In Türkiye, the preferred legal structure for VC-backed Start-ups is the joint stock company (anonim şirket) under The Turkish Commercial Code numbered 6102 (“TCC”), which offers flexibility similar to a U.S. C-Corp. This preference is driven by several factors, including; (i) stronger shareholder protections, (ii) easier share transfers, and (iii) favorable tax treatment (notably, tax exemptions for shares held for more than two years). The joint stock company structure allows for multiple share classes, enabling founders to hold common shares, while investors typically receive preferred shares. These preferred shares often carry rights such as liquidation preference, anti-dilution protection, info rights, veto rights, and board representation. Such rights are formalized and made enforceable through the articles of association and shareholders’ agreements.

According to the convertible securities regulation, in September 2024, the Capital Markets Board (“SPK”) amended its Communiqué on Venture Capital Investment Funds (III-52.4) to recognize “contracts granting future share rights” (i.e. SAFE-like agreements) as valid venture investments. This means VC funds can invest via SAFEs (in substance) and have those count as venture capital investments, provided they still comply with other applicable laws. It’s a policy nod that aligns Turkish practice closer to global norms, but it doesn’t eliminate the need to follow company law procedures described below.

Moreover, Türkiye’s Central Bank amended its Capital Movements Circular (Sermaye Hareketleri Genelgesi) to facilitate convertible debt (paya dönüştürülebilir borç) in a foreign exchange form from the foreign venture capitals and angel investors. A 2020 change allowed foreign investors to send funds as a loan that must be converted to equity within 12 months to avoid being treated as regular debt. In 2025, this conversion deadline was extended to 36 months only for certified tech startups (those with a “teknogirişim” certificate1). Under these rules, a foreign currency convertible loan agreement must include clauses committing to inject the funds into share capital (not repay them) within the allowed period. Meeting these conditions grants an exemption from strict loan regulations, effectively legalizing a SAFE-like funding window. This regulatory support is significant, but the corporate law mechanics still need careful handling.

According to the TCC, although convertible instruments such as SAFEs and convertible notes are commonly used in U.S. venture financing, the TCC does not permit the direct issuance of such instruments. In Türkiye, shares can only be issued through a formal capital increase, which must be approved by the general assembly and registered with the Trade Registry. Although there is an exemption under the TCC, where the company has adopted the registered capital system (kayıtlı sermaye sistemi), which is commonly used in the listed companies and allows the board of directors to issue new shares up to a pre-approved ceiling without requiring a general assembly resolution for each issuance, that this is not generally applicable for a technology startup. As a result, Turkish start-ups and investors often adopt hybrid structures to replicate the economic effects of convertible instruments.

In practice, borrowing money from someone who isn’t a shareholder can trigger legal and tax complications for a company. Market practice has solved this by making the investor a shareholder from day one (often via a one (1) founder class share transfer). Once the investor holds even a single share, their entire investment can be treated as a convertible loan or advance capital (sermaye avansı) rather than outsider debt. Please note that, under the TCC, as well as applicable tax and accounting regulations, there are several conditions governing the use of convertible securities. These include rules on interest for shareholder loans, classification under specific accounts (e.g., Account 331 for loans and Account 529 for capital advances), and expectations regarding the maturity of capital advances—typically requiring conversion within the fiscal year or by the next funding round, whichever occurs earlier, and more.

However, the Turkish market does not follow U.S. NVCA documentation standards due to regulatory constraints, and there is currently no standardized documentation available for such investment instruments. As a result, each deal tends to have a unique structure, with tailor-made legal documentation and agreements prepared on a case-by-case basis.

Additionally, upon the occurrence of a priced equity round or a conversion trigger, the process begins with a general assembly meeting and shareholder approval of the capital increase and any new share classes, which requires at least a 75% majority for preferred shares and amendments to the articles of association. Existing shareholders typically waive their pre-emption rights to allow the investor exclusive subscription to the new shares. The investor’s loan or capital advance is then offset against the subscription price, with the amount verified by an accountant for trade registry purposes, and any special rights are incorporated into the updated articles. Finally, the capital increase and amended articles are filed with the trade registry, and upon registration, the new shares are legally issued. After registration, the convertible investor becomes a regular shareholder alongside the priced equity investors.

Consequently, while Türkiye lacks a plug-and-play SAFE regime, it has developed a practical workaround: granting the investor a nominal founder share, using convertible instruments to defer valuation or general assembly procedures for seed rounds, and formalizing equity through corporate procedures. Although this approach involves more paperwork than NVCA or Y Combinator standards and lacks standardization (resulting in different types of legal documentation and agreements for each deal) the outcome is comparable: startups receive funding, and investors secure their equity rights.

Assuming that the target company incorporated as a joint-stock company (as per the answers in Q1), the principal acquisition structures are an equity purchase, an asset purchase, and (much less frequently, though theoretically possible) other corporate reorganisation methods such as mergers or share swaps. It is also important to note that many transactions involve a combination of these methods.

Equity Purchase (Share Transfer Deal)
The buyer acquires the company’s shares, thereby obtaining indirect ownership of all of its assets, contracts, and liabilities. The company continues its operations without any interruption. This remains the dominant structure in Turkish technology ecosystem.

Corporate Law Considerations:

Transfer. Share certificates of a VC-backed Start-up may or may not be physically issued. If certificates are issued, the transfer requires endorsement and delivery of the certificates to the buyer. If no certificates have been issued, a written share transfer agreement is sufficient. In practice, however, almost all VC-backed Start-ups issue share certificates because of the tax advantages associated with doing so. Although not legally required, even when certificates are issued, parties customarily execute a share purchase agreement to document the transaction in detail.

