Turkey: Stages Of Share Transfer Deals

Share transfer deals in Turkey usually consist of the following stages:

I- Pre-negotiation
II- Due diligence
III- Initial Price Offer
IV- Negotiation and conclusion of agreements
V- Condition precedents
VI- Closing

This article aims to provide brief information on each stage.


The pre-negotiation stage is usually initiated by means of a letter of intent or a memorandum of understanding which briefly outlines the subject of the negotiations and sets out the intentions of the parties (also giving brief information about the prospective transactions and their stages). Sometimes, parties choose to incorporate some of the essential terms and conditions such as the prospective purchase price in the letter of intent.

The letter of intent is usually drafted as a non-binding legal instrument, meaning that the parties are not under the obligation to perform any of the transactions contemplated. However, the parties may give binding effect to some provisions such as obligation not to disclose the confidential information obtained at the pre-negotiation phase or not to negotiate with the third parties on the same matters for a certain period of time.

However, in any case, the parties will be legally liable for their faulty actions during the contract negotiations. Once negotiations begin, regardless the letter of intent being signed or not or having a binding effect or not, the parties will have "culpa in contrahendo" liabilities.


In most of share transfer deals, subsequent to the signing of the letter of intent and before the commencement of drafting of the transaction contracts; the buyer's consultants perform a due diligence investigation on the target company in order to determine whether there any risks attached to acquiring the shares of the target company.

The most common types of due diligence investigations are legal due diligence, financial due diligence and operational (or technical) due diligence.

Legal due diligences are very essential to acquisition transactions in Turkey. Based on the outcome of a legal due diligence investigation, it is often determined i) whether the target company is incorporated and operating in compliance with the applicable laws, ii) whether the target company is under any risks such as the risk of paying any debts, penalties, iii) whether the target company is subject to any legal proceedings and iv) whether there is any risk of having its operations shut down or suspended due non-failure to meet legal requirements, etc.

Due diligences are also important in respect of the seller's liability. The seller under Turkish law is not liable for the defects already known or that should be known to the buyer, as these defects would no longer qualify as "hidden defects". Therefore, if no due diligence investigation is conducted by the buyer or in case of improper due diligence, (except for the cases where the seller is at fault), the buyer would not be able to detect the defects that "would have been identified should the required prudence have been performed", so that the buyer – in theory - could be deprived from making any claims regarding such defects.

In legal due diligence investigations, the buyer usually reviews the corporate records, information as to operation, financial documents (loans, etc.), contracts, movable and immovable properties, intellectual property, governmental permits and approvals, legal proceedings and environmental matters concerning the target company.

Due diligence investigations are usually performed either physically at the premises of the target company and/or specific data room designated for the due diligence or electronically on a virtual data room.

The outcome of the due diligence investigations often enable the buyer to re-negotiate the purchase price or even re-consider whether to continue with the negotiations.

Usually, the outcome of the due diligence investigations are reflected in the representations and warranties section of the transaction documents.

To give an example, if it is determined that the target company is subject to certain legal proceedings, however the buyer still wishes to go ahead with the transaction despite of the existence of such proceedings; it is usually indicated in the main transaction document that the buyer warrants that the target company is not subject to any legal proceedings other than those determined/disclosed during the due diligence investigation.


With respect to the price offering, it is important to determine whether there is an offer or just an invitation for proposal.

According to the Turkish Code of Obligations ("TCO"), a proposal is an expression of will where the offering party offers the other party to conclude a contract. Two main features of an offer are i) the offering party being bound with its offer and ii) the contract to be concluded if and when the counter party accepts the offer. Therefore, a "proposal" must bear all the primary elements for a contract to be concluded. A price offer not worded correctly and lacking certain reservations would enable the other party to conclude a wrong contract with a simple affirmative answer. On the other hand, the party with the intention of making an offer must also assure that its offer contains all the correct essential elements to avoid the risk of encountering a claim that there is no valid offer, therefore there is no agreement at all.

In case of an "invitation for proposal", according to the TCO, if the party making the proposal explicitly states that it is not bound by its proposal, or if the intention of not being bound can be understood from the nature of the matter, the proposal will be an invitation, not an offer.


As part of the negotiation phase, the parties usually negotiate on and draft the transaction documents such purchase agreements, shareholding agreements and auxiliary transaction documents (e.g. loan agreement, pledge agreement, share escrow agreement, etc.)

The most important legal document within the context of share transfer transactions is the purchase agreement. Purchase agreements mostly consist of terms and conditions regarding the i) purchase price and payment methods, ii) conditions precedent, iii) representations and warranties of the seller, iv) closing, v) penalty/indemnification, vi) reps&wars of the buyer, vii) other obligations such as non-compete.

1- Purchase Price and Payment Methods: Parties usually decide on how the purchase price will be paid. Payment methods can vary. In some deals, purchase price is paid in full or in installments; whereas, in some deals, certain part of purchase price is paid and – as a security – the remaining is held in an escrow account to be released after the condition precedents are fulfilled (e.g. reaching the agreed amount of profit within the first year following the completion of the deal or certain risks are eliminated).

