Attracting highly qualified employees is one of the most difficult challenges for early-stage startups. A newly established technology company may be competing for engineers, product managers, executives and sales professionals against much larger companies that can offer higher salaries, established bonus systems and greater job security.

For this reason, startups frequently use equity compensation to attract and retain key employees.

Instead of paying only cash compensation, the startup may offer the employee:

• shares in the company;
• a right to purchase shares in the future;
• stock options;
• restricted share arrangements;
• phantom shares;
• exit bonuses linked to company value;
• or another form of long-term incentive.

This raises an important question for startups operating in Turkey:

Can a startup legally give shares or stock options to its employees under Turkish law?

The answer is generally yes.

Turkish law does not prohibit a startup from making employees shareholders or establishing properly structured employee share option arrangements. In fact, the Turkish Commercial Code expressly recognises mechanisms through which employees of a joint stock company may obtain rights to acquire newly issued shares.

However, implementing an employee stock option plan in Turkey requires considerably more than signing a document stating:

“The employee will receive 1% of the company after four years.”

A legally effective plan must address:

• whether actual shares or only an option will be granted;
• which company will issue or transfer the shares;
• the corporate form of the startup;
• shareholder pre-emption rights;
• capital increase procedures;
• exercise price;
• vesting;
• employee departure;
• share transfer restrictions;
• dilution;
• shareholder agreements;
• tax consequences;
• and what happens during an exit.

For Turkish startups, one of the most important distinctions is therefore between:

giving an employee shares today

and

giving the employee a contractual right to acquire shares later.

These are legally different transactions.

This article explains how employee shares and stock options can be structured in Turkish startups, with particular attention to joint stock companies, limited liability companies, conditional capital increases, ESOPs, vesting, good leaver and bad leaver provisions, taxation and startup investment rounds.

Why Do Startups Give Equity to Employees?

Equity compensation is particularly useful where a startup has limited cash but significant growth potential.

Suppose a software engineer can earn TRY 250,000 per month at a mature technology company.

An early-stage startup may only be able to pay TRY 160,000.

The startup may compensate for part of the difference by giving the employee an opportunity to participate in future company value.

If the startup later grows from a valuation of EUR 2 million to EUR 100 million, the employee’s equity may become significantly more valuable than the salary difference.

This creates alignment between:

• founders;
• employees;
• investors;
• and company growth.

The employee is no longer interested only in monthly salary.

The employee may also benefit from:

• increasing company valuation;
• future investment rounds;
• dividend distributions;
• or an eventual startup exit.

For this reason, employee equity is commonly used to increase:

• retention;
• motivation;
• recruitment competitiveness;
• long-term commitment;
• and alignment with shareholders.

What Is an ESOP?

The expression ESOP, or Employee Stock Option Plan, is commonly used in startup transactions to describe a programme under which employees receive rights relating to company equity.

In international startup practice, founders may say:

“We reserved a 10% ESOP pool.”

This usually means that up to 10% of the company’s fully diluted equity is intended to be used for employee incentives.

However, the expression ESOP does not itself constitute a separate statutory corporate instrument under Turkish law.

The legal mechanism must still be structured through the Turkish Commercial Code, contract law, tax rules and the company’s corporate documents.

Therefore, a startup should not simply copy a Silicon Valley ESOP document and assume that it will operate automatically in a Turkish company.

Shares and Stock Options Are Not the Same Thing

This is the first distinction founders should understand.

Direct Share Grant

The employee becomes the owner of actual shares.

Depending on the company and the transaction, the employee may acquire:

• voting rights;
• dividend rights;
• liquidation rights;
• pre-emption rights;
• and other statutory shareholder rights.

Stock Option

The employee initially receives only a right to acquire shares in the future, usually if specified conditions are satisfied.

Until the option is exercised and the shares are legally acquired, the employee is generally not a shareholder merely because an option agreement exists.

The employee may therefore have no:

• voting rights;
• dividend rights;
• general meeting rights;
• or ordinary shareholder rights

during the option period unless separate contractual rights are granted.

This distinction has major consequences for startup governance.

Can an Employee Become a Shareholder While Continuing to Work for the Startup?

Yes.

There is no general rule preventing the same person from simultaneously being:

• an employee;
• and a shareholder.

The two legal relationships are separate.

The employee relationship is governed by:

• employment law;
• employment contract;
• salary arrangements;
• workplace rules;
• and termination provisions.

The shareholder relationship is governed by:

• the Turkish Commercial Code;
• articles of association;
• shareholders’ agreement;
• share ownership;
• and corporate resolutions.

This distinction becomes especially important when employment ends.

Termination of Employment Does Not Automatically Cancel Share Ownership

One of the most common mistakes in startup equity plans is assuming:

“If the employee leaves, the shares automatically return to the founders.”

That is not automatically true.

Once an employee has legally acquired shares, termination of the employment relationship does not by itself eliminate shareholder ownership.

