Nominee Shareholder In Turkey

Nominee Shareholder Services in Turkey for business

If you're considering doing business in Turkey as a foreign investor, you may come across the term "nominee shareholder". While Turkey does not legally mandate foreign investors to have local shareholders, some investors choose to appoint nominee shareholders for privacy, legal structuring, or strategic purposes. In this article, we'll explore what a nominee shareholder is, how it works in Turkey, and the potential advantages and risks involved.

What Is a Nominee Shareholder?

A nominee shareholder is an individual or legal entity that holds shares in a company on behalf of the actual (beneficial) owner, often through a formal agreement. The nominee has no real ownership rights or control over the shares and acts merely as a figurehead or representative.

Nominee Shareholder in Turkey

Is a Nominee Shareholder Legal in Turkey?

Yes, nominee shareholder arrangements are not prohibited under Turkish law. However, the concept is not formally regulated, which means these agreements rely heavily on private contracts and must be carefully structured to avoid legal and tax complications.

Most commonly, nominee structures in Turkey are used for:

Ensuring confidentiality of the real owner
Simplifying cross-border ownership structures
Complying with internal corporate governance models
Facilitating certain investment or regulatory requirements

How Does a Nominee Shareholder Work in Turkey?

A typical nominee structure includes:

A Nominee Shareholder Agreement that clearly outlines the relationship
A Declaration of Trust or Power of Attorney, giving the beneficial owner control
Agreements related to dividend distribution, voting rights, and exit mechanisms

In some cases, nominee arrangements may also involve local advisors, lawyers, or corporate service providers to act as the nominee for transparency and compliance.

Who Typically Uses Nominee Shareholder Services in Turkey?

Foreign investors setting up LLCs or Joint Stock Companies
Holding companies establishing subsidiaries in Turkey
High-net-worth individuals seeking discretion in business ownership
Companies entering regulated industries with local presence requirements

Benefits of Using a Nominee Shareholder in Turkey

Using a nominee shareholder in Turkey can offer several advantages, particularly for foreign investors and business owners who value privacy, flexibility, or streamlined management. Here are the key benefits:

1. Privacy & Confidentiality

The real owner's (beneficial owner) name does not appear in public records (Trade Registry, tax filings, etc.).
Protects high-profile individuals or investors from public scrutiny.

2. Simplified Business Operations

The nominee can handle administrative tasks (e.g., signing documents, attending meetings) if authorized.
Useful for foreign investors who cannot frequently visit Turkey.

3. Faster Company Setup & Transactions

Avoids delays caused by bureaucratic procedures for foreign shareholders.
The nominee (often a local) can quickly execute transactions without needing the beneficial owner's direct involvement.

4. Asset Protection & Risk Management

Helps shield the beneficial owner from direct legal exposure in certain disputes.
Can be used in estate planning to discreetly transfer ownership.

5. Facilitates Joint Ventures & Investment Structures

Allows silent partners to remain undisclosed in official records.
Useful for venture capital or private equity investments where anonymity is preferred.

6. Avoiding Bureaucratic Hurdles for Foreigners

Some industries may have restrictions on foreign ownership; a nominee can help navigate these.
Simplifies banking processes if the nominee is a trusted local.

Risks and Considerations of Nominee Shareholder

Using a nominee shareholder in Turkey can be beneficial, but it also comes with significant risks and legal considerations. Here's what you need to know before proceeding:

1. Legal Risks & Ownership Disputes

No Formal Trust Law: Turkey does not fully recognize "trusts," so nominee agreements rely on contracts, which may not offer full protection.
Nominee Refuses to Transfer Shares: If the nominee acts in bad faith, the real owner may face costly legal battles to prove beneficial ownership.
Court Challenges: Turkish courts may not always enforce nominee agreements, especially if they suspect tax evasion or money laundering.

2. Banking & Financial Complications

UBO Disclosure Requirements: Banks and financial institutions often demand Ultimate Beneficial Owner (UBO) details, reducing anonymity.
Account Freezing or Rejection: Some banks refuse to open accounts for companies with nominee structures due to AML (Anti-Money Laundering) risks.
Difficulty in Loans & Transactions: Nominee-held companies may face extra scrutiny in financial dealings.

