Founder Control vs. Investor Protection: How to Strike the Balance Under the Turkish Commercial Code (TTK)?
For foreign VCs investing in Turkish companies, the real negotiation is often about “Founder Control vs. Investor Protection: How to Strike the Balance Under the Turkish Commercial Code (TTK)?” In practice, the question is: how can founders keep enough control to run and grow the business, while investors get meaningful vetoes, information rights and exit protections – all within the framework of the Turkish Commercial Code (TTK)?
Below is a practical overview of the main tools: double majority structures (çifte çoğunluk), signature authority (imza yetkisi), shareholders’ agreements (ortaklar arası sözleşmeler) and share-class preferences (pay senetlerine bağlı imtiyazlar).
1. The Playing Field: A.Ş. vs Ltd. and the TTK
Most venture deals are structured as joint stock companies (Anonim Şirket – A.Ş.) rather than limited liability companies (Limited Şirket – Ltd. Şti.) because A.Ş.:
- Is more flexible for share transfers and future exits,
- Is compatible with share classes, preferred shares and imtiyazlar,
- Feels more familiar to international investors.
The TTK provides the default rules on board powers, general assembly, voting majorities and representation, but it gives parties significant room to shape their own governance via articles of association and shareholders’ agreements.
2. Dual Majority (Çifte Çoğunluk): Majority of What – and Whom?
“Dual/double majority” or çifte çoğunluk is a key tool to balance founder control and investor protection. Instead of a decision passing with just a simple majority of all votes, the parties can agree that certain reserved matters require:
- The usual statutory majority (for example, majority of capital present), and
- A separate majority or consent of a specific group (e.g., the investor class, or founder group).
Examples:
- A capital increase might require:
- Standard general assembly majority plus
- The affirmative vote of the “Investor Shares” or a certain named shareholder.
- A sale of substantially all assets might require:
- Two-thirds of all voting rights plus
- The consent of the investor (as long as it holds at least X% of shares).
This structure allows founders to retain day-to-day control (ordinary board and shareholder decisions proceed normally), while investors hold a blocking position only for truly strategic decisions.
Mechanically, double-majority conditions should be:
- Reflected in the articles for decisions visible to third parties (capital, merger, liquidation, change of share classes), and
- Mirrored in the shareholders’ agreement with clear consequences if someone votes in breach.
3. Signature Authority (İmza Yetkisi): Who Can Bind the Company?
Under the TTK, the board of directors represents the company and grants signature authority (imza yetkisi) to board members and/or managers. For foreign investors, this is another key lever in the control vs. protection balance.
Typical approaches:
- Founders have individual or joint signatory powers for operational matters (e.g., daily contracts, small-value agreements).
- For high-value or strategic actions (borrowing above a threshold, long-term leases, large capex), the articles or board resolutions may require:
- Joint signatures, such as one founder + one investor-nominated director, or
- A board resolution with the investor director’s affirmative vote.
This does not replace board or general assembly approvals where required, but it ensures that no single founder can unilaterally sign a high-risk contract that exposes the company – and indirectly the investor – without checks.
Conversely, over-restricting signature authority can paralyse the business. A well-calibrated matrix (who can sign what, up to which amounts) is essential.
4. Shareholders’ Agreements (Ortaklar Arası Sözleşmeler): The Private Constitution
While the TTK and the articles form the public “constitution”, shareholders’ agreements are the private constitution of Turkish start-ups and growth companies.
They typically regulate:
- Voting and nomination rights (board seats, observer rights, double-majority rules);
- Veto lists / reserved matters at board and shareholder level;
- Transfer restrictions (lock-up, pre-emption, tag-along, drag-along);
- Anti-dilution protections and information rights;
- Deadlock and dispute resolution mechanisms.
Under Turkish law, these agreements are binding between the parties as contracts, but not automatically enforceable against third parties or the company itself unless their key elements are:
- Reflected in the articles, and/or
- Supported by additional mechanisms (irrevocable proxies, share pledges, penalties, put/call options).
Foreign investors should therefore ensure that core protections are “anchored” both in the articles (where necessary) and in a robust shareholders’ agreement with clear remedies for breach.
5. Share-Linked Privileges (Pay Senetlerine Bağlı İmtiyazlar)
The TTK allows for imtiyazlı paylar – shares carrying special rights – a very useful instrument to shape the founder–investor balance.
Common types of imtiyaz in venture structures include:
- Voting privileges – e.g., each preferred share counts as multiple votes, or certain decisions require approval of a specific class.
- Board appointment rights – a class of shares entitles its holder to nominate one or more board members.
- Economic privileges – preferential dividends, liquidation preferences or priority in distributions.
For example, investor shares may have:
- The right to appoint one board member as long as they hold at least X% of the company;
- A liquidation preference (e.g., 1x non-participating) ensuring they recover their investment before common shares on an exit or liquidation;
- A requirement that amendments affecting their rights cannot pass without their class vote.
These privileges must be clearly set out in the articles and, ideally, mirrored in the shareholders’ agreement. They allow investors to protect downside and governance rights, while founders can still keep a majority of ordinary voting power for operational decisions.
6. Putting It Together: A Balanced Architecture
In a well-structured Turkish VC deal, the balance under the TTK typically looks like this:
- Founders: day-to-day management, operational signature authority, majority of ordinary voting shares.
- Investors:
- Board seat and/or observer;
- Double majority on strategic matters;
- Calibrated vetoes (budget, borrowing, M&A, share transfers);
- Imtiyazlı shares for board nomination and economic protections;
- A strong shareholders’ agreement to tie everything together.
Used intelligently, TTK tools such as çifte çoğunluk(dual majority), imza yetkisi(signing authority), ortaklar arası sözleşmeler (shareholders’ agreements) and pay senetlerine bağlı imtiyazlar (privileges attached to the shares) allow foreign investors and Turkish founders to create a governance structure that is both investor-safe and founder-friendly – and, crucially, workable in practice.
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