ESOPs and Stock Options in Turkish Startups: A Practical Guide for Foreign Founders
If you are a foreign founder building a startup in Turkey, you will quickly run into a familiar question:
“How do we give our team equity like we do in the US or UK?”
In most venture ecosystems, Employee Stock Option Plans (ESOPs) are standard. In Turkey, the terminology is similar, but the legal and tax tools are different. There is no single “ESOP law”, and the Turkish Commercial Code does not contain a ready-made stock option regime for private startups. Instead, you combine company law, contract law and tax rules to create something that behaves economically like an ESOP.
This guide walks you, as a foreign founder, through the practical aspects of structuring ESOPs and stock options in Turkish startups.
1. Why ESOPs Matter in the Turkish Ecosystem
Turkey’s startup scene has grown significantly in SaaS, gaming, fintech, logistics and marketplace businesses. Foreign investors and founders are now common, and many expect Silicon Valley–style option plans.
In Turkey, ESOPs are important for three reasons:
- Competing for talent
Skilled engineers, product managers and sales leaders have global remote opportunities. A competitive salary alone is rarely enough. - Aligning incentives
Equity (or equity-like) rewards align employees with long-term value creation, especially where cash is limited. - Signalling to investors
Institutional investors (VCs, growth funds, corporate investors) expect to see an option pool and a clear cap table from day one.
The challenge is to achieve these objectives within the constraints of Turkish company law and tax practice.
2. Choosing the Right Company Type for ESOPs
Most Turkey-based startups are either:
- Joint stock companies (Anonim Şirket / A.Ş.)
- Limited liability companies (Limited Şirket / Ltd. Şti.)
From an ESOP perspective:
2.1 Joint Stock Company (A.Ş.)
An A.Ş. is generally more ESOP-friendly because:
- Shares are divided into easily transferable “stocks”.
- Different share classes (e.g. preferred, non-voting) can be created.
- It is easier to build a “pool” of authorised but unissued shares, especially if the company adopts a registered capital system.
- It aligns better with typical VC documentation and future potential exits or IPOs.
For serious VC-backed or globally scalable startups, foreign founders almost always end up with an A.Ş. structure, either from day one or via conversion.
2.2 Limited Liability Company (Ltd. Şti.)
A limited company is possible but less flexible:
- Share transfers require notarisation and trade registry registration.
- Creating and managing a broad employee shareholder base is administratively heavy.
- Some investor rights and preference structures are more complex to implement.
For this reason, many founders use phantom stock or bonus-style plans in a Ltd. Şti., or they convert to an A.Ş. before rolling out a full equity plan.
3. Typical ESOP Structures in Turkish Startups
Because there is no statutory ESOP template, you can choose from several practical models.
3.1 “Real” Share Options
This is the closest structure to classic venture-style options:
- Employees receive options granting a right to acquire actual shares of the company upon vesting and exercise.
- The company or existing shareholders commit to issue or sell shares at a pre-agreed price (the exercise price).
- Vesting is typically time-based (e.g. 4 years) with a 1-year cliff, plus acceleration on exit or termination without cause.
Key documents:
- Option Plan (approved by the general assembly and/or board).
- Individual Option Agreements with employees.
- Shareholders’ Agreement provisions dealing with the option pool, dilution, drag/tag, leaver mechanics.
Challenge: every exercise leads to a capital increase or share transfer, requiring formalities and registrations in Turkey. For small teams, this is manageable; for large headcounts, it can become heavy.
3.2 Phantom Stock / Virtual ESOP
Here, employees do not receive actual shares, but a contractual right to a bonus calculated as if they owned a certain percentage of the company.
- No share registry changes or complex cap table management.
- Payouts can be tied to an exit, a valuation event or performance milestones.
- Administratively simple for early stages or where foreign parent uses different structures.
However:
- Employees remain non-shareholders, which may be less attractive psychologically.
- Payments are treated as cash compensation and taxed as such.
3.3 Restricted Shares and Share Purchase Plans
In some cases, key employees may acquire actual shares from day one, but subject to:
- Vesting (company can repurchase unvested shares at nominal value if the employee leaves), and
- Leaver clauses (different prices for “good leaver” vs “bad leaver”).
This structure can be particularly useful for co-founders and very early key hires, where you want real ownership and voting rights aligned from the start.
4. Designing Vesting, Leaver Provisions and Governance
Regardless of the structure, foreign founders should ensure that classic ESOP concepts are properly adapted to Turkish law and practice.
4.1 Vesting and Cliff
Typical startup pattern:
- 4-year vesting period,
- 1-year cliff, then monthly or quarterly vesting.
This can be implemented through:
- contractual vesting schedules,
- repurchase options over unvested shares, and
- conditions precedent for the exercise of options.
Clarity is essential: Turkish courts will look at the written documents to interpret rights and obligations. Ambiguous or orally modified terms can create serious disputes.
