Turkey offers significant investment opportunities for foreign investors seeking to establish businesses, acquire shares in existing companies, or enter into joint ventures with Turkish partners. However, partnerships between foreign investors and local shareholders may give rise to legal disputes, particularly when disagreements arise concerning corporate management, financial transparency, profit distribution, or the exercise of shareholder rights.
Such disputes can become particularly challenging for foreign shareholders who are unfamiliar with Turkish corporate law or who do not actively participate in the day-to-day management of their Turkish companies.
Under Turkish law, shareholder disputes are primarily governed by the Turkish Commercial Code No. 6102 (“TCC”), the company’s articles of association, and, where applicable, shareholders’ agreements.
Understanding the legal framework governing shareholder relationships and the remedies available under Turkish law is essential for foreign investors seeking to protect their investments.
This article examines the most common shareholder disputes between foreign and Turkish partners, the legal rights of foreign shareholders, and the legal remedies available when a business relationship deteriorates.
1. Legal Framework Governing Shareholder Disputes in Turkey
Foreign investors are generally entitled to the same shareholder rights as Turkish investors under Turkish law.
Law No. 4875 on Foreign Direct Investment establishes the principle of equal treatment between foreign and domestic investors, subject to applicable legislation and specific regulatory restrictions.
Most foreign investments in Turkey are structured through limited liability companies (Limited Şirket) or joint-stock companies (Anonim Şirket).
Although both company types provide limited liability as a general principle, they differ considerably in terms of corporate governance, share transfers, shareholder rights, and mechanisms for resolving disputes.
The primary legal sources governing shareholder disputes in Turkey include:
- Turkish Commercial Code No. 6102
- Turkish Code of Obligations No. 6098
- Law No. 4875 on Foreign Direct Investment
- The company’s articles of association
- Shareholders’ agreements and investment agreements
- Applicable procedural legislation and arbitration rules
The distinction between statutory shareholder rights and contractual rights is particularly important.
While certain shareholder rights arise directly from the TCC, additional protections may be established through shareholders’ agreements. However, contractual arrangements must comply with the mandatory provisions of Turkish corporate law.
Furthermore, provisions contained in a shareholders’ agreement do not automatically produce corporate effects against the company or third parties.
Consequently, foreign investors should carefully assess whether their contractual protections are adequately reflected in the company’s corporate structure and articles of association.
2. Common Causes of Shareholder Disputes Between Foreign and Turkish Partners
Shareholder disputes frequently arise when the parties have different expectations regarding the management, financing, and future direction of the company.
These disagreements may initially concern ordinary business decisions but can eventually develop into serious corporate disputes affecting the company’s operations and the value of the foreign investor’s investment.
2.1. Disputes Concerning Company Management and Control
One of the most common sources of shareholder disputes in Turkey is disagreement over the management and control of the company.
Foreign investors often establish joint ventures with Turkish partners who are responsible for managing local operations.
In such arrangements, the Turkish partner may exercise substantial control over daily business activities, banking relationships, accounting records, and commercial decisions.
Disputes may arise when the foreign shareholder believes that the local partner is exercising management powers contrary to the company’s interests or the parties’ original agreement.
Common examples include:
- Entering into significant transactions without consulting the foreign shareholder.
- Using company assets for personal purposes.
- Transferring company funds to related parties.
- Making important business decisions without obtaining contractually required approvals.
- Restricting the foreign shareholder’s access to financial information.
- Acting beyond agreed management responsibilities.
Under Turkish corporate law, directors and managers are subject to statutory duties, including duties of care and loyalty.
Article 369 of the TCC requires members of the board of directors of joint-stock companies, and persons entrusted with management, to perform their duties with the care of a prudent manager and to safeguard the company’s interests in good faith.
Under Article 644 of the TCC, relevant liability provisions also apply to managers of limited liability companies.