For example:

Employee A owns 2% of Startup X.

Employee A resigns.

Unless a legally effective transfer, repurchase, call option, leaver or similar mechanism applies, Employee A may remain a 2% shareholder after leaving the company.

This is why startups must structure employee equity before shares are transferred.

Three Main Ways to Give Employees Equity

A Turkish startup can consider several structures.

The three most common are:

1. transfer of existing founder or shareholder shares;
2. issue of new shares through a capital increase;
3. stock options giving employees a future acquisition right.

Each structure has different consequences.

Method One: A Founder Transfers Existing Shares to the Employee

The simplest commercial structure may involve an existing shareholder transferring part of its shares.

For example:

Founder A owns 60%.

Founder B owns 40%.

The founders decide to give CTO Employee C 3%.

Founder A transfers 2%.

Founder B transfers 1%.

The company’s total capital does not increase.

Instead, the existing ownership structure changes.

After the transfer:

Founder A: 58%

Founder B: 39%

Employee C: 3%

This is known economically as a secondary share transfer.

The legal formalities depend heavily on whether the startup is an anonymous company (A.Ş.) or limited liability company (Ltd. Şti.).

Employee Share Transfers in a Turkish Joint Stock Company

Joint stock companies provide considerably greater flexibility for startup equity arrangements.

Under Article 490 of the Turkish Commercial Code, registered shares are generally transferable unless the law or articles of association provide otherwise. The Code also allows transfer restrictions for registered shares under specified circumstances.

Accordingly, before transferring shares to an employee, founders should review:

• articles of association;
• shareholders’ agreement;
• investor agreements;
• transfer restrictions;
• right of first refusal;
• pre-emption arrangements;
• founder consent rights;
• and existing investor vetoes.

The company should also ensure that the employee’s ownership is properly reflected in the share ledger where required. Under Article 499, the company records owners of uncertificated and registered shares in its share ledger, and in relationships with the company, the person recorded in the share ledger is recognised as shareholder within the statutory framework.

Employee Share Transfers in a Limited Liability Company

A limited liability company is less flexible.

Article 595 of the Turkish Commercial Code provides that the transfer of a limited company participation share and transactions creating the transfer obligation must be made in writing and the signatures must be notarised.

Unless the articles provide otherwise, general assembly approval is also required, and the transfer becomes effective with that approval.

This creates additional procedural complexity for an employee option programme.

Imagine a startup gives 50 employees options.

Every time an employee exercises an option, the company may need to address formal limited-company share-transfer requirements.

This is one reason why rapidly growing startups expecting institutional investment and large employee equity pools often prefer the A.Ş. structure.

Method Two: Giving Employees Newly Issued Shares

Instead of founders transferring their own shares, the company may increase its capital and issue new shares to employees.

In that case, money paid for the new shares generally goes to the company rather than to existing founders.

However, issuing new shares causes dilution.

Example:

Founders collectively own 100%.

The company issues new shares representing 10% of the post-money capital for employees.

After the issuance:

Founders: 90%

Employees: 10%

This structure may be preferable because founders do not personally transfer existing shares.

However, existing shareholder rights must be considered.

Existing Shareholders Normally Have Pre-Emption Rights

Article 461 of the Turkish Commercial Code provides that existing shareholders generally have the right to acquire newly issued shares in proportion to their existing ownership.

However, these pre-emption rights may be restricted or removed where justified reasons exist and the required corporate conditions are satisfied.

Importantly for employee equity plans, Article 461 expressly identifies participation of employees in the company as an example of a justified reason for restricting or removing pre-emption rights.

This is a highly important statutory basis for employee equity programmes.

It means the law itself recognises employee participation as a legitimate reason for directing newly issued shares away from existing shareholders.

However, the statutory voting thresholds, equality principles, justification requirements and corporate formalities must still be respected.

Method Three: Employee Stock Options

A stock option gives an employee the right, but not necessarily the obligation, to acquire specified shares in the future.

For example:

Employee receives an option for 10,000 shares.

Exercise price: TRY 10 per share.

Vesting period: four years.

Cliff: one year.

After the relevant vesting period, the employee may exercise the vested option and acquire the shares by paying the exercise price.

The value of the option depends on the future value of the company.

Suppose the company’s value increases significantly and each share is effectively worth TRY 200 at exercise.

The employee may be able to acquire shares economically worth TRY 200 by paying TRY 10, depending on the structure.

That potential upside creates the incentive.

Turkish Commercial Code Expressly Recognises Employee Share Acquisition Rights

One of the most important provisions for employee stock option plans is Article 463 of the Turkish Commercial Code.

Article 463 allows the general assembly of a joint stock company to establish a conditional capital increase through which employees may receive rights to acquire newly issued shares by exercising conversion or acquisition rights.

The capital increases automatically to the extent that the relevant acquisition right is exercised and the capital contribution is paid or set off.

