Shareholders' Agreement in Türkiye: Foreign Investor Guide

1. Do You Actually Need a Turkish Partner?

As a general rule, foreign investors do not need a Turkish shareholder simply to establish a company in Türkiye. Taking a local partner should normally be based on a defined commercial reason rather than an assumption that Turkish ownership is legally necessary.

Before agreeing on a 50/50, 60/40 or similar joint venture, ask what the Turkish partner is contributing. The contribution may include existing customers, sector experience, personnel, licences, distribution capacity, intellectual property, equipment, real estate, commercial contracts or local management.

Those contributions should be identified and, where appropriate, legally verified before ownership percentages are finalised. Giving a local partner 40% in exchange for cash or machinery is different from giving 40% in exchange for customer relationships or market access. The shareholders' agreement should reflect that actual commercial bargain.

2. Choose the Legal Structure Before Drafting

A joint venture in Türkiye may use a Turkish joint stock company, a Turkish limited liability company, a contractual joint venture or another project-specific structure. These alternatives do not create the same consequences for shareholder liability, management powers, representation, financing, share transfers, taxation or exit rights.

A contractual joint venture may offer flexibility for a specific project but can create liability risks that differ from those of a Turkish joint stock or limited liability company. The commercial objective should therefore be defined first and the legal structure designed around it. Establishing a company and negotiating protections afterwards can reduce the available options.

3. Review the Turkish Partner and Company

A well-drafted shareholders' agreement cannot eliminate every risk created by choosing the wrong business partner. Where a foreign investor is acquiring shares in an existing Turkish company, legal due diligence should normally take place before closing.

Depending on the transaction, the review may cover ownership, management powers, major debts, security interests, litigation, enforcement proceedings, material contracts, licences, intellectual property, employment liabilities and corporate records. Related-party transactions and group relationships deserve particular attention.

Due diligence also matters for a newly established company when the local partner promises to contribute a trademark, customer portfolio, licence, distribution network, machinery or another asset. The investor should verify whether the partner owns or controls the asset and whether it can legally be transferred or made available to the joint venture.

The findings should feed directly into the transaction documents. A risk identified during diligence may require a warranty, indemnity, closing condition, information right or governance restriction.

4. Coordinate the Agreement and Articles of Association

A shareholders' agreement primarily creates contractual obligations between its parties. The articles of association form part of the Turkish company's corporate structure. This distinction matters when the parties regulate board appointments, management powers, voting arrangements, reserved matters, shareholder rights or share transfers.

Where Turkish law permits, certain protections may need to be reflected in the articles of association or implemented through appropriate corporate arrangements. Other obligations may remain contractual and require contractual remedies if breached. Not every clause from an international agreement can simply be copied into the articles of a Turkish company.

The two documents should be designed and reviewed together, including the company's governance, signature authorities, share transfer procedures and resolution mechanics.

5. Share Percentage Does Not Always Mean Control

A foreign investor may own 40% or 49% of a Turkish company but still have limited practical influence if governance has not been properly negotiated. Ownership and control should be analysed separately.

The investor should determine who appoints the board, who manages the company, who controls bank accounts and which decisions can be taken without its approval. Depending on the investment, protections may cover board representation, senior management appointments, annual budgets, business plans, major borrowing, significant expenditure, acquisitions, asset sales, banking authorities, intellectual property and new share issuances.

The right balance depends on the investor's role. A technology company contributing valuable IP may need strong licensing and IP rights; a financial investor may focus on debt, distributions, reporting and exits; and a strategic investor involved in operations may need broader management rights.

6. Use Reserved Matters for Important Decisions

Reserved matters are decisions that cannot be taken without the approval of a specified shareholder or shareholder group. They are especially important where the foreign investor does not control a majority of voting rights.

Typical reserved matters may include major borrowing, security over company assets, acquisitions, disposals, capital increases, new share issuances, changes to the business, major IP transactions, senior management appointments, related-party transactions, mergers and liquidation. Financial thresholds can keep ordinary operations within management authority while requiring approval for material transactions.

The aim is not to give every shareholder a veto over daily decisions. An excessively broad veto structure can make the company difficult to operate. The list should focus on decisions that could materially change the value, risk or direction of the investment.

7. Minority Protection Requires Information and Economics

A minority foreign shareholder cannot protect its investment effectively if it does not know what is happening inside the company. Information rights can therefore be as important as voting rights.