Where directors or managers breach their statutory obligations and cause damage, legal liability may arise under the applicable provisions of the TCC.
However, not every unsuccessful commercial decision constitutes misconduct or gives rise to personal liability. The circumstances of the decision, the duties breached, the damage suffered, and the causal relationship must be assessed.
Legal Remedies
Depending on the circumstances, foreign shareholders may consider challenging unlawful corporate resolutions, seeking the removal of managers or directors, requesting judicial intervention where available, or pursuing liability claims against responsible persons.
The appropriate remedy depends on the company’s legal form, the foreign investor’s shareholding percentage, and the nature of the alleged misconduct.
3. Denial of Access to Company Information and Financial Records
Another significant issue faced by foreign shareholders in Turkish companies is the inability to obtain reliable information regarding the company’s financial condition and business activities.
This problem is particularly relevant where the Turkish partner exercises management authority and controls the company’s accounting and operational records.
A foreign shareholder may become concerned when:
- Financial statements are not provided.
- Requests for information regarding company transactions remain unanswered.
- Accounting records reveal unexplained payments.
- Company revenues do not correspond with reported profits.
- Management refuses to disclose transactions involving related parties.
Turkish law provides shareholders with statutory information and inspection rights, although their scope and exercise differ depending on the company type.
3.1. Information Rights in Turkish Joint-Stock Companies
Under Article 437 of the TCC, shareholders of joint-stock companies have the right to obtain information and conduct examinations within the statutory framework.
Shareholders may request information concerning the company’s affairs during general assembly meetings.
The company’s management may refuse to provide information where disclosure would reveal company secrets or jeopardize other legitimate company interests.
However, such restrictions cannot be applied arbitrarily.
If a shareholder’s request for information or examination is unlawfully denied, the shareholder may apply to the competent commercial court in accordance with Article 437 of the TCC.
3.2. Information Rights in Turkish Limited Liability Companies
Article 614 of the TCC grants shareholders of limited liability companies the right to request information concerning company affairs and to examine company records.
Managers may restrict access where there is a risk that the information will be used in a manner detrimental to the company.
In such circumstances, the general assembly may be involved in reviewing the restriction.
Where a shareholder’s information rights are unjustifiably denied, judicial remedies may be available under Article 614.
Why Is This Important for Foreign Investors?
Access to accurate company information is essential for assessing the value of an investment, identifying possible misconduct, and exercising shareholder rights effectively.
Foreign shareholders should therefore ensure that their investment arrangements contain appropriate reporting obligations and contractual mechanisms for financial transparency.
These provisions may include periodic financial reporting, independent audit arrangements, and clearly defined access rights, subject to applicable Turkish law.
4. Disputes Concerning Profit Distribution and Dividend Payments
Disagreements over dividend distributions frequently arise between foreign investors and Turkish partners.
A foreign shareholder may expect to receive periodic returns on an investment, while the controlling shareholder may prefer to retain profits within the company.
Although retaining profits may be commercially justified, disputes can arise where dividend policies are allegedly used to disadvantage minority shareholders.
For example, a Turkish majority shareholder may repeatedly vote against dividend distributions while receiving substantial remuneration or other economic benefits through management positions or related-party transactions.
In such circumstances, the foreign shareholder may argue that the majority is exercising its voting power in a manner inconsistent with the principles of good faith and equal treatment.
Can a Turkish Company Refuse to Distribute Dividends?
Under Turkish law, shareholders do not have an unconditional right to demand dividend payments merely because the company has generated profits.
Dividend distributions must comply with statutory requirements, including the rules concerning distributable profits, legal reserves, and corporate decision-making.
For joint-stock companies, Articles 507 and following of the TCC regulate shareholders’ participation in profits and relevant distribution principles.
The general assembly generally determines dividend distributions within the applicable statutory framework.
However, general assembly resolutions may be subject to judicial review where they violate the law, the articles of association, or the principle of good faith.
