Unlike in common-law jurisdictions, the Turkish corporate law does not explicitly recognize shareholders' agreement ("ShA") in capital companies. Turkish companies have only become familiar with the implementation of ShAs in the last few years. In practice, articles of association ("AoA")1 is much more resorted to in an effort to cover matters which would ideally be regulated in an ShA. In other words, the legislative gap as regards ShA is somehow filled by an effective use of AoA.

Similar to other legal systems, Turkish law requires execution of an AoA for the due establishment of a capital company. AoA may traditionally be defined as the combination of the rules governing (i) the relationship among the shareholders/partners of a capital company and (ii) particularly the one among the shareholders/partners and the company itself. A standard AoA typically covers details of the incorporators of the company, trade name, headquarters, scope/objective and share capital of such company, share transfer issues, composition and functioning of the board of directors and general assembly, distribution of profit, etc.

From a corporate and commercial point of view, each company has specific needs. Accordingly, although execution of a standard AoA may be sufficient for the mere establishment of a company, it is never enough for its sustainable development and survival. Therefore, the tailoring of its AoA at the incorporation stage in line with its corporate and commercial needs is of utmost importance to any capital company.

Considering the above,

  • Aggravated special quorums may be adopted for board of directors and/or general assembly of shareholders' meetings.
  • Transfer of shares may be restricted via special provisions, e.g., rights of first refusal, tag-along rights, etc.
  • Privileged shares entitling their holders to additional voting or managerial rights may be created.
  • Generally, in case an ShA is executed among the shareholders/partners of a company, its provisions should also be inserted into the AoA of such company to the expent possible. The basis behind this approach lies on an ShA's low degree of enforceability in comparison to AoA. For instance, in the event that an ShA is executed among the shareholders of a joint stock company (anonim sirket), since there is no remedy under the corporate law, such ShA is governed by the general provisions of the Turkish Code of Obligations on law of contracts. By incorporating the provisions of an ShA into the relevant AoA, the parties benefit from an additional protection that the corporate law recognizes.
  • In addition, the registration of the AoA of a company with the respective trade registry and its subsequent announcement in the Trade Registry Gazette reinforce shareholders' rights before third parties.

Its AoA constitutes the arterial of a capital company. When drafted advisedly, it may also be transformed into a very powerful and effective instrument in any company's management. Therefore, when first establishing a company or within the framework of a share purchase deal, a thorough review of the AoA and its amendment in accordance with the shareholders' business purposes is an absolute must. By doing so, provisions with a trouble-causing potential can be spotted and eventual deadlock circumstances can be prevented for good.

Footnotes

1. Also referred to as "articles", "articles of incorporation" or "statuts" (in French).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.