Business Partnership in Turkey: Protecting a Foreign Partner

Opening a café, a real estate agency, a tour business or an export company with a local partner is a common path for foreigners in Türkiye (Turkey). A business partnership in Turkey can work well, but when it fails the foreign partner is often the one with less information, less control over the bank accounts and fewer local contacts. This guide explains how to structure the partnership, what to put in writing and how disputes are resolved.

Which structure should you use with a Turkish partner?

Under the Foreign Direct Investment Law No. 4875 (art. 3), foreign investors may invest freely and are treated equally with domestic investors, unless an international agreement or special law provides otherwise. Some sectors have their own licensing or ownership rules, so check your field before signing anything.

Limited liability has an important exception in Türkiye. Partners of a limited company are directly liable, in proportion to their capital share, for public receivables (amme alacakları) such as taxes that cannot be collected from the company in whole or in part; if a share is transferred, the seller and the buyer are jointly liable for such debts dating from before the transfer (Law No. 6183 art. 35). This rule concerns limited company partners, not shareholders of a joint-stock company. Separately, the legal representatives of any company, such as managers or board members, can be pursued with their personal assets for public receivables that cannot be collected from the company (repeated art. 35).

What should a shareholders' agreement cover?

The articles of association (esas sözleşme / şirket sözleşmesi) are registered with the trade registry and bind the company. A shareholders' agreement (pay sahipleri sözleşmesi) is a private contract between the partners under the general law of contracts; it can go into more detail but binds only its parties. Use both, and make sure they do not contradict each other. Key points:

• capital contributions, their timing and what happens if a partner does not pay;
• who is the manager or board member, who signs for the company and whether important acts need two signatures;
• matters that need the consent of both partners, such as borrowing, selling assets, hiring relatives or opening new bank accounts;
• access to books and bank statements; in a limited company, each partner may ask the managers for information on all company business and accounts (TTK art. 614);
• share transfers, pre-emption rights, tag-along and drag-along clauses;
• a deadlock mechanism and an exit or buy-out formula with a valuation method;
• non-competition and confidentiality obligations;
• the language of the documents, the governing law and the dispute resolution method.

How are disputes between partners resolved in Turkey?

For commercial claims for payment of money, including compensation claims, applying to a mediator is mandatory before filing a lawsuit; the mediator has six weeks, extendable by two weeks in necessary cases (TTK art. 5/A). Other disputes go directly to the commercial court of first instance (asliye ticaret mahkemesi), which can also order interim measures.

• Leaving a limited company: every partner may sue for exit on just grounds, and the court can freeze rights and obligations or order other protective measures during the case (TTK art. 638/2).
• Excluding a partner: the articles can list grounds for exclusion by general assembly resolution, which the partner can challenge within three months; the company can also ask the court to exclude a partner for just cause (art. 640).
• Joint-stock companies: shareholders holding at least one tenth of the capital may ask the court to dissolve the company for just cause; the court may instead order that the claimants be paid the real value of their shares and leave (art. 531).
• Arbitration: partners can agree to arbitration, for example under the rules of an arbitration institution; where there is a foreign element and the seat is in Türkiye, the International Arbitration Law No. 4686 applies.

What goes wrong most often?

• The Turkish partner is the sole manager and controls the bank accounts, while the foreign partner has no written information rights in practice.
• Money is paid to the partner personally instead of into the company as capital or a documented loan.
• The agreement exists only in English, while the registered Turkish articles say something different.
• No exit formula exists, so a falling-out leads to years of litigation instead of a buy-out.

More on company and contract matters is available on our commercial law page. As every partnership has its own risks, individual legal advice is recommended before you invest or sign.