3. Tax & Compliance Risks

Tax Liability Remains with the Beneficial Owner: Using a nominee does not transfer tax obligations; the real owner must still declare income.
Potential Double Taxation: If not structured properly, both nominee and beneficial owner could face tax claims.
Audit Risks: The Turkish Revenue Administration may investigate nominee arrangements for tax avoidance.

4. Risk of Fraud & Misuse

Nominee Steals Assets: Since the nominee is the legal owner, they could sell shares, take loans, or dissolve the company without consent.
No Automatic Legal Protection: If the nominee goes bankrupt, creditors could seize the shares.

5. Regulatory & Transparency Issues

Increasing Scrutiny: Turkey is tightening AML and KYC rules, making nominee structures harder to maintain.
Trade Registry Records: While nominees appear in public records, authorities may still trace the real owner.

6. Difficulty in Selling or Transferring Shares

Extra Steps Required: To transfer ownership, the nominee must cooperate, which can delay transactions.
Potential for Blackmail: Unscrupulous nominees might demand payment to release shares.

How to Mitigate Risks of Using a Nominee Shareholder in Turkey

1. Draft a Strong Nominee Agreement

A well-documented contract is crucial to prevent disputes. It should include:
✅ Explicit Declaration of Trust (even though Turkey doesn't fully recognize trusts, this strengthens your claim).
✅ Clear Terms – Nominee acts only as per your instructions.
✅ Irrevocable Power of Attorney (PoA) – Lets you control company decisions without nominee interference.
✅ Right to Reclaim Shares – You can demand transfer at any time.
✅ Penalties for Breach – Financial consequences if nominee acts against the agreement.

Recommendation: Have the agreement notarized and, if possible, drafted in both Turkish and English for enforceability.

2. Secure Share Certificates & Control Mechanisms

Physical Custody – Keep original share certificates with you or a trusted escrow agent (lawyer/bank).
Bank Mandate Control – Ensure you (not the nominee) have sole signing authority on company accounts.
Corporate Resolutions – Require your approval for major decisions (e.g., selling shares, taking loans).

3. Comply with UBO (Ultimate Beneficial Owner) Reporting

Turkish banks and regulators increasingly demand UBO disclosure.
Solution: Disclose your ownership confidentially where legally required, but limit public exposure.
Workaround: Use a holding company (in a privacy-friendly jurisdiction) as the shareholder instead of an individual nominee.

4. Choose a Reputable Nominee

Avoid random individuals – Use a licensed corporate service provider or law firm.
Background Checks – Verify nominee's reputation (past disputes, financial stability).
Professional Nominees – Some Turkish consultancies offer insured nominee services (reduces fraud risk).

5. Monitor & Maintain Control

Regular Audits – Check company records to ensure nominee hasn't made unauthorized changes.
Annual Compliance Reviews – Update agreements as Turkish laws evolve.
Digital Access – Insist on online access to company filings in the Trade Registry.

6. Prepare an Exit Strategy

Pre-Signed Share Transfer Forms – Keep notarized documents to reclaim shares quickly.
Escrow Release Conditions – Define triggers (e.g., contract breach) for automatic share return.
Backup Nominee – Have a substitute nominee in case the primary one becomes uncooperative.

7. Tax & Legal Compliance

Declare Beneficial Ownership where required (prevents tax evasion accusations).
Pay Taxes Properly – Nominee structures do not exempt you from Turkish taxes on dividends or capital gains.
Consult a Turkish Tax Advisor – Ensure compliance with CFC (Controlled Foreign Company) rules if using offshore holdings.

When to Avoid Nominee Shareholders?

❌ If you need bank financing (many Turkish banks reject nominee-held companies).
❌ If the nominee is not 100% trustworthy.
❌ If the goal is tax evasion (high risk of penalties).

Alternatives to Nominees

Holding Company Structure – More secure than individual nominees.
Proxy Directors – Hides management (but not ownership).
Bearer Shares – Rare and risky due to transparency laws.

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.