SEO Title: Legal Due Diligence Before Investing in a Turkish Startup

Meta Description: Planning to invest in a startup in Türkiye? Learn how to conduct legal due diligence on shares, founders, IP, contracts, employees, KVKK compliance and regulatory risks.

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Foreign investment in Turkish technology companies has become increasingly common, particularly in software, fintech, artificial intelligence, gaming, e-commerce, SaaS, health technology and digital platforms.

However, investing in a promising startup is not simply a question of valuation, revenue growth or market potential.

Before transferring investment funds or acquiring shares, a foreign investor should determine whether the company legally owns what it claims to own, whether the founders actually control the shares they are offering, whether intellectual property rights belong to the company, and whether hidden liabilities may affect the investment after closing.

This process is generally referred to as legal due diligence.

A well-structured legal due diligence process can identify risks before an investor becomes legally and financially committed to the transaction.

What Is Legal Due Diligence in a Startup Investment?

Legal due diligence is the systematic examination of a target company’s corporate structure, ownership, contracts, liabilities, regulatory position, intellectual property, employment relationships, litigation and other legal matters before an investment or acquisition.

For a startup investment in Türkiye, due diligence usually takes place before the execution or completion of documents such as:

• a Share Purchase Agreement;
• a Share Subscription Agreement;
• an Investment Agreement;
• a Shareholders’ Agreement;
• a convertible financing agreement;
• or another document through which the investor will obtain an economic or governance interest in the company.

The purpose is not merely to confirm that the company legally exists.

The investor must understand exactly what is being purchased and what legal risks accompany the investment.

Can Foreign Investors Invest in Turkish Startups?

As a general principle, yes.

Türkiye’s Foreign Direct Investment Law adopts the principles of freedom to invest and equal treatment. Foreign investors are generally entitled to make direct investments in Türkiye and, subject to special legislation, are treated equally with domestic investors. The legislation also provides for transfers abroad of items such as profits, dividends and proceeds arising from the sale or liquidation of investments through banks or financial institutions.

Foreign investors may therefore acquire shares in Turkish companies without needing a Turkish shareholder merely because they are foreign.

The official Invest in Türkiye guidance similarly states that the rules applicable to establishing businesses and transferring shares generally apply equally to domestic and international investors. Joint stock companies and limited liability companies are among the most commonly used corporate forms.

However, the fact that foreign investment is generally permitted does not eliminate the need to examine:

• sector-specific licenses;
• foreign ownership restrictions applicable to certain activities;
• competition law approvals;
• capital markets rules;
• fintech regulations;
• banking regulations;
• payment services legislation;
• crypto asset regulations;
• telecommunications rules;
• personal data protection legislation;
• and other regulatory requirements.

This is why the target company’s actual business model must be understood before the transaction.

1. Verify the Company’s Legal Existence and Corporate Records

The first step should be establishing exactly which legal entity the investor is investing in.

A startup may use one brand while operating through several entities. For example, the Turkish company may employ the team while intellectual property is allegedly owned by a foreign holding company.

The investor should obtain and review at least:

• articles of association;
• Trade Registry Gazette records;
• current trade registry certificates;
• MERSIS records where relevant;
• board resolutions;
• general assembly resolutions;
• signature circulars or signature declarations;
• current management and representation structure;
• historical capital increases;
• historical share transfers;
• and corporate books relevant to the transaction.

Corporate registry transactions in Türkiye are conducted through the trade registry system, including MERSIS.

The investor should confirm that the information presented in the pitch deck is consistent with the company’s official corporate documentation.

A founder saying that he owns “60% of the company” is not enough.

The legal records must confirm it.

2. Confirm the Cap Table

The capitalization table is one of the most important documents in a startup investment.

A cap table may appear simple:

Founder A: 50%
Founder B: 30%
Early Investor: 10%
Employees: 10%

But the legal position may be considerably more complicated.

