Corporate Law Series · 2 of 5
Trust helps partners start a textile business. Clear agreements help them manage it when workloads, funding needs or expectations change. The company’s articles and a separate shareholders’ agreement serve different functions and should be designed together.
1. Why informal arrangements become difficult
Partners may disagree about retaining profits, the value of a departing partner’s shares or the time each person devotes to production and sales. Other concerns include a former partner competing for customers and the consequences of death, insolvency or a funding shortfall.
These are illustrative situations, rather than reports of identified clients. Written arrangements can define a process for dealing with them, but cannot guarantee that every dispute will be avoided.
A limited company must have articles of association meeting the statutory requirements. A separate shareholders’ agreement can regulate additional obligations between its parties. It does not automatically amend the articles, bind a non-signatory, override mandatory company law or invalidate an otherwise valid company resolution.
2. What should the arrangements cover?
Contributions and ownership
Record each person’s subscription, shareholding, payment obligations and the treatment of future finance. Distinguish registered share capital, shareholder loans, equipment supplied to the business and ongoing services. Know-how, customer relationships and personal work should not simply be labelled capital without checking the statutory conditions for an eligible and transferable contribution.
Profit and cash
Explain how proposals for profit distribution are prepared and voted on, what working capital is needed between textile seasons and how related-party payments are controlled. Distribution remains subject to available distributable profits, statutory reserves and the powers of the competent company organ. A private promise cannot make an unlawful dividend permissible.
Roles and signing powers
Allocate responsibility for production, procurement, quality, sales, export and finance. Define reporting, budgets, expense approvals and bank access. Internal spending limits should be distinguished from the effect of registered representation powers toward third parties. A shareholders’ agreement alone may not protect the company from an external contract signed contrary to an internal instruction.
Exit and transfers
Address voluntary departure, proposed sales to outsiders, first-offer or pre-emption rights, valuation, payment instalments and security. Define what happens if a partner stops performing an agreed role. A forced transfer or exclusion mechanism must comply with the rules for the particular company and should not be drafted as an automatic confiscation of a share.
Death and insolvency
Plan for inherited shares, representation of an estate, valuation and the funding of any lawful buy-out. A private clause does not simply erase heirs’ statutory rights or automatically dissolve every company. Limited-company succession and ordinary voluntary transfers have different rules.
Dispute resolution
A staged process may include management discussions, mediation and, for arbitrable matters, arbitration or court proceedings. Check mandatory pre-action mediation where applicable, territorial-jurisdiction requirements and matters that cannot be referred to arbitration. A clause choosing a forum cannot cure every jurisdictional defect.
3. Confidentiality and non-compete restrictions
Textile businesses may hold valuable customer information, supplier terms, patterns, pricing and collection plans. Define what is confidential, who may access it, how it may be used and how company materials are returned on departure.
The legal basis for a non-compete obligation depends on whether the person is a shareholder, manager, director, employee or seller of a business. For example, Commercial Code Article 613 addresses loyalty and company secrets in limited companies and permits relevant restrictions in the articles. Manager obligations require separate consideration.
A post-employment covenant is subject to the specific conditions of Code of Obligations Articles 444–447. A post-shareholding restriction should not automatically be treated as the same clause. Writing “two years throughout Turkey” is not a universal guarantee of validity: legitimate interests, activity, geography, duration and proportionality must be examined in the actual relationship.
A contractual penalty can be considered alongside other remedies, but it does not make an invalid restriction valid. The absence of a penalty does not by itself eliminate a damages claim. Its amount, conditions and relationship with performance, further loss and mandatory law must be drafted carefully.
4. Designing an exit clause
- What event starts the exit process, and what notice is required?
- Will valuation use an independent expert, a defined formula or another method?
- How will debt, stock, machinery, receivables and contingent liabilities be treated?
- Who may buy the shares, and what approval or matching rights apply?
- What happens if the partners cannot agree or neither can fund a buy-out?
- Will payment be immediate or deferred, and what security is provided?
- How will loans, guarantees, management roles and confidential information be handled?
Book value and market value can differ substantially. A valuation mechanism should state the relevant date, access to records and how an expert is appointed or replaced. A shareholder who leaves may remain liable under a separate personal guarantee unless the creditor releases it.
For limited-company share transfers and undertakings to transfer, Article 595 requires written form and notarised signatures, together with the applicable approval rules. A general recommendation to notarise every shareholders’ agreement is therefore too imprecise: the required form depends on its actual provisions. Notarisation does not remove every interpretation or enforceability dispute.
5. Foreign partners
Where a foreign investor joins, check the investment reporting framework, identification and corporate authority documents, translation and certification requirements, and the financing route. A shareholder’s immigration or work-authorisation position is a separate question from share ownership.
Bilingual documentation can help the parties understand their obligations. The language clause must also comply with any mandatory Turkish-language requirements applicable to the transaction; merely choosing a controlling foreign text does not displace those rules.
Consider the governing law, the seat and rules of any arbitration, service of notices, enforceability of judgments or awards, and the language of proceedings. Treaty relief for dividends is not automatic: tax residence, beneficial ownership, domestic law and documentary conditions require separate review with a tax adviser.
6. Before signing
Discuss each clause while the partners can still agree on the intended business model. Coordinate the shareholders’ agreement with the articles, management resolutions, employment or service arrangements and any loan or guarantee documentation.
Review the arrangements when ownership, financing, management or the business model changes. A fixed review interval is not a substitute for checking a material transaction when it occurs.
Generic templates may omit textile-specific issues such as seasonal funding, quality claims, customer concentration, subcontracting and ownership of designs. The aim is a workable allocation of responsibilities and remedies, rather than an assurance that a contract will prevent all litigation.
Sources and series navigation
- Turkish Commercial Code No. 6102: articles, governance, loyalty and share transfers.
- Turkish Code of Obligations No. 6098: contractual validity, penalties and employee non-compete restrictions.
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General information: This article explains Turkish law in English. The appropriate documents, formalities and remedies depend on the company and the proposed transaction. The Turkish statutory texts govern.