2- Conditions Precedent: In purchase agreements, the seller's obligation to transfer the shares and the buyer's obligation to pay the purchase price, can be subjected to either deferring and/or terminating conditions. In case of deferring conditions precedent, the seller and/or the buyer will not be obligated to fulfill any or some of their obligations until such conditions are met. Whereas, in case of terminating conditions, parties will fulfill their obligations, however consequences of those obligations will automatically cease if any of the terminating conditions occur.

Some of the frequently applied conditions precedent are as follows:

  • The General Assembly and/or the Board of Directors/Managers deciding on certain issues such as amending the articles of associations,
  • Obtaining administrative permits (e.g. Competition Authority) or third party consents,
  • Conduct of the financial, legal and operational due diligence investigations,
  • Completion of the required registrations with the trade registry,
  • Conclusion of ancillary agreements (e.g. shareholders agreements, escrow agreements, loan agreements, etc.),
  • Settlement of the target company's debts,
  • Target company's reaching a certain amount of profit,
  • Target company's shareholders' waiving their preemption rights.

3- Representations and Warranties of the Seller: The representation and warranties provisions in purchase agreements have two main purposes: i) to define the qualifications of the target company and ii) to determine the seller's liabilities in case the target company does not match such qualifications.

Qualifications of the target company are determined according to the outcome of due diligence investigations.

The risks which are found out or disclosed by the seller during the due diligence (e.g. existence of a certain ongoing legal proceeding) are usually explicitly indicated in the reps&wars clause as exceptions to the relevant warranted qualifications, if the seller wishes to go ahead with the transaction despite such risks anyway. Also, putting such exceptions in writing is also to the benefit of the seller as the buyer can no longer make any claims regarding such exceptions.

In other words, the seller minimizes the risk of not having disclosed certain facts (as exceptions) as a result of which the buyer can be entitled to seek damages for breach of warranty.

The difference between the qualifications which are represented and warranted by the seller in the purchase agreement and the qualifications which exist in reality after the transaction is completed, is legally defined as "defect" which may lead to the seller's liability pursuant to the TCO.

Generally, representations and warranties of the Seller include the following;

  • The seller and the target company are lawfully established and existing under the applicable laws. The seller is authorized to sign and perform the transaction documents and performance of the transaction does not conflict with any agreements to which the seller or the target company is party,
  • The seller has the authority to transfer the shares, such shares are not subject to any restrictions and there are no encumbrances on the shares.
  • The permits and approvals required for the target company to conduct its business validly exist without any dispute,
  • There are no undisclosed due or expected liabilities or debts of the target company,
  • Trademarks, patents and licenses of the target company are valid and undisputed,
  • All books and records of the target company exist and kept in compliance with the applicable laws,
  • There are no ongoing legal or administrative proceedings against the target company,
  • All material agreements/transactions of the target company are valid and are concluded and performed at arm's length basis,
  • All movable and immovable properties of the target company are in good order and there are no encumbrances on such properties.

4- Closing: Provisions of the purchase agreement regarding the closing phase outlines which actions will be taken and which transactions will be performed for the fulfillment of the obligations of the parties, after all the conditions precedent are met.

5- Representations and Warranties of the Buyer: Representations and warranties of the buyer are usually much less detailed compared to the representations and warranties of the seller.

The buyer usually only represents and warranties that it is lawfully established and existing under the applicable laws, it is authorized to sign and perform the transaction documents, performance of the transaction does not conflict with any agreements to which the buyer is party, etc.

6- Contractual Penalty: It is often seen in the share purchase agreements that parties agree on payment of a contractual penalty by the party failing to fulfill its obligations or violating any of the terms and conditions of the purchase agreement. To give an example, the seller may be required to pay a contractual penalty in case of breach of its representations and warranties or non-competition obligation.

According to the TCO, - as a rule - the grieved (non-breaching) party may claim either the performance of the obligation which is not fulfilled or the payment of the contractual penalty. In order to be able to claim both, an explicit provision must be included in the purchase agreement.

It is often stated in the purchase agreements that other obligations of the breaching party under the purchase agreement will not be effected from the payment of the contractual penalty.

As a rule, the non-breaching party is not under the obligation to prove any damage in order to claim payment of the contractual penalty.

7- Non-Compete Obligation: It is also seen in the purchase agreements (mostly in deals where entire shares of the target company are transferred) that the seller undertakes a non-competition obligation, which restrict the seller from competing with the target company whose shares have been acquired, for a certain period of time.

In the acquisitions where 100% of shares are transferred, the non-competition period can generally be determined as 2-3 years at maximum.


In share transfer deals, the seller's obligation to transfer the shares and the buyer's obligation to pay the purchase price, can be subjected to either deferring and/or terminating conditions. In certain deals, approvals or permits from the administrative authorities may be required in order to perform the acquisitions and/or certain regulatory actions may be required to be taken.


This is the stage where the parties actually perform their respective obligations upon satisfaction of the conditions precedent set forth in the purchase agreement.

In share deals, sellers usually physically deliver the shares to the buyer in this stage (unless there is a security mechanism or a deferring condition precedent, i.e., keeping the shares under the custody of an escrow agent until the purchase price is fully paid) and the buyer actually pays the purchase price in exchange for the delivery of the shares.

Usually, an acquisition is deemed to be finalized with the completion of the closing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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