The due diligence should determine:

• who legally owns each share;
• whether shares are fully paid;
• whether previous transfers were validly completed;
• whether any options exist;
• whether convertible instruments exist;
• whether founders promised equity to employees or advisers;
• whether any third party has a call option;
• whether shares have been pledged;
• whether different share groups exist;
• whether any shareholder has privileged voting rights;
• and whether previous investment agreements contain anti-dilution rights.

A foreign investor should never rely solely on an Excel cap table prepared by the founders.

The cap table must be reconciled with legally binding documents.

Hidden Equity Promises Can Become a Serious Problem

Early-stage companies frequently promise equity informally.

For example:

“We promised 3% to our CTO.”

“We agreed to give 2% to an adviser.”

“Our first developer is entitled to shares after the next round.”

These arrangements can become serious disputes after a new investor enters the company.

Due diligence should therefore investigate not only issued shares but also potential future equity claims.

3. Review Previous Shareholders’ Agreements and Investment Agreements

Previous investors may have contractual rights that materially affect a new investor.

Important provisions may include:

• pre-emption rights;
• right of first refusal;
• veto rights;
• reserved matters;
• board appointment rights;
• information rights;
• anti-dilution protection;
• liquidation preference;
• founder vesting;
• drag-along rights;
• tag-along rights;
• exit rights;
• put options;
• call options;
• and restrictions on future financing.

A new investor may negotiate a 20% shareholding and later discover that an existing investor has contractual rights that significantly reduce the practical value of that stake.

Due diligence must therefore examine not only the company’s articles of association but also private agreements between shareholders.

4. Check Whether the Startup Actually Owns Its Intellectual Property

For many startups, intellectual property is the most valuable asset.

This is particularly important for:

• software companies;
• SaaS startups;
• artificial intelligence companies;
• gaming companies;
• fintech businesses;
• mobile applications;
• e-commerce platforms;
• biotechnology companies;
• and digital marketplaces.

The critical question is:

Does the company legally own the technology that creates its valuation?

Imagine an investor purchasing 25% of a software startup valued at EUR 10 million.

After closing, the investor discovers that the source code was originally created by a freelance developer and that no valid intellectual property assignment agreement was executed.

The company may operate the software, but ownership of the underlying rights may be disputed.

That can fundamentally affect the investment.

What Should Be Reviewed?

The legal team should review:

• employment agreements with developers;
• freelancer agreements;
• software development agreements;
• intellectual property assignment agreements;
• founder IP assignment documents;
• trademark registrations;
• patent applications;
• domain names;
• software licenses;
• open-source software usage;
• third-party APIs;
• database rights;
• and confidentiality agreements.

Trademark ownership can also be checked through the official Turkish Patent and Trademark Office search system.

Founder-Owned IP Is a Red Flag

A common startup problem is that the founder personally registered:

• the trademark;
• the domain;
• the mobile application account;
• or another important asset.

The investor should ordinarily require strategically important intellectual property to be owned or validly licensed by the company.

Where necessary, transfer of the relevant IP should become a condition precedent to closing.

5. Review Founder Relationships

Foreign investors often concentrate on the business and underestimate founder risk.

Legal due diligence should investigate:

• whether founders are full-time;
• whether founders are employees or directors;
• whether they have service agreements;
• whether they have competing businesses;
• whether they developed technology before the company was incorporated;
• whether vesting applies;
• whether there are good-leaver/bad-leaver provisions;
• and what happens if a founder leaves immediately after the investment.

Consider the following situation.

A foreign investor invests USD 2 million because two founders are considered essential to the business.

Three months after closing, one founder leaves the company while retaining 35% of its shares.

Without appropriate vesting or transfer mechanisms, the investor may have very limited protection.

Founder arrangements must therefore be reviewed before the money is transferred.

6. Investigate Employment Law Liabilities

A technology company’s biggest operational expense is often its workforce.

The legal review should determine whether:

• employees are properly registered;
• employment agreements exist;
• salaries are properly documented;
• overtime liabilities exist;
• unused annual leave has accumulated;
• former employees have claims;
• termination procedures were compliant;
• key employees have enforceable confidentiality obligations;
• intellectual property provisions exist;
• foreign employees have appropriate work authorization;
• and consultants are genuinely independent contractors rather than employees in substance.