Perfection. If the share certificates are issued, the signing of the share purchase agreement must be followed by endorsement of the certificates and delivery of possession to buyer (typically through the buyer’s counsel). In all cases, the transfer must be recorded in the Start-up’s share ledger in order to be effective against third parties.

Notification of the Trade Registry. As a general rule, share transfers in joint-stock companies do not require notification to the trade registry. However, there are two exceptions:

• Ownership thresholds. The Start-up must notify the trade registry whenever any shareholder reaches or falls below the ownership thresholds of %, 10%, 20%, 25%, 33%, 50%, 67% or 100%.
• Sole-shareholder status. The Company must also notify the registry when it becomes or ceases to be a sole-shareholder joint-stock company. In exit transactions, the company frequently ends up with a single shareholder; therefore, this notification must be made post-closing. Although this technically coincides with the 100% threshold mentioned above, the two notifications are separate obligations and must be filed independently.

Contractual Implications. Although change-of-control provisions are not embedded in Turkish corporate law, it is common practice for key commercial contracts, financing agreements, and licensing arrangements to include such clauses.

Post-Closing Remedies. Turkish corporate law limits the availability of post-closing remedies. Accordingly, buyers typically rely on contractual protections in the form of representations, warranties, and indemnities, which are at times backed by escrow or retention mechanisms.

Preferred Shares and Liquidation Preference. Preferred share structures and the presence of customary liquidation-preference provisions in VC-Backed Start-ups often require specific shareholder or investor consents at closing.

Tax Law Considerations:

Capital Gain. Capital gain arises at the shareholder level and is taxed accordingly. While capital gains realized by corporate entities are subject to corporate income tax at a fixed rate, gains realized by individuals are taxed at progressive rates. However, where share certificates have been issued, and are held for two years or more by the seller, several tax incentives apply: (i) If the seller is an individual, the gain is fully exempt (100%) from taxation. (ii) If the seller is a corporate entity, 75% of the gain is exempt, provided that the proceeds are retained within the seller’s equity for five subsequent years. (iii) Where the seller is a Venture Capital Fund (GSYF) additional exemption, potentially up to 100%, may apply depending on the specific circumstances.

VAT. No value added tax (“VAT”) is imposed on share sales made by individuals, corporate entities, or Venture Capital Funds (GSYF).

Stamp Duty. Share purchase agreements are exempt from stamp duty.

Registration Fees. No registration fees are payable for recording the transfer in the Start-up’s share ledger.

Asset Purchase (Business or IP Transfer Deal)

The buyer acquires specific assets (e.g., software IP, customer lists, equipment) rather than the Start-up’s shares. The Start-up remains liable for its pre-existing obligations, unless such liabilities are expressly assumed by the buyer. Assumption of public debts (including tax and social security liabilities) is not binding on public creditors.

Corporate-law considerations:

Corporate Approvals. Under Turkish corporate law, the bulk sale of a substantial portion of the company’s assets constitutes an inalienable and non-transferable authority of the general assembly. Accordingly, an asset purchase requires a general assembly resolution to be legally valid. The majority threshold required to pass such resolutions remains a matter of debate among practitioners; however, as the issue currently stands, a 75% majority is generally required as a belt and braces approach.

Notifying Creditors. In cases involving the acquisition of an entire commercial enterprise, creditors must be informed about the assumption of liabilities. The seller remains to be jointly and severally liable to creditors for two years from the maturity date of each outstanding liability, and for two years from the date of transfer for liabilities that have already matured. However, this rule applies only where the entirety of the enterprise is acquired, which is rarely the structure used in VC-backed Start-up transactions.

Labour Matters. In cases involving the acquisition of an entire commercial enterprise, employees attached to the transferred business automatically transfer to the buyer with their existing rights preserved, unless they object. However, this rule applies only when the entire enterprise is acquired, which is rarely the structure used for VC-backed Start-ups. In practice, it is much more common to terminate existing employment agreements, compensate employees through mediation (enabling the employee to waive future claims) from the sale proceeds, and enter into new contracts with the buyer.

Contractual Implications. Owing to the standard boilerplate provisions in most commercial agreements, negotiations on the assignment of key contracts with counterparties to such agreements generally need to be concluded prior to closing.

Preferred Shares and Liquidation Preference. Customary liquidation preference provisions typically treat an asset purchase as a liquidation event. In such cases, distributing the sale proceeds to the entitled shareholders can be challenging from a tax perspective.

Regulatory Consent. Regulatory approvals may be required for Start-ups operating in regulated sectors such as fintech, healthcare, or renewable energy. Particular attention should be given to grants provided by the Scientific and Technological Research Council of Türkiye (“TÜBİTAK”), as TÜBİTAK consent is frequently required for asset sales where the VC-backed Start-up has benefited from TÜBİTAK-funded programs.

Tax-law considerations:

Corporate Income Tax. Unless structured to benefit from applicable tax exemptions, such as technology development zone incentives, the sale of software would ordinarily trigger corporate income tax. In practice, many VC-backed Start-ups do benefit from these exemptions. Where other assets are transferred alongside the software, the question of whether the proceeds attributable to each asset are taxable requires an item-by-item analysis.

VAT. The sale of software is exempt from VAT, provided that the Seller benefits from technology development zone incentives. In practice, many VC-backed Start-ups enjoy this exemption. Moreover, even where the exemption does not apply, VAT is not imposed on sales to non-Turkish-resident entities. Where other assets are transferred together with the software, the taxability of the proceeds attributable to each asset requires an item-by-item analysis.

Dividends. Many asset sale structures contemplate a dividend distribution of the sale proceeds following completion. However, in such cases, a 15% withholding tax applies before any distribution is made. In addition, corporate income tax must be paid (if not exempt) prior to the dividend distribution, thereby increasing the overall tax burden. The withholding rate may vary depending on the tax residence of the shareholders, as Türkiye’s double taxation treaties often provide for reduced rates for non-resident shareholders.