This provides a direct corporate-law foundation for employee options in Turkish joint stock companies.

It is therefore inaccurate to say that:

“Turkish law does not recognise employee stock options.”

The law expressly contemplates acquisition rights granted to employees through conditional capital increase.

What Is Conditional Capital Increase?

A normal capital increase usually requires a corporate process when the capital is increased.

A conditional capital increase works differently.

The company creates a corporate basis allowing specified persons—such as employees—to acquire shares if and when they exercise their rights.

Article 463 provides that capital increases automatically to the extent that:

• the acquisition or conversion right is exercised;
• and the capital contribution is properly satisfied.

This mechanism can be particularly useful for employee share plans because different employees may exercise options at different dates.

Conditional Capital Increase Has Statutory Limits

The mechanism is not unlimited.

Article 464 provides that the total nominal amount of conditionally increased capital cannot exceed half of the company’s existing capital.

The payment made for the new shares must also be at least equal to their nominal value.

Therefore, founders cannot simply create an unlimited employee option pool through conditional capital increase.

The plan should be designed within these corporate limits.

The Articles of Association Must Contain the Necessary Basis

A conditional capital increase requires proper provisions in the articles of association.

Article 465 requires the articles to specify matters including:

• nominal amount of the conditional capital increase;
• number of shares;
• nominal value;
• share type;
• groups entitled to conversion or acquisition rights;
• extent to which existing shareholders’ pre-emption rights are removed;
• privileges attached to particular groups;
• and restrictions concerning transfer of new registered shares.

The Code also states that acquisition or conversion rights granted before registration of the relevant articles provision are invalid.

Accordingly, a founder cannot simply sign informal option letters with employees and assume that a later corporate process will automatically cure everything where Article 463 is being used.

The corporate architecture should be established first.

Employees Must Properly Exercise Their Rights

Article 468 regulates exercise of conversion and acquisition rights.

The right is exercised through a written declaration referring to the relevant conditional capital increase provision in the articles, and the capital contribution is satisfied through the statutory mechanism.

Shareholder rights arise when the capital contribution is performed.

This reinforces a fundamental distinction:

Granting an option does not itself make the employee a shareholder.

The employee becomes a shareholder only after the acquisition process has been validly completed.

Conditional Capital Increase Is Particularly Relevant to A.Ş. Startups

The conditional capital increase provisions are part of the Turkish Commercial Code’s joint stock company regime.

A limited liability company does not have an equivalent employee conditional capital increase mechanism structured in the same manner.

For a Ltd. Şti., employee options can still be structured contractually.

For example, founders may promise to transfer shares once:

• vesting conditions are satisfied;
• the employee exercises the option;
• and the Article 595 formalities are completed.

Alternatively, a future capital increase may be implemented and the employee admitted as shareholder.

However, this structure is operationally more cumbersome.

For startups planning:

• multiple funding rounds;
• venture capital investment;
• ESOP pools;
• dozens of employees;
• and an eventual exit,

conversion from Ltd. Şti. to A.Ş. may therefore deserve consideration.

What Is Vesting?

Vesting determines when the employee actually earns the equity benefit.

A startup does not usually want to give an employee 5% of the company on the first day of employment.

Otherwise, the employee could:

• join on Monday;
• receive 5%;
• resign six months later;
• and remain a 5% shareholder indefinitely.

Vesting reduces this risk.

A common arrangement is:

4-year vesting with a 1-year cliff.

This means the employee earns the equity gradually over four years.

What Is a One-Year Cliff?

A cliff establishes a minimum period before the employee earns any portion.

Example:

Employee option: 4%.

Vesting: four years.

Cliff: one year.

Employee leaves after eight months:

0% vested.

Employee remains for one full year:

A specified initial portion may vest, often 25% under international startup practice.

The remaining amount then generally vests monthly, quarterly or annually over the remaining period.

The exact structure is contractual.

Vesting Is a Contractual Mechanism in Turkish Startup Practice

The Turkish Commercial Code does not provide a Silicon Valley-style statutory vesting schedule.

The parties must therefore implement vesting through properly drafted contractual and corporate mechanisms.

Documents may include:

• Employee Stock Option Plan;
• individual Option Agreement;
• Shareholders’ Agreement;
• employment agreement;
• articles of association;
• founder undertakings;
• general assembly resolutions;
• and share-transfer documents.

The plan should clearly state:

• total option amount;
• vesting commencement date;
• cliff;
• vesting intervals;
• exercise procedure;
• exercise price;
• expiry;
• and treatment on termination.

Good Leaver and Bad Leaver Provisions

Employee equity arrangements often distinguish between a Good Leaver and Bad Leaver.

A Good Leaver may include an employee leaving because of circumstances such as:

• termination without serious misconduct;
• disability;
• death;
• retirement;
• or another agreed legitimate reason.

A Bad Leaver may include circumstances such as:

• fraud;
• theft;
• serious confidentiality breach;
• intentional damage;
• prohibited competition;
• or termination for specified serious misconduct.