A startup may appear to have little financial debt but still have substantial employment-related exposure.

A due diligence report should therefore identify potential liabilities arising from current and former personnel.

7. Review Material Commercial Contracts

A company’s financial projections may depend heavily on contracts that are legally fragile.

Material contracts may include:

• customer agreements;
• SaaS subscriptions;
• supplier agreements;
• distribution agreements;
• licensing agreements;
• cloud infrastructure contracts;
• reseller agreements;
• payment provider agreements;
• advertising contracts;
• strategic partnership agreements;
• and financing arrangements.

Particular attention should be given to change-of-control clauses.

A contract may allow an important customer or supplier to terminate the relationship if ownership of the startup changes.

This can be crucial where the investment itself triggers a change of control.

Questions That Should Be Asked

For each material contract:

• Can the agreement be terminated without cause?
• Is consent required for a share transfer?
• Is there a change-of-control provision?
• Are there minimum purchase commitments?
• Are there exclusivity restrictions?
• Are penalties applicable?
• Does the startup provide broad warranties?
• Are there unlimited indemnification obligations?
• Are intellectual property rights properly addressed?
• Which country’s law governs the contract?
• Where will disputes be resolved?

Revenue quality should therefore be assessed together with contract quality.

8. Check Existing Debt and Security Interests

The investor should establish the full debt position of the company.

This includes:

• bank loans;
• shareholder loans;
• founder loans;
• convertible loans;
• unpaid supplier invoices;
• tax liabilities;
• social security liabilities;
• guarantees;
• sureties;
• pledges;
• and other security interests.

A startup may state that it has “no bank debt” while owing significant sums to founders or related companies.

Related-party transactions should therefore receive particular attention.

9. Investigate Litigation, Enforcement Proceedings and Government Investigations

Due diligence should identify existing and threatened disputes.

These may include:

• commercial lawsuits;
• employee claims;
• intellectual property disputes;
• enforcement proceedings;
• consumer disputes;
• regulatory investigations;
• tax disputes;
• administrative fines;
• competition investigations;
• and data protection complaints.

The investor should also investigate whether founders or key officers are involved in disputes that could materially affect the company.

An apparently minor lawsuit may become material where the claimant challenges ownership of the company’s core technology.

10. KVKK and Data Protection Compliance

Data protection is particularly important for startups whose business models involve large volumes of user data.

The Turkish Personal Data Protection Law No. 6698, commonly referred to as KVKK, imposes obligations on data controllers concerning processing, transparency, data security and, where applicable, registration with the Data Controllers’ Registry.

The Turkish Data Protection Authority states that data controllers must provide information to data subjects regarding matters including the purpose of processing, recipients, collection method and legal basis.

Data controllers are also required to take necessary technical and organizational measures to prevent unlawful processing or access and to protect personal data.

Depending on the circumstances and applicable exemptions, registration with VERBİS may also need to be assessed.

For Technology Startups, Review:

• privacy notices;
• cookie practices;
• employee privacy documentation;
• customer data processing;
• cloud infrastructure;
• third-party processors;
• data processing agreements;
• international data transfers;
• marketing communications;
• security practices;
• data breach procedures;
• and processing of sensitive personal data.

This is particularly significant where the startup uses foreign infrastructure or artificial intelligence providers.

A Turkish startup may store customer data in Türkiye while sending parts of that data abroad for processing.

Such architecture should be examined separately under the rules governing international transfers of personal data. The current KVKK framework contains specific safeguards applicable to transfers abroad.

11. Check Whether the Startup Requires Regulatory Authorization

A startup calling itself a “technology company” does not necessarily operate in an unregulated sector.

The legal characterization of the business model matters more than the company’s own description.

Regulatory review becomes particularly important for:

• payment businesses;
• electronic money businesses;
• fintech companies;
• crypto asset businesses;
• crowdfunding platforms;
• investment services;
• insurance technology;
• health technology;
• telecommunications;
• online marketplaces;
• transportation platforms;
• and businesses handling regulated financial products.