The agreement may address periodic financial reporting, management accounts, annual statements, independent audits, access to corporate records, material litigation and regulatory investigations. It should also explain how future capital increases may affect the investor's percentage ownership.

Effective minority protection is usually a combination of four elements:

• Control rights: board representation and approval rights for material decisions.
• Information rights: timely financial, operational and risk reporting.
• Economic protection: distributions, funding rules and protection against unfair dilution.
• Exit rights: practical transfer, sale and valuation mechanisms.

8. Control Related-Party Transactions

Related-party transactions are particularly important where the Turkish shareholder owns other companies in the same industry. The joint venture may legitimately buy logistics, consultancy, raw materials, management services, office space or equipment from a shareholder's group.

However, the parties should decide how those transactions are approved. Protections may include prior disclosure, arm's-length terms, approval by the non-interested shareholder, independent valuation or agreed financial thresholds. These issues are easier to regulate while the shareholders still have a good working relationship.

9. Agree Funding and Dilution Before a Shortfall

Many shareholder disputes begin when a company needs additional money. The business may require working capital, expansion financing or additional investment after unexpected losses. The agreement should address whether future funding will use additional equity, shareholder loans, third-party bank financing or a combination.

More importantly, it should determine what happens if one shareholder is willing to fund the company and the other is not. Questions include whether contributions are mandatory, whether they must be proportional, whether shareholder loans can be used, and whether failure to contribute can result in dilution or another contractual consequence.

A clause stating only that future financing will be agreed between the shareholders may offer little protection once the shareholders are already in disagreement. Anti-dilution and pre-emption mechanics should be drafted to match the actual financing model.

10. Protect Intellectual Property and Know-How

Foreign investors often contribute trademarks, software, designs, manufacturing processes, technical information, confidential know-how, patents or commercial databases in addition to capital.

The agreement should distinguish IP that existed before the joint venture from IP developed afterwards. It should determine whether the Turkish company will own the relevant rights or receive a licence, and address licence duration, permitted use, sublicensing, newly created IP, trademark registrations, employee-created IP, confidentiality and post-termination rights.

The parties should also decide what happens when a shareholder leaves. Can the Turkish company continue using the brand? Can the local shareholder use the technology elsewhere? Who owns improvements created during the partnership? These questions materially affect investment value.

11. Negotiate Exit Rights Before They Are Needed

Exit provisions are easiest to negotiate when both shareholders expect the joint venture to succeed. Once the relationship has deteriorated, agreeing on an exit can become much harder.

Depending on the structure and applicable Turkish corporate law framework, the agreement may use pre-emption rights, tag-along rights, drag-along rights, put options and call options. A tag-along right may protect a minority foreign investor if the majority shareholder sells to a third party. A put option may provide an exit after an agreed event, while a call option may allow one shareholder to acquire the other's stake in specified circumstances.

Simply naming an exit mechanism is not enough. The agreement should state when the right arises, how it is exercised, how price is calculated, when payment is made and what happens if a party refuses to complete the transfer.

12. Define a Workable Valuation Mechanism

A clause requiring a transfer at "fair market value" may create another question rather than answer the original one. The agreement may need to specify who appoints the valuer, the valuation date, treatment of debt and shareholder loans, any minority discount and the process if experts disagree.

Different businesses may require different methods. EBITDA multiples may suit one company, while an asset-based or discounted cash-flow approach may be more appropriate for another. The valuation mechanism should be designed around the actual business, especially when linked to a put option, call option, deadlock or shareholder default.

13. Build a Deadlock Mechanism

Deadlock is obvious in a 50/50 joint venture, but it can also arise where a minority shareholder has approval rights over important decisions such as the annual budget, financing or appointment of a general manager.

A simple obligation to negotiate in good faith may not be enough. A structured mechanism may involve management negotiations, escalation to senior shareholder representatives, mediation, independent expert determination for technical matters or an agreed exit process. Put and call rights, buy-sell procedures, a third-party sale or ultimately liquidation may also be considered.

The mechanism should be tested against the parties' real financial position and bargaining power. A buy-sell procedure that appears neutral on paper may disadvantage a smaller or less liquid shareholder.

14. Choose the Agreement Language Deliberately

English is commonly used in international transactions involving Turkish companies, but language is not only a drafting preference. Law No. 805 on the Compulsory Use of Turkish by Economic Enterprises may become relevant depending on the parties and transaction structure.