The consequences may differ.

For example:

Good Leaver may retain vested options.

Bad Leaver may lose unvested options and may become subject to agreed transfer or repurchase mechanisms for specified shares.

The exact definition should be precise.

A startup should not give itself unrestricted authority to label any departing employee a Bad Leaver merely because the relationship ended badly.

Unvested Options Should Be Addressed Clearly

A properly drafted plan should state what happens to unvested options when employment ends.

A common structure is:

All unvested options terminate immediately on termination.

The employee may then retain a limited period to exercise vested options.

For example:

• 30 days;
• 60 days;
• or 90 days,

depending on the plan.

The plan should also address special events such as:

• death;
• disability;
• company sale;
• or termination without cause.

What Happens to Already Acquired Shares?

Already acquired shares require different treatment.

Once the employee has exercised the option and legally acquired shares, simply cancelling the employment agreement generally does not remove those shares.

If the founders want a repurchase mechanism, it must be legally structured.

Possible mechanisms may include:

• contractual call options;
• transfer obligations;
• right of first refusal;
• company repurchase where legally permissible;
• founder repurchase;
• or third-party transfer mechanisms.

The purchase price should also be addressed.

Potential approaches include:

• nominal value;
• exercise price;
• fair market value;
• discounted fair market value;
• or another objectively defined calculation.

An excessively punitive compulsory transfer mechanism may create enforceability issues and should be carefully drafted.

Can the Startup Buy Back Employee Shares?

A Turkish joint stock company can acquire its own shares only within the legal framework governing treasury shares.

Article 379 generally prohibits an A.Ş. from acquiring its own shares for consideration where the acquisition exceeds, or would cause ownership to exceed, 10% of its capital, subject to the statutory conditions.

The general assembly must normally authorise the board, and additional capital-protection requirements apply.

Therefore, founders should not write an employee agreement saying:

“The company will automatically repurchase all employee shares whenever employment ends”

without examining the own-share acquisition rules.

Sometimes it may be more practical for:

• founders;
• another investor;
• or another shareholder

to hold the contractual purchase right instead.

Turkish Law Also Recognises Employee Share Acquisition Financing

Another interesting provision is Article 380.

The Turkish Commercial Code generally restricts certain transactions through which a company finances the acquisition of its own shares.

However, the Code expressly creates an exception concerning transactions providing advances, loans or security to employees of the company or its subsidiaries so that they may acquire company shares, subject to capital-maintenance limitations.

This is another indication that employee participation in company equity is recognised by Turkish corporate law.

What Is an Employee Option Pool?

Rather than negotiating a new percentage every time someone is hired, startups frequently create an option pool.

Example cap table before pool:

Founders: 80%

Investor: 20%

The investor requires a 10% employee pool.

Post-pool structure might become:

Founders: 70%

Investor: 20%

ESOP pool: 10%

However, the economic result depends on whether the pool is created:

• before the investment;
• or after the investment.

This can materially affect founder dilution.

Pre-Money vs Post-Money ESOP Pool

Suppose an investor agrees to acquire 20% of a startup.

The investor also requires a 10% employee option pool.

If the pool is created pre-money, the dilution may primarily fall on the founders.

If created post-money, the investor may share part of the dilution.

This issue can create substantial value differences.

Therefore, the investment term sheet should state clearly:

• required option pool percentage;
• whether it is calculated on a fully diluted basis;
• whether it is pre-money or post-money;
• and whether existing unused options count toward the pool.

Stock Options Should Be Included in the Fully Diluted Cap Table

A startup’s cap table should normally show both:

issued share ownership

and

fully diluted ownership.

Suppose:

Founders: 800,000 shares.

Investor: 200,000 shares.

Employee options: 100,000.

Issued shares = 1,000,000.

Fully diluted shares = 1,100,000.

The employee option pool therefore affects future ownership even though the employees have not yet exercised their options.

Investors almost always examine the fully diluted cap table.

Employees Should Understand Dilution

An employee may be told:

“You have a 1% option.”

But 1% of what?

The agreement should determine whether 1% means:

• current issued capital;
• post-option-pool capital;
• fully diluted capital;
• or capital existing on the grant date.

Suppose the employee receives 1% today.

After several investment rounds, the employee’s percentage may fall to:

0.8%.

Then:

0.6%.

Then:

0.4%.

That does not necessarily mean the employee lost shares.

It may simply reflect dilution caused by new investment.

The option documentation should explain this clearly.

Percentage-Based Options Are Often Less Precise Than Share Numbers

It may be safer to define the grant as:

10,000 shares

rather than:

1% of the company

unless the percentage calculation is carefully defined.

Percentages can become ambiguous because:

• the company may increase capital;
• investors may convert instruments;
• an ESOP pool may expand;
• SAFE or convertible rights may convert;
• or new classes may be created.

