• drag-along;
• permitted transfers;
• and investor transfer rights.

The agreement must specify which procedure has priority.

For example:

Founder receives a third-party offer.

Does ROFR apply first?

When does tag apply?

Can shareholders exercise ROFR against shares that are already subject to drag?

Does drag override transfer restrictions?

Without an express hierarchy, multiple clauses can contradict each other exactly when a sale is about to close.

36. Exit Consideration Should Be Defined Broadly

Drag/tag clauses should consider non-cash transactions.

A buyer might offer:

EUR 20 million cash

plus shares in the buyer.

Or:

EUR 15 million at closing

plus EUR 10 million earn-out.

Or:

EUR 10 million purchase price

plus founder employment arrangements.

The clause should address:

• cash;
• securities;
• deferred consideration;
• earn-outs;
• rollover equity;
• escrow;
• holdbacks;
• and transaction bonuses.

Otherwise, controlling shareholders may receive economic benefits unavailable to minority shareholders.

37. Different Share Classes Can Complicate Drag and Tag

Suppose:

Founders hold Ordinary Shares.

Investor holds Preferred Shares.

The preferred shares have:

• liquidation preference;
• conversion rights;
• or other economic protections.

A company sale triggers drag.

Should every shareholder receive exactly the same price per share?

Not necessarily.

The transaction documents must coordinate drag/tag mechanics with:

• liquidation preference;
• share-class rights;
• conversion provisions;
• participation rights;
• and distribution waterfalls.

“Same terms” does not always mean “same nominal amount per share.”

38. Vesting Should Also Coordinate With Drag

Suppose the startup is sold after two years.

A founder has:

20% vested shares

and

20% unvested shares.

A drag-along sale occurs.

What happens to the unvested portion?

Possible approaches include:

Full Acceleration

All shares vest immediately.

Partial Acceleration

Part of the unvested portion vests.

No Acceleration

The purchaser acquires the shares subject to continuing vesting arrangements.

Cash Settlement

The founder receives different treatment for vested and unvested shares.

The investment documents should address this before the exit.

39. Death or Disability of a Founder Should Also Be Considered

A founder can leave the company for reasons unrelated to misconduct.

The vesting documents should explain what happens upon:

• death;
• permanent incapacity;
• severe illness;
• or long-term inability to work.

Will all shares vest?

Will only vested shares remain?

Can heirs become shareholders?

Is there a purchase option?

What valuation applies?

These issues are particularly important because inheritance may introduce new persons into the cap table.

40. Employee Equity Requires a Different Analysis

Vesting is not limited to founders.

Startups may also promise equity to:

• senior developers;
• CTOs;
• CFOs;
• sales executives;
• advisers;
• or other key personnel.

But giving employees actual shares can create a different corporate structure from granting:

• options;
• phantom shares;
• contractual bonuses;
• or cash-settled incentive rights.

Tax, employment and social security consequences should also be analysed.

A founder vesting arrangement should therefore not automatically be copied into an employee ESOP.

Practical Example: Foreign Investor Entering a Turkish Startup

Assume:

Founder A: 45%

Founder B: 35%

Foreign Investor: 20%.

Foreign Investor invests:

EUR 4 million.

A sophisticated investment structure could provide:

Vesting

Founders subject to four-year reverse vesting.

One-year cliff.

Unvested shares subject to agreed call rights.

Good Leaver

Death, disability and termination without cause.

Vested shares retained.

Treatment of unvested shares defined at an agreed valuation.

Bad Leaver

Fraud, competition, serious misconduct and unjustified early resignation.

Unvested shares subject to transfer at a specified lower price.

Tag-Along

If founders sell control, investor may sell all investor shares on equivalent economic terms.

Drag-Along

Shareholders holding at least 75% may initiate a full company sale.

Investor consent required if valuation is below a specified threshold.

Seller Liability

Dragged minority shareholder gives only title and authority warranties.

New Investors

Every future shareholder must sign an Accession Agreement.

Dispute Resolution

Contractual disputes resolved through an agreed arbitration mechanism.

The company’s Articles and share-transfer arrangements are then aligned with the contractual structure to the extent permitted by Turkish law.

This is considerably stronger than merely copying three clauses called:

Vesting

Tag

Drag

from an international template.

Common Drafting Mistakes

Foreign founders and investors frequently make the following mistakes:

1. Copying a U.S. vesting agreement directly into a Turkish transaction.
2. Treating issued founder shares as if they do not legally exist before vesting.
3. Failing to establish an actual transfer mechanism for unvested shares.
4. Using unclear Good Leaver and Bad Leaver definitions.
5. Failing to define the price of unvested shares.
6. Ignoring acceleration during an exit.
7. Using Ltd. Şti. share-transfer undertakings without considering TCC Article 595 formalities.
8. Failing to obtain notarized signatures where the statute requires them.
9. Ignoring general assembly approval requirements in a limited company.
10. Assuming the Shareholders’ Agreement automatically binds the company and third-party purchasers.
11. Trying to place every drag/tag obligation into A.Ş. Articles without analysing TCC Article 480.
12. Drafting a drag clause without a clear trigger percentage.
13. Allowing a 51% shareholder to drag at any valuation.
14. Requiring minority shareholders to provide unlimited warranties during a drag sale.
15. Failing to define non-cash consideration.
16. Failing to address earn-outs and rollover equity.
17. Allowing founder transfers to affiliates without requiring SHA adherence.
18. Failing to explain the relationship between ROFR, tag and drag rights.
19. Failing to use enforcement mechanisms around drag/tag rights.
20. Waiting until the company sale to determine whether the exit provisions are enforceable.