Under Article 445 of the TCC, eligible persons may seek the annulment of unlawful general assembly resolutions of joint-stock companies.
In limited liability companies, the corresponding rules must be assessed under the provisions governing limited companies, including Article 622 of the TCC.
Legal Remedies
Depending on the circumstances, foreign shareholders may challenge unlawful dividend resolutions, examine whether controlling shareholders have abused their position, or pursue other remedies available under Turkish corporate law.
The mere absence of a dividend distribution does not automatically establish a legal violation. The company’s financial position, investment needs, corporate decisions, and the circumstances surrounding the distribution policy must be considered.
5. Abuse of Majority Power and Protection of Minority Shareholders
Minority shareholders may face particular difficulties when the majority shareholder controls both corporate decision-making and management.
This situation is common in foreign investment structures where a foreign investor acquires a minority stake in an existing Turkish company.
Potential disputes include attempts to exclude the foreign investor from management, restrictions on access to information, questionable related-party transactions, and corporate resolutions that disproportionately benefit controlling shareholders.
Turkish corporate law contains various mechanisms intended to protect shareholders against unlawful corporate conduct.
5.1. Minority Shareholder Rights in Joint-Stock Companies
Under Article 411 of the TCC, shareholders representing at least one-tenth of the share capital of a non-public joint-stock company, or one-twentieth of the share capital of a publicly held joint-stock company, may exercise certain minority rights concerning the convening of general assembly meetings and the addition of agenda items.
The articles of association may provide for lower thresholds.
Furthermore, shareholders satisfying the relevant statutory conditions may request the appointment of a special auditor under Articles 438 and following of the TCC.
Special audits can be particularly relevant where foreign shareholders suspect irregularities in financial transactions or company management.
However, special audit requests are subject to statutory requirements and cannot be used as an unrestricted investigation mechanism.
5.2. Minority Shareholder Rights in Limited Liability Companies
Limited liability companies are governed by a different statutory framework.
Under Article 636 of the TCC, a shareholder may request the dissolution of a limited liability company for just cause.
Rather than ordering dissolution, the court may decide that the claimant shareholder should leave the company upon payment of the actual value of their share or may adopt another appropriate and acceptable solution.
This provision can be particularly important where the relationship between foreign and Turkish shareholders has deteriorated to the point that continued cooperation is no longer commercially viable.
Nevertheless, dissolution is a serious remedy, and whether just cause exists must be assessed in light of the specific facts.
6. Shareholder Deadlock in Turkish Joint Ventures
Foreign investors frequently enter the Turkish market through joint ventures with local business partners.
A common structure involves equal ownership, with each shareholder holding 50% of the company’s shares.
Although equal ownership may initially appear balanced, it can create significant difficulties when shareholders disagree over fundamental business decisions.
A shareholder deadlock may arise where the parties cannot agree on matters such as:
- Appointment or removal of directors.
- Approval of annual budgets.
- Capital increases.
- Major investments or asset disposals.
- Distribution of dividends.
- Changes in the company’s business strategy.
Where the shareholders have equal voting power, disagreements may prevent the company from adopting necessary resolutions.
This can seriously affect the company’s operations and financial stability.
How Can Shareholder Deadlocks Be Resolved Under Turkish Law?
The available solutions depend on the company’s legal structure and the agreements between the shareholders.
Shareholders’ agreements may contain contractual deadlock resolution mechanisms, including escalation procedures, mediation, or agreed share purchase arrangements.
Other mechanisms may involve put options, call options, or buy-sell provisions.
However, the enforceability and implementation of such arrangements under Turkish law require careful consideration, particularly in relation to mandatory corporate rules and applicable share transfer requirements.
Where contractual mechanisms are unavailable or ineffective, judicial remedies may become necessary.
For limited liability companies, Article 636 of the TCC may provide a possible legal basis for dissolution proceedings where the deadlock constitutes just cause.