The grant should therefore identify either the exact share number or a clear formula.

Exercise Price Must Be Determined

An option generally needs an exercise price.

Example:

Employee receives right to acquire 20,000 shares at TRY 5 per share.

If the employee exercises the full option:

20,000 × TRY 5 = TRY 100,000.

Where conditional capital increase under Article 463 is used, the Turkish Commercial Code requires at least nominal value to be satisfied for the newly issued shares. Article 464 expressly provides that the payment must at least equal nominal value.

The company should therefore coordinate:

• commercial option price;
• nominal share value;
• tax valuation;
• and corporate capital requirements.

Can Shares Be Given Free of Charge?

Yes, employee equity can sometimes be structured as a free share grant rather than a paid option.

However, “free” from the employee’s perspective does not mean the transaction has no:

• tax;
• accounting;
• corporate;
• or capital-maintenance consequences.

The startup should determine:

• who provides the shares;
• how they were acquired;
• whether the shares come from founders;
• whether treasury-share rules are relevant;
• and how the benefit is treated for payroll and tax purposes.

This issue has become particularly important following recent Turkish tax reforms.

2026 Tax Incentive for Employee Shares in Turkish Tech Startups

Turkey has introduced a specific income-tax incentive for certain employee share programmes.

Income Tax Law Article 17 provides an exemption for qualifying teknogirişim companies that give employees shares free of charge or at a discount.

The regime was originally introduced in 2024 and was significantly improved by Law No. 7582, which entered into force on 4 June 2026.

Under the current rule, where the statutory requirements are satisfied, the portion of the benefit represented by the fair value of shares provided free or at a discount that does not exceed twice the employee’s annual gross salary for that year is exempt from income tax.

This is a particularly important development for Turkish startup ESOP structures.

Example of the 2026 Employee Share Tax Exemption

Suppose:

Employee annual gross salary: TRY 1.5 million.

Maximum exemption base:

TRY 1.5 million × 2 = TRY 3 million.

The startup allows the employee to acquire shares with a market value of TRY 5 million for TRY 2.5 million.

Economic benefit:

TRY 2.5 million.

Because the benefit does not exceed TRY 3 million, the entire amount may fall within the Article 17 exemption if all other statutory requirements are satisfied.

The amended 2026 Revenue Administration guidance contains a similar example involving an employee purchasing shares representing 1% of a qualifying startup at a 50% discount.

The Tax Exemption Does Not Apply to Every Startup

This incentive should not be misunderstood.

It does not mean:

“Every Turkish company can give tax-free shares to employees.”

The employer must qualify as a teknogirişim company according to the criteria determined by the Ministry of Industry and Technology.

The transaction must also satisfy the requirements of Income Tax Law Article 17 and the applicable Revenue Administration communiqués.

Accordingly, ordinary companies and startups that do not satisfy the relevant qualification criteria should conduct a separate tax analysis.

The Mere Grant of an Option Is Not Necessarily the Taxable Benefit Event

This distinction is extremely important.

A contractual option may be granted today while no shares are transferred until years later.

Revenue Administration guidance distinguishes between:

• free provision of shares; and
• discounted acquisition rights.

For discounted acquisition, the benefit is generally measured when the right is actually exercised and the shares are acquired, comparing the fair value at that time with the employee’s acquisition cost. The updated 2026 guidance illustrates this through an employee exercising a discounted purchase right.

Therefore, founders should distinguish:

option grant date

from

vesting date

from

exercise date

from

share acquisition date.

These dates may have different corporate and tax significance.

Employees Must Hold the Shares to Preserve the Full Tax Benefit

The current 2026 regime includes holding-period conditions.

If qualifying shares are disposed of:

• within the first two full years, 100% of the previously exempt tax is recovered;
• during years three to four, 75% is recovered;
• during years five to six, 25% is recovered.

The recovered tax is collected from the employer without a tax-loss penalty but with delay interest under the statutory mechanism.

After the applicable six-year holding period is completed, the statutory clawback percentages no longer apply under this schedule.

This is a major change from the earlier regime, which contained considerably longer holding periods.

Leaving Employment Does Not Automatically End the Holding Period

The updated 2026 Revenue Administration guidance also clarifies an important issue.

Where an employee leaves the company but continues holding the shares, the post-employment holding period continues to count toward the required holding period.

The guidance also addresses continuation of the period through heirs where the employee dies.

This means founders should not confuse:

continued employment

with

continued share ownership

for purposes of the tax holding period.

ESOP Tax Planning Should Be Done Before the Grant

Startups should calculate potential tax consequences before promising employees a particular package.

Relevant questions include:

• Is the employer a qualifying teknogirişim company?
• Are actual shares being granted?
• Is the grant free or discounted?
• What is the fair market value?
• What is the employee’s annual gross salary?
• Does the benefit exceed twice annual gross salary?
• When will the employee legally acquire the shares?
• How will the holding period be monitored?
• What happens if the employee sells early?
• How will the company receive information concerning later share transfers?