4.2 Good Leaver / Bad Leaver
Leaver mechanics should clearly define:
- what constitutes a good leaver (e.g. termination without cause, redundancy, illness, death),
- what constitutes a bad leaver (e.g. cause dismissal, breach of non-compete, fraud),
- the price at which the company or other shareholders may repurchase vested and unvested options or shares.
Repurchase and call/put options must be drafted carefully to comply with contract law principles, avoid being unenforceably vague or contrary to mandatory employment protections.
4.3 Board and Shareholder Governance
ESOP-related decisions often require:
- board approval for grants and exercises,
- general assembly decisions for capital increases or amendments to the articles of association,
- clear delegation of authority where permitted.
Foreign founders should ensure governance documents are aligned and that cap table modelling reflects the fully-diluted structure including the option pool.
5. Tax and Social Security Considerations
Tax treatment is often the element foreign founders underestimate. Turkey has its own rules on when and how option-based benefits are taxed.
Although each plan must be reviewed with tax advisers, the main questions are:
- When is tax triggered?
- At grant of options (typically no tax if out of the money and not freely transferable).
- At vesting (possible taxation if an immediately usable right arises).
- At exercise (commonly, the moment when economic benefit is realised – difference between fair market value and exercise price – can be treated as employment income).
- On sale of shares (capital gains taxation for the individual).
- What type of tax applies?
- Employee-level income tax and potentially social security contributions on employment-related benefits.
- Possible capital gains tax on later disposals of shares.
- Corporate tax effects for the company (e.g. deductibility of certain costs).
- Double-tax scenarios for cross-border employees
If options are granted to employees who move between countries (for example, between a Turkish subsidiary and a foreign parent or vice versa), allocation of taxing rights between jurisdictions becomes complex. ESOP documentation and payroll coordination must support the desired outcome and avoid double taxation.
For foreign founders, it is wise to treat tax structuring as a design input rather than an afterthought. The same economic package can be framed in different ways with very different after-tax results for employees.
6. Cross-Border Structures and Holding Companies
Many foreign founders operate with a foreign holding company (for example, in Delaware or another European jurisdiction), with a Turkish subsidiary as the operating company.
Common approaches include:
- Global ESOP at the holding level
Employees of the Turkish subsidiary receive options over shares in the foreign parent. This is often preferred by investors because the value is concentrated at the top company. Coordination with Turkish employment and tax rules is critical. - Dual-level arrangements
Key managers receive equity at the holding level, while broader staff participate in a local phantom or bonus plan at the Turkish level. - Migration of the ESOP
Where a Turkish company later becomes part of an international group, existing Turkish ESOPs may be replaced or “rolled over” into the group’s global plan. Careful planning is required to avoid premature taxation or loss of employee rights.
In all these scenarios, foreign founders must balance simplicity, tax efficiency and investor expectations with the local formalities and enforcement environment in Turkey.
7. Implementation Checklist for Foreign Founders
To translate ESOP ideas into a working plan in Turkey, consider the following practical steps:
- Confirm your corporate structure
- If you are still a limited company but planning a full equity ESOP, analyse whether and when to convert to an A.Ş.
- Define the option pool size
- Agree on a fully-diluted pool with investors (for example, 10–15% of share capital) and reflect this in your cap table modelling.
- Decide on the main structure
- Real options over shares, phantom stock, restricted shares, or a combination depending on seniority and location.
- Engage legal and tax advisers together
- Align legal drafting with desired tax treatment. Many problems arise from beautiful legal documents that are misaligned with payroll and reporting obligations.
- Prepare core documentation
- Option Plan and Plan Rules.
- Articles of association alignment and necessary corporate approvals.
- Standard Option Agreements and Grant Notices.
- Leaver and repurchase provisions integrated into the Shareholders’ Agreement.
- Establish processes and record-keeping
- Cap table software or a clear internal register to track grants, vesting and exercises.
- Regular board resolutions approving new grants.
- HR and payroll procedures for new joiners and leavers.
- Communicate clearly with employees
- Provide a simple “ESOP FAQ” in clear language alongside the legal documents.
- Explain vesting, dilution, leaver consequences and tax implications at a high level.
- Avoid over-promising or using terminology (“shares”, “ownership”) in ways that conflict with the actual legal structure.
8. Final Thoughts
ESOPs and stock options in Turkish startups are entirely possible, but they are not a copy-paste of US or UK models. As a foreign founder, your main task is to translate familiar incentive concepts into Turkish legal and tax reality without losing their motivational power for your team.
With the right company structure, carefully chosen ESOP model, robust documentation and early attention to tax and regulatory angles, you can build a plan that:
- attracts and retains top talent,
- remains acceptable to local authorities and investors, and
- scales with your company through multiple funding rounds and, ultimately, exit.
Done well, your ESOP will become one of your most powerful tools for building a truly global startup from Turkey.
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