Stamp Duty. No exemption applies to stamp duty in asset sale transactions. Accordingly, stamp duty is payable.

Other Methods (Mergers, Share Swaps, Cross-border Exits)

Other potential methods include mergers, share swaps and cross-border holding company sales.

Turkish corporate law permits statutory mergers and share-for-share exchanges. It is in principle possible to structure such transactions on a tax-neutral basis, provided that the acquirer assumes all liabilities and the continuity of shareholding requirement, among others, is satisfied. In practice, however, these structures are rarely used for Start-up acquisitions due to their procedural complexity and audit requirements.

Another common structure is the cross-border sale of a holding company for flipped-up Startup’s. Many Turkish VC-backed Start-ups are owned through foreign holding vehicles, most commonly incorporated in Delaware, but also in England & Wales or the Netherlands. In such cases, investors typically exit by selling the offshore parent company. The detailed mechanics of these structures fall outside the scope of this guide, which is focused on the Turkish market.

In Türkiye, letters of intent (“LOIs”) and term sheets (“TSs”) are widely used and form part of standard practice in venture capital and M&A transactions. They serve the same preliminary function as in other markets, acting as pre-contractual negotiation instruments that outline the commercial framework and key principles for discussions prior to the execution of definitive agreements.

Binding Nature
In most cases, Turkish LOIs and TSs are non-binding with respect to the substantive terms of the contemplated transaction (such as price, structure, or closing conditions). However, they typically contain specific binding provisions; most commonly those concerning confidentiality, exclusivity, governing law, dispute resolution and the allocation of expenses. Breach of such binding provisions may give rise to liability for damages, which are generally limited to negotiation-related costs. Although it is technically possible to include a penalty clause (for instance, to reinforce exclusivity obligations), parties in early-stage negotiations rarely propose or accept financial sanctions of a penal nature.

An LOI or TS that contains language clearly evidencing an intention to be bound in its entirety may, however, be construed by Turkish courts as a binding preliminary agreement (ön sözleşme) under the Turkish Code of Obligations numbered 6098 (“TCO”). This outcome is typically avoided by careful drafting, as parties generally wish to preserve flexibility until definitive agreements are executed.

Exclusivity
Exclusivity undertakings, generally ranging from 30 to 90 days, are commonly included in Turkish LOIs and TSs, particularly once due diligence begins. They are usually drafted as binding covenants, often taking the form of a “no-shop” clause, and less frequently, a stricter “no-talk” provision; both of which may operate concurrently. The purpose of these clauses is to preserve the integrity of the negotiation process by preventing competing discussions, rather than to create a binding obligation to complete the transaction.

Deposits and Break-Up Fees
Deposits and break-up fees are rare in Turkish practice, with the latter being even less common. They may occasionally appear in high-value or cross-border M&A transactions, where such payments are viewed as consideration for the exclusivity granted or as evidence of the buyer’s commitment.

In exceptional cases, a limited deposit may be requested. In practice, commercial pressure and discipline are more often achieved through short exclusivity periods and the acknowledgement of a mutual commitment to good-faith negotiation, which is already embedded in Turkish contract law. Rather than deposits or break-up fees strengthening the Start-up’s position, it is more typical for the buyer to advance a portion of the purchase or investment amount, thereby signalling commitment while enhancing its own negotiating position.

Market Practice Summary
Overall, LOIs and TSs under Turkish law are carefully drafted to balance negotiation flexibility with limited binding commitments. They are designed to define the process rather than the outcome, with only a narrow set of provisions (primarily confidentiality and exclusivity) being enforceable. Deposits and break-up fees remain exceptional and are rarely seen in mid-market transactions.

Compared with the U.S. or U.K. markets, the use of buyer equity as consideration in the acquisition of a VC-backed start-up is very uncommon in Türkiye. Acquisitions are almost invariably settled in cash, and where buyer equity is included, it usually represents only a small portion of the total purchase price. Such structures are observed mainly in transactions involving foreign buyers, whose deal practices often import international practice. As a result, Turkish Start-up founders, particularly those who will join the acquirer’s management team or continue operating the venture post-closing, sometimes express an interest in participating in these equity-based arrangements. This is typically motivated by a desire for ongoing alignment or integration within a larger corporate group. Even so, hybrid structures combining a cash component with limited equity remain far more common, and generally more attractive to founders, than pure share-for-share exchanges.

One key reason equity consideration remains uncommon in the Turkish market is the combined effect of corporate law restrictions and securities law regulation.

Under the TCC, joint-stock companies (anonim şirket) may acquire and hold their own shares only within narrow limits and under strict procedural conditions requiring board-level justification. Treasury shares cannot be freely used; they must generally be cancelled or resold within a prescribed period. This makes it impractical for Turkish companies to hold or transfer their own shares as deal consideration, unlike in the U.S. or U.K., where treasury-stock rules are more flexible.

In theory, these constraints can be mitigated by structuring two concurrent transactions, one involving the sale of the Start-up shares and another involving a new share issuance to the selling investors, with the proceeds of the first applied to the second. In practice, however, such arrangements are rare, as non-listed share capital is generally unattractive to start-up founders.

For public companies, the process is even more constrained. Any new share issuance as consideration requires SPK approval, public disclosure through KAP, and compliance with detailed procedural and valuation requirements. Treasury shares held by listed companies may be disposed of only in accordance with SPK regulations, typically through stock-exchange transactions rather than private M&A transfers.

Theoretically, a public buyer may structure an equity-based acquisition through a merger by acquisition under both the SPK’s Merger and Demerger Communiqué and the corresponding provisions of the TCC. In practice, however, such statutory mergers are rare in venture-capital exits, as they require independent audit and valuation reports, board and expert opinions, and SPK review, all of which render the process procedurally burdensome and time-consuming.