For joint-stock companies, Article 531 of the TCC permits shareholders meeting the applicable statutory shareholding threshold to request dissolution for just cause.
Under Article 531, shareholders representing at least one-tenth of the capital, or one-twentieth in publicly held companies, may bring such an action.
Instead of ordering dissolution, the court may decide on the payment of the actual value of the claimant shareholders’ shares and their removal from the company or another appropriate and acceptable solution.
These remedies are subject to judicial discretion and the specific circumstances of the dispute.
7. Share Transfer Restrictions and Exit Disputes
One of the most challenging situations for a foreign investor arises when the relationship with a Turkish business partner deteriorates and the investor wishes to exit the company.
Although selling shares may appear to be a straightforward solution, Turkish corporate law imposes different requirements depending on the company’s legal form.
7.1. Share Transfers in Turkish Limited Liability Companies
Under Article 595 of the TCC, the transfer of shares in a limited liability company is subject to specific formal requirements.
As a general rule, the share transfer agreement must be executed in writing, and the parties’ signatures must be notarized.
Unless otherwise provided in the articles of association, the transfer also requires approval by the general assembly.
The articles of association may impose additional restrictions or prohibit transfers, subject to the applicable statutory framework.
Consequently, a foreign shareholder seeking to sell its shares may encounter difficulties if the required corporate approval is not granted.
7.2. Share Transfers in Turkish Joint-Stock Companies
The transferability of shares in joint-stock companies depends on factors such as the type of shares and applicable legal or contractual restrictions.
Registered shares may be subject to restrictions under Articles 491 and following of the TCC.
In certain circumstances, the company may refuse to approve a transfer based on legally permissible grounds.
Foreign investors should therefore examine the company’s articles of association and any applicable shareholders’ agreement before acquiring shares.
Contractual Exit Mechanisms
Shareholders’ agreements may provide contractual mechanisms intended to facilitate an investor’s exit.
Common mechanisms include tag-along rights, drag-along rights, put options, and call options.
However, incorporating these provisions into an investment agreement does not eliminate mandatory requirements under Turkish corporate law.
Particular attention should be paid to the distinction between contractual obligations to transfer shares and the legal requirements necessary to complete an effective share transfer.
8. Can a Foreign Shareholder Sue a Turkish Business Partner?
Foreign shareholders may initiate legal proceedings in Turkey to protect their rights, provided that the relevant substantive and procedural requirements are satisfied.
The appropriate legal action depends on the nature of the dispute.
For example, a foreign shareholder may seek:
- Annulment of unlawful general assembly resolutions.
- Judicial protection of information and inspection rights.
- Removal of managers where legally permitted.
- Compensation for losses arising from breaches of statutory duties.
- Dissolution of the company for just cause.
- Enforcement of obligations arising under a shareholders’ agreement.
It is important to distinguish between claims belonging to the company and claims that shareholders may pursue in their own capacity.
For instance, where unlawful management conduct causes damage directly to the company, the legal basis of the claim and the person entitled to receive compensation must be determined under the relevant liability provisions.
Not every financial loss suffered indirectly through a reduction in share value gives rise to an independent personal compensation claim by the shareholder.
Which Courts Have Jurisdiction Over Shareholder Disputes in Turkey?
Corporate disputes arising under the TCC are generally considered commercial disputes.
Depending on the nature of the claim, proceedings may fall within the jurisdiction of the Turkish commercial courts of first instance.
However, certain disputes may be subject to arbitration if they are legally arbitrable and covered by a valid arbitration agreement.
The jurisdiction of Turkish courts, the validity of jurisdiction agreements, and the possibility of arbitration must be evaluated separately.
Foreign investors should also consider potential procedural requirements, litigation costs, evidence collection, and the enforcement of judgments.
9. Arbitration and Alternative Dispute Resolution in Shareholder Disputes
International investors frequently prefer arbitration because of its procedural flexibility and potential advantages in cross-border disputes.