For example, if the company’s revenue model effectively involves a regulated payment service, simply describing the activity as “software infrastructure” may not eliminate licensing requirements.

The legal team should therefore understand how money, data and contractual obligations actually flow through the platform.

12. Competition Law Should Not Be Ignored in Technology Investments

Some startup transactions may require review under Turkish merger control rules.

This is particularly significant for technology businesses.

Türkiye introduced specific merger-control treatment for certain “technology undertakings,” including businesses operating in fields such as digital platforms, software, gaming software, financial technologies, biotechnology and health technologies.

The Turkish Competition Authority further updated merger and acquisition rules in February 2026, including significant increases in applicable turnover thresholds. The Authority announced that the individual turnover threshold was increased from TRY 250 million to TRY 1 billion, the relevant aggregate Türkiye threshold from TRY 750 million to TRY 3 billion, and the relevant worldwide threshold from TRY 3 billion to TRY 9 billion.

Whether a particular startup investment constitutes an acquisition of control and whether Competition Board approval is required must be assessed on a transaction-specific basis.

Foreign investors should therefore consider competition clearance before closing, not after the shares have already been transferred.

13. Review Tax Risks

Legal due diligence and tax due diligence should normally work together.

Potential issues may include:

• unpaid corporate taxes;
• VAT exposure;
• withholding tax;
• payroll taxes;
• transfer pricing;
• related-party transactions;
• founder expenses paid by the company;
• employee stock arrangements;
• international payments;
• withholding on cross-border services;
• and previous tax audits.

A historical tax issue may remain with the company after an investor acquires shares.

This is one of the fundamental differences between buying shares and simply purchasing selected assets.

When investing through a share acquisition, the investor is acquiring an interest in a company that carries its historical liabilities with it.

14. Review Incentives and Grants

Many Turkish startups benefit from:

• R&D incentives;
• technology development zone advantages;
• TÜBİTAK programs;
• KOSGEB programs;
• investment incentives;
• or other public support.

The investor should determine:

• whether the company was actually eligible;
• whether incentive conditions continue to be satisfied;
• whether ownership changes trigger notification requirements;
• whether any amount may be clawed back;
• and whether the startup has complied with program conditions.

Government support should not automatically be treated as risk-free revenue.

15. Examine the Data Room Critically

A startup will normally establish a virtual data room containing documents requested by the investor.

However, the investor should not assume that everything important has been uploaded.

A proper due diligence process includes targeted questions.

For example:

“Please provide all agreements under which any person may claim a right to acquire shares.”

is considerably stronger than:

“Please provide shareholder documents.”

Similarly:

“Please provide all agreements under which software, source code, trademarks or other intellectual property were created by founders, employees, consultants or freelancers.”

is more effective than merely asking:

“Please provide IP documents.”

The quality of due diligence depends heavily on the quality of the questions.

16. What Are the Most Serious Red Flags?

Certain findings should receive immediate attention.

Common startup investment red flags include:

1. The founder does not legally own the shares he proposes to sell.
2. The cap table does not match corporate records.
3. Previous investors have undisclosed rights.
4. Core software was developed by freelancers without adequate IP assignment.
5. The trademark belongs personally to a founder.
6. A founder operates another competing company.
7. Employees were promised equity outside formal documentation.
8. Material customer contracts can be terminated upon a change of control.
9. The company is carrying out a potentially regulated activity without appropriate authorization.
10. Significant tax or social security liabilities exist.
11. Customer data is being transferred abroad without adequate compliance analysis.
12. Major litigation has not been disclosed.
13. The company has issued guarantees for founders or related companies.
14. A substantial part of reported revenue comes from related parties.
15. The investment may require regulatory or Competition Board approval.

Not every red flag requires abandoning the investment.

Some risks can be resolved before closing.

Others can be reflected in valuation or contractual protection.

17. How Can an Investor Protect Itself After Due Diligence?

Finding a problem is only the first step.

The transaction documents must allocate the risk.

