A US term sheet promises the investor “Series A Preferred” with a 1x liquidation preference, protective provisions and a board seat. In a Turkish joint-stock company none of those words exists as such; what exists is Article 478 of the Turkish Commercial Code No. 6102 (TCC), which allows the articles of association to grant certain shares a privilege (imtiyaz), defined as a superior right in dividends, liquidation proceeds, pre-emption, voting or the like, or a new shareholder right not provided for in the Code. Everything the investor wants is built on that sentence, and the building has rules: privileges attach to shares and not to persons, they are created in the articles by a 75 per cent capital majority, voting privileges are capped at fifteen votes per share and switched off for certain resolutions, and a later articles amendment or capital increase that prejudices privileged shareholders needs their separate approval. This article explains how each standard investor term is implemented in a Turkish articles of association, what cannot be done as a privilege and must go into the shareholders’ agreement instead, and the traps in the special-meeting rule of Article 454. It follows our founder’s view of liquidation preference and feeds the SHA anatomy reference.
What a privilege is, and what it is not
Article 478(1) allows privileges to be granted to certain shares in the initial articles or by amendment. Article 478(2) defines them: a superior right attached to a share in dividends, liquidation share, pre-emption, voting and similar rights, or a new shareholder right not foreseen in the Code. Two features follow. Privileges belong to the share, so they pass with it on transfer unless the articles limit them to a group of shares defined by characteristics; the practical technique is to divide the capital into groups (A, B, C) and attach the privilege to the group, so that an investor’s shares carry it and a founder’s do not. And privileges are a matter for the articles: a right written only into the shareholders’ agreement is a contractual promise between the signatories, enforceable by damages, not a right against the company that binds a buyer of the shares or the general assembly. The preferred stock of US practice is therefore reproduced in Türkiye by group shares with privileges in the articles, backed by a shareholders’ agreement for whatever the articles cannot carry.
Creating a privilege by amendment requires the affirmative vote of shareholders representing at least 75 per cent of the capital, at first and every subsequent meeting (Article 421(3)(b)–(4)); a Ministry representative is not required for this item alone but usually attends because the same meeting resolves a capital increase. Registered shareholders who voted against the creation of privileges are released from transfer restrictions for six months (Article 421(6)), a rarely used but real exit for a dissenting founder.
Liquidation preference
A privilege in the liquidation share is expressly permitted. The articles provide that on liquidation, after creditors are paid, the holders of Group B shares receive, before any distribution to other groups, an amount equal to the issue price of their shares (with or without accrued dividends), and then participate pro rata or do not, depending on whether the deal is participating or non-participating. Turkish law has no objection to a non-participating 1x preference; multiples and participation are permitted as privileges but will be read strictly, and a preference that leaves nothing for common shareholders in any realistic scenario invites an Article 447 challenge as destroying the basic structure of the company. The practical complication is that most exits are share sales, not liquidations, and the articles cannot direct how a third-party buyer’s price is split among selling shareholders. The deemed liquidation mechanics that route sale proceeds through the preference therefore live in the shareholders’ agreement, typically as a waterfall clause combined with drag-along and a payment-direction undertaking. The articles carry the true liquidation preference; the SHA carries the exit waterfall.
Dividend preference and anti-dilution
A dividend privilege (a preferred or cumulative dividend to a group) is permitted and simple to draft, although venture deals rarely use it because Turkish startups do not distribute. Pre-emption privileges are also expressly permitted, and they are how weighted-average or full-ratchet anti-dilution is partly implemented: the articles can give a group a superior pre-emption right in future issues, but the price-adjustment formula that gives the investor extra shares for free on a down round cannot be a privilege, because Article 480 forbids the articles, save for the exceptions in the Code, from imposing any obligation on shareholders beyond paying the share price and premium, and Article 347 forbids issuing shares below nominal value. Anti-dilution in Türkiye is therefore a contractual promise by the founders to transfer shares or to procure a capital increase at nominal value in the investor’s favour, and it sits in the SHA. Our down-round note explains the mechanics.
Voting privileges and their limits
Article 479 permits voting privileges only by giving shares of equal nominal value different numbers of votes, capped at fifteen votes per share unless the commercial court grants an exemption for an institutionalisation project or a justified reason (Article 479(2)). Article 479(3) then switches privileged votes off for two categories of resolution: amendments to the articles, and release of directors and the bringing of liability claims. This matters for both sides. A founder group that wants to keep control after a round can hold multiple-vote shares, up to fifteen votes each, and will control ordinary business, but cannot use those votes to block or force an articles amendment; that contest is decided by capital. An investor whose “protective provisions” are drafted as voting privileges therefore gains nothing on the resolutions that matter most.