Turkish courts have not always taken the same approach to every foreign-language agreement. An English-only agreement may therefore create evidentiary or enforceability risks in some circumstances. The appropriate structure should consider the parties, Turkish entities involved, place of performance, provisions likely to be enforced in Türkiye and the dispute mechanism.

For some transactions, parallel Turkish and English texts may be appropriate. The language decision should be made for the specific transaction rather than inherited from an international group's standard template.

15. Adapt Foreign Templates to Turkish Law

An English, US, Swiss or other foreign-law shareholders' agreement can be a useful commercial starting point. It does not mean every clause will operate in the same way under Turkish law.

Particular review may be needed for corporate voting, board powers, share transfers, capital increases, limitation of liability, penalties, options, non-compete provisions and shareholder resolutions. The Turkish company's articles of association and mandatory corporate law rules may also affect the result.

The question is not whether a clause is internationally common. The question is whether it will achieve the intended result in the Turkish corporate structure.

16. Treat Governing Law and Arbitration as Core Terms

Dispute provisions are often left until the end of negotiations, even though they may be among the most important provisions for a foreign investment. The parties should decide the governing law and whether disputes will be resolved by courts or arbitration.

If arbitration is selected, the agreement should also address the institution, seat, language, number of arbitrators and scope of the arbitration agreement. ICC or ISTAC may be considered depending on the transaction. Arbitration is not automatically appropriate: value, cost, confidentiality, interim relief, enforcement strategy and asset location all matter.

The clause must be internally consistent. Poorly coordinated references to both courts and arbitration can create a jurisdictional dispute before the parties reach the underlying commercial disagreement.

17. Check Regulatory Requirements Before Closing

Corporate approval is not always the only approval required for an investment in Türkiye. Depending on the size and nature of the transaction, competition law clearance may be required. Regulated sectors may also have rules concerning foreign ownership, management, licences or operational approvals.

These issues should be identified before the parties commit to a closing timetable. If an approval is required, the transaction documents should allocate responsibility for the application, information delivery, conditions to closing and the consequences of delay or refusal. Discovering a regulatory problem after signing can affect timing and negotiating leverage.

18. Implement the Agreement After Signing

Signing is not the end of the legal process. The agreed protections must also be implemented at the Turkish company level.

• Complete board appointments and update representation authorities or authorised signatories.
• Amend the articles of association where required and legally permitted.
• Implement share transfers through the applicable corporate procedures.
• Update corporate books, resolutions and governance records.
• Assess reporting obligations for foreign investment, capital and relevant share transfers, including any applicable E-TUYS process.

A carefully negotiated agreement that is not properly implemented may fail to provide the protection the parties intended.

Foreign Investor Review: Questions Before Signing

Before completing a Turkish joint venture or shareholders' agreement, the foreign investor should be able to answer these questions:

1. Partner and assets: Have the company, relevant assets and key obligations been legally reviewed?
2. Structure: Why is this company or joint venture structure being used, and how does it affect liability and control?
3. Control: Who appoints management, controls bank accounts and approves important decisions?
4. Information: What financial and operational information will be received, and how quickly will material problems be reported?
5. Funding: What happens if the company needs capital and one shareholder refuses to provide it?
6. Dilution: Can new shares be issued in a way that reduces the foreign investor's percentage?
7. Related parties: Who approves transactions with businesses connected to the other shareholder?
8. IP: Who owns the brand, technology and know-how, and what happens after exit?
9. Transfers and exit: Can the partner sell without consent, and are tag-along, drag-along, put, call and valuation rights workable?
10. Deadlock: What happens if the shareholders cannot agree on a fundamental decision?
11. Documents and language: Are the agreement and articles consistent, and has the Turkish/English structure been assessed?
12. Disputes and regulation: Which law applies, where will disputes be resolved, and are competition, sector or post-closing requirements satisfied?

Frequently Asked Questions

Why the Overall Structure Matters

A shareholders' agreement in Türkiye should not be treated as a checklist of standard clauses. A tag-along clause may be appropriate but badly drafted. A veto right may fail to cover the decision that actually threatens the investment. An English-language agreement may conflict with the Turkish company's corporate documents, and a familiar arbitration clause may be unsuitable for the transaction.

For a foreign investor, the shareholders' agreement, articles of association, diligence findings, financing arrangements, IP structure, regulatory requirements and dispute strategy should be considered as parts of the same investment. The strongest structures address these issues before closing and are then implemented at company level.

This guide provides general information on Turkish law and does not constitute legal advice. The appropriate structure depends on the parties, sector, investment model and circumstances of each transaction.