The limitations are even stricter for venture capital investment funds. Their participation units may be issued only to qualified investors. Although the qualification thresholds are not high, SPK must review and approve the valuation of the target company before any equity-for-equity transaction can take place. Furthermore, such transactions must be expressly authorised in the fund’s issuance documents at the time of its establishment. If the fund documentation does not explicitly permit equity-for-equity transactions, the venture capital investment fund is not allowed to undertake them.

While equity consideration can, in theory, be structured through complex arrangements, such structures are costly and burdensome. For private buyers, the main obstacle is commercial: founders rarely view non-listed shares as attractive consideration. Accordingly, equity consideration remains the exception rather than the rule in Turkish venture-backed M&A.

Under Turkish law, an earn-out constitutes a contingent consideration clause embedded in the share purchase agreement, under which the buyer undertakes to make an additional payment if specified post-closing conditions are fulfilled. The obligation arises only upon objective verification of those conditions, and failure to meet them leaves the buyer with no residual liability. Although payment of the full purchase price at completion remains the prevailing market practice, earn-outs have gained traction in venture-backed and technology-sector transactions where scalability and revenue growth are principal value drivers. Parties frequently adopt English-law style formulations to ensure precision in defining the conditions precedent to payment and the evidentiary mechanisms for verification.

Although the tranche-based acquisition model (whereby the buyer acquires the target’s shares progressively through successive closings) is occasionally used, the deferred-payment model remains dominant. In this structure, all shares are transferred to the buyer at closing, and a portion of the purchase price is deferred, becoming payable upon achievement of agreed financial or operational metrics. It is also customary to include undertakings requiring the buyer to operate the target in the ordinary course of business and to refrain from actions that could unjustifiably frustrate the earn-out. Ambiguity in performance criteria, accounting standards or calculation methodology may render the clause difficult to enforce or expose the parties to disputes of interpretation.

While earn-out litigation in Türkiye remains limited, the number of disputes is expected to rise in parallel with the broader use of contingent consideration structures in venture-backed and cross-border transactions. The most frequent points of contention concern the interpretation of financial metrics, allegations that the buyer manipulated post-closing accounts, and disagreements over whether the buyer maintained the target’s ordinary course of business. These risks are increasingly mitigated through detailed expert-determination procedures and arbitration clauses, typically referring disputes to ISTAC, ICC or LCIA arbitration. As Turkish transactional practice continues to converge with international standards, earn-outs are expected to become a regular feature of sophisticated private M&A transactions.

Where founders remain engaged by the company following completion, imprecise drafting may lead courts to characterise the earn-out not as part of the purchase price but as employment-related remuneration. Such a reclassification could enable the seller to pursue the matter as a labour dispute rather than a contractual claim, thereby shifting jurisdiction from arbitration to the labour courts and materially altering both procedure and outcome. From a tax perspective, earn-out payments are generally treated as part of the overall purchase price and are therefore subject to capital gains taxation upon receipt.

Purchase price adjustment and lock-box mechanisms are well-established features of conventional M&A transactions in Türkiye, particularly where the target operates with stable cash flows and audited financial statements. These models enable acquisitions on a cash-free, debt-free basis with normalised working capital, and have become standard practice in mid- and large-cap deals.

By contrast, such mechanisms are less common in acquisitions of VC-backed Start-ups, where valuation focuses on forward looking factors such as scalability, intellectual property, and user growth. Many Turkish start-ups operate with negative working capital, making detailed post-closing adjustments commercially impractical. Accordingly, parties often agree on a fixed purchase price. Where valuation uncertainty necessitates a remedy, earn-out arrangements are increasingly employed; particularly where founders remain involved after closing.

Lock-box structures occasionally appear in cross-border transactions led by international buyers familiar with English-law documentation. Under this model, the purchase price is fixed by reference to pre-signing financials, and sellers undertake not to permit any value leakage prior to completion. Nevertheless, such arrangements remain rare in Turkish start-up acquisitions; where simplicity, speed, and certainty are prioritised over complex post-closing reconciliations.

From a legal standpoint, Turkish law does not restrict completion-account or lock-box structures, but their implementation requires precise drafting; particularly regarding accounting standards, leakage definitions, and dispute resolution. In early-stage transactions, where financial information is often unaudited and volatile, such mechanisms may create more risk than they mitigate. Consequently, performance-linked mechanisms, milestone-based instalments are often both commercially and legally preferable.

Equity participation in Turkish VC-backed start-ups is typically structured through contractual rather than statutory mechanisms. Although a statutory framework for employee share grants was introduced in 2024 through the legislative amendment published in the Official Gazette on August 2, 2024, its practical impact remains limited. Under the new rules, if a certified tech startup (those with a “teknogirişim” certificate) grants shares to employees free of charge or at a discount, the portion of the share value not exceeding the employee’s annual gross salary is exempt from income tax. However, if the employee disposes of the shares within three years, the full amount of the previously exempted tax becomes payable by the employer. If the disposal occurs between four and six years, 75% of the exempted tax is reclaimed; and if between seven and twelve years, 25% is reclaimed—each with late payment interest. Moreover, any portion of the share value exceeding the annual gross salary remains taxable at the time of grant. These conditions, including the long holding periods and potential employer liability, significantly reduce the attractiveness of the regime and have led most start-ups to continue using customized contractual schemes aligned with international standards and compliant with the TCC.

Accordingly, the dominant structure is the phantom share plan, which grants a cash entitlement linked to the company’s valuation or exit proceeds without issuing shares or conferring ownership. Phantom plans are straightforward, and usually settle upon a liquidity event. A secondary model involves shareholder transfers, where existing shareholders allocate a small portion of their holdings to key employees under vesting arrangements, avoiding the formalities of new share issuances.