Depending on the findings, an investor may require:

Conditions Precedent

Certain actions must occur before closing.

Examples:

• transfer of intellectual property to the company;
• obtaining regulatory approval;
• terminating problematic related-party agreements;
• correcting corporate records;
• obtaining third-party consent;
• settling specified litigation.

Representations and Warranties

Founders or sellers may represent that:

• the cap table is accurate;
• shares are validly owned;
• no undisclosed options exist;
• the company owns its IP;
• no material litigation has been concealed;
• taxes have been properly declared;
• material contracts disclosed are complete.

Indemnification

The agreement may provide financial protection where specified historical liabilities arise after closing.

Escrow or Holdback

A portion of the purchase price may be retained for a defined period to secure particular obligations.

Founder Vesting

Part of the founders’ equity may remain subject to continued involvement in the business.

Reserved Matters

Certain important company decisions may require investor approval.

Due diligence should therefore directly influence the Shareholders’ Agreement, Investment Agreement and Share Purchase or Subscription Agreement.

18. Should a Foreign Investor Hire a Turkish Lawyer?

For a meaningful investment, Turkish legal counsel can be particularly important because many relevant records, contracts, corporate documents, court records and regulatory materials are in Turkish.

Local legal counsel can assist with:

• corporate due diligence;
• cap-table verification;
• shareholder agreements;
• IP ownership;
• employment matters;
• litigation searches;
• regulatory compliance;
• KVKK compliance;
• competition law;
• investment agreements;
• share purchase agreements;
• closing documents;
• and post-closing corporate procedures.

The goal of legal due diligence is not to create a long report merely describing documents.

Its real purpose is to answer three practical questions:

What are the risks?

Can they be fixed?

If they cannot be fixed, how should the investor protect itself contractually or financially?

Frequently Asked Questions

Is legal due diligence mandatory before investing in a Turkish startup?

There is no general rule requiring every private startup investor to conduct due diligence. However, investing without proper due diligence can leave the investor exposed to undisclosed corporate, regulatory, tax, IP or contractual liabilities.

How long does startup legal due diligence take in Türkiye?

The timeframe depends on the size of the company, the quality of the data room and the complexity of the business. A focused early-stage startup review can be significantly faster than a full acquisition due diligence process involving multiple jurisdictions.

Can a foreign investor own all of a Turkish startup?

As a general rule, foreign investors can own 100% of an ordinary Turkish company. Sector-specific restrictions or authorization requirements must nevertheless be checked separately. Türkiye’s foreign investment framework is generally based on equal treatment of foreign and domestic investors.

Should intellectual property be transferred before investment?

Where critical IP is owned by founders, freelancers or another entity, the investor may require transfer or an appropriate licensing structure before closing.

Can a foreign investor access Turkish company records?

Certain corporate information is publicly accessible through registry systems and publications, while other internal information must generally be obtained through the company as part of the due diligence process.

What happens if due diligence discovers a major legal problem?

The investor may withdraw from the transaction, renegotiate valuation, require the issue to be remedied before closing, seek additional warranties or indemnities, restructure the transaction or retain part of the consideration.

Conclusion

Investing in a Turkish startup can provide significant opportunities, but a high-growth company may also carry legal risks that are not visible from its financial statements or pitch deck.

The most important areas for a foreign investor to examine include:

• corporate ownership;
• cap table accuracy;
• founder arrangements;
• intellectual property;
• employee liabilities;
• commercial contracts;
• debt;
• litigation;
• taxation;
• data protection;
• regulatory approvals;
• and competition law.

The fundamental principle is simple:

An investor should verify the legal foundation of the startup before relying on its valuation.

A company may have excellent technology, strong revenue growth and an impressive founder team, yet an unresolved share ownership problem, missing IP assignment or regulatory violation can materially reduce the value of the investment.

For this reason, legal due diligence should be completed before the investment funds are transferred and the final transaction documents are executed.

This article provides general information regarding Turkish law and does not constitute legal advice. The applicable rules should be reviewed according to the structure, sector and circumstances of each individual investment.