Shareholders’ Agreements under Turkish Law (SHA)

Table of contents   

• What is a Shareholders’ Agreement under Turkish Law? (SHA) 
• What is the difference between a shareholders’ agreement and the articles of association?   
• Are shareholders’ agreements valid under Turkish law?
• If a shareholders’ agreement conflicts with the articles of association, which one prevails?   
• Can the company be a party to the shareholders’ agreement?   
• Which matters are typically regulated in a shareholders’ agreement? 
• What should be considered in particular under Turkish law? 
• What are the consequences of a breach of a shareholders’ agreement?   
• Why are dispute resolution clauses important?   
• Conclusion

What is a Shareholders’ Agreement under Turkish Law? (SHA) 

In commercial practice, the relationship between a company’s shareholders is generally shaped by two core documents: the articles of association and the shareholders’ agreement. The articles of association are the constitutive instrument governing the company’s incorporation, fundamental structure and corporate bodies; they bind the company, the shareholders and—within certain limits—third parties. By contrast, a shareholders’ agreement is a private-law contract signed by the shareholders to regulate their relationship in a more detailed and flexible manner; as a rule, it is binding only among the parties—i.e., it has relative effect (privity of contract). 

A shareholders’ agreement may be signed among the company’s shareholders and, in some cases, with the company also becoming a party. Through such an agreement, shareholders may regulate in detail matters such as voting arrangements, governance structure, share transfer restrictions, financing obligations, exit mechanisms, and dispute resolution procedures. Unlike the articles of association, a shareholders’ agreement is not registered with the trade registry and does not become publicly available. For this reason, it serves an important function by allowing commercially sensitive arrangements to be structured under a more confidential and flexible contractual framework rather than within the company’s publicly accessible constitutional document. 

In recent years, shareholders’ agreements have gained significantly more importance in Turkish practice, particularly due to the increase in foreign investments, joint ventures, family businesses, and venture investments. The principal reason is that certain undertakings and mechanisms cannot always be regulated in the articles of association with the desired level of detail (or at all); whereas they can be agreed through a shareholders’ agreement in a more flexible and often confidential manner. 

Under Turkish law, a shareholders’ agreement is not a contract type specifically regulated under the Turkish Commercial Code (“TCC”). Nevertheless, the prevailing view is that such agreements are valid under the freedom of contract principle set out in Articles 26 and 27 of the Turkish Code of Obligations (“TCO”). Article 26 recognises contractual freedom, while Article 27 provides that this freedom is limited by mandatory rules of law, morality, public order, and personality rights. 

What is the difference between a shareholders’ agreement and the articles of association? 

The distinction between these two documents is fundamental under Turkish corporate law. 

The articles of association are the company’s constitutive and “constitutional” document. They must include the mandatory elements prescribed by the TCC depending on the company type, are registered with the trade registry, and produce direct effects within the corporate law sphere with respect to the company’s corporate structure and the functioning of its bodies. In addition, pursuant to TCC Article 340, the regulatory scope of the articles of association is strictly confined to the statutory framework (numerus clausus / limited number principle). This principle also explains why shareholders’ agreements serve a distinct and complementary function. 

A shareholders’ agreement is a contract signed among shareholders and, in essence, binds only its parties with inter partes effect (privity of contract). Therefore, provisions agreed in a shareholders’ agreement do not automatically bind the company’s corporate bodies, future shareholders or third parties; rather, they primarily create rights and obligations among the parties under contract law. 

In summary, while the articles of association create corporate-law effects at the institutional level, the shareholders’ agreement operates mainly under contract law and provides a complementary and flexible framework for regulating the shareholders’ relationship. 

Are shareholders’ agreements valid under Turkish law? 

Although the TCC does not specifically regulate shareholders’ agreements as a distinct contract type, these agreements are widely used in practice and are generally considered valid. 

However, there are limits. Provisions of a shareholders’ agreement may not contravene (TCO Article 27): 

• mandatory rules of law,   
• ​​​​morality,  
• public order, 
• personality rights, and 
• mandatory structural rules specific to the relevant company type. 