Tax provisions should be integrated into the ESOP agreement rather than considered years later.

The Startup May Need Employee Transfer Notification Obligations

The 2026 tax regime can create exposure for the employer when the employee disposes of shares before the required periods have expired.

For this reason, employee equity documentation may need contractual obligations requiring the employee to notify the company of:

• share transfers;
• sale dates;
• transferees;
• and other events affecting the tax exemption.

Otherwise, the employer may have difficulty identifying when a tax clawback obligation has arisen.

Phantom Stock as an Alternative to Real Equity

Not every startup needs to make employees actual shareholders.

A phantom stock plan can provide an economic benefit linked to company value without transferring actual shares.

Example:

Employee receives 1,000 phantom units.

Each unit tracks the economic value of one company share.

On exit, the employee receives cash calculated according to the agreed formula.

The employee does not actually become a shareholder.

This means the employee generally does not receive statutory:

• voting rights;
• general meeting rights;
• pre-emption rights;
• or actual dividend rights

merely because phantom units exist.

The rights arise from contract.

Why Might a Startup Prefer Phantom Shares?

Phantom stock can reduce:

• cap table complexity;
• minority shareholder issues;
• voting complexity;
• transfer formalities;
• and due diligence problems involving dozens of small shareholders.

This may be particularly useful for a Turkish Ltd. Şti. where actual share transfer procedures are more cumbersome.

However, phantom shares do not create actual equity ownership.

They are essentially contractual economic incentive arrangements.

Tax, payroll and accounting consequences should therefore be analysed separately.

Share Appreciation Rights and Exit Bonuses

Another alternative is a Share Appreciation Right, or SAR.

Instead of giving the employee the total value of a share, the employee receives the increase in value.

Example:

Base value: EUR 10.

Exit value: EUR 50.

Increase: EUR 40.

The employee’s payment is based on the EUR 40 appreciation according to the contractual formula.

Startups may also create:

• transaction bonuses;
• exit bonuses;
• retention bonuses;
• or value-linked cash incentives.

These mechanisms can sometimes achieve the motivational effect of equity without changing actual share ownership.

Actual Shares Give Employees Real Shareholder Rights

Founders should understand what happens when an employee becomes a genuine shareholder.

The employee may obtain rights including:

• participation in general assemblies;
• voting rights;
• dividend rights;
• information rights;
• inspection rights;
• pre-emption rights;
• and other minority shareholder protections

subject to the applicable company structure and share class.

This can become important if 20 or 30 employees eventually become small shareholders.

Startup governance should therefore be designed in advance.

Employees Should Join the Shareholders’ Agreement

Where a startup already has a Shareholders’ Agreement, employees acquiring shares should usually become subject to the relevant provisions.

The agreement may regulate:

• share transfer restrictions;
• rights of first refusal;
• tag-along;
• drag-along;
• confidentiality;
• lock-up;
• exit;
• compulsory transfer mechanisms;
• and dispute resolution.

A common mechanism is requiring the employee to sign a Deed of Adherence or equivalent accession document as a condition to acquiring shares.

Without this step, an employee may become a shareholder but remain outside important contractual arrangements binding the founders and investors.

Tag-Along and Drag-Along Rights Matter During Exit

Imagine a startup is sold.

The buyer wants 100% of the shares.

The founders and investors agree.

But five former employees collectively own 4%.

If they are not subject to an effective drag-along mechanism, completing the acquisition may become more complicated.

Employee equity plans should therefore be designed with a future exit in mind.

The startup should not solve today’s recruitment problem by creating tomorrow’s acquisition problem.

Employee Shares Can Affect Investor Due Diligence

Venture capital investors will examine the ESOP structure carefully.

They may ask:

• What is the authorised ESOP pool?
• How much has been granted?
• How much has vested?
• How much has been exercised?
• How much remains available?
• Which employees hold actual shares?
• Which employees have options?
• What is the exercise price?
• Are option documents legally valid?
• Has conditional capital increase been properly implemented?
• Are employees parties to the Shareholders’ Agreement?
• Are tax obligations satisfied?
• Are any promises made outside the formal ESOP documents?

Informal promises are particularly dangerous.

Never Promise Equity Informally

A founder may tell an employee:

“If you stay for three years, I will give you 2%.”

Nothing is documented.

Three years later, the startup is worth EUR 50 million.

The employee asks for 2%.

The founders say they meant 2% before dilution.

The employee says it meant 2% of the company at the three-year date.

A dispute begins.

Every equity promise should therefore define:

• exact number or percentage;
• calculation basis;
• vesting;
• exercise price;
• dilution;
• termination;
• exercise period;
• and corporate approvals.

WhatsApp messages should not form the startup’s ESOP programme.

Common Mistakes in Turkish Startup ESOPs

Several problems appear repeatedly.

Treating an Option as an Actual Share

The employee is told they “own 1%” even though only an option has been granted.