In some cases, where the employee benefit pool remains below 10% of capital, start-ups form a pooled structure with “Class Z” shares held by the company itself. Upon exit, the proceeds from these shares are received by the company and distributed to employees, effectively functioning as a phantom arrangement with a corporate holding layer.

On a sale or IPO, unvested rights usually accelerate, or may re-vest if individuals transition to the acquiring group, with equivalent rights granted in the buyer company.

Although Türkiye lacks a formal legal framework comparable to the “golden handcuff” or long-term incentive regimes available under English or U.S. law, market practice has evolved to replicate similar effects through contractual and corporate arrangements.

Cash-Based Practices
In practice, acquirers most frequently rely on cash-based retention packages, which can take two principal forms:

• Liquidation of Accrued Benefits. This mechanism addresses the past rather than the future. Employees with long service periods typically accumulate statutory severance entitlements (kıdem tazminatı) or other benefits that are only payable upon retirement or termination without cause. To encourage continued service, the buyer may choose to “liquidate” these unrealised gains at a predetermined time in the future, essentially promising to pay out the accrued amounts as a lump sum in a fixed future date.
• Performance or Retention Bonuses. More commonly, cash bonuses are structured as payment contingent on continued employment or the achievement of post-closing milestones. These arrangements are documented in supplemental employment agreements and are straightforward to administer. For domestic acquirers, they remain the dominant and most practical retention mechanism.

Equity-Based Practices
Equity-linked incentive schemes are increasingly adopted, particularly in cross-border or investor-led transactions. While Turkish law does not prohibit employee participation in share option or equity incentive plans, the inadequacy of the newly adopted statutory framework results in such arrangements being implemented contractually, subject to general corporate and tax rules.

Companies may grant direct share options to employees or adopt phantom share plans that mirror share value through cash settlement. The latter model has gained particular traction in Türkiye, as it avoids the procedural complexity and risks associated with issuing new shares to employees. However, phantom share arrangements are generally tax-inefficient: the entire gain is treated as employment income subject to withholding tax and social security contributions, unlike genuine equity which may enjoy more favourable capital gains treatment in other jurisdictions. The discrepancy is even greater if the Start-up is not benefiting from technology development zone incentives, which reduce employee remuneration withholding and social security payment obligations. Despite all these disadvantages, phantom share plans remain popular due to their administrative simplicity and legal flexibility.

Revesting
In VC-backed Start-ups, it has become increasingly common for a portion of founders’ or key employees’ residual shareholding to be made subject to new vesting schedules post-acquisition. These provisions, often embedded in the share purchase or shareholders’ agreement, serve as a retention tool by conditioning the release of equity on continued service or performance over a 1-3 year period.

Market Observation
Cash-based bonuses remain the dominant form of retention incentive in domestic transactions, whereas equity-based and re-vesting mechanisms are gaining prevalence in deals particularly led by international investors familiar with English-law documentation and global start-up practice.

Türkiye does not maintain a statutory works-council regime comparable to those in certain continental European jurisdictions. Employee representation is instead governed by the Law on Trade Unions and Collective Bargaining Agreements, which regulates the formation of trade unions and the appointment of workplace union representatives once prescribed thresholds are met. Unions in Türkiye are organised by industry rather than by individual employer, and their representation is external to the company’s internal governance structure.

Overall unionisation levels remain modest throughout all sectors. Among VC-backed Start-ups, unionisation is practically non-existent. The same holds true for technology companies, save for limited exceptions involving public or semi-public entities such as TÜBİTAK or ASELSAN.

The treatment of holdbacks depends on whether the entitlement arises from share ownership or employment. If the payment represents deferred share-sale consideration under the share purchase agreement, it may qualify as a capital gain. For individuals, gains derived from the sale of joint-stock company shares held for more than two years and duly issued as share certificates are fully exempt from personal income tax. For corporate sellers, 75% of the gain may be exempt provided that the shares have been held for at least two years and the exempt portion is retained in equity for five years.

Where payment is made in consideration of continued services, the Turkish tax authority classifies the amount as employment income, subject to withholding tax at progressive rates up to 40%. Even where the payment is not directly made in consideration of services but is merely conditional upon continued employment, there remains a significant risk that the tax authorities may still characterise it as employment income.

For founders, such covenants are routinely included in share purchase and shareholders’ agreements, typically lasting 12–24 months post-exit and coupled with confidentiality and IP protections. Investors view them as essential to protect know-how and goodwill. For senior employees, stand-alone restrictions are less frequent but may accompany equity participation or retention packages.

Under the TCO, post-employment non-competes are valid only if limited in duration (normally up to two years), subject matter, and territory, and if they protect a legitimate business interest without unduly restricting livelihood. Courts often narrow or strike down excessive terms. Although not mandatory, financial compensation significantly strengthens enforceability.

For founders acting as sellers rather than employees, restrictions negotiated in share sale or shareholders’ agreements fall outside the labour-law regime and are generally upheld under the principles of contractual freedom and proportionality, especially when tied to goodwill value.

Non-solicits covering customers or employees face fewer challenges if proportionate and time-limited, and are assessed under good faith and unfair-competition rules of the TCC.

Typical closing conditions in VC-backed start-up acquisitions include obtaining all necessary corporate and regulatory approvals, completion of financial settlements, and delivery of all key transaction documents. It is customary for representations and warranties to remain true and accurate at closing, and for any required third-party consents or ancillary agreements (such as intellectual property assignments, employment, or transition agreements) to be executed at or before completion.

A material adverse effect (MAE) generally refers to any event, change, or circumstance that has a materially detrimental impact on the target company’s financial condition, business operations, or overall value. Typical examples include a significant deterioration in financial performance, loss of a key customer or contract, material legal or regulatory changes, or extraordinary events such as natural disasters.