Accordingly, shareholders’ agreements can be concluded under Turkish law; however, they cannot be used to circumvent mandatory provisions of the TCC or to establish a corporate-law regime that effectively replaces the articles of association. 

If a shareholders’ agreement conflicts with the articles of association, which one prevails? 

This is one of the most critical practical issues. 

From a corporate-law perspective, the articles of association and mandatory provisions prevail; a breach of the shareholders’ agreement generally gives rise to contractual liability between the parties. In other words, where a conflict exists between the shareholders’ agreement and the articles of association, the articles of association remain determinative within the corporate-law sphere, because they are the primary document that defines the company’s corporate structure under the TCC. This clearly shows that the two documents do not occupy the same normative level. 

Therefore, even if a provision in the shareholders’ agreement creates an obligation among the parties, it may fail to produce the intended effect vis-à-vis the company’s bodies or third parties unless the same mechanism is reflected in the articles of association to the extent permitted under Turkish law. 

For example, if a share transfer restriction is included only in the shareholders’ agreement but not reflected in the articles of association, its enforceability against third parties may be significantly limited. Company type also plays a decisive role here. For instance, in joint-stock companies, share transfers are in principle free and restrictions for registered shares may be structured through “binding” provisions in the articles of association; whereas in limited liability companies, share transfers may be made subject to general assembly approval through the articles of association. Such differences may directly affect the practical strength of restrictions agreed in the shareholders’ agreement. Similarly, undertakings that a specific person will be elected to the board of directors or that a shareholder will vote in a certain way on certain matters may remain effective only at the contractual level.  

Can the company be a party to the shareholders’ agreement? 

Turkish law does not impose a general prohibition preventing the company from being a party to a shareholders’ agreement. 

In practice, the company may be included as a party for various reasons, such as undertaking specific obligations, recognising certain mechanisms established in the agreement, or playing a role in particular breach scenarios. 

That said, the company’s participation does not override mandatory rules of the TCC. Even where the company is a party, the agreement cannot alter the statutory limits of corporate bodies’ powers. In addition, where the company is a party, it should be borne in mind that board members must act in the company’s interest and comply with their duty of loyalty. If commitments under the shareholders’ agreement conflict with the company’s interest, board members must prioritise the company’s interest. Accordingly, while the company’s participation may have certain contractual consequences, the hierarchy of norms and the articles of association remain decisive from a corporate-law standpoint. 

Which matters are typically regulated in a shareholders’ agreement? 

Shareholders’ agreements serve an important function, especially for matters that cannot be regulated in the articles of association with sufficient detail or that parties prefer to keep confidential. 

In practice, the most common areas regulated include: 

• the company’s governance structure and decision-making mechanisms,
• veto/consent rights for certain matters,
• arrangements regarding the appointment of board members,
• information and reporting obligations, 
• share transfer restrictions and pre-emption rights (right of first refusal – ROFR; right of first offer – ROFO): contractual mechanisms granting other shareholders a priority right to purchase or receive an offer if a shareholder wishes to transfer shares. These rights are not directly regulated under the TCC and are primarily contractual; to improve enforceability against third parties, they should be reflected in the articles of association where possible,
• tag-along rights: a protective mechanism allowing minority shareholders to sell their shares on the same terms if a majority shareholder sells to a third party, preventing the minority from being left alone with an unwanted partner,
• drag-along rights: a mechanism allowing a majority shareholder to compel minority shareholders to sell on the same terms in a sale to a third party—critical in scenarios aiming at a 100% exit. Tag-along and drag-along rights generally do not have a direct counterpart under the TCC and remain contractual in nature,
• call and put options,
• additional funding and shareholder loans,
• exit mechanisms,
• deadlock resolution mechanisms: particularly in 50/50 joint ventures, parties may adopt mechanisms to prevent the company from becoming paralysed due to inability to reach agreement. Validity and enforceability depend on how they are drafted within the bounds of mandatory law,
• non-compete and confidentiality obligations,
• penalty clauses and other enforcement mechanisms,
• dispute resolution clauses.

Especially in joint ventures and closely held companies with a small number of shareholders, shareholders’ agreements are crucial to preserve the balance of power and prevent future disputes. 