No Vesting Rules

The employee receives the full stake immediately.

No Leaver Provisions

Nobody knows what happens after resignation.

No Shareholders’ Agreement Accession

Employee shareholders are outside transfer and exit rules.

Ignoring Existing Investor Consent Rights

The ESOP violates the investment agreement.

Ignoring Pre-Emption Rights

New shares are issued without properly addressing Article 461.

Copying a US Option Agreement

The document assumes corporate mechanisms that do not exist in the Turkish company.

Using a Ltd. Şti. Structure Without Planning Formalities

Every exercise becomes difficult to implement.

No Tax Analysis

A valuable economic benefit is promised without calculating payroll consequences.

Confusing Tax Exemption With Corporate Validity

The existence of an income-tax incentive does not replace Turkish Commercial Code requirements.

No Fully Diluted Cap Table

Founders discover future dilution only during the next investment round.

Employee Equity Plan Checklist for Turkish Startups

Before establishing an employee share programme, founders should answer:

1. Is the company an A.Ş. or Ltd. Şti.?
2. Will employees receive actual shares or options?
3. Who will provide the shares?
4. Will founders transfer existing shares?
5. Will the company issue new shares?
6. Will conditional capital increase be used?
7. Is Article 463 available for the proposed structure?
8. Does the articles of association need amendment?
9. What is the ESOP pool percentage?
10. Is the pool pre-money or post-money?
11. How will dilution affect founders?
12. How will dilution affect investors?
13. What exact number of shares is granted?
14. What is the exercise price?
15. What is the vesting period?
16. Is there a cliff?
17. What happens to unvested options on termination?
18. What happens to vested but unexercised options?
19. How long does the employee have to exercise after leaving?
20. What constitutes a Good Leaver?
21. What constitutes a Bad Leaver?
22. Can acquired shares be repurchased?
23. Who has the purchase right?
24. What price applies on repurchase?
25. Are company own-share acquisition rules relevant?
26. Must the employee join the Shareholders’ Agreement?
27. Are tag-along rights included?
28. Are drag-along rights included?
29. Are transfer restrictions included?
30. Does an existing investor need to approve the ESOP?
31. Are pre-emption rights properly restricted?
32. Does the company qualify for the employee share tax exemption?
33. What is the employee’s annual gross salary?
34. What is the fair value of the shares?
35. Does the benefit exceed twice annual gross salary?
36. When is the option actually exercised?
37. When are shares legally acquired?
38. How will early transfers be monitored?
39. Are payroll and accounting consequences understood?
40. Can the entire programme survive venture capital due diligence?

If these questions cannot be answered, the startup’s employee equity plan is not yet ready for implementation.

Frequently Asked Questions About Employee Stock Options in Turkey

Can a Turkish startup give shares to employees?

Yes. Employees can become shareholders through existing share transfers, capital increases or other legally valid structures.

Can a Turkish startup give stock options?

Yes. The Turkish Commercial Code expressly permits employees of joint stock companies to receive acquisition rights through conditional capital increase under Article 463.

Does an employee become a shareholder when the option is granted?

Generally no. The option normally creates a right to acquire shares later. Shareholder rights arise only after valid acquisition of the shares.

Can a Ltd. Şti. grant employee options?

Contractual option arrangements are possible, but the limited company does not have the same Article 463 conditional capital increase structure. Actual share transfers must comply with Article 595, including written form, notarised signatures and generally general assembly approval unless the articles provide otherwise.

Is an A.Ş. better for an ESOP?

For startups expecting professional investment and significant employee equity programmes, an A.Ş. is often more flexible because Turkish corporate law expressly provides employee conditional capital increase mechanisms and generally more flexible share transfer rules.

Can employees receive shares for free?

Potentially yes, subject to corporate, tax and accounting analysis.

Are employee shares tax-free in Turkey?

Not generally. However, qualifying teknogirişim companies can benefit from a specific Income Tax Law Article 17 exemption for free or discounted employee shares. Under the current 2026 rules, the exempt benefit can reach twice the employee’s annual gross salary, subject to statutory requirements.

What happens if the employee sells the tax-exempt shares early?

Under the current regime, disposal within two full years triggers recovery of all previously exempt tax; disposal during years three to four triggers 75% recovery; and disposal during years five to six triggers 25% recovery, together with statutory delay interest from the employer.

Does leaving the startup automatically cancel shares?

No. Employment termination and share ownership are separate legal relationships. Already acquired shares remain owned by the employee unless an effective transfer or repurchase mechanism applies.

Can unvested options be cancelled when the employee leaves?

Yes, this can generally be regulated contractually through the ESOP and individual option agreement.

Can the company buy back the employee’s shares?

Potentially, but an A.Ş.’s acquisition of its own shares is subject to Articles 379 and following of the Turkish Commercial Code, including the general 10% limitation and other statutory conditions.

