Here is the result: the most carefully prepared document in a family business cannot stop one share transfer on the day it is needed. Three years after the signing ceremony of the family constitution, a sibling wants to transfer part of his shareholding to a son-in-law. Someone opens the share ledger, someone else the articles. The argument is lost at the first step, because “shares remain within the family” binds nobody in law. How a document reaches that point is worth setting out.
The defect lies less in what the constitution says than in where it says it. Three kinds of promise are piled into one document: company law rules that must bind everyone, contractual arrangements that bind only the signatories, and moral undertakings that will never be enforced. Side by side, all three collapse to a single legal value — none.
The cure is dull but short: take each undertaking in turn and ask where that sentence can live, under which provision. What follows is that exercise, applied to the promises that keep recurring.
Who a promise in the constitution actually binds
A family constitution is not regulated by the Turkish Commercial Code (Türk Ticaret Kanunu) and is no company law instrument. Nothing in it binds the company, later shareholders, creditors or a court. At best it is read, between those who signed it, as a shareholders’ agreement (pay sahipleri sözleşmesi), and only where its parties and consequences are certain enough.
The articles of association (esas sözleşme), by contrast, bind every shareholder on registration, those who join later, and the company’s organs; nobody gets to say “I never signed this”. They have a ceiling: under the principle of mandatory provisions in TTK Article 340 they may depart from the Code’s rules on joint stock companies only where the Code expressly permits, and part of what a family wants to move across meets that wall.
The rough mapping runs as follows:
- Rules that must work against everyone belong in the articles: transfer restrictions, privileges attached to share classes, board representation rights.
- Arrangements meant to bind only the signatories belong in the shareholders’ agreement: pre-emption rights, voting undertakings, exit pricing.
- Undertakings with a succession dimension belong in testamentary instruments; a “succession plan” in the articles with no will (vasiyetname) behind it hangs in the air.
- Expectations that guide behaviour without being enforceable stay in the constitution: how the family council works, what path a family candidate follows.
Which provision keeps “the shares stay in the family” standing?
Almost every constitution says shares will not leave the family; that clause is the most fragile once relied on. In a joint stock company transfers of registered shares may be restricted by the articles: TTK Article 492 sets the frame, and TTK Article 493/1 allows refusal either on an important reason set out in the articles or against an offer to acquire the shares at their real value. TTK Article 493/2 gives that reason content: the composition of the body of shareholders, the field of business, the economic independence of the undertaking. The first does the work here, and only so far as the articles spell it out.
The distinction most easily missed sits in TTK Article 493/4. Where shares were acquired through inheritance, the division of an estate, the matrimonial property regime between spouses or enforcement, refusal is possible only against an offer to take them over at real value. In a death, divorce or attachment the rule does not shut the door; it lets the company buy its way back in. The family assumes the rule is absolute. What it holds is a purchase obligation requiring cash, and that is where the talks stop. A transfer restriction therefore needs a mechanism for fixing real value and funding the price.
In a limited liability company the picture is tighter: transfer of a capital share is as a rule subject to the general assembly’s approval, which TTK Article 595 makes a condition of validity. That lock also traps the shareholder who wants out. Backing the expectation with a mechanism such as a right of first refusal (önalım hakkı) is healthier than relying on the lock alone.
Then the sentence we hear constantly: “the company will buy the shares back if it comes to it”. TTK Article 379 caps a company’s acquisition of its own shares at 10% of the share or issued capital; the general assembly authorises the board for a maximum of five years; the shares must be fully paid up; and net assets must not then fall below capital plus non-distributable reserves. The promise shrinks against the balance sheet.
Board representation and family employment do not belong in the same document
“Each branch shall have a member on the board of directors (yönetim kurulu)” is a staple of these texts and achieves nothing on its own. To work in law it needs share classes, and a right of representation granted to particular classes under TTK Article 360 — a job for the articles. Once the classes exist the right survives whoever holds the majority; without them, the undertaking is goodwill renegotiated every year.
The same logic governs privileged shares (imtiyazlı pay). Where certain decisions are to depend on one branch’s consent, the instrument is a privilege in the articles; “major decisions shall be taken unanimously” will not let a dissenting shareholder have a resolution set aside, and TTK Article 340 still bounds what the privilege can cover.
Who works in the business is employment law, not company law. Rules like “family members may join only after working outside for a period” are harmless as recruitment policy; once an employment contract exists, Labour Law No. 4857 governs termination, severance and notice, and no family resolution rises above it. “The family council shall remove an underperforming member” is a dismissal by an employer. Dealings between a relative and the company call TTK Article 395 to mind: without the general meeting’s permission a board member may not transact with the company on his own account or another’s, nor borrow from it.
The writable limits of a dividend promise
The most emotive clause is usually dividends: a set share of profit distributed every year. Two layers stand in front of it. First, statutory reserves. Under TTK Article 519, 5% of annual profit is set aside until the general statutory reserve reaches 20% of the paid-in capital, and where a distribution exceeding 5% of the paid-in capital is resolved upon, 10% of the amount to be distributed is set aside as a second allocation. Second, discretion: TTK Article 523 allows further reserves where the company’s continuous development and as steady a dividend as possible justify them.
Only then does entitlement arise. Under TTK Article 507 each shareholder participates, in proportion to his shareholding, in the net profit resolved to be distributed and in the balance left after liquidation. The promise’s real address is therefore the general assembly (genel kurul); a binding undertaking on how votes are cast there can only come from the shareholders’ agreement. Hence the division of labour: the constitution explains the philosophy, the shareholders’ agreement records the voting undertaking and the consequence of breach, and the articles carry a dividend privilege only so far as the Code allows.
When a dispute breaks out, which document does the work?
The dispute section tends to be well meant and weak: family council first, then mediation, then “legal remedies if required”. Unless drafted to bind the parties, that ladder makes no stage compulsory; to function it must sit in the shareholders’ agreement in clear terms, with deadlines and a consequence attached. Breach of a voting obligation belongs in the same place, on the logic of a voting agreement (oy sözleşmesi).
What stands at the end of the ladder no constitution can alter. Where just causes exist the minority may seek dissolution under TTK Article 531, and the court has remedies other than dissolution; TTK Article 636 is the counterpart for limited liability companies. Writing “no shareholder shall sue” changes none of this. These provisions work as a quiet counterweight, because everyone knows where the matter ends if agreement fails.
The value of the unenforceable part
None of this makes the constitution a waste of effort. Its function is to force the negotiation before a dispute exists. Which branch is represented by whom, what qualifies someone to join, what dividend is realistic, when the founder steps back — these are settled in the kitchen, not in court, and once written down they become the family’s shared memory. The document that helps most in a handover is rarely the strongest one, but the one the parties genuinely agreed.
The converse holds too: leave provisions that do have legal force in the constitution, and the family believes it is protected when it is not. The healthiest text is one drafted in awareness of its limits, stating which clause went into the articles and which into the shareholders’ agreement.
If a constitution is already in a drawer, the first task is not to rewrite it but to mark it up clause by clause, giving each provision one of three labels: move to the articles, move to the shareholders’ agreement, leave where it is. The first group needs a general meeting with an amendment on the agenda; the second, signatories and a consequence for breach; the third is protected by stating openly that it carries no sanction. That week of work heads off the family’s most expensive future argument.
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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