The right way to build investor veto rights in the articles is not a voting privilege but a group approval requirement: the articles list the reserved matters and provide that a resolution of the general assembly on any of them requires the affirmative vote of the majority (or all) of the Group B shares, or that a resolution of the board requires the vote of the Group B director. Turkish practice and the Ministry accept such clauses as heightened quorums permitted by Articles 418 and 421, provided they do not lower statutory quorums and do not remove non-transferable powers of the organs. The list of protective provisions should be specific: new share issues, changes to privileges, mergers and conversions, disposals of material assets, related-party transactions above a threshold, borrowing above a threshold, changes to the business, and liquidation.
Board representation
Article 360 allows the articles to grant particular share groups, shareholders forming a group by their characteristics, or the minority the right to be represented on the board, either by requiring that directors be elected from among them or by giving them a nomination right; the general assembly must elect the nominated candidate unless there is a just cause not to; in public companies the seats so reserved may not exceed half of the board, and Article 360(2) declares shares carrying such a right to be privileged shares. An investor board seat is therefore a privilege in the sense of Article 478 and is written into the articles under Article 360, with the group’s right to nominate and replace its director; the shareholders’ agreement adds the undertaking to vote for the nominee. A director so elected owes duties to the company under Article 369, not to the group, as we explained in the director liability article.
The special meeting of privileged shareholders
Once privileges exist, Article 454 protects them. A general-assembly resolution amending the articles, or authorising the board to increase capital, and a board resolution increasing capital, cannot be implemented if it would prejudice the rights of privileged shareholders unless approved at a special meeting of those shareholders. The board must convene the special meeting within one month of the announcement of the resolution; if it does not, each privileged shareholder may, within fifteen days after that period, apply to the commercial court of first instance at the company’s seat to have the meeting called. The special meeting convenes with the majority of at least 60 per cent of the privileged capital and resolves by majority of the shares represented; a Ministry representative attends (Article 454(3) and (6)); a refusal must be recorded in a reasoned minute delivered to the board within ten days and registered, failing which the special meeting is deemed not to have resolved. The Code itself offers the shortcut: if at the general assembly the holders of the privileged shares voted in favour of the amendment with the Article 454(3) meeting and decision quorums, no separate special meeting is held (Article 454(4)), and if the special meeting cannot convene despite being called, the general-assembly resolution is deemed approved (Article 454(5)). Two drafting responses follow. First, have the privileged group vote separately at the general assembly, with the group’s presence and vote minuted against the 60 per cent quorum, so that Article 454(4) applies. Second, when a second round creates a new privileged group, plan the Series A holders’ approval into the closing timetable rather than discover the requirement at the registry.
What goes where: a summary for the term sheet
Into the articles: share groups; liquidation preference on a true liquidation; dividend and pre-emption privileges; board nomination rights under Article 360; group approval requirements for reserved matters; transfer restrictions under Article 492; voting privileges if the founders want them, within Article 479. Into the shareholders’ agreement: the exit waterfall and deemed-liquidation mechanics; anti-dilution adjustments; drag-along and tag-along; founder vesting; information rights beyond the statutory minimum; and the undertaking to vote and to procure the corporate acts the articles require. Anything placed in the wrong document is either void (in the articles, under Articles 340 and 480) or unenforceable against the company and third parties (in the SHA). The map is the whole of Turkish venture drafting.
Can privileges be granted to a person rather than a share group?
No. Article 478 attaches privileges to shares. A right personal to a named investor belongs in the shareholders’ agreement. The workaround is a group of shares that only the investor holds, with the privilege lapsing if the shares pass outside a defined class of transferees.
Do privileged shares need a different nominal value?
No. Groups may have the same nominal value and differ only in the rights the articles attach; Article 479 in fact requires equal nominal value for voting privileges.
Can the founders’ multiple-vote shares be taken away later?
Only by an articles amendment that prejudices the founder group, which requires the 75 per cent capital majority and the founder group’s approval under Article 454, or by the court revoking an Article 479(2) exemption. Voting privileges are sticky by design; grant them deliberately.
Related: preferred stock · protective provisions · dual-class share structure · SHA anatomy.
Sources. Turkish Commercial Code No. 6102 (Articles 340, 347, 360, 369, 418, 421, 447, 454, 478–480, 492). 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.
