In Turkish capital companies, corporate decision-making is governed by capital majority. The principle is structurally sound – but it leaves minority shareholders exposed to exclusion and, in the worst case, systematic abuse. When majority control crosses the line from legitimate governance into oppressive conduct, the central question becomes: what legal tools are available to protect the minority’s interests, and how far do they reach?
Turkish law affords minority shareholders a range of protective mechanisms. Certain corporate actions that fundamentally affect the company’s structure or existence – amendments to the articles of association, capital restructuring, mergers and demergers – require a supermajority vote. Where a minority shareholder holds a stake above the relevant threshold, it can block any such resolution outright. These safeguards, however, do not provide real-time oversight or control over management.
A key structural limitation lies in board composition. Absent preferential rights attached to specific share classes, the majority controls the board entirely – excluding the minority from day-to-day management. Majority control is not without boundaries: statutory information and inspection rights must be respected, dividends cannot be arbitrarily withheld, and resolutions contrary to mandatory law remain subject to challenge. But these are guardrails, not levers of control.
Among the available safeguards, information and inspection rights are the most immediate: shareholders may demand access to the company’s books and seek judicial relief where the board obstructs such access. Minority shareholders may also apply for a special auditor, request the convening of a general assembly, and challenge unlawful resolutions through annulment or nullity actions. Director liability proceedings offer an additional avenue for recovering damages. These tools are significant, but they share a common limitation: none displaces majority control while proceedings unfold – often over several years.
Perhaps the most consequential remedy is the action for dissolution on just grounds under Article 531 of the Turkish Commercial Code No. 6102 (“TCC”). Where the continuation of the company has become unconscionable owing to the shareholder relationship, the court may order dissolution or adopt proportionate alternatives – most notably, a compulsory buyout of the minority’s shares at fair value. Because the remedy places the company’s very existence at stake, it operates as a structural threat that compels the majority to engage. The evidentiary threshold, however, is high, and Turkish courts apply it with considerable restraint.
Critically, all of these remedies depend on court intervention – a process that may take months for procedural relief and years for substantive claims. Throughout, the majority and its appointed directors remain in control. Even effective injunctive relief rarely displaces that control entirely.
This raises the central question: can the majority be displaced from corporate control during a dispute by way of injunctive relief? The answer is not straightforward. Turkish courts hold general authority to issue interim measures necessary to protect the subject matter of a dispute, and it is in this context that the most intrusive form of interim relief – the judicial appointment of a trustee – is most frequently sought.
A trustee, in this context, is a court-appointed individual vested with authority over the company’s management or supervision. Turkish law recognizes two principal forms: the management trustee and the supervisory trustee. Neither has an express statutory basis in shareholder conflict. The TCC contemplates trusteeship only in a narrow procedural sense – the court-ordered convening of a general assembly. The legal foundation for a management trusteeship derives instead from the Turkish Civil Code, which authorizes judicial intervention where a legal entity has been deprived of its mandatory corporate organs – a condition referred to in Turkish legal doctrine as “organ deficiency.” It arises where the board has resigned, its term has expired without replacement, or the general assembly is incapable of convening. The remedy addresses the structural absence of a functioning decision-making body – not the quality or propriety of management decisions.
The supervisory trustee serves a different purpose. Rather than replacing management, a supervisory trustee monitors the board’s conduct and may be authorized to approve or block specific categories of transactions. Courts have considered such appointments most notably during dissolution proceedings on just grounds, or where the majority’s continued unilateral control presents a demonstrable risk of irreparable harm. As with the management trustee, no express statutory basis exists for this remedy in the context of mismanagement or shareholder conflict. The prevailing position in the case law is that the designated mechanisms for addressing board misconduct are removal by general assembly resolution and liability proceedings – not judicial supervision. The appointment of either form of trustee accordingly remains confined to genuinely exceptional circumstances and is subject to strict proportionality review.
In practice, Turkish courts very rarely grant a trusteeship in the context of director liability proceedings. The prevailing reasoning is that such claims are monetary in nature: the alleged harm is remediable through damages, and displacing the majority-appointed board would constitute a disproportionate interference with shareholder voting rights. This approach is not without criticism – where the board’s improper conduct is manifest and ongoing, confining the minority to ex post monetary relief may prove inadequate to prevent further harm during the pendency of proceedings.
The prospect of a trusteeship is materially stronger in dissolution proceedings under Article 531. Where the shareholder relationship has deteriorated to the point that the company’s operations are demonstrably disrupted, courts may appoint a trustee – whether supervisory or, in extreme cases, managerial – as an interim measure to preserve the company’s assets and operational continuity pending resolution of the dispute.