What should be considered in particular under Turkish law? 

When preparing a shareholders’ agreement under Turkish law, the most important point is to structure the relationship between the shareholders’ agreement and the articles of association correctly. 

Parties often seek to incorporate commercial arrangements into the shareholders’ agreement; however, it must be carefully assessed which matters can also (and should) be reflected in the articles of association and which will remain purely contractual. 

In particular, attention should be paid to: 

• reflecting mechanisms intended to have corporate-law effect in the articles of association where possible,
• providing robust contractual enforcement tools (penalty clause, damages, termination right, etc.) for provisions that cannot be incorporated into the articles of association,
• observing mandatory provisions of the TCC—especially the numerus clausus principle for joint-stock companies (TCC Article 340)—for matters such as voting rights, privileges, governance structure and share transfers,
• recognising the relative effect of the shareholders’ agreement and designing mechanisms to ensure that incoming shareholders adhere to the agreement upon share transfers (adherence / accession),
• clearly designing how provisions will operate in potential future disputes.

In short, a shareholders’ agreement is not, by itself, a “silver bullet.” An effective structure requires that the shareholders’ agreement and the articles of association be designed together in a coherent and aligned manner. 

What are the consequences of a breach of a shareholders’ agreement? 

Since shareholders’ agreements primarily operate in the field of contract law, a breach typically triggers contractual remedies. 

Depending on the facts and the drafting, the following may come into play: 

• a claim for specific performance,
• damages,
• contractual penalty,
• termination and/or triggering of exit mechanisms.

However, not every obligation can be compelled by specific performance. In particular, undertakings to vote in a certain way or commitments relating to corporate resolutions may face practical limits. Voting rights and corporate resolutions are governed by mandatory corporate-law rules; therefore, compelling specific performance of voting undertakings through court orders may not always be feasible. In such cases, the primary remedy is typically damages and/or a contractual penalty. 

It is important to emphasise that a breach of the shareholders’ agreement does not, by itself, automatically produce a corporate-law consequence. For example, a share transfer made in breach of the shareholders’ agreement may remain valid under corporate law if there is no corresponding restriction in the articles of association. In such case, only contractual remedies (damages or penalty) may be claimed against the breaching party. 

For this reason, it is essential to draft not only the rights and obligations but also clear, practical, and effective remedies for breach. 

Why are dispute resolution clauses important? 

Disputes arising out of shareholders’ agreements are often technical, commercially sensitive, and complex. For this reason, parties frequently prefer arbitration and other alternative dispute resolution mechanisms. 

In multi-party structures such as joint ventures and investment arrangements, a well-drafted arbitration clause may offer significant advantages due to confidentiality, speed, and access to specialised decision-makers. Under Turkish law, parties may opt for the rules of the Istanbul Arbitration Centre (ISTAC); where an international element exists, they may also choose institutional rules such as ICC or LCIA. In ad hoc arbitration, the UNCITRAL Arbitration Rules are commonly preferred. 

That said, arbitrability must be assessed carefully based on the nature of the dispute. Under Turkish law, matters over which parties may freely dispose are generally arbitrable. However, the arbitrability of certain corporate-law disputes—such as actions for annulment of general assembly resolutions—is debated in doctrine and practice. Therefore, when defining the scope of the arbitration clause, it is advisable to clearly distinguish which disputes will be referred to arbitration and which will remain within state courts’ jurisdiction. 

Conclusion 

Shareholders’ agreements are flexible and highly functional instruments under Turkish law, particularly in investment structures, joint ventures, family businesses, and growth-oriented companies. They allow shareholders to regulate their relationship in detail, maintain confidentiality over sensitive commercial arrangements, and address many needs that the articles of association alone may not fully cover. 

However, a shareholders’ agreement does not replace the articles of association and cannot override mandatory provisions of the Turkish Commercial Code. Accordingly, the key to an effective and enforceable shareholders’ agreement structure under Turkish law is to design it together with the articles of association in a coherent and informed manner. In addition, it is important to conduct a case-specific legal assessment for the drafting of shareholders’ agreements, the review of existing agreements, and the management of related disputes.