• Republic of Turkey follows the continental European legal system. Legal infrastructure in corporate matters is mostly harmonized with the EU.
  • Capital is usually injected into start-up companies through preferred equity investments. Even in early rounds (yes, valuation is a problem). This is due to some technical difficulties in enforcing convertible instruments.
  • Major issue is the difficulty in designing the automatic conversion (same with most continental European systems- possible to implement but prohibitively expensive and burdensome in smaller deals). Thus, convertibles require a second action from the founders -upon maturity or at the time the triggering event occurs- for the closing.
  • Convertible instruments are not totally infeasible though, as the enforceability is supplemented by secondary contractual mechanisms such as contractual penalties and/or escrow mechanisms. However, these usually go against the general spirit of the simplified convertible instruments.
  • In preferred equity investments, investors purchase shares at the -agreed- market price, paying a premium over their nominal values. Target shareholding percentages are adjusted by changing the premium/nominal value ratio.
  • Most boilerplate-ish terms are at global standards (e.g. reps. and wars., RoFR, tag-along and drag-along rights, anti-dilution, control and voting rights, liquidation, dividend preferences etc.).
  • The general practice (>50%, <75%) is: (i) to get warranties from the founders as well as the company, (ii) to include a full-ratchet anti-dilution protection, (iii) to include a detailed list of veto rights -Turkish investors are keen on micromanaging their portfolio, which I don't support TBH-, (iv) a 2 years lock-up period, (v) a penalty of at least 1x of the investment upon violation of a material term.
  • There is a tax exemption of (potentially up to 75% or 100%) for the capital gains from the shares of joint stock companies held for 2 years before sold. Capital gains of a Turkish company from its foreign shareholding is also potentially exempt from corporate taxation.

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.