The practical conclusion is clear. A management trusteeship is realistically available only where the dispute has escalated into genuine corporate paralysis – through organ deficiency or a breakdown in the shareholder relationship so severe as to demonstrably disrupt operations. Allegations of mismanagement, however serious, do not in themselves meet this threshold. In the absence of such exceptional circumstances, the most effective protection for minority shareholders lies in active supervision through information and inspection rights, director liability claims, and, where warranted, criminal proceedings.
Directors’ liability in Turkish joint stock companies
In shareholder disputes involving allegations of corporate misconduct – particularly where a controlling shareholder is suspected of procuring improper transactions to the detriment of the company – one of the most common tool available to minority shareholders (or creditors) is to bring claims against the directors who authorised or executed those transactions. Such claims may sound in civil liability or, where the relevant thresholds are met, in criminal law. On the civil side, the primary objective is to recover losses suffered by the company, though shareholders and creditors who have sustained independent damage may also seek compensation in their own right. A clear understanding of the scope and limits of directors’ liability under Turkish law is therefore a prerequisite for any enforcement strategy in this context.
The board of directors is the principal management and representation organ of a Turkish joint stock company. Directors enjoy broad decision-making authority but are subject to clear constraints: they must act in compliance with the law, the articles of association and the company’s interests, and must observe the principle of good faith. Article 369 of the TCC codifies this standard by requiring directors to discharge their duties with the care of a prudent manager.
In practice, the duty of care requires directors to conduct adequate inquiries, base decisions on sufficient information and take into account the company’s financial position. This standard does not, however, render directors liable for every unsuccessful commercial decision. A decision that results in loss will not give rise to liability where it was taken on an informed basis, in a reasonable manner and in compliance with the law and the articles of association – a principle commonly referred to as the business judgment rule.
The general basis for directors’ civil liability is set out in Article 553 of the TCC. Directors are liable to the company, its shareholders and its creditors for damages caused by a faulty breach of their statutory or contractual obligations. The provision applies a uniform liability standard to all persons involved in the management or liquidation of the company.
Four cumulative elements must be established: (i) breach of a statutory or contractual obligation; (ii) fault on the part of the director; (iii) compensable damage; and (iv) an adequate causal link between the breach and the damage. The absence of any single element is fatal to the claim.
The burden of proving fault lies with the claimant. A director may rebut an allegation of fault by demonstrating that the impugned decision was taken with the care expected of a prudent manager, on the basis of adequate information and in the company’s interests. Turkish Supreme Court precedents confirm that directors cannot be held liable solely by virtue of holding office – concrete, individualised fault must be established.
The recoverable loss represents the diminution in the company’s assets. Shareholders may also suffer indirect – or reflective – damage through a corresponding decline in the value of their shareholding. Under Article 555 of the TCC, both the company and individual shareholders may bring claims in respect of damage suffered by the company, but any award is payable to the company. Where, however, a shareholder or creditor has sustained loss that is independent of the company’s damage and directly affects their own patrimony, they may claim compensation in their own right.
Claims are subject to a two-year limitation period running from the date on which the claimant becomes aware of the damage and the identity of the liable person, subject to an absolute long-stop period of five years from the date of the act giving rise to the damage (Article 560 of the TCC). Where the underlying conduct also constitutes a criminal offence, the longer criminal limitation period applies.
Turkish law strikes a deliberate balance between managerial discretion and accountability. Directors who act diligently, on an informed basis and in the company’s interests benefit from significant protection – but those who breach their duties of care or loyalty face personal liability. For minority shareholders and creditors confronted with suspected misconduct, a well-founded directors’ liability claim remains one of the most potent instruments in the enforcement toolkit. The practical challenge, as ever, lies in establishing fault and causation to the requisite evidentiary standard.
Overview
Shareholders’ agreements governing Turkish joint-stock companies (anonim şirket) and limited liability companies (limited şirket) routinely incorporate exit mechanisms, including call options, put options, tag-along and drag-along rights. Turkish law is generally permissive of such arrangements under the principle of freedom of contract. Their enforceability, however, turns on a number of factors at the intersection of the Turkish Code of Obligations No. 6098 (“TCO”) and the TCC – in particular, the interplay between contractual remedies and the corporate law formalities governing share transfers. This note provides an overview of the key legal and practical considerations relevant to the design and enforcement of exit rights under Turkish law.