Frequently Asked Questions

Is vesting legal in Türkiye?

Vesting arrangements are used contractually in Turkish startup transactions. The Turkish Commercial Code does not create a standalone statutory vesting regime, so the intended economic result must be implemented through a legally appropriate contractual and corporate structure.

What is reverse vesting?

Reverse vesting generally means that a founder already legally owns shares but some shares remain subject to contractual transfer or option mechanisms if the founder leaves before completing an agreed vesting period.

Can a founder automatically lose shares if they leave?

A simple statement that shares automatically disappear is generally not a sufficient legal structure. A workable transfer, option or similar mechanism should be established and must comply with the rules applicable to the company’s legal form.

Are tag-along rights recognized in Turkish transactions?

Yes. Tag-along provisions are commonly used as contractual minority-protection mechanisms in Turkish Shareholders’ Agreements. Their practical enforceability depends on proper drafting and coordination with Turkish corporate law.

Are drag-along rights valid under Turkish law?

Drag-along obligations can be contractually agreed between shareholders. However, they should not be assumed to operate automatically at the corporate level. The enforcement structure and share-transfer formalities remain important.

Can a tag-along clause automatically invalidate a sale made in breach of the SHA?

Not necessarily.

A Shareholders’ Agreement primarily creates contractual obligations between its parties. Corporate effects and third-party rights require separate analysis.

Can drag and tag clauses be placed in the Articles of Association?

Certain corporate transfer protections can be reflected in the Articles where Turkish law permits them. However, not every contractual shareholder obligation can necessarily be incorporated with full corporate effect.

In joint stock companies, TCC Articles 490-493 regulate transferability and permitted restrictions on registered shares, while Article 480 limits additional shareholder obligations through the Articles.

What is special about drag/tag rights in a Turkish Ltd. Şti.?

Article 595 is particularly important.

The transfer of a limited company share and transactions creating an obligation to transfer must be made in writing with notarized signatures.

General assembly approval may also be required unless the company agreement provides otherwise.

What percentage should trigger a drag-along?

There is no universal percentage.

Possible thresholds include:

• more than 50%;
• 66.67%;
• 75%;
• or another contractually negotiated threshold.

Foreign investors often seek additional consent rights if the proposed sale is below an agreed valuation.

Does tag-along always mean the minority can sell all shares?

No.

The agreement may provide:

• full tag; or
• proportionate tag.

The commercial result should be expressly defined.

What happens to unvested shares during a company sale?

That depends on the investment agreement.

Possible outcomes include:

• full acceleration;
• partial acceleration;
• continuation of vesting;
• or separate economic treatment.

The documents should address the issue before an exit occurs.

Conclusion

Vesting, drag-along and tag-along provisions can be among the most valuable protections in a startup investment agreement.

But they protect different interests.

Vesting protects the company and investors against early founder departure.

Tag-along protects minority shareholders when control is sold.

Drag-along protects the exit process from minority hold-out risk.

For foreign investors in Turkish startups, the most important issue is not merely whether these terms appear in the Shareholders’ Agreement.

The more important question is:

Will they actually work under Turkish law when someone refuses to cooperate?

A strong Turkish-law structure should therefore consider:

• the company’s legal form;
• the difference between an A.Ş. and Ltd. Şti.;
• the contractual nature of the Shareholders’ Agreement;
• Turkish Commercial Code share-transfer rules;
• Articles of Association limitations;
• notarization requirements;
• corporate approvals;
• Good Leaver / Bad Leaver definitions;
• valuation methodology;
• exit consideration;
• contractual penalties;
• accession by new shareholders;
• and dispute-resolution procedures.

For Turkish limited liability companies, TCC Article 595 is especially important because both the actual share transfer and transactions creating a future obligation to transfer shares are subject to written form and notarized signatures.

For joint stock companies, the interaction between contractual rights and the statutory framework governing share-transfer restrictions under Articles 490-493 must be examined, while Article 480 also limits the obligations that may be imposed on shareholders through the Articles of Association.

The practical principle is therefore:

Do not draft vesting, drag and tag clauses as isolated startup terminology. Draft them as executable Turkish-law mechanisms.

A clause that works while everybody is cooperating is easy to write.

The real test is whether the clause still works when:

the founder wants to leave, the minority refuses to sell, or the majority tries to complete an exit without the investor.

That is the point at which careful Turkish-law structuring becomes commercially valuable.

This article provides general information regarding Turkish corporate and investment law and does not constitute legal advice. Vesting, drag-along and tag-along mechanisms should be structured according to the company’s legal form, Articles of Association, Shareholders’ Agreement, ownership structure, proposed exit mechanics and the specific circumstances of the investment.

Related reading: International commercial arbitration in Turkey.