Shareholders’ agreements involving foreign investors may contain arbitration clauses referring disputes to institutions such as the International Chamber of Commerce (ICC) or the Istanbul Arbitration Centre (ISTAC).
Nevertheless, the existence of an arbitration clause does not necessarily mean that every dispute involving the company can be resolved through arbitration.
Are Shareholder Disputes Arbitrable Under Turkish Law?
The arbitrability of shareholder disputes depends on the subject matter of the dispute and the applicable legal framework.
Contractual disputes arising from shareholders’ agreements, such as certain claims for damages or contractual performance, may generally be suitable for arbitration.
By contrast, disputes concerning the validity of corporate resolutions, the legal status of the company, or rights affecting third parties may raise additional questions concerning arbitrability and the binding effect of an arbitral award.
Accordingly, arbitration clauses should be drafted with careful consideration of the types of disputes likely to arise.
A poorly drafted arbitration clause may create additional procedural complications rather than facilitate dispute resolution.
Mediation in Turkish Shareholder Disputes
Mediation may also provide an effective means of resolving disputes between foreign and Turkish shareholders.
In certain commercial disputes involving monetary claims, mediation is a mandatory prerequisite before commencing court proceedings under Article 5/A of the TCC.
However, mandatory mediation does not apply to every shareholder dispute.
For example, the applicability of mandatory mediation to an action seeking the annulment of a general assembly resolution must be assessed differently from a claim seeking payment of a contractual debt.
Voluntary mediation may nevertheless be considered where the parties wish to preserve their business relationship or negotiate an orderly separation.
10. How Can Foreign Investors Prevent Shareholder Disputes in Turkey?
Although shareholder disputes cannot always be avoided, appropriate legal planning can substantially reduce the risks associated with investing alongside Turkish partners.
One of the most important preventive measures is the preparation of a comprehensive shareholders’ agreement before the investment is completed.
A properly structured shareholders’ agreement should clearly regulate the parties’ expectations, rights, and obligations.
Key Provisions to Consider in a Shareholders’ Agreement
Corporate Governance and Management Rights
The agreement should establish how directors or managers are appointed, which decisions require shareholder approval, and whether certain matters are subject to veto rights.
Financial Reporting and Inspection Rights
Foreign investors should consider provisions requiring regular financial statements, management reports, and access to relevant financial information.
Reserved Matters
Certain significant transactions may require the prior approval of the foreign investor.
These may include substantial borrowing, related-party transactions, acquisitions, major asset disposals, or changes in business activities.
The corporate implementation of such approval rights should be assessed under the mandatory provisions of Turkish law.
Dividend Distribution Policy
The shareholders may establish agreed principles concerning dividend distributions, subject to statutory requirements and the powers of the company’s competent corporate bodies.
Share Transfer Restrictions
The agreement should address the circumstances in which shareholders may transfer their interests and the rights of the remaining shareholders.
Deadlock Resolution Mechanisms
Particularly in equal-shareholding joint ventures, contractual mechanisms should be established to address situations in which shareholders cannot agree on essential corporate decisions.
Exit Rights
Put options, call options, tag-along rights, drag-along rights, and other exit arrangements should be structured in accordance with Turkish law.
Dispute Resolution
The agreement should clearly determine the governing law and the mechanism for resolving disputes, taking into account jurisdictional and arbitrability requirements.
Importantly, contractual protections should be coordinated with the articles of association and the company’s actual governance structure.
11. What Should a Foreign Shareholder Do When a Dispute Arises?
When a shareholder dispute arises, foreign investors should carefully evaluate their legal position before taking action.
The first step generally involves examining the company’s articles of association, shareholders’ agreement, corporate records, and relevant correspondence.
The investor should then identify the precise nature of the alleged violation and determine whether the claim arises from statutory shareholder rights, contractual obligations, or management misconduct.