Classification of exit rights under Turkish law
Turkish law does not provide a unified statutory framework for contractual exit mechanisms. The legal characterisation of a particular right is, however, of considerable practical importance: it determines the available remedies and the procedural pathway for enforcement.
The following classifications are generally recognised in Turkish legal doctrine and practice:
Call options and put options. These are typically characterised as formative rights (yenilik doğuran haklar). Upon exercise by way of unilateral declaration, a formative right brings the underlying sale relationship into existence without requiring the counterparty’s further consent. Alternatively, the parties may structure these rights as preliminary agreements, creating an obligation to conclude a share transfer agreement upon exercise.
Pre-emption rights. These confer a contractual right of first refusal, exercisable upon the occurrence of a defined triggering event – typically a proposed sale to a third party. Once validly exercised in accordance with the agreed mechanism, the holder steps into the position of the prospective buyer on the same terms.
Buy-back rights. These entitle the holder to repurchase shares upon the occurrence of specified trigger events, commonly including the departure of a key individual, a material breach of the shareholders’ agreement or a change of control.
Tag-along and drag-along rights. Unlike the foregoing, these rights are generally characterised not as formative rights but as obligations to perform specific acts – for example, procuring the inclusion of a minority shareholder in a sale process (tag-along) or compelling minority shareholders to tender their shares alongside the majority (drag-along). Their enforcement accordingly follows the rules applicable to performance obligations rather than those governing formative rights, a distinction with significant practical implications.
Legal framework
In the absence of a dedicated statutory regime, the validity and enforcement of contractual exit rights are assessed under two principal sources of law. The substantive validity of the contractual arrangement – including questions of formation, interpretation and remedies – is governed by the TCO. The mechanics of share transfers, including any applicable approval requirements and formal prerequisites, are governed by the TCC.
Under the TCO, parties enjoy broad contractual freedom, subject to the outer limits of mandatory law, public policy, morality and personal rights. Agreements contravening these boundaries are void. Within these limits, Turkish law adopts a permissive approach: call options, put options, tag-along and drag-along rights are all, in principle, valid and enforceable between the contracting parties.
Interaction with the articles of association
A point of particular importance – and one that is sometimes underestimated in cross-border transactions – is the relationship between shareholders’ agreement provisions and the company’s articles of association.
Limited liability companies. The TCC expressly permits the articles of association of a limited şirket to incorporate pre-emption rights, rights of first offer, buy-back rights and call rights. Where embedded in the articles, these rights acquire corporative effect: they bind not only the original contracting parties but also subsequent shareholders. This provides a materially stronger level of protection than a purely contractual arrangement. Share transfers in limited liability companies are subject to approval by the general assembly, unless the articles provide otherwise. Exit mechanisms that contemplate a share transfer must therefore be drafted with the approval process in mind and should expressly address the consequences of a refusal to grant approval.
Joint-stock companies. While shares in a joint-stock company are, as a general rule, freely transferable, the TCC permits the articles of association to impose transfer restrictions on registered shares (nama yazılı paylar), including requirements for board approval. Where such restrictions exist, exit mechanisms must similarly account for the applicable approval process. Failure to do so may result in a situation where a contractual exit right is validly exercised but the resulting transfer cannot be perfected at the corporate level.
A key structural point follows from the foregoing: rights contained solely in a shareholders’ agreement are binding inter partes but do not, without more, bind the company itself or third-party transferees. Careful consideration should therefore be given to whether critical exit arrangements should be mirrored in the articles of association — particularly in the case of limited liability companies, where the TCC expressly facilitates this approach.
Enforcement considerations
The central enforcement challenge arises where a shareholder refuses to honour an agreed exit mechanism. While Turkish law provides a range of contractual remedies, their practical effectiveness is contingent upon the legal characterisation of the right in question and, critically, whether it has been reinforced through the company’s constitutional documents.
A fundamental distinction must be drawn between rights operating at the contractual level and rights producing effects at the corporate law level. Where an exit right is contained exclusively in a shareholders’ agreement and has not been incorporated into the articles of association, a share transfer completed in breach of that right will not necessarily be void or voidable as a matter of corporate law. The transfer may be fully effective vis-à-vis the company and third parties, leaving the aggrieved party with contractual remedies only.
By way of illustration: where a shareholder transfers shares to a third party in breach of a call option, pre-emption right or tag-along obligation, the aggrieved party will generally be unable to unwind the transfer or assert any claim directly against the third-party transferee. The remedies will instead lie against the breaching shareholder under the shareholders’ agreement.
