With a population of nearly 85 million people, its strategic location, a growing market and young and high-quality labour, Turkey is a country that is popular with both national and international investors.
The most common methods for investment include founding a company or investing in an already existing one. If an investor feels content with an articles of association that is drafted without giving due consideration to the corporate structure and the wishes and wills of shareholders and standard, that is, rigid provisions are adopted in line with the imperative regulations of the legislator, this may give rise to critical problems in subsequent stages that may lead to a deadlock in the company in this path that the investors start to march with big investment ideas. Nevertheless, the majority of these problems may be avoided from the very beginning if certain provisions are used in line with the future plans and investment objectives of shareholders. At this point, we point out to a “Shareholders’ Agreement” (“SHA”), one of the most important instruments in corporate law.
A Shareholders’ Agreement is among the most important instruments that shareholders may use as it is executed to govern the legal relation among all or some shareholders or between them and third parties in a joint stock company, and to define the order and system that they wish the company should have. It also serves as a tool to customize the company based on needs and define its strategic trends. It further offers a more flexible structure compared to an articles of association. The most important goal in executing a shareholders’ agreement is to secure the sustainability of the company in legal and economic terms in alignment with the common wills of shareholders. A Shareholders’ Agreement may be executed as between the founder shareholders at the time of the organization of the company or a new investor may be a party to a shareholders’ agreement at a later time. A Shareholders’ Agreement is particularly essential in a venture capital company or investment initiatives of recent times pursuant to both the law and the customary practices.
Articles 340 and 579 of Turkish Code of Commerce (“TCC”) have introduced various restrictions to articles of association for a company, considerably preventing shareholders from adopting contractual provisions customized to their needs and purposes. Frustrated by these restrictions, shareholders have tried to execute alternative contracts, giving rise to an increase in the number of shareholders’ agreements in practice. It is quite natural that shareholders may personally incur and assume debts/ obligations at their free wills, and a shareholders’ agreement is binding for the parties unless it is in violation of Article 27 of Turkish Code of Obligations (“TCO”).
In this respect, there is no dispute that a shareholders’ agreement is highly important for corporate law as it is widely used in practice.
In light of our more than 50 year experience in corporate law, we, Gemicioğlu Law Firm, have compiled a series of articles on “shareholders” agreement” as we are driven by our mission to give information about the noteworthy instruments of the corporate law for both the legal community and our well-informed investors, who do not feel satisfied by a standard articles of association, which is drafted pursuant to rigid and strict provisions of TCC.
In that series of articles, we will focus on shareholders’ agreements, analysing their contents and discussing about actions to be taken in the case of a violation of them and the outcome of such violations for shareholders and the company.
We will be offering our series of articles in episodes to our precious readers, who will find answers to their questions and be well-informed about Shareholders’ Agreements this way.
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