The dispute resolution clause in a shareholders’ agreement is the clause copied from another contract on the last night of negotiations; the arbitration community calls it the “midnight clause” for good reason. Nobody at signing wants to think about the litigation scenario. Yet the question of arbitration or courts is the single clause that will determine the language, duration, cost and, above all, confidentiality of the process once a dispute erupts, and it deserves better than copy-paste. Nor does the choice have to be binary; hybrid structures routing some disputes to arbitration and others to court can be built into the same agreement, provided the dividing line is drawn sharply enough not to generate disputes of its own.
Changing that choice after a dispute has arisen is close to impossible; whichever party sees an advantage in the existing clause will refuse to amend it. The decision therefore has to be made while the shareholders’ agreement is being negotiated, and it has to be made through scenarios: what disputes could arise, who would be on the other side, where would a decision need to be enforced. This article works through the practical criteria that should feed that decision.
Arbitration’s promise: confidentiality and control
Arbitration’s most tangible advantage for startup partnerships is confidentiality. Court proceedings are, as a rule, public; hearings are open, and the details of a shareholder fight move into a space accessible to customers, employees and future investors. Arbitral proceedings are conducted confidentially within the framework the parties and the institutional rules set; the company’s valuation, its cap table and its trade secrets stay in the file. For a company living from one financing round to the next, that difference alone can be decisive.
The second advantage is control. The parties choose their arbitrators; a tribunal versed in company law and venture practice can discuss vesting, liquidation preference or dilution without referring every concept out to a court expert. The language of the proceedings can be set as English, which removes the translation layer in any structure with a foreign investor. In cross-border disputes, enforcing arbitral awards abroad is also generally more predictable than enforcing court judgments, thanks to the broad reach of the New York Convention.
Cost and speed do not always favour arbitration
The reflex that arbitration is “fast and cheap” deserves scepticism. Arbitrator fees and institutional charges are advanced by the parties; as the amount in dispute grows these items become serious, while in a small shareholder dispute the fixed costs can be disproportionate. The state court fee system works differently, and the cash burden of litigation spreads over time. On speed, arbitration usually leads, but nobody should expect a one-hearing process; arbitrator appointments, response periods and expert evidence exist here too, and the risk of a set-aside action can stretch the timeline.
The practical tuning tools are these: agree a sole arbitrator for small and mid-sized disputes, refer to the institutions’ expedited rules, and reserve the arbitration clause for disputes genuinely suited to it. Valuation-heavy conflicts, such as earn-out disagreements, sit well in arbitration, whereas breaches needing an urgent injunction often make the state court’s interim relief powers indispensable; well-built clauses keep the road to court open for interim measures alongside arbitration.
Not every dispute can go to arbitration
The most commonly missed issue when drafting an arbitration clause is the limit of arbitrability. Contractual claims between shareholders (share transfer obligations, exit provisions, non-compete undertakings, contractual penalties) are, as a rule, arbitrable. The picture is contested, however, in areas touching the organic acts of company law: whether actions such as the annulment of general assembly resolutions, whose effects extend to all shareholders and third parties and which interact with the registry, can be heard in arbitration is a debated question in Turkish doctrine and practice.
The practical consequence: draft the arbitration clause to cover the contractual disputes arising from the partnership, and accept from the outset that claims concerning the decisions of corporate organs may stay in court. Part of the same bundle of conflicts running in arbitration while another part runs in court — the risk of parallel proceedings — is one of the real costs of choosing arbitration, and it should be discussed openly in the negotiation.
ISTAC, ICC, or the courts?
There is no single right institution; the profile decides. For teams where both sides are based in Türkiye, the Istanbul Arbitration Centre (ISTAC) is an option that can run in Turkish, with an accessible cost structure and alignment with local practice; mechanisms such as expedited arbitration and an emergency arbitrator exist in its institutional rules. In structures with a foreign investor, where enforcement will most likely be sought abroad, international institutions such as the ICC are the investor side’s default; the cost bar is higher, but so is international recognition.
If the courts are preferred, that preference must still be written. Turkish procedural law allows merchants to designate the courts of a particular place by a jurisdiction agreement; a clause of the type “the courts and enforcement offices of Istanbul shall have jurisdiction” at least closes the argument over where the dispute will be heard. The worst scenario is having no clause at all or, worse still, different dispute clauses across the documents of the same contractual set: if the articles of association point to court and the SHA points to arbitration, the first year of the dispute is spent fighting over which door is the right one.
Tiered dispute clauses: good idea, careful drafting
The model spreading through practice is the tiered clause: good-faith negotiation first, then mediation, and arbitration or litigation only at the end. This architecture matches the reality that a large share of shareholder disputes are, at bottom, communication failures, and it forces the parties to the table before the irreversible step. In Turkish law, mandatory mediation already operates as a precondition to filing in a large share of commercial claims; a contractual tier can turn that compulsory step from an optional formality into a genuine settlement window.
The risk should be named too: a badly drafted tier does not accelerate resolution, it delays it. Open-ended wording such as “the parties shall first seek an amicable solution” breeds argument over whether the tier is a precondition to arbitration or a mere aspiration. A well-drafted tier puts a clear time limit on each stage — a thirty-day negotiation window, then mediation under identified rules, then an unconditional right to commence arbitration once the period lapses — and carves interim relief out of the sequence entirely. It also names who must sit at the mediation table, because a mediation conducted through representatives with no authority to settle does nothing but run down the clock on the clause.
To sum up: the dispute resolution clause is the one provision of a shareholders’ agreement written purely for the future, and it should be chosen through scenarios. A profile needing confidentiality and foreign enforcement, specialist decision-makers and mid-to-large disputes points to arbitration; a profile of small amounts, urgent interim relief or challenges to corporate resolutions points to the courts. Whichever you choose, use the same clause across every document in the set, tie the tiers to deadlines, and if you choose arbitration, state the institution, the seat, the language and the number of arbitrators expressly. The midnight clause deserves to be written in daylight.
Sources. International Arbitration Law No. 4686, Code of Civil Procedure No. 6100, New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UNCITRAL) and Istanbul Arbitration Centre (ISTAC). Statute links open the official Turkish texts on mevzuat.gov.tr.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
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