A further practical difficulty arises in relation to registered shares for which physical share certificates have been issued. Where, for instance, a call option is enforced involuntarily – that is, through judicial or enforcement proceedings rather than voluntary compliance – the physical share certificates must ultimately be seized by the competent enforcement authorities. In practice, the obligor frequently seeks to frustrate enforcement by removing the certificates from the jurisdiction of the Turkish enforcement offices. To mitigate this risk, it is common market practice for the share certificates to be deposited in escrow, endorsed in blank and accompanied by the obligor’s signature, thereby enabling the transfer to be perfected without the obligor’s further cooperation at the enforcement stage.
The available remedies in such circumstances include claims for damages and, where contractually agreed, liquidated damages or penalty clauses. Depending on the nature of the obligation, specific performance may also be sought. From a practical standpoint, however, well-drafted penalty clauses frequently offer the most effective commercial deterrent against non-compliance.
Limited judicial precedent and the role of arbitration
Published Turkish court decisions specifically addressing the enforcement of exit mechanisms in shareholders’ agreements remain relatively scarce. This should not, however, be taken as an indication of legal uncertainty. Rather, it reflects a structural feature of market practice: sophisticated M&A and joint venture transactions in Turkey are predominantly governed by shareholders’ agreements that contain arbitration clauses.
Exit-related disputes of any complexity are routinely referred to international arbitration. Given the confidential nature of arbitral proceedings, the resulting body of publicly available precedent is limited. Legal analysis in this area accordingly relies to a significant extent on doctrinal commentary and general principles of Turkish contract and corporate law, rather than on a developed body of case law.
Key takeaways
Turkish law provides a broadly favourable environment for contractual exit mechanisms in shareholders’ agreements. The principle of freedom of contract is well established, and the main categories of exit rights – call options, put options, tag-along and drag-along rights – are recognised as valid in principle. The practical enforceability of these rights, however, is shaped by the interaction between the contractual framework and the corporate law rules governing share transfers.
The following structuring considerations merit particular attention: (i) the correct legal characterisation of each exit right; (ii) the extent to which exit rights should be embedded in the articles of association to achieve corporate-level effect; (iii) compliance with applicable share transfer formalities and approval requirements under the TCC; and (iv) the design of effective enforcement mechanisms, including practical safeguards, to address the risk of non-compliance and to ensure enforceability.
Share transfer restrictions are a staple of shareholders’ agreements in Turkish M&A transactions. Their commercial rationale is multifaceted: they serve to preserve the existing ownership structure, ensure that the shareholder base remains controlled, guard against the entry of competitors or otherwise unwelcome third parties, and incentivise key shareholders to remain invested in the business. To achieve these objectives, parties routinely agree on mechanisms such as rights of first refusal, pre-emption rights, lock-up undertakings, tag-along and drag-along rights, call and put options, and leaver provisions.
Whilst the commercial utility of these mechanisms is well established, the manner in which they may be given legal effect under Turkish law warrants careful examination. Share transfer restrictions may be embedded either in the company’s articles of association or in a standalone shareholders’ agreement. The articles of association, however, operate within a relatively narrow corridor: the Turkish Commercial Code permits the imposition of approval requirements on share transfers and allows the articles to specify the grounds on which approval may be withheld, but it does not readily lend itself to the more granular, bespoke arrangements that sophisticated transactions typically demand.
The default position for joint stock companies is one of free transferability: shareholders are, in principle, at liberty to dispose of their shares without restriction. Bearer shares enjoy this freedom unconditionally, whereas registered shares – and shares not yet embodied in share certificates – may be made subject to transfer restrictions only within the bounds expressly contemplated by the TCC.
The statutory framework bears this out. Article 490 of the TCC confirms the general principle that registered shares are freely transferable, save where the law or the articles of association provide otherwise. Building on this, Article 492 empowers companies to introduce an approval requirement in their articles, thereby conditioning the transfer of registered shares upon the company’s prior consent. Where the shares in question are not listed on a stock exchange, the grounds on which the company may withhold approval are circumscribed: it may do so only if (i) the articles of association specify a material ground justifying refusal, or (ii) the company offers to acquire the shares itself at their fair value, determined as at the date of the transfer application. Importantly, provisions directed at preserving the composition of the shareholder base will qualify as a material ground only insofar as the refusal can be shown to be justified by reference to the company’s business purpose or its economic independence. In a notable decision, the Turkish Supreme Court (Yargıtay) confirmed that, for a share transfer to be validly refused, the articles of association must contain a clear and specific material ground satisfying the requirements of Article 493 of the TCC, thereby underscoring that the grounds for refusal must be expressly stipulated in the articles and must remain within the limits permitted by law.
It bears emphasis that the shareholders are not at liberty to designate the material ground at their discretion; the ground so specified must comply with the principles laid down under Article 493. By way of illustration, the Turkish Supreme Court has, in its case law, recognised certain grounds as constituting valid material grounds justifying the refusal of a share transfer – such as pre-emption rights or restrictions aimed at preventing the company from becoming alienated from its existing shareholder base particularly in family companies – whilst declining to accept others – such as requirements relating to the transferee’s place of residence or registration with the population records of a particular district.
In practice, provisions frequently encountered in shareholders’ agreements – such as tag-along rights, drag-along rights, call and put options, leaver provisions, penalty clauses, detailed valuation mechanisms, and personal approval rights granted to specific shareholders – typically regulate the contractual relationship between the shareholders alone. Even where such provisions are incorporated into the articles of association, they would not be binding on third parties, as they do not comply with the principles set out under Article 493 of the TCC, as affirmed by the Supreme Court.
It follows that the more sophisticated share transfer mechanisms commonly deployed in Turkish M&A transactions find their proper place not in the articles of association but in shareholders’ agreements concluded between the relevant parties. Shareholders’ agreements afford considerably greater flexibility: unconstrained by the narrow corridor within which the TCC permits the restriction of share transfers through the articles of association, the parties are free to devise transfer mechanics tailored to their specific commercial objectives. It is for this reason that, in practice, the full range of transfer restrictions demanded by sophisticated transactions is overwhelmingly regulated through shareholders’ agreements rather than through the company’s constitutional documents.
That said, by virtue of the doctrine of privity, a shareholders’ agreement produces legal effects, as a general rule, only as between the contracting parties. The provisions contained therein do not automatically bind the company itself, non-party shareholders, or third-party transferees. Nor does the mere awareness by a third-party transferee of the existence of a shareholders’ agreement suffice to render that person a party to it or to impose the obligations arising thereunder upon them. The practical consequence is significant: a share transfer carried out in breach of a transfer prohibition, a pre-emption right, or an approval requirement stipulated in a shareholders’ agreement will not be rendered automatically invalid as a matter of corporate law solely by reason of such breach.
The question then arises as to the remedies available where a share transfer restriction contained in a shareholders’ agreement is breached. The answer falls to be assessed within the framework of the TCO, and will depend, in the first instance, on whether the shares remain within the control of the breaching shareholder or have already passed to a third party. In the former scenario – where the transfer has not yet been consummated – the aggrieved party may seek specific performance of the relevant obligation. In the latter scenario, however, specific performance will, as a general rule, no longer be a viable remedy, the shares having already left the hands of the breaching shareholder. The aggrieved party’s recourse in such circumstances will ordinarily be limited to a claim for damages against the breaching shareholder. Where the shareholders’ agreement contains a contractual penalty clause, that mechanism may also be invoked as an additional or alternative remedy.
As noted above, a third party’s mere knowledge of the existence of a share transfer restriction contained in a shareholders’ agreement does not, without more, render the rights arising thereunder enforceable against that party. There is, however, a narrow but important exception. Where it can be demonstrated that the third party acquired the shares not merely in awareness of the restriction but deliberately and with the specific intent of causing harm to the rights of the aggrieved shareholder, the conduct in question may give rise to tortious liability on the part of the third-party acquirer. The legal basis for such a claim is Article 49(2) of the TCO, which imposes liability on any person who intentionally causes damage to another in a manner contrary to good morals. Whilst the threshold for establishing such liability is high – requiring proof of both deliberate acquisition and an intent to injure – the provision offers a residual safeguard against the most egregious instances of third-party interference with contractual rights.
In light of the foregoing, whilst the TCC provides a statutory mechanism for restricting share transfers through the articles of association, that mechanism operates within relatively narrow bounds. Shareholders’ agreements remain the preferred vehicle for implementing bespoke transfer mechanics, but their efficacy is circumscribed by the doctrine of privity. Practitioners would therefore be well advised to adopt a layered approach – embedding in the articles of association such restrictions as the TCC permits, whilst supplementing them with a shareholders’ agreement – and to reinforce the contractual framework with appropriate securities or guarantees so as to ensure compliance with the agreed transfer restrictions.
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This is for information purposes; it is not legal advice. As laws and their interpretation may change, please consult Turkish legal counsel to confirm the current position and obtain advice tailored to your circumstances before making any decision or taking action in relation to your matter in Türkiye. All rights reserved.