Conclusion: Can a Startup Give Shares or Stock Options to Employees in Turkey?

Yes. Turkish startups can legally give shares or stock options to employees.

However, the legal structure should be designed before equity is promised.

Founders should first decide whether employees will receive:

actual shares

or

a future right to acquire shares.

If actual shares are transferred immediately, the employee becomes a real shareholder and may obtain statutory shareholder rights.

If a stock option is granted, the employee initially holds a contractual or corporate acquisition right and generally becomes a shareholder only after the option is properly exercised and the shares are legally acquired.

For Turkish joint stock companies, the Turkish Commercial Code provides a particularly important mechanism.

Article 463 expressly allows an A.Ş. to use conditional capital increase to give employees rights to acquire newly issued shares.

The related provisions regulate:

• the maximum size of conditional capital;
• articles of association requirements;
• protection of existing shareholders;
• employee acquisition rights;
• exercise procedure;
• and legal creation of the new shares.

Article 461 further recognises employee participation in the company as a justified reason that may support restricting existing shareholders’ pre-emption rights in a capital increase, subject to the statutory requirements.

For limited liability companies, equity compensation remains possible but is less flexible.

Actual limited company share transfers are subject to Article 595 formalities, including written form, notarised signatures and, unless the articles provide otherwise, general assembly approval.

This is one of several reasons why startups planning substantial employee equity programmes often consider operating as an A.Ş.

The commercial design of the ESOP is equally important.

A properly structured employee equity plan should address:

• vesting;
• cliff period;
• exercise price;
• exercise procedure;
• option expiry;
• Good Leaver;
• Bad Leaver;
• employee departure;
• repurchase;
• transfer restrictions;
• tag-along;
• drag-along;
• dilution;
• investment rounds;
• and exit.

Perhaps the most important practical rule is:

Employment termination does not automatically terminate share ownership.

If founders want departing employees to return certain shares, they must establish legally effective transfer or repurchase mechanisms in advance.

Once an employee owns shares, simply terminating the employee does not erase the employee’s shareholder status.

Tax planning has also become significantly more important.

Turkey now provides a meaningful incentive for qualifying technology startups.

Following the amendment introduced by Law No. 7582 with effect from 4 June 2026, qualifying teknogirişim employers may provide free or discounted shares with an income-tax exemption covering benefits up to twice the employee’s annual gross salary, subject to the statutory requirements.

The 2026 amendment also shortened the previous holding periods.

If qualifying shares are sold:

• within two full years, the entire exempt tax is recovered;
• during years three to four, 75% is recovered;
• during years five to six, 25% is recovered.

The current Revenue Administration guidance also confirms that an employee’s post-employment holding period can continue to count toward the required holding period.

This tax advantage can make employee equity considerably more attractive for qualifying Turkish startups.

However, it should not be assumed to apply automatically to:

• every startup;
• every option;
• every phantom stock plan;
• or every contractual promise.

The company must determine whether the statutory qualification requirements are met and identify the correct date on which the employee actually receives the relevant economic benefit.

Founders should also remember that not every employee incentive needs to involve actual equity.

Where shareholder complexity is undesirable, alternatives such as:

• phantom shares;
• Share Appreciation Rights;
• exit bonuses;
• and long-term cash incentive programmes

may provide employees with economic exposure to company growth without adding them to the cap table.

These alternatives can be especially useful where the company is still a Ltd. Şti. or where the founders do not want dozens of employees to become actual minority shareholders.

For a venture-backed startup, however, a well-designed ESOP can become an important competitive advantage.

Investors frequently expect startups to reserve a meaningful percentage of their fully diluted capital for future employees.

A professionally structured employee option pool can help the company recruit talented people without consuming excessive cash during its early growth phase.

The key is to build the plan as part of the company’s broader corporate structure.

The ESOP should be coordinated with:

• articles of association;
• shareholders’ agreement;
• investment agreements;
• cap table;
• employee contracts;
• tax documentation;
• and exit provisions.

A startup should never reach Series A and discover that five key employees were each informally promised “2% of the company” under different WhatsApp messages.

Employee equity should be documented with the same precision as investor equity.

The correct approach is therefore not simply:

“We want to give employees shares.”

The startup should instead determine:

Which employees?

How many shares?

On what fully diluted basis?

When will they vest?

What price will employees pay?

What happens if they leave?

What happens if the company is sold?

Who bears the dilution?

How will the shares legally be created or transferred?

What tax treatment applies?

Will future investors accept the structure?

When these questions are answered carefully, employee shares and stock options can become one of the most effective tools available to a Turkish startup.

When they are ignored, the same programme can create:

• founder dilution disputes;
• employee claims;
• shareholder conflicts;
• tax liabilities;
• invalid corporate transactions;
• and serious problems during investment or acquisition due diligence.

For startups in Turkey, employee equity should therefore be treated not merely as an HR benefit but as a corporate finance, tax, employment and shareholder governance project.