While MAE clauses are occasionally negotiated, particularly where international investors or English-law documentation is involved, they are not yet standard in Turkish market practice. Domestic transactions tend to favour objective, clearly defined closing conditions over open-ended MAE formulations. Where included, enforceability depends on precise drafting and measurable criteria, and such clauses are rarely invoked in practice, serving more as a negotiating safeguard than as a routinely exercised termination right.

a. Is deemed disclosure of the dataroom common?

Deemed disclosure of the data room is not a standard feature in Turkish-law technology M&A transactions, but its functional equivalent exists under Article 222 of the TCO. Article 222 provides that a seller is not liable for defects the buyer knew or should have known at signing, so information clearly available in the data room can already limit warranty claims without a contractual clause. However, in practice, Turkish courts require the seller to prove that the relevant information was sufficiently specific and accessible to put the buyer on notice. To manage this evidentiary burden, market practice favours a formal disclosure schedule and, in larger or cross-border deals, preservation of a “frozen” data-room copy certified by the parties.

b. Are “knowledge” qualifiers common? Is it common to make representations that are “risk shifting” (e.g., where sellers cannot completely validate the accuracy of such representations)?

“Knowledge” qualifiers are frequently negotiated in Turkish technology M&A but are not uniformly accepted. Where sellers are individuals (founders or management), warranties are often limited to matters “to the best of their knowledge”, typically defined as the actual knowledge of named persons, often limited to what they know after reasonable inquiry, and excluding constructive or imputed knowledge. Institutional sellers generally resist such qualifiers, as they materially weaken warranty protection and conflict with clean-exit objectives. Turkish law does not recognise “knowledge” as a statutory concept, so any limitation must be expressly defined in the SPA to be enforceable.

“Risk-shifting” representations are uncommon in purely domestic deals. Turkish sellers typically warrant only what they can confirm through their own records or reasonable inquiry. However, in technology transactions involving international investors, English-law drafting influence is evident: buyers often demand broader warranties. In such cases, sellers seek protection through knowledge qualifiers, liability caps, escrow arrangements, or specific indemnities, rather than accepting open-ended exposure.

In Turkish M&A practice, particularly in technology and venture-backed transactions, seller indemnification is a heavily negotiated contractual mechanism that balances investor protection against the limitations of Turkish statutory law and the absence of a mature W&I insurance market. The scope of indemnification typically covers fundamental and customary representations, such as title to shares, capacity, and authority, alongside specified representations addressing intellectual property ownership, data protection, and tax matters. General representations and warranties relating to the target’s operations, contracts, and compliance are also standard, while covenants, shareholder-related undertakings, and specific indemnities are used to address identified risks such as employment misclassification, IP registration defects, or pending disputes. Pre-closing tax liabilities are usually ring-fenced through separate tax warranties or indemnities.

Liability limits are most often set by reference to the purchase price, with caps for general claims. Fundamental warranties, fraud, and wilful misconduct are usually carved out from these caps and remain uncapped, surviving indefinitely. Survival periods are expressly defined by contract, even if they extend beyond the statutory limitation periods. In practice, general representations and warranties typically survive for twelve to twenty-four months, while fundamental warranties and tax-related matters may extend up to five years. Turkish law itself provides limitation periods ranging from five to ten years for private-law claims, and up to twenty years in cases that may entail criminal or regulatory implications.

Given that warranty and indemnity insurance remains uncommon in Türkiye, buyers frequently negotiate a post-closing holdback or escrow mechanism to secure potential indemnification claims. These arrangements are documented in share or asset purchase agreements and reflect a balance between the buyer’s desire for enforceable recourse and the seller’s need for finality after closing.

Under Turkish law, indemnification in M&A transactions is governed by the general principles of contractual liability. These rules define the scope of recoverable damages and impose statutory limits that must be reflected in the drafting of indemnity provisions. The key principles are causation, foreseeability, proof of loss, and the duty to mitigate.

Recoverable damages are confined to actual loss and loss of profit directly caused by the breach, provided such losses were foreseeable at the time of contracting. Turkish law does not recognise punitive or exemplary damages, and recovery based on valuation multiples or diminution in deal value is generally unenforceable unless expressly agreed as a contractual indemnity. Even then, enforceability depends on whether the clause is treated as a penalty clause, which courts may moderate if considered excessive.

Parties are required to take reasonable steps to mitigate their losses, and any failure to do so may reduce the amount recoverable. Indemnification cannot extend to losses caused by the claimant’s own fault or unrelated third-party acts, reflecting the broader principle of contributory negligence.

Although parties are free to allocate risk contractually, Turkish law does not permit advance waivers of liability for gross negligence or wilful misconduct. Liability for minor negligence, however, may be limited or excluded, allowing sophisticated parties to calibrate their exposure. In practice, indemnities operate as contractual risk-allocation mechanisms rather than automatic statutory remedies. Buyers often negotiate specific indemnities covering tax, IP infringement, or data breaches, drafted to provide full compensation for the loss incurred, sometimes excluding statutory defences such as foreseeability or mitigation. Such exclusions are enforceable so long as they do not contravene public policy or mandatory law.

Turkish courts apply a conservative approach to damages, requiring strict proof of loss and causation. Speculative or remote losses are rarely recoverable, and claims based on enterprise-value adjustments or theoretical multiples are unlikely to succeed unless clearly drafted as penalties. As a result, indemnity clauses in Turkish technology M&A transactions must be precise and tightly defined, with clear parameters for recoverable losses, survival periods, and liability caps. Escrow structures and, in cross-border deals, warranty and indemnity (W&I) insurance are increasingly used to manage enforcement uncertainty.

Unlike English-law indemnities, which function as debt-like obligations detached from causation or foreseeability, Turkish-law indemnities remain subject to the general rules of contractual liability unless expressly drafted otherwise.

W&I insurance is not used in the Turkish technology M&A market. Local insurers do not offer such products, and international underwriters seldom extend coverage to early-stage or venture-backed transactions governed by Turkish law. Accordingly, W&I policies do not exist in practice for acquisitions of VC-backed start-ups.

Parties instead allocate post-closing risk through specific indemnities, escrow or holdback arrangements. Tax exposures are managed through warranties or bespoke indemnities rather than insurance.

W&I cover may appear only in large, cross-border deals governed by English law, but it remains absent from the Turkish technology transaction landscape.

Türkiye’s merger control regime is governed by Law No. 4054 on the Protection of Competition and Communiqué No. 2010/4. Many technology-sector acquisitions are subject to pre-merger clearance by the Turkish Competition Authority (“TCA”) if specified turnover thresholds are met. The transaction may not be completed until the Competition Board grants approval, following an EU-style suspensory review.

“Control” may be acquired individually or jointly and can arise de jure or de facto through rights, contracts, or other means conferring decisive influence over an undertaking. Accordingly, a merger or acquisition resulting in a lasting change of control requires notification to the Competition Board if either of the following thresholds is met:

1. The combined Turkish turnover of all undertakings concerned exceeds TRY 750 million, and the Turkish turnover of at least two of those undertakings each exceeds TRY 250 million; or
2. In acquisitions, the Turkish turnover of the target exceeds TRY 250 million and the worldwide turnover of at least one of the other parties exceeds TRY 3 billion (the same applies mutatis mutandis to mergers).

Special rules apply to technology undertakings, defined as those active in digital platforms, software (including gaming software), financial technologies, biotechnology, pharmacology, agricultural chemicals, or health technologies. For such companies, the TRY 250 million Turkish turnover threshold is waived, meaning that any transaction involving a permanent change of control must be notified if the combined Turkish turnover of the parties exceeds TRY 750 million or the worldwide turnover of at least one party exceeds TRY 3 billion.

This targeted exemption reflects the Competition Authority’s heightened scrutiny of technology markets, ensuring that even smaller domestic players active in strategically significant sectors fall within merger-control oversight.

Türkiye’s foreign direct investment (“FDI”) regime is grounded in the principles of equal treatment and investment freedom. There are no general restrictions on foreign ownership or minimum capital thresholds. Direct share acquisitions or transfers involving foreign investors must be notified to the Ministry of Industry and Technology through the E-TUYS system within one month, solely for statistical purposes; such notifications do not affect the validity or enforceability of the transaction.

While there are no general filing thresholds, certain acquisitions in publicly listed companies may trigger disclosure obligations under the SPK regulations, depending on the level and nature of shareholding or control obtained. Specific regulated sectors such as energy transmission, railways, media, education, and mining remain subject to foreign ownership caps or require prior regulatory approval.

There is currently no standalone FDI screening or national security review mechanism targeting technology companies. However, sector-specific rules may apply depending on the target’s activities, particularly in areas such as data processing, telecommunications, or critical infrastructure.

In Türkiye, M&A transactions may trigger sector-specific approvals or notifications depending on the target’s industry. For example, acquisitions involving banks, fintechs, or payment institutions require prior consent from the Banking Regulation and Supervision Agency (BRSA), while deals in the energy sector fall under the jurisdiction of the Energy Market Regulatory Authority (EMRA). Transactions in broadcasting or media are subject to approval by the Radio and Television Supreme Council (RTÜK), and more depending on the sector.

In addition to these sectoral approvals, the TCC imposes post-closing transparency obligations. Share transfers that result in crossing specified ownership thresholds (5%, 10%, 20%, 25%, 33%, 50%, 67%, or 100%) must be registered with the trade registry and disclosed in the company’s articles. This is a notification requirement rather than a pre-closing approval, aimed at ensuring transparency of ownership changes.

Furthermore, if the target operates within a Technology Development Zone (Teknopark) or similar incubation or acceleration program, its participation agreement or lease may impose additional obligations. A change of control often requires prior notification or approval to the managing entity, and in some cases, continued compliance with R&D qualifications to preserve tax incentives. Acquirers should carefully review the target’s technopark contracts and incentive certificates to ensure uninterrupted eligibility post-transaction.

A key challenge in Turkish technology M&A transactions is verifying the target company’s ownership and the complete chain of title for all critical intellectual property (IP) assets. Registrable rights (such as patents, trademarks, and industrial designs) must be confirmed through official searches at the Turkish Patent and Trademark Office (TPTO). In contrast, non-registrable rights like software copyrights have no public registry, so ownership must be established through written agreements, source code documentation, or other supporting evidence.

In practice, many start-ups rely on works or inventions created by founders, employees, or contractors, which often leads to gaps in the chain of title. Under the Intellectual and Artistic Works Law numbered 5846, the creator is the initial owner of any work or invention. An employee who develops software, for example, is legally the author at the time of creation, even though the employer typically acquires usage rights. Full ownership passes to the company only through a valid written assignment, as Turkish law does not recognise automatic or prospective transfers of future works. Accordingly, due diligence focuses heavily on verifying that all relevant IP has been duly assigned to the target, supported by employment and contractor agreements containing IP assignment clauses.

For employee inventions, the Industrial Property Code numbered 6769 prescribes a specific notification and claim procedure: the employee must promptly notify the employer of a patentable invention, and the employer must assert its claim within a fixed period (generally four months). It is important to verify that these procedures were followed and that any compensation obligations to inventors were properly discharged. Missing assignments or unclaimed inventions are common red flags that may undermine ownership.

Beyond ownership, acquirers must assess third-party rights and continuity of use post-transaction. Technology companies often depend on licensed software or data, and such agreements may restrict assignment or trigger change-of-control consents. If the target has granted licences of its own technology, especially exclusive ones, the buyer must understand the implications for future commercial use. Open-source software presents a further risk: due diligence often includes a code scan to ensure compliance with licence terms and identify any “copyleft” obligations that could jeopardise proprietary code.

Another key consideration is encumbrances on IP assets. Under Turkish law, patents, trademarks, and designs may be pledged or otherwise used as collateral, and such liens are recorded at the TPTO for perfection. Buyers should confirm through registry searches that no pledges or liens exist and obtain warranties confirming clean title. Post-closing, transfers of registrable IP must be recorded with the TPTO to perfect the buyer’s ownership and notify third parties.

Finally, Turkish IP law preserves certain non-transferable moral rights of authors, such as the right of attribution and the right to object to derogatory modifications, under Law No. 5846. Although these rarely obstruct acquisitions, they are inalienable and should be respected by the buyer in practice.

In summary, the recurring IP issues in Turkish tech acquisitions revolve around ownership certainty, transferability, third-party restrictions, and encumbrances. Addressing these systematically through thorough IP due diligence under Turkish law ensures that the buyer acquires not just the technology itself but the full and enforceable rights to exploit it without interruption.

Türkiye’s data privacy regime is primarily governed by the Law on the Protection of Personal Data numbered 6698 (“KVKK”), which closely aligns with EU GDPR principles. KVKK establishes the legal framework for processing personal data by data controllers and processors, requiring a lawful basis for processing (such as explicit consent, legal obligation, or legitimate interest), transparent privacy notices, and respect for data subject rights (access, correction, deletion). The Personal Data Protection Authority (“KVKK Board”) oversees compliance and issues secondary regulations and guidelines, including rules on cross-border data transfers, technical and administrative measures, and registration obligations under VERBİS (the Data Controllers’ Registry). Transfers of personal data outside Türkiye are strictly regulated: they require either an adequacy decision for the destination country, the KVKK Board-approved standard contractual clauses, or explicit consent from data subjects. Because few jurisdictions are deemed adequate, most companies rely on standard clauses approved by the KVKK Board.

In the context of technology M&A, common issues include missing user and employee consents, incomplete or non-compliant privacy notices, failure to register with VERBİS, and inadequate systems for handling data subject requests. Cross-border transfer compliance is a frequent challenge, especially for companies using foreign cloud services. If sensitive data (such as health or biometric information) is processed, KVKK requires additional “adequate measures” (per KVKK Board guidelines). Another critical area is contractual compliance: targets often lack robust data processing agreements with vendors or enterprise clients, particularly in B2B models where the startup acts as a processor. These agreements must clearly define roles, responsibilities, and liability for breaches. Finally, during the M&A process itself, personal data shared in due diligence must be minimized, anonymized where possible, and protected by confidentiality undertakings. Ensuring full KVKK compliance (from lawful collection and secure retention to valid transfer mechanisms and processor obligations) is a key focus of due diligence in Turkish technology transactions.

In acquisitions of Turkish technology companies, the main employment-law challenges arise from the structure of the transaction rather than formal transfer mechanics. Most asset deals involve only software or IP assets, not the business as a whole; therefore, employees do not transfer automatically, and the buyer must assess any personnel it wishes to retain through new contractual arrangements.

The most persistent risk is the widespread misclassification of personnel as independent contractors. Start-ups often rely on “freelance” or service-based arrangements that in substance constitute employment, exposing both the target and the buyer to retroactive social security, tax, and severance liabilities.

Termination practices also require attention. Even where employees sign waivers upon exit, Turkish courts frequently deem them invalid if executed under perceived pressure. Market practice now favours settling terminations through formal mediation, as mediated settlements are binding and preclude future claims.

Due diligence should therefore prioritise contractor status, termination records, and confirmation that all IP, confidentiality, and non-compete rights are validly assigned and enforceable.

Arbitration is the preferred dispute resolution mechanism in Turkish M&A transactions, particularly for technology-sector deals involving cross-border elements. Parties commonly opt for institutional arbitration under ICC or ISTAC rules, valuing its neutrality, confidentiality, procedural flexibility, and the ability to appoint arbitrators with sector-specific expertise. Turkish law supports both institutional and ad hoc arbitration, and foreign arbitral awards are enforceable in Türkiye under the New York Convention, provided that the arbitration agreement meets formal validity requirements.

Well-drafted M&A agreements typically specify the seat, institutional rules, language, and governing law of arbitration at the outset, minimizing procedural uncertainty. While Turkish courts remain a viable option for purely domestic transactions, arbitration is generally preferred in technology M&A because it offers more discreet handling of intellectual property, data protection, and confidential business information.

Common post-closing disputes include breaches of representations and warranties, ownership and licensing of IP, data privacy liabilities, and price adjustment mechanisms. In transactions with earn-out provisions, disagreements often arise regarding whether performance targets were achieved, whether the buyer’s conduct impeded the earn-out, or how post-closing obligations should be measured.

Türkiye maintains several corporate and documentary formalities that can materially affect deal timing. Joint-stock companies (anonim şirket), which are the main corporate form used in VC-Backed Start-ups; share transfers occur by endorsement and delivery of share certificates, or if unissued, through a written deed recorded in the share ledger. No notarisation is required in either case. Additionally, if a general assembly resolution is to be filed with the trade registry (such as in the case of a priced equity round capital increase) the general assembly resolution and several ancillary documents must be notarised.

Corporate powers of attorney, board resolutions, and signature declarations used in filing must be notarised. If executed abroad, they also require apostille or consular legalisation and sworn Turkish translations.