Particular attention should be paid to applicable limitation periods and procedural deadlines.
For example, under Article 445 of the TCC, an action for the annulment of a joint-stock company’s general assembly resolution is generally subject to a three-month period from the date of the resolution.
Missing applicable deadlines may result in the loss of important legal remedies.
Foreign shareholders should also preserve relevant evidence, including financial records, shareholder communications, general assembly minutes, and documents concerning disputed transactions.
Depending on the circumstances, interim legal protection may be available where the statutory requirements are satisfied.
Where continued cooperation is commercially feasible, negotiated settlement or mediation may offer a more efficient solution.
However, where the dispute involves serious allegations of misconduct, asset diversion, or unlawful corporate decisions, timely judicial action may be necessary to protect the investment.
12. Frequently Asked Questions About Shareholder Disputes in Turkey
Can a foreign shareholder file a lawsuit against a Turkish partner?
Yes. Foreign shareholders may bring legal proceedings against Turkish business partners where a valid legal basis exists. Depending on the circumstances, claims may arise from breaches of a shareholders’ agreement, unlawful corporate conduct, or violations of statutory duties.
Can a Turkish partner remove a foreign shareholder from the company?
A Turkish partner cannot arbitrarily remove a foreign shareholder merely because of a disagreement. The compulsory removal of shareholders is subject to specific statutory conditions and procedures, which differ between limited liability companies and joint-stock companies.
What happens if a Turkish business partner refuses to share financial information?
Foreign shareholders may exercise their statutory information and inspection rights under the applicable provisions of the TCC. Where access is unlawfully denied, judicial remedies may be available, particularly under Articles 437 and 614 of the TCC.
Can a foreign shareholder force a Turkish company to distribute dividends?
A foreign shareholder generally cannot demand dividend payments solely because the company has generated profits. However, unlawful dividend resolutions or conduct involving an abuse of shareholder rights may be challenged where the statutory requirements are satisfied.
Can a foreign investor exit a Turkish company without the consent of the Turkish partner?
The answer depends on the company’s legal form, its articles of association, and the applicable contractual arrangements. In limited liability companies, share transfers are generally subject to statutory formalities and may require general assembly approval. Other statutory or contractual exit mechanisms may be available depending on the circumstances.
Can a shareholder dispute in Turkey be resolved through international arbitration?
Certain contractual shareholder disputes may be resolved through international arbitration where a valid arbitration agreement exists. However, not all corporate disputes are necessarily arbitrable under Turkish law. The nature of the dispute and the effects of the requested relief must be examined.
Can a foreign shareholder request the dissolution of a Turkish company?
Under certain circumstances, yes. Article 531 of the TCC provides a just-cause dissolution mechanism for qualifying shareholders of joint-stock companies, while Article 636 regulates just-cause dissolution requests in limited liability companies. Courts may consider alternative remedies instead of dissolution.
Conclusion
Shareholder disputes between foreign and Turkish partners can create substantial legal and financial risks, particularly where disagreements concern corporate control, financial transparency, dividend distributions, or the transfer of shares.
Although Turkish corporate law provides various mechanisms for protecting shareholder rights, the availability and effectiveness of these remedies depend on the company’s legal structure, the investor’s shareholding percentage, and the specific circumstances of the dispute.
For foreign investors, carefully drafted shareholders’ agreements, appropriate corporate governance arrangements, and effective exit mechanisms are essential tools for reducing potential disputes.
When disagreements arise, identifying the appropriate legal remedy at an early stage is particularly important, as certain shareholder rights are subject to strict procedural requirements and deadlines.
Foreign investors establishing or acquiring companies in Turkey should therefore consider obtaining Turkish corporate law advice both before entering into a partnership and when a shareholder dispute emerges.
Professional legal assistance can help foreign shareholders assess their rights, evaluate potential claims, negotiate settlements, and pursue appropriate remedies under Turkish law.
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