Most Turkish startup option plans are promises, not securities. The company signs an option agreement, the employee vests, and when the time comes to exercise, everyone discovers that Turkish law has no automatic way to turn a promise into a share: the general assembly must resolve a capital increase, existing shareholders must waive pre-emption rights, the increase must be registered, and only then can the employee’s shares exist. The Turkish Commercial Code No. 6102 (TCC) does contain a mechanism designed for exactly this problem. The conditional capital increase in Articles 463 to 472 lets the general assembly authorise, once, in the articles, a block of new shares that employees and holders of convertible instruments may call for by exercising conversion or subscription rights, and provides that the capital increases automatically, in the amount exercised, when the price is paid. It is used far less often than it should be, partly because it was borrowed from Swiss law and Turkish practice took time to trust it, and partly because it has ceilings and formalities that must be respected. This article explains how it works, where it fits with the ESOP design checklist, and when the alternatives are better.
What the mechanism does
Article 463(1) allows the general assembly to resolve a conditional increase of capital by granting, in the articles, a right to acquire new shares through conversion or subscription rights to two groups: creditors under newly issued bonds or similar debt instruments, and employees of the company or of group companies. Article 463(2) contains the point of the whole chapter: the capital increases automatically, at the moment and to the extent that the conversion or subscription right is exercised and the capital contribution is made by set-off or payment. No further general-assembly resolution, no board resolution and no pre-registration are needed for each exercise; the shareholding arises on performance of the contribution (Article 468(3)).
Two hard limits apply. The total nominal value of the conditionally increased capital may not exceed half of the existing capital (Article 464(1)), and the payment made must at least equal the nominal value (Article 464(2)). The second limit means that “penny options” at a strike price below nominal are impossible in Türkiye; the strike must be at least the nominal value of the share, which is why companies with option plans keep nominal values low. Shares acquired through a conditional increase carry the same rights as other shares of their class, and the articles may attach privileges or transfer restrictions to them (Article 465(1)(e)–(f)).
What the articles must say
The conditional increase lives in the articles of association. Article 465(1) requires the articles to state the nominal value of the conditional increase, the number, nominal value and class of the shares, the groups entitled to conversion or subscription rights, the fact that existing shareholders’ pre-emption rights are excluded and by how much, the privileges attached to particular share groups, and the restrictions on transfer of the new registered shares. Where convertible bonds or similar debt instruments are not first offered to shareholders, the articles must also state the conditions for exercising the rights and the basis for calculating the issue price (Article 465(2)); this limb does not apply to employee rights. Article 465(3) contains the trap: conversion or subscription rights granted before the articles provision on the conditional increase is registered are void. Options signed with employees before the general assembly has amended and registered the articles are therefore not conditional-capital rights; they are contractual promises that will need the ordinary capital-increase route.
The articles amendment that introduces the conditional increase is an ordinary articles amendment for quorum purposes (Article 421(1): half of the capital present, majority of votes), unless it also creates privileged shares or restricts transfers, in which case the 75 per cent rule in Article 421(3) applies. The exclusion of pre-emption rights is inherent in the mechanism and is stated in the articles rather than voted separately under Article 461, but the general rule that no one may be unfairly disadvantaged by it still applies (Article 466(3)).
Exercise, payment and registration
Employees exercise by a written declaration referring to the articles provision (Article 468(1)); the contribution is paid through a bank or performed by set-off (Article 468(2)); and shareholder rights arise when the contribution is performed (Article 468(3)). The board then does the housekeeping. Within three months of the close of each financial year it registers the resulting articles amendment with the trade registry and files a board declaration stating the number, nominal value and class of the shares issued and any privileges, adapting the articles to the new capital figure (Articles 470 and 471). When the rights expire, the board removes the conditional-increase provision from the articles and the registry (Article 472). This annual, rather than per-exercise, registration is the administrative saving that makes the mechanism attractive: fifty employees exercising in one year produce one registration, not fifty.
Why it suits option plans, and where it does not
The fit is good on four points. Employees are an expressly authorised class of beneficiaries. The company commits once, at the general assembly, and the founders and investors know the maximum dilution from the outset, which is exactly what an option pool is meant to do. Exercise does not depend on the goodwill of a future general assembly, which is the main risk of the promissory model: an employee who leaves on bad terms, or exercises after a change of control, cannot be blocked by a shareholder who declines to attend. And the pool sits in the registered articles, where a buyer’s diligence team can see it, rather than in a stack of side letters.
The fit is poor on three points. The 50 per cent ceiling is rarely a problem for option pools of 10 to 15 per cent, but it counts against convertible debt as well, so a company with large convertible notes may exhaust the ceiling. The nominal-value floor prevents strike prices below nominal and complicates plans that promised “free” shares; those need a different structure, such as shares acquired by the company under Article 379 and transferred to employees, or a bonus-and-buy arrangement. And the mechanism creates real shares held by real employees, with voting rights and general-assembly attendance; a company that wants employees to have economic exposure without governance rights should look at phantom shares or a trust-like holding vehicle instead. For Turkish companies that have flipped to a US parent, the plan usually sits at the parent and this chapter does not apply; see our note on ESOP after a flip-up.
Tax and labour interfaces
The conditional increase changes the corporate mechanics, not the tax analysis. The employee’s benefit at exercise, the difference between fair value and the price paid, is treated as employment income under the Income Tax Law No. 193, and the company’s withholding obligations follow. Since Law No. 7524 (2024) re-enacted Article 17 of that Law, as amended by Law No. 7582 of 21 May 2026, employers qualifying as a “techno-enterprise company” (teknogirişim şirketi) under the Ministry of Industry and Technology’s criteria may grant shares free or at a discount with the fair value of the shares at grant exempt up to twice the employee’s annual gross salary, subject to a clawback from the employer if the employee sells within two years (the whole exempted tax), within three to four years (75 per cent) or within five to six years (25 per cent). A conditional-capital plan with a strike at nominal value fits that provision well, since the discount to fair value is precisely the exempt benefit. On the labour side, the option agreement is not part of the employment contract for severance purposes unless it is drafted as such, and the exercise conditions, including good-and-bad-leaver rules and post-termination exercise periods, sit in the plan and the option agreement, not in the articles. The articles say only who may exercise and on what terms of price and class; the plan says when.
A sequence that works
Adopt the plan rules and the option-agreement template first, with vesting, leaver and exercise terms, so that the articles provision can be drafted to match. Hold a general assembly that amends the articles to introduce the conditional increase with the Article 465 content, sets nominal value low enough for the intended strike, and, if the employee shares will carry no privileges and no special transfer restriction beyond the general Article 492 approval clause, avoids the 75 per cent quorum. Register the amendment before signing any option agreement that relies on it; sign the agreements after registration. Open the exercise window in the plan, collect written exercise declarations and bank payments, enter the new shareholders in the share ledger on payment, and diarise the three-month post-year-end registration. When the pool is exhausted or the plan ends, remove the provision under Article 472.
Can existing shareholders object to the dilution when employees exercise?
Not at exercise. The pre-emption exclusion was decided when the articles were amended and registered; exercise is automatic under Article 463(2). Objections belong at the general assembly that adopted the provision, within the three-month window of Article 445.
Do we need a Ministry representative at the general assembly?
Yes. The conditional increase is a capital-increase item for the purposes of the General Assembly Regulation, so a Ministry of Trade representative must attend the meeting that introduces it.
What happens to unexercised rights on an exit?
Whatever the plan says. Acceleration on change of control, cash-out of options at the deal price, or lapse are plan terms; the articles need only allow exercise within the period stated. Make sure the buyer’s counsel sees both documents.
Related: ESOP · option pool · ESOP design checklist.
Sources. Turkish Commercial Code No. 6102 (Articles 379, 421, 445, 461, 463–472, 492); Income Tax Law No. 193 (Article 17, as re-enacted